An offspring of Sir Richard Branson's Virgin Group, Virgin America took flight just as high fuel prices and a recession rocked the airline industry. In 2007 the carrier launched service from San Francisco to Los Angeles and New York, and now serves more than a dozen destinations in the US as well as Canada and Mexico with a fleet of 25-plus Airbus A320 jets. It competes as a low-fare carrier, but distinguishes itself from rivals by providing first-class service and myriad in-flight entertainment options. In 2010 Virgin America's ownership shifted; a group of US investors picked up a 75% stake (including an affiliate of Cyrus Capital which holds more than a 55% stake). The remaining 25% is held by Virgin Group.
Wrangling over ownership issues -- federal law requires that US airlines be controlled by US citizens -- delayed Virgin America's launch. Moreover, hedge funds Cyrus and Black Canyon Capital, moved to exit in spring 2009, adding pressure on the carrier to secure new US investors.
Despite opposition by several airlines, the carrier's application to begin service gained approval, with UK-based Virgin Group scaling back its involvement to comply with US ownership limits. In addition, because Virgin America's founding CEO, Fred Reid, was hired by Branson before the airline had a US controlled board, regulators questioned Branson's influence over Reid and the carrier. Reid stepped down after the new airline began flying, and American Airlines veteran David Cush took over in late 2007.
Even under the best of circumstances startup airlines fail more often than they succeed. Cush inherited a business with solid financial resources and a blue-chip brand. (Virgin America licenses the Virgin brand from Virgin Group, which is represented on the airline's board. Branson serves as a publicity generator and adviser.) Nevertheless, Virgin America came into the marketplace in the midst of unprecedented fuel costs that caused small airlines to shut down and the industry to falter.
For its part, Virgin America added fuel surcharges to its fares and discontinued some low-demand midweek routes during off-peak periods. Some capacity was shifted to higher-demand routes. Following the industry, Virgin America changed its baggage-fee policy, instituting a $15 fee per bag checked and 10-piece limit. Virgin America has also shored up revenues by enticing flyers with amenities such as Wi-Fi, an extensive entertainment library, and trendy cuisine. Year-over-year revenues in 2009 soared nearly 45%. Although year-end earnings continued in the red, the company managed to narrow its losses by more than 60%.
Looking ahead, airline's expansion plans call for an initial 40 new Airbus A320 aircraft, to be delivered in 2013 through 2016, and options for 20 more in 2017 through 2018. The combined fleet is projected to reach 90 aircraft with the first order. Its investment capitalizes on the single-aisle aircraft's low operating costs and fuel-efficiency. Virgin America, simultaneously, has set its sights on serving as many as 30 cities by 2013, adding three to four new destinations a year during 2011 through 2016. To extend its network, Virgin America signed an interline agreement in mid-2009 with sister airline Virgin Blue's V Australia for travel between the US West Coast and Australia. – less