Virgin America Cuts Airbus Order, Delays 30 Jets

weasel_lips

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Virgin America Inc., the low-fare airline partly owned by Richard Branson, will cut an order for Airbus SAS jets by two-thirds and delay the delivery dates of newer models as it curbs expansion plans.
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A Virgin America Inc. airplane arrives at the Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Florida. Photographer: Charlotte Southern/Bloomberg

Virgin America Chief Executive Officer David Cush said, “During the summer we started looking at whether it still made sense to grow as fast as we were planning on, given fuel prices and what I’ll say is a modest economic growth climate in the U.S.” Photographer: David Paul Morris/Bloomberg
The carrier will now take delivery of 10 Airbus A320 planes, down from its original order for 30, in 2015 and 2016, according to a statement today. Those 10 aircraft are the last of the original batch, as the first 20 were to be handed over to the Burlingame, California-based airline from 2013 through 2015.
Virgin America also deferred the delivery range for 30 A320neo-model jets to 2020 through 2022 from the original dates of 2016 through 2019. The moves followed last month’s disclosure of a capacity reduction from January through March, the first cut in available seats since the airline started flying in 2007.
“During the summer we started looking at whether it still made sense to grow as fast as we were planning on, given fuel prices and what I’ll say is a modest economic growth climate in the U.S.,” Chief Executive Officer David Cush said in a telephone interview. “You don’t invest the capital if you can’t earn an adequate return.” There were no financial penalties associated with the cancellation, he said.
Virgin America projected annual growth in available seat miles to be a mid-single-digit percentage for the “next several years,” down from the 28 percent rate of the past three years.
The airline now flies 52 single-aisle A320s. The A320neo model is Airbus’s latest variant of the plane and is due to enter service in late 2015. Carriers typically buy at a discount to list prices, which are $88.3 million for the A320 and $96.7 million for the neo, according to Airbus.
Wider Loss
Virgin America also reported that its third-quarter net loss widened to $12.6 million from $3.3 million a year earlier. Revenue jumped 27 percent to $368 million. The closely held company ended the period with $75 million in unrestricted cash.
Capacity will be trimmed by about 3 percent in the first quarter to cut costs, Cush told employees in an October memo in which he also offered voluntary short-term leave to employees.
A surplus of employees took the voluntary leave offer for the first quarter and will return to work in April, Cush said in the interview. He declined to specify the number of employees.
The company sought voluntary reductions through short-term leave and flex scheduling because of an anticipated drop in traffic in the first three months of 2013, Cush wrote earlier in a letter to employees. The company has about 2,400 employees, according to today’s statement.
Unprofitable Flights
Virgin America will eliminate some flights that are traditionally unprofitable during the first three months of the year such as overnight and midweek flights, and will restore that service in April when demand typically improves, Cush said.
The airline doesn’t plan to drop any cities, though it will reduce the number of departures in cities including Boston, Cush said in the interview. Virgin America flies to cities including San Francisco, Los Angeles, Las Vegas, New York’s John F. Kennedy airport and Boston.
Looking ahead to 2013, the airline expects capacity to be unchanged to slightly larger than in 2012, Cush said. Virgin America will end this year with capacity up 28 percent from 2011.
“The simple math out of that is we think we’re big enough right now for the time being,” Cush said. “The rapid growth we’ve had for the last few years is going to come to a stop.”
Virgin America may need to pursue a “major restructuring” to survive in the long term, according to Hunter Keay, an analyst at Wolfe Trahan & Co. in New York. Virgin America has competition on every route, such as San Francisco to New York. Each of the 11 other airlines Keay follows has a monopoly on at least 25 percent of their routes.
‘Network Missteps’
“A combination of cash burn and network missteps into highly trafficked markets” is hurting Virgin America, Keay said in an October telephone interview. “They had an assumption that consumers would choose product quality over price and convenience, and network carriers responded with force.”
In an Oct. 17 note to clients, the analyst questioned Virgin America’s ability to survive and said its failure would benefit Alaska Air Group Inc. (ALK) and JetBlue Airways Corp. (JBLU) the most.
Cush disagreed with Keay’s report, specifically the idea of a flawed business model and poor performance compared with Virgin America’s established competitors, he said.
Keay “came to the wrong conclusions,” Cush said. “We will prove that over time.”


