speedport
Posts: 269
Joined: Thu Sep 27, 2001 12:08 pm

Virgin To Start LCC In America

Mon Mar 24, 2003 4:29 am

"Sir Richard Branson's Virgin Group is set to launch a low-cost carrier in the US, despite the devastating effect war and terrorism has had on the industry.

According to The Sunday Telegraph, the airline, provisionally called Virgin America, could be launched by the end of next year.

The newspaper reports that Virgin is in discussions with US-based investors and has decided to launch a new venture rather than buy into a struggling existing airline with a high cost base."

http://www.thisislondon.com/news/business/articles/timid60826?source=

Get your resumes ready.


[Edited 2003-03-23 20:48:45]

[Edited 2003-03-23 20:51:32]
 
speedport
Posts: 269
Joined: Thu Sep 27, 2001 12:08 pm

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 4:44 am

Here is a link to the Telegraph story:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/03/23/cnvirg23.xml&sSheet=/money/2003/03/23/ixcity.html

Some highlights:

"Under US law, Virgin's new airline will have to be at least half-owned by US companies."

"Virgin estimates that the airline will cost around $15m to launch with a fleet of six to eight aircraft."

"It will fly domestic routes based on the low-cost model pioneered by South West Airlines, the original low-cost carrier. "We will grow it organically for two to three years then take it to the market."

Interesting, is it not. SIR Richard Branson was quoted earlier in a London paper as saying he believes the war in Iraq will bring down either United Airlines or American Airlines permanently.

 
N863DA
Posts: 1140
Joined: Sat Sep 04, 2004 6:36 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 9:14 am

Well Jetblue is really going to hate this, since it is Richard Branson and MANY of his Virgin cronies that help set up THAT airline.

Call B6 and ask them why most of their executives are from the UK, along with a sizeable portion of their pilots and employees....

N 8 6 3 D A
 
PSU.DTW.SCE
Posts: 6176
Joined: Mon Jan 28, 2002 11:45 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 10:15 am

$15 M to start up???? That won't last long
JetBlue started up with almost 10 times that much.

Now what is he going to do with an LCC? Cherry-pick routes from the established LCC'?
Flood the East Coast-Florida market with even more capacity?
 
DeltaRules
Posts: 3774
Joined: Sat Sep 01, 2001 11:57 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 10:44 am

I saw this coming....

Any idea what he's gonna use for aircraft & which LCCs will be screwed by Richard's newest entity?

DeltaRules
A310/319/320/321/333, ARJ, BN2, B722/73S/733/734/735/73G/738/739/744/757/753/767/763/764/777, CR1/2/7/9, DH6, 328, EM2/ERJ/E70/E75/E90, F28/100, J31, L10/12/15, DC9/D93/D94/D95/M80/M88/M90/D10, SF3, SST
 
ConcordeBoy
Posts: 16852
Joined: Thu Feb 01, 2001 8:04 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 11:01 am

Any mention of Aircraft type?

With only $15M startup... I'd imagine it's going to be used 737s no?
Faire du ciel le plus bel endroit de la terre c'est impossible sans Concorde!
 
speedport
Posts: 269
Joined: Thu Sep 27, 2001 12:08 pm

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 1:36 pm

Either they think the current market structure will collapse completely, and they can get planes and ground support equipment for a song (did I say Song?), or they only have - can only raise - 15 million to have a go at it. I think the big bet here is that either United or American will cease operations. Otherwise they would have a shorter time table than the end of 2004.
 
DCA-ROCguy
Posts: 3903
Joined: Fri Apr 21, 2000 5:03 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 3:16 pm

Branson's move doesn't make sense, it seems to me, *unless* he expects a big new market hole to open up by a shutdown, as Speedport says. It's hard to imagine the Northeast-Florida corridor needing any more capacity, what with Song coming online, as a couple of people have noted. And it is very possible that miracle-worker Siegel is going to get US Airways through, so Branson shouldn't count on that carrier collapsing. All three big US LCC's would already be poised to jump should that happen anyway.

