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The Virgin America IPO (NASDAQ:VA) took off at $23.00 late yesterday, right down the middle of the runway that had been defined as being $21.00 to $24.00 wide. When it went public at 10:02 a.m. it had reached an altitude of $27.00 before ascending to $31.19 and cruising home at $30.00. VA’s share price is continuing to fly along at $30.26 in after hours trading.
The company sold 231,210 shares to a group of Virgin employees and another 13.1 million to other investors, raising a total of $312 million. $5 million of that will go to PAR Capital, Cyrus Capital and the Virgin Group. The company’s market cap is at $1.2 billion. Total revenue YTD is at $1.1 billion, on which the company has made a net income of $56.2 million.
Virgin is not competing in the U.S. based exclusively on competitive pricing, as many other airlines are. Rather, it is distinguishing itself with a mission to create a unique flying experience. The VA website says that the company wants “to make flying good again, with brand new planes, attractive fares, top-notch service, and a host of fun, innovative amenities that are reinventing domestic air travel.” Did they say “make flying good again?” That works for me. Flying stopped being fun for me a decade ago. Perhaps I need to reconsider my disdain for being herded like sheep and crammed together like sardines in a tube so that I can experience the aromatic blend of body odors accompanied by the ambiance of the annoying kid in the sit behind me who thinks that the back of my seat is a soccer ball. Or sitting in a window seat next to a 350 lb. gorilla who sweats like a sprinkler head. But I digress.
Virgin’s objective of making flying good again sounds a lot like another advertising ploy, until you realize that they aren’t just talking about it. They are actually doing it. Mood lighting in the cabins, touch-screen monitors mounted in every seat back, power outlets and USB ports, WiFi, and custom-designed leather seats in their entire fleet of new Airbus A-320s are the proof in the pudding. Plus, they offer on-demand menu service ordered right from that touch screen in front of you. That sure beats a bag of ten peanuts.
No doubt other airlines will attempt to imitate Virgin’s success, especially if it keeps up the practice of embarrassing its competitors by doing things like garnering the Condé Nast Traveler’s Award for Best Domestic Airline and as it has done every year since 2008. Not to mention that it has been awarded Best Domestic Airline every year during the same period by Travel + Leisure.
The airline business is a particularly tough one, with low margins and fierce competition. With a proliferation of M&A and alliances, almost all U.S. airlines, and many international, continue to trim their expenses and their fleets in order to keep their seats full, running a profitable airline is an exacting science. Virgin America is making it an art. As long as they keep the science right, not only will the airline fly, but its share price should too.
