Allegiant's Struggling Resort Hotel
The company had big plans for its foray into the hotel business. But its property opened late last year, and it's not going well.
Dear readers,
To the subscribers who told me that Allegiant should not enter the hotel business (you know who you are) you probably can safely say, 'I told you so.' The company’s sprawling Las Vegas-style resort in Southwest Florida, called Sunseeker, is a drag on earnings, and it's not clear when it will improve.
We saw it in the first quarter. Allegiant, which often makes a solid profit in winter by taking people from colder climates to sunny destinations, had (by its standards) a crummy start to 2024, losing a little less than $1 million on revenues of $656.4 million. A year earlier, the company reported first quarter net income of $56.1 million on similar revenues.
Allegiant had a few airline-related stumbles, including lower utilization than it had planned, issues with a new Navitaire system, and Boeing delivery delays. But the bigger problem is the hotel. It opened in mid-December, after four years of construction, and business is slow. While the airline posted about $24 million in operating income in the first quarter, the resort reported an operating loss of $8.8 million, on revenues of $23.9 million. Occupancy was roughly 40 percent at an average nightly rate of $330.
We might blame that on early jitters, except for the guidance the company shared last week. Allegiant predicts a hotel EBITDA of -$15 million for the full year, with occupancy of 45 percent and an average room rate of $320. Add in depreciation expense ($25 million) and interest expense ($20 million), and the resort is going to significantly hurt earnings.
But it is worse than that, because Allegiant apparently saw none of this coming. In February, Allegiant's guidance suggested Sunseeker would have EBITDA of up to $15 million (yes, that’s a $30 million swing in projected EBITDA), with the resort running at 60 percent occupancy with a $350 average room rate.
How’d it get the projections so wrong?