VA- Why an Airline that travelers Love is Falling

Grandpa +65

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Virgin America is the equivalent of a TV show that’s a hit with critics but risks being canceled because of failing to attract enough viewers. The San Francisco-based carrier is regularly voted to the top of “best airline” lists. But it is far from the best in the business at making money.On its website, Virgin America proudly displays the long list of travel awards it’s won over the past few years—best in-flight entertainment, best cabin staff, best cabin ambiance, best overall passenger experience, and so on. In the latest Conde Nast Traveler Readers’ Choice survey, it’s no surprise which carrier was named the top overall airline in the U.S. Yep, it’s the child of British billionaire playboy Richard Branson, five-year-old Virgin America.For the uninitiated, the San Francisco Chronicle offered a portrait of what makes the airline so special:
Boarding a Virgin America flight, bathed in 12 alternating shades of mood lighting and awash in globalized dance/trance music, is not unlike rolling into a late-night club, cocktail in hand. Unlike low-cost carriers that fly with single-class seats and service, Virgin America offers first class, premium economy and economy.
Virgin American stands out especially because the industry is dominated with trends pushing for more fees, fewer perks, and an overall degrading and deglamorizing of the flying experience. Years ago—OK, decades ago—it was laughable to compare buses with planes. But nowadays, the concept of a plane being little more than a “bus in the sky” is the industry standard.It’s fairly remarkable than any airline can generate positive feelings among customers in today’s travel scene. But while Virgin America may be well-liked, it may not be well-suited to compete.Reporting in August, the Chronicle noted that, despite all of its rewards and glowing reviews, since 2007 Virgin America has posted a net loss of $671 million, and an operating loss of $447 million. More recently, Bloomberg News reported that after large net losses in the second quarter of 2012, the airline would be cutting back flights and asking employees to take voluntary work leaves in early 2013.“I’m surprised it has survived this long, given the huge losses accumulated to date,” Scott Hamilton, managing director of aviation consulting firm Leeham Co., told Skift Travel IQ. “I don’t really see a place in the market for Virgin America.”Because Virgin America is young, it doesn’t have a large a network of routes—which is essential to attracting business travelers. And because Virgin America offers a premium product (leather seats, power outlets, fleet-wide Wi-Fi, live TV), its flights often aren’t as cheap as competitors like Southwest and Alaska Airlines—and low price is overwhelmingly important to leisure travelers. Speaking of competitors, they have regularly jumped into markets where Virgin America is operating, making it difficult if not impossible for Virgin America to be profitable.Mostly, Virgin America seems to have misread what travelers wanted most, and what they were willing to pay for. “They had an assumption that consumers would choose product quality over price and convenience and network carriers responded with force,” Hunter Keay, an analyst at Wolfe Trahan & Co., explained to Bloomberg.Standing in sharp contrast to Virgin America’s struggles is the rise of Spirit Airlines. Along with its fellow fee-crazed cohort across the pond, Ryanair, Spirit has been an airline travelers love to hate for years. And yet, despite the common complaints about Spirit—customers have to pay even for water, and could get hit with $100 fees for carry-on bags—the airline is likely the most profitable of any in the U.S.So who is to blame if an airline that’s comfortable and treats passengers well fails, while a carrier that annoys and nickel-and-dimes customers at every turn is a run-away success? We all are.Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

Read more: http://business.time.com/2012/10/25/...#ixzz2B1AbeA1l



http://business.time.com/2012/10/25/why-an-airline-that-travelers-love-is-failing/
 

WOWIdidntKnow

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Please, it is not difficult to create a great product/service in any market if you don't concern yourself with making a profit.

Shoot, even a pilot could do that! :)
 

NEDude

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You know it is funny how part of a company email gets out and every publication starts a race to see how much they can speculate about what it means.

Certainly VX is not doing well and changes have to be made. But in the past day I have seen articles stating that VX has "failed" and that employees are being furloughed. Both articles cited other articles that cited portions analyst statements that were in other articles that contained parts of the CEO email that came out last month. None of them offered any new insight or real analysis, and every single one omitted the parts of the CEO email that stated the third quarter was profitable and that the fourth quarter looks strong as well.

I have been at Virgin for almost three years now and in the months before I started I read articles about how Virgin was dying and it was time to pull the plug. There were countless posts on this and other aviation message boards about how VX was a sinking ship and days away from shutting the doors. Those posts and articles still continue today, and the come up in droves every time VX releases a financial report or a city is cut, or some lazy hack reporter (or FI poster) sees a three week old article in another publication and decides to rehash it as his/her own. Despite the years of predicted demise, VX is still here, twice as large as it was when I was hired, and more deliveries financed and arriving next year.

For the record I am not stating VX is doing fine (and I know a bunch of you will still claim I am despite the repeated statements otherwise) and clearly changes have to be made. The reason the board hired our new route planner, against the wishes of the CEO, is because those changes MUST be made. But forgive me if after three years of doom and gloom articles and posts, I begin to take them with a grain of salt. Forgive me if I totally discredit any article that fails to mention ALL the things mentioned in the email (ie. profitability), fails to mention that all airlines cutback in the first quarter of every year (3% reduction is actually small by industry standards), all leaves are voluntary and short term (not furloughs as mentioned in some articles), and that the slowdown in growth in late 2012/early 2013 has been planned for nearly two years (see my post from January 15 2012) and is NOT in response to any recent developments.
 

