Virgin America Inc. Earnings Take Flight as Fuel Costs Plummet

By Joe

Image source: Virgin America.

Virgin Americareported third-quarter results on Oct. 29. The airline reported record operating margin and quarterly net income, with profits surging more than 70% year over year.

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Virgin America results: The raw numbers

Data source: Virgin America Q3 2015 earnings press release.

Q3 key metrics Passenger revenue per available seat mile, or PRASM, decreased 2.7% year over year to11.05 cents, driven by a 1-percentage-point decrease in load factor (the proportion of airline capacity that is actually consumed) to 82.5% and a 1.8% decrease in yield (average fare paid per mile per passenger) to 13.38 cents per passenger mile. Total revenue per available seat mile decreased 1.6% year over year to 12.40 cents.

Total cost per available seat mile, or CASM, declined 7.4% compared with Q3 2014, to10.17 cents. Virgin America benefited from a 35% drop in fuel costs, which was partially offset by increases in compensation expenses, landing fees, and aircraft maintenance costs.

The lower costs also boosted operating income, which jumped 41.2% to $73.9 million, as operating margin improved 5.1 percentage points to 18%.

Additionally, Virgin America continues to generate strong operating cash flow, with more than $173 million produced over the first nine months of 2015. That's allowed the company to fund the unfinanced portion of its aircraft deliveries while also increasing its unrestricted cash to$511.7 millionas ofSept. 30.

Available seat miles for the third quarter increased 3% year over year, with Virgin Americaending the quarter with 55 Airbus A320-family aircraft, up from 53 aircraft at the end of Q3 2014. Subsequent to the end of the quarter, Virgin America took delivery of a third Airbus A320 aircraft, with two more planes scheduled to be delivered in the fourth quarter.

Looking forwardManagement issued a fourth-quarter forecast, including:

  • Available seat miles to increase by 9.5% to 10.5% compared with Q4 2014.
  • PRASM to decrease between 3% and 5% year over year.
  • CASM, excluding special items, fuel, and profit sharing, to increase between 2% and 3% versus Q4 2014.

"We believe we are well positioned to grow the airline while maintaining our low cost model, driving year-over-year industry unit revenue outperformance and improving ancillary revenue," saidCEO David Cush in the press release. "We're also investing in our product so that we can continue improving what is already the best, most consistent guest experience in the industry."

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