Airlines are looking towards an austere winter and airfares will likely increase should other airlines follows Virgin’s proactive solutions.
Virgin America Inc., the low-fare airline partly owned by U.K. billionaire Richard Branson, will trim capacity by 3 percent in the first quarter and is offering voluntary short-term leave to employees to cut costs in the seasonally weak winter period.
The January to March period is “challenging” for the industry, especially because Virgin America’s coast-to-coast routes often “underperform in the winter months,” Chief Executive Officer David Cush wrote in a letter to employees last week. The airline’s network doesn’t allow it to easily shift planes to shorter north-south “sun routes” that are more popular in the cold months, he said.
Recent unit-revenue figures by competitors including United Continental Holdings Inc. and Southwest Airlines Co. were “lackluster projections” that “point to a softening environment” and necessitate Virgin America’s cutbacks, Cush wrote.
“The forecast for the first quarter of 2013 indicates it will be a tough winter for the industry,” Cush said.
Virgin America will eliminate some flights that are traditionally unprofitable during the first three months of the year such as red-eyes and midweek flights, and will restore that service in April when demand typically improves, he said.
The Burlingame, California-based company won’t furlough employees, and is instead seeking voluntary reductions through short-term leave and flex scheduling, he wrote. He didn’t say how many positions are targeted for reduction, and Jennifer Thomas, a spokeswoman, didn’t have a figure to share.
The company has about 2,600 employees and reported a net loss of $31.76 million for the second quarter, 46 percent wider than the same period a year earlier. Virgin America ended the quarter with $82 million in unrestricted cash.
Earlier this month, United said revenue for each seat flown a mile fell 2.5 percent to 3.5 percent for September and Southwest reported revenue on that basis dipped 2 percent to 3 percent.
Virgin America, which started service in August 2007, has a fleet of Airbus SAS A320 jets and flies to cities including San Francisco, Los Angeles, Las Vegas, New York’s John F. Kennedy airport and Boston.
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