Competing in turbulent times
Cush argues that technological advances and other market forces are eroding the competitive edge long held by major network or legacy airlines. Virgin America competes in the same travel agency distribution channels as the majors, but 70% of all Virgin America tickets are sold through the airline's website.
Cush also believes corporations are becoming more interested in "transactional" rather than "contractual" buying, wanting the lowest price on each transaction rather than the overall discounts offered by global airlines, which don't always reflect the lowest fares available in the market. "Large corporations are very simply interested in low fares and flexible travel times," says Cush, noting that Virgin America's fares don't have minimum stays, don't require Saturday night stays, and advance-purchase restrictions are minimal.
Although oil prices have declined significantly over the past year, $70 per barrel is still substantially much higher than oil in the $20 per barrel range when Virgin America was originally conceived. Like most other airlines, Virgin America took a loss in the second quarter, but the $15 million hit was substantially smaller than the loss reported for the same period in 2008.
Even with the losses, Virgin America grew by nearly 50% over the past year, while most airlines were shrinking, and the airline's load factor (percentage of seats occupied) improved by almost 8% while unit costs declined by more than 20%. "Our focus is really on growing our airline," says Cush, though continued rapid growth in this environment may prove challenging.
One major issue is the current route map, with service in California and the Northeast, but a gaping hole in the middle of the country. "The biggest complaint we hear from our best customers is 'you need to fly to more places.' They ask, 'When are you going to fly to Chicago or Texas?' "
Cush would like to add two or three cities and six to eight new aircraft per year for the next two years, but the question might be where those new airplanes will fly. Virgin America has been unable to gain access to Chicago O'Hare or expand at New York's JFK airport, as incumbent carriers hold all landing slots and gates and have shown little interest in relinquishing them.
So can Virgin America's unique business model and premium product survive in the face of so much adversity? Cush believes the company will succeed by keeping its focus. "There is an expectation that comes with having Virgin on your tail."
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at firstname.lastname@example.org.