California-based Virgin America's filing for an initial public offering (IPO) checks off a milestone that the airline has anticipated for years, capping a series of sweet victories for the airline in recent months following years of losses.
The airline, which launched flights in August 2007, will celebrate its seventh year of operations next month. The filing for an IPO is no surprise, given Virgin America chief executive David Cush's comments earlier this year that the airline will pull the trigger in the third or fourth quarter.
"We are interested in taking the company public so we can have access to financing markets," he told Flightglobal in March. The carrier has not said how many shares it plans to offer, and has not revealed pricing details.
Virgin America's IPO filing comes at an opportune time. The carrier, after struggling for years to eke out its first profit, finally reported its first full-year operating profit for 2013 with a result of $80.9 million. The airline posted a $10.1 million net profit, reversing from the $145 million net loss it reported in 2012.
The carrier has not released its second quarter results, but posted a $22.4 million net loss in the first quarter. It notes in its filing with the US Securities and Exchange Commission that the first quarter is "typically our seasonally weakest quarter". The airline's first quarter revenue per available seat mile grew 0.9% year-on-year, while cost per available seat mile (CASM) was up 0.2%.
Virgin America says that its 2013 CASM of 10.98 cents is "one of the lowest of all US airlines in 2013".
The carrier plans to use net proceeds from the offering for general corporate purposes, including future aircraft acquisitions, it says in the SEC filing. Virgin America operates a fleet of 53 Airbus A320 family aircraft - consisting 10 A319s and 43 A320s. It has orders for an additional 10 A320s, to be delivered between July 2015 and June 2016, and 20 A320neos to be delivered between 2020 and 2022.
"We may elect to supplement these deliveries by additional acquisitions from Airbus or in the open market if demand conditions merit," says the carrier. It also notes that 26 of its existing operating leases will expire between 2015 and 2022, and that it could extend these leases or replace them with new or pre-owned A320 family aircraft.
"Although we expect to grow our fleet as we increase our flights on our existing route network and expand our route network to new markets, we are only committed to grow to 63 aircraft. As a result, our fleet plan provides significant flexibility," says the airline.
It notes that it now serves only 15 of the 50 largest metropolitan areas in the USA as well as three leisure destinations in Mexico. "We believe there are significant opportunities to expand our service from our focus cities of Los Angeles and San Francisco to large markets throughout the United States, Canada and Mexico," says the carrier.
Going public will enable the airline to expand its route network - an effort that was boosted significantly this year when the airline won assets at three key airports - Dallas Love Field, Washington National and New York LaGuardia.
In May, the airline was confirmed as the winner of two gates at Dallas Love Field, an airport it does not currently serve. The assets will allow the airline to begin service from the gate-constrained airport to LaGuardia, Washington National, San Francisco and Los Angeles in October. The carrier will relocate its Dallas operations from Dallas-Fort Worth to Love Field with the launch of the new flights. Non-stop service from Love Field to Chicago will follow in 2015.
Securing the two Love Field gates will help Virgin America optimise slots at LaGuardia and Washington National that the airline won earlier this year from American Airlines' slot divestiture. The carrier won six slot pairs at LaGuardia and four pairs at Washington National.
Securing the assets at the airports, as well as a better environment for US airlines in the recent year, may buoy Virgin America's ambitions to more effectively compete with its more mature low-cost peers like JetBlue Airways and Southwest Airlines.
Ahead of the airline's win of the two Love Field gates, Cush said earlier this year that he believed that a success at Love Field would be a "positive contributor" to the airline's plan to go public. His comments came as the airline faced renewed skepticism from airline analysts, who have repeatedly questioned the airline's business model, with some wondering aloud if Virgin America has a place in the industry.
With the upcoming network developments and the IPO filing, perhaps the seven-year-old carrier has finally turned a corner.
What Virgin America's network will look like in November 2014
Source: FlightMaps Analytics
Source: Cirium Dashboard
