Last week, following Virgin America's first quarter earnings report, I had the pleasure to speak with Virgin America CEO David Cush and CFO Peter Hunt. They helped fill in some of the blanks about the company's growth plans over the next several years. Here are three of the most important things they had to say.
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Growth in existing markets
Since the time of its IPO, Virgin America has been touting a medium-term annual growth rate of 10% or a tad higher. Most recently, Virgin America announced plans to start flying from San Francisco to Hawaii (both Honolulu and Maui) in late 2015.
Virgin America completed its IPO in late 2014. Photo: Virgin America
This service could be followed by nonstop flights from Los Angeles -- Virgin America's second major base -- to Hawaii as soon as 2016. However, after Virgin America establishes its presence in Hawaii, the character of its growth is likely to change.
Specifically, Cush told me that going forward, Virgin America plans to deploy two-thirds of its capacity increases in existing markets rather than new markets. For the most part, this means it will be adding flights on routes that it already flies, but there may also be a few opportunities to begin nonstop flights to Los Angeles from cities where Virgin America only flies to San Francisco today.
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Growing the fleet
Virgin America currently operates a fleet of 53 Airbus jets: 10 A319s configured with 119 seats, 25 A320s configured with 146 seats, and 18 A320s configured with 149 seats. Between July 2015 and June 2016, it is scheduled to receive 10 more new A320s, which will all be configured with 149 seats. These new planes will also be equipped with fuel-saving Sharklet winglets.
Since Virgin America's new planes will be in the largest of the airline's passenger configurations and will come with Sharklets, they will offer a modest unit cost benefit.
Beyond 2016, Cush says that Virgin America is likely to grow by either buying new planes directly from Airbus or arranging leases from aircraft leasing companies. However, it currently has no scheduled deliveries until a block of 30 A320neos arrive in the 2020-2022 period.
The A320 is Virgin America's aircraft of choice. Photo: Virgin America
Leases for 26 of Virgin America's planes (about half the fleet) will expire between 2016 and 2022. However, CFO Peter Hunt told me that almost all of those expirations occur between 2020 and 2022.
That lines up perfectly with Virgin America's A320neo order. If market conditions are favorable, Virgin America will be able to renew most of the leases -- probably at lower rates -- to keep its growth rate up. But it will also have the option of letting the leases expire and using most of the A320neos for replacement purposes.
Not afraid of competition
I also asked David Cush about what Virgin America looks for in new markets. In particular, I asked whether the company was more interested in identifying underserved routes or in serving the biggest, most popular routes: even if they might have more competition.
Cush replied that in general, Virgin America prefers big markets with lots of business demand. The company's most profitable routes are in the highly competitive transcontinental market, and Cush is confident in Virgin America's ability to compete with its larger rivals.
Furthermore, Virgin America has a large and loyal following in San Francisco and Los Angeles. This should smooth the way for Virgin America's entry into new major markets in the coming years. And with a bigger network, Virgin America may be able to win even more customers in San Francisco and Los Angeles, creating a virtuous cycle of long-term growth.
The article Exclusive: Virgin America CEO David Cush Talks About Growth originally appeared on Fool.com.
Adam Levine-Weinberg owns shares of Virgin America The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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