I’m feeling pretty lucky to be living in Southern California these days. Oh sure, it’s the beautiful sunshine and all that, but it’s also about to become a nice little hub of cheap flights. I say that because airlines are starting to get into an old-fashioned turf war here. That inevitably leads to stupid decisions pushing too much capacity into the market. And you know what that means… cheap fares to try to fill all those seats.

While we really can’t forget about Virgin America’s decision to become the sixth nonstop carrier in both the LA to Vegas and San Jose markets, the bulk of the brawl has been between American and Delta. United seems to be sitting and watching the others fight it out while Southwest probably can’t grow much even if it wanted to until it gets more gates. Though I do have to note that Alaska and Delta have been slapping each other a little as well.

Reminiscent of World War I, this fight started from seemingly minor events. Consider American’s launch of nonstop flights between LA and Raleigh/Durham to be like the assassination of Archduke Ferdinand. (Yeah, yeah, it’s a stretch. Work with me here.)

Last December, American announced it would start a daily nonstop between LAX and Raleigh/Durham on April 2 of this year. That’s a market that Delta had to itself. So it wasn’t a surprise when just a few days later, Delta announced it would begin flying from LA to Nashville on April 8.

Yes, American flies the LA to Nashville route, and it’s the perfect way for Delta to say, “Hey man, if you’re going to make this already marginal route horribly unprofitable by adding unnecessary capacity, then we’ll do the same for you.” At least, that’s how I read it.

In the meantime, Delta quietly started adding random routes here and there from LA. To me, most of these looked like a bunch of unrelated moves that were trying to take advantage of pockets of opportunity. But at some point, Delta realized that it had added enough service that it could position this to look like a big LAX expansion. On March 6, the airline put out a press release lumping all these changes together:

• Daily to Nashville on April 8
• Thrice daily to Seattle on April 8
• Daily to Boston on June 10 (summer only)
• Thrice weekly to Anchorage on June 21 (summer only)
• Weekly to Bozeman on June 22 (summer only)
• Four times daily to San Jose (CA) on July 1
• Daily to San Jose (Costa Rica) on July 1
• Daily to Spokane on July 10
• Additional flights to Guadalajara, New Orleans, Oakland, Phoenix, Puerto Vallarta, and Sacramento

American apparently got jealous that Delta was growing in LA and decided to launch an expansion of its own. I call it the “Let’s Lose a Bunch of Money Before New Management Comes In Tour – Summer 2012.” This round of growth was announced on April 10.

• Twice daily to Eugene (OR) on June 12
• Daily to Redmond/Bend (OR) on June 12
• Daily to Columbus on August 27
• Daily to Indianapolis on August 27
• Daily to Hartford on August 27
• Daily to Northwest Arkansas on August 27
• Daily to Pittsburgh on August 27

After that move, Delta quietly bumped up its nonstops in Columbus and Indianapolis to be daily year-round. As someone with in-laws in Indianapolis, I support this move. If the airlines want to lose a bunch of money on routes I use, then that sounds great to me. Stupid, but great.

But wait, there’s more. Though it doesn’t center around LA in the same way, there have been some interesting moves between Delta and Alaska as well. Did you notice that Delta flight from LA to Seattle? That seems strange considering how closely the airline is tied with Alaska Airlines, but it’s just one of many moves where the airlines are stepping on each other’s toes.

Last November, Alaska announced it would start Seattle to Salt Lake. Delta announced LA to Seattle was coming back in December. In February, Delta announced its LA to Anchorage flight and it upped capacity on the LA to Seattle run. Later that month, Delta decided to fly from Seattle to Anchorage and Vegas. This month, Alaska decided it would fly Portland to Atlanta (and Dallas to the home of its other major codeshare partner). Then in the last week, Delta added yet another couple flights in the Seattle – LA market. It also announced service from LA to Portland. Fun stuff, huh?

Am I really suggesting that these moves are all meant to target each other as tit-for-tat moves? Of course not. But on the broader spectrum, this is definitely a fight. No airline dominates LA. In fact, you have a big presence from just about everyone in LA, and from time to time the airlines jockey for position. This is one of those moves where Delta and American are both trying to be “LA’s carrier.”

In its press release, Delta noted that this “positions Delta to be Los Angeles’ preferred carrier.” American said the “Los Angeles hub plays a vital role in our domestic and international network strategy,” and then it even included a quote from the Mayor of LA to give the airline even more street cred (or lack thereof). As for Alaska, the airline has already made a claim for LA by moving to a new terminal and strengthening partnerships with both American and Delta (despite the little network fights).

