Allegiant Travel Company ALGT trimmed its capacity growth forecast for the current year due to weakness in leisure demand during off-peak periods. The Las Vegas, NV-based low-cost carrier now expects capacity for 2025 to grow 13% year over year from 17% estimated previously. On a brighter note, management said that demand remains strong in the peak weeks of March.

Due to the softness in leisure air travel demand, witnessed in the shoulder period (a travel period between the peak and off-peak seasons), ALGT’s management expects total unit revenues or TRASM in the first quarter of 2025 to decline just more than 7% from the first-quarter 2024 actuals.

Cost performance is better than expected in the current quarter. ALGT has tightened its March quarter earnings guidance, now expecting consolidated EPS of approximately $1.50 per share compared with its previous range of $1.50-$1.75 per share.

ALGT’s Passenger Traffic Up 2.9% in February

Allegiant unveiled the above forecast while disclosing its February traffic report. Despite the weakness in leisure travel demand observed during off-peak periods, ALGT carried around 1.28 million passengers under its scheduled service in February, reflecting a 2.9% year-over-year increase.

Scheduled traffic (measured in revenue passenger miles) rose 4.7% from the February 2024 levels. Capacity (measured in available seat miles) for scheduled service jumped 10.7% year over year. Despite this growth in traffic, capacity expanded even more, which led to a decline in the load factor (% of seats filled by passengers) to 79.5% from 84% in February 2024.

Total departures (scheduled services) increased 9.7% in February 2025 from a year ago. For the total system (including scheduled service and fixed fee contract), capacity increased 10.6% in February 2025 on a year-over-year basis. The fuel price per gallon in February is estimated to be $2.70.

ALGT’s Impressive Performance

We believe that the weakness observed concerning leisure travel demand is a temporary phenomenon. The overall scenario about air travel demand remains impressive. Driven by upbeat air travel demand, ALGT shares have gained in double-digits over the past six months, outperforming the Zacks Transportation - Airline industry and fellow low-cost carriers Southwest Airlines LUV and JetBlue Airways JBLU.

Six-Month Price Performance

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Expansion Efforts Look Good

To meet the impressive air travel demand scenario, ALGT is focusing on adding new routes to broaden its network. To this end, the carrier announced late last year the addition of 44 new nonstop routes to its network. The expansion includes 11 routes to three new cities: Gulf Shores, Alabama, Colorado Springs, Colorado and Columbia, South Carolina.

The introduction of the flights, which started operating in February, has expanded the airline's network options in 51 cities around the United States. The pocket-friendly flights offer convenient air service to premier vacation destinations.

To meet the upbeat demand scenario, Allegiant has been constantly focusing on increasing and modernizing its fleet. ALGT’s fleet size at 2019-end was 91. Despite coronavirus-related woes, the fleet size increased to 95 in 2020. Fleet size expanded to 125 at 2024-end.

Allegiant Stock is Undervalued

ALGT looks highly attractive from a valuation standpoint. With a forward price-to-sales (P/S) ratio of 0.33, the stock trades at a significant discount to industry levels. The reading is also below its five-year average. ALGT has a Value Score of A.

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It Still Isn’t an Opportune Time to Buy ALGT Stock

Despite the above-mentioned tailwinds, there are a couple of factors that keep us cautiously optimistic. Allegiant is being hurt by rising operating expenses. The northward movement in labor expenses is hurting ALGT’s bottom line. Expenses on salaries and related costs were up 19% year over year in 2024.

With U.S. airlines grappling with labor shortage, the bargaining power of this group has naturally increased as air-travel demand is buoyant, having bounced back very strongly from the pandemic lows. This has resulted in an increase in labor deals being inked in the space recently, which, in turn, has contributed to the uptick in labor costs. ALGT too has also inked quite a few labor deals of late. For example, last year its flight attendants approved a five-year deal, which resulted in a significant increase in their pay.

We are also concerned about its high debt levels. The company’s long-term debt at 2025-end was $1.25 billion, up 29% from 2019 levels.

Long-Term Debt to Capitalization
Image Source: Zacks Investment Research

Given these challenges, buying the stock seems premature now. Instead, one should stay on the sidelines and wait for a better entry point.

ALGT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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