Virgin America's First Quarter Loss Means More Work Ahead for Troubled Airline

(MoneyWatch)  Virgin America has released its first quarter earnings results, and once again it reported a loss. This time, the justification was fuel costs, but those are hardly likely to change. The airline may be making progress, but it needs a lot more to reach sustainable profitability -- or anything close to it.

Reading the press release, you'd think that the airline was raking in the dough thanks to its selective focus on the really strong numbers. Operating results improved 29 percent, revenue was up 46 percent, unit costs (excluding fuel) dropped 11 percent, and the percentage of seats filled was up 3.8 points. Great, right? There was a lot self-congratulating going on in the release, but there are really only a couple of numbers that matter in the end, and these aren't them.

The numbers that matter? The airline had a net loss of $35.5 million on revenues of $146.8 million. Yep, that's a negative 24 percent net margin. Operating margin was somewhat better at negative 15 percent, but that's still far from good. Cash was up a bit to $28 million, so that's some good news for the airline.

Bottom line: As the airline touts major gains, it continues to lose a significant amount of money. CEO David Cush remains convinced that the airline will post an operating profit for the full year. Seeing the strong revenue numbers being reported for all other airlines, if Virgin America can't make a profit this summer, things are worse than I thought. Its execs must be expecting that to carry them for the full year.

But what if demand tanks? Or fuel prices spike in 2011 or beyond? This airline doesn't have much breathing room. The plan seems to be to grow out of its financial situation. Virgin America has started talking aggressively about plans to add several new cities. While that may help to spread the cost base over a larger operation, it also takes a lot of effort and money to get routes up and running.

Virgin America has made it further than most would have expected and is talking very positively about the future, but it's still far from occupying a stable, sustainable position. If I were in charge, I think I'd be looking at ways to shore up my balance sheet by focusing on the strongest markets with the airplanes I have instead of going into hyper growth mode and adding seemingly random cities all over the place (Orlando, Toronto, etc).

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