Mile High Trade


In tonight's sector trade, we’re talking about airlines. They've been in the news a lot lately, mostly due to stranded passengers and flight delays. With gas prices going higher and concern about consumer discretionary spending threatening this vacation season, will the airlines struggle to get their profits off the ground?

Today’s special guest is Maury Gallagher, the CEO of Allegiant Travel (ALGT), the parent company of the low-cost carrier Allegiant Air. Since the December IPO Allegiant shares are up nearly 24%.

Dylan asks why Allegiant is a good business

Mr. Gallagher says his company was built from a start-up to 26 planes and 460 million in revenue, and he’s focused on making money.

How? asks Dylan

Allegiant is very focused on generating enough revenue to make sure the company can cover costs, and concurrently its the lowest cost airline in the US. Also Allegiant flies into places where there isn’t a lot of competition. The combination makes for strong margins.

Jeff Macke nods in agreement.

Dylan asks if that’s the strategy, how big can the company get?

Mr. Gallagher says Allegiant is in 50 cities today and thinks he can double that number. (His theory is a lot of his competitors don’t like leisure traffic) Allegiant flies from small cities to world class leisure destination. (Think Fargo SD to Las Vegas)

Eric Bolling asks if the Allegiant hedges its fuel risk?

Gallagher says he does. And they hedge demand as they sell tickets. Allegiant operates at a 55% - 60% hedge near term.

Guy Adami says Allegiant is a good stock because they’re running a good airline and they are in smaller markets, which are undeserved.

Jeff Macke also likes this stock, because Allegiant is succeeding where the big guys have screwed up. And they seem like a natural to be swallowed by the big ones.

Eric Bolling feels differently. He says with gasoline prices rising he sees serious headwinds for Allegiant and doesn’t recommend owning this stock.


Questions? Comments?

Trader disclosure:
On MAR 14, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Bolling owns (PMI) Put Options, Gold, Silver, Soybeans,(DIS) is Short Corn Strazzini Owns (YHOO), (VZ), (BRCM)