NEW YORK (TheStreet) - As oil prices continue to plunge lower, the airline sector is arguably one of the biggest beneficiaries of the drop. So what better time for Virgin America (VA) to launch its IPO?
On Friday, the California-based low-cost carrier did just that, soaring 30.4% to close at $30. That's a pretty lofty return for investors who picked up the IPO shares at its $23 price.
Overall, it's been a good year for the airlines, with stocks like Delta Air Lines (DAL) , American Airlines (AAL) and United Continental (UAL) up 59%, 74% and 48%, respectively. But the broader market has cooperated as well, hitting fresh all-time highs earlier this week.
Virgin America CEO David Cush said it just seemed like the right time for the company to go out with its IPO. He may be right, as the company last year turned in its first full-year profit.
And what's the secret to Virgin America's success?
"We are low cost, but it's primarily because of our business model," Cush explained. He noted the key to Virgin America's success has been operating a single type of aircraft for its fleet, highly productive employees and offering point-to-point service.
"I would say that we're more of a pure low-cost model than even Southwest Airlines (LUV) and JetBlue Airways (JBLU) these days," Cush said.
Virgin America plans to add about five planes to its fleet next year, as well as another five in 2016. And while that may not seem like much, investors need to remember that Virgin has only 53 planes in its fleet. With that fleet, the company is able to generate an annual growth rate of 10% to 15%, he said.
If the company can maintain that level of growth, its margins should be able to expand, or at the very least, stay steady. The airliner also doesn't plan to break away from its transcontinental flights either, noted Cush, referring to Virgin America's "bread and butter" business.
-- Written by Bret Kenwell