Allegiant Air CEO defends new Boeing 737 MAX order - Reuters

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The first Boeing 737 MAX 7 is unveiled in Renton, Washington, U.S. February 5, 2018. REUTERS/Jason Redmond/File Photo

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SEATTLE/CHICAGO, Jan 6 (Reuters) - Allegiant Air executives held an investor call on Thursday to assuage fears that adding 50 new Boeing Co (BA.N) 737 MAX jets to its fleet of used Airbus jets would be too costly.

"We are still a used-airplane company. We are still an Airbus company," Allegiant CEO Maury Gallagher told investors.

Allegiant's shares fell more than 8% on Wednesday after the company confirmed plans, first reported by Reuters, to buy 737 MAX 7 and 737 MAX 8-200 jets. Shares were up about 2% on Thursday.

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Gallagher said the prospect of running a fleet of more than 100 used planes was no longer tenable as the ultra-low-cost carrier aims to add more than 400 routes and seize on post-pandemic leisure travel demand.

"No airline in the world is run that way - you just can't do it," he added.

Allegiant's expansion is the latest sign of growth among ultra-low-cost carriers that combine rock-bottom fares with optional charges. Such carriers are expected to emerge in a position of relative strength from the COVID-19 pandemic.

An Allegiant executive later said the carrier's "bias" would be to finance and own the Boeing aircraft, which they said support its low-cost and low-utilization model.

Allegiant said it has the financial ability to make the deal and recently raised money to support its plans.

The order marks a stark change of approach by the fast-growing domestic carrier, which had previously relied mainly on used Airbus aircraft.

It has some 50 aircraft – 20 A320s and 30 A319s - it may need to retire over the coming decade, its chief financial officer said on Wednesday.

The Las Vegas-based carrier will buy 30 737 MAX 7 aircraft and 20 737 MAX 8-200 aircraft, making it the launch customer for that larger variant in the United States.

It will take delivery of 10 of the jets in 2023, 24 in 2024, and 16 in 2025, the carrier said.

The deal is a boost for Boeing Co after two key medium-haul customers, Qantas (QAN.AX) and several affiliates of Air France-KLM (AIRF.PA), switched to Airbus (AIRF.PA) in December.

Allegiant reiterated on Thursday that the jets would add seating capacity and 20% fuel savings compared to its older Airbus aircraft.

But some analysts warned that the new planes could undermine Allegiant's cost advantage as differential or mixed fleets tend to result in significant operating costs.

Allegiant has until now relied mainly on cheaper second-hand planes to reduce costs - a strategy that allows it to use jets less intensively and attack thinly populated routes, with some planes flying no more than twice a week, according to Jefferies.

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Reporting by Eric M. Johnson in Seattle and Rajesh Kumar Singh in Chicago; Editing by Elaine Hardcastle and Mark Porter

Our Standards: The Thomson Reuters Trust Principles.

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