spinproof
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VA too good to fail
Virgin America introduced service from San Francisco and Los Angeles to Toronto last week — its first international destination.
By SUSAN STELLIN
Published: July 5, 2010
In the airline industry, the fittest do not always survive. But that has not stopped start-up carriers like Virgin America from trying.
Virgin, now nearly three years old, introduced service from San Francisco and Los Angeles to Toronto last week — its first international destination — and announced plans to fly to Mexico next winter. But its mixed efforts to expand into other markets in the United States illustrate many of the barriers that new airlines face, particularly as big competitors consolidate and expand their global reach.
Industry experts offer a long list of challenges faced by start-up carriers, as well as upstarts like Southwest and JetBlue. That list includes access to take-off slots and gates at desirable airports, restrictions on foreign investment in American airlines, and rules preventing foreign carriers from flying within the United States — all hurdles that Virgin America has had to overcome.
And because the big legacy carriers benefit from global networks, government policies that favor them and the marketing advantages that come with size — particularly when negotiating contracts for lucrative corporate travel — industry analysts question whether smaller carriers will be able to stay in business.
“King Solomon couldn’t start a U.S. domestic airline these days,” said Hubert Horan, an aviation consultant. “No matter how well they’re run, it’s tough for any airline that’s small to survive.”
Mr. Horan, who has testified before Congress against the proposed merger of United and Continental airlines, said he sees the prospects for Virgin America, and to some degree even JetBlue and Southwest, as bleak.
“Here are these well-run efficient airlines — people like them, they have low costs — but they can’t get the badly run inefficient airlines to go away,” he said. “In a competitive market, the people with the better-run companies ought to drive the high-cost companies out of business and that just doesn’t work in the airline industry.”
Last week, in a telephone conversation after the Virgin America plane touched down in Toronto, three of the airline’s principals — Richard Branson, the British founder of the Virgin Group who owns a stake in Virgin America; Don Carty, the chairman of the airline; and David Cush, its chief executive — had their own differences on the issue of competition.
Discussing the challenges ahead, all three men agreed that access to gates and slots at major airports like Chicago O’Hare and Newark Liberty, which Virgin America has so far been unsuccessful at negotiating, is key to the airline’s growth. Analysts have more pointedly said that this growth is necessary for Virgin America’s survival, after the company reported an operating loss of $22 million on revenue of $147 million in the first quarter.
Mr. Cush attributed the loss primarily to higher-than-expected fuel costs and a typically soft winter season, reiterating his earlier statements that Virgin America would be profitable for the full year. (“I certainly will not retract that in front of Richard and Don right now,” he said jokingly. “We’re too good to fail.”)
Virgin America introduced service from San Francisco and Los Angeles to Toronto last week — its first international destination.
By SUSAN STELLIN
Published: July 5, 2010
In the airline industry, the fittest do not always survive. But that has not stopped start-up carriers like Virgin America from trying.
Virgin, now nearly three years old, introduced service from San Francisco and Los Angeles to Toronto last week — its first international destination — and announced plans to fly to Mexico next winter. But its mixed efforts to expand into other markets in the United States illustrate many of the barriers that new airlines face, particularly as big competitors consolidate and expand their global reach.
Industry experts offer a long list of challenges faced by start-up carriers, as well as upstarts like Southwest and JetBlue. That list includes access to take-off slots and gates at desirable airports, restrictions on foreign investment in American airlines, and rules preventing foreign carriers from flying within the United States — all hurdles that Virgin America has had to overcome.
And because the big legacy carriers benefit from global networks, government policies that favor them and the marketing advantages that come with size — particularly when negotiating contracts for lucrative corporate travel — industry analysts question whether smaller carriers will be able to stay in business.
“King Solomon couldn’t start a U.S. domestic airline these days,” said Hubert Horan, an aviation consultant. “No matter how well they’re run, it’s tough for any airline that’s small to survive.”
Mr. Horan, who has testified before Congress against the proposed merger of United and Continental airlines, said he sees the prospects for Virgin America, and to some degree even JetBlue and Southwest, as bleak.
“Here are these well-run efficient airlines — people like them, they have low costs — but they can’t get the badly run inefficient airlines to go away,” he said. “In a competitive market, the people with the better-run companies ought to drive the high-cost companies out of business and that just doesn’t work in the airline industry.”
Last week, in a telephone conversation after the Virgin America plane touched down in Toronto, three of the airline’s principals — Richard Branson, the British founder of the Virgin Group who owns a stake in Virgin America; Don Carty, the chairman of the airline; and David Cush, its chief executive — had their own differences on the issue of competition.
Discussing the challenges ahead, all three men agreed that access to gates and slots at major airports like Chicago O’Hare and Newark Liberty, which Virgin America has so far been unsuccessful at negotiating, is key to the airline’s growth. Analysts have more pointedly said that this growth is necessary for Virgin America’s survival, after the company reported an operating loss of $22 million on revenue of $147 million in the first quarter.
Mr. Cush attributed the loss primarily to higher-than-expected fuel costs and a typically soft winter season, reiterating his earlier statements that Virgin America would be profitable for the full year. (“I certainly will not retract that in front of Richard and Don right now,” he said jokingly. “We’re too good to fail.”)
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