In the short run, there will be a clear winner – travelers. Fares will drop as the airlines realize that they can’t fill all these seats. But that will only be a near-term victory. Eventually, the airlines will abandon the excess capacity and we’ll go back to where we were before. Nobody is going to win this battle for LA. But that apparently doesn’t prevent these airlines from trying.

After 6 years of big losses, it looks like the time is finally coming for Virgin America to start making money or just go away. The airline decided to announce both fourth quarter 2012 and first quarter 2013 results yesterday, and there were some bright spots. But many of the moves that were announced from a financial perspective make it look like the investors and debt-holders alike are getting antsy and want to make a return soon. The message is loud and clear – the company needs to go public in the next couple of years. CEO David Cush has a very tall task ahead.

It looks like Virgin America has started to release results before the DOT does it, so that’s why we have both fourth quarter and first quarter results arriving at once. This appears to be part of the airline’s efforts to work toward a public offering by releasing numbers on a more traditional schedule. (This shouldn’t actually matter.)

Let’s start with the bad news. No surprise here; the airline lost money. It lost just shy of $25 million in the fourth quarter ($145 million for the year) along with another $46 million loss in the first quarter of this year. That’s terrible, but the first quarter numbers were less terrible than last year’s first quarter.

And that’s the good news. Virgin America looks like it shifted to a yield-based strategy and that meant the airline did much better on the revenue side. What do I mean by a yield-based strategy? Well, airlines tend to waffle back and forth between two revenue strategies. The yield-based strategy means you charge more for each ticket and you deal with filling fewer seats. The load factor-based strategy is to moderate your fares to fill as many seats as possible. In this case, Virgin America has clearly gone for the former.

The average fare in the first quarter was up a whopping 19 percent versus the year before. Some of that can be explained by the fact that the airline actually cut capacity in the quarter. For an airline that has been in hyper-growth mode, that’s a big change. And the results are very clear. But even on less capacity, Virgin filled fewer seats as a percentage of total. Load factor dropped from 80.6 percent last year to 77.3 percent this year.

In this case, it all turned out very well. Unit revenues were up over 17 percent (though part of that increase was due to a shorter average flight length). And that largely accounted for the decrease in the loss. But there’s a problem. Even with such massive increases in fare, they still lost a ton of money. Net margin was a negative fifteen percent. Oh, and one other problem? Unit costs excluding fuel jumped nearly 8 percent. This is an airline that cut capacity but it increased the number of employees. And the workforce is starting to become more senior. That means they get paid better. By the way, its airplanes are starting to age as well. Maintenance costs were up more than 12 percent in the quarter.

The Push to Go Public
As we head toward the airline’s 7th year of existence, losses continue. What’s the plan to end this? Well, if the airline continues to keep the lid on capacity and the demand for tickets remains stable, then Virgin America might be able to squeak out a meager profit during the good times. In fact, Cush says that 2013 will have a “significant” operating profit in 2013 (whatever that means) and a net profit for the second half of the year. We’ve heard this before, so I’ll believe it when I see it. But I wouldn’t be surprised to see an operating profit this year if demand stays steady. That’s good. But, then what?

The plan here is very clear. Cush wants (or is being pressured) to take this airline public with an initial public offering either at the end of next year or the beginning of 2015.

In the press release, Virgin America notes that it made the following financing changes.

• $290 million in debt (nearly a third of total debt) will be wiped off the books. Instead, it will be converted “into equity that [the debt-holders] would own once the company went public and the stock hit certain targets.”
• The interest rate on the remaining debt will drop. This combined with the conversion of some debt means the company’s interest expense in the second half of 2013 will be merely a third of what it was in the second half of 2012.
• The airline took out yet another loan, this one for $75 million.

Why on Earth would the debtors give up so much… and then loan more money? The only reason I can think of is that they were afraid they were going to get nothing if the airline failed. And they would have had to be fairly certain about failure for them to be willing to do something like this. But that first bullet point is key. The investors have been stuck in Virgin America for a long time now and they want a payday. All efforts are going to be on going public because even more is riding on that happening now.

I just have a hard time understanding how they could actually go public with the results they’re posting. The worst performing airline out there may improve to near-profitability this year, but it will hardly have the track record or even favorable industry comparisons to really entice someone into investing. I mean, would you buy stock?

Things will most definitely look better with this restructured debt, and Virgin America will live to see another day. But from the way Cush is talking, it sounds to me like the airline has maybe a couple years to go public or… die trying. I’m not sure that’s enough time. Good luck.

