Virgin America wants things to be different. Very different. David Cush, the carrier’s CEO recently was interviewed by Scott Mayerowitz from AP and there are a few interesting bits in the Q&A that offer up a rather unique view of how he sees the company fitting in the market and how his old company, American Airlines, is doing these days. Here are a few of the bit I found most entertaining.
Q: How much more are people willing to pay for [food & entertainment on demand] services?
A: The model is getting them to pay the same amount with a much lower production cost.
For a guy who thinks he’s looking at the bigger picture and the long-term view of the airline it is not at all clear how he plans to maintain this approach. Every airline starts out with lower costs initially. The problem is that maintaining that cost structure is incredibly difficult as labor seniority (and the correlated costs) only go up over time. Yes, the new fleet means decent fuel efficiency but that will erode (or require major capital expense) over time as well. Doesn’t seem to be a particularly useful approach to long-term survival.
Q: How can you attract business travelers when your miles can’t be redeemed for Hawaii, Europe or other places you don’t serve?
A: The mile problem will be solved early next year. We have basic agreements with Virgin Atlantic and Virgin Australia that will be fully reciprocal. We also have agreements with Cathay Pacific, Singapore and Emirates that will develop into frequent flier relationships.
This is quite interesting and certainly will be a welcome change. Even if the reciprocity rates aren’t particularly great – and I’d bet they will not be – having more earning and redemption partners is a great thing for customers. Of the independent US-based carriers Alaska Airlines has done the best at this (and they’ve also been around the longest to figure it out) while JetBlue has a minimal partnership with American Airlines. Growing those relationships is about more than just having an interline agreement for ticketing and baggage; it is nice to see Cush recognize that value.
Q: In Dallas, you’re telling fliers to "dump your older airline for a younger, hotter one." American responded by slashing fares to San Francisco and Los Angeles. Can you survive this fare war?
A: We’ll survive. At current fares, it will not be a profitable route but it wouldn’t be such a loss-making one where we would consider any type of reduction. You have to be in Dallas-Fort Worth if you’re going to be a business airline.
This is a particularly interesting view on the value of certain markets (elsewhere in the interview there is also discussion of pulling out of the Toronto market). Apparently there are some markets so important that losing money over a long period of time while serving them is OK. He doesn’t note just how much they’re losing or for how long they’re willing to keep losing that money, but it is quite a claim. Definitely makes me wonder about the long-term plan once again.
Q: Do you think that American is on the right path?
A: It’s hard to tell. There’s a culture there that is perhaps a bit risk-averse. In the past, it was always an airline that was willing to accept risk. The industry’s consolidated around it and all of a sudden American finds itself in third place. I don’t know if they have the answer. I do know their top guys. They’re smart, capable but at some point you need to stick your neck out a little bit if you’re going to get out of a rut.
Well, cutting chunks of the route map is one version of sticking ones neck out, I suppose. For a guy so keen to run a very limited airline with a very limited route network, it seems that telling others who are running a much more complicated setup that they’re not trying hard enough is an entertaining stretch. That’s not to say I think the AA plan is particularly great, but they also cannot really effect wholesale change just by flipping a switch. There’s a lot of momentum to be dealt with there.
Q: Mile for mile, airplanes burn more fuel than cars, trucks or trains. Do you think this poses a problem for the industry?
A: If we don’t find a way to clean up air travel, we’ll become a pariah. We’ll be what the coal companies used to be.
How about, "Planes are ever improving in efficiency and they allow for connectivity in the world and great advances that cannot be had any other way," as a response rather than shying away from the problem with your tail between your legs?
Q: In ten years, do you see Virgin America being a full-blown national airline?
A: That’s not our goal. The biggest discipline we need to have is not outgrowing the model. That means maybe 100, 150 aircraft, probably no more. The goal would be to be consistently profitable, the highest quality airline where we can hopefully make a few hours of people’s day a little bit nicer.
This is perhaps the most interesting of all the responses. It makes sense from one point of view, but that is a very simplistic approach. No airline is going to be all things to all people; the numbers simply don’t work out. At the same time, however, artificially limiting yourself to only serving major cities or only serving limited frequencies is a sure fire way to make sure that you’re not going to meet customer needs. And when serving those markets becomes a matter of entering into markets that area already rather competitive the revenue pressures are going to be even harder. I respect the theory but I don’t think it maps to the real world very well.
It seems to me that most of the answers Cush offers up are rather small-ball or short-sighted views of the market and how to operate successfully in it. Maybe I’m wrong, but I’m certainly not feeling all warm and fuzzy about the company’s future reading his views.
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