Skift Take

The timing is excellent, but the financials aren't that hot.

Virgin America is going public at a particularly fortuitous time for U.S. airlines: Fares cost more, jet fuel costs less, and exuberant demand from travelers hasn’t tempted a crop of new competitors into the fray.

The airline, which is partially owned by Sir Richard Branson’s Virgin Group, has set a high bar for sexy chic in transcontinental travel and become the domestic darling of the upscale glossy travel magazines in the seven years it’s been flying.

Virgin America said on Monday that it expects to raise about $320 million from its pending initial public offering, with 13.3 million shares being offered at prices as high as $24. The airline and its largest shareholder, hedge fund Cyrus Capital Partners, also plan to sell $52.1 million of stock to PAR Capital Management in a private sale at the time of the IPO, according to a filing with the U.S. Securities and Exchange Commission. A Virgin America spokeswoman declined to comment on when the shares will price or when trading will commence.

Also on Monday, Virgin America reported a $56.2 million net income for the first nine months of the year, compared with a $4 million loss in the same period in 2013. Quarterly sales rose 5 percent, to $405.5 million, while the percent of seats filled rose to 83.5 percent, up 3 percentage points from a year ago.

To prepare for the offering, Virgin America has been assiduously curbing its growth, keeping its fleet to 53 Airbus jets and making its network perform better financially. The California-based company has about 2,400 employees. Its most recent changes have involved limiting frequencies on some routes to accommodate new flights from Dallas to New York, Washington, Los Angeles, and San Francisco. Virgin America is entering the competitive mix this winter with new service from New York to South Florida and from Boston to Las Vegas. The airline is also exploring whether to begin service to Hawaii.

Yet the industry’s relative calm doesn’t mean Virgin America shares are a screaming buy. The airline competes for traffic on some of the most lucrative and heavily fought-over routes in the world—between California and the East Coast—and faces a variety of deep-pocketed rivals in American, Delta, and United. Virgin America’s cost advantage may also shrink, largely because of employee expenses. Its flight attendants voted in August to join the Transport Workers Union, the first union representation inside the company, and now Virgin America has begun a profit-sharing plan for employees. It’s also planning to resume growing, with 10 new Airbus planes coming to the fleet starting next July and 30 more from 2020 to 2022.

The rest of the industry, meanwhile, has dramatically upgraded the amenities on the high-revenue, coast-to-coast flights that serve as the mainstay of Virgin’s network. American Airlines has installed a lavish first-class cabin on its new Airbus jets between New York and California, while JetBlue Airways has invested in a new premium cabin. Those efforts further complicate Virgin America’s chase for corporate travelers.

Subscribe to Skift Pro

Subscribe to Skift Pro to get unlimited access to stories like these ($30/month)

Subscribe Now

Tags: ipo, virgin america

Photo Credit: Business class seating on Virgin America. Virgin America / Virgin America