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Allegiant Air, Las Vegas-Based Airline, Makes Ticket Prices A Gamble

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Under a ticket-pricing plan devised by Las-Vegas based Allegiant Air, travelers will be given a choice of buying higher-cost flat rate tickets or gambling on the fluxuations of the fuel market. In exchange for assuming any burden if fuel prices surge, passengers on the way to Sin City would be allowed to roll the dice.

The plan, outlined for Bloomberg Businessweek by Allegiant CEO Maurice Gallagher Jr., may sound like the latest attempt to add to the ever lengthening laundry list of charges -- Ryanair, an Allegiant investor, has suggested bathroom use fees -- levied by airlines, but it also might provide leisure travelers with a way to directly purchase convenience.

Gallagher's idea is suited to his airline, which tends to operate out of secondary airports and serves mostly non-business fliers. Leisure travelers tend to book further ahead, which means that they represent more risk for the airlines due to the instability of fuel prices. A profitably sold ticket in September may be unprofitable by the time the plane leaves the ground in November.

Gallagher's idea, as he puts it, is to keep airlines from "being in the fuel business."

This surely works for Allegiant, which mitigates its risk and wouldn't have proposed the radical strategy if fuel prices were trending down. In order for the plan to work, it will have to benefit customers as well. Rather shockingly, it might.

The Las Vegas Review-Journal reported earlier this fall that Allegiant Air has historically cut seat supply by eliminating flights in order to boost fares when fuel prices rise and profitability falls. This summer, when fuel prices fell, this meant customers had a host of convenient options. Now that prices are on the rise, it means fewer flights and travelers making more compromises.

The fuel charge, it turns out, is only a fuel charge from the airline's perspective. From the flier's point of view, it is more of a convenience tax. No one loves taxes, but the gamble is -- at least on some level -- a win-win. Fliers who purchase low cost tickets and assume risk will end up purchasing convenience even if they end up paying slightly more than the fixed price.

A parallel scenario might be playing low stakes blackjack in order to gain access to free drinks.

The main hitch in the plan is that the Department of Transportation's new consumer protection rules, enacted in April, don't allow for price increases past the point of sale. Hopefully the DoT makes an exception in the case of Allegiant. The worst possible outcome is that what happens in Vegas stays in Vegas. And there is always the chance the gamble pays off.

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