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Note to Virgin America: Go Ahead, Take the IPO Plunge


Story has been updated with analyst comment on airline shares and recent American Airlines share price.

San Francisco ( TheStreet) -- The news keeps getting better for Virgin America, which said Wednesday that the fourth quarter was its third straight profitable quarter and led to its first profitable year ever.

The privately held San Francisco-based carrier, focused on trans-continental flying, said fourth-quarter net income was $14.2 million, compared with a year-ago loss of $25 million.

Revenue per available seat mile rose 4.1% to 11.79 cents, while cost per available seat mile excluding fuel was flat at 6.94 cents. Total CASM was 11.03 cents, down 1.3%. Operating margin was 6.6%, up 5.1 points from the same period a year earlier and slightly above the industry average of around 6%. Revenue rose 2.7% to $360 million.

For the full year, net income was $10.1 million, compared with a loss of $145 million in 2012. Revenue rose 7% to $1.43 billion. RASM rose 9.3%, the biggest full-year gain for any major carrier. CASM excluding fuel rose 3.3% to 6.83 cents, driven by network changes that diminished aircraft utilization. Total CASM increased 0.5% to 10.96 cents.

For the full year, network changes led to a 2.2% in capacity. Debt fell to $70 million from $114 million.

"2013 was a year of tremendous progress for Virgin America," said CEO David Cush, in a prepared statement. "We continued to reach more customers in more markets and now have a network presence from San Francisco and Los Angeles to most of the primary business centers in the U.S. "

Virgin America is emerging as one of the winners in the merger between American (AAL)  and US Airways. This year it hopes to ramp up service at three new airports, all made available by merger-required divestitures. Virgin will have four daily departures at Washington Reagan National and six at New York LaGuardia.

The third merger win would be the two gates that American is required to divest at Dallas Love Field. Virgin American, as a new entrant carrier, would seem to be a strong candidate for the gates, but both Delta (DAL) and Southwest (LUV) are also seeking to acquire them and cannot be discounted because when strong airlines want to make a case for something, they are very good at it. 
The decision will be made by Dallas officials, the Justice Department and American.

Virgin's expansion plans mark the first time the carrier would offer flights not involving LAX and its hub at San Francisco International, with the exception of a JFK-Las Vegas flight. It seems unlikely, however, that the new markets will be any more competitive than trans-con flying, where Virgin is focused. The JFK-LAX market has six competitors and 40 daily departures from each airport.

So far this year, American shares are up about 50%, and some analysts are saying they should go higher. In late morning trading Wednesday, American shares were down 10 cents to $37.80. In a recent report, CRT Capital analyst Mike Derchin raised his price target to $40 from $35 and wrote that: "Over the past six months, investors have re-rated the shares of AAL and its peers with consolidation, capacity discipline, modest economic growth and stable jet fuel prices the main drivers, in our view."

Meanwhile, Spirit (SAVE) shares are up 36% year-to-date and shares in Alaska (ALK), Delta, and Southwest are all up about 26%, while  the S&P 500 index is up about 1.3%. So it's a good time for airline shares.

Virgin America executives wouldn't comment on Wednesday. But three weeks ago, asked in an interview with TheStreet about the likelihood of an IPO, Cush responded: "We are watching the markets. "They're a little bit choppy, which bodes well for waiting until they're in good shape. We think the company will be ready later this year."


Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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