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Virgin America Cuts Airbus Order, Delays 30 Jets

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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.
Enlarge image
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
 
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.
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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
 
"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.
 
"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:;)
 
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.
 

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