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Macro Environment Analysis of Allegiant Travel (ALGT)

Demographic:
The increasing numbers of people entering retirement is great news for companies such as Allegiant Travel who services are geared towards leisure travelers. The retired population generally has more flexible schedules and free time for leisure travel. The restaurant industry has known for years that the retired population will adjust their schedules just to save a buck. Look at the success of “early bird specials” all across the country. Allegiant Travel can capitalize on this population’s flexible schedules and interest in finding the best price. Twenty-one percent of leisure travelers were born before 1946 and of this group it is estimated that they each take 4.1 trips per year. In addition, older baby boomers born between 1946-1954 makeups another 15 percent of the leisure travel population. As the U.S. population continues to age and the retired population grows it can be expected that the demand for inexpensive leisure travel will also increase.

Economic:
The economy plays an important role in the health of all companies and very few can say that these last 5 years have been easy. American’s are found to be thriftier now than 5 years ago thanks to the economic recession. In general, the nature of spending has changed in America. A report by Fidelity investments show that personal debt is down and investments are up. This shows that the population on a whole is examining their purchases more closely than they did before the recession. The focus on cutting costs during these uncertain economic times has led to Allegiant Travel’s success over the past 5 years when other airlines were losing money. They have focused on keeping costs down and providing their services at the lowest price point. This focus on innovation and being a price leader has provided Allegiant Travel with a strategic advantage over other larger carriers. Although in most sectors the larger the company the lower the costs due to economies of scale, this is not the case in the airline business.

Socio Cultural:
The travel industry groups travelers into one of two categories either leisure or business. Each type of traveler has very unique needs and different goals in mind apart from the desire to have a safe enjoyable flight experience. It is estimated that leisure travelers account for 3/ 4 of all domestic trips taken in 2011. The regular business traveler is interested in consistent schedules and enjoys the perks of earning points whereas leisure travelers only books a few trips per year and are willing to give up points to secure a lower price. This is the market that Allegiant Travel is focused towards as they are the low cost leader who runs variable schedules throughout the season to ensure flights are always running to their fullest capacity.

Political-Regulatory:
Airlines operating within the United States are regulated by the Federal Aviation Administration (FAA). The FAA is an agency of the United States Department of Transportation who regulates civil aviation within the U.S. The Homeland Security Agency also plays an active role in airline travel interacting directly with all passengers prior to boarding the aircraft. The added security precautions mandatory for travelers since 9/11 can be a major factor behind the increased frustrations voiced by travelers. The U.S. Travel Association’s study in 2008 showed that travelers avoided approximately 41 million trips within a 12 month period due to perceived air travel hassle. Although airlines such as Allegiant Travel do not have control over how Homeland Security does their job they are able to lobby for more efficient airport security which can in turn help increase their profits.

Environment:
The rise in environmental consciousness impacts traveler’s decision making. More than 79% of U.S. adults claim to be environmentally-conscious and familiar with carbon footprints and global warming. Although travelers are starting to be more conscientious of their decision making and its impact on the environment they are not yet willing to pay a premium for environmentally-friendly service providers. The current determination is that in general, driving is more eco-friendly (measuring greenhouse gases) compared to flying. Although gas prices averaged at $3.78 a gallon many travelers may find it cheaper to fly than drive and stay in a hotel. The addition of saving time may also help convince environmentally-conscious travelers to fly rather than drive cross country.

Technology:
The increase of access to information through the internet over the years has created savvy shoppers who can compare dozens of prices quickly online and has created more focus on price competition. The internet has also decreased the dependency on traveler’s utilizing travel agencies to arrange travel as they feel more comfortable booking directly online. This puts Allegiant Travel at an advantage as they are able to offer competitive prices through booking directly with the customers and avoiding any middle men such as websites like Expedia.com or Yahoo.com.

In conclusion, Allegiant Travel is a solid company that is strategically positioned to thrive in any environment. They have shown their agility in changing with the market demand over the past six years. Allegiant Travels focus on servicing the price conscious traveler seems to be a smart approach as they understand that consumers are still hesitant with their spending even as the economy is improving. The expected increase to the retired population in the coming years will also bode well for Allegiant Travel. As long as Allegiant Travel continues to focus on strategic growth that will allow them to move quickly when they see an opportunity or threat coming their way they are set for a successful future.

Daniel Prince resides in his hometown of Manchester, TN to further focus on his entrepreneurial studies. Daniel is a serial entrepreneur and is also currently enrolled in the Master’s of Entrepreneurship Degree Program at Western Carolina University. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author’s information, and any links remain intact. Copyright 2013 by Daniel A. Prince.