Plans for a U.S. discount airline by Virgin Atlantic Chairman
Richard Branson could add yet more competition in an already heated
market and could push airfares in some key markets even lower.
Branson, who has openly praised the success of New York-based
JetBlue, announ- ced earlier this month that he plans to launch a
“quality, low-cost” carrier in the U.S. by early next year.
Branson said he made the move because he got tired of waiting
for the U.S. to lift restrictions on foreign ownership of domestic
airlines, and he said he is seeking an institutional investor in
the U.S. to take a majority stake.
“We’ve been waiting for nearly 20 years for the laws to be
changed in America,” said Branson.
While Branson did not specify what routes the new airline would
fly, he noted there were plenty of untapped routes in cities not
served by JetBlue.
JetBlue currently flies from John F. Kennedy International
Airport in New York to several major western markets including Salt
Lake City, Seattle, Las Vegas, San Diego, Oakland as well as
Ontario and Long Beach, Calif.
Still, there has been growing industry interest in low-fare
carriers. American has begun to market itself as a low-fare airline
in several transcontinental markets where it competes against
JetBlue and the United Shuttle is expected to return to the West
Coast.
If Virgin decided to launch service in the western U.S., the
carrier would likely take passengers from one of the existing
low-cost airlines operating in the market, according to Marc Casto,
chief financial officer at Casto Travel, in Santa Clara, Calif.
“It’s going to be a pretty crowded playing field for another
discount carrier,” said Casto. “For the most part we find that
price is the motivator for all decisions.”
Casto said airlines like Southwest have maintained market share
by offering customers incentives to book online, a move that might
be echoed by Virgin.
However, he conceded that such incentives are not always helpful
to agents.
Branson has repeatedly urged the U.S. to change foreign
ownership laws on aviation. Currently the laws allow foreign
carriers to own no more than 25 percent of the voting stock of U.S.
airlines. They also ban foreign carriers from flying domestic
routes in the U.S.
Department of Transport- ation officials say one reason for the
restrictions is that domestic airlines are often used to transport
soldiers to battlefields during wartime. Many U.S. carriers were
used to transport American troops to the Middle East in the weeks
leading up to the Iraq war.
The U.S. and U.K have been entangled in negotiations in recent
years to create an “Open Skies” pact that would open aviation
markets for foreign carriers, however those talks have been bogged
down over who controls several lucrative slots at London’s Heathrow
Airport, which is the most popular transfer point in the world.
Recently the European Commission has taken over talks for an
“Open Skies” agreement with the U.S., which if passed would allow
European carriers the right to access more U.S. markets.
Branson has long wanted to launch a domestic airline in the U.S.
that is similar to his Australian carrier, Virgin Blue.
The Australian carrier operates a series of all-coach flights on
Boeing 737 aircraft that are configured for either 144 passengers
or up to 180 passengers, depending on the aircraft type.
Branson said his low-cost U.S. carrier would start as a modest
operation with about 10 to 15 aircraft. He said he is in talks with
Boeing and Airbus on new orders.
A Boeing official would not comment on the Virgin Atlantic
announcement, but said low-cost carriers have been “particularly
active” in driving new business especially AirTran and Ryanair.
Asked why fewer travelers are flying, Branson said he believes
it’s a lack of quality service by the airlines.
“Passengers want to have a pleasant experience when they’re
flying,” he said. “When you fly on American or United, you wonder
what they’ve missed.”