Always deferred

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Virgin is a great airline, but for me, their network is not extensive enough. I fly AA for business and personal travel to many different places. I would love to fly Virgin but I'd rather gain more AAdvantage miles on IAD-SFO and then put them towards an upgrade or free AA ticket. I'm sure many other travelers feel the same way. Frequent flyer programs work in terms of keeping customers loyal.
 

NEDude

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Accurate appraisal.

NEDude,

Dude. You can relax, we're all willing to stipulate to Virgin being in great shape (as long as Sir Richard's ego remains engaged).

I don't know of anyone who thinks that VX is in "great shape", myself included. But I also think that after half a decade of grossly inaccurate predictions about the fate of Virgin by supposed industry expert analysts and self proclaimed experts here on FI, it is about time they all admit publicly that they do not know jack about the inner financial workings of Virgin America.
 

Flyby1206

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I don't know of anyone who thinks that VX is in "great shape", myself included. But I also think that after half a decade of grossly inaccurate predictions about the fate of Virgin by supposed industry expert analysts and self proclaimed experts here on FI, it is about time they all admit publicly that they do not know jack about the inner financial workings of Virgin America.

Agreed, will you admit the same in regards to knowing the inner financials of VX?

I only know what they put in their quarterly reports, and going by that it aint pretty.
 

Grandpa +65

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Spirit is going to take another 9 airframes in the next year.
The rumor is these are VXs orders for 2013.
 

ROSWELL41

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Spirit is going to take another 9 airframes in the next year.
The rumor is these are VXs orders for 2013.

Are you saying the rumor is that Spirit is going to accept 9 additional frames in addition to the 9 (2 used 319s and 7 320s) that are already on the way?
 

scoreboardII

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You hit the nail on the head, inner financial workings. You can run forever as long as papa Virgin is willing to sink an unlimited unknown sum into the mix.
 

sstearns2

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The problem with VA is simple. Airlines make money on the long haul, large (low seatmile cost) airplane flying and lose money on short haul.

The regional and domestic system is a money loser, but nessecary to feed the big money long haul flights. That is why the domestic shorter routes are going to smaller and smaller airplanes and the seats on those flights are very expensive unless you are connecting to a long haul flight.

For example I fly LAX-LAS in 50-65 seat RJs all the time. The flights are nearly 100% asian connecting passengers. 5 years ago the LAX-LAS flights were all 130+ seat airplanes. The airline basically ditched all the low revenue weekend gamblers from SoCal and just kept the high revenue international passengers. The old United shuttle west coast flying is all done by RJs now for the same reason.

The problem with Virgin America is that they are stuck with the low revenue end of the market. VA lacks both the big money international routes and the regional feeder system. Jetblue, Spirit, etc also have this problem and as the majors regain strength those carriers will also feel the pressure.

Also Delta, American, and United can all sell their extra seats (the ones that are not sold to long haul connecting pax) dirt cheap. This technique was first used by American to kill People's Express and it is exactly how VA is being killed today and it is how other small airlines may be killed tommorrow.

Cheers,
Scott
 

climbhappy

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what's wrong with VX is a chevrolet in a world full of Fords..?

..corp travel mgrs dont get the VX advantage..
 
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Mr. Johnson

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"The problem with Virgin America is that they are stuck with the low revenue end of the market."

Plus having so many operations in SFO, one of the worst in the country for delays and cancellations.
 

HA25

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Virgin is a Cadillac Cimarron in a Chevy Cavalier world.

I could have written a 10 page opinion about this topic and not captured the gist of it any better. Well stated.
 

climbhappy

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okay.........you've just been made CEO of virgin america...how do you fix the company? or get through this weak economy? or do you limp along like jetblue with a big foreign minority partner..?

united should just buy them then let them show a loss or profit..however they let the accountants disguise it.....but it would be a good brand to have in your offering....plus the pilots get a raise.....i just dont see how they can survive in a US market that has consolidated almost fully to just a handful of big players..
 

Ky.BrownBourbn

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or do you limp along like jetblue with a big foreign minority partner..?

united should just buy them then let them show a loss or profit..however they let the accountants disguise it.....but it would be a good brand to have in your offering....plus the pilots get a raise.....i just dont see how they can survive in a US market that has consolidated almost fully to just a handful of big players..

Limp along with a BIG Foreign Minority Partner....Pot meet Kettle, Oh yeah, he's not a "MINORITY partner"

Why would United buy a losing product, they have enough problems, to get the customers, already have them...let the predatory pricing that happened into the 90's kick in and they are gone tomorrow..., to get the employees, NOPE, don't need them, I'm at a loss, why would anyone buy them?
KBB
 

climbhappy

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i guess that's exactly whats happening....matching price, saturating their routes...it's more a slow death.....kind of like rat poisoning...
 
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