Virgin America Inc., the low-fare airline partly owned by U.K. billionaire Richard Branson, posted a third-quarter loss as costlier jet fuel and accrued interest expenses overpowered higher revenue.
The deficit for the three months ended in September was $3.3 million, compared with a $7.48 million profit a year earlier, the Burlingame, California-based carrier said today in an e-mailed statement. The closely held company had $24 million in unrestricted cash at the end of September, which doesn’t include a $150 million debt offering completed this month.
Virgin America has added flights to Chicago and Puerto Vallarta, Mexico, to woo leisure travelers away from larger competitors such as United Continental Holdings Inc. Quarterly earnings were hurt by an 86 percent jump in fuel costs, higher payments on aircraft leases and labor as the carrier expands and a 44 percent increase in accrued interest payments.
“The key difference between us and the rest of the industry is that we were growing while others were shrinking, and that puts pressure” on revenue, Chief Executive Officer David Cush said today in an interview. New cities such as Chicago are “ahead of expectations” and continue to perform well in the current quarter, he said.
In addition to the $150 million debt facility, Virgin America said it reached lease financing commitments for 13 new Airbus A320 planes slated for delivery in the coming two years and has covered aircraft capital requirements through the third quarter of 2013.
Virgin’s revenue rose 44 percent to $290.6 million for the three months through September, while its fuel bill jumped to $110 million. Jet fuel has surpassed labor and aircraft costs as the biggest expense for many carriers.
The carrier dropped flights to Toronto earlier this year, less than a year after beginning service to that city, because it wasn’t profitable.
Virgin America, which didn’t hedge on fuel in the third quarter, will begin fixed forward purchases in the coming months to “take a little bit of the volatility out,” Chief Financial Officer Peter Hunt said in the interview.
Virgin America, which started service in August 2007, has a fleet of 46 Airbus SAS A320 jets and flies to cities including San Francisco, Los Angeles, Las Vegas, New York’s John F. Kennedy airport, Washington and Boston.