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What's Behind the 3.1% Dip in Allegiant Travel (ALGT) Stock?

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Shares of Allegiant Travel Company (ALGT - Free Report) — the parent company of Allegiant Airlines — declined 3.1% on Apr 16, closing the trading session at $146.40. A television program aired on Apr 15 highlighting the multiple mechanical problems on Allegiant’s flights, contributed to this sharp decline. Earlier, the Allegiant stock had slipped further to the tune of 8.6% on Apr 13, following reports that the show will be telecast in two days’ time.

The Damaging Report

CBS News' report, "60 Minutes", painted a gloomy picture of the airlines, alleging that it was facing a number of safety-related issues. The report further stated that the poor safety standard was responsible for around 100 serious mechanical incidents in the January 2016-October 2017 time frame.  

Per the report, this Zacks Rank #4 (Sell) carrier’s operations have been crippled by multiple aborted takeoffs, in-flight mechanical problems and emergency landings in recent times owing to the below-par safety standards. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Naturally, 60 Minutes has invited attention from law makers who called for an enquiry regarding the system failures. The report also showed the U.S. Federal Aviation Administration (FAA) in poor light, alleging that the long-standing mechanical issues at Allegiant persisted due to FAA’s slackness.

However, Allegiant has vehemently denied the allegations, attaching various adjectives like “unoriginal, "outdated" and “false narrative”. The FAA has also stated that it does not compromise with safety issues and has welcomed an enquiry.

Despite the denials, we believe that Allegiant’s passenger traffic will reduce at least in the short term. This is because passengers might be skeptical to fly on Allegiant, unless a report emerges clearing the carrier of the allegations.

Allegiant apart, issues related to customer service have hurt airlines like United Continental Holdings, Inc. (UAL - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) and Alaska Air Group (ALK - Free Report) in recent times.

Unimpressive Price Performance

We note that the Allegiant stock has performed disappointingly even before the damaging report went public. Notably, the stock has declined 16.9% in the past month.

In fact, until clarity on the above issue is obtained, shares of this low-cost carrier might continue declining in the coming days.  

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