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Virgin America soars in market debut
[NEW YORK] Shares of Virgin America Inc, a low-cost airline partly owned by Richard Branson, soared more than 30 per cent in their market debut, underscoring the buoyant mood in an industry that is emerging from a long spell of turbulence.
US airline stocks hit a 13-year high this week as they gained momentum from lower oil prices and increased travel spending by Americans in an improving economy.
The company's IPO is the first for a US airline since May 2011, when Spirit Airlines Inc went public.
Shares of Virgin America closed US$7 above their IPO price of US$23 on the Nasdaq on Friday. They touched a high of US$31.18 earlier in the session, valuing the company at about US$1.35 billion. "Shares are probably trading a little higher than we expected, but we did expect an opening day pop," Virgin America Chief Executive David Cush told Reuters.
At the high, the stock was trading 8.08 times 2013 earnings, compared with Southwest Airlines Co's multiple of 37.43 and JetBlue Airways Corp's 24.43. "I think it's a buy-and-hold story," said Josef Schuster, founder of IPO investment firm IPOX Schuster LLC.
Virgin America is the US offshoot of Branson's London-based Virgin Group, which is involved in sectors including airlines, railroads, telecommunications, media and hospitality.
The offering of 13.3 million shares, priced at US$23 each, raised about US$307 million, with the company retaining most of the proceeds.
Branson controls 24.8 per cent of the company, while hedge fund Cyrus Capital Partners is the biggest shareholder with a 32.8 per cent stake.
The airline, popular among travelers as it offers Wi-Fi, comfortable leather seats and mood lighting, has been named the best US domestic airline by Condé Nast Traveler Magazine for the past seven years.
Virgin America, which took to the skies in 2007 just before the financial crisis, earned US$10.2 million on revenue of US$1.42 billion in 2013, its first ever profitable year.
The airline leases all 53 of its Airbus single-aisle planes, which mostly fly long-haul within the United States and Mexico, with Los Angeles and San Francisco serving as main hubs.
Cush said the company expected to add 10 planes to its fleet over the next two years.
Barclays and Deutsche Bank were the lead underwriters.