Last Updated Aug 20, 2007 4:39 PM EDT
The new airline is flying heavily trafficked routes, including the first and second busiest, LAX to JFK, and San Francisco to JFK, which annually account for $714.7 million and $515.9 million in sales for all airlines, respectively. The main operations hub for the new airline is San Francisco. And though the American airline industry is cutthroat, media commentators are giving the new airline a good chance of succeeding, at least in the short term.
As the San Jose Business Journal notes, the low-cost carriers such as Southwest and JetBlue, with whom Virgin America will be competing, though "once the darlings of the industry, are throttling back growth plans amid cost pressures. Southwest said it is offering buyouts to 25 percent of its employees to help cut costs."
Morgan Stanley analyst William Greene, in a Marketwatch.com article, estimates that "Virgin America's new flights will compete directly or indirectly with about 50% of JetBlue's available seats." He goes on to note that, "typically, airlines enter new markets with 'promotional pricing' and we expect Virgin will follow this pattern." Prices from San Francisco to Los Angeles or Las Vegas are as low as $44 each way and fares from San Francisco to New York are less than $300 round trip.
In addition to these low prices and the existing troubles among it's competitors, Virgin America enters the market armed with its marketing savvy, and with a fleet of 10 new Airbus planes packed with all the latest amenities, including seat back televisions and massaging seats in first class.
With the clout to offer low fares, flash new planes and a snazzy brand,Virgin seems poised for success in the short term. But, as Calyon Securities analyst Raymond Neidl, points out on MarketWatch.com, the longer term picture may not be so rosy. "The last thing we really need is another airline," Neidl comments. "Right now there's too much capacity domestic, too much discounting going on, [and] as a result it's a drain on all the airlines."
We'll have to wait and see the results of Virgin's foray into the American domestic market. But if they do indeed struggle to turn a profit, it will just go to show that no matter how slick the marketing, and well-packaged the product, if the market is oversupplied, new entrants may struggle to succeed.