Virgin America Inc (VA) Reports Second Quarter 2015 Earnings

Virgin America (NASDAQ:VA) reports its financial results for the second quarter of 2015.  Key highlights from the second quarter include:

  • Second quarter 2015 net income was $64.4 million excluding special items1, an increase of $27.5 million from the second quarter of 2014.  Operating income and operating margin excluding special items were $67.1 million and 16.7 percent, respectively.
  • On a GAAP basis, net income was $65.0 million. Operating income and operating margin on a GAAP basis were$67.7 million and 16.9 percent, respectively.
  • Fully diluted earnings per share excluding special items was $1.46.  On a GAAP basis, fully diluted earnings per share was $1.47.

“Our latest quarterly results are an affirmation of Virgin America’s business model – specifically, they demonstrate that we can deliver a better product and guest experience while also generating strong financial returns,” said David Cush,Virgin America’s President and Chief Executive Officer. “The progress we have made on financial performance over the past two years is remarkable, and we continue to outperform domestic industry unit revenue trends. Our guests love the outstanding product and service that our teammates provide and it shows in our financial results.”

Second Quarter 2015 Financial Highlights

  • Operating Revenue: Total operating revenue was $400.9 million, an increase of 0.5 percent over second quarter of 2014.
  • Revenue per Available Seat Mile (RASM): Passenger revenue per available seat mile (PRASM) increased 0.5 percent compared to the second quarter 2014, to 11.24 cents. Year-over-year PRASM growth was driven by a 0.2 point increase in load factor and a 0.3 percent increase in yield. Total RASM increased 0.6 percent year-over-year.Virgin America’s PRASM was positively impacted by a $3.2 million adjustment related to Elevate loyalty revenue, which increased PRASM by 0.9 percent.
  • Cost per Available Seat Mile (CASM): Total CASM excluding special items decreased 5.1 percent compared to the second quarter of 2014, to 10.43 cents. Decreases in fuel costs and reduced heavy maintenance activity contributed to the decline in CASM, partially offset by increases in salaries, wages and benefits. Salaries, wages and benefits costs included a $6.7 million accrual for teammate profit sharing and related payroll taxes. CASM excluding special items, fuel costs and profit sharing for the quarter increased 7.1 percent year-over-year, to 7.27 cents.
  • Fuel Expense: Virgin America realized an average economic fuel cost per gallon including taxes and the impact of hedges of $2.20, which was 29.3 percent lower year-over-year. This amount includes certain fuel expense adjustments described as special items below.
  • Special Items: Special items in the second quarter of 2015 relate to a net $0.6 million adjustment for fuel hedges that settled during the second quarter of 2015 but for which unrealized gains or losses had been previously recorded under GAAP and mark-to-market adjustments for fuel hedges that mature subsequent to June 30, 2015which did not qualify for hedge accounting treatment.
  • Operating Income:  Second quarter 2015 operating income excluding special items was $67.1 million, an increase of $20.0 million as compared to 2014. The Company’s operating margin excluding special items of 16.7 percent improved by 4.9 points year-over-year.
  • Net Income: Net income excluding special items for the second quarter increased by $27.5 million year-over-year to $64.4 million.
  • Fully Diluted EPS: Fully diluted earnings per share excluding special items was $1.46 for the second quarter of 2015. Second quarter 2015 fully diluted earnings per share was $1.47 on a GAAP basis.
  • Capacity:  Available seat miles (ASMs) for the second quarter of 2015 remained flat year-over-year compared with the second quarter of 2014. Virgin America ended the quarter with 53 Airbus A320-family aircraft, unchanged from the second quarter of 2014. Subsequent to quarter end, the Company took delivery of the first of five Airbus A320 aircraft scheduled to be delivered in 2015.
  • Liquidity: Unrestricted cash was $500.5 million as of June 30, 2015. Virgin America benefited from the release of cash collateral held by its credit card processors in addition to strong operating cash flow performance to generate a net increase of $82.2 million in unrestricted cash during the quarter. The new agreement with its credit card processors also allowed the Company to terminate a $100 million letter of credit facility, resulting in ongoing annual savings of approximately $5.5 million per year.

“Virgin America made great strides in improving its balance sheet and financial position during the second quarter of 2015,” said Peter Hunt, Virgin America’s Chief Financial Officer. “We increased our unrestricted cash balance by $82 million during the quarter thanks to strong operating cash flow and the release of collateral held by our credit card partners. We also terminated a financing facility that will save us over $5 million in financing costs annually. In addition, we arranged bank debt financing for five A320 aircraft deliveries occurring later in 2015 at interest rates that will average under five percent. These accomplishments will continue to reduce Virgin America’s cost of capital and position us for future earnings growth.”

