SAN FRANCISCO, July 3, 2012 /PRNewswire/ -- Virgin America today reported its financial results for the first quarter of 2012. With overall fuel costs higher by 47 percent year-over-year, the financial pressure of the airline's industry-leading capacity growth and a revenue shortfall associated with the carrier's transition to a new reservations system, Virgin America reported a first quarter operating loss of $49 million on revenues of $267 million. Top line growth continued to outpace the expanding airline's capacity growth. Year-over-year, total revenue grew by 33 percent for the first quarter on a 29 percent increase in Available Seat Miles (ASMs), at a time when the rest of the industry reported flat capacity. The airline ended the quarter with $111 million in unrestricted cash.
Virgin America reported 2.2 percent year-over-year RASM growth, versus the double digit RASM percentage increases reported in 2010 and 2011. This was driven by significant capacity growth and systems issues associated with the Company's transition to a new reservations platform. The growing airline's rate of entry into new markets created margin pressure which offset revenue gains in more mature markets. While capacity was up 29 percent year-over-year, total capacity increases were up 59 percent over the past two years. This rapid growth established Virgin America's core network and provided an important base for the carrier's future success. This planned phase of accelerated growth will wind down in mid-2012, until the airline's next major fleet order begins delivery later in 2013. At the same time, website issues and revenue management challenges associated with the Company's transition to a new Sabre reservations system reduced first quarter revenue by $10 to 15 million.
Virgin America's results were also adversely impacted by high fuel prices. Had fuel prices remained flat year-over-year, the airline's fuel costs would have been $15 million lower for the quarter. The cost-per-gallon of fuel increased by 14 percent in the first quarter. In late 2011, Virgin America resumed a structured fuel hedging program to help manage the impact of fuel price volatility. Approximately 70 percent of the airline's fuel consumption in the first quarter of 2012 was hedged at prices slightly below market levels, resulting in a fuel expense for the quarter that was approximately $2 million below market prices. The carrier has hedged approximately 33 percent of its expected fuel consumption for the remainder of 2012. Since April 2012, fuel prices have dropped significantly. Under Virgin America's hedging program, the Company will not realize the full benefit of falling prices until the second half of 2012.
"While we are disappointed that our operating results fell short of our expectations for the quarter, as a young airline we have to balance the need to grow in order to build our network and achieve economies of scale with the short-term costs of that growth," said Virgin America President and CEO David Cush. "Even with the dual challenge of growth and rising fuel costs in what is traditionally the weakest quarter for the industry, our overall revenue performance still outpaced our capacity growth. For the past four years, our passenger unit revenue performance gains have surpassed industry performance even as we have added significant capacity – at a time when most of the industry has not grown. As the markets we added in 2011 and 2012 reach maturity over the coming year, we look forward to realizing the financial benefits of the investment we have made in our network."
Virgin America continued to drive significant growth in the quarter: expanding its fleet from 38 aircraft in March 2011 to 51 aircraft by the end of the first quarter 2012 (today, the carrier operates 52 aircraft). Virgin America took delivery of five Airbus A320 aircraft in the first quarter, capping a remarkable expansion over the past two years. The airline has acquired 23 aircraft since the first quarter of 2010, an 82 percent increase. This phase of accelerated growth comes to an end in mid-2012, with deliveries under the carrier's next major fleet order not starting until later in 2013. In 2011, the carrier announced a major fleet order – including the first commercial order for the A320 neo.
During the next year, the Company expects improved financial performance from its growing network as newer markets mature. In the 12 months prior to the first quarter of 2012, Virgin America launched new service to Cancun, Chicago, Puerto Vallarta and Palm Springs. In addition, the airline launched new service to Dallas-Fort Worth and Los Cabos in December of 2010. Since its 2007 launch, the airline has created 2,600 new jobs, expanded to 18 cities, signed up 2.3 million Elevate® members and swept the reader-based travel awards including "Best Domestic Airline" in Conde Nast Traveler's Readers' Choice Awards and Travel + Leisure's World's Best Awards. As one of the few growing U.S. airlines, Virgin America grew by 536 teammates year-over-year for the quarter.
In late 2011, Virgin America completed a reservations system migration, assuring that it has industry standard systems. While the implementation of these systems will provide a stable, resilient platform for the Company's growing operations in the long term, the transition limited revenue growth in the first quarter. With the transition impact behind Virgin America, the Company has already begun to benefit from its investment. Since the transition, the airline has linked its frequent flyer program with the other Virgin carriers and signed several new interline partners.
