Virgin America's Cost Outlook 'Disappoints' This Analyst

In a report published Friday, Barclays analysts maintained an Overweight rating on Virgin America Inc Inc VA, while reducing the price target from $45 to $42. Virgin America reported its 1Q15 EPS ahead of expectations with PRASM coming in at 2.5 percent ahead of Barclays estimate and the guided range of (1)-1 percent. "VA looks to be managing PRASM pressures remarkably well. We were especially impressed by +7% RASM in ‘core' markets (i.e., ex-NY and Dallas). We believe VA's margin catch-up story depends on success in markets such as Chicago, which was highlighted as an outperformer during the call," the analysts stated. "Into year-end we think Hawaii entry should also help network RASM, given our read of public DOT data. While management acknowledged that Dallas will take some time to spool, overall tone seemed optimistic," the analysts statedsaid. The company issued a disappointing cost outlook. "The 2Q CASM ex-fuel guide of +8-10% is at least 3 pts higher than what we'd been hoping, with higher stage length from flipping transcon flying to Texas shorthaul the main driver. FY15 guide of 7-9% is similarly disappointing versus the prior +4-6%. 2Q PRASM guide of (2)% to flat is a touch below our prior flat, but sequentially looks in line with recent 2Q/1Q trends," the report mentioned. The EPS estimates for 2015 and 2016 have been reduced from $4.60 to $4.35 and from $4.85 to $4.55, respectively.