http://www.bloomberg.com/news/2012-...s-labor-cost-on-slower-winter.html?cmpid=yhoo
 

General Lee

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Dear Teammates,

Later this morning, we will release our third quarter financial results along with an announcement of slowed growth plans and, specifically, an agreement with Airbus to restructure a portion of our current aircraft order. I wanted to share the news with you first before it hits the airwaves.

For the third quarter, we will report an operating profit of a $15.8 million and a 4% operating margin. Despite the continued pressure of fuel costs and 73% capacity growth over the past two years, we reported an operating profit, improved unit costs, and an increase in average fares. As we wind down from a period of rapid growth and as our new markets mature, we continue to see improved top-line results, including forecasting an operating profit for the fourth quarter of 2012, our company’s first fourth quarter profit. Today we will also announce a restructured aircraft order that will slow some of our future growth. We will reduce our current aircraft order from 30 A320 aircraft to ten aircraft, now slated to arrive in 2015-16. We will also defer our 30 Airbus A320neo aircraft from their current 2016 initial delivery date until 2020.

So what does this mean for the Company?

First, with current industry revenue environment and oil trends, this move to defer growth will immediately improve our financial results and provide a stronger foundation for the Company. Our fuel costs from the time we signed the original Airbus order to the summer of 2012 increased by $200 million above our original projections. For the past several years, we needed to grow to achieve a network size of some scale. However given oil costs, industry trends and the fact that we now have a network of sufficient scale, serving most of the top markets from both SFO and LAX, slower growth is a smart business decision that will improve our financial results and help keep your jobs secure. The shift from 30% year-over-year annual ASM growth to a more conservative mid-single digit ASM growth rate annually will give us the breathing room we need to fully mature all our markets and move to Full Year operational profit in 2013.
.
Second, this move to slow growth makes our foundation more stable. There will be no layoffs or furloughs and slower growth ensures our survival over the long-haul. It will, however, represent a change in some of the ways we do business. It will shift our focus from the breakneck pace of expansion we’ve experienced for the past two plus years to the task of how we build a better airline – for our guests and each other. Slowed growth will also allow us to offer some work/life options we couldn’t offer before given the previous pace of growth and will allow us to redirect resources into innovation and improvement of our current product.

Although, you may hear speculation to the contrary – this ability to slow growth is not a retreat or a sign of things to come. We’re at the size now where we can react to the market and adjust long-term growth plans if needed. In addition to improving our profitability, this allows decision allows us to improve our balance sheet, reducing debt by hundreds of millions of dollars. Our investors, Board and guests have confidence in our business model – and our margins within our mature markets clearly show that once people try flying on us – they come back, particularly, higher-yield business travelers. This is a credit to the business model and to the hard work of all of you.

I look forward to discussing the news in more detail with all of you at today’s All Hands.

Thanks

David



Bye Bye---General Lee
 

ackattacker

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"operating profit" means nothing to a company that isn't contemplating bankruptcy. You can't just pretend the debt doesn't exist when it's already larger than the total economy of a small Caribbean nation, and growing.

That said, I think they'll survive in some fashion. Merger, perhaps.
 

bri5150

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"operating profit" means nothing to a company that isn't contemplating bankruptcy. You can't just pretend the debt doesn't exist when it's already larger than the total economy of a small Caribbean nation, and growing.

That said, I think they'll survive in some fashion. Merger, perhaps.

I think that is the nicest thing you've said about Virgin America!! :beer:;)
 

bri5150

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But but but... they said anyone in class today will be a captain in 1 year.

