The FINANCIAL — Virgin America on February 18 reports its financial results for the and full year 2015. Key highlights include:
Fourth quarter 2015 net income excluding special items1 was $53.6 million, an increase of 90.4 percent from the fourth quarter of 2014. Operating income and operating margin excluding special items were $56.5 million and 14.4 percent, respectively. On a GAAP basis, net income was $190.9 million. Operating income and operating margin on a GAAP basis were $20.3 million and 5.2 percent, respectively.
2015 full year operating and net income, excluding special items, were $211.7 million and $201.5 million. Full year net income, excluding special items, increased by 138.8 percent over 2014 and was the highest in the Company’s history. Operating and net income on a GAAP basis for the full year 2015 were $177.2 million and $340.5 million, respectively, according to Virgin America.
2015 full year revenue per available seat mile (RASM) decreased 1.0 percent compared to 2014, to 12.05 cents.
Fully diluted earnings per share excluding special items was $1.20 for the quarter and $4.53 for the year. On a GAAP basis, fully diluted earnings per share was $4.28 for the quarter and $7.66 for the year.
“Virgin America had a very successful 2015,” said David Cush, Virgin America’s President and Chief Executive Officer. “We achieved the highest net income in company history, generated significant operating cash flow, continued to outperform the industry in domestic unit revenue growth and began growing the airline again. All the while, Virgin America continued to win awards, including being recognized as the ‘Best U.S. Airline’ in the prestigious annual Condé Nast Traveler’s Readers’ Choice Awards for the eighth consecutive year. This is a credit to the outstanding service our teammates provide and our unique and consistent product. We are excited about our growth opportunities in 2016 as we take delivery of five new Airbus A320 aircraft and continue to enhance our ancillary product offering.”
Fourth Quarter 2015 Financial Highlights
Operating Revenue: Total operating revenue was $391.5 million, an increase of 5.2 percent over fourth quarter of 2014.
Revenue per Available Seat Mile (RASM): Passenger revenue per available seat mile (PRASM) decreased 5.1 percent compared to the fourth quarter of 2014, to 10.36 cents, driven by a 5.0 percent decrease in yield. Total RASM decreased 4.7 percent year-over-year.
Cost per Available Seat Mile (CASM): Total CASM excluding special items decreased 10.1 percent compared to the fourth quarter of 2014, to 9.98 cents. Decreases in fuel costs contributed to the decline in CASM, partially offset by increases in salaries, wages and benefits, sales and marketing, aircraft maintenance and other operating expenses. Salaries, wages and benefits costs included a $4.5 million accrual for teammate profit sharing and related payroll taxes. CASM excluding special items, fuel costs and profit sharing for the quarter increased 4.6 percent year-over-year, to 7.49 cents. Total CASM on a GAAP basis decreased 7.1 percent compared to the fourth quarter of 2014, to 11.05 cents.
Fuel Expense: Virgin America realized an average economic fuel cost per gallon including taxes and the impact of hedges of $1.76, which was 38.7 percent lower year-over-year.
Special Items: Special items in the fourth quarter of 2015 consist of a non-cash $36.1 million adjustment related to a change in estimate associated with deposits for future maintenance events paid to our lessors. As a result of this change in estimate, we no longer expect to perform certain future maintenance tasks prior to the end of the respective leases. This resulted in a write-off of existing maintenance deposits totaling $33.8 million plus the recording of fourth quarter payments of $2.3 million as an expense. Special items also include a non-cash $173.5 million gain related to the release of the Company’s income tax asset valuation allowance. In the fourth quarter of 2015, the Company determined its financial performance is both sustained and significant enough to provide sufficient evidence to support reversal of the Company’s income tax valuation allowance.
Operating Income: Fourth quarter 2015 operating income excluding special items was $56.5 million, an increase of 65.0% as compared to the fourth quarter of 2014. The Company’s operating margin excluding special items of 14.4 percent improved by 5.2 pts points year-over-year.
Net Income: Net income excluding special items for the fourth quarter increased by 90.4 percent year-over-year to $53.6 million.
Fully Diluted Earnings per Share (EPS): Fully diluted earnings per share excluding special items was $1.20 for the fourth quarter of 2015. Fourth quarter 2015 fully diluted earnings per share was $4.28 on a GAAP basis.
