A Detailed Review of Virgin America's Substantial Losses

(MoneyWatch)  The government has now released all of Virgin America's data through the third quarter of 2008 (through October 2008 for monthly data points), and I've been poring over it for hours. The results? Not good at all. We're looking at an airline that is bleeding money right now and is nowhere near profitability, even with some fuel relief. It is seeing some improvement, but that "improvement" still has them with a -52 percent margin. Here are some high, er, lowlights.

Virgin America is Losing Large Sums of Money The income statement shows the following information by quarter (in thousands).

	Q3 2007	Q4 2007	Q1 2008	Q2 2008	Q3 2008
Operating Revenues	$16,155	$35,989	$52,826	$92,546	$114,193
Operating Expenses	51,157	95,920	103,652	154,655	168,475
Operating Income	(35,002)	(59,931)	(50,826)	(62,110)	(54,282)
Operating Margin	-217%	-167%	-96%	-67%	-48%
Net Income	(34,819)	(63,427)	(52,014)	(64,361)	(59,058)
Net Margin	-216%	-176%	-98%	-70%	-52%

Virgin America's Cash Has Dwindled Virgin America has burned a great deal of cash since it started. Cash has fallen to the following levels at the end of each quarter (in thousands).

Q3 2007: $104,166 Q4 2007: $69,311 Q1 2008: $30,272 Q2 2008: $11,068 Q3 2008: $25,382

As you can see, it rebounded during the third quarter, but that couldn't have been from operations. In April, it was noted that the airline was receiving an extra $100 million in cash, so I wonder if that came in during the third quarter. Long term debt did rise by nearly $70 million during the third quarter, so that would make sense.

Virgin America Paid Dearly for Fuel There's no question that Virgin America paid through the nose for fuel. Here is what they paid per gallon by quarter.

Q3 2007: $2.18 Q4 2007: $2.56 Q1 2008: $2.83 Q2 2008: $3.65 Q3 2008: $3.52

So now that fuel prices are tanking, the airline should be in better shape, right? Well, yes, but it won't make them profitable. For example, if we look at the second quarter, where fuel is expense was highest, let's see what would happen if the per gallon price plummeted to a seemingly unrealistic $1.50 per gallon.

The airline then would have saved $33 million in fuel expense alone. That still leaves the airline $30 million in the hole for that quarter. The airline would have saved $35 million in the third quarter since they used more fuel, but that still would have left them with roughly a $25 million loss for the quarter.

I'm going to continue looking through the data here, but I continue to be surprised at how bad it looks right now. Virgin America CEO David Cush was quoted as saying "This is an industry with very high start-up costs and where large first year losses are common."

That may be true, but with high load factors (I'll have more on that another time), there isn't much room for them to improve without dramatic revenue increases. If we look at JetBlue, its first year of operation (2000) resulted in a negative 20 percent margin, but it was a positive 8 percent margin by the following year. It doesn't appear that Virgin America is even in the same league right now.

As long as people keep pouring money into the airline, it will of course be fine. The question is . . . when do people stop pouring money in?