Archive for the 'Virgin America' Category

Virgin Records Another Annual Loss, But 4Q Numbers Have Some Positive Signs

Published
by
Dan Webb
on May 11, 2012
in Virgin America
. 0 Comments

Virgin America released its fourth quarter and full-year 2011 results last week, and I finally got a chance to soak with all the numbers. The carrier reported a full-year net loss of $100.4 million, larger than the $68.7 million loss in 2010. Net margin was -9.7%, a bit worse than the -9.5% result in 2010. Not good.

But the results for the fourth quarter, however, had some decent signs.

First, the airline’s operating margin improved by 3 points, to -2.9%. The improvement was even greater when adjusted for unrealized gains/losses on fuel hedges: 7.2 points higher, to -2.8%.

Virgin’s net profit margin in the fourth quarter was -11.1%. While that’s a disappointing result, it is a 2 point improvement from the same quarter a year ago. It’s also an improvement from the third quarter of 2011, where net margin had declined 4.8 points year-over-year.

Things looked pretty good on the unit revenue side as well, as total revenue per available seat mile rose 12.2% year-over-year. As shown below, that result was better than most other airlines (those numbers are consolidated when applicable, and the Southwest comparison includes AirTran).

Spirit clearly was the best of the bunch in this area, but a 7% decline in stage length did help as well. Virgin also noted that RASM in mature markets (open for 12 months or more before 4Q2010) saw RASM growth of 18%.

On the cost side, Virgin saw its CASM ex-fuel decrease by 3.4% year-over-year in the fourth quarter to 6.55 cents. It’s nice to see a decrease there, especially since CASM ex-fuel increased during every other quarter.

So, while it’s disappointing to see another annual loss from Virgin, the end of the year at least had some promising signs. The question, of course, is how 2012 develops for the carrier. There’s some other interesting stuff going on with Virgin’s financials, and I’m hoping I can write more once I get some more time with the numbers.

Looking Through the DCA Beyond-Perimeter Slot Exemption Comments

Published
by
Dan Webb
on March 28, 2012
in Southwest and Virgin America
. 0 Comments

Yesterday, comments were due for the beyond-perimeter slot exemptions up for grabs at Washginton-National, and boy there were plenty for them. Seven airlines (Air Canada, Alaska, Frontier, JetBlue, Southwest, Sun Country, Virgin America) are competing for the eight exemptions (enough for four roundtrips), so a large volume of comments from airlines and other interested parties is to be expected.

I haven’t finished looking through all of the comments yet, but Southwest’s response was one of the first I went through. The airline, which is seeking to fly to Austin, argued that there were “serious flaws” with Virgin America’s proposal. “Despite its claims about disciplining pricing in the DCA-SFO market, Virgin America has had little to no effect on United’s fares in both the IAD-SFO and IAD-LAX markets,” the airline argued. I’ve been meaning to take a closer look at some of Virgin’s transcon markets for a while, so I figured now might as well be the time.

Southwest included the following graphs to support its claim:

I found it interesting that Southwest just focused on data from a few years ago, so I decided to do some of my own digging into the DOT database. I looked at United itineraries that listed Dulles as an origin or a destination.  Meanwhile, I excluded itineraries with bulk fares, fares that the DOT considers non-credible, and those with a change in ticketing carrier. I also excluded fares under $30 in an attempt to weed out free tickets that are mainly composed of taxes and fees. I also decided that I should compare all of my results to the first quarter of 2007, since the first quarter of 2008 was the first full quarter with Virgin service to both Los Angeles and San Francisco.

When compared to all United’s (domestic) results over the past few years to the first quarter of 2007, it appears that Virgin has indeed has an effect on United’s traffic and fares in the Los Angeles and San Francisco markets. Passenger numbers have not declined as they have in all markets, and fares have not seen a large increase:

Looking at Virgin America’s On-Time Performance in January

Published
by
Dan Webb
on March 19, 2012
in Virgin America
. 2 Comments

The Airline Industry Examiner noted last week that Virgin America made its debut in the DOT’s Air Travel Consumer Report, which tracks on-time performance (and other metrics) important to air travelers. Carrier’s with at least 1% of domestic scheduled revenue are required to report their on-time numbers, and Virgin has now reached that threshold.

