Random Expansion: Virgin America Is Going to Regret Its New Flights to Mexico
It looks like Virgin America doesn't like my advice -- or, more likely, wasn't listening anyway. Just two short days ago, in reviewing Virgin America's first quarter results, I suggested:
If I were in charge, I think I'd be looking at ways to shore up my balance sheet by focusing on the strongest markets with the airplanes I have instead of going into hyper growth mode and adding seemingly random cities all over the place (Orlando, Toronto, etc).So what does it do? It decides to announce that its next cities will be Cancun and Cabo San Lucas. Oh boy, that is not what I had in mind. VA has filed with the Department of Transportation (DOT) for route authorities on three routes: San Francisco to Cabo San Lucas and Cancun as well as LA to Cancun. Really? Cancun? Service would start this winter.
This is just another step in the seemingly random strategy of route planning that VA has employed since the beginning. Let's review.
Big, Domestic Routes When Virgin America was fighting for approval, the airline planned to connect large domestic airports. In fact, this was in a release in early 2007:
We plan to fly into primary airports at a time when there is a shortage of quality low-fare capacity in the U.S. domestic market -- a shortage that will only get worse after the conclusion of several large airline mergers currently in the works.That was the strategy when it first announced service to New York, LA, San Francisco, Washington, and Las Vegas in mid-2007. The product was built to provide a good experience on longer haul routes, but VA quickly started going on short haul tangents.
First Attempt Going South In February 2008, it made the unusual move to snag authority to fly from LA to Cabo. This effort seemingly came out of left field, but it saw an opportunity to go in there when Frontier walked away from the route. Ultimately, VA didn't get the authority and instead, a more established player won out. It had to look elsewhere for growth.
Targeting Important Markets After that, the focus appeared for 2008 appeared to be on the shorter to mid-haul markets. San Diego came out in February 2008. Seattle was added in March. The rest of the year was focused primarily on frequency adjustments until long haul to Boston was announced in December.
That December, I had the chance to interview CEO David Cush, and he said:
. . . look at San Francisco where we serve 7 of the top 10 markets and in Los Angeles where we serve 6 of the top 10. So, we have good coverage. We're not going to be a legacy carrier that serves 100 destinations, but we'll get you to the top destinations.That was apparently behind the January 2009 announcement that the airline would begin service from San Francisco to Orange County, a market that was just shy of being in the top 10 looking at passenger numbers through March 2010.
Target: Leisure Travel By the summer of 2009, it appeared that the focus on important business markets had shifted to leisure markets, and the idea of serving the top airports faded away. In August, the airline announced it would fly from San Francisco and LA to Ft Lauderdale, not the primary South Florida airport of Miami that many had expected. This appeared to be more a leisure play.
In 2010, the trend continued with the announcement of Orlando service and the quick pull out from Orange County, but it was contradicted completely by the airline's decision to fly to business-heavy Toronto as well. Toronto, a very expensive airport, strayed away from the original domestic plan.
And now, we see a further focus on leisure. The San Francisco to Cabo flight is less painful to see than the Cancun flights. Those are very long, relatively thin leisure routes. It will take a lot of new airplane time to fly those routes, and there is already precedent for failure. Alaska, an airline that has mastered flying to Mexico, pulled out completely of Cancun by suspending flights to LA and Seattle.
If Alaska can't make it work, why can Virgin America? My guess is that it can't. VA does have lower costs, but it also has no connecting feed to help fill those airplanes. It's not alone in these markets (though United's weekly flight out of SFO isn't much), and I will be amazed if this works.
But here we are with an airline that has gone from wanting to serve the major domestic points to one that's serving international leisure destinations that are not exactly the most important destinations around. Meanwhile, there is no Denver, no Dallas, no Chicago, no Atlanta . . . the list goes on.
Somebody must think there's great profit potential here, but I just see an airline struggling to find its place.