Virgin Terminator

[stangdog]

Sounds like it's gonna happen...

TOULOUSE, France -- Richard Branson, the flamboyant British billionaire who founded Virgin Atlantic Airways, is thinking of making Los Angeles the headquarters for an airline he wants to launch in the U.S.

Branson, an aviation buff who flies hot-air balloons, has discussed the idea with California Gov. Arnold Schwarzenegger. The two met this year during the filming of the remake of "Around the World in 80 Days," a Jackie Chan movie in which Branson and Schwarzenegger have small parts.

Schwarzenegger has been lobbying Branson in recent weeks to make a commitment. "We are considering Los Angeles within our plans," Branson said in a letter this week to Schwarzenegger.

The low-cost airline, which Branson would call Virgin USA, could create up to 1,500 jobs. A decision on the headquarters could come within six weeks, he said in an interview.

Los Angeles is among a handful of cities where Branson might base a U.S. carrier; others include Boston, Philadelphia, San Francisco and Miami. A key criterion is that Virgin Atlantic already operates its international service to London from the U.S. city's airport. Virgin Atlantic operates two nonstop flights a day from London to Los Angeles.

Branson, an entrepreneur who has created a major record company and dabbled in a variety of ventures including soft drinks and cellphones, has long wanted to operate an airline in the U.S.

The recent success of JetBlue Airways Corp., the low-cost, cross-country carrier, has caught the attention of many in the industry. Branson's plans have accelerated in recent weeks as more domestic airlines have set up low-cost carriers of their own to compete with JetBlue, including Delta Air Lines' Song and United Airlines' Ted.

Branson didn't elaborate on how he would market Virgin USA. He has had tremendous success elsewhere. In Australia, Branson started Virgin Blue in August 2000 with a staff of 600 and two aircraft. It now has 2,800 employees and operates 40 jets, and has garnered nearly a third of the Australian market.

Branson says he is talking to a major U.S. carrier about purchasing a "significant" number of its gates. He declined to name the carrier, but some analysts believe it is US Airways, which wants to shed some of its slots.

An agreement with the airline could be reached as early as next week, Branson said.

U.S. law permits a foreign carrier to own 49% of a U.S. carrier.

Branson made his remarks while visiting the headquarters here of European aircraft maker Airbus. A contingent of executives has been talking to Airbus about purchasing a dozen single-aisle A320 jetliners for Virgin USA. Branson said he has met with Boeing Co. about purchasing a like number of single-aisle 737s.

In his letter to Schwarzenneger, Branson urged the governor to encourage LAX officials to make improvements, including installing passenger gates capable of accommodating what will be the world's biggest passenger plane, which Virgin Atlantic plans to begin flying in 2006.

Virgin Atlantic has ordered six Airbus A380s, which will seat 555 passengers on two levels. It hopes to become the first airline to offer A380 service between Los Angeles and London.

Schwarzenegger's office confirmed that he had met with Branson and encouraged the executive "to bring more jobs to California."

Branson said he might consider alternatives, such as San Francisco International Airport, if LAX fails to make the improvements. But he said he was confident in the governor. Schwarzenegger "never seems to fail in his films," Branson said, "so I think that problem is solved

 

[stangdog]

Another interesting article...

Naked Ambition in the Air
The growing influence of discount carriers is changing the game for big airlines.
By Andy Serwer


Right now the most important airlines in the U.S. are Southwest, JetBlue, AirTran, and Virgin Sam, or whatever British billionaire Richard Branson calls his U.S. venture set to start up next year. Notice that I didn't say the biggest airlines. I'm talking about the healthy ones, the ones that are making money and driving change in that shell-shocked industry. As for the big carriers, I believe that in five years or less they will all be merged, shrunk, radically altered, or simply toast. The airline industry is the most messed-up business in America, so I thought it would be interesting to take a look at where things stand. (Sideline exercise: Count how many times I use the word "amazing" in this story.)

You are probably aware that Delta and United have rolled out new, low-cost "airline within an airline" concepts, as in Song and Ted (after Uni-TED, get it?), respectively. These experimental businesses (and their gimmicky marketing campaigns) are a key part of what's going on, and I'll get to them a bit later. First let's consider the overall condition of the nation's Big Five: American, Continental, Delta, Northwest, and bankrupt UAL, parent of United. First the good news, sort of. Losses are way down. After spilling an astonishing $1.5 billion of red ink in the third quarter of last year, this group frittered away just $355 million in the third quarter of this year. Now the reality check. For the year, Deutsche Bank estimates that these airlines are probably looking at as much as $6.5 billion in losses, compared with $6.9 billion in 2002. Then there was the $6.2 billion loss in 2001. So what we have here is a group of companies still in operation that has lost nearly $20 billion over 36 months. Amazing.

