Virgin America’s Final Push Into Airline Club Brings Raid on Southwest's Home
It has been a steep climb for an airline that started out in 2007 after an 18-month battle with the entire U.S. airline industry, which resisted the start-up effort, citing lack of clarity about Englishman Richard Branson's ownership and the potential violation of the limitations on foreign ownership of U.S. carriers.
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Now Virgin America is nearly a full member of the club, one that competes at its San Francisco hub with United
While its network may be lacking, Virgin America has lower costs than either competitor. Its second-quarter cost per available seat mile excluding fuel and special charges was 6.87 cents, compared with 9.31 cents at United and 7.77 cents at Southwest. Quarterly revenue was $399 million, compared with $9 billion at United and $5 billion at Southwest.
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Virgin American occupies a niche as a hip, technologically advanced San Francisco-based carrier with leather seats, Wi-Fi at each of them, mood lighting and advanced in-flight entertainment. "The brand is a good brand, (popular) in high income urban markets where product is important" said CEO David Cush in a 2013 interview with TheStreet.
Virgin America "has clearly built a product that's attractive to customers, who are willing to pay more for it," said Imperial Capital analyst Bob McAdoo.
In trans-continental markets, which account for two-thirds of capacity and two-thirds of the profits, "their product is so different and so modern that it attracts customers who are willing to pay as much for these flights as the legacy carriers get, even though these guys don't have a frequent flier plan that is anything at all like legacy carriers have, or any of the other network advantages," he said.
Yet in the LAX-JFK market, the No. 1 domestic market, "their average ticket price is meaningfully above Delta
A recent survey, conducted for TheStreet by GfK, showed that only 5% of Americans consider getting frequent flier miles to be an important consideration when selecting a flight.
This summer, the LAX-JFK market had approximately 40 daily round-trip flights per day, most of them on five airlines. Virgin America tied United for second in fare level during the first quarter, according to the most recent statistics available from the U.S. Department of Transportation.
American collected an average one-way fare of $310. United and Virgin American collected $255; Delta $239 and Jet Blue $198 -- explaining JetBlue's need to add an improved Mint product.