University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Allegiant Travel Company is a leisure travel company
Allegiant Travel Company is a relaxation travel organization concentrated on giving travel administrations and items to occupants of little, underserved urban areas in the United States. The Company works a traveler carrier showcased fundamentally to relaxation travelers in little urban communities, permitting it to offer air transportation both on a stand-alone foundation and packaged with the offer of air-related and outsider administrations and items. Furthermore, it provides air transportation under altered charge flying courses of action. The Company provides planned air transportation on restricted recurrence tenacious flights between little city markets and relaxation goals.
Since Allegiant offers fares that are low, strict costs controls tend to be mandatory to achieve the desired profit margins. One of the cost control measure used by Allegiant is the use of MD-80 jets. The MD-80 jets incline to be preferable to the airline is that, at a price of four million Dollars, they are cheap to buy as well as maintaining (Yenee, 2004). These plans tend to be cheaper in comparison to the acquisition of the newer planes such as the Boeing 737. Allegiant withal prefers the utilization of MD-80 because they are facile as well as frugal to refurbish.
The MD-80 agreeably is a dependable plane but with the emergence of the relatively better airplanes such as the Boeing 737, the MD-80 is becoming outdated day after day which why it makes much sense for Allegiant Air to acquire the better plane such as the Boeing 737. One of the key reasons as to why the Boeing 737 is superior to the MD-80 is that, the MD-80 carries with it the many nuisances in flights assessments of safety at times when there is increased concern regarding aircraft maintenance (Vasigh, 2012).
Back in the day when the McDonnell Douglas-80 came to be first used, it was fuel-efficient compared to other planes. Today, however, the MD-80 is considered a fuel hog airplane with regards to the developments that have emerged in fuel efficiency in the year 1980 when it was first built. In addition to this, companies that use the MD-80 airplanes such as Allegiant Air have to have the airplanes retrofitted to comply with the more modern noise rules as compared to the Boeing 737, which does not (Yenne, 2004).
One major reason the MD-80’s need a replacement by the Boeing 737 is the fuel efficiency. Airlines such as Allegiant, which tend to use the MD-80, suffer losses in fuel consumption of 25%-35% in comparison to the newer models of planes such as the Boeing 737. As crude oil prices play around $112 per barrel, it is clearer that the future for the MD-80’s is very limited. The latter also being based on the number of passengers that both MD-80 and the Boeing 737 take. The Boeing 737 can carry more passengers than the MD-80 by around 17 passengers. The 737 can take up to 189 passengers whereas the MD-80 can only take up to 172 passengers (Vasigh, 2012).
Operating economics is one of the major determiners of what type of plan is best used to increase the profit margins, but relatively hard to evaluate as it is in the case of the two airplanes in comparison here- The MD-80 and the Boeing 737. Some of the variables to look at including the potential that the airplanes in discussion have to give financially. The potential that it has in terms of revenue as well as the contribution towards profitability that the two planes have to give should also consider. Flights’ crew expenses as well as the costs of fuel present a significant portion of total operating costs. The 737 with a better fuel economy and passenger comfort is the better option over the MD-80 to affect exogenous variables such as the customer preference so as to increase the profit margins.
One of the aspects that the Allegiant should consider is the aspect of shifting from buying one plane for $5 million to buy $40 million to save about 30%-40% fuel costs. Looking at this from a short run perspective, it might not look akin to a very good conception but calculating these from a long run viewpoint (Vasigh, 2012). It is clear that the 737 is a better option. The latter is based on the fact the savings on fuel in the end outshine the $35 million of purchasing a 737 over the MD-80. Other monetary reasons as to why the MD-80 should be traded for the Boeing 737 is that the counts of cycle on the MD-80 frame in terms of depreciation. The MD-80 depreciates more than the 737 and it has to pay higher landing fees due to its noisy JT8D engine.
Vasigh, B., Taleghani, R., & Jenkins, D. (2012). Aircraft finance: Strategies for managing capital costs in a turbulent industry. Ft. Lauderdale, FL: J. Ross Pub.
Yenne, B. (2004). Classic American airliners. Osceola, Wis: MBI.