The report last week contained the on-time results for January, and 82.4% of Virgin’s domestic flights arrived on time, slightly below the 83.7% result for all carriers that report. But a further examination of the data reveals some more interesting results. Let’s take a look at Virgin’s on-time performance by day:

As one can easily see in the above graph, on some days Virgin has wonderful on-time numbers. In fact, for 16 of the 31 days in January, the airline had on-time arrival rates of 90% or more. But when the numbers are bad, they’re bad. It’s worth noting, however, that much of that performance can be attributed to poor weather conditions in San Francisco. For example, here’s a METAR from January 23, one of the worst days, and it looks like the conditions weren’t the greatest:

KSFO 231649Z 26017G26KT 1 3/4SM R28R/5500VP6000FT -RA BR FEW002 OVC008 11/09 A2982

After a look at Virgin’s first set of public on-time numbers, one can conclude that the airline (generally) runs a great operation when the weather isn’t a factor. Unfortunately, however, Virgin is quite susceptible to delays at San Francisco, its biggest station.

Overall, January was a great month for the industry as a whole. The BTS noted that the 83.4% on-time arrival percentage was the best for any January, and the cancellation rate was the lowest in eighteen years. A lot of that is probably thanks to pretty tame winter weather during the month. The only particularly bad storm I can remember during that time period is the ice storm that hit Seattle.

Edited at 9:00pm on 3/19 to fix graph title, which had inadvertently been labeled as January 2011.

Virgin America Tried to Get Into Newark, But Couldn’t Get the Slots

Published
by
Dan Webb
on March 12, 2012
in Virgin America
. 5 Comments

Virgin America has been trying to gain access to the slot-controlled Newark airport has seen no “encouraging signs,” according to CEO David Cush in an interview.

Cush said the airline had been working on gaining access “before we decided to fly to Philadelphia. He added, “we were working closely with the FAA, they were doing what they could, but very simply their hands are tied also by the slot language.”

The airline also attempted to obtain slots through the “open market and tried to buy slots in many different places and either were turned down by the carriers holding the slots or outbid by United.”

“I’m hopeful that at some point, especially as we start getting more RNP approaches into New York’s airports as is mandated by the FAA reauthorization bill, that’s going to open some airspace and will allow us to get in,” Cush added.

Virgin has shown an interest in Newark for awhile. When I interviewed David in October 2010, for example, he wasn’t pleased with the deal where Newark slots were divested to Southwest to address competitive concerns raise by the government over the Continental/United merger, saying, “We would’ve put in flights to LAX and to San Francisco where it would cause the most competitive harm to United now.

“it’s just outrageous that the government allowed that to happen number one, and number two allowed Continental to chose who they were going to compete against. That’s not the way competition policy is supposed to work,” Cush added then.

Virgin Adds PHL

Published
by
Dan Webb
on January 18, 2012
in Virgin America
. 2 Comments

After teasing everyone with six possible destinations, Virgin America has officially announced that its seventeenth destination will be Philadelphia. This spring the San Francisco-based airline will bring three daily flights to Los Angeles and two to San Francisco (the Airline Route blog breaks down the schedule).

As I wrote earlier this week, I really like this move. I think Virgin’s superior onboard product is most “valuable” (for lack of a better word) to travelers on long-haul flights, and Philadelphia fits the bill. Plus, I think adding another major East Coast destination will help the airline increase its relevance to West Coast (business) travelers.

It will be interesting to see how the competition reacts on this one. Naturally, one would expect US Airways to be a strong competitor on both routes, and the same goes for United on the San Francisco route (the airline recently cut its service between LAX and PHL). I’m most interested in Delta, which added a few weekly flights between Los Angeles and Philadelphia in October. It will be interesting to see how Virgin’s entry will affect Delta’s presence in the market (if at all).

