Virgin America Reports Fourth Quarter and Full Year 2011 Financial Results
Airline Reports 43 Percent Increase in Operating Revenues While Fueling Record Growth in Fourth Year of Operations
SAN FRANCISCO, May 4, 2012 /PRNewswire/ -- Virgin America today reported its financial results for the fourth quarter of 2011 and full year 2011. Despite substantially higher fuel costs and financial pressures associated with industry-leading capacity growth, the airline narrowed its fourth quarter operating loss to $8.1 million (a 29 percent year-over-year improvement) and its fourth quarter margin to (2.9 percent) – an improvement of three points year-over-year. The airline's full year operating loss was $27.4 million on revenues of over $1 billion. Top line growth remained strong with revenue gains significantly outpacing capacity growth. Year-over-year, revenue grew by 45 percent for the fourth quarter and 43 percent for the full year on a 29 percent increase in capacity – compared to an industry average capacity growth rate of less than one percent in 2011. The airline ended 2011 with $160 million in unrestricted cash.
Virgin America's results were primarily impacted by high fuel costs and the costs of growth. The airline also incurred costs associated with its transition to a new reservations system in 2011. The cost per gallon of fuel increased by 38 percent in the fourth quarter and 33 percent for the full year versus the prices paid in the prior year. This fuel cost increase reduced the airline's operating profit by $31 million for the quarter and $105 million for the full year. The airline's rate of growth and entry into new markets created margin pressure which offset gains in more mature markets. The carrier's established markets (those operated for at least 12 months prior to the fourth quarter of 2010) were profitable for both the fourth quarter and full year 2011. In these markets, revenue per available seat mile (RASM) improved by 18 percent year-over-year for the fourth quarter.
"As a young airline fueling growth unique in this era, we remain satisfied with the progress toward our financial goals. While volatile and increasing fuel prices represent a challenge for all carriers, it is a greater one for an airline growing rapidly and establishing itself in new markets," said Virgin America President and CEO David Cush. "For the last four years, our passenger unit revenue performance gains have surpassed industry performance even as we have added large amounts of capacity while most of the industry has not grown. Our core markets are profitable and we expect the new 2011 capacity to turn profitable in 2012. We continued to build a strong foundation in 2011, with a major fleet order, additional financing that reflects investor confidence in our long-term business model and a move to an industry-standard reservations system that allows us to grow."
In late 2011, Virgin America reported that it raised an additional $150 million through a four and a half year debt facility. The airline also noted that it obtained lease financing commitments for all of its Airbus A320 Family aircraft slated for delivery through September 2013. In addition, the airline closed on a financing facility for the majority of its pre-delivery payment obligations ("PDPs") due on the first 20 aircraft within its order of 60 Airbus A320s, scheduled to begin delivery in summer 2013. In 2011, the carrier announced a major fleet order, which included the first commercial order for the new Airbus A320neo.
Virgin America continued to drive significant growth in 2011: expanding its fleet from 34 aircraft in January 2011 to 46 aircraft in December 2011 (as of May 1, 2012, the carrier operates 51 aircraft); achieving major carrier status as defined by the Dept. of Transportation (DOT); launching service to Cancun, Puerto Vallarta, Chicago and Palm Springs; and expanding into its new home at San Francisco International Airport's (SFO) Terminal 2. Since its 2007 launch, the airline has created 2,600 new jobs, expanded to 17 cities, signed up two 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 342 teammates in 2011 and plans to add 200-500 new jobs annually over the next several years.
"Despite our rapid growth and the hurdles we've faced since launch, our service has continued to sweep the travel awards every year – a testament to our unique product and the hard work of all of our teammates," added Cush.
Fuel prices remained a challenge for Virgin America and the overall U.S. industry in 2011. Had fuel prices remained flat year-over-year, the airline's fuel costs would have been reduced by $105 million. Average fuel costs per ASM increased year-over-year from 3.22 cents in 2011 to 4.24 cents – an increase of 32 percent. 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. The carrier has hedged approximately 37 percent of its expected fuel consumption for the remainder of 2012 at levels close to current fuel market prices, providing some protection should jet fuel prices increase further.
In 2011, Virgin America completed a major reservations system migration, assuring that it has industry best systems in Sales /Reservations, Airport Operations and Flight Operations. System migrations of this scale are typically a once-in-a-lifetime event for an airline, involving the migration of millions of records during live operations. In addition to the airline's $4 million capitalized investment in the Sabre systems, Virgin America incurred $3.9 million in expenses related to the transition. In addition to these direct costs, the airline waived approximately $1 million in ancillary revenue fees in the fourth quarter. During part of the transition, the airline waived change /cancel fees for flyers experiencing issues as a result of the migration and credited flying loyalty program members with 5000 Elevate points by way of further apology for any inconvenience experienced. Going forward, the new Sabre system allows the airline to accommodate its growth, expand code-share/interline capability and enhance its Elevate loyalty program. Since the transition, the airline has linked its frequent flyer program with the other Virgin carriers and signed several new interline partners.
Top Line Fourth Quarter Reporting Highlights:
Top line Full Year 2011 Reporting Highlights:
Based on its 2011 growth, Virgin America now meets the size threshold to be classified a "major" carrier by the 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-December 2011, the airline achieved an 83.8 percent cumulative A-14 on-time ranking, higher than the industry average of 79.6 percent. The airline's baggage handling rate for 2011 was .88 mishandled baggage reports per 1000 guests, which would have placed it first among all U.S. carriers for baggage reliability, when compared to DOT's data for reporting carriers in the same period. With nearly 92 percent of its flights on time in February 2012, Virgin America ranked first among the 15 carriers included in the DOT rankings for the month. The carrier also ranked number one in the baggage handling category, with a mishandled baggage rate of 0.7 reports per 1,000 enplaned guests in February.
Other key milestones achieved in 2011 include:
Virgin America flies to San Francisco, Los Angeles, New York, Washington D.C., Seattle, Las Vegas, San Diego, Boston, Fort Lauderdale, Orlando, Dallas-Fort Worth, Los Cabos, Cancun, Chicago, Puerto Vallarta, Palm Springs, Philadelphia and as of June 5, 2012 – Portland.
Although a privately held company, Virgin America is announcing these earnings results in advance of the DOT quarterly reports.
About Virgin America: Headquartered in California, Virgin America offers guests attractive fares and a host of innovative features aimed at reinventing air travel. In just over four years flying, Virgin America was named "Best Domestic Airline" in the Conde Nast 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
SOURCE Virgin America
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