=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2009/03/11/BURR16CRAC= .DTL --------------------------------------------------------------------- Wednesday, March 11, 2009 (SF Chronicle) Virgin America CEO sees good times ahead George Raine, Chronicle Staff Writer (03-10) 18:08 PDT -- Virgin America could not have picked a worse time to launch an airline, on the eve of gravity-defying fuel prices and a cruel recession. The financial numbers are still red after a year and a half of operations, but the chief executive sees a break in the clouds and profitability on the horizon for the only California-based airline. President and CEO David Cush said Tuesday that Virgin America, based in Burlingame, had an operating loss of $27 million on revenues of about $110 million in the fourth quarter, ended in December. That is roughly a 25 percent negative margin but the company is pleased because those margins were reduced sharply quarter by quarter in 2008, as the economy tumbled: There was an operating loss margin of 97 percent in the first quarter of 2008, 67 percent in the second quarter and 48 percent in the third. Cush said he believes Virgin America will have one or two profitable quarters this year, "and we are still fully on course for full-year profit in 2010." "We have a five-year plan," said Cush. "We know how many airplanes we wa= nt to take, and we know what revenue we should be generating with those, and right now it shows 2010 profitable and solid profits after that," said Cush, a longtime American Airlines executive who came to Virgin America in December 2007. New hires come aboard As Cush laid out the fourth quarter results, a group of 30 new hires - airport workers, mechanics, flight attendants - was learning the ropes in a multipurpose room at the Burlingame headquarters. Virgin America is that rare entity that is hiring, and has four airplanes on order to join the current fleet of 28 by 2011 - although some may be moved up to next year. There have been no layoffs of 1,412 employees, most of them located in the Bay Area. "We are in a recession, but we are in a growth period," said Cush. "The customers like our product. They are flying in our airplanes. The load factor in the fourth quarter was 81 percent, compared to the fourth quarter of last year when it was 62 percent. That shows acceptance," he said. Privately held Virgin America need not release financial figures, but the Department of Transportation plans to do so in mid-May so Cush decided to release them on his own schedule. The improving picture is among many reasons that "Virgin America is on everyone's radar," said Seth Kaplan, managing partner of Airline Weekly, in Fort Lauderdale, Fla. "It's going to be a bloodbath for a while," said Kaplan, as competitors will do what is necessary to maintain market share and punish the upstart. "Most of the other airlines think there are too many airlines in this country," said Kaplan. "You can't put Southwest out of business so you might focus on one more vulnerable. That would be newer and smaller airlines." American Airlines is already tripling frequent flier miles on routes between Boston and San Francisco and Los Angeles, routes Virgin America began flying last month. Indeed, said Cush, the Boston to San Francisco flight is its No. 1 flight in demand. Alaska Airlines last month asked the Department of Transportation to examine Virgin America's ownership. U.S. law holds that U.S. airlines must be 51 percent owned by Americans who have 76 percent of voting control. It was British entrepreneur Sir Richard Branson who had the idea to launch the airline, and Alaska suspects his London-based Virgin Group has a larger share of it than the airline reports. Cush said that is not so. Behind the petition In Seattle, Alaska Airlines spokeswoman Caroline Boren said the petition is simply a request that asks the government to hold Virgin America "to the same standard of compliance with U.S. citizenship law." Cush said the competitor's concern is less about regulatory issues "and more about the fact that we have come into the markets (San Francisco and Los Angeles to Seattle) that are very important to them, where they have enjoyed a cozy duopoly with United Airlines for many years." The result, he said, has been a decline in fares. "Unfortunately for them, the loser is Alaska and they don't like it," said Cush. Hedge funds big investors Hedge funds Cyrus Capital Partners and Black Canyon Capital were the maj= or U.S. investors in Virgin America, and the two of them, and to a lesser extent Virgin Group, pumped $400 million into the airline - 51 percent from the hedge funds, said Cush. He said Tuesday that the airline has engaged investment banker Lazard Ltd., to look for other U.S. investors should the hedge funds exercise a put option - which gives an investor the right to sell shares at a predetermined price. Cush said it's prudent to do so because the investors have that option. The Wall Street Journal reported Monday that the hedge funds had done so. Cush said he would not comment, except to say, "The U.S. shareholders still own 76 percent of the operations of the company. They still sit on the board and they still control the board. The airline is still within control of U.S. investors." Also in its financial report, the airline said it ended the fourth quart= er with $68 million in cash. Despite fuel costs and a challenging economic climate in 2008, Virgin America said it had strong and growing unit revenue along with higher load factors. E-mail George Raine at graine@xxxxxxxxxxxxxxxx ----------------------------= ------------------------------------------ Copyright 2009 SF Chronicle <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".