Airline Weekly - August 13, 2007
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Airline Weekly - August 13, 2007

The One-Week-Old Virgin: Can Virgin America’s strong brand and product overcome its many challenges?

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Cover Story

The One-Week-Old Virgin: Can Virgin America’s strong brand and product overcome its many challenges?

Some call it promising. Others call it suicidal. But whatever its ultimate destiny, Virgin America represents the most intriguing U.S. airline startup since jetBlue began flying more than seven years ago.

With just a handful of planes currently flying, Virgin America is small and will remain small for some time. But its focus on some of the country’s most important markets, its brand name and its potential to grow all explain why it may make a major impact. On the other hand, Virgin America’s ability to succeed in a hostile and crowded market won’t be easy, with no shortage of risks and obstacles in its way.

If the new airline does manage to establish itself as a viable competitor, its $312m in startup capital will be a key contributing factor. The ability to sustain losses during one’s startup phase—while still having enough cash to pay bills—is essential for any startup. Lack of sufficient cash, in fact, explains the failure of many airline startups in the past. Competitors are already firing pricing and scheduling bullets at Virgin America, but these shots are unlikely to be fatal.

Startup money alone, however, won’t be enough. Virgin America will eventually need to generate cash from its operations to survive over the long term, and doing that can be a lot tougher than merely surviving with cash provided by faithful investors.

One asset that will help its cause is the Virgin brand. Already one of the most famous worldwide, the name carries instant credibility with consumers and airline passengers, especially in big cosmopolitan cities where incomes tend to be high and people tend to travel often. Many of the 3.3m Americans who visited the U.K. last year, in fact, got there on an another Virgin airline: Virgin Atlantic.

The Virgin brand also carries the expectation of style, comfort and perks, all of which the new Virgin America is trying to offer. With hip advertising and inflight mood lighting, the carrier hopes to attract the same segment of consumers who readily pay premiums for stylish clothes and cars. That’s not easy to do with airline seats, which are in some ways a commoditized product, but Virgin Atlantic has proved that it can be done.

In an age of air travel delays and discomfort, Virgin America’s inflight product is already attracting attention. Amenities include leather seats, brand new planes, self-service mini-bars, power ports at every seat and among the most advanced inflight entertainment systems in the industry offering pay-per-view movies, music, games, online chat rooms, satellite TV and an option for passengers to order food... (445 of 1781 words)

Also Inside this Issue:

It was a busy week on the field and off the field, so to speak, with the Virgin Group making headlines within the industry and global financial instability threatening it from beyond.

In the same week that Virgin America took to the skies, the Virgin Group bought a 20% stake in AirAsia X, a low-cost carrier hoping to revolutionize longhaul travel. Sir Richard Branson didn’t become a billionaire by making foolish investments, and his interest in AirAsia X may be telling.

In the meantime, AirTran’s interest in Midwest amounted to nothing, with the latter opting for a better financial offer that preserves its independence and gives Northwest a passive ownership stake.

As long as the world’s economy continues to grow at historically-strong rates, so too will buoyant demand for global air travel. But a potential debt crisis that’s sweeping through Wall Street and far beyond raises the specter of an economic downturn. The only good that could stem from that, as far as airlines are concerned, is a fall in oil prices in line with contracting demand. But not even that would make a downturn pleasant.

Whatever happens, one downturn is sure to come: the annual seasonal dip that occurs as summer turns to fall. With September just weeks away, airlines (in the northern hemisphere anyway) have their last chance to capture peak summertime business.

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