Interesting dynamics at play with Virgin America – which is failing to perform in the North American market:
“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.“