Consolidation of the U.S. airline industry will yield benefits for all carriers, even if opts to remain independent, the low-fare carrier’s CEO, David Cush, tells Aviation Week.
That the U.S. airline industry is expecting a small profit this year, despite high fuel prices and an anemic economic recovery, is proof that consolidation has worked, Cush said after the airline’s first flight to Reagan Washington National Airport landed Aug. 14. “The industry was consistently profitable in the late 1990s, during an economic bubble, or when oil prices were low,” he says. Historically, though, without these factors U.S. airlines struggled to make a profit. Since the industry consolidated, Cush notes that airlines now “are profitable.”
Virgin America is not involved in this latest round of consolidation, which has mainly seen legacy carriers merge together; however, the low-cost carrier is planning to expand its interline and code-share deals.
Currently, Virgin America has a code-share agreement with. Cush says the San Francisco-based airline is looking beyond the Virgin group of airlines. Virgin America’s 14 interline partners include and .
Cush believes his airline’s strategy is similar to that of’ 10-15 years ago. Like Alaska, Virgin America is expanding partnerships and is establishing a niche based on strong brand loyalty tied to a specific geographic location, which in Virgin America’s case is the San Francisco Bay area and Los Angeles.
Unlike Alaska, Virgin America is not profitable, Cush concedes, although he is adamant that the airline will post a profit by the end of the year. If it achieves that goal and is consistently profitable in subsequent quarters, the airline may consider going public, which Cush says could happen in 2013 or early 2014.
Continuing the Alaska analogy, Cush says that unlike the Seattle-based carrier, Virgin America will never achieve the dominance Alaska has in its home market. Competition is more intense in San Francisco and Los Angeles, and those cities are larger than Alaska’s core markets in Seattle, Anchorage and Portland, Ore.
Virgin America has 9% of the market atand 4-5% of the market at Los Angeles International Airport (LAX). “We are not greedy,” says Cush. “We’re looking for crumbs.”
Virgin America’s goal is to capture 10-15% of the market at the airports it serves, a share Cush says will allow the carrier to “thrive.” The exception to this could be LAX, which is too large and fragmented to allow Virgin America to realize that growth. “There is no dominant carrier at LAX,” he says. “But 4-5% at LAX pays a lot of bills.”
Virgin America will be adding one moreto its fleet of 52 aircraft in March 2013, with one more Airbus narrowbody set to follow next July. Starting in the second half of 2013, the airline will take delivery of 10 A320s per year for the next three years, with 30 A320NEOs to begin delivery in 2016, says Cush.
The airline sacrificed profits in 2010 and 2011 to focus on growth. “We grew from 28 to 52 airlines in that time,” he says. “At 28 airplanes, you’re not relevant; at 52, we’re relevant.”