Usually when you think of low-cost airlines, you think of point-to-point routes serving secondary cities and smaller airports in larger metropolitan areas.
Then there’s Virgin America. Though the airline has yet to report a profit, its been a good year for the California-based carrier. Their SFO/LAX-JFK routes have seen steady growth (a fifth daily flight to JFK from SFO and a sixth daily flight from LAX is coming soon) and their West Coast operations continue to chug along. Flights to Boston, Ft. Lauderdale, and Washington Dulles are still in the mix, new service to Toronto has already begun, and service to Mexico, Dallas, Chicago, and Orlando is coming. If not for their fuel hedging miscalculation, they would have reported a profit last quarter.
Unit revenue, i.e. ticket prices, is up 36% this year and business travelers now comprise 40% of VX’s customers.
But take a look at their routes above. With service to Chicago coming, Virgin will be competing with United on three of their hub-hub routes (LAX-SFO/ORD/IAD) and with service between DFW and SFO/LAX on the horizon, VX will be squaring off with American on two of their powerhouse routes (and routes that UA also serves).
As a consumer, I’m happy to see Virgin compete on hub-hub-routes of legacies. When Independence Air folded, fares between LAX and IAD shot way up but with VX now competing with UA and AA on the route, fares have dropped (though not to their previous lows).
As an airline industry analyst, though, I have to question the wisdom of Virgin to attack entrenched legacy carriers at their hubs. United, American, and Air Canada are not going to rollover while their turf is being invaded. While VX does not provide a breakdown of the profitability of each route, I’d question whether the intra-California and Dulles routes are sustainable at the paltry economy fares the carrier charges for advance purchases. If the other routes were as profitable for Virgin as the NYC market, I think they’d let us know.
Yet Dallas, Chicago, and Washington are major cities that a respectable airline should be serving. It has become clear that Virgin America is willing to lose money in the short-term to establish itself as a nationwide carrier in the United States. I suspect that Sir Richard Branson is very serious about establishing a fourth airline alliance and major American cities need to be served in order for the alliance to be successful.
I’ll be watching Virgin closely in the coming months, but at this point I have to question whether they can ever sustain profits on many of the routes they serve, despite their good intentions for serving them.