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Virgin America Has Stopped the Financial Bleeding…Mostly

Virgin America released its 2nd quarter financials, and it looks like the bloodbath is over.  There was a point earlier this year where it wasn’t entirely obvious that, if they continued on the same financial path, that they would make it another year.  They were burning cash like mad and charging virtually nothing for their (admittedly strong) product.

Although they’re not out of the woods, they’ve certainly turned it around.  Their operating loss was only $11 million, compared to more than $62 million in the same quarter last year.  Load factor was up to 85% from 77% and their RASM (a rough measure of average fare) was nearly flat at just under 8 cents per mile (not great, but at least there wasn’t a huge drop).  In short:  they filled more seats on their planes without resorting to lowering fares from previous quarters (sure, you could argue that their fares are ridiculously low to begin with and that they constantly have sales, which they do).

Most importantly, though, as Allegiant has shown you can also focus on the cost side of the business to make an airline work.  Virgin America dropped their Cost per Available Seat Mile (CASM) to 6.47 cents from 8.18 year over year.  Impressive.

Unfortunately, the full detail isn’t yet available, so it really isn’t possible to see where the cost savings is coming from.  Also, they’ve got about $28 million in cash left, which isn’t a huge cushion when they’re burning through about $10 million a quarter.  They say they’ll be fine until they’re profitable last year (and they noted they were profitable in June and July of this year), but airlines aren’t yet sure whether business travelers will return this fall.  And with VA just announcing another fare sale, it sounds like they still have no pricing power, leaving it to sales to fill up the planes.  Without a strong Q3, their cash will approach a precarious spot. Plus, Alaska Airlines continues to harass the DOT to open an inquiry into whether VA has sufficient US ownership.

Virgin America has certainly made headway toward survival.  But that cash position is rough, and the market continues to be uncertain.  They’ve shown a renewed financial discipline, which suggests to me that they’ll be able to make it.  But they, along with US Airways (and possibly United), are the two shakiest airlines right now.

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