While many Silicon Valley companies look to downsize, low-cost airline Virgin America is looking to hire more employees, expanding destinations and inspiring other companies to visit the Bay Area.
The Burlingame-based company launched a mere six months ago and so far, means many local jobs and an ever-growing number of destinations. San Diego was added just last week. In the next five years, Virgin America is anticipated to mean 5,000 jobs, millions in savings for local travelers and millions in both wages and business revenue.
The anticipated growth seems natural, but taking flight was not easy.
A new airline in the area brings direct benefits to the surrounding communities with taxes and jobs, as well as drawing in competition from other airlines, said Daniel Cruey, president and CEO and the San Mateo County Economic Development Association, commonly known as SAMCEDA. It also adds to San Francisco’s and the area’s identity bringing travelers and businessmen who previously weren’t landing here, he said.
Since taking flight in August, Virgin America has expanded to five cities — San Francisco, Los Angeles, New York, Washington D.C., Las Vegas and last week San Diego. Three San Diego flights began daily last week growing to five daily on March 9. Seattle will be added to the mix later that month.
A new airline with 70 flights per week would mean up to 3,891 jobs, 1,692 of which would be airport-site generated and 2,199 associated with the visitor industry, according to the Bay Area Economic Forum. It would mean $146 million in wages and $241 million in business revenue. At the same rate, the airline is estimated to generate $23.9 million in state and local taxes.
A 6.5 percent traffic increase was seen at San Francisco International last year, said SFO spokesman Mike McCarron.
Two other low-fare domestic airlines — JetBlue and Southwest — added flights out of San Francisco International after Virgin America joined the fleet list. More are in talks of stopping into the local airport as well, said McCarron, who would not give details as to which airlines are interested.
It was other airlines that inspired the start of Virgin America. When asked in an interview with the Daily Journal about the rationale in starting an American airline, Sir Richard Branson, chair of the Virgin Group, had an easy quip on the first flight to San Diego before being greeted by cheerleaders of the San Diego Chargers.
“Have you ever flown on an American airline?”
Virgin America’s idea was simple: a low-fare airline with ambiance, entertainment and highly trained staff. But the business side also needed to be sound — a problem other American airlines lack, Branson said.
Launching was not as simple as creating a concept.
CFO Bob Dana came on in 2003. He’s officially employee number one — it says so on his identification. Getting investors was part of his first job. The task was easier with the backing of Branson and the Virgin Group.
“No other domestic airline began with name recognition,” he said. “Well, there was Hooters but … ,” Dana trailed off noting the airline is no longer in service.
Dana began with approximately 40 percent of the backing funds estimated to be needed when the company filed with the Department of Transportation in 2005. The remaining millions came the day after the first DOT denial. Today, VAI Partners LLC, an investor group comprising of the California-based firms Black Canyon Capital and Cyrus Capital Partners, L.P owns 75 percent of the company. The Virgin Group owns the other 25 percent. At its launch, Virgin America had $312 million in investment funding behind it.
It was the joint ownership that slowed Virgin’s launch with the tentative December 2005 denial.
Under federal law, a U.S. airline must prove that the president, two-thirds of the board of directors, and at least 75 percent of the voting interest are made up of U.S. citizens. The DOT questioned Virgin America’s close ties to the U.K.-based Virgin Group.
A tentative approval came in March 2007 after a number of changes were made including the loss of a board of directors seat by Virgin Group which now holds two of the eight voting positions. It gave up some decision-making rights and gave all of its 25 percent voting rights to a DOT-approved U.S. trustee. Virgin America agreed to dump its then CEO Fred Reid if requested. U.S. investors also pledged an additional $20 million investment to Virgin America.
Reid became the topic of a tug-o-war last year as the company tried to keep its leader in place. Ultimately the airline’s final approval came in May 2007 with the caveat that Reid could stay with the company for six months after it took off. CEO Davis Cush was named as the replacement in December.
Moving ahead, Cush sees growth continuing in the near future. Last week Cush announced plans to double the company’s employees to 2,000 — many based in Burlingame by the end of the year. Additionally, it could be flying to 12 cities by 2009. Presently only two are set and the cities have yet to be announced.
Part of the appeal of Virgin is the jovial nature of those involved in the company. On the first flight to San Diego last week, Branson came over the loudspeaker with a welcome to all.
“For those of you who are afraid of flying, don’t worry,” he said. “Despite our name, we do go all the way.”
And those involved have no plans to slow down once reaching the next destination.