Capacity: Available seat miles (ASMs) for the fourth quarter of 2015 increased 10.3 percent year-over-year compared with the fourth quarter of 2014. Virgin America ended the quarter with 58 Airbus A320-family aircraft, of which 57 were placed in service, compared to 53 aircraft at the end of the fourth quarter of 2014. The Company took delivery of five Airbus A320 aircraft in 2015.
Liquidity: Unrestricted cash was $496.3 million as of December 31, 2015. Virgin America generated $23.8 million of operating cash flow during the quarter.
Operational Highlights 2015
Took delivery of five new Airbus A320 aircraft in 2015, with an additional five scheduled to be delivered in 2016. These aircraft were financed using term loans with average annual interest rates under 5.0%.
Announced plans to acquire ten new Airbus A321neo aircraft from 2017-2018, which are expected to be up to 20 percent more fuel and carbon efficient than the airline’s current fleet and which the airline believes will help further reduce operating unit costs and increase revenue opportunities.
Launched service to Hawai’i with new flights from San Francisco to Honolulu, Oahu and San Francisco to Kahului, Maui. The airline announced it plans to expand its Hawai’i service further in 2016 with two new routes: Los Angeles-Honolulu, Oahu on May 5, and Los Angeles-Kahului, Maui on June 14.
Launched sales for new service between San Francisco International Airport and Denver International Airport. Denver was the most requested destination by the airline’s high-tech corporate accounts, and Virgin America is expected to be the only airline on the route with three classes of service, WiFi, power outlets, on-demand food ordering and touch-screen seatback entertainment on every flight. The airline also launched nonstop flights between Dallas Love Field and Las Vegas, bringing new product and fare competition to the monopoly route.
Established a new partnership with broadband and communications technology and services provider ViaSat Inc. to bring significantly faster WiFi connectivity and high-quality video streaming to the airline’s 2015 and 2016 A320 aircraft deliveries. The new partnership enabled the airline to launch new in-flight streaming deals with Netflix, Spotify and The New York Times during the year.
Debuted a new version of its state-of-the-art Red in-flight entertainment system, which features higher resolution capacitive touch screens and Android-based software that allows for three times more content – along with the first surround-sound listening experience to be offered by an airline.
Upgraded the back-end of its reservation system to sell ancillaries via industry standard Electronic Miscellaneous Documents, ultimately enabling it to sell ancillary products via Global Distribution Systems, paving the way for the airline to continue improving its ancillary revenue performance and introduce new products.
Expanded revenue opportunities by continuing to grow its partnerships with international airlines. Virgin America ended 2015 with a total of six codeshare partnerships and 32 interline partnerships.
For the eighth consecutive year, Virgin America was named ‘Best U.S. Airline’ in the prestigious annual Condé Nast Traveler’s Readers’ Choice Awards and ‘Top Domestic Airline’ in the prestigious annual Travel + Leisure’s World’s Best Awards readers’ survey.
Virgin America was also awarded ‘Best Airline in North America’, ‘Best Low-Cost Airline in the U.S.’ and ‘Best Staff Service’ among North American airlines in the 2015 Skytrax World Airline
Launched new Elevate partnerships including Airbnb, Citibank and Thompson Hotels and reached four million Elevate members.
First Quarter 2016 Outlook
Virgin America is scheduled to take delivery of two A320 aircraft during the first quarter of 2016. The Company expects capacity, as measured by available seat miles, to increase by approximately14.0 percent to 16.0 percent for the first quarter of 2016 as compared to the first quarter of 2015. Based on current revenue trends, the Company expects PRASM to decrease between 3.0 percent and 5.0 percent versus the first quarter of 2015. The Company expects CASM excluding special items, fuel and profit sharing to increase between 2.0 percent and 3.0 percent versus the first quarter of 2015. CASM excluding special items, fuel and profit sharing is increasing in the first quarter due primarily to Virgin America’s previously announced pay and benefit initiatives that were implemented in April 2015, partially offset by underlying unit cost improvement as the company resumes capacity growth. The Company continues to expect CASM excluding special items, fuel and profit sharing to decrease between 1.0 percent and 2.0 percent for the full year 2016.
Based on Virgin America’s hedge portfolio and current market prices for aviation fuel products, the Company expects Virgin America’s economic fuel cost per gallon inclusive of related taxes and hedge costs to average between $1.55 and $1.65 for the first quarter of 2016. This number may change depending on fluctuations in market prices for jet fuel during the quarter.