Virgin also included a couple of interesting data points in its press release:

Virgin America will bring much needed nonstop competition from California’s largest airports to PHL….When entering markets that offer little low–fare competition, Virgin America has historically seen fares drop by up to one–third. In addition, 50 percent of travelers flying from PHL to the Los Angeles market now use connecting flights and 45 percent of those traveling from PHL to the San Francisco Bay Area are connecting passengers.

With those statistics in mind, it will be fun to watch to see how much Virgin can stimulate demand in these markets with lower fares, but also affect the mix of connecting vs. nonstop passengers. It also makes me wonder how Virgin’s entry has affected that mix with some of its other market entries — which is hopefully something I can examine at some point in the future.

Guessing Where Virgin America Flies Next

Published
by
Dan Webb
on January 16, 2012
in Virgin America
. 5 Comments

Virgin America is nearly set to announce its seventeenth destination, and the airline has revealed six possibilities:

I’ve been thinking about these and taking a guess is pretty tough, mainly because I think Virgin will serve nearly all of these cities at some point.  I went back to my interview with CEO David Cush from a few months ago and that helped me narrow it down:

“Our strong sense is we’ll add one major East Coast business market next year, and then we’ll see what else happens,” David continued. “I would guess you may see one or two destinations in addition to a major East Coast business destination.”

While things certainly may have changed since then, that comment would narrow it down to Newark, Atlanta, and Philadelphia. While I think Newark is the destination that Virgin wants to serve the most, I don’t think it’s going to happen this time around. Slots at the airport have so far proven to be elusive for the airline, which recently tried to convince the government that it should receive Newark slots as part of the divestitures in the slot swap. Unless a deal has been struck recently, the new destination probably isn’t Newark.

Atlanta also seems like a good fit for Virgin, but I don’t think it’s likely to be announced tomorrow. While this situation might be a little different, I keep thinking back to how JetBlue wasn’t able to make Atlanta work a few years ago. Plus, there’s already a low-cost presence courtesy of Southwest/AirTran, and I’m sure Delta would be a strong competitor as well.

That leaves Philadelphia, which makes the most sense to me. It fits the major East Coast market label and has no competition from low-cost carriers. Plus, the Virgin product looks great compared to US Airways, which decided to remove IFE from its domestic fleet a few years ago. (It’s worth noting, though, that US Airways’ A321s have Gogo.)

But while I think Philadelphia is the most likely choice, I definitely think Newark, Houston, Atlanta, and Phoenix all have a good chance of seeing Virgin service sometime in the next few years. Bozeman has me scratching my head a bit. I suppose it’s a possibility, but it doesn’t seem like a top priority to me. (I could be proven wrong, though!)

Virgin America Posts Opearting Profit in Third Quarter

Published
by
Dan Webb
on December 21, 2011
in Virgin America
. 1 Comment

Virgin America earned a $16.2 million operating profit in the third quarter of this year, but swung to a net loss of $3.3 million during the quarter, down from a $7.5 million net profit in the same quarter last year. Operating margin slipped 4.8 points year-over-year, to 5.6%.

“Although higher oil costs weighed on our overall financial performance for the quarter, as a young airline still fueling growth, we’re pleased to see continued strong revenue performance and to have achieved an operating profit for the quarter,” said CEO David Cush in a press release.

Virgin’s operating cost per available seat mile grew 14.6% year-over-year during the quarter. Much of this increase was attributable to fuel costs, as fuel cost per gallon rose 42.5% year-over-year, to $3.25. Unit costs excluding fuel rose 2.1% year-over-year, an improvement over the 8.2% increase the company reported in the second quarter. Total operating expenses rose 51.5% year-over-year to $274.4 million. Total operating revenue rose slower, 43.8% year-over-year, to $290.6 million.

