Shares of low-cost airline Virgin America (VA, Financial) have been inconsistent ever since organization went public in November 2014. Virgin America's IPO was priced at $23 per share, yet the stock jumped to over $42 in a month. However, notwithstanding reporting better-than-expected quarterly results, Virgin America is down right around 20% YTD.
VA gives domestic flights to clients from its essential center points in San Francisco and Los Angeles, California. The organization influences the Virgin brand to give superb client administration while controlling expenses and conveying a fairly priced item in examination to contenders. The organization's essential channel is its image name and client experience. The organization has reported significant earnings growth for nine sequential quarters and given that it holds a tiny 2.5% of the U.S. airline market share, it has a great deal of space to develop. Henceforth, I think Virgin America is a good buy on the pullback. Let’s take a look at the reasons why.
Oil prices
Oil prices are down from over $110 per barrel a year ago to under $58 per barrel. Notwithstanding the drop, airline organizations haven't cut ticket prices because of the ascent sought after. Through the years, various mergers and acquisitions have consolidated competition, as an aftereffect of which interest for air tickets is on the ascent.
Furthermore, the interest is forecast to increase in the decades to come. As per the U.S. Government Aviation Administration, the quantity of travelers flying on U.S. airlines is relied upon to become around 50% by 2035. Thus, airlines have the capacity to advantage from the drop in oil prices. Also, VA hedged forcefully in Q1 and Q2, and is required to see fuel cost investment funds in the second a large portion of the year if oil prices stay low.
Impacts to fuel price changes "are delayed when they rise," which is the point of the program and they are also delayed when they fall. So we'll continue to see benefits of lower fuel prices in the second and third quarters of this year even if fuel prices change simply because of the program.
Overblown headwinds
Virgin America’s shares are in a slump due to analysts claiming that the company will not be able to sustain profitability due to increasing competition. Ironically, the airline was recently voted as the #1 carrier in the Airline Quality Rating (AQR) report for the third year in a row. VA’s low-cost tickets, along with high class amenities give it an upper hand over its competitors. Hence, I think Virgin America will continue to perform nicely in the long-run.
Conclusion
Virgin America is well positioned in high development, high traffic markets that will keep on driving revenue development alongside auxiliary revenue development through the as of late instituted credit card program. The organization is just expanding the stickiness of its image, and its outstanding client administration is preference that couple of different airlines can coordinate. The prospects for future income generation paints a photo for an attractive interest in an organization that may foundation shareholder disseminations later on or have the capacity to bounce on accretive speculation opportunities when they emerge.
