Tag Archives: Virgin America

PlaneBusiness Banter Now Posted!

home-typewriter copy 1.jpg Hello everyone. Happy Fourth of July! This week’s holiday issue of PlaneBusiness Banter is now posted.

This week we take a look at the latest news from American Airlines bankruptcy, including the extension for exclusivity that the airline and the Unsecured Creditors Committee have agreed to. Does this change anything? We think not, and we explain all the fine print of what it does mean.

Meanwhile, as expected, the board of directors of the Allied Pilots Association voted to send out the last best tentative agreement with the company to the rank and file for a vote. All of that will take us into August — one of the main reasons the exclusivity date was pushed back.

The “intensive” two week closed doors locked-down negotiations between the pilots at Continental, United, and the airline came to a close last week. But no contract was to be had. We are still optimistic, and we think the timing of the announcement concerning the results of the Delta Air Lines‘ pilot contract had a bit to do with what happened here as well.

Meanwhile, while all this was going on, Holly was in Chicago last week, attending and speaking at the Association of Travel Marketing Executives conference. More on all that in the our next issue. While I was in Chicago, I also got to take a tour of the United Airlines new network operations center. Wow. What a trip that place is. More on all that in this week’s issue as well.

In our AMR Bankruptcy Follies column this week, we tip our hat to our customary “Ode to a Hot Dog” column and give it a new twist, as we explore the top ten reasons American Airlines’ CEO Tom Horton doesn’t like hot dogs.

And oh, then there were the first quarter earnings that Virgin America issued on Tuesday afternoon. Yep, that’s right. The old “Vanguard” method. You know how that works. You issue bad earnings news on a day when no one is paying much attention. Like on the afternoon before July 4th.

That’s okay. We were paying attention, as were some of our subscribers.

The numbers were, in a nutshell, horrible. We ask — how long can this operation continue?

All this and more, including our second quarter airline stock performance review (in which US Airways handily took top honors) in this week’s issue of PlaneBusiness Banter.

PlaneBusiness Banter Now Posted!

home-typewriter copy 1.jpg

Hello to all on what is a drop-dead gorgeous Tuesday morning here in the DFW Metromess.

This week’s issue of PlaneBusiness Banter is now posted. Subscribers can access it here.

So what are we talking about this week? Well, considering we are headquartered in that hotbed of aviation, Dallas Ft. Worth, we talk a lot this week about the recent British invasion. Oh, that’s right. Virgin America is, er, an American company.

It was easy to forget that last week as Sir Richard Branson and the Virgin marketing machine touched down in DFW.

Yes, Virgin America launched its new service to DFW. We give you our take on the festivities.

In addition, in my column this week I take a long look at two similar and intertwined airlines — JetBlue and Virgin America.

In other news, we have a copy of the Australian Transportation Safety Bureau’s preliminary report on the Rolls-Royce uncontained engine failure on Qantas Flight 32. Let me put it this way — if there were any doubts before, it’s pretty clear Rolls-Royce has a big problem with the Trent 900 engine. Particularly the version Qantas is using on its aircraft. And yes, that particular flavor of 900 is a different configuration than the one Singapore and Lufthansa uses.

We include two of the photos from the report in this week’s issue. Not a pretty sight.

In other news, the International Air Transport Association announced that Cathay’s CEO will be taking over the helm there next year. This means we’ll have two new mouthpieces at the helm of the two biggest airline trade groups in 2011.

Fallout from the national election continues to trickle down through the industry. This week we saw shares of FedEx lead the group as analysts upgraded shares. Granted, one of the reasons shares were upgraded is an increase in industrial productivity — but the fact that proposed legislation that would have made it easier for FedEx drivers to unionize is now probably toast — a result of the changes in Washington — certainly is at play here as well.

Speaking of Wall Street, oil prices hit their highest point in more than two years on Friday. Monday, they were up again.

Not good news for those things with wings that drink millions of gallons of jet fuel for breakfast, lunch, and dinner.

And what about those Spanish Air Traffic controllers? Did you folks see how much these guys make on average? Trust me. It’s more than 99% of what airline pilots make.

It’s hell when the gravy train stops.

All of this and much more in this week’s issue of PlaneBusiness Banter.


Virgin America: Now It’s Not Just Us Questioning the Airline’s Financial Viability


Monday the Bureau of Transportation Statistics of the DOT issued the latest Form 41 data for the industry. The information covered the fourth quarter 2008 numbers.

Needless to say, for airline geek types, the release of Form 41 data is like a huge box of goodies, all wrapped up with a nice big bow. The only problem is — you have to take the time to get in the box and carefully unwrap all the nuggets.

This morning analyst Gary Chase with Barclays issued a research note on Virgin America’s financial situation — a note that was clearly based on Gary and fellow analyst Dave Fintzen’s careful unwrapping of the Virgin America nuggets.

But wait — Gary doesn’t even cover Virgin America. The airline is not publicly traded.

Oh, but he does cover airlines that are currently affected by the airline’s presence. Most notably JetBlue and Alaska Air Group. Of all the major airlines Virgin overlaps about 25% of JetBlue’s capacity, while it overlaps about 17% of Alaska’s.

In his note this morning, Gary noted that while Virgin has been in the news a good deal lately because of questions concerning its ownership structure — “we cannot know the details of the company’s ownership structure.” But Gary and company can, and did, analyze the airline’s operating performance for the fourth quarter as reported to the DOT.

The verdict?

“The airline is now beyond the point in its development where JBLU turned profitable; Virgin America’s results would show losses in late 2008 even at sub-$1.00 fuel prices.