Doesn't US law require >25 percent foreign ownership of airlines, or did that change? In any event, figure Branson will match whatever he raises to the extent allowed by law. Which means from a $15 mil base, $22.5 mil or $30 mil. Which as PSU noted is peanuts compared to JetBlue, and a recipe for failure.

The only remaining gap in US LCC coverage that I can think of, that might support a whole new carrier, is the upper Midwest. Right now, that wouldn't work. Chicago is the natural base for such an operation, and WN and ATA have claim on the new gates opening up at MDW. ATA can fill a lot of Upper Midwest gaps with Saabs, to markets that couldn't support 73G's to Chicago today with UA regional affiliates around. The city is trying to wring a handful of gates out of UA, but that's not enough to get a whole new airline going. And we all know what a delay nightmare O'Hare's runway pattern is.

Only a network-carrier shutdown, most likely UA, would change the Midwest market situation enough to support a whole new narrowbody LCC. That would immediately make an operation using, say 73G's like Virgin Blue, viable from ORD to medium-size regional markets like GRR, MKE, DSM, IND, CMH, SDF, and of course major business centers around the country. But WN's credit is excellent, and they could probably get enough 733's out of the desert--and some out of UA colors--fast enough to enter several of those markets at once, faster than Branson could set up a new airline.

Overll this is a VERY risky bet for Branson to make. Unless he knows something we don't.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
DCA-ROCguy
Posts: 3903
Joined: Fri Apr 21, 2000 5:03 am

RE: Virgin To Start LCC In America

Mon Mar 24, 2003 3:20 pm

P.S. Before anyone makes a fuss about my saying that US may survive, don't bother. As you know I've been saying it for months. Which is too bad, because a US shutdown, breakup into whatever is viable, and LCC expansion in the region would be good for consumers and the industry.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
srbmod
Posts: 15446
Joined: Tue Mar 20, 2001 1:32 pm

RE: Virgin To Start LCC In America

Tue Mar 25, 2003 4:42 am

This is a change for Sir Richard; he had said in the past that he wanted to have majority stake in any Virgin LCC in the US. The current Federal regs limit him to 25%, so unless he can get enough investors so to dilute the ownership percentages enough to make him the majority stakeholder, he'll have to hand pick some investors and executives here in the States to do his bidding. JetBlue cherry-picked a number of Virgin Atlantic staff (mainly marketing folks), and Branson himself has nothing to do with JetBlue exept for ex-staff of his airline working there.
 
penguinflies
Posts: 932
Joined: Thu Apr 06, 2000 12:00 pm

RE: Virgin To Start LCC In America

Tue Mar 25, 2003 7:14 am

Or Branson could become a US citizen.
 
Ciro
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

RE: Virgin To Start LCC In America

Tue Mar 25, 2003 7:39 pm

Branson's strategy makes perfect sense! Virgin Express and Virgin Blue were built up by tapping into wholes left by failed carriers. Branson is betting high in a major US airline failure and his success will rely upon moving quickly to the space left by the bellied-up ones. His capital investment is not as low as it seems to be, considering the fact he will bring the brand name, managerial expertise and political power to some extant; not to mention his equity will not surpass 25%.
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
UA744Flagship
Posts: 1433
Joined: Tue Jul 13, 1999 1:55 pm

RE: Virgin To Start LCC In America

Wed Mar 26, 2003 2:40 am

It seems to me that a UA failure and subsequent Virgin America (maybe "Virgin United") would go hand in hand. VS could probably get a steal on the highly desireable A32X and 777 fleets.

With Signapore owning 49% (correct?) of VS and being part of Star, the alliance is in a position to save face by:

  • quickly ushering in US Airways

  • having "Virgin United" be part of the alliance from the get go

  • inducting Virgin Atlantic/Blue into the grouping, solving the gap left by the loss of UA routes ex-LHR, the loss Ansett in Oz, and the foundering of Varig in deep South America

  • partitioning out UA's lucrative international operations -- LHR to VS/BD, Asia to SQ/NH/OZ and "Virgin United", US-LatAm routes to "Virgin United"


    The only thing that prevents this is the incredibly small amount of reported startup money... but with Star partner participation, who knows?
  • no wire hangers!
     
    eugdog
    Posts: 426
    Joined: Mon Apr 02, 2001 11:32 pm

    RE: Virgin To Start LCC In America

    Wed Mar 26, 2003 2:57 am

    Go for it Richard!

