Virgin America CEO predicts 'continued fare wars' in Q3 earnings call

DALLAS (AP) — The CEO of Virgin America says fare wars will continue as the giant airlines fight back against cheap fares from discount carriers.

Airlines have taken advantage of cheaper fuel this year to add flights, which has caused Wall Street to worry about falling fares. American Airlines added to the fear by announcing last week that it will soon offer a cheaper, no-frills ticket to compete with discount carriers like Spirit Airlines and Frontier Airlines.

Virgin America CEO David Cush said Thursday that there will be "continued fare wars" as American and Delta — so-called legacy airlines — fight back against the discounters.

BOOKMARK: Go directly to the Today in the Sky homepage

The discount carriers "come in with a very limited amount of capacity into each market, and therefore we can really ignore their pricing," Cush said in an interview. "However if a legacy (airline) matches, they tend to do so with much more capacity, and that's what really drags us into some of the competitive behavior."

Cush made the comment after Virgin America reported that third-quarter profit jumped 72% on cheaper jet fuel.

Virgin America expects to increase passenger-carrying capacity by up to 15% next year. Ordinarily that kind of growth can lead to lower fares and less revenue per seat, but Virgin thinks it can do fine because competitors won't add as many new flights as they did this year on key Virgin routes, especially from Dallas and between New York and California. It also expects more money from fees.

Stifel analyst Joseph DeNardi wrote he was skeptical that Virgin America could produce better revenue per seat — a key measure in the business — amid such rapid growth. The company, he wrote in a note to clients, "may be over-promising."

For the third quarter, Burlingame, Calif.-based Virgin reported net income of $71.2 million. Excluding non-repeating costs, it earned $1.64 per share, beating the average $1.57 forecast of analysts surveyed by Zacks Investment Research.

Revenue rose 1% to $410.9 million, topping the Zacks forecast of $406.1 million.