DOT filings point to substantial losses that go well beyond high fuel prices.  We estimate that to break even in 2009 (similar to the rest of the industry on an un-hedged basis), the airline would need to drive significant improvement in revenue or cost performance, or both.  For example, one path to break-even would be to achieve a roughly 20% higher unit passenger revenue (in an environment where industry RASM is declining by nearly 10%) and reduce non-fuel costs by almost 10% while fuel prices remain at the $1.49 level.”

He continued, “Virgin America’s premium strategy, including its First Class and Main Cabin Select products, does not appear to be generating a meaningful revenue premium.  Rather, unit revenue performance lags JBLU and the industry at-large.  Virgin America’s unit revenue performance has shown relative improvement as the airline spools-up, but still lags a typical new JBLU markets despite having a first class option and fewer seats on an equivalent aircraft (which should translate into both higher RASM and CASM).  While Virgin America has found some relative success in short-haul West Coast markets, revenue performance in Transcon and longer-haul West Coast (i.e. Seattle) lags the industry by a wide margin.”

In addition, Gary said, “The premium strategy likely contributes to the airline’s relative cost problem, with non-fuel unit costs that are 40% higher than JBLU today and ~30% higher than JBLU at the same point in its life cycle.  Unit cost tends to improve dramatically during the first year of an airline’s operations, but Virgin America is now beyond the point where JBLU’s cost structure stabilized.  The cost structure remains significantly higher than JBLU, not to mention other low-fare airlines.”   

In typical carefully worded “analyst-speak” he concludes: “We believe the Virgin situation represents a potential opportunity for the industry generally, but for JBLU and ALK in particular.  Even if the press surrounding the ownership structure proves inaccurate, operating losses could also prompt a move away from its Transcon and long-haul West Coast routes, where performance has been the weakest.”

So how bad were the numbers themselves?

Virgin America’s recent DOT filings show the airline posted significant losses through its first year of operations. In total, the airline posted a 2008 pre-tax loss of ~$207mm on revenue of ~$370mm, for a pre-tax margin of negative 56%. While margins did improve, DOT reports show 4Q08 pre-tax margin was a negative 29% with a pre-tax loss of $32 million.

Now, is there anyone out there who still wonders why it was that Virgin America fought for so long to keep from reporting its results to the DOT?

I didn’t think so.


Virgin UnAmerica(n)


Today the Wall Street Journal ran a story which seems to confirm what we had assumed was going to happen, as we had discussed in PlaneBusiness Banter a number of times over the last several months.

The two “U.S.” firms that invested in Richard Branson’s Virgin America operation have apparently taken advantage of the fine print in their investing agreement with the airline and headed for the hills.

These investors controlled 77% of the airline.

Since U.S. carriers must be at least 75% owned and controlled by U.S. investors, this departure would seem to place Virgin America’s status as a US-owned carrier in jeopardy. Unless the airline has somehow been able to find other U.S. based investors to fill the void. But as far as we have heard, that has not happened.

Word on the street for the last several months has been that Black Canyon Capital and Cyrus Capital Partners were going to pull the trigger on their investment. Heck, in my opinion they would have been crazy not to. The two negotiated a sweet “out clause” when they put money into the venture.

By pulling the plug now, the two were entitled to receive all of their original investment back, plus 8% interest, amounting to roughly $150 million combined between the two.

Not bad, considering the airline the two “invested in” has done nothing but lose hundreds of millions of dollars since its start-up — a fact the airline couldn’t hide any longer after it was finally forced to submit its Form 41 DOT data to the DOT recently.

A normal person could conclude that if, in fact, Black Canyon and Cyrus have exited the mood-lighted building, Virgin America would now either a) have new investors already lined up or b) be in violation of DOT ownership requirements.

It is important to note that Virgin has not issued a statement or release trumpeting the corralling of any additional U.S. investors.

One would think that the airline would have been out in front of this — announcing new money — as a way to deflect talk of its being in violation of DOT ownership regulations or of being in danger of a possible shutdown.

But they have been noticeably mute.

Which is exactly why we are talking today about how it would appear the airline is, just as Alaska Air Group claimed in a recent complaint to the DOT, not in compliance with the DOT foreign ownership rules, and two, yes, this means the airline is in danger of being shut down.

Virgin America, Republic Holdings and Shuttle America DOT Reports Are Finally Public


Eureka. It’s about time.

“The Department of Transportation’s Bureau of Transportation Statistics today upheld its June 2008 decision to release to the public traffic, financial and origin and destination survey data filed by Virgin America.

            BTS denied an appeal by Virgin America of the June 26, 2008 decision by BTS’ Office of Airline Information on the airline’s request to keep the data confidential.   

            All filings on the docket DOT-OST-2008-0107 can be found on Regulations.gov: http://www.regulations.gov/search/index.jsp

            BTS also denied appeals from Republic Airlines and Shuttle America.  The two airlines appealed a previous denial of their confidentiality requests.  Documents for these cases can be found on Regulations.gov:

Shuttle America: DOT-OST-2005-23354

Republic Airlines: DOT-OST-2005-23355″

Readers will recall that Virgin America has refused to make its DOT financial and O&D information available ever since it began operation. The reason? We can only assume that it didn’t want us all to know how much money it was losing. And on what routes.

So the airline played the legal “wait it out” game by first refusing to do so, saying that it would be forced to “reveal confidential information” if it did so. That set in place a legal process that took time. In June the DOT ruled against the airline, but again, an appeal was filed.

So now, finally, we will all get to see the numbers that we should have had access to all along. On February 3. At 10:00 AM EST to be exact.

Oh, and yes, Republic and Shuttle America have been playing the same game. Their gig is up as well. Their numbers will also be available as of Feb. 3.

This whole thing is ridiculous. There should be changes made immediately to the process that prevents airlines from “opting” out of the reporting process. If they don’t report — their right to fly is yanked. Period.