What Do Virgin America’s Poor Financial Results Mean for Travelers?

After a long battle against the DOT, Virgin America has now finally been required to release its financial results to the public. What’s the verdict? It’s not pretty. I’ve already tackled the high level financial side of Virgin America’s information over on BNET, but over here I wanted to discuss what these dismal numbers mean for travelers. The answer is . . . probably not much right now, but I’d keep my eyes open.

The results are staggering, and it’s certainly no surprise that they’d want to keep this info quiet. The best quarter they’ve had so far, the third quarter of 2008 (which is the most recent information we have) resulted in a -52% margin. That’s right. They lost nearly $60m on merely $114m in Virgin America Cash Burnrevenue. Even if fuel were free, they would have only broken even. At the end of the second quarter, their cash plunged to only $11m on hand. That bounced back to $25m at the end of the third quarter, but that had to be from additional money flowing in and not from operations. They really have burned through a lot of cash, though I understand they received another infusion in October so they’ve got a more comfortable cushion once again. If you’d like to get more detail on their reported numbers, I’ve created a spreadsheet with the Income Statement, Balance Sheet, Fuel Prices, and Load Factor by Route for you to download.

With these numbers, you’d think they’d be trying to do some damage control, and of course, they are. The airline is saying that everything is fine, they’re on plan, and there’s nothing to worry about. I suppose they have to say that or bookings would disappear overnight, but is that really the case? It appears to be. As I said, the airline claims that it received more cash in October and it now has a healthy cushion. It also is saying that it expects to even be profitable in the second or third quarter of this year. You’ll obviously have to decide for yourself if you believe it or not, but for now death doesn’t appear imminent.

Certainly, lower fuel prices will help slow the bleed tremendously, but it won’t put them into the black. They are adding new routes, so possibly the additional scale will help them, but that requires those routes to perform well. So far, load factors seem to be pretty decent with New York long hauls doing the best in the 80%+ range. Washington long hauls and most short hauls are weaker but have clawed up toward 80%. Oh, but if you’re in Seattle, it’s a different story. Those loads have been horrendous.

Good load factors aren’t actually good news in this case. If they’re already filling seats, that means that there isn’t much room to just add more people on the plane to reach profitability. They have to become profitable the hard way, by charging more money. Sure, they’ve probably added a little to the bottom line from Main Cabin Select (we won’t see the impact until the next quarter comes out), but this is a small impact in the scheme of things. The weakening economy sure isn’t going to help, and yesterday I received an email about another fare sale from them. So we’ll see if they can somehow find a way to be profitable, but they appear to have a long way to go.

So would I hesitate to book them right now? Probably not, but I might think about trying to book my trip a little closer to the actual departure date just to be sure. It would surprise me if Sir Richard Branson let this fail without a fight, and he’s better equipped than most to keep it going for awhile. The airline says that it’s on track, and as long as the investors don’t panic, they’ll keep on trucking. So, play with the data (download the spreadsheet) and make a decision for yourself.

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