Virgin America Lands in the Windy City

After a long lengthy period of negotiations Virgin America has finally announced its expansion into the Chicago market with new direct flights from San Francisco and Los Angeles to be launched in May. The airline has been discussing adding O’Hare International to its network for more than three years but until Delta Air Lines confirmed recently that it would hand the city control of the L concourse at the airport, it has been unable to secure access. Virgin America will offer three-times daily schedules to San Francisco and twice-daily flights to Los Angeles.

Source: Flightbase (February 14-20, 2011)

It will face stiff competition from two of the country’s majors between Chicago and Los Angeles, as the table above clearly illustrates. American Airlines and United Airlines have an almost identical split of the market (40 per cent versus 39 per cent) offering over 60 weekly frequencies each and providing over 23,000 weekly seats from Chicago. Approximately 982,000 O&D passengers travelled between the two airports in the year ending December 2010 and Virgin America will hope to entice a large proportion onboard its own aircraft.

The airline will face a similar level of competition on the Chicago – San Francisco route (see table below) with American Airlines and United Airlines offering just over 100 weekly frequencies between them. United Airlines is the market leader carrying around 50 per cent of the 785,000 O&D passengers that travelled between the two airports in 2010, thanks in some part to the usage of widebodied jets on around a third of its weekly flights, including the 777-200ER which operates five rotations per week.

Source: Flightbase (February 14-20, 2011)

Virgin America will attempt to break the stranglehold of American Airlines and United Airlines on these two routes by competing on price. Currently passengers between Chicago and Los Angeles pay an average fare of between $346 and $369 per sector, while on the Chicago – San Francisco the figure is between $391 and $417 one way. This model has already proved highly successful for Virgin America on many of its existing routes, its lower cost structure enabling to offer lower, yet still profitable fares than its rivals. For example, on the San Francisco – New York JFK route it has a 22 per cent share of the market with fares of just over $200, half that being offered by its rivals. It is the same on Boston – San Francisco where it has carved out a 16% market share with fares more than half the average price of its rivals, and likewise on Los Angeles – New York JFK where it has 20 per cent of the market. Interestingly, on the Los Angeles – San Francisco route, Virgin America has a 21 per cent share, despite strong competition from Southwest Airlines. However, the airline is offering average fares $1 per sector cheaper than its ultra low-cost rival, viewed as the pioneer of low-fare travel in the USA.