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.
Very bad in terms of the carrier's future. I know there numbers are poor, but I don't think at their current size there is any future unless they completely change directions to something else.
49 replies: All unread, showing first 25:
They have a limited number of options open to them:
1. Expand rapidly and take on the big airlines or;
2. Slow growth and try to raise yields in the face of stiff competition.
This industry is brutal. Competition is stiff across the board on domestic (US) flying and VX is struggling. At the same time, they can't keep bleeding cash. Slow growth is what all airlines are doing now so this should not be shocking.
This is painful to watch. I wish the best for the employees but at the same time I don't see how anyone is still sinking money into them. It's not like they're really trending towards profitability either...
I have the same opinion I had when I first flew on them. "What a wonderful product that appeals to a small % of the traveling public". I don't think you can build something for any niche in this business and make any money, unless that niche is people who are cheap. Nobody is willing to pay more for any kind of (domestic) special service, even frequent fliers. There only those that expect it for free by virtue of being loyal. VX is a niche airline and that niche only exists profitably on a few transcon routes and possibly LAS. I don't think it is viable anywhere else.
I wonder what will happen to VX now. I don't think they can sit still. I also question whether Cush is the right leader for them. I think they need somebody with more of a route planning or financial background and less of a sales guy like they have now. They should try to get Fornaro.
How much money would it take to pull away a top exec at DL, UA, or AA to take over VX and try a new route to profitability? Is this something that a regional CEO or President could accomplish? Some industry names out there are Steenland, Mehnke, Bastian, or maybe it is a new challenge for Horton or Parker if AA/US ever tie up.
Another idea is who may want the planes and or pilots? We all keep hearing about the impending pilot shortage, so you could pick up 40 A319/320 airframes and 40 options plus 500 pilots that already have a type rating. That would be 1-2 years of hiring for DL or UA right there.
Wingnut
Or is there a legacy US carrier that might be interested in buying them and having them as their "leisure" fun brand but with no frills?
I think this is a good business decision. Virgin America tried to imitate JetBlue by growing rapidly and taking on routes that were already well served, but do it with a better product. However they are not only competing against one airline, almost every route they serve has two or more competitors. The legacy airlines have killed them. UA, DL and AA matched VX fares on all their transcon routes. AS went in for the kill by dumping capacity on the west coast routes. VX has tried the notoriously low yielding California ? Florida market. Every airline has been pulling Mexico capacity over the last few years because drug violence has scared tourists away (even from beach resorts), yet VX is trying to make it work.
VX has no where for these planes to go. Fortunately Airbus will have no problem with the NEO slots, although Airbus does have a gap of late production run A320s that are not in high demand at this point so those slots aren?t going to be easy to transfer. The rapid growth of VX needs to be tamed down. Virgin can?t make any money anywhere. Their management has publicized that they made a mistake by having direct competition on every route they serve. JetBlue didn?t have that, because they took advantage of JFK?s lack of domestic network.
Quoting wingnutmn (Reply 4): How much money would it take to pull away a top exec at DL, UA, or AA to take over VX and try a new route to profitability?
If you look at Virgin America?s management offices, there is a strong contingent of UA people. Their headquarters is only a few miles from the headquarters of UA?s old technical operations business in SFO. Virgin took a lot of UA people who refused to move to ORD when UA was restructuring in bankruptcy.
Quoting anstar (Reply 5): Or is there a legacy US carrier that might be interested in buying them and having them as their "leisure" fun brand but with no frills?
Virgin is the opposite of that. They offer more frills.
What if B6 were to try to acquire VX? This would reduce a lot of competition on the same routes. Are the fleets using the same engines?
I know B6 probably wouldn't want to me in M&A activity according to the CEO, but it is a thought. It would help push yields up on the transcons for everyone.
AA people, not UA people
There's no value to VX. Maybe some JFK slots that B6 doesn't have a need for and that's it.
The last thing B6 needs are A319's. They want A321's. Also, I am not sure that B6 has the capital right now to try and acquire another airline. The best bet is a major buying them and shutting them down for an immediate reduction in competition or a continued slow death through market predation!
Wingnut
Could HA be up to something? They just signed a code share agreement the other day, HAL what do you think.
The airline today reported $15.8mil operating profit in the third quarter and forecasts operating profit in Q4 also. ??
Strip away the growth cost and some finance cost, the airline is now in the black operationally. A good achievement.
