Big D

The Strategy Behind Virgin America's Business Travel Push in Texas


In Dallas, the land of big hats, big hair, and big ambitions, Virgin America is making an audacious pitch for business travelers. The upstart is betting that while Southwest Airlines (LUV) may be the traditional darling in the area, corporate travelers will pay extra and switch carriers for a few frills, such as a large leather seat in first class and fancier food.

Virgin America announced a major expansion from Dallas Love Field today, with new flights to Chicago, Los Angeles, New York, San Francisco, and Washington Reagan National. The move comes ahead of an expected initial public offering later this year. Virgin said its two new daily flights to Chicago O’Hare International would begin in 2015.

The entire plan hinges on Virgin America obtaining two gates at Love Field that are being divested by American Airlines (AAL) as part of its agreement last year with federal regulators to win approval of its merger. If it’s successful, Virgin America plans to move its current Dallas flights to Los Angeles and San Francisco from Dallas/Fort Worth International Airport to Love Field. One big reason for quitting DFW—an airport that Virgin America’s chief executive, David Cush, calls the most cost-effective airport in his network—is the dominance enjoyed there by American, with numerous daily flights to major business destinations. “By going into Love Field, we’re able to go into Dallas and mount a very vigorous schedule without having to worry about the power of the hub,” Cush said in an interview.

Love Field, smaller and closer to downtown Dallas, will be open to new flights nationwide in October, when the Wright Amendment expires. That 1979 law limits service at Love Field to neighboring states as a way to protect the newer, larger airport between Dallas and Fort Worth. Southwest controls 16 of 20 gates at Love Field and carries more than 97 percent of passenger traffic.

“Virgin America is going to go after a whole new genre of passengers,” says aviation analyst Michael Boyd of Boyd Group International, which estimated in a 2011 study that 4 percent of DFW’s current local traffic would shift to Love Field when the Wright Amendment ends. That “sliver of passengers” moving to Love—loyal to no airline and not locked into American’s frequent-flier program—is key to Virgin America’s ambitions and could pose a problem for Southwest. “The challenge is going to be that you’ve got another airline down the hall with three flights and lower costs and a much more sophisticated and expansive product—that’s a real issue for Southwest,” he says. Virgin’s assigned seating and premium foods could command a following.

For its part, Southwest no longer enjoys a cost advantage over its larger rivals and has been making a steady push for higher-paying business travelers. Southwest last month announced 15 new destinations it plans to serve from Love Field starting in October, including New York’s LaGuardia, Reagan National, Chicago Midway, and Los Angeles. Delta Air Lines (DAL) is also angling for gates at Love Field, announcing an expansive proposed schedule last fall if it wins the two gates it now leases from American.

Virgin America won new access at New York’s LaGuardia Airport and at Reagan National near Washington as part of the American divestment. Both those airports have perimeters that limit the distance of flights from them, which set up Virgin’s need for new routes shorter than its normal cross-country flights. Hence, a new love for Love Field.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • LUV
    (Southwest Airlines Co)
    • $40.26 USD
    • -0.36
    • -0.89%
  • AAL
    (American Airlines Group Inc)
    • $50.71 USD
    • 0.57
    • 1.12%
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