Recent Operational Highlights

  • Virgin America announced a new partnership with broadband and communications technology and services provider ViaSat Inc. that will bring significantly faster WiFi connectivity and high-quality video streaming to the airline’s 10 new A320 aircraft deliveries beginning in September of 2015. Virgin America maintains its distinction as the only U.S. carrier to offer fleetwide WiFi.
  • Virgin America began rolling out a new beta version of its Red® in-flight entertainment system, which features higher resolution capacitive touch screens, Android-based software that will allow for faster, real-time updates and three times more content – along with the first surround-sound listening experience to be offered by an airline.
  • Virgin America upgraded the back-end of its reservation system in late June, ultimately enabling it to sell ancillary products via Global Distribution Systems.
  • For the eighth consecutive year, Virgin America was named ‘Top Domestic Airline’ in the prestigious annual Travel + Leisure’s World’s Best Awards readers’ survey, which evaluates all airlines for cabin comfort, in-flight service, customer service and value.
  • Virgin America was also awarded ‘Best Airline in North America’ for the first time, ‘Best Low-Cost Airline in the U.S.’ for the fifth consecutive year and Best Staff Service among North American airlines for the fourth consecutive year in the 2015 Skytrax World Airline Awards.

Second Half 2015 Outlook
The Company’s expectations for the second half of 2015 and full year 2016 are based on currently available information.  These expectations are forward-looking, and actual results could differ materially depending on market conditions and the factors set forth under “Forward-Looking Statements” below. You should not place undue reliance upon these expectations.

The Company expects capacity, as measured by available seat miles, to increase by approximately 2.0 percent to 3.0 percent for the third quarter of 2015 as compared to the third quarter of 2014. Based on current revenue trends, the Company expects PRASM to decrease between 2.0 percent and 4.0 percent versus the third quarter of 2014. The Company expects CASM excluding fuel and profit sharing to increase between 10.5 percent and 11.5 percent versus the third quarter of 2014. CASM excluding fuel and profit sharing is increasing in the third quarter due primarily to Virgin America’s previously announced pay and benefit initiatives that were implemented earlier in the year. Third quarter CASM excluding fuel and profit sharing will also be impacted by a decrease in average stage length year over year of approximately 8.0 percent resulting from previously implemented capacity at Dallas — Love Field. In addition, the company expects to incur additional maintenance costs during the quarter related to an engine maintenance overhaul.

Based on Virgin America’s hedge portfolio and current market prices for aviation fuel products, the Company expectsVirgin America’s economic fuel cost per gallon inclusive of related taxes and hedge costs to average between $1.90 and $2.00 for the third quarter of 2015. This number may change depending on fluctuations in market prices for jet fuel during the quarter.

Virgin America is scheduled to take delivery of five A320 aircraft during the second half of 2015, and expects to place four aircraft into operational service prior to year-end. The Company currently expects fourth quarter 2015 capacity to increase between 9.0 percent and 10.0 percent as compared to the fourth quarter of 2014. In addition, the company expects CASM excluding fuel and profit sharing to increase between 2.0 percent and 3.0 percent for the fourth quarter of 2015.

2016 Initial Outlook
The Company has completed its preliminary fleet and capacity plans for 2016. Virgin America currently expects to take delivery of an additional five A320 aircraft between January and June 2016. In addition, Virgin America does not expect to retire any existing aircraft from its fleet, ending 2016 with 63 aircraft in its operating fleet. Further, the Company currently expects capacity, as measured by available seat miles, to increase between 13% and 15% for the full year 2016. The Company is also targeting for its CASM excluding fuel costs and profit sharing to decrease between 1% and 2% for the full year 2016 based on these fleet and capacity projections.

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

Shares of Virgin America closed yesterday at $29.79. VA has a 1-year high of $45.43 and a 1-year low of $26.50. The stock’s 50-day moving average is $28.50 and its 200-day moving average is $31.39.

On the ratings front, Virgin America has been the subject of a number of recent research reports. In a report issued on May 1, Barclays analyst David Fintzen maintained a Buy rating on VA, with a price target of $42, which represents a potential upside of 41.0% from where the stock is currently trading. Separately, on the same day, Stifel Nicolaus’ Joseph DeNardi maintained a Hold rating on the stock .

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, David Fintzen and Joseph DeNardi have a total average return of 21.5% and 8.0% respectively. Fintzen has a success rate of 58.2% and is ranked #170 out of 3718 analysts, while DeNardi has a success rate of 75.0% and is ranked #1488.

Overall, 2 research analysts have rated the stock with a Sell rating, one research analyst has assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $43.50 which is 46.0% above where the stock closed yesterday.

Virgin America Inc is low-cost airline that provides scheduled air travel in the continental United States and Mexico. It operates from four cities of Los Angeles and San Francisco, with a smaller presence at Dallas Love Field.

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