Was Building The Sunseeker Hotel The Craziest Thing Allegiant Air Ever Did?

Watching a budget airline open a sprawling 785-room luxury resort is not something we witness every day. Allegiant’s Sunseeker resort in Charlotte Harbor, FL, has 20 restaurants and bars, two swimming pools, a spa and salon, a golf course… the list goes on.

This is luxury by anyone’s standards, but the move has been a headache for the airline for more than five years now.

Originally announced in 2018, the property was supposed to be opened in 2020. Having survived COVID, hurricanes, and budget issues, the hotel finally opened in December last year.

When Allegiant released its earnings for the first quarter of 2024 in early May, it became clear just how much of a burden this investment has been on the carrier.

How much has it cost the airline so far?

Allegiant bought the parcel of land for Sunseeker in 2018 at a cost of $30 million – a substantial investment but less than the price of a new Airbus A320. Initially the company expected to spend around $500 million to build the property.

When COVID hit, the airline was forced to suspend work on the property for 15 months. By March 2022, it had already spent $275 million on construction and was warning investors that the final price would likely exceed $600 million.

Following the opening of the resort, the final price of the building pegged in at $720 million, more than $200 million more than originally forecast.

Part of this was down to the COVID pause and subsequent supply chain issues that hampered construction of all shapes and sizes. The resort was also hit by Hurricane Ian in 2022, causing $35 million in damages. Some of this is recoverable through insurance.

But is it making any money?

As pointed out by the Airline Observer, Allegiant’s Q1 earnings are usually pretty good, given its focus on serving leisure travelers heading to sunny markets. But this quarter, the airline lost almost $1 million on revenues of $656 million; last year it made over $56 million on the same sort of revenue.

Not all of this loss was hotel-related. The company expected its first 737 MAX to enter service in the first half of this year and to have six of the type by the end of H1. But given Boeing’s current issues, Allegiant now doesn’t expect any MAX at all until the second half of the year.

Photo: Allegiant Air

Supply chain issues, staffing problems, and lower utilization than planned all contributed to the loss. But by far, Allegiant’s biggest ball and chain was its Sunseeker resort, which posted an operating loss of $8.8 million on revenue of $23.9 million.

According to Allegiant’s CMO ​​Scott DeAngelo, bookings in December averaged 140 room nights booked per day. By March, this had risen to 265 room nights booked per day. Although the airline is pushing for convention bookings to shore up Sunseeker’s earnings, Micah Richins, President of the resort, noted the challenge required to get all the rooms filled,

“Right now, at 785 keys, we have a short-term excess room capacity challenge with the associated cost structures. As with any new venture, particularly one of this scale, it will take time and significant effort to rectify.”

For 2024, the airline expects the resort to make a loss of around $15 million, based on 45% occupancy at an average room rate of $320. Just a few months ago, Allegiant pegged Sunseeker’s performance at up to $15 million profit in 2024, suggesting it didn’t see these losses coming.

Photo: Sunseeker Resorts

Following a precedent

Allegiant isn’t the first airline to build a hotel, not by a long shot. Back in the 1940s, Pan Am sought to build, operate, and manage a global portfolio of hotels in a bid to provide travelers with end-to-end holiday experiences.

That endeavor led to the formation of InterContinental Hotels, which Pan Am owned 100%. However, as the airline fell into financial troubles in the 1980s, it sold its hotel business.

Many other airlines have ventured into the hospitality space, both in terms of building their own hotels and acquiring existing businesses. Air France set up Le Meridien, now owned by Marriott. Swissotel was set up by Swissair in 1981, in partnership with Nestle, but was sold to Raffles in 2001 and later to Accor.

Photo: The Roosevelt Hotel

Probably the most unlikely pairing is Pakistan International Airlines (PIA). Having been cash-strapped for decades, it is a wonder why it still holds on to two of the world’s most iconic landmarks: the Roosevelt Hotel in New York and the Sofitel Le Scribe Paris Opéra.

Many other airlines have or continue to own stakes in hotel portfolios; some, like Qatar Airways, are expanding in this niche. But low cost carriers tend not to invest in bricks-and-mortar, preferring instead to stick to their business models of getting from A to B in the most efficient way possible.

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Can Allegiant weather the burden of Sunseeker?

For a budget airline, heading off millions in losses from a venture that was supposed to bolster its earnings is not going to be easy to stomach. All airlines fly on wafer thin profit margins, low-costs even moreso, so anything that drags profitability down will be a very unwelcome visitor in the boardroom.

Nevertheless, Allegiant is upbeat on the future of Sunseeker. CEO Maury Gallagher noted that opening in December was not ideal – a decision driven by supply chain issues, not business. He added,

“We are excited to finally have this world class destination resort open and operating. Initial reviews are all exceptional on the reviews are all exceptional on the quality of the personnel, the product and in particular, to the quality of the cuisine.

“Like all new projects, however, there is a run-in time.“

Allegiant admits that, while its airline problems will mostly be addressed this year, Sunseeker remains an ongoing project into 2025 and beyond. Whether it will be able to turn it into a profitable venture remains to be seen.

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Do you think low-cost airlines can make headway into the luxury hotel business? Let us know your thoughts in the comments.