Across the Aisle from Virgin America CEO David Cush

I have to give Virgin America credit. There’s no question that I’ve been very critical of many of the Across the Aisle from Virgin Americamoves the airline has made, but they’ve always been willing to answer my questions. This week, they not only invited me to the grand opening of their new Terminal 3 digs at LAX, but they also gave me an audience with CEO David Cush after the festivities were over.

The terminal looks great, but I’ll write about that later on today. For now, let’s focus on the interview, which took place right in front of the airline’s new ticketing area. I kicked it off with some questions about LAX. Stay tuned for some of my thoughts on the interview at the end.

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Cranky: So how much did this whole [Terminal 3 renovation] project cost?
David: I have no idea. It was in the low single digit millions. We’ll get that to you. [Ed note: I was later told that this project cost about $2.5 million]

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Cranky: You now have a lot more space here in LA. You’ve announced Boston flights, but you’ve also said you won’t be growing your fleet in the next couple years. Where are the planes coming from? And can we expect to see more growth soon or will you continue with slow, measured growth?
David: I think you’ll continue to see measured growth. We are operating 24 airplanes right now, and we’ll be operating 28 by February. There were a couple of deliveries in October, and there are some planes coming off sublease from South America so that’s where the capacity is coming from for Boston. We also have 2 planes coming off sublease in 2010.

Cranky: Are those the ones flying for Myrtle Beach Direct Air?
David: Yeah. We also have the capital available if we wanted to speed up growth in the future.

Cranky: But you haven’t announced plans to do that yet?
David: That’s correct.

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Cranky: You said at a recent investors’ conference that you might not reach profitability until 2011. If you’re not growing between now and then, what do you expect to change to make you reach profitability?
David: I don’t think we said 2011. I think we said 2010. [Ed note: He said 2011.] But the primary way we’ll reach profitability is the revenue on the routes we’re flying. It takes 12 to 15 months for a route to mature, so we have some routes that are becoming mature now. Other ones will be maturing next year.

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Cranky: What exactly is your overall vision for Virgin America these days? You have short haul flying, and of course you have the long haul as well, which I think is a far better match for your product, but what is the vision?
David: Our view is that we can have low production costs. We don’t have the legacy costs that legacy carriers have, and we have flexible labor contracts, low labor costs. We don’t think that cost and price have to equate. So, we can create a better experience onboard with lower costs.

Cranky: But, how exactly are you going to be able to compete with other airlines?
David: If you look at a flight from Boston to San Francisco, that’s a 6 hour and 45 minute flight. We’re competing with A320s and 757s with no inflight entertainment. We have inflight entertainment, a power port under your seat, and soon we’ll have wi-fi throughout the fleet. So you can be much more productive onboard our aircraft. [Ed note: Wifi is on 2 planes now, and the fleet should be fully equipped by May.]

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Cranky: Don’t you think you need more depth, I mean breadth, in your routes if you’re really going to attract the business traveler?
David: Yeah, we do, but look at San Francisco where we serve 7 of the top 10 markets and in Los Angeles where we serve 6 of the top 10. So, we have good coverage. We’re not going to be a legacy carrier that serves 100 destinations, but we’ll get you to the top destinations. And we think our product is good enough that people will opt to fly us over contracted carriers. You can be much more productive on our aircraft and we think that can draw a revenue premium.

Cranky: Are you seeing a revenue premium right now?
David: No, not right now. But that has to do with the issue of maturing markets. We’re seeing good things with First Class and Main Cabin Select.

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Cranky: That was one of my next questions. Are you happy with how Main Cabin Select has been performing?
David: Yes, absolutely. We’re seeing that the average ticket price in Main Cabin Select is double what we’re getting in the rest of coach.

Cranky: Really? What is the split of upgrades into Main Cabin Select versus paid at the time of purchase?
David: Right now about 60% of our seats are reserved at the time of purchase.

Cranky: Really?! That’s surprising to me considering how large the fare spread is between coach and Main Cabin Select.
David: Yeah, some of that is because corporate travelers can book into Main Cabin Select under their travel policies.

Cranky: Do you have a lot of corporate contracts?
David: Yes. We have our 50 corporate deals right now, and we’re aggressively signing new ones every day.

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Cranky: One more question and then I’ll let you go. I’m sure you’re tired of talking about this, but I want to discuss Chicago. Were you really unable to get a gate or were you just not able to get a gate for the right price?
David: We couldn’t get a gate.

Cranky: Really? I’ve heard that there are gates to be had right now.
David: Well, if you can get the legacy carriers to give up space, but we couldn’t right now. And I’m not tired of talking about this, because we really still want to be in Chicago. What the legacy carriers did was legal and possibly competitively rational . . . however it’s the people of Chicago who lost out. They’re stuck with United and American. We’re still hoping that we’ll be able to go there soon.

Cranky: What about Terminal 5? Those gates are controlled by the city.
David: Yeah, we could have gone to Terminal 5, but there were 2 issues. First, the costs there are significantly higher than at the other terminals, double the cost. Second, during peak hours, we’d have to operate at remote pads [Ed note: This means you’d take a bus from the terminal to the airplane] and that doesn’t work for us.

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Cranky: Ok, thanks for your time.
David: Thank you.

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So there you have it. He was definitely friendly, but I was surprised that he didn’t know the answers to some basic questions like how much the LAX renovation cost or even what year the airline was expecting to reach profitability.

I also found it interesting that when he was talking about competition, he focused on the legacy carriers and didn’t really address JetBlue or Southwest. Yes, on a route like Boston-San Francisco, the onboard product can really matter (I like the new Boston routes by the way), but now I wish I had asked about the short hauls as well. The blunt admission that they are not getting a revenue premium right now was very telling, I thought.

I was also extremely surprised to hear that Main Cabin Select is doing well. More power to them on that one. If they can sell those seats at those super high prices, then that’s impressive, and not something I would have expected to hear.

Lastly, on Chicago, I was pleased that he finally confirmed what I had already thought. They did have a way to serve the airport if they really wanted to put airplanes there (despite saying otherwise initially), but they didn’t like what they could get. That’s a lot different than saying there was no way in, as has been widely reported.

I wish I had questioned further on some of these issues, including the part about the airline having enough capital for expansion (I mean, they’ve already had a couple infusions), but I knew my time was limited. I think there was some good information in here, and now I’d like to hear more about what you all think.

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