I was just in class, and the best I heard was 4 years. That said, I didn't anticipate it. I would always qualify my answer with "as planned now". I am disappointed, but nothing worse than my previous employment. If we dont get raises, then I am sure there will be some movement anyways.
 

redflyer65

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The CEO previously talked about a nice profit for 3Q and 4Q, now it's turned into another loss of 12.6 million? That's a big difference in just three months.

I'm not sure how things are going to turn around without growth. Good luck to all.
 

Flyer1015

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The CEO previously talked about a nice profit for 3Q and 4Q, now it's turned into another loss of 12.6 million? That's a big difference in just three months.

I'm not sure how things are going to turn around without growth. Good luck to all.


Operating profit was nearly 16 million. That's the airline's operations itself. Every quarter, they pay back investors. It was always listed as "other expenses" but now for the first time it's listed as "interest expense, net." In the profitable quarters, they pay back the investors a certain amount. For "other expenses" it's always been a shell game. The airline's profits were used to pay the investors back a small amount every time.


While this move sucks, it was inevitable. VA has taken a huge hit for growth from 28 to 52 airplanes from 2010-2012. Next year, the plan was 5 Airbuses, then 8-9 A320s each year for 2014-2019. How can anyone the size of VA take 60 airplanes in 7 years? Growing costs a lot of money, and this kind of growth, considering our route structure, would be nearly impossible. Where would they put all these planes? Any new city announced would not have been profitable for 12-18 months until it matures. So throughout the growth phase, adding new cities and taking 60 planes, they would have posted losses similar to what we've had from 2009-mid 2012. By deferring the airplanes, taking 1 A320 in 2013 sounds reasonable. 10 in 2015-2016, and then planning on 30 in 2020-2022. In the next 7 years, now it will be 11 new airplanes instead of 60. It's a drastic cut, but the current path of adding more planes and more new cities was going to lead the airline into more red ink.



That having been said, as a FO with 16-18 days off and weekends, I don't mind being a FO longer, but the pay needs to get better than what it currently is. At least Jetblue FO pay, and they may be able to retain FOs. If the current payscale doesn't increase in the next year or two, our junior pilots will bail.
 

redflyer65

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Flyer,

You really want to pay attention to the quaterly losses and the cash on hand. You can ride the 'operating profit' right into bankruptcy and it won't matter one bit.

If the cash on hand continues to dwindle, you can expect vendors to demand......cash only payments going forward. Hopefully the cash on hand remains stable.
 

Grandpa +65

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Operating profit was nearly 16 million. That's the airline's operations itself. Every quarter, they pay back investors. It was always listed as "other expenses" but now for the first time it's listed as "interest expense, net." In the profitable quarters, they pay back the investors a certain amount. For "other expenses" it's always been a shell game. The airline's profits were used to pay the investors back a small amount every time.


While this move sucks, it was inevitable. VA has taken a huge hit for growth from 28 to 52 airplanes from 2010-2012. Next year, the plan was 5 Airbuses, then 8-9 A320s each year for 2014-2019. How can anyone the size of VA take 60 airplanes in 7 years? Growing costs a lot of money, and this kind of growth, considering our route structure, would be nearly impossible. Where would they put all these planes? Any new city announced would not have been profitable for 12-18 months until it matures. So throughout the growth phase, adding new cities and taking 60 planes, they would have posted losses similar to what we've had from 2009-mid 2012. By deferring the airplanes, taking 1 A320 in 2013 sounds reasonable. 10 in 2015-2016, and then planning on 30 in 2020-2022. In the next 7 years, now it will be 11 new airplanes instead of 60. It's a drastic cut, but the current path of adding more planes and more new cities was going to lead the airline into more red ink.



