Virgin America Heading to the Deadpool Next? 1
Last week was not exactly good news for the commercial airline industry, with three well known carriers heading into abrupt bankruptcy and ceasing operations. Three bankruptcies does a trend make, so I started wondering if/who would be next heading to airline heaven (or hell depending on your experience).
Unfortunately for Richard Branson, my thinking lead me straight to chic new startup Virgin America. If this were the beginning of the American version of Virgin Atlantic, in which Sir Richard has controlling interest, I would be pretty certain he would not be so quick to give up on a new airline. He went through some tough times getting Virgin Atlantic to where it is today, and probably wouldn’t be afraid to burn some cash doing the same for Virgin America.
The problem in this situation however is that Virgin America is controlled by American companies and uses mostly American funds. With the high publicity and rapid succession of last week’s bankruptcies, I wouldn’t be surprised if some of those investors were now considering getting their money out while VA still has value.
Of course their decision hinges on whether or not VA’s situation is as bad as the airlines that have gone before them. Since VA is a private company, we really have no knowledge of its exact financials, but do know that in the first quarter of operation they lost $35 million, and even management doesn’t expect to make a profit any time soon. Investors had to have been prepared for all this when the signed up for the deal, but given how high fuel prices have gotten, how low VA’s load factor is on most routes, and recent current events, they could be forgiven for having cold feet.
Overall I think Virgin America has a great product that takes a long term approach to winning customers and, given the time, will prove profitable. The only question is whether squeamish US investors will give it the opportunity to prove it’s business plan over the long run, or if short term market conditions and recent trends will take down VA prematurely.
Read on for a closer examination of Virgin America’s current status…