The Virgin America Strategy?

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I had the pleasure of flying on a Virgin America (VA) today.

Why did I book it? It was cheaper.

Over the past few months Virgin America (VA) has been significantly cheaper than all other airlines. I believe VA is trying hard to make their airline tickets the cheapest and then making that cost up in other methods. Here is what they are currently doing to make up that cost:

Advertised Experiences

Google will you give you a wifi-enabled Chromebook to use on your flight for free. I’m sure Google paid a hefty penny for this deal. The Virgin America ticket counter agents even allowed Google to make an announcement on their PA system!

$8.00 On Demand Movies at Your Seat

You can order movies on demand on your flight. $8 is just the right price that I would actually pay if I was bored. Anything more than that I would feel guilty about.

Branded Everything – Product Sponsorships

One Water for your drinking pleasure and Method branded soap in the bathroom to keep your hands clean.

Low Prices, Sponsorships, and Up-Sells. Could this be how VA wins?

This reminds me of a story I read in the “Myth of The Robber Barrons” about how Vanderbilt dominated the steamboat industry in the 1830’s. Here is the story:

Moving to New York, Vanderbilt decided to compete against the Hudson River Steamboat Association, whose ten ships probably made it the largest steamboat line in America in 1830. It tried to informally fix prices to guarantee regular profits. Vanderbilt challenged it with two boats (which he called the “People’s Line”) and cut the standard New York to Albany fare from three dollars to one dollar, then to ten cents, and finally to nothing. He figured it cost him $200 per day to operate his boats; if he could fill them with 100 passengers, he could take them free if they would eat and drink two dollars worth of food (Vanderbilt later helped invent the potato chip). Even if his passengers didn’t eat that much, he was putting enormous pressure on his wealthier competitors.

One sentence summary of story: Vanderbilt made his steamboat rides free, up-sold snacks to make up the costs, and this led to his competitors going bankrupt.

I’m a huge fan of this strategy, so sign me up!

I couldn’t help myself so I did a quick brainstorm on what else Virgin could do to make their money back:

1. Partner with Netflix – give the customer the option to either buy the movie for $8 or sign-up for a free trial to Netflix and watch their entire streaming collection. Netflix should pay $30 per sign up and give them a cut of the recurring revenue if the customer stays.

2. Sell another flight right at my seat – Allow me to buy my next flight at my seat and give me a $30 discount if I do it during the flight. A good way to make this up-sell even better is let them know they can cancel anytime and the cost will stay as credit in your VA account.

What are some other ways VA can make money? Let me know in the comments, I’d love to hear them!

9 Comments

  1. Here is one idea: Partner with State Travel Departments. I always see TV ads of “Pure Michigan”. The state of Michigan wants you to visit and spend your money there.

    Try to convince them to give you their some of their TV Ad Budget for super cheap flights to Michigan. Imagine a $50 flight to Michigan – wouldn’t that make you want to go. As a bonus you will get a bunch of people talking about their trips to Michigan causing a buzz about your state.

    • They already have an online store (but it has a limited amount of items). I wonder if they could get more sales by leveraging all of Amazon’s products.

  3. All of these opportunities work to remove friction from the flight process.

    Bored? Check out a Laptop (subsidized) or rent a movie ($8). Thirsty? Have a water and see an ad.

    My biggest pain point on a flight is getting from the airplane → luggage → taxi. What if for a small fee ($30 for a family of four) Virgin had your bags waiting for you at the curb already loaded into a Taxi?

  4. Rishi, I loved this post. I hadn’t heard the Vanderbilt story, that’s awesome. Virgin America is by far the best airline, it’s no contest, and I try to fly with them whenever I can, even if it’s a little more expensive, so I’m clearly a convert.

    An extra way they’ve made money with me is by offering a first class upgrade for a reasonable price if there’s a spot available. On the return leg of a trip, I think I got first class for only an extra $25 or so — a small enough price that I was bragging to my friends about it (which may help sell a couple more Virgin tickets in the future via word-of-mouth).

    I wouldn’t be surprised if the low price strategy was short-lived. I bet that once people try Virgin, like I have, they’ll see it’s vastly superior and may have no qualms about spending an extra $20 or $50 per ticket. That said, I hope they keep prices low!

    Pete

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