Total unit revenue, meanwhile, rose 8.8% year-over-year. Virgin noted, however, that “RASM in the carrier’s established markets improved by 17 percent year-over-year.” That measure excludes routes added within the past year.

It’s a bit concerning to see that Virgin couldn’t pull off a net profit in the third quarter, and obviously the airline needs to take more steps to become (sustainably) profitable. But the big story today is cash. Virgin said that at the end of the third quarter it had “$24 million in unrestricted cash and $42 million in total liquidity,” down from $26 million in cash and $53 million in liquidity at the end of the second quarter. That decrease isn’t great, but Virgin has now taken some big steps to boost cash and finance it upcoming deliveries:

Today, Virgin America also reports it has raised an additional $150 million in a new four and a half year debt facility funded in December, further improving the Company’s cash position. The Company has also obtained lease financing commitments for 13 Airbus A320 Family aircraft slated for delivery between October 2011 and September 2013. In addition, the Company has closed on a financing facility for the majority of its pre-delivery payment obligations (“PDPs”) due on the first 20 aircraft within its order of 60 Airbus A320s, scheduled to begin delivery in the summer of 2013.

Those moves should give Virgin America some more breathing room and flexibility to continue its growth plans, that will hopefully lead to more sustainable profitability for Virgin going forward.

Chatting with Virgin America CEO David Cush

Published
by
Dan Webb
on October 27, 2011
in Virgin America
. 1 Comment

A few weeks back (September 30) I had the opportunity to chat with Virgin America CEO David Cush about the latest happenings at the California-based carrier. Unfortunately, life got in the way of me writing this entire up, but I’m finally done! Warning: it’s a long one!

I first asked David about the carrier’s upcoming seasonal service from San Francsicso to Palm Springs, and why Virgin was interested in this new short-haul market. David said that “the peak quarter for Palm Springs is the first quarter” which is also “the weakest quarter for about 80% of our network, all of the transcons for example, so it is counter-seasonal to the rest of our system, so it’s a nice place to put an airplane.”

David also noted that “it’s nice for us to have some short-haul routes too for operating flexibility, and when fuel prices are this high short-haul tends to do better than long-haul.”

I was interested in David’s mention of the seasonality of Virgin’s network. A few months ago Virgin added service to Cancun and Cabo, destinations that have stronger first quarters, and will soon be launching Puerto Vallarta flights in addition to the new Palm Springs service. With all of those new routes, I was wondering if David was happy with the seasonal performance of Virgin’s network.

While Virgin has been adding service to some markets that are strong in the winter, it has also been “adding service to Chicago and service to other places that have very weak first quarters, so it’s a bit of a race when we add additional winter destinations,” said David. He added that the airline is “happy with Mexico” and that “Palm Springs started very strong out of the gate, but we’re also going to have to find some additional strong winter destinations.”

With all that talk of destinations, I asked David what might be coming in the near future. He said that Virgin has “a lot of airplanes coming,” and is slated to have 46 aircraft in its fleet at the end of this year, and 52 in the middle of 2012. (Virgin had 38 aircraft flying at the end of June.)

“Our strong sense is we’ll add one major East Coast business market next year, and then we’ll see what else happens,” David continued. “I would guess you may see one or two destinations in addition to a major East Coast business destination.”

I was also interested in the airline’s financial position, especially costs. The airline posted an 8.3% year-over-year in cost per available seat mile(CASM) ex-fuel in the second quarter, outpacing a 5.3% increase in the first quarter.

David said that Virgin’s CASM performance should improve as it gets more aircraft flying. He said it is “extremely expensive” to bring  a new aircraft into service as Virgin starts paying rent immediately, and it takes roughly 45 days for a new Virgin aircraft to go through modification (to install features like the carrier’s Red system). In addition, the airline hires “20 or so crew members per aircraft,” and those new employees need to go through training. (To summarize: Virgin incurs a bunch of expenses that are related to growth are incurred before new aircraft get placed into service and start producing revenue.)

Since David mentioned the amount of time Virgin’s aircraft have to go through modification, I decided to ask about its new Wi-Fi based IFE system that is slated to launch late next year. I was wondering if the system would reduce total time in modification, and David said “our expectation is that could cut anywhere from a few days to a week,” but said a final number is “still to be determined.”

While we were talking about IFE, I was interested if Virgin would be retrofitting its existing aircraft with the brand new system. Virgin has yet to make a decision on that front, and David mentioned that there are “conflicting financial impact items” for such a project. For example, Virgin has to incur the expense of changing the interiors of the aircraft, but the new system “also takes over 1,000 pounds off the airplane, so we save a lot of fuel,” said David.

In addition, David said that Virgin would only do such a modification while the aircraft were undergoing their D-checks, and the potential project would add some time to that process. “If we can make the numbers work, then we’ll start retrofitting,” he concluded.

As I was working on this post, I noticed an interesting notice from the FAA that announced the agency is designating SFO a Level 2 airport under IATA guidelines (the next step, Level 3, entails slot controls.) The agency said the move “is necessary based primarily on runway capacity, existing congestion and delays, and expected increased congestion due to a multi-year airport construction project.” (You can read all of the details about what this means here.)

I asked Virgin about this change, and the airline’s VP of Corporate Communications, Abby Lunardini said that the move “will not impact our broader growth plans at SFO, and we believe the FAA action is a proactive step that will help to address any potential future capacity or congestion issues, as a result of the planned airfield construction starting next year.”

As always, I enjoyed speaking with David about the latest at Virgin, as I’ve really enjoyed following the airline grow and develop over the past years. While I’m excited to see what destination the airline will announce next, I’m most interested in seeing the carrier’s third quarter numbers.

Virgin posted strong 45.6% year-over-year revenue growth in the second quarter, but that was outpaced by a 48.5% rise in operating costs (which includes a notable 61.5% rise in fuel costs). Virgin posted a net profit in the third quarter last year, so it will be interesting to see if we’ll see a repeat performance.

A Quick Look At Virgin’s 2Q Financials

Published
by
Dan Webb
on September 20, 2011
in Virgin America
. 1 Comment

Last week, Virgin America released its second quarter financial results, and recorded $21.7 million net loss for the period, wider than a $15.5 million loss in the same quarter one year prior.

Operating loss, meanwhile, slipped from $430,000 to $6.0 million, which resulted in 1.8 point decrease in operating margin, from -0.2% to -2%. But Virgin did add that its “mature routes (those flown for more than 12 months) were solidly profitable on an operating basis for the quarter.”

The San Franscisco-based airline’s unit revenues, as measured by revenue per available seat mile, increased 11.9% year-over-year, but this increase was paired with a 14.1% rise in CASM. Worthy of note is an 8.2% year-over-year increase in CASM excluding fuel. Virgin says this increase is due to “investment in the Company’s growth (training, people and aircraft in modification).”

There’s really not much to say here other than that hopefully Virgin’s financial results will begin improving…and soon…as markets like Chicago and Dallas continue to develop.

The one bright spot I can find is Virgin’s operating margin change – a decrease of 1.8 points – was less than most airlines. Then again, many of the other airlines that were reporting declining margins were still reporting operating profits – just smaller ones.

Some Interesting IFE News for Virgin and Southwest

Published
by
Dan Webb
on September 14, 2011
in Southwest and Virgin America
. 0 Comments

This week, we’ve seen some interesting/exciting news on the IFE front that involves a couple of domestic carriers…let’s take a look.

First, Virgin America is planning to introduce a new IFE system to its customers starting late next year. The San Fransisco-based airline has selected BoardConnect from Lufthansa Systems, which “replaces complex legacy in-flight entertainment solutions via an onboard WiFi network,” Virgin said. The system features “a larger, high-definition touch-screen seatback monitor with full WiFi connectivity…along with the ability for flyers to use their own personal electronic devices to connect to the system pre-flight, in-flight and post-flight.”

