Will it be clear skies for Virgin America?

Posted Aug 6th 2007 2:30PM by Tom Barlow
Filed under: Products and Services, Launches, Competitive Strategy, Private Equity, Southwest Airlines (LUV), JetBlue Airways (JBLU)

On Wednesday, the first Virgin America Airbus A320s will take flight from New York (JFK) to Los Angeles (LAX) and San Francisco (SFO). The offshoot of European giant Virgin Atlantic, VA is owned primarily by Black Canyon Capital and Cyrus Capital Partners. It enters the market promising to deliver better prices and service than its rivals.

Its immediate rivals would appear to be JetBlue (NASDAQ:JBLU) and Southwest Airlines NYSE:LUV), both airlines operating on a model established by Virgin Atlantic focused on price, price, and price. How likely is Virgin America to make an impact on the increasingly crowded and fragile American air industry?

It has already driven down the price of the NYC-SF route to $250, according to the Wall Street Journal, significantly undercutting its rivals. How much of this price reflects lower costs, versus acceptable losses to establish business, is not clear. The airlines does start with new planes and hardware and new (cheap) hires, so it likely is starting with the lowest overhead it can anticipate.

JetBlue and Southwest, on the other hand, are already struggling with the increased expense of maintaining well-used equipment and the growing salary expectations of experienced crews, leaving them less room to trim costs.

Beyond price, Virgin is using several other approaches to differentiate itself. Its in-flight experience will be enhanced with a wide selection of video entertainment, gratis, as well as laptop-friendly USB ports and leather seats. It has created its own dedicated on-shore customer service unit, networking home-based representatives to hopefully provide more knowledgeable, flexible and responsive support.

Frequent executive flyers will be glad to learn that VA is granting frequent flyer points based on ticket price, not miles, and those points can be used for tickets on any available flight, any time. Each plane also includes a first class section, good news for those who can afford the privilege.

For the moment, JetBlue seems to have more reason to sweat than Southwest, as it made its bones on the same coast to coast business. Southwest has a far wider network to offer travelers, while JetBlue has stumbled badly to date in adding destinations.

The open question, in my mind, is how Virgin America can keep from falling afoul of the late/canceled flight mess that seems an inevitable result of our lack of capacity and aging air control system. People who save $100 on a trans-American flight are no less pissed when it is canceled than those who pay top dollar. After the first six-hours-on-the-runway fiasco, I guarantee the airline will be Virgin no more.

Tags: airline competition, AirlineCompetition, airlines, american air travel, AmericanAirTravel, coast to coast air travel, CoastToCoastAirTravel, discount airlines, DiscountAirlines, jetblue, los angeles air service, LosAngelesAirService, new york air service, NewYorkAirService, san francisco air service, SanFranciscoAirService, southwest airlines, SouthwestAirlines, vacation travel, VacationTravel, virgin america, VirginAmerica

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Reader Comments (Page 1 of 1)

8-06-2007 @ 8:19PM

Daniel said...

You said:
Its immediate rivals would appear to be JetBlue (NASDAQ:JBLU) and Southwest Airlines NYSE:LUV), both airlines operating on a model established by Virgin Atlantic focused on price, price, and price.
I must remind you that Southwest and JetBlue came BEFORE Virgin Atlantic, so the former two could not have established their model on the latter.

8-06-2007 @ 9:17PM

Tom Barlow said...

Virgin Atlantic was founded in 1984, JetBlue in 1998. While Southwest dates back to 1971, they did not become a national carrier until many years later.