Tuesday, August 15, 2006

No Virgins in America!

CNN reports today on the problems facing start-up discount carrier, Virgin America. An offshoot of Richard Branson's Virgin Group, the airline plans to start service soon, using Airbuses, between San Francisco and New York--with nineteen additional routes to follow in the next few years. Following Airtran and JetBlue, it plans to offer unparalleled onboard entertainment and reasonable prices.

Problem is, it must first receive government approval, and certain legacy carriers--Continental in particular--are working overtime to destroy its hopes, claiming that the airline violates federal law because more than 25 percent of it is owned by a foreign entity. Apparently domestic airlines must be domestically owned--a fact I was not aware of. The article offers only a tentative justification for the law--security concerns--not such a bad reason given the current climate.

Years ago, Continental might not have batted an eye at a fledgling competitor. But given the financial woes experienced by airlines since 911, and the crunch of rising fuel and safety/security costs, the legacies have a major incentive to lobby against the formation of more competition. After all, they've already taken a hit from Southwest, Airtan and JetBlue--which themselves have experienced fiscal setbacks of late.

The article doesn't assess the likelihood or unlikelihood of Virgin America's receiving approval, but I'll keep my eyes peeled and provide an update when it comes.


Blogger Evan said...

This comment has been removed by a blog administrator.

6:25 PM  
Blogger Evan said...

Do you think that Continental is afraid of yet another domestic discount carrier earning a higher performance ranking? After all, if memory serves me correctly, Continental remains the top LEGACY carrier (JD Power and Associates, 2006), but Jetblue has surpassed it overall in the industry. Yet again, maybe such rankings don't play a major role in determining airline business strategies...'seems that balancing operations costs with offering low fares to remain competitive are the priorities these days.

6:30 PM  
Blogger Ben said...

I think Continental is most concerned about Virgin America's plans to launch in San Fran, where Continental does a lot of business.

2:21 PM  

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