This one certainly came out of left field, but I think it’s a great move. Virgin America announced today that it has decided to rebrand as Alitalia America on June 1. Further, Richard Branson will sell his 25 percent stake in the airline to Italian politician, businessman, and, uh, “playboy” Silvio Berlusconi. When this happens, David Cush will step down as CEO with a familiar face coming to take his place.

I love this move. After all, Virgin America has been losing money continuously since it started six years ago. Despite some revenue progress, it still can’t cover its costs. How do you fix that? Lower your costs. As you can imagine, the Alitalia brand is much cheaper to license than the Virgin brand. (If I were Alitalia, I’d pay anyone to take my brand off my hands.)

Then again, there are going to be some cost increases in the short run as the airline transitions. Headquarters will move from San Francisco’s Bay Area to the North End of Boston. And of course, a new livery is coming. As you can see, it looks a lot like what Alitalia has painted on its airplanes today. But I’ll talk more about that later. First, let’s talk politics.

As part of this change, CEO David Cush will be getting the boot, and former CEO Fred Reid is back in his place. You remember this story, right? During the fitness test to see whether the airline was truly controlled by foreign interests or not, the DOT decided that Branson had hand-picked Fred to lead the company and Branson had too much influence in his decision-making. The DOT forced Fred out. Well, now that Branson is no longer involved, that’s not an issue.

I’ll give it to Fred for knowing the airline’s place. “When you think of Alitalia, you think of an airline that may not have its act together, may not make money, but it keeps fighting the good fight. That fits us perfectly.”

The airline has already announced some big changes to give it more of an Italian feel. Alitalia America is partnering with Ferrari to create new seat designs while new flight attendant uniforms will be created by Benetton. Coffee will now be from Illy, but this means some configuration changes on the airplane. Three seats will be removed on each aircraft to make room for an espresso machine. All mood lighting onboard will now be green and red instead of purple and red.

Onboard food changes have already begun. The Godfather Sandwich is a new item already on the menu, with more changes to follow. Despite the Italian influence, there will be a distinctly American flavor. Chef Boyardee products and Domino’s pizza will soon be on every flight.

We’re going to see more than just changes on the aircraft. In cities where both Alitalia and Alitalia America fly, they will consolidate terminals. That means in LA, Alitalia America will move to Terminal 2. In New York, Alitalia will move to Terminal 4.

Alitalia America will begin building up its presence in cities with large Italian populations. Look for Philly and the new hometown of Boston to see big increases while San Francisco faces large cuts. The airline will also begin flying to every airport in New Jersey.

To fall in line more with Alitalia’s business plan, Alitalia America will purposefully only sell two thirds of the seats on each airplane to give people room to stretch out. Four First Class seats will be sold in advance with another four being held until the date of departure. Those will only be available if Berlusconi doesn’t use them for himself and his companions. (Curtains will be installed to separate this from the rest of the cabin.)

The airline will also start canceling and delaying more flights. As you can imagine, this is only going to make losses grow at the airline in the short run. But management is confident that when people see how stylish it is to fly with Alitalia, they will start to pay double for their tickets.

The airline’s Elevate frequent flier plan will be renamed UnoMiglia and a reciprocal agreement with Alitalia’s MilleMiglia program will be introduced on June 1 when the official transition happens.

And a happy April Fools’ Day to all.

[Original Alitalia photo via lsantilli / Shutterstock.com]

We had to head to Dallas for a wedding, and it ended up being a super cool trip. Why do I say that? We flew Virgin America, rented from Silvercar, and stayed at an aloft hotel. That’s WAY too cool for me, but it was a fun one.

We flew Virgin America for one reason – it was cheap. In fact, I almost paid more to fly American because the first return on Sunday on Virgin America wasn’t until 240p and I wanted to get home earlier. But Virgin America had a little one day sale that had a discount plus a free wifi code. It was only $268.30 a person, way better than we could have done any other way.

The flight looked empty in First Class, so I went to check in the night before to see about an upgrade. Apparently you can’t upgrade until 6 hours in advance unless you’re an elite, and there was no way I was waking up at 3a to do it. By the time I woke up, First was full. But considering they were charging $138 to upgrade to Main Cabin Select, I can only imagine that the price for first would have been too high for me to bother anyway.

With little traffic along the way, we got to the airport early. Terminal 3 still looks the same at LAX except there’s a lot more red paint. Oh, and the other half where Alaska used to be is pretty empty. Here’s a panaroma shot I took while waiting for our flight on the other side.

