Virgin America (VA) is a United States-based airline that began service on August 8, 2007. The airline went public in November last year, and the stocks have been pretty volatile since then. Although the company delivered good quarterly results, the stock is down almost 40% from its all-time high and is struggling to break the $28 mark.
In Q4 FY14, the company reported earnings per share of $1.16, $0.37 superior than the analyst estimate of $0.79. Revenue was accounted to $372.2 million compared to analyst estimate of $370.57 million.
Revenue per Available Seat Mile (RASM) improved 3.7 percent compared to same quarter of 2013, to 12.23 cents while Cost per Available Seat Mile (CASM) improved 0.7, excluding special items, compared to same quarter of 2013, to 11.10 cents.
The company shared non-GAAP net income of $84.4 million. For the year net income surged by $74.2 million compared to 2013, marking the best year in VA’s history. Net income excluding special items was $28.1 million, up 98% compared to the fourth quarter of 2013. The company’s fuel cost decreased $8.7 million year over year.
Is the dip warranted?
Virgin America offer domestic flights for customers from its main centers in San Francisco and Los Angeles, California. The company forces the Virgin brand to deliver tremendous customer service while controlling costs and conveying a fairly valued product in comparison to opponents.
The “alleged” downside that Virgin America carries is its ability to survive against the likes of Delta (DAL, Financial), Spirit (SAVE, Financial) and the other superior performers despite the fact that it takes pride in giving an exclusive experience with outstanding customer facility.
Virgin America is loved by travelers as its flight assistants are well qualified and attentive and customer experience is at the top thought of each employee as inspired by the company's inducement plans. Also, Virgin America is the leader in implementing technology among the airlines as displayed by its first implementation of DirecTV (DTV, Financial) on the airline's TVs and GoGo's wireless network. The company mainly focuses on treating customers in the pink and dominating a corner.
Oil price will drive profits
In any airline industry, oil has a very significant role. Virgin America dodged Q1 and Q2 in a hostile way. If an oil price remains low, then the company will be likely to perceive fuel cost savings in the second half of the year. Investors should be conscious then that Virgin America’s fuel prices will be intensely different for the present quarter. Although it isn’t possible to predict the exact impact that low oil prices will have on the company’s margins, it will definitely act as a big positive as oil prices are still over 45% lower year over year. The company can improve its balance sheet and reward investors due to the significant fuel savings.
Conclusion
Virgin America stock has been hammered despite its decent performance. The stock has lost close to 40% of its value in the last few months. Although the massive dip is unjustifiable, I think investors should use it to buy the stock as the company has many factors that can drive its share price up.
