Virgin America $35 million in the red in first quarter of operation
(TVLW) - Virgin America, the startup airline based at San Francisco International Airport, had a tough time getting off the ground this year, reporting an operating loss of $35 million during its first quarter in business. The figure was reported Monday on the Department of Transportation Web site and was confirmed by Abby Lunardini, spokeswoman for the airline that began service Aug. 8.
(TVLW) – Virgin America, the startup airline based at San Francisco International Airport, had a tough time getting off the ground this year, reporting an operating loss of $35 million during its first quarter in business.
The figure was reported Monday on the Department of Transportation Web site and was confirmed by Abby Lunardini, spokeswoman for the airline that began service Aug. 8.
The privately held carrier had $16.16 million in operating revenue and $51.16 million in operating expenses in the period that ended Sept. 30, the Department of Transportation reported.
Lunardini, at the carrier’s Burlingame offices, noted that the reporting period for Virgin America reflects 92 days of operating expenses and 53 days of revenue.
“You have incredibly high overhead costs when you start an airline,” said Lunardini. “We did not expect to turn a profit this early in our plans,” she said.
She added that the airline has not set a date when it expects to reach profitability.
“It is not likely to be anytime soon,” said Lunardini. “Our shareholders are aware of that.”
Virgin America is the only California-based airline. Over time, it has the potential to be a major player in the Bay Area economy. It has more than 800 employees and operates 12 aircraft – with firm orders for 31 more – in the Airbus A320 family. It serves San Francisco, Los Angeles, New York, Washington and Las Vegas. It begins service between San Francisco and San Diego on Feb. 12, and between Seattle and both San Francisco and Los Angeles on March 18.
The company has said it hopes to be serving 10 cities after its first year of operation and 30 cities in five years.
Virgin America, a U.S.-owned and -controlled company, faced a perception of foreign ownership as it was in the development stage because the carrier licenses the Virgin brand from Britain’s Virgin Group, headed by Sir Richard Branson.
Competitors of Virgin America tried to thwart its certification application by challenging its claim that the Virgin Group is a minority share investor. Foreign citizens are barred from owning more than 25 percent of a U.S. airline or exercising operational control.
Virgin America did get its certification, but the federal government said its CEO, Fred Reid, would have to leave the company because of the foreign ownership concerns.
Before he took the top post at Virgin America on April 4, 2004, Reid, 57, was the president and chief operating officer of Delta Air Lines. He steered the nascent Virgin America through the fundraising and certification process.
Reid was replaced by C. David Cush, 47, a veteran American Airlines executive, effective Dec. 10. Cush’s last position at American Airlines was senior vice president of global sales. He was responsible for all sales and distribution activities worldwide. He also served as vice president of American’s St. Louis hub and, before that, he was vice president of international planning and global alliances.
Henry Harteveldt, an airline analyst for Forrester Research in San Francisco, applauded the selection of Cush.
“One reason you bring in a very disciplined and creative executive like Dave Cush is, I think, he understands the challenge of running an airline. And I think having somebody of his caliber will provide guidance and discipline to make sure the airline narrows that gap between revenue and expenses,” said Harteveldt.
“It’s going to be awhile for Virgin America to be profitable, but Dave has the capability to shorten the time,” he said.
Harteveldt, a former airline executive, said startup costs are substantial. It costs approximately $100,000 to train a pilot, he said, and more than $10,000 to train a flight attendant.
“Anyone who looks at the (first quarterly) report and says the airline is failing is wrong, but I wonder if they are succeeding to the degree they anticipated,” Harteveldt said.
— Aircraft: 12 (with orders for 31 more)
— Employees: 800
— Headquarters: Burlingame
— Cities served: San Francisco, Los Angeles, New York, Washington, D.C., and Las Vegas.
— Expansion plans: Service begins to San Diego Feb. 12 and to Seattle March 18