How is it that they keep flying? Wall Street enablers, for one thing. Seems there are always investors willing to pony up and invest in or bail out airlines, including some charter members of the smart money set—e.g., Warren Buffett and Julian Robertson (see Airways, US). Personally, I have never understood why anyone would invest in an airline. The companies are at the mercy of three completely uncontrollable elements: (1) the price of oil, (2) the demands of unions, and (3) interest rates (which affect the cost of borrowing those huge sums of money needed to buy new aircraft). That's why it was such an egregious mistake when airline employees agreed to forgo cash salaries and instead take company stock during restructurings. The one true growth business in the airline industry these days are those aircraft graveyards in the Southwest near Tucson, Roswell, N.M., and Mojave, Calif. At last count, 805 U.S. commercial aircraft are in long-term storage. (That suggests that these are not exactly the best of times for Boeing, although that's another sad story.)

For years the big-boy carriers, which some call "network airlines" after their hub-and-spoke systems, pooh-poohed the low-cost carriers (LCCs). That mostly meant Southwest. Even Continental CEO Gordon Bethune, by far the most astute big-airline executive, told me recently that it wasn't possible for his company to emulate Southwest because the two companies are in such different businesses. Southwest, for instance, has no hubs and flies only Boeing 737s. The problem with Bethune's perspective is that the flying public doesn't give a left wing flap about hubs or types of aircraft. They just want a cheap, reliable flight, which is what Southwest and now others are offering. (By the way, during the past five years, even after Sept. 11, the recession, the war, and the decision of its visionary founder Herb Kelleher to retire from his job as CEO in 2001, Southwest's stock has nearly doubled, while the S&P 500 is down about 10%. Amazing.)

The threat of the LCCs to the hub-and-spokers has been accelerating with the failing health of the bigs. Analyst Gary Chase of Lehman Brothers says that the domestic market share of the discount carriers stood at 28% at the end of 2002, up from 9% in 1991. More significant, Chase says, is that the discounters now affect pricing in markets accounting for 56% of the average large airline's revenue. Another sign of the times: The discounters are looking to add 95 airplanes to their fleet next year, while the bigs will probably drop by a net count of 63 planes—which means more inventory for the Mojave. Amazing. (A side note about Branson and his plans for a discount U.S. carrier. Branson told me recently he's been itching to get into the U.S. for years, but he was held back by the rule that prohibits foreign interests from owning more than 49%, or 25% of the voting stock, of a U.S. carrier. Now, he says, the opportunity is so great that he's going ahead despite that hindrance.)

Which brings us to Song and Ted. Song has a distinctive color (lime green) and a groovy SoHo boutique, the point of which is lost on me, though it is replete with multiple flat-screen TVs, extra-comfy couches, and Kate Spade bags for sale. As for Ted—well, so far United has embarked on a zany guerrilla-marketing campaign in Denver, where the new carrier is set to debut in February.

At first glance, Song and Ted seem ill-conceived, diverting precious time and money away from the task at hand, which is to rejuvenate Delta and United. But there could actually be some sense to the newly spawned carriers. First, if the fares are right, Song and Ted may really be able to battle the discounters in ways their parents can't. It would be even more remarkable if Song and Ted became the main events for Delta and UAL. Impossible? Not at all. Remember a retailer named Dayton Hudson? Its roots trace back more than 100 years, to its first store in Minneapolis. In 1962 the company opened its first Target discount store. Over the decades Target generated more and more of the company's Wall Street buzz, never mind its revenues. In 2000 the execs at Dayton Hudson finally acknowledged the obvious and renamed the parent company Target. Amazing? Not really.

 

[storminpilot]

Where are they going?

New Virgin airline in talks with Phila. about HQ
Larry Rulison

Virgin Group -- the $5 billion British conglomerate that operates Virgin Atlantic Airways -- is in talks with Philadelphia and Pennsylvania officials about locating the headquarters for a new low-cost airline in the city.


Economic development officials are pitching the Philadelphia Naval Business Center -- the former Navy Yard -- as the headquarters location for the new airline, which is going to be called Virgin USA, said Elinor Haider, an assistant vice president with the Philadelphia Industrial Development Corp. Virgin USA could provide hundreds of jobs for Philadelphia, and it would also provide flights in and out of Philadelphia International Airport and other major airports, she said.

Other major cities on both coasts are competing against Philadelphia for the headquarters location. Haider wouldn't reveal the names of those cities, but an Oct. 6 story in the San Francisco Business Times, a sister publication of the Philadelphia Business Journal, said that Philadelphia is competing against San Francisco; New York; Washington, D.C.; Boston and Los Angeles for Virgin USA's headquarters and 500 jobs that would go with it.

Haider couldn't confirm that number, but she believes it would initially be more like the "low 100s" and then it would grow larger as the new venture grows.

