Virgin America IPO: Stock Surges 30.4% After Trading Debut – Zacks …
Low-cost airline Virgin America made an impressive debut on Nasdaq under the symbol ‘VA,’ riding on the favorable conditions prevailing in the U.S. aviation sector. Shares of the company jumped 30.43% ($7) to close at $30 on Nov 14. The company, partly owned by British billionaire investor Richard Branson, raised $307 million through the offering. Virgin America plans to use the proceeds primarily for general corporate purposes.
Virgin America offered 13.3 million shares at $23 a piece, while the initial price target was in the range of $21 to $24 a share. However, the opening price at the beginning of the trading session was $27, which surged to close at $30.
The California-based carrier has timed its IPO well given the bullish sentiment prevailing in the airline industry. Airline stocks recently bounced back after being hard-hit through September and early October on Ebola-related worries. The upside came primarily on the back of healthy quarterly earnings reported by major carriers coupled with plunging fuel costs.
We note that Virgin America has had a troubled time ever since its launch in 2007. The company witnessed profits for the first time in 2013 since inception. Subsequently, the carrier filed a registration with the U.S. Securities and Exchange Commission (SEC) in July this year to launch its IPO (read more: Virgin America Files for IPO amid High US Airline Earnings). The company took forward its healthy performance in 2014, with third quarter profits climbing approximately 24% buoyed by an increase in passenger traffic and higher fare rates. Operating revenues were also up by about 4.7%, totaling $405.5 million (read more: Virgin America Plans IPO at $1 Billion Valuation).
We note that Virgin America is the only U.S. airline company to have gone public since another low-cost carrier, Spirit Airlines (SAVE – Snapshot Report), announced its IPO in 2011. Shares of Spirit Airlines have traversed a long way, increasing significantly from its IPO price of $12. It now remains to be seen whether Virgin America, which offers Wi-Fi service, comfortable leather seats and mood lighting to its fliers, can replicate the success story of Spirit Airlines.
Despite the hugely successful market debut, Virgin America – a relatively small airline company – is unlikely to eat substantially into the profits of larger players like American Airlines (AAL – Snapshot Report), Delta Airlines Inc. (DAL – Analyst Report) and United Airlines (UAL – Analyst Report). At the moment, we expect investors to remain glued to the measures taken by Virgin America to drive growth.
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Virgin America IPO: Stock Surges 30.4% After Trading Debut – Zacks …
