Virgin America is the equivalent of a TV show that’s a hit with critics but risks being canceled because of failing to attract enough viewers. The San Francisco–based carrier is regularly voted to the top of “best airline” lists. But it is far from the best in the business at making money.
On its website, Virgin America proudly displays the long list of travel awards it’s won over the past few years — best in-flight entertainment, best cabin staff, best cabin ambience, best overall passenger experience and so on. In the latest Conde Nast Traveler Readers’ Choice survey, it’s no surprise which carrier was named the top overall airline in the U.S. Yep, it’s the child of British billionaire Richard Branson, five-year-old Virgin America.
For the uninitiated, the San Francisco Chronicle offered a portrait of what makes the airline so special:
Boarding a Virgin America flight, bathed in 12 alternating shades of mood lighting and awash in globalized dance/trance music, is not unlike rolling into a late-night club, cocktail in hand. Unlike low-cost carriers that fly with single-class seats and service, Virgin America offers first class, premium economy and economy.
Virgin American stands out especially because the industry is dominated with trends pushing for more fees, fewer perks and an overall degrading and deglamorizing of the flying experience. Years ago — O.K., decades ago — it was laughable to compare buses with planes. But nowadays, the concept of a plane being little more than a “bus in the sky” is the industry standard.
It’s fairly remarkable than any airline can generate positive feelings among customers in today’s travel scene. But while Virgin America may be well liked, it may not be well suited to compete.
Reporting in August, the Chronicle noted that, despite all its rewards and glowing reviews, since 2007, Virgin America has posted a net loss of $671 million and an operating loss of $447 million. More recently, Bloomberg News reported that after large net losses in the second quarter of 2012, the airline would be cutting back flights and asking employees to take voluntary work leave in early 2013.
“I’m surprised it has survived this long, given the huge losses accumulated to date,” Scott Hamilton, managing director of aviation-consulting firm Leeham Co., told Skift Travel IQ. “I don’t really see a place in the market for Virgin America.”
Because Virgin America is young, it doesn’t have a large a network of routes, which is essential to attracting business travelers. And because Virgin America offers a premium product (leather seats, power outlets, fleetwide wi-fi, live TV), its flights often aren’t as cheap as those of competitors like Southwest and Alaska Airlines — and low price is overwhelmingly important to leisure travelers. Speaking of competitors, they have regularly jumped into markets where Virgin America is operating, making it difficult if not impossible for Virgin America to be profitable.
Mostly, Virgin America seems to have misread what travelers wanted most, and what they were willing to pay for. “They had an assumption that consumers would choose product quality over price and convenience, and network carriers responded with force,” Hunter Keay, an analyst at Wolfe Trahan & Co., explained to Bloomberg.
Standing in sharp contrast to Virgin America’s struggles is the rise of Spirit Airlines. Along with its fellow fee-crazed cohort across the pond, Ryanair, Spirit has been an airline that travelers love to hate for years. And yet, despite the common complaints about Spirit (customers have to pay even for water and could get hit with $100 fees for carry-on bags), the airline is likely the most profitable of any in the U.S.
So who is to blame if an airline that’s comfortable and treats passengers well fails, while a carrier that annoys and nickel-and-dimes customers at every turn is a runaway success? We all are.