he 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.
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
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
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.
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
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.
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
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)
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.”