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January 18, 2013
Virgin America 874 Lv Los Angeles 9a Arr Dallas/Ft Worth 155p
Los Angeles (LAX): Gate 35, Runway 24L, Depart 8m Early
Dallas/Ft Worth (DFW): Gate E33, Runway 18R, Arrive 14m Early
N638VA, Airbus A320-214, “San Francisco Pride”, ~65% Full
Seat 12F
Flight Time 2h33m

We headed over to the gate to board and I handed over my mobile boarding pass. It worked flawlessly at TSA, but here the agent was having trouble getting it to register. She hit the screen of my phone and that did it. It showed that the session had timed out so we had to step outside to log back on and check in again. These mobile passes are still a pain in the butt.

Once onboard we found that the flight was not that full. Most middle seats behind the wing were empty, but we were in a full row. No big deal. The captain came on to tell us that he wouldn’t be talking to us during the flight because he didn’t want to interrupt our movie-watching. He said if we wanted to know where we were, we could look at Google Maps. (The same announcement was made on the return.)

We pushed back a little early and were in the air right about the time we were supposed to be pushing back. Nice. I watched TV the entire time and used my free wifi code to get some work done. I was determined to try out the ordering system for food since I hadn’t done it before. (The only other time I’ve flown the airline was from LA to SF and back.)

They came around with drinks and I got a ginger ale. They also were handing out bottles of water for those who wanted it. Later, I ordered a tasty roast beef sandwich that was delivered to me in just a couple minutes. The system was definitely easy to use, although the touchscreen seems to require a little harder of a touch than I would like. I kept thinking I was bugging the person in the seat in front of me.

The rest of the flight passed very quickly since it was just like another work day for me. I think I must be shrinking because the legroom seemed much better than the last time I flew the airline. (Nothing has changed, so I really must be shrinking.) Overall it was a great flight. My only complaint was that the power outlet didn’t work.

Soon enough, we were descending into DFW and it was time to try out Silvercar. That post will be live on CNTraveler.com later this week. This was also my first stay at an aloft hotel. For $89 a night, it was great. But it’s kind of funny to see a loft-style efficient use of space in the wide open plains of Plano where it’s more novelty than necessity.

Thank you to everyone who came out to do a little Crankyspotting that Saturday morning. We had a good couple dozen folks come out, I’d say. Lots and lots of silver birds at DFW, but no sign of the new livery.

After a busy weekend, we were ready to come home, and I was determined to try for an upgrade this time. Sure enough, six hours before departure, I went to check in. It was $278 to upgrade. That’s way too rich for me for a 3 hour flight, so I passed.

When we dropped the car off, we hopped on the rental car bus to the terminal. I tried to check in on my phone to pull up the boarding pass and it just said “online check in not available for this flight” or something like that. Great. The Virgin America ticket counter is far from the gate, and we had planned on going straight to the gate. It was a slight annoyance that was alleviated when we found a kiosk right out front that worked.

This time, they offered us an upgrade for $139 each, half price. We decided to take it. It said ok and told us to pick a seat. There was only one on the seat map. We couldn’t move on without choosing seats for both of us, so we had to cancel and check in as normal. When we got to the gate, the agent said that First was now full. Bummer. We were ready to go.

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January 20, 2013
Virgin America 879 Lv Dallas/Ft Worth 240p Arr Los Angeles 405p
Dallas/Ft Worth (DFW): Gate E34, Runway 18L, Depart 5m Early
Los Angeles (LAX): Gate 35, Runway 24R, Arrive 24m Early
N624VA, Airbus A320-214, Virgin America standard, ~65% Full
Seat 13F
Flight Time 2h48m

The gate agent was in a very good and extremely corny mood. She started by boarding the “Amazing A” boarding group. Then it was the “Beautiful B,” “Charming C,” “Dazzling D,” and “Excellent E.” We headed into the very long jet bridge at A34 and found it backed all the way up. Once down to the aircraft a few minutes later, we hopped on to find it looking about as empty as our original flight out.

We were buttoned up early and headed out to the runway complex on the west side of the airport. Soon enough we were airborne and winging our way west.

I had a nice brunch with friends beforehand so I wasn’t hungry on this flight. And I may have had a beer or two too many the night before, so I just stuck to water for this flight home. Really, all I needed was this:

The NFL playoffs were plenty, but I also had wifi and the air was smooth as glass. My only complaint? The noxious odor coming from someone in our general vicinity. Whew, it was bad.

Ok, I lied, I had one more complaint. My power outlet didn’t work again. But this time, the other one in our row did work and nobody was using it. So I stretched the cord out and we were good to go. My lithium ion battery didn’t even explode.

Soon enough, we were back home.

It looks like Virgin America finally picked up slots and gates to start Newark service. JetBlue is also starting a new city with service from Boston to Philly. What do you think? Good choices?