PIDC, the city's Department of Commerce, the Governor's Action Team and the airport are involved in the discussions. The Governor's Action Team is a group of state economic development specialists that report directly to Gov. Ed Rendell. The PIDC is a private, nonprofit organization that acts as the city's economic-development arm. It typically works in concert with the city's Commerce Department on deals. City Commerce Director James Cuorato could not be reached for comment.

Haider says the new airline, which is still being formed, is working out of offices in New York. But she said the city and state have had "initial discussions" with Virgin about putting its headquarters in Philadelphia, and Virgin officials toured the former Navy Yard in August. A decision is expected within several months, she said.

Haider says she believes Philadelphia has an advantage over other cities because the PIDC owns the real estate it is pitching to Virgin and the site is close to the airport, which the city also owns. In addition, the cost of living is cheaper in Philadelphia than in other cities, she said, and that is important to the types of employees that Virgin USA would need to hire, including pilots, flight attendants and reservations personnel.

"It's really an ideal location for them," Haider said. "I feel very enthusiastic about it."

Virgin officials in New York who are fielding calls about Virgin USA did not immediately return calls seeking comment. Kim McFadden, regional director of the Governor's Action Team, said she could not comment.

Philadelphia International Airport spokesman Mark Pesce confirmed that airport officials are also working on the deal as it relates to service in and out of Philadelphia International.

If Virgin USA were to decide to run service out of Philadelphia International, it would be the second high-profile, low-cost airline to chose Philadelphia recently. In late October, Southwest Airlines Inc. announced it would start service out of Philadelphia in 2004. The move is expected to drive down prices and put pressure of US Airways Group Inc., which has a hub in Philadelphia.

 

[General Lee]

I counter your articles with this one:


Reuters
UPDATE - Shares of JetBlue, others drop sharply on warning
Friday December 5, 4:35 pm ET


(Recasts, adds detail, closing stock prices)
NEW YORK, Dec 5 (Reuters) - An uncharacteristic earnings warning from JetBlue Airways Corp. (NasdaqNM:JBLU - News) spooked investors on Friday, driving its stock down 18 percent and pulling share prices in the rest of the low-cost airline sector lower.

JetBlue's stock, a favored but pricey pick on Wall Street, posted its largest-ever one-day percentage loss during the session, and closed down $5.58 to $25.80 in active trade on the Nasdaq, where it was the net loss leader.

Nearly all lower-cost, regional carriers traded sharply lower on Friday, and shares of major U.S. airlines dropped as well, on new fears that fourth-quarter revenue will disappoint.

The low-cost sector losses were led by JetBlue and America West Holdings (NYSE:AWA - News), which was down 14 percent.

New York-based JetBlue said late on Thursday that lower air fares and the recent California wildfires would push its fourth-quarter operating margin down to between 13 percent and 14 percent, compared with the 15 percent to 17 percent it had previously projected.

In the third quarter, JetBlue's margins hit nearly 20 percent, a level almost unheard of in the struggling U.S. airline industry.

"We're faced with a challenging revenue environment due to capacity additions resulting in lower average fares, particularly in our western markets," Chief Executive David Neeleman said in a statement.

JP Morgan analyst Jamie Baker said in a research note that JetBlue's outlook could have consequences across the low-cost carrier segment.

Lehman Brothers analyst Gary Chase said the JetBlue announcement and signals of some weakness from low-cost pioneer Southwest Airlines (NYSE:LUV - News) caused him to cut estimates and stock price targets on most of the companies he follows.

"While we had hoped for significant strength in the holiday period, it now appears that the industry is less confident in current revenue trends," Chase said.

Shares of airlines across the board have plunged this week, in reaction to the drop in confidence and news that oil prices are likely to stay high.

Regional airlines America West (NYSE:AWA - News) fell 13.7 percent to close at $11.91, while AirTran Holdings (NYSE:AAI - News) dropped 10 percent to close at $12.05, both on the New York Stock Exchange (News - Websites) . Frontier Airlines (NasdaqNM:FRNT - News) dropped 8.7 percent to close at $13.81.

Southwest also fell, closing down $1.01 at $15.59 on the Big Board.

Lehman's Chase said he now expects JetBlue to earn 16 cents per share in the fourth quarter, down from his earlier forecast of 22 cents.

JP Morgan's Baker also cut his profit estimate for the quarter to 16 cents a share from 23 cents. He is lowering his earnings forecasts to 99 cents a share from $1.10 for 2004 and to $1.25 from $1.33 for 2005.

JetBlue and other airlines were hurt in October when dense smoke shut down San Diego's airport, and Southern California airports were closed for more than 12 hours when a blaze threatened an air traffic control facility near the city. (Additional reporting by Kathy Fieweger)



I thought I had to do it.......more capacity in the LCC sector will just trim their profits. The hubs do well because they bring in people on RJs and smaller mainline aircraft from cities that do not have LCCs. This new Virgin America cannot be good news for Southwest or Jetblue....

