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Virgin America Loses Money -- Again -- When It Should Have Profited

The second quarter has been a goldmine for airlines. After struggling to get into the black for a long time, we saw massive profits on the back of very strong demand nearly across the board. And then there's Virgin America. Despite its cost advantage, Virgin America once again lost money in the second quarter, and really, it shouldn't have.

This time, Virgin America lost $15.5 million for the quarter, about the same as last year. The operating results, however, were improved. Operating loss was a mere $430,000 compared to $5.3 million last year. But that "mere" $430,000 loss is still of great concern (even if it would have been a few million dollar profit excluding special items, which in this case were fuel-hedge related).

Of greater concern is the cash position. The airline actually burned through cash during the quarter. Unrestricted cash dropped from $28 million at the end of the first quarter to $26 million at the end of the second quarter. That sort of cash burn wouldn't normally be concerning. It's fairly minor. But this is the best revenue environment we've seen and the airline should be building cash, preparing for the long winter.

There were also some curious trends in terms of the number of seats filled. Virgin America saw its loads decline to only 81.9 percent. Notorious load factor-laggard Southwest (LUV) even ran an 82.3 percent, so Virgin appears to have traded off filling seats for higher fares. That's not a bad thing - it's easier to lower fares to fill more seats - but it is a bit surprising in such a strong demand environment where they should have been able to fill more seats at good fares.

As I said back in June,

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.
Virgin America should be in a golden spot right now. Industry demand is high, yet legacy airlines are keeping capacity growth at bay. That means Virgin America shouldn't have any trouble finding people to fill its planes. At the same time, it's a young airline with a junior workforce and a new fleet with low maintenance needs. That kind of high revenue environment combined with low costs should equal profit. It didn't.

Now, the second quarter only includes one summer month since it ends on June 30, and I imagine Virgin America will finally post an operating profit for the third quarter. It could even post a net profit, but this is really as good as it gets in terms of general environment. The airline needs to do better.

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Photo via Flickr user | El Caganer/CC 2.0
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