    Death to the high cost airlines who make air travel unneccesarily costly!!!

    Nothing will give me more pleasure then seeing United and US Airways go under and the slots given to lean and efficient low cost airlines airlines who are not tied down to disgusting union contracts.
     
    ConcordeBoy
    Posts: 16852
    Joined: Thu Feb 01, 2001 8:04 am

    RE: Virgin To Start LCC In America

    Wed Mar 26, 2003 4:03 am

    UALFlagship-

    Interesting assessment. However, as usual, Heathrow could prove a stumbling block for the impending alliance: BD and VS might not be allowed to work together to any benefitial amount  Sad
    Faire du ciel le plus bel endroit de la terre c'est impossible sans Concorde!
     
    DCA-ROCguy
    Posts: 3903
    Joined: Fri Apr 21, 2000 5:03 am

    RE: Virgin To Start LCC In America

    Wed Mar 26, 2003 4:31 am

    UALFlagship, that scenario is interesting. However, if anything happens to United, the remaining four US Cartel-network carriers that don't have access to Heathrow will demand to get it. Bermuda II as it stands of course would only allow one, which likely would be Delta rather than US Airways due to its larger size and lack of alliance ties with Virgin or BA.

    Then again, a UA failure could be what breaks Bermuda II open, because US, NW, and CO all have their own powerful political backers, and this would be their best shot at getting into LHR. Whatever happens, there would be a huge political donnybrook over Heathrow if UA goes under. And USDOT, not Star, would do any "parceling out" of UA international routes.

    In any event, a massive low-fare hub in Chicago, with the capacity of O'Hare behind it (bad layout or no) would be a welcome development. An LCC, now that I think about it, would have far fewer departures than UA and UA Express put together, and American probably wouldn't rush in to fill lost UA capacity other than some mainline substitutions for Eagle. So maybe O'Hare wouldn't be terribly congested. (Still, those runways should be realigned for the future. And now that Sen. Durbin has conceded defeat to NIMBY-scion Sen. Fitzgerald, that's in doubt.)

    Jim
    Need a new airline paint scheme? Better call Saul! (Bass that is)
     
    Guest

    RE: Virgin To Start LCC In America

    Wed Mar 26, 2003 4:57 am

    Wouldn't "United Virgin" kind of be an oxymoron?

    Maybe they should call it "Unirgin" - ok ok, I wouldn't fly that airline either...
     
    UA744Flagship
    Posts: 1433
    Joined: Tue Jul 13, 1999 1:55 pm

    RE: Virgin To Start LCC In America

    Wed Mar 26, 2003 5:50 am

    DCA-ROCguy...

    DL does have some ties with VS (a recent SkyMiles/Freeway agreement).

    While I do agree all the US carriers will be scrambling, there are excellent, logical quotes from Don Carty in a recent Miami newspaper article, to the extent of:

    "United's downfall would be a mixed blessing... 60 gates will be open in Chicago, but other airlines could scramble to get them. Which would be better, all those leaner carriers with 60 gates, or United?"

    and

    "United's asia routes have the potential to make a lot of money and, as such, are highly profitable. But we don't have the money to buy them. Nobody does."

    In CH 7, even though DOT will do the official allotments of UA's international routes, no US carrier can afford the prices taht UAL creditors will surely demand. In addition, I believe the powers that be at Star, Lufthansa and Singapore most notably, will make a huge push to preserve the North American side of the alliance.

    In which case, I believe US Airways is in the best position to take over UA's LHR operations, as David Bronner has publicly stated he is willing to pump more money in the airline to purchase lucrative parts of United.
    no wire hangers!

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