Short case-Virgin America

Prior to the 2016 acquisition of Alaska Airlines, Virgin America was consistently rated as one of the top US airlines. Founded in 2004, the airline serves 20 destinations from its main hub in San Francisco. Virgin America was known for its leather seats, cocktail lounge-style lighting, in-flight Wi-Fi, in-seat power outlets for electronic devices, full-service meals and, rarest of all assets in the bus class, legroom. The airline has received a host of accolades since its launch in 2007, including being named "Best Airline in the United States" in the Cond Nast Traveler Readers' Choice Awards each year from 2008 to 2014; and Best Domestic Airline at the Travel + Leisure World Awards for 7 years in a row. In addition, Consumer Reports named Virgin America the "Best Airline in the United States" in 2013 and 2014. Industry statistics supported these awards. In 2014, Virgin ranked first in on-time aircraft arrivals in the United States, with 83.5% of aircraft arriving on time. Virgin America also had the lowest levels of baggage mishandled (0.07 per 1,000 passengers), and baggage mishandled (0.87 per 1,000 passenger), and the lowest number of customer complaints (1.50 per 1,000 passengers). Virgin America was a subsidiary of the Virgin Group, started by British billionaire Richard Branson. Branson got his start in the music business with Virgin Records (founded in 1971) and the Virgin Record label (founded in 1973). In 1984, Branson leveraged the Virgin brand to enter an entirely new industry, airlines, with Virgin Atlantic. Virgin Atlantic became a major competitor to British Airways on a number of long-haul routes out of London, winning market share through outstanding customer service, innovative perks for premium travelers and competitive fares. Branson also licenses the right to use the Virgin brand name across a broad range of companies, including Virgin Media (a major cable operator in the United Kingdom), Virgin Money (a British financial services company), and Virgin Mobile (a wireless brand present in many countries). ). This strategy has made Virgin one of the most recognized brands in the world. Interestingly, Branson makes money from commission payments regardless of whether the companies licensing the Virgin brand are profitable or not. Branson himself describes the Virgin brand as "innovation, quality and a sense of fun". Despite all its accolades and the strength of the Virgin brand, Virgin America has had a hard time making money. One problem is that, as a small airline, Virgin has few flights per day on many routes and cannot offer consumers the option of multiple departure times, which many travelers value. For example, on the popular route for tech workers between San Francisco and Austin, Texas, United offers six flights a day, while Jet Blue offers two, compared to just one for Virgin America. Another serious problem is that providing all the extra frills needed to deliver a quality experience costs money. In its first five years of operation, Virgin America racked up $440 million in losses before posting a small profit of $67 million on revenues of $1.4 billion in 2013. In 2014, Virgin America became a public company and was able to add $150 million in net profit on revenues of nearly $1.5 billion. The company has been helped by an improving economy, strong demand and lower jet fuel costs. The main competitive problem the company faced was that it was a niche player in a much larger industry where low-cost carriers such as Southwest Airlines do business. JetBlue is under constant pressure on prices and the routes are crowded with multiple flights a day. Virgin America charged prices 10 to 20% more than its competitors without frills, but couldn't raise fares much without losing customers and flying with empty seats, a recipe for failure in an industry where profit margins are slim. On the route between New York's Kennedy Airport and Los Angeles during late 2012, for example, Virgin passengers were paying an average of $305 a ticket, compared to an industry average of $263. The passenger load factor on this route from Virgin was 96% of the industry average over the same period. However, Virgin CEO David Koch was adamant that the airline "...will not get into a fare war. Our product is good. We have good loyalty. People will be willing to pay $20 or $30 more." Was he right? We will never know. In 2016, Virgin was acquired by West Coast rival Alaska Airlines, because Alaska wanted Virgin landing slots in downtown San Francisco. Although Virgin continued to operate as a division of Alaska for a period of At the time, it was fully integrated in April 2018 into Alaska's operating structure, and the Alaska brand disappeared.

Case questions

1. What is Virgin America's segmentation strategy? Who are the company's customers?

2. Regarding the Virgin America market, what does Virgin America offer to its customers?

3. Using Porter's model, what is the overall business-level strategy pursued by Virgin America?

4. What are the actions taken at the functional level that enabled Virgin America to implement its strategy?

5. Do you think Virgin America would have been able to survive if it had remained independent? (Alaska Airlines acquired the company in 2016.)