Bye Bye--General Lee

PS--Vigin Atlantic has the lowest paid 747 pilots in the free world (besides the likes of Garuda in Indonesia etc), Virgin Express in Europe is not doing very well because of the intense LCC competition in Europe, and Virgin Blue in Australia is doing very well becasue there really was only one airline, Qantas, left after Ansett went uner. Hardly any competition here in the States, huh?...Go for it Richard!

 

[SpeedBird]

General Lee:

While its seems like a no-brainer to say that the LCC's will end up eating their own young as a result of excessive capacity, this will be a problem that will leave its mark on the entire industry. the low-cost market is really the only game in town right now and for the forseeable future. So everyone and their brother is trying to throw their own version of an LCC into the mix to try and keep market share and stifle the growth of airlines like jetBlue.

As David Neeleman said this is an issue of reduced revenue based on too much capacity. You can bet your sweet bippy that Delta will be feeling the pain of this revenue pressure also. Unfortunately for Delta, it will only further exacerbate their ability to try and become profitable in 2004. I don't need to explain to you the ramifications of that very real possibility.

When the market has no pricing power on the revenue side then cost in king, and that puts the true LCC's in the driver seat for the time being. While news about jetBlue has proven that the airline is fallible, it is certainly not being kicked to the curb for preannoucing that operating margins will be north of 13%. Everyone else in the business will looking up at that number.

 

[General Lee]

Speedbird,

As Delta gets it's costs in order to compete with the LCCs, the economy will get better. As the economy gets better, people don't always look for cheapo flights, or have to drive 2 hours out of there way to JFK to catch a flight to Long Beach---which is an hour south of where they want to be. The economy is growing. When that happens, more people travel, and not only in the US. That is why Delta has added many new European flights starting next May---like CVG to FCO, and AMS, along with additional flights from ATL to MUC and LGW, and extra flights to Athens from JFK. They know where the money will be. As far as their domestic strategy, they are pumping up Song and that is adding to the capacity woes, but allowing people to have a choice. We believe that our choice is a lot better than yours--with a better frequent flyer program, better IFE, better food, and more choices out of NYC---your home base. Does that worry your CEO? No, of course not. Nothing can go wrong for you guys, except Southwest now moving to PHL, Airtran now floating around up North too, maybe Virgin America having a base up there too. That doesn't sound like it will help you much. We have things that will keep our customers coming back--like that frequent flyer program that could give them free tickets to Moscow, or Maui. Also, we have the ability to add as many 757s as they want from mainline to Song, while you are waiting for new airplanes. That gives Song the ability to be larger than Jetblue, and the costs of Song are very good, with the pilot costs coming down shortly. Yeah, we have a debt problem, and we (the pilots) are helping address that problem right now. The pension problem gets smaller as the stock market and interest rates rise, and the economy is getting better. So, I hope you guys have fun battling Song, and now Southwest up there in PHL. I really don't think they will hurt our JFK base up there, unless they start flying to Madrid or Athens. As far as lower prices affecting Delta, I don't think we could get lower than this year and this last Summer, and Delta had two months of operating profits. (out of three) With the rising economy, comes rising fares, and better revenues. Try to jump on us to England if you want this upcoming Summer, it might be tough---but we'll try to get you on......

Bye Bye--General Lee

 

[SpeedBird]

Well General we'll all have a front row seat to see how things will pan out over the next 12 months or so.

I do agree with you about the long-term trend that the market and economy will improve, thus increasing the number of travelers flying on US airlines. The trick is not to add capacity too quickly. I am also glad to hear that Delta is getting its costs down. I just don't know if it will be too little too late with the big debt obligations coming due over the next two years...good luck to you ( I mean that!).

I must also comment on your frequent mention of Delta's FFP as a superior weapon against jetBlue. My father has been a Delta FF for many years. He tried to redeem some of his miles to travel to Europe next May before the tourist season begins in earnest, and was told there were no seats available for the days he was planning to travel. The Delta rep told him that he would need to plan at least one year ahead of time in order to redeem his miles. He later told me that it just about not worth the effort anymore to participate in the program.

 

[mach zero]

I have to agree with Speedbird on the Legacy FFP issue. As I have posted on the board before, I have a friend that is Platinum level in the American Advantage program. There are so many restrictions on using his miles, he has basically given up on them and now flies SWA whenever possible.

Most LCC's FF programs are easy to understand. Fly x number of trips and get a free ticket...and people are responding because they are tired of playing games when it comes to receiving the benefits they have earned.

BTW General Lee, on my LCC airline it is possible to use your free tickets on international flights to the Carribean right now. I would also not feel immune from LCC's in the trans Atlantic game for much longer....

Mach Zero