Virgin America, the low-cost airline partly owned by Richard Branson, market debuted on Friday and shares climbed to over 30% gains. The company’s IPO is the first of a US airline since May 2011, when Spirit Airlines went public. The airline industry has been experiencing turbulence in the past several years, but stocks hit a 13-year high this week as oil prices decreased and travel spending by Americans increased in an improving economy.
Virgin America stock closed seven dollars above its IPO price of $23 on the NASDAQ. Shares reached a high of $31.18, and the company is valued at about $1.35 billion. At the peak, Virgin America was trading at 8.08 times earnings, compared to Southwest’s 37.43 times and JetBlue’s 24.43 times. The company offered 13.3 million shares at $23 each, raising $307 million. Barclays and Deutsche Bank were the lead underwriters on the IPO.
The airline is popular among consumers for offering low prices, Wi-Fi, comfortable leather seats, and mood lighting. Condé Nast Traveler Magazine has ranked Virgin America the #1 US Domestic Airline for the past seven years. Virgin America leases all of its 53 Airbus single-aisle planes, which usually fly long-haul within the US and Mexico, with Los Angeles and San Francisco serving as main hubs. CEO David Cush said the company is expecting to add 10 planes to its fleet over the next two years.
This is definitely a good trend for the US airline industry. I see low-cost airlines becoming the future of travel, as it is in Europe. As an investor, I would buy and hold the stock, as it is only trading at 8 times earnings and has more potential than its competitors. Although the airline industry is extremely volatile, it is currently seeing an upwards swing and shareholders can expect to ride the wave to the end of the year.
-- Jonathan Wang