Virgin America Inc., the low-fare airline partly owned by U.K. billionaire Richard Branson, posted its second quarterly net profit since starting service six years ago as a no-growth plan helped contain costs.
Several more consecutive quarters of profit growth will put an initial public offering within reach, perhaps next year, Chief Executive Officer David Cush said Wednesday. The closely held carrier’s strategy to delay jet deliveries and halt expansion while its markets develop is paying off, he said.
Virgin America isn’t taking any planes until 2015 and kept capacity unchanged in the second quarter, a break from surges of 30 percent or more at the Burlingame, Calif.-based airline in some periods. Revenue for each seat flown a mile rose about 8 percent for the quarter, Virgin America said Wednesday,outpacing a 1 percent increase for United Continental Holdings Inc. and no change for Delta Air Lines Inc.
“Obviously slowing down our growth and letting our network mature” drove profitability, Cush said. “When that happened, we expected to become profitable and you’re seeing the first sign of that.”
Profit for the three months ended June 30 totaled $8.8 million, compared with a loss of $31.8 million a year earlier. The airline’s only other profitable quarter was in the third quarter of 2010.
“My expectation is the company will be ready by mid-2014,” Cush said of the IPO plans.
Last year, the company was targeting a possible IPO in 2013 if market demand supported it. Virgin America has yet to choose bankers to handle the offering, he said.
Virgin America’s debt restructuring eliminated $300 million of borrowings in exchange for “option-like instruments” that could be converted into equity later, Chief Financial Officer Peter Hunt said in the interview. The new interest expense amount will be about $10 million per quarter, two-thirds less than the previous amount, he said.
Virgin America’s new flights at New Jersey’s Newark Liberty International Airport, one of the largest hubs for United, are doing better than expected, Cush said.
The company added three flights a day from Newark to both San Francisco and Los Angeles, forcing certain fares to drop by about 30 percent,he said. Its planes are flying about 85 percent full during the peak summer season.
United responded with matching fares and five more flights a day on each of those routes.
“On good days, I call it aggressive. On bad days, I call it irrational,” Cush said of United’s new schedule. “It’s the most extreme competitive reaction we’ve seen in the history of our company.”
United’s actions on the Newark-Los Angeles and Newark-San Francisco routes are “the definition of competition,” said Rahsaan Johnson, a spokesman for the Chicago based carrier.
“A new entrant comes in with lower fares, we match the lower fares, add capacity to serve the increased demand, and customers end up with more flights and more access to low fares,” Johnson said. “That is what competition is.”
Virgin America, which started service in August 2007, has a fleet of Airbus SAS A320 jets and flies to cities including San Francisco, Los Angeles, Las Vegas, New York’s John F. Kennedy International Airport and Boston.
Business, Pages 27 on 08/08/2013