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Isn’t All This Talk of a Virgin America IPO a Bit Premature?

Apr 06, 2014 9:00 am

Skift Take

The climate is good for IPOs right now with Airbnb and Uber generating lots of talk. Can Virgin America catch that wave? It’s possible, but the airline may have to show more progress before it gets there.

— Dennis Schaal

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Virgin America CEO David Cush kicks off the airline's service from Newark Airport to Los Angeles and San Francisco on April 9, 2013. Dennis Schaal


Virgin America’s latest results show that it has finally reached a point where it can execute its niche.

It has proven to be a disruptor for fellow hybrid carrier Alaska Air Group in US west coast markets and created havoc for United Airlines when it launched new service from United’s Newark hub to San Francisco and Los Angeles in Apr-2013.

If Virgin America can keep a cost advantage, or better yet, focus on driving cost down while maintaining its revenue momentum, its prospects begin to look brighter. Its unit revenue and yield performance during 2013 were commendable, and its ability to grow its average fares without compromising load factor is a hugely positive development. Its campaign to change the dynamics at Dallas Love Field shows welcome initiative, and could create new opportunities for Virgin America to garner more than just high passenger praise for its product.

While it is encouraging to see Virgin America post tangible financial results to accompany its ever-present positive passenger accolades, its ambition to access the public markets during the latter half of 2014 may be assertive. Its stronger US counterparts Delta and United are working to attain investment grade status while other carriers like JetBlue are just brushing the surface of outlining attainable return on invested capital (ROIC) goals.

That Virgin America’s executives can reasonably discuss an initial public offering is an important achievement in convincing some long-time sceptics that the company actually has some staying power. While the company’s current investors have waited patiently for returns, and could be making a push for Virgin America to access the public markets, it might be wise to pause, enjoy the first whiff of profitability and craft a strategy to sustain its good fortune.

Virgin America’s share on its top 10 domestic routes and competing carriers: 31-Mar-2014 to 6-Apr-2014

Route Virgin America’s share Competitors
San Francisco-Los Angeles 18% American, Delta, Southwest, United
San Francisco-Las Vegas 28% United, Southwest, US Airways
JFK-Los Angeles 14% American, Delta, United, JetBlue
San Francisco-San Diego 21% Southwest, United
JFK-San Francisco 14% United, Delta, American, JetBlue
Los Angeles-San Jose 18% Southwest, American, Alaska, Delta, United
San Francisco-Seattle 14% Alaska, United, Delta
Los Angeles-Seattle 17% Alaska, United Delta
Los Angeles-Newark 20% United and American
Fort Lauderdale-Los Angeles 49% JetBlue, Spirit

This story originally appeared on CAPA – Centre for Aviation, a Skift content partner.

Additional links from CAPA:

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