Company Update (NASDAQ:VA): Virgin America Inc Reports First Quarter 2016 Earnings

Virgin America Inc (NASDAQ:VA) reports its financial results for the first quarter 2016.

“Virgin America performed exceptionally well as we entered 2016,” said David Cush, Virgin America’s President and Chief Executive Officer. “We reported record first quarter net income driven by continued unit revenue outperformance as compared with the domestic industry and the benefit of lower fuel costs. Importantly, we achieved these results with capacity growth of nearly 16 percent in the first quarter while also maintaining our focus on non-fuel unit costs. The proposed merger with Alaska Air Group recognizes the successful business model we have built at Virgin America in just nine short years.”

First Quarter 2016 Financial Highlights

  • Capacity: Available seat miles (ASMs) for the first quarter of 2016 increased 15.8 percent year-over-year compared with the first quarter of 2015. Virgin America took delivery of two new Airbus A320 aircraft in the first quarter of 2016, ending the quarter with 60 total Airbus A320-family aircraft of which 58 were in service, compared to 53 aircraft in service at the end of the first quarter of 2015.
  • Operating Revenue: Total operating revenue was $364.0 million, an increase of 11.5 percent over the first quarter of 2015.
  • Revenue per Available Seat Mile (RASM): Passenger revenue per available seat mile (PRASM) decreased 3.8 percent compared to the first quarter of 2015, to 9.88 cents, driven by a 3.7 percent decrease in yield. Total RASM decreased 3.7 percent year-over-year.
  • Cost per Available Seat Mile (CASM): Total CASM excluding special items decreased 8.8 percent compared to the first quarter of 2015, to 10.13 cents. A decrease in fuel costs was the primary factor in the decline in CASM. Salaries, wages and benefits costs included a $3.4 million accrual for teammate profit sharing and related payroll taxes. CASM excluding special items, fuel costs and profit sharing for the quarter increased 1.8 percent year-over-year, to 7.96 cents. Total CASM on a GAAP basis decreased 7.8 percent compared to the first quarter of 2015, to10.17 cents.
  • Fuel Expense: Virgin America realized an average economic fuel cost per gallon including taxes and the impact of hedges of $1.57, which was 35.9 percent lower year-over-year.
  • Special Items: Special items in the first quarter of 2016 consist of $1.6 million of costs related to the merger agreement with Alaska Air Group, Inc., signed on April 1, 2016 and an aggregate of $0.4 million of out-of-period fuel related adjustments.
  • Operating Income: First quarter 2016 operating income excluding special items was $33.2 million, an increase of 152.8% compared to the first quarter of 2015. The Company’s operating margin excluding special items of 9.1 percent improved by 5.1 points year-over-year.
  • Income before Taxes: Pre-tax income excluding special items was $29.4 million during the first quarter of 2016, an increase of 170.8% versus the first quarter of 2015.
  • Net Income: Net income excluding special items for the first quarter increased by 74.5 percent year-over-year to$18.4 million. The Company recorded a provision for income taxes excluding special items of $10.3 million in the first quarter of 2016. Virgin America did not record a material provision for income taxes in the first quarter of 2015 due to the valuation allowance recorded against the company’s deferred income tax assets. During the fourth quarter of 2015, the Company released substantially all of this valuation allowance.
  • Fully Diluted Earnings per Share (EPS): Fully diluted earnings per share excluding special items was $0.41 for the first quarter of 2016. First quarter 2016 fully diluted earnings per share was $0.39 on a GAAP basis.
  • Liquidity: Unrestricted cash was $562.8 million as of March 31, 2016. Virgin America generated $95.3 million of operating cash flow during the quarter.

1 Please see “GAAP to Non-GAAP Reconciliations” for reconciliations of non-GAAP financial measures used in this release and the reasons management uses these measures.

Recent Operational Highlights

  • Rated the number one carrier in the 2016 Airline Quality Report, an annual analysis of airline performance metrics like on-time performance and baggage handling, conducted by Wichita State University and Embry-Riddle Aeronautical University. This is the fourth consecutive year Virgin America has achieved the number one rating in this report.
  • Began its new three-time daily service from San Francisco International Airport (SFO) to Denver International Airport (DEN), the number one requested destination by its high-tech corporate accounts. Virgin America is the only airline on the route to offer three classes of service, WiFi, power outlets, on-demand food ordering and touch-screen seatback entertainment on every flight. To support its growth in the region, Virgin America also opened a new Customer Contact Center in Denver.
  • Announced its plans to expand its new Hawai’i services with daily nonstop flights from Los Angeles International Airport (LAX) to Honolulu, Oahu starting on May 5, 2016, and Kahului, Maui starting on June 14, 2016. The airline also announced the expansion of its seasonal service from San Francisco International Airport (SFO) to Palm Springs International Airport (PSP) to a year-round flight schedule.
  • Launched a new loyalty partnership with Starwood Preferred Guest® (SPG®), the award-winning loyalty program of Starwood Hotels & Resorts Worldwide Inc. The partnership allows SPG members to transfer Starpoints into Elevate points while Elevate members can earn points for Starwood hotel stays. During the quarter, Virgin America grew its frequent flyer base to approximately 4.1 million Elevate members.
  • Introduced a suite of new products to its website, allowing guests to customize their travel while increasing ancillary revenue opportunities for the airline.
  • Continued to roll out its new state-of-the-art Red® in-flight entertainment system across its fleet, which features higher resolution capacitive touch screens and Android-based software that allows for three times more content – along with the first surround-sound listening experience to be offered by an airline.
  • Took delivery of two new Airbus A320 aircraft in the first quarter of 2016, with an additional three scheduled to be delivered in the second quarter of 2016. (Original Source)

Shares of Virgin America closed yesterday at $55.62, up $0.19 or 0.34%. VA has a 1-year high of $55.88 and a 1-year low of $26.30. The stock’s 50-day moving average is $44.45 and its 200-day moving average is $36.49.

On the ratings front, Virgin has been the subject of a number of recent research reports. In a report issued on April 15, Barclays analyst David Fintzen upgraded VA to Hold, with a price target of $56, which represents a slight upside potential from current levels. Separately, on April 8, Deutsche Bank’s Michael Linenberg downgraded the stock to Hold and has a price target of $57.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, David Fintzen and Michael Linenberg have a total average return of 17.7% and 19.0% respectively. Fintzen has a success rate of 53.4% and is ranked #145 out of 3839 analysts, while Linenberg has a success rate of 61.8% and is ranked #54.

The street is mostly Neutral on VA stock. Out of 6 analysts who cover the stock, 5 suggest a Hold rating and one recommends to Sell the stock. The 12-month average price target assigned to the stock is $49.00, which reflects a potential downside of -11.9% from last closing price.

Virgin America, Inc. is a California-based airline that provides scheduled air travel in the continental United States and Mexico. The company operates primarily from its focus cities of Los Angeles and San Francisco to other major business and leisure destinations in North America. Its objective is to make flying good again, with brand new planes, attractive fares, top-notch service, and a host of fun, innovative amenities that are reinventing domestic air travel. The company was founded in 2004 and is headquartered in Burlingame, CA.


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