First Alitalia had to go and post a profit and now Virgin America has done it. What is this world coming to?!? Ok, so they didn’t actually post a profit. They still lost money, but they did squeak out an operating profit. Though this is certainly encouraging news for Virgin America, this is just one quarter and there are a lot of things to be concerned about. Still, they’ve done better here than I ever expected.
I’ve obviously been a harsh skeptic of the viability of Virgin America since the beginning. While I’m sure there are many expecting me to eat crow, I’m not quite at that point. Sure, maybe I’ve picked up the fork and knife, but there’s a lot more we need to see before proclaiming this to be a true victory for the airline.
Virgin America says it posted an operating profit of $5.1 million in the third quarter of 2009. That comes out to be a 3.2% operating margin. Good for them. But let’s think about a few things here.
Remember, this is the third quarter and it’s the easiest quarter to make money. A single almost-profitable quarter in the summer, while good news, is not an indication that all is rosy now. If they can pull out a profit in the fourth quarter, then that’s a different story.
The information here is somewhat opaque and will remain so until they go public. The nice thing about being private is that you get to remain relatively quiet about your financials. The airlines in the US still have to submit their data to the government for dissemination, but it’s hard to really understand what’s going on there. For example, I remember a few quarters ago when Spirit posted a profit in the government data. It turned out they sold a bunch of hedges and made money that way. So it can be misleading.
While they’re touting their operating income, they bury the piece at the bottom showing that they still lost $6 million on the quarter. That’s obviously still a big improvement. How did they do it? Unit costs excluding fuel were down nearly 25%. How did they do that? Is it a permanent reduction or was there something in there that skewed it?
According to spokesperson Abby Lunardini, “The reduction in unit costs was primarily driven by our growth (and the efficiencies of scale that come with that) and cost control.” Very good. But there are clearly some secondary reasons that kept costs low as well, and we don’t know what those are.
Also, while they may have posted an operating profit, they still lost cash. At the end of the second quarter, cash was at $28 million. At the end of the third quarter, it was down to $23.2 million. Will that be enough to last the winter?
The data hasn’t been filed with the government yet, so I can’t dig into that. I only have the press release to go by. Yes, this was a good quarter comparatively, but there is still a lot to worry about.