No easy ride ahead for Virgin America

A report in the USA based The Deal says that Sir Richard Branson’s long quest to start a U.S. airline came a step closer to reality on Wednesday when Virgin America announced it has received government approval to begin selling tickets.

But the report also says that despite the considerable buzz that Branson brings to the startup, there is plenty of reason to worry that Virgin America could be in for a bumpy ride.

When the airline, which is majority-owned by U.S. investors, starts flying this August it will be the second high-profile startup this year, following the May debut of Skybus, with Virgin America taking the opposite approach to ultra-discounter SkyBus, concentrating on large, well-served markets and presenting itself as a premium flight experience at a discounted rate.

Sir Richard has previously found success placing his Virgin brand in the skies, with Virgin Atlantic and Australian discounter Virgin Blue both flourishing, but the flamboyant entrepreneur has always found the U.S. more difficult to navigate, and the airline might not be an exception.

Virgin America has said its inaugural flight will be between its San Francisco home base and New York’s JFK Airport, with plans to serve Washington, Los Angeles, San Diego and Las Vegas in subsequent months and Virgin America appears set to do a lot of transcontinental flying, a strategy that has been a money pit for many discounters.

Low-fare airlines typically look to offset those fares by getting more daily round trips out of their equipment, however, cross-country round trips tie up airplanes for most of the day, making it harder for carriers to generate multiple fares from individual planes.

Frontier Airlines Corp. and discount king Southwest Airlines Co. have both cut back on transcon flying, concluding that there is more money to be made elsewhere.

Still, Virgin America figures to face no shortage of competition. JetBlue Airways Corp. flies to the West Coast from JFK and offers many of the amenities Virgin America promises and indeed, the real question for Virgin America is what the market opportunity there is in an industry already showing signs of saturation.

JetBlue has stimulated the New York market with low fares, while Southwest and others have built strong discount markets throughout California and the West Coast, with other companies like AirTran Airways Inc. and SkyBus growing rapidly, increasingly forcing the discounters to go head to head.

Virgin America also will be starting up service at the end of the busy summer holiday season and is likely to burn through significant amounts of cash during the fall, which is typically a slow period for air travel.

The company’s best hope might lie outside of the U.S, where it could eventually link up with some of Sir Richard’s other brands, with Virgin Atlantic having built a loyal following flying from Europe to JFK and expected to be one of the most aggressive airlines in trying to capitalize on routes opened by a new aviation treaty between the U.S. and European Union and in addition, Virgin Blue has also applied to launch service between Australia and the U.S.

Time will tell whether the U.S. market embraces Branson’s airline, or if Virgin America follows in the footsteps of Virgin Cola and “The Rebel Billionaire” reality show, both of which flopped.

A Report by The Mole