Virgin America to Scale Down Perks and Comfort

Tim Winship, November 19, 2014
Fares from Washington DC:

    Among the 10 initial public offerings scheduled for this week, Virgin America's isn't among the largest. The airline hopes to raise a relatively modest $300 million by selling 13.3 million shares at between $21 to $24 per share, giving it a market cap of around $1 billion.

    Here's the NASDAQ quick take on the airline:

    Virgin America (VA), one of the few major airlines to remain private, positions itself as a low cost carrier with a loyal customer base. Mainly flying in and out of San Francisco and Los Angeles, the company plans to expand its fleet and increase service to new cities. Virgin remains a relative newcomer in a highly competitive space that has recently benefited from favorable fuel costs.

    That "loyal customer base" has been built through the company's insistence on delivering an especially robust package of perks at Southwest-level prices.

    The cost of all those extras, combined with its competitive pricing, has left the carrier at a disadvantage as a profit generator. For all the love it inspires among its customers, Virgin America is widely viewed as a business laggard by financial analysts.

    So long as the company remains private, the pressure from Wall Street to squeeze more profit from operations can be safely ignored. But once its shares become publicly traded, the financial pressure to improve its financial metrics will soar.

    Those nicer meals? Maybe there are some cost savings to be had by making them a bit less nice. Those comfy seats? Maybe they can be nudged closer together, to make room for an extra row. That state-of-the-art inflight entertainment system? How much could be saved by downgrading to less extravagant hardware?

    With an eye toward increasing the value of their investments, Virgin America shareholders will push the company to bolster its bottom line, by increasing revenue (higher ticket prices, more nuisance fees) and cutting costs (fewer amenities). No one expects Virgin America to be reconstituted in the image of Spirit. But neither should Virgin America loyalists assume that their airline will survive the arrival of Wall Street unscathed. The Almighty Dollar is so-called for good reason.

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    This article was originally published on SmarterTravel and under the title Popular Low-Cost Airline to Scale Down Perks.