Virgin already has a great IFE system across its fleet that is (in my opinion) unmatched in the domestic market. So, why upgrade? If I had to guess, I’d say that Virgin wants to stay as far ahead of the competition as possible, especially as carriers like American and United are making some improvements when it comes to IFE. Plus, Virgin is always advertising its superior guest experience, and a new IFE system only bolsters that.

But  it appears there are some cost benefits here as well. As Virgin notes in its release:

Most current IFE solutions are complex and hard-wired, making them expensive to purchase and install, difficult to maintain and often inflexible in use. Instead of connecting every single seat to the content server through several miles of cables, BoardConnect requires just a few access points.

Lufthansa Systems also outlines some of the cost savings of the system on its website, including a smaller investment up front and a 50-70% savings in maintenance cost compared to legacy systems. Lufthansa Systems also outlines that “the simple fact that less wiring is needed and more lightweight components are used results in a significant overall weight reduction, which translates into real fuel economy.”

“By skipping the wires, we save about 1,000 pounds per aircraft on Virgin America’s Airbus A320s which in turn saves a tremendous amount of fuel,” said Dr. Jörg Liebe, CIO Lufthansa Systems.

Anyway…I’m looking forward to giving this new system a whirl one day. A few months ago, Lufthansa Systems posted a video on YouTube about the new system that should give you an idea of what we could see in the future:

YouTube Preview Image

The next interesting bit of news comes from Row 44, which on Monday announced a new service for live Internet Protocol television (IPTV) that passengers could view on their own devices starting on January 2. That’s great, but the most interesting part of the news release was buried at the end:

Row 44 customer Southwest Airlines added, “Row 44 is a great partner for Southwest, and we are excited about the live television product inclusion in the Row 44 platform,” said Dave Ridley, Southwest’s Chief Marketing Officer. “Southwest looks forward to offering this content onboard our WiFi enabled aircraft later this year.”

Granted, Southwest already has WiFi on some aircraft…but this is an exciting leap into the world of IFE for Southwest! The only downside here is that power outlets cannot be found on Southwest flights. Granted, the airline isn’t as focused on transcon flights as much as Virign, for example, but my laptop wouldn’t last very long streaming video over WiFi.

Either way…the airline that has historically been known for frills is getting less…er…frilly.

 

A Quick Look at Some Virgin America Financials

Published
by
Dan Webb
on August 15, 2011
in Virgin America
. 1 Comment

I’ve been spending some time over the past couple of weeks with some Virgin America financials – specifically its latest (Q4 2010) balance sheet with the DOT.

Here’s an interesting data point – the value of the carrier’s owned aircraft at the end of 2010 was roughly $40.9 million. That’s down over $60 million than at the end of the third quarter of 2010, and only about $2.1 million higher than the third quarter of 2007, when Virgin began operating.

The latest decrease in this line item appears to be driven by sale-leaseback transactions. According to the carrier’s fourth quarter 2010 cash flow statement, Virgin generated about $59.5 million through sale-leasebacks during the quarter. During the same time period, Virgin saw negative cash flow $55.5 million to pay off notes and also received $35.2 million through the issuance of new debt.

A similar decline in the flight equipment line occurred during the fourth quarter of 2009, according to DOT balance sheet data, though Virgin’s cash flow statement doesn’t mention any sale-leasebacks during that time period.

Other interesting balance sheet data point — Virgin’s purchase commitments (an asset on the balance sheet) were listed at $38.3 at the end of 2010, up from $18.3 million at the end of the third quarter. If I had to make a guess, I would say the increase could have been driven by the carrier’s 60-strong A320 order, which was finalized at the end of December.

Hopefully more on these topics soon – unfortunately the DOT’s release of first quarter financial data is many weeks behind schedule, though supposedly second quarter numbers are still due next month.