That having been said, as a FO with 16-18 days off and weekends, I don't mind being a FO longer, but the pay needs to get better than what it currently is. At least Jetblue FO pay, and they may be able to retain FOs. If the current payscale doesn't increase in the next year or two, our junior pilots will bail.
Flyer: Stop drinking Kool aid and listening David Cust violin music. A friend who is a capt. in VA called me. He feels, like many do, Virgins days are numbered. Sorry, This no is not a flame. It's a reality
 

Flyer1015

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Flyer: Stop drinking Kool aid and listening David Cust violin music. A friend who is a capt. in VA called me. He feels, like many do, Virgins days are numbered. Sorry, This no is not a flame. It's a reality
What part of that was koolaid? I said that the move wasn't totally unexpected. This airline grew 52 aircraft in 6 years with great losses, how can they grow the next 7 with an additional 60? And the fact that pay needs to come up is true, especially for the FOs. If they hope to retain FOs and junior Captains, the reserve rules and QOL issues need to be addressed. Otherwise, people will be bailing left and right. VA has always had pilots who think this place is going belly up. But they are still here, including your VA captain buddy. If they feel so strong about it, then leave. As for me, my logbook is always updated at the end of every trip. I was like that at my last airline, I do that here, and I'll do it no matter what airline I end up at. My mindset/mentality is that I'll stop updating it at Age 64 and 11 months.
 

climbhappy

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i wonder why airline managers can project a real conservative number for fuel cost...
i read the ltr and they underestimated by 200 million

i remember kerry skeen at ACA used 30/barrel oil cost for the bus plan of Indy air...

you're suppose to put a WORST CASE scenario in a business plan...but what do i know..? they have the job i dont..
 

n757st

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What part of that was koolaid? I said that the move wasn't totally unexpected. This airline grew 52 aircraft in 6 years with great losses, how can they grow the next 7 with an additional 60? And the fact that pay needs to come up is true, especially for the FOs. If they hope to retain FOs and junior Captains, the reserve rules and QOL issues need to be addressed. Otherwise, people will be bailing left and right. VA has always had pilots who think this place is going belly up. But they are still here, including your VA captain buddy. If they feel so strong about it, then leave. As for me, my logbook is always updated at the end of every trip. I was like that at my last airline, I do that here, and I'll do it no matter what airline I end up at. My mindset/mentality is that I'll stop updating it at Age 64 and 11 months.

Considering those jets were only ordered a year ago, i'd say its still somewhat unexpected.
 

ualdriver

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If there is any good news for VA, they significantly reduced their cash burn rate in the third quarter, or someone gave them cash. Regardless, they still lost a significant amount of money (watch the net loss, not the operating loss-they have very large interest payments that aren't included in operating expenses) in a quarter that is traditionally the strongest quarter of the year. What are the weaker winter quarters going to look like? If they couldn't make money in the strongest quarter of the year, will they be able to turn it around in the lean winter quarters?

Well, hiring will hopefully start shortly at the majors this winter. Get out while you can.
 

jonjuan

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If there is any good news for VA, they significantly reduced their cash burn rate in the third quarter, or someone gave them cash. Regardless, they still lost a significant amount of money (watch the net loss, not the operating loss-they have very large interest payments that aren't included in operating expenses) in a quarter that is traditionally the strongest quarter of the year. What are the weaker winter quarters going to look like? If they couldn't make money in the strongest quarter of the year, will they be able to turn it around in the lean winter quarters?

Well, hiring will hopefully start shortly at the majors this winter. Get out while you can.

But what about my 3 year upgrade? You expect me to wait 12 years at a major?
 

Grandpa +65

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If there is any good news for VA, they significantly reduced their cash burn rate in the third quarter, or someone gave them cash. Regardless, they still lost a significant amount of money (watch the net loss, not the operating loss-they have very large interest payments that aren't included in operating expenses) in a quarter that is traditionally the strongest quarter of the year. What are the weaker winter quarters going to look like? If they couldn't make money in the strongest quarter of the year, will they be able to turn it around in the lean winter quarters?

Well, hiring will hopefully start shortly at the majors this winter. Get out while you can.
Yeap!. David Cust wrote letter is an attempt to prevent the pilots from abandoning ship with all the retirements starting next month. UAL and DAL new contract and USAIRWAys all three hiring next year. VA pilot would not be looking to bail after that company update
 
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