Airline Weekly - October 1, 2012
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Airline Weekly - October 1, 2012

California Bleeding: Once again, Virgin America lost money last quarter. Is slower growth the answer?

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Cover Story

California Bleeding: Once again, Virgin America lost money last quarter. Is slower growth the answer?

Virgin America is nothing if not sexy. It’s growing lightning fast at a time when others are shrinking or stagnant. Its passengers are young, hip and well educated. Its flights touch down in the nation’s economic and cultural nerve centers. Even Silicon Valley finds its innovative product design impressive. Even New York City, Los Angeles and San Francisco like its style. Heck, it’s even offering a free flight to outer space for the frequent flier who earns the most status points in the next year. How cool is that?

But don’t judge a book by its cover. For all its pizzazz, Virgin America has produced nothing but losses in the first half decade of its existence. In 2009, a year when America’s younger and lower-cost carriers benefited disproportionality from economic distress, Virgin stumbled to a negative 9% operating margin. In 2010, one of the greatest years ever for U.S. airlines—onein which all other carriers made money and combined for a 7% operating margin—Virgin’s margin was negative 2%. Then in 2011, when the industry’s operating margin fell to 5% on higher fuel prices, Virgin’s declined too, to negative 3%. Even American, compelled to declare bankruptcy in November of that year, did better: its operating margin for 2011 was negative 2%.

So are things at least getting better in 2012? No. Last week, Virgin posted another set of disappointing results. During the second quarter, a time when the second-worst performing U.S. airline (American again) managed a positive 4% operating margin, the perennial basement dweller (Virgin America) produced a margin of negative 1%. More alarmingly still, Virgin’s Q2 net loss was $32m on just $347m in revenue, yielding a bleak negative 9% net margin. And yes, every other U.S. airline earned a net profit last quarter. And don’t forget that Virgin’s closest rival—United—spent much of last quarter alienating business travelers in California and elsewhere by mishandling their reservations, botching their upgrades, losing their bags and arriving late.

This latest red ink brings Virgin’s accumulated net losses for the first half of 2012 to a shocking $108m, meaning a net margin of—hold your breath—negative 18%! There just aren’t many airlines in the world—particularly ones with more... (381 of 1,522 words)

Also Inside this Issue:

For the past several months, United was getting the headlines for unreliable service. Now it’s American’s turn. Troubled not by merger integration complexities or computer snafus but a labor dispute with pilots, a large number of American’s flights are not leaving on time—or in some cases not leaving at all. Pilots say it’s not their fault, blaming management and even airing tenuous accusations of safety concerns in public. Management says the number of pilot sick calls and frivolous maintenance write-ups can’t statistically be a coincidence. Over the weekend, though, reliability improved somewhat. Is that the beginning of a trend and perhaps a détente with pilots?

United, meanwhile, whose punctuality is improving, has an improving armada of airplanes too. Last week it received its first B787, becoming the first carrier in North America so equipped.

Thai Airways, for its part, took delivery of its first A380, a plane it plans to fill with inbound tourists and—hopefully—some high-fare business passengers too. Its rivals in the region, Singapore Airlines and Malaysia Airlines, are already armed with A380s.

In the more northerly reaches of East Asia, Japan’s two airlines are fortifying their joint ventures with European partners, in JAL’s case getting started with British Airways and in ANA’s case adding Swiss and Austrian to its already-active JV with Lufthansa.

Speaking of Swiss, it’s going back to Singapore after exiting in 2009, re-connecting two cities with large pharmaceutical industries.

In India, Kingfisher ain’t too proud to beg for survival cash, while in North Africa, London’s calling for Air Arabia.

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