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Virgin America Inc. fell as much as 6.8 percent after the airline, partially owned by U.K. billionaire Richard Branson, forecast higher costs from employee pay and contracts holding fuel prices above spot market rates.
The shares dropped 6.5 percent to $40.15 at 10:49 a.m. in New York, after earlier dipping to $40.01. Through yesterday, Virgin America had climbed 87 percent since it sold shares to the public in November.
Virgin America will boost pilot pay 15 percent in April and 5 percent for most other workers to bring compensation closer to industry averages, the carrier said in a regulatory filing yesterday. It also created a discretionary 401(k) savings plan with contributions partially matched, and implemented a pretax income threshold on annual profit-sharing.
The changes prompted Savanthi Syth, a Raymond James Financial Inc. analyst, and Helane Becker of Cowen & Co. to trim their earnings estimates for 2014’s fourth quarter and full year, and for all of 2015.
Virgin America said it spent about $2.87 for each gallon of jet fuel in the final three months of 2014, and expects to pay an average $2.76 this quarter and $2.48 in the second quarter of 2015. Jet fuel for immediate delivery in New York harbor was trading at $1.60 a gallon today.
The Burlingame, California-based carrier said it’s hedged about 66 percent of expected fuel use this quarter and 44 percent in the second quarter, with “no material hedges” in place during the last half of this year. Hedges are financial contracts that lock in costs to protect against price swings.
This article was written by MARY SCHLANGENSTEIN from Bloomberg and was legally licensed through the NewsCred publisher network.