Top Line First Quarter Reporting Highlights:
Operating results: The airline reported an operating loss of $49 million in the first quarter on revenues of $267 million – a (65) percent change year-over-year.
Load factor: Revenue passenger miles increased 38 percent on a 29 percent increase in capacity, resulting in a first quarter load factor of 81 percent – a five point load factor improvement for the quarter year-over-year, and a record load factor for the airline in the first quarter.
Top line progress: Revenue in the first quarter was up 33 percent versus first quarter 2011. RASM increased by two percent year-over-year.
Cost control: Operating expense per available seat mile excluding fuel (ex-fuel CASM) increased by 1 percent in the quarter, driven by significant investment in growth (training newly hired teammates, aircraft in modification and reservations system changeover).
Cash: The airline ended the quarter with $111 million in unrestricted cash.
Based on its 2011 growth, Virgin America now meets the size threshold to be classified as a "major" carrier by the Department of Transportation (DOT). The carrier now reports monthly on-time performance, baggage handling and other operational statistics to the DOT. Even prior to reaching the DOT threshold, the airline voluntarily reported its on-time performance, baggage handling and other key operational statistics. For January-March 2012, the airline reported that 82.6 percent of its flights arrived on time. The airline's baggage handling rate for the quarter was 0.94 mishandled baggage reports per 1000 guests, which placed it first among all U.S. carriers for baggage reliability, when compared to DOT's data for reporting carriers in the same period.
Other key milestones achieved in the first quarter include:
Virgin America's move to a new reservations platform allowed the airline to add Korean Airlines as an interline partner during the quarter – further expanding the airline's reach. Virgin America has implemented six new interline partnerships in the first half of 2012 – the airline now has 14 interline partners total;
Virgin America flies to San Francisco, Los Angeles, New York, Washington D.C. (IAD), Seattle, Las Vegas, San Diego, Boston, Fort Lauderdale, Orlando, Dallas–Fort Worth, Los Cabos, Cancun, Chicago, Puerto Vallarta, Palm Springs (seasonally), Philadelphia, Portland and – as of August 14th – Washington D.C.'s Ronald Reagan National Airport (DCA).
Although a privately held company, Virgin America is announcing these earnings results in advance of the DOT quarterly reports.
Virgin America, Inc.
Consolidated Statement of Operations
For the Three Months Ending March 31, 2012
(Unaudited, in thousands)
Three months ended March 31
Total operating revenues
Wages, salaries and related costs
Landing fees and other rents
Sales and marketing
Guest services and supplies
Other operating expenses
Total operating expenses
Other expense, net
Virgin America Inc.
Comparative Operating Statistics
Three months ended
Available seat miles - ASMs (millions)
Average stage length (miles)
Aircraft in service (average)
Fleet utilization (blk hours per ac day)
Revenue passenger miles - RPMs (millions)
Total revenue per available seat mile - RASM (cents)
Guest revenue per available seat mile - PRASM (cents)
Yield per passenger mile (cents)
Cost per available seat mile - CASM (cents)
Cost per ASM, excluding fuel (cents)
Fuel cost per gallon
Fuel gallons consumed (thousands)
EDITORS NOTES: Virgin America is a U.S.-controlled, owned and operated airline. It is an entirely separate company from Virgin Atlantic. Sir Richard Branson's Virgin Group is a minority share investor in Virgin America.
About Virgin America: Headquartered in California, Virgin America offers guests attractive fares and a host of innovative features aimed at reinventing air travel. Since its August 2007 launch, Virgin America has been named "Best Domestic Airline" in the CondeNast Traveler 2008, 2009, 2010 and 2011 'Readers' Choice' Awards and "Best Domestic Airline" in Travel + Leisure's 2008, 2009, 2010 and 2011 'World's Best' Awards. The airline's base of operations is San Francisco International Airport (SFO)'s sleek and sustainable new Terminal 2. The airline's new aircraft offer interactive in-flight entertainment systems and power outlets near every seat. Virgin America offers Gogo™ WiFi on every flight and hosts the largest in-flight entertainment library in the North American skies via the touch-screen Red™ platform. For more: www.virginamerica.com