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Passengers groan, but Wall Street applauds Allegiant’s bag fee

Airline passengers may groan at yet another airline fee — in this case, Allegiant Travel Co.’s new charge to place bags in overhead bins — but Wall Street unabashedly applauds.

In a research report Wednesday, Wolfe Trahan analyst Hunter Keay called the move “a big positive” for the parent of Las Vegas-based Allegiant Air in a research report. He views the move as another step in airlines shifting from a buffet to an a la carte pricing structure, “and investors can thank high fuel prices for the positive changes.”

Not only does the fee generate more revenue, Keay said, it will prompt passengers to pack lighter and result in planes burning less fuel. He estimates that 60 percent of passengers take two carryon items, but that will drop by half as a result of the fee.

Under the policy implemented Tuesday night, Allegiant will allow people to take whatever they can put under the seat in front of them for free but charge from $10 to $35 for taking bin space.

Keay now estimates this will annually add 56 cents a share to earnings he earlier pegged at $3.76 per share for 2012.

Analyst James Parker of Raymond, James & Associates cited the bag fee as a reason to upgrade Allegiant from “market perform” to “outperform.” He predicts the fee will boost profits by 50 cents a share.

Contact reporter Tim O’Reiley at
toreiley@reviewjournal.com or 702-387-5290.

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