I think that part of their problem is CA tunnel vision. I'm sure someone could work it out better than I could, but I can't help but think that a small base, say 5 or 6 frames, in somewhere like DFW could work out for them
[Edited 2012-11-16 10:16:16]
I for one love this airline. It's simply the best domestic flying experience right now and I sincerely hope they make it. Everything from check in at SFO to the planes themselves, the staff, the onboard product...all at the very top of the heap. I really don't know what to suggest to them except maybe try to expand that HA codeshare strategy with others that are not part of a major global alliance. EK obviously springs to mind...perhaps an investment from them to build out some East Coast hubs that could then take on the feeds from Dubai. With HA, the Virgin Network, and EK, you'd need some kind of carrier partner covering Asia, one in LAC, and you might have a start to a new alliance model with a single massive carrier at the center and smaller regional carriers to do the feeder traffic.
All I can say is please Jesus, don't force me back to UA, after VX every ride in UA coach is like water boarding.
Quoting wingnutmn (Reply 4): How much money would it take to pull away a top exec at DL, UA, or AA to take over VX and try a new route to profitability? Is this something that a regional CEO or President could accomplish? Some industry names out there are Steenland, Mehnke, Bastian, or maybe it is a new challenge for Horton or Parker if AA/US ever tie up.
I'd say Fornaro has a better track record at FL than most of those, but agreed. They need new leadership.
Quoting wingnutmn (Reply 4): Another idea is who may want the planes and or pilots?
A320s are dirt cheap, so nobody.
That's possible. It makes sense. i think B6 thinks they will die anyway.
That'll be an afterthought if they announce a deal.
Quoting LAXintl (Reply 11): The airline today reported $15.8mil operating profit in the third quarter and forecasts operating profit in Q4 also. ??
Strip away the growth cost and some finance cost, the airline is now in the black operationally. A good achievement.
I'll say the same thing i said about F9's 3Q profit. Operating profit means almost nothing as it does not include interest on debt and a 3Q operating profit means even less since it is clearly the best quarter. Finally, all their reporting is fairly meaningless as a private company. Actions speak louder than words. Deferring future deliveries is a much more solid sign that things are going badly.
Agreed. I think their brand also works in MIA and LAS, possibly ORD/NYC. Cush immediately instituted a LAX/SFO-only policy when he arrived. It's one of the reasons he should be leaving.
I agree, but the idea of profit before growth is a shocking concept in the rarified air of a.net.
I don't study Virgin America particularly, although I wish it well. So - superficially - it seems to me that it has two choices. It either changes and become (yet another) ULCC. Or - it sticks to its guns, serves those routes that will pay for its quality service in sufficient numbers and at sufficient prices.
Maybe adopt that most un-American motto - smaller is better. ?
mariner
Quoting Roseflyer (Reply 6): If you look at Virgin America?s management offices, there is a strong contingent of UA people.
I don't know if you have been in their HQ, but there are not as many UA people as you think. It's actually a large amount of ex-NW, DL and a few other carriers. The only large number of UA employee's are in the pilot group.
Quoting as739x (Reply 16):
I don't know if you have been in their HQ, but there are not as many UA people as you think. It's actually a large amount of ex-NW, DL and a few other carriers. The only large number of UA employee's are in the pilot group.
Lots of F9 people joined VX early on too, but then they left
Now there is an idea ..sorta turn it into a Virgin Caribbean using MIA as the hub...call it Virgin Americas.......maybe a little room in MSY too.
I always liked him. What is he doing now?
I think this is the required decision. But the slow growth period is for too long of a time frame.
Quoting enilria (Reply 3): I wonder what will happen to VX now. I don't think they can sit still.
Nor I. they must grow to establish economy of scale (e.g., advertising and route network).
Quoting anstar (Reply 5):
Or is there a legacy US carrier that might be interested in buying them and having them as their "leisure" fun brand but with no frills?
It would be cheaper to acquire the aircraft and pilots on the 2nd hand market.
Quoting Roseflyer (Reply 6): Their management has publicized that they made a mistake by having direct competition on every route they serve. JetBlue didn?t have that, because they took advantage of JFK?s lack of domestic network.
Nice summary one mistake VX made. The other was pursuing B6's rapid growth strategy without B6's large CASM advantage (when they were new). B6 was able to generate 'buzz' with their TCON fares and Florida fares as they created a new market. Early on, B6 was stimulating traffic growth. Since then, Spirit has also entered the market and that has made the number of monopoly routes drop.
As bussinessweek noted: "They had gotten to the party late." http://www.businessweek.com/news/201...lights-labor-cost-on-slower-winter
?? B6 uses the V2500 and will use the PurePower PW1100G for the NEO. VX uses the CFM-56 and will use the LEAP-X for the NEO.
I join the crowd in thinking there is little to no value for B6 to pay for VX.
Quoting LAXintl (Reply 11): Strip away the growth cost and some finance cost
Which leaves VX vulnerable to an increase in interest rates as they continue to acquire debt. I think a slowdown will help.
Quoting mariner (Reply 15): Maybe adopt that most un-American motto - smaller is better.
