David Cush: Evolving Virgin America from embattled start-up to niche carrier

Washington DC
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Virgin America CEO David Cush arrived at the carrier roughly a year ago ahead of a period of wildly spiking fuel prices and at the beginning of an equally astounding economic recession that has forced virtually every US carrier to slash capacity to accommodate waning demand.

Scaled down growth at Virgin America includes a 10% fourth quarter 2008 capacity cut and a decrease in its fleet count in 2009 from an original target of 35 Airbus A320 family aircraft to 28.

Yet Cush remains bullish that even though the global economy is experiencing a historic downturn, customers “won’t postpone their lives” and in the current crisis will opt to travel before committing to larger ticket items such as homes or vehicles.

Cush succeeded Fred Reid, who agreed to vacate the helm of Virgin America as a condition of an arduous approval process to gain certification from the US Department of Transportation that occurred in May 2007.

But even after Cush’s first year as its chief executive, pegging Virgin America into a particular type of carrier remains a challenge for its endorsers and critics alike. The airline flies Airbus A320s with a first class product directly against giants such as United and American in some of their most lucrative markets at fares that are lower than its major competitors.

The carrier also offers one of the most advanced in-flight entertainment systems Red that allows for on-demand purchase of food and beverages from a passenger’s seat and a wide array of television and music options free of charge. Virgin America aims to have its fleet equipped with AirCell’s air-to-ground connectivity product Gogo by the end of second quarter next year, and will charge rates similar to American Airlines, which is also an AirCell customer.

Cush characterizes Virgin America as “a small player with a specialized and targeted product. We aren’t aiming and don’t need to dominate the market. We’re looking at growing a limited share of the market”. He highlights the carrier’s marketshare is generally below 20% in the markets it serves.

Targeting transcon markets in its initial launch in August 2007 from San Francisco and Los Angeles to New York’s JFK, Virgin America this year launched competition against Alaska Airlines on its west cost routes from Los Angeles and San Francisco to Seattle, and also competes with Alaska on flights Los Angeles to San Francisco.

Alaska has pledged to defend its entrenched short-haul flights, and recently carrier President Brad Tilden charged Virgin America offers fares“way below their costs and our costs”.

Virgin America’s chief executive calmly dismisses those claims calling Alaska and Southwest, which also competes with Virgin America on flights from San Francisco and Los Angeles, “formidable competitors”.

Cush is quick to explain that Virgin America “charges what the market will bear” and the carrier “basically charges what Alaska charges”. The chief executive also believes an airline’s cost it and its ticket prices “have little to do with each other”.

Virgin America through its appeal to DOT to keep is operating data confidential does not publicly report that information, and Cush declines to reveal specific statistics. The carrier is “quite happy” with long-haul flights from JFK to Los Angeles, Cush explains. He also believes the carrier’s operations from San Francisco to JFK and Washington Dulles are also turning in strong performances.

Obviously Cush prefers to talk more openly about Virgin America’s product. The carrier recently started charging a premium on exit row seating dubbed “Main Cabin Select.” Along with the extra legroom Virgin America is offering complimentary food, cocktails and beverages from the inflight menu and free all-access to the Red IFE system. Those passengers also receive priority boarding and screening at locations where those services are available.

Pricing for Main Cabin Select ranges from $75-$100 on short-haul flights, and increases to $300-$400 on its transcon flights.

Charaterising the new fare class as a “significant revenue generator” Cush says the product on average nets twice the value of a coach seat. He also claims Virgin America’s comprehensive premium economy offering is the first of its kind in the US domestic market.

The airlines is also considering revising Main Cabin Select after discussions with customers over their preferences and dislikes regarding the product. The upgrades currently include menu items offered for purchase by coach customers. Cush says the carrier is considering some sort of separate food service that offers a combination of coach offering supplemented by items on the first class menu.

As US carriers continue adhering to their product unbundling strategy despite the sharp drop in fuel prices, Cush admits that while a certain logic exists in applying that strategy “there’s a flip side” in travelers having specific expectations from a travel experience.

Virgin America currently charges a fee for a second checked bag, and Cush notes with the carrier’s automation platform it would be easy to charge for virtually everything.

But with Virgin America there is a “responsibility that comes with the name [Virgin] on the tail,” Cush explains, noting the carrier has no plans to compromise its core product.

The carrier does plan to charge for its Gogo wi-fi offering - $12.95 for flights beyond three hours and $9.95 for flights less than three hours.

And as passengers become accustomed to having wi-fi access inflight, Cush predicts the next “big battle” is offering power outlets on seats.

With power outlets currently available on every seat Cush vows that Virgin America is rigidly focused on “not letting the quality the product slip”.