Virgin America, the embryonic U.S.-based carrier in Richard Branson's Virgin family, today announced $177 million in financing and said it has filed with the U.S. Department of Transportation an application for certification. On the drawing board for at least a few years, the new airline is preparing to launch domestic U.S. service in 2006, but would enter a market that many observers said is in need of consolidation and less—not more—low-priced capacity.
"Supported by a low-cost operating model and a unique, value-oriented service proposition, Virgin America will provide high-quality jet service to major U.S. markets coast to coast," the company said in its DOT application. It specifically noted New York and San Francisco, its headquarters, as "excellent examples" and said "initial, measured growth" would focus on longer-haul routes. "Within 12 months of its initial operation, Virgin America intends to use 17 new, narrow-body aircraft to offer convenient, low-priced, high-quality service to a number of the top metropolitan markets."
The company's filing said it plans to capitalize on service deficiencies caused by retreating bankrupt airlines and to take its place among the nation's healthier low-cost carriers. "Despite their rapid growth, there still is plenty of room for a new, low-cost, low-fare carrier with a unique service proposition," Virgin said.
The committed financing would come from VAI Partners LLC, an investment group backed by U.S. investment firms Black Canyon Capital and Cyrus Capital Partners. Branson's Virgin Group would control "a minority stake in the company in accordance with federal ownership guidelines for U.S. airlines."
As part of the transaction, Mark Lanigan, a managing director of Black Canyon Capital, was named Virgin America chairman. Fred Reid, who resigned as Delta president and COO in early 2004 to help launch the new carrier
(BTNonline, March 12, 2004), was named CEO.
Virgin America said the $177 million in funding is "the largest of any startup airline in U.S. history." JetBlue Airways launched in early 2000 with about $130 million in startup financing. All-premium transatlantic carrier Eos claimed $185 million in financing when it announced launch plans last June
(BTN, June 20).
Virgin America "intends" to start service next year with the first of 33 firm Airbus A320 aircraft deliveries. The planes would include "the latest in technology and inflight entertainment equipment." Virgin also said it would leverage Internet technologies for operations, airport, inflight and reservations functions, though it did contemplate specific distribution channels in its filing. At airport locations, it plans to offer self-service kiosks.
Black Canyon's Lanigan said, "We see an opportunity for Virgin America to take advantage of its strong capitalization and its differentiated business model to carve a successful niche in this rapidly evolving marketplace."
Several travel brands already are affiliated with Branson's Virgin Group, including Virgin Atlantic, Brussels-based Virgin Express, Australia's Virgin Blue, Virgin Trains in the United Kingdom and Virgin Nigeria.