Virgin America to launch inaugural flight, beginning stiffer price competition in United States

Virgin America challenged major U.S. airlines beginning to return to profitability after cutting capacity to lower costs and boost profits, announcing launch of inaugural flights Wednesday.

Photo: Virgin America to launch inaugural flight, beginning stiffer price competition in United States

Virgin America's inaugural flights, which could mark the beginning of stiffer price competition in the United States, will link its San Francisco hub with New York's John F. Kennedy International Airport and Los Angeles.

The new carrier got a taste of the challenges other airlines face when its first flight out of Kennedy Airport was delayed due to the severe storms that hit New York Wednesday morning. Airport officials said the storms caused flight delays of up to an hour and a half and much worse ground delays.

Virgin America's scheduled 10 a.m. flight lifted off about 10:50 a.m., said spokesman Gareth Edmonson-Jones. Onboard were billionaire Richard Branson and Chief Executive Fred Reid, who was late arriving at the airport.

"Everyone knows the quality of service of the big carriers in America has always been rather sad," Branson said after landing in San Francisco. "The carriers have never cared about their passengers, never given their staff the tools they need, never entertained their passengers, and they keep going bankrupt, going into Chapter 11. The industry needs new blood, it needs Virgin America."

The airline, a brainchild of Branson, plans to add direct New York to Los Angeles flights beginning Aug. 29 and more routes later this year, including service between Washington's Dulles International Airport and the West Coast. It will also fly into Las Vegas.

Virgin America is offering round trip fares of $278 (EUR 202) between New York and the West Coast. First-class round trips start at $778 (EUR 564). Some airlines, including JetBlue Airways Corp., have already been forced to match Virgin America's economy fares, while other airlines are offering even cheaper fares.

"(The) last thing needed now is another airline," said Ray Neidl, an analyst at Calyon Securities. "(It) will have a negative effect on pricing."

Others say the relatively small number of transcontinental and California routes Virgin America will serve are already highly competitive and in such demand that a few new daily flights will hardly dent other airlines.

Virgin America's 19 daily U.S. flights represent a minuscule percentage of the air system's 10.3 million annual departures.

"If you're going to start an airline, right now may be the best time - everybody's full and there's limited ability to competitively respond," said Mike Boyd, a consultant whose firm, The Boyd Group, is based in Evergreen, Colo. "I don't think it'll hurt anybody."

Most at risk from Virgin America's competition is JetBlue, the JFK-based low cost carrier from whose playbook Virgin America appears to be stealing a page with its trendy, plush styling and free in-flight television. Virgin America routes overlap about 10 percent of JetBlue's network, said airline consultant Robert Mann, of R.W. Mann & Co. in Port Washington, New York.

JP Morgan Securities analyst Jamie Baker estimates as much as $220 million (EUR 159.49 million) of JetBlue's annual revenue, or about 9 percent of its $2.4 billion (EUR 1.74 billion) in annual sales, is at risk from Virgin America.

JetBlue spokesman Bryan Baldwin said the majority of JetBlue's business is flying people from the Northeast to Florida - routes Virgin America has no announced plans to enter.

Neither JetBlue nor Virgin America offer the lowest fare on their shared routes. Northwest Airlines Corp. and ATA Holdings Corp.'s ATA Airlines both offer slightly cheaper flights, according to Web travel site Sidestep.com.

Other airlines facing new competition from Virgin America include UAL Corp.'s United Airlines and AMR Corp.'s American Airlines, both of which have more revenue at risk in northern California, Baker says.

The added flights could increase congestion at airports in New York and California that are already experiencing one of the worst summers ever in terms of flight delays and cancellations. But the additional seats might be welcomed by passengers stranded by delays and cancellations because other carriers are sold out.

Airline passengers increased by 0.3 percent in the year ended in April, even though overall airline departures fell by 1.5 percent, according to the Bureau of Transportation Statistics.