It’s official, shares of mid-market air carrier Virgin America Inc. are taking flight after the company’s debut on the Nasdaq. The company set the price of its 13.1 million shares at $22.50 and they rose quickly, up 22%, as of this report. That marks 250 IPOs so far this year.
Analysts were expecting stock to do well, based on its recent financial gains. California-based Virgin America, which billionaire investor Richard Branson’s VX Holdings LP holds a 24.8% stake, has generated positive results on the wings of its strategy to do fewer flights and adding shorter trips.
Net profit rose to $60.2 million through September 2014 and revenue was up 4.7% to $405.5 million. Another key industry performance metric –passenger revenue per available seat mile — grew 2.5% in the same period.
Though another company founded by Branson –space exploration startup Virgin Galactic– has been under scrutiny for the crash of a rocket that killed one pilot and seriously injured another, Virgin America’s IPO is well timed, according to analysis by San Francisco Business Journal reporter Ron Leuty.
He points out that in addition to rising revenue, fuel costs have gone down about 6% since 2012. While other carriers have fleets of older planes, Virgin America’s aircraft average age is about 5 years which could spell fewer expenditures on maintenance, at least in the near future.
Adding to its fleet in the next two years, the acquisition of 10 Airbus A320 planes which will fly cross country routes are expected to save on fuel costs because they are crafted with a new wingtip technology that provides better aerodynamics and increased range.
It may not be all smooth sailing for Virgin America as it makes this debut. Some reports point to the fact that airline and transportation company stocks in general have had a good run in the past five years, which could portend an eventual dip.
Others caution that Virgin America’s string of losses leading up to this year’s gains aren’t the only thing to consider for the future health of the company. Indeed, fewer routes mean way less passengers (Virgin America carried 6.2 million against Southwest’s 108 million passengers last year) even though those passengers hail the airline for its service. In 2012, Virgin America had to cut back flights and ask employees to take voluntary leave to trim costs, when it misjudged customer demand for cheaper flights over cushy extras like leather seats.
Will the IPO raise enough cash for Virgin America’s next flight to the land of growth? Watch this spot for the next departure.