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By Mary Jane Credeur - Oct 17, 2012 3:04 PM MT
Virgin America Inc., the low-fareairline partly owned by Richard Branson, will trim capacity by 3percent in the first quarter and is offering voluntary short-term leave to employees to cut costs, citing a weaker outlook.
The company, which reported a wider net loss for the secondquarter, is seeking voluntary reductions through short-termleave and flex scheduling ahead of an anticipated drop intraffic in the first three months of 2013, Chief ExecutiveOfficer David Cush wrote in a letter to employees last week. TheBurlingame, California-based company, which employs about 2,600,hasn’t said how many workers are involved.
Closely held Virgin America, which ended the second quarterwith $82 million in unrestricted cash, may need to pursue a“major restructuring” to survive, said Hunter Keay, an analystat Wolfe Trahan & Co. in New York. Virgin America hascompetition on every route, such as San Francisco to New York.Each of the 11 other airlines Keay follows has a monopoly on atleast 25 percent of their routes, he said.
“A combination of cash burn and network missteps intohighly trafficked markets” is hurting Virgin America, Keay saidin a telephone interview. “They had an assumption thatconsumers would choose product quality over price andconvenience and network carriers responded with force.”
‘Network Missteps’
Keay questioned Virgin America’s ability to survive in aclient note today and said the carrier’s failure would benefitAlaska Air Group Inc. (ALK) and JetBlue Airways Corp. (JBLU) the most.
Jennifer Thomas, a Virgin America spokeswoman, declined tocomment on Keay’s report.
In the letter, Cush cited recent unit-revenue figures bycompetitors including United Continental Holdings Inc. (UAL) andSouthwest Airlines Co. (LUV), calling them “lackluster projections”that “point to a softening environment” and necessitate VirginAmerica’s cutbacks.
Earlier this month, United said revenue for each seat flowna mile fell 2.5 percent to 3.5 percent for September andSouthwest reported revenue on that basis dipped 2 percent to 3percent.
“The forecast for the first quarter of 2013 indicates itwill be a tough winter for the industry,” Cush said.
Virgin America reported a net loss of $31.76 million forthe second quarter, 46 percent wider than the same period a yearearlier.
‘Challenging’ Period
The January to March period is “challenging” for theindustry, especially because Virgin America’s coast-to-coastroutes often “underperform in the winter months,” Cush wrotein the letter. The airline’s network doesn’t allow it to easilyshift planes to shorter north-south “sun routes” that are morepopular in the cold months, he said.
Virgin America will eliminate some flights that aretraditionally unprofitable during the first three months of theyear such as red-eyes and midweek flights, and will restore thatservice in April when demand typically improves, he said.
The airline, which started service in August 2007, has afleet of Airbus SAS A320 jets and flies to cities including SanFrancisco, Los Angeles, Las Vegas, New York’s John F. Kennedyairport and Boston.
To contact the reporter on this story:Mary Jane Credeur in Atlanta at [email protected].
http://www.bloomberg.com/news/2012-...rims-flights-labor-cost-on-slower-winter.html
Virgin America Inc., the low-fareairline partly owned by Richard Branson, will trim capacity by 3percent in the first quarter and is offering voluntary short-term leave to employees to cut costs, citing a weaker outlook.
The company, which reported a wider net loss for the secondquarter, is seeking voluntary reductions through short-termleave and flex scheduling ahead of an anticipated drop intraffic in the first three months of 2013, Chief ExecutiveOfficer David Cush wrote in a letter to employees last week. TheBurlingame, California-based company, which employs about 2,600,hasn’t said how many workers are involved.
Closely held Virgin America, which ended the second quarterwith $82 million in unrestricted cash, may need to pursue a“major restructuring” to survive, said Hunter Keay, an analystat Wolfe Trahan & Co. in New York. Virgin America hascompetition on every route, such as San Francisco to New York.Each of the 11 other airlines Keay follows has a monopoly on atleast 25 percent of their routes, he said.
“A combination of cash burn and network missteps intohighly trafficked markets” is hurting Virgin America, Keay saidin a telephone interview. “They had an assumption thatconsumers would choose product quality over price andconvenience and network carriers responded with force.”
‘Network Missteps’
Keay questioned Virgin America’s ability to survive in aclient note today and said the carrier’s failure would benefitAlaska Air Group Inc. (ALK) and JetBlue Airways Corp. (JBLU) the most.
Jennifer Thomas, a Virgin America spokeswoman, declined tocomment on Keay’s report.
In the letter, Cush cited recent unit-revenue figures bycompetitors including United Continental Holdings Inc. (UAL) andSouthwest Airlines Co. (LUV), calling them “lackluster projections”that “point to a softening environment” and necessitate VirginAmerica’s cutbacks.
Earlier this month, United said revenue for each seat flowna mile fell 2.5 percent to 3.5 percent for September andSouthwest reported revenue on that basis dipped 2 percent to 3percent.
“The forecast for the first quarter of 2013 indicates itwill be a tough winter for the industry,” Cush said.
Virgin America reported a net loss of $31.76 million forthe second quarter, 46 percent wider than the same period a yearearlier.
‘Challenging’ Period
The January to March period is “challenging” for theindustry, especially because Virgin America’s coast-to-coastroutes often “underperform in the winter months,” Cush wrotein the letter. The airline’s network doesn’t allow it to easilyshift planes to shorter north-south “sun routes” that are morepopular in the cold months, he said.
Virgin America will eliminate some flights that aretraditionally unprofitable during the first three months of theyear such as red-eyes and midweek flights, and will restore thatservice in April when demand typically improves, he said.
The airline, which started service in August 2007, has afleet of Airbus SAS A320 jets and flies to cities including SanFrancisco, Los Angeles, Las Vegas, New York’s John F. Kennedyairport and Boston.
To contact the reporter on this story:Mary Jane Credeur in Atlanta at [email protected].
http://www.bloomberg.com/news/2012-...rims-flights-labor-cost-on-slower-winter.html
