Virgin America "is a lot like JetBlue," Cush says. "We are showing people that travel can be enjoyable." The differences, he says, include two-class service, advanced entertainment options and innovations like the ability to swipe a credit card at a seat to order food and drinks. The carrier, which began flying in 2007, operates on transcontinental and West Coast routes, pressuring fares in both markets.
"The network airlines always have disliked the low-cost carriers, but over time they have accepted JetBlue and Southwest into the family," says FTN Securities analyst Mike Derchin. "JetBlue changed its business model and is operating more like a network carrier, and Southwest now is reducing capacity, rather than growing, and trying to increase average fares."
As for Virgin America, Derchin says the other carriers shouldn't worry about it because it is losing money so rapidly that it cannot survive. The ownership issues are almost a diversion, he says.
The law requires that a U.S.-based carrier must be at least 75% owned by U.S. citizens and also must be controlled by a U.S. citizen.
In awarding Virgin America the right to operate in August 2007, the Transportation Department found that nearly all of its U.S. shares were owned by two hedge funds, which had the right to sell their holdings back to London-based Virgin Group Ltd., holder of the remaining 25%.
In a filing last month, Alaska asked the Transportation Department to find that Virgin America no longer qualifies as a U.S. citizen, citing a
Wall Street Journal
report that the U.S. investors had indeed sold their holdings to Virgin Group.