The launch of service by Virgin America between Newark and both Los Angeles and San Francisco touched off a bit of a fare war. Most route launches do, especially when it is an upstart encroaching on a cash cow route of a legacy carrier. The fare war itself was not unexpected, really. Slightly less expected was the amount of capacity United Airlines has chosen to respond with. Not only did they match the fares but they are essentially running hourly shuttle service on both routes.
At least one person is willing to call the revised schedule out for being more than just a reasonable response to a sudden increase in demand in the markets. Sir Richard Branson, the outspoken head of the Virgin Group which owns a minority stake in Virgin America was at Newark this week to talk about the new service launch and he had a few words about United’s approach. Speaking to FlightGlobal at the event he was downright defiant:
It’s old-style American airline management. It won’t succeed. They will be the losers. They certainly won’t drive us out of Newark.
Branson also suggests that the move by United is going to cost roughly $150mm annually. I have no idea if those numbers are sound or not; my back of the napkin calculations based on CASM, the aircraft and the number of flights suggests that the operating costs will be a lot higher than that, though I suppose they’ll make some money selling the seats, even at the bargain $99 one-way rates they have on the market right now.
But Branson is also suggesting another tactic may come in to play as Virgin America tries to make it in the market: the government. Branson is suggesting that the carrier may file complaints to regulators regarding the inventory dumping that United has engaged in on these routes. Given that he’s not actually running the company it is hard to tell if either of these defiant stands is real. Saying you’re going to file a complaint is a lot different than actually doing so and it is not actually his position to do it so others will have to get involved before it actually happens. Still, it is always interesting to hear that approach discussed.
I get that Branson wants to see more service and lower fares in the market. That makes sense. So it is hard to use that same argument to say that United’s inventory dumping here is a bad thing. At the same time, history suggests that should United actually drive Virgin America out of the market the service and fares will rapidly return to the old levels. The question is whether the feds should be involved.
Thus far I’m happy with the fare sales; they’re going to be very useful for me, I’m sure. We’ll just have to see how long it all lasts.
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