Virgin America Finally Posts Its First Profit, But It's No Surprise

Last Updated Nov 11, 2010 11:16 AM EST

It's been more than three years since Virgin America carried its first customer and the airline has now, finally, managed a quarterly profit. That's obviously great news, but it's not exactly validation of long term success. It's good to be an airline right now with high demand and limited supply. As we know from past experience in this industry, that won't last for very long.

The third quarter produced an honest-to-goodness profit for Virgin America, none of that "excluding special items" bull that airlines often like to try to throw around. Net income was just shy of $7.5 million on just over $200 million in revenues. Operating margin was just over 10 percent.

For the year, Virgin America has now lost just over $43 million with an operating loss of around $1 million. Assuming Virgin can push out a profit for the fourth quarter, something that seems likely across the board in the industry right now, then it will have met its goal of showing an operating profit for 2010. Congratulations are due. I never thought it would happen, but then again, I never thought the industry would be in such good shape.

Considering the massive profits the industry as a whole is raking in right now, it would have been truly surprising if Virgin America did not make a profit. I mean, even American (AMR) made a profit in the third quarter, and that says a lot. But the forward-looking trends here are good as well.

Virgin America actually carried fewer passengers in the third quarter 2010 than in 2009, but it carried those passengers further. I've long wondered why Virgin America was adding all these short haul routes when the onboard product is really better-suited to long haul. That's finally changing. Orange County is gone, and distant destinations like Toronto and Cancun have joined the route map with Dallas up next.

And with the airline industry doing a good job of keeping the lid on capacity growth, everyone benefits from higher fares. Supply is flat and demand is climbing. Even someone who slept through microeconomics freshman year can tell you that's a good thing.

But this is the airline industry, and the threat of future pain is always looming. For Virgin America, there are several potential threats that need to be addressed before the airline can actually be considered a success. I'll talk about what those are tomorrow, but for now, congratulations to Virgin America for something I figured would never happen.

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Photo via Flickr user | El CaganerCC 2.0