Virgin America's Steppin' Out

Virgin America made a flurry of announcements today concerning their impending start-up. In a ceremony Wednesday with the Governator Arnold Schwarzenegger, their first aircraft was formally named "Jefferson Airplane" in honor of the rock band that made their home in Virgin America's base and headquarters of the San Francisco Bay Area. The airline also launched a challenge to fans of the new company to name the other 33 Virgin America aircraft that are on order. Virgin America continues to tout the line that they are the only airline that will be headquartered in California and that they plan to create up to 1,700 new jobs with their launch. Virgin hopes that the good publicity will help get the airline launched quickly and successfully. In costly California Virgin will have a difficult time breaking into the local market with so much competition, and will need a considerable amount of expensive advertising to attract customers. With entrenched competitors such as United and JetBlue on transcontinental routes from the Bay Area, Virgin America needs all the publicity it can get at events such as these.

Right now, Virgin America has orders for 34 A320 aircraft, and like JetBlue, they may order more if they feel the need to grow. Unlike JetBlue, however, Virgin America plans transcontinental flights in their initial stages, which could be a problem. In most cases, transcontinental flights aren't as profitable as shorter flights because the airline is receiving a lower yield for each mile flown. Essentially, the airline is making less money for every mile flown than if they were to fly short hops; that's why Southwest can be so profitable and offer such low fares. Transcon flights will be tough, particularly with A320 aircraft, which are very small (and consequently inefficient on a per seat basis compared to larger aircraft such as United's 757s or 767s) and barely have the range to fly transcon flights. In the past couple years, some JetBlue transcon flights have been forced to make fuel stops because the plane is too heavy to make the flight nonstop given the prevailing winds, which are a major factor in long distance flights. While the A320 is a very reliable aircraft, San Francisco International Airport is not a reliable airport to fly from, and as any traveler who has frequented the airport knows, heavy fog often causes delays, especially in the morning when airlines are desperately trying to get planes off the ground. Delays early in the day snowball throughout the day and often grow larger. While transcon flights might allow Virgin America to build time into the schedule to accommodate for delays, this could be a major problem that doesn't affect JetBlue at Oakland to the extent it does United or Virgin America at SFO. When an aircraft is sitting on the ground, it's not making money, and if Virgin is going to need to build time into their schedule to accommodate for delays, then their planes will be sitting in the ground longer either in San Francisco if there are morning delays, or on the East Coast if there aren't delays, since time will have been built into the schedule.

Aircraft utilization is measured as the average number of hours a plane is flying revenue passengers each day and JetBlue has been able to get high utilizations by flying red-eye flights and transcon flights, something Southwest or AirTran hardly do. But Virgin America has a challenge. If a transcon flight takes about six hours each way including ground time then each plane may be able to only fly one round-trip daily. JetBlue's planes can supplement their transcon flights with short hops to Upstate New York or Florida. Planes can't be run 20 hours a day because they need down time for maintenance and to catch up if there are any delays so they don't snowball into the next day's schedule, but short-haul planes like Virgin America's can be realistically run up to around 14 or 15 hours each day. Perhaps Virgin America could get planes to do 1.5 round-trips daily to utilize their assets more productively, still leaving sufficient time to recuperate from delays and conduct routine maintenance, but sadly, it appears that Virgin America will not resort to such creative scheduling as that might lead to operational difficulties if they push it too far or if the flights get delayed. Unlike United which has backup planes, Virgin America would have few options in the event of a delay except to cancel the flight.

Virgin America's biggest asset in the cabin seems to be their in-flight entertainment system. While the company hasn't disclosed specifics, they announced a deal with major movie studios to show some of their movies on Virgin America flights. It's speculated that Virgin America aircraft will be equipped with state-of-the-art entertainment systems, similar to those used on Virgin Atlantic flights, and like on JetBlue, every passenger will get his or her own monitor to watch movies. It does not appear that Virgin America will sign onto LiveTV and offer television to their customers because that could damage JetBlue's brand. (JetBlue is the owner of LiveTV, the company that owns the technology to transmit television inflight and their brand could be usurped if they sold Virgin America LiveTV). This system could be a big hit with business travelers like the Virgin Atlantic system is, but it must be functional on all flights (unfortunately, the Virgin Atlantic system seems to get in a habit of breaking down, according to frequent customers), and it must offer enough variety of entertainment that is suitable for all ages and tastes. I don't think either of those issues will be major problems for the airline, but they could present a challenge if the system isn't managed properly.

Right now, it appears that Virgin America is prepping for a February 2007 launch if all goes well with the Department of Transportation. American and Continental Airlines have been trying to block Virgin America from receiving an operating certificate for years now, due to confusion about foreign ownership. Airlines in the United States can't be majority-owned by foreigners, and there were fears that because this new airline will fly under the Virgin brand, that it would be a British company. The allegations are simply false, Richard Branson will only own a quarter of the airline; permitted by U.S. law, and American and Continental are simply trying to delay the inevitable. Both American and Continental know how to play the government relations game, and since the DOT historically has been responsive to political pressures, the delay tactics have worked. However, the DOT will likely give final approval to the airline soon so Virgin America can get off the ground flying. While it may be unclear how soon Virgin America will launch, one thing is for sure. Virgin America has gone on a hiring spree in preparation for launch. The airline has hundreds of positions to fill and is actively promoting the new jobs. It's unclear how long these jobs will actually last, however, but given the large amount of capital for the new airline as well as an imperfect but workable business plan, these jobs will definitely last longer than those at Independence Air.

When Virgin America gets the go-ahead from the DOT, we will likely learn more about their routes and expansion plans, their in-flight entertainment system and seats, a potential frequent flyer program, as well as their fares, which could be a crucial factor for businesses tied to expensive, but flexible travel on United. If Virgin America can cater to business travelers in San Francisco with significantly lower fares, business travelers (and the businesses that often pay for the travel) would be more receptive to making a switch from United, even if it means not accumulating those valuable frequent flyer miles. Expect Virgin America's first route to be San Francisco to Newark and service will likely expand from San Francisco to Boston, Washington D.C. and perhaps Miami all relatively quickly after launch, but remember that no plans are certain yet. Good luck to Virgin America, they certainly seem better prepared than most new airlines, but they have a very tough road ahead.