Until B6 goes back into growth mode. VX is too small to maintain 'mindshare.' VX will also be competing with a much healthier AA in three years. While a few years of slow growth is wise, if they do not figure out how to profitably accelerate growth within 4 or 5 years, they will be in deep trouble.
Lightsaber
That was a much better management team than what they now have IMHO.
Quoting yellowtail (Reply 18): Now there is an idea ..sorta turn it into a Virgin Caribbean using MIA as the hub...call it Virgin Americas.......maybe a little room in MSY too.
That was talked about before they started as being a better fit for their brand, but they never did anything with it. I think with NK retrenching in FLL it opens up more options, although the cost in MIA is high. It would work even better if they were in *A.
Quoting airliner371 (Reply 19): Quoting enilria (Reply 3):
They should try to get Fornaro.
I always liked him. What is he doing now?
He is on retainer to WN with a no compete, although I think it's up before long AND they could buy him out of it I'm sure.
My bet is that around Feb 2013 they announce they are shedding 4-8 existing aircraft. That's going to be the next shoe to drop.
Quoting Roseflyer (Reply 6): Fortunately Airbus will have no problem with the NEO slots, although Airbus does have a gap of late production run A320s that are not in high demand at this point so those slots aren?t going to be easy to transfer.
Do you think Airbus will re-market these NEO slots or just bump everyone up the queue?
Quoting lightsaber (Reply 20): Until B6 goes back into growth mode. VX is too small to maintain 'mindshare.' VX will also be competing with a much healthier AA in three years. While a few years of slow growth is wise, if they do not figure out how to profitably accelerate growth within 4 or 5 years, they will be in deep trouble.
I have no idea what will happen in four or five years, but if Virgin America wants to continue with its present model, then I think smaller is better - eventually some growth, sure, but tempered. I think it is highly unlikely that Virgin America is ever going to take over the world - or even the USA - so, as a niche carrier, why not accept and embellish the niche?
So Qantas, for example, decided that profit - and shareholder value - is presently crucially more important than growth.
Airline geeks may fume that Qantas is postponing aircraft deliveries and making a stock buyback instead, but the shareholders are the owners.
mariner
25 brilondon: Having never flown VX, I don't really have a personal opinion on the in flight product, but their business model forecasting 5% growth seems to confli
26 laca773: I saw the Bloomberg article earlier and was alarmed at first. After reading it, I understood their position and think they are making some very smart
27 avek00: They should have gone gangbusters in building MIA -- the airport has significant spare capacity for a focus city, many MIA markets are O&D heavy,
28 RyanairGuru: I guess this is less relevant to MIA than other cities, especially if they had expanded to LatAm, but isn't FL quite a low yielding market? While the
29 MaverickM11: Most of the VX leadership is ex AA--they probably know a thing or two about MIA. It could be telling that they didn't touch MIA at all.
30 EA CO AS: Probably because MIA's cost per enplanement are atrocious.
31 jpetekyxmd80: I completely agree. Their current model is not at all conducive to the rapid expansion the former number of aircraft would have required. It would si
32 mariner: I thought the Q3 profit was pretty good - not good enough, perhaps, but getting there. People are throwing cold water on it as "just an operating pro
33 SuperDash: I love the people on A-net...There needs to be a class on how to read a financial statement and how to ignore the "spin". Virgin had, yet again, anoth
34 mariner: That would be a very good thing. mariner
35 allegiantflyer: Well im sure we should all know by now....Nothing good last forever
36 EA CO AS: Perspective is important here, however - one carrier has been consistently profitable for the majority of its existence, whereas the other has been b
37 mariner: Sure, if you want. The fact remains that the "net" was $16 million. If Qantas added the (about) $400 million dollars it is receiving from Boeing to i
38 Deltal1011man: .....so take away most of the reason the airline is bleeding money, and boom they turn a profit. Surely hope you use the same idea when you talk abou
39 MaverickM11: They went to DFW pretty quickly; perhaps they know MIA doesn't offer the opportunity that a.net thinks it does.
41 Schweigend: I wish VX were more like Australia's Virgin Blue, who started up only a few years before VX did. DJ has done in the Oz market what VX should be doing
42 airbusa322: Virgin Australia is chasing 16 A320's for its stake in Tiger Airways Australia. Delivery was stated by 2019. Might be where they go?
43 PlanesNTrains: To me, MIA seemed like a no-brainer, along with DFW and perhaps BOS. Oh well... -Dave
45 EA CO AS: That's great, except it's clear that customers aren't willing to pay a premium for it. That's their fundamental problem.
46 RyanairGuru: DJ was launched at the same time as B6, so they have a good start on VX. The big thing that allowed DJ to grow was the collapse of AN. Given that Aus
? 
? B6 uses the V2500 and will use the PurePower PW1100G for the NEO. VX uses the CFM-56 and will use the LEAP-X for the NEO.
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