Being enrolled in school requires you to allocate certain percentage of funds every month towards your tuition fees especially when you don’t qualify for student grants or aids, and you insist on not signing up for a student loan. During the past three months, I have also tried to aggressively pay down on my credit card debt bring down the balance to high $4Ks from somewhere in $7Ks region just back in February.
I have tried to carefully balance buying stocks with excessive credit card debt around. Going at the same pace, I should have washed away all my credit card debt before I turn 30 this October – now this being contingent on my frugalness during the first overseas trip later this fall.
I purchased 14.1699 shares of Virgin America (VA) on May 15, 2015 for an average price of $28.23 per share.
Recent Buy: Virgin America (VA)
I haven’t had a chance to fly Virgin America yet but during a recent work related trip, a friend of mine swore to never ever fly any other airline if the city was serviced by Virgin America after his flight. I had nothing to say about it except ask him how much did his tickets cost my employer? I have always had the impression that VA was too expensively to fly and surprisingly, the tickets cost him about $100 cheaper than my tickets on a major US airlines, which is based out of Chicago. My employer requires us to purchase refundable tickets, just in case we have a last minute change in plans and apparently, purchasing refundable tickets lets you check-in a bag (up to 50 lbs. for free), whereas my airline charged me $25 for my bag (one-way).
Overview: Number One!
Virgin America is a California based U.S. airline with 25% of the company being owned by Virgin Group (Sir Richard Branson) and remaining 75% owned by VAI Partners. Virgin America licenses the Virgin brand from the Virgin Group.
VA was recognized as the number ONE carrier in the annual study of U.S. domestic airline performance conducted by academicians at Wichita State University, and Embry-Riddle Aeronautical University titled “Airline Quality Rating (AQR)” report for the third consecutive year – Go VA!
VA recently announced a 16% increase in frequent flyer program membership during 2014 – a number I only expect to go up since the expiry of the Wright amendment at Dallas Love Field last October.
VA currently operates 19 daily flights from Love Field and since it is too early to start pricing up their tickets, no wonder VA reported their Dallas unit as underperforming – just have to wait for the prices to stabilize in this market.
Fleet: Young Fleet!
Virgin America currently operates 53 jets, mostly Airbus A320s (43) and the rest Airbus A319 (10) with an average age of about 6.2 years, which, is the lowest among major operators in the United States. JetBlue, which is the nearest competitor for VA, operates 269 jets with an average age of 7.7 years. Frontier operates jets with an average of 8.8 years, Alaska with an average of 9.1 years, American Airlines with an average of 12.3 years, United with an average of 13.1 years, and finally, Delta with an average of 17.2 years. (Source: Airfleets.net)
Virgin America is one of the new kids on the block, with a market capitalization of about $1.2 billion. The operate one of the most efficient fleets, offer assigned seating, Wi-Fi, Media entertainment, with three different classes on-board which offers comfort, more leg room and food to their passengers! VA has recently taken steps to expand past the continental United States with a planned route to Honolulu, Hawaii.
VA has a future cash flow value of $44.91 and I purchased the shares at $28.23, which puts it at a 37.14% discount. At 37.14% discount, VA is undervalued! (Note to self: Buy stocks that provide a substantial discount. )
The transportation industry currently has an average (Price-Earnings) PE ratio of 20.4x and to claim its Good Value for money title, VA currently trades at a PE of 5.9x. In terms of Asset-Based price value, VA trades with a ratio of 2.5x while the transportation industry has an average of 9.1x.
VA offered a 194.3% return on equity (shareholder funds) last year, performing above the transportation industry average based on return on assets (9.6%) and a decent 17% return on capital.
In terms of liabilities, VA currently has $196 million in long-term liabilities and $417 million in short term liabilities. VA holds $582 million in long-term assets, and $517 in short term assets, which puts its net worth at $486 million. This should enable Virgin America to meet its commitments with its cash and other short-term assets. Total debt is currently well covered by its annual operating cash flow.
For the first quarter, VA reported a $0.24 EPS (Quarterly) beating estimates by $0.10 with its revenue increasing at a 4.1% year-over-year basis at $326.40 million for the quarter (estimates: $322.15 million).
I do not expect VA to pay out any dividends in the near future hence, this would be a LONG and I intend to continue adding more shares on any further price drops.
Shares of VA traded up 0.66% during trading on Friday, hitting $28.86 with a volume of 817,087 shares being traded. VA currently trades with a 52-week low of $26.50, a 52-week high of $45.43, a 50-day moving average of $29, and a 200-day moving average of $34.
On May 20, 2015, Robert A. Nickell, a non-employee director, chairman of finance committee, member of compensation committee and member of audit committee at VA purchased 17,395 shares of Virgin America on the open market transaction at an average price of $28.23 per share, for a total of $491,060.85. (Source: SEC disclosure)
Why not JetBlue?
JetBlue operates 269 jets, out of which, 149 are Airbus manufactured A320s and A321s while, 120 are of Brazilian Embraer made Embraer 190/195s. Anytime an operator diversifies in terms of buying from different manufacturers for their fleet, the engineering and logistics division will be stressed thin. Think about all the different tools, jigs, parts and training required to maintain the different jets. I have no insider knowledge here but, as an engineer with a little costs background, I’m sure this will definitely affect the long-term prospects for JetBlue.
An article by Adam Levine-Weinberg, discusses the issues JetBlue faced after introducing E-190 to their fleet.
This would be the first time; I’ve bought a stock based on what I would like to be treated when I fly on long haul flights. I still remember those days when everyone around me started to like and embrace Apple products while I was in school – along the same lines, I believe VA will definitely perform and set the gold standard in U.S commercial aviation. With decreasing oil prices, and an increasing awareness of what Virgin America brings to the table should help increase its market share.
Virgin America Facts