This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Virgin America’s Final Push Into Airline Club Brings Raid on Southwest's Home

SAN FRANCISCO ( TheStreet) -- Now everything is happening at once for Virgin America. New routes, new airports, an initial public offering and the first union on the property are all coming nearly simultaneously, providing a major test for management just as investors start to take notice.

It has been a steep climb for an airline that started out in 2007 after an 18-month battle with the entire U.S. airline industry, which resisted the start-up effort, citing lack of clarity about Englishman Richard Branson's ownership and the potential violation of the limitations on foreign ownership of U.S. carriers.

Now Virgin America is nearly a full member of the club, one that competes at its San Francisco hub with United (UAL - Get Report)  and will soon fly out of Southwest's (LUV - Get Report)  nearly private home airport at Love Field in Dallas.

While its network may be lacking, Virgin America has lower costs than either competitor. Its second-quarter cost per available seat mile excluding fuel and special charges was 6.87 cents, compared with 9.31 cents at United and 7.77 cents at Southwest. Quarterly revenue was $399 million, compared with $9 billion at United and $5 billion at Southwest.

Virgin American occupies a niche as a hip, technologically advanced San Francisco-based carrier with leather seats, Wi-Fi at each of them, mood lighting and advanced in-flight entertainment. "The brand is a good brand, (popular) in high income urban markets where product is important" said CEO David Cush in a 2013 interview with TheStreet.

Virgin America "has clearly built a product that's attractive to customers, who are willing to pay more for it," said Imperial Capital analyst Bob McAdoo.

In trans-continental markets, which account for two-thirds of capacity and two-thirds of the profits, "their product is so different and so modern that it attracts customers who are willing to pay as much for these flights as the legacy carriers get, even though these guys don't have a frequent flier plan that is anything at all like legacy carriers have, or any of the other network advantages," he said.

Yet in the LAX-JFK market, the No. 1 domestic market, "their average ticket price is meaningfully above Delta (DAL) and JetBlue (JBLU) and very close to American (AAL) ," he said.

A recent survey, conducted for TheStreet by GfK, showed that only 5% of Americans consider getting frequent flier miles to be an important consideration when selecting a flight. 

This summer, the LAX-JFK market had approximately 40 daily round-trip flights per day, most of them on five airlines. Virgin America tied United for second in fare level during the first quarter, according to the most recent statistics available from the U.S. Department of Transportation.

American collected an average one-way fare of $310. United and Virgin American collected $255; Delta $239 and Jet Blue $198 -- explaining JetBlue's need to add an improved Mint product.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LUV $44.61 0.00%
UAL $45.81 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs