Not to say that our country does not benefit enormously from finally having a profitable airline industry, but an unfortunate characteristic of the model is a nearly impenetrable resistance to start-ups, of the sort that keep other industries vibrant.
That is what makes this a time to look back longingly on a moment on Aug. 8, 2008, eight years ago today, when two inaugural flights departed from LAX and JFK and landed simultaneously on parallel runways at SFO, and Virgin America was born. It was the last time anyone successfully started a major U.S. airline.
Today Virgin America serves 23 airports with a fleet of 55 aircraft and a staff of nearly 3,000 employees. It has the second largest hub at SFO, the seventh largest U.S. airport, and it has staked out a presence in two of the country’s most competitive markets: Dallas and transcontinental flying.
“Virgin America is a poster child for the benefits of competition and comparison shopping,” said Charlie Leocha, chairman of Travelers United, a non-profit consumer advocacy group. “It’s been a great service for consumers.
“When it started in 2008, we didn’t see the consolidation of the airline industry that was coming, but now we are in the middle of the final steps of the American Airlines/US Airways merger, and without Virgin America there would be one less airline to stop price increases.” Leocha said.
Today, four airlines carry about 80% of all U.S. airline passengers and “The big guys are squeezing out the startups,” he said.
It cannot be said that Virgin America has had an easy time of it.
The effort to get started took 18 months due to industry resistance related to a lack of clarity about English businessman Richard Branson’s involvement and the potential violation of the limitation on foreign ownership of U.S. carriers. Once it began flying, Virgin America encountered rising fuel prices, a bad economy and the usual intense competition on the trans-continental routes it initially targeted.
"Growing an airline is difficult in the best of times, and we haven't been in the best of times,” Cush said in a 2013 interview with TheStreet. “We've had a huge recession and high commodity prices. We fought our way through those."
On Nov. 13, 2014, the carrier went public. Shares, offered at $23, began trading at $27. They closed the first day at $30. In December, they reached $45.43 and they closed the year at $43.25.
But 2015 has not been so favorable. Shares reached a year’s low of $26.53 in July. Then positive second quarter earnings and outlook seemed to revive investor faith. On Friday, shares closed at $34.49, down 20% year-to-date.
Some of the selloff traces to Virgin America's October 2014 move to begin service at Dallas Love Field, where Southwest has expanded rapidly following the expiration of the Wright Amendment. In June, according to the most recent airport statistics, Southwest Love Field traffic was 50% higher than it was a year earlier, while overall airport traffic was up 60%.
Aviation consultant Robert Mann questions whether Virgin America should have gone into to Love Field at all, given Southwest’s overwhelming competitive advantage and rapid growth. Mann said Virgin America seats are the ones most likely to show up in Priceline and other opaque distribution systems.
But Cush maintains, “Dallas is very nice.
“We’re taking a long-term view,” Cush said in an interview. Southwest’s expansion “was a tremendously disruptive event, and the market is behaving as expected after a 30% increase in capacity. It will improve considerably. We’ve seen this movie before. The first year you have ugly yields, but that stimulates traffic and then capacity and pricing adjust.”
Analysts are mixed on Virgin America’s outlook, but last week Cowen & Co. analyst Helane Becker reiterated an outperform rating and a $38 price target, and wrote that: “Virgin is likely continue to outperform the industry in {passenger revenue per available seat mile} in 3Q15 and early indications for 4Q15 remain positive.
At the least, the carrier has survived a troubled childhood.
Happy birthday kiddo.
