Virgin America was revolutionary when it started operating in August 2007. More than just its style and attitude, the young airline almost singlehandedly stopped the race to the #PaxEx bottom in the US airline industry. While other airlines were stripping services out of the main cabin, Virgin America was going the other direction. Every seat on the plane had the holy trinity of passenger amenities: in-seat power, Gogo Wi-Fi, and the Red IFE system which combined AVOD functionality and live satellite TV with a food and beverage ordering system. Virgin America appealed to passengers who did not want to be treated simply as self-loading cargo. The rest of the industry quickly caught on, and today passengers take to Twitter to complain when their plane doesn’t have Wi-Fi. We passengers owe a debt of gratitude to the plucky airline from Burlingame.
Sadly for Virgin America, it may have started a race it can’t keep up with. In a way, it is a victim of its own hard-won success. Virgin America serves both JFK and Newark airports from Los Angeles. In each route, it is facing a different threat to its market viability. The chart below shows the operating cost per seat per hour for each type of aircraft at each carrier:
As stated in my previous OpEd for the #PaxEx Forum, Virgin America’s premium product has fallen well behind its competitors on the route between JFK and LAX. This is problematic from a revenue perspective, but the data above is highly alarming from a cost angle, especially as these do not include aircraft lease costs. Virgin America’s business class seat (see note below) costs more per hour to operate on its aircraft than Delta or JetBlue, and both of those are flat-bed products. The story gets even worse between Newark and LAX, where the recliner business class seats on United’s armada of Boeing 737-800s are 45% cheaper to operate per hour than the comparable seats on Virgin America’s A320s. United economy and Economy Plus maintain a 15% advantage over Virgin America ‘s Main Cabin and Main Cabin Select. Getting the Gogo ground to orbit (GTO) system on board Virgin America’s aircraft is also crucial, as the carrier will face competition from JetBlue (with LiveTV/ViaSat Ka) and American’s Gogo hybrid ATG/Ku service (once Gogo garners STC for Ku connectivity on the 737).
In the avalanche of new orders for the A320NEO and 737MAX, the smaller variants in the respective families, the A319NEO and 737-7 MAX have received very little attention accounting for merely 94 out of more than 4,000 orders for the new versions of these legendary narrowbodies. Additionally, lease rates for current generations of A319s have been falling drastically as the aircraft is uncompetitive against A320s and 737-800s. Remarkably, employing the A319 would give Virgin America some respite in its battle to stay afloat as it has a 3% cost advantage per seat hour over the A320. It is a very rare situation and underscores the grave situation Virgin America finds itself in.
If Virgin America’s run as an independent airline does come to and end, Delta Air Lines is in a unique position to almost seamlessly absorb it. It has a large fleet of CFM56 powered A320 series aircraft. Additionally, it already has close relationships with the other Virgin airlines, owning 49% of Virgin Atlantic and part of a Transpacific Joint Venture with Virgin Australia. Virgin America operates out of Terminal 4 at JFK, where Delta has a giant footprint already. With the American/US Air integration underway gate trading between SFO’s Terminal 1 (Delta, US Air) and Terminal 2 (American, Virgin America) could be easily accomplished. The only real operational challenge would be at LAX, where carriers seem to be engaged in a giant game of musical airplanes. Barring unforeseen regulatory objections, Delta would appear to be the easiest fit by far.
 Operating costs for AA and B6 A321’s utilize data from non-Sharklet equipped, ex-US Air aircraft. Actual costs are projected to be a few percent less.
Also, due to the nature of the transcon market, where carriers tend to put premium products more closely resembling international offerings, identifying products as first or business becomes challenging. International first class is above international business class, which is rated higher than domestic first. Given the seat width, pitch and level of service associated Virgin America’s premium cabin, we consider it greater than a domestic first class product and much closer to an international business class. This is what we classified every other premium product as, with the exception of American’s transcon first class, which is comparable to an international first class seat.