The West Hollywood sun is beating down on the patio, a cold wind is blowing through, and Richard Branson is hosting a long lunch poolside at the Sunset Marquis hotel. "It's an old rock-'n'-roll hotel, which has--it's gone out of fashion a little bit, I think," he says. The Rolling Stones and U2 are regulars; Courtney Love wrote a love letter to Kurt Cobain in one of the suites. It's exactly the setting you would expect from the self-styled "rebel billionaire," the man who signed the Sex Pistols and the Stones to Virgin Records and then tried to bring that same swagger and cheek to the airline business at Virgin Atlantic. I ask him about his mother, a stewardess in the glamour days of the 1950s, and Branson launches into a well-worn tale about her blithely crossing the Atlantic on an airline whose planes didn't always cover the distance.
Then he stops himself, having noticed the looks from the guys gathered around the table. They aren't rock stars; they're airline executives who work in outposts of the Virgin empire--San Francisco, Geneva and Brisbane--and they've heard this story before. Rather than bore them, Branson spends the next couple of hours dishing with his crew. Whose airport lounge can passengers use in San Francisco? (Alaska Airlines.) Is anyone making money flying direct to India? (American is, Chicago--New Delhi.) Which U.S. carrier will fall next? (ATA shuts days later.) We all gossip a bit about a Los Angeles politician. Everybody laughs, and Branson digs into his Greek salad and Diet Coke.
No champagne? No starlets? Don't worry; he'll get to them later. Right now, Branson is just enjoying his role as pilot of what he calls the world's first truly global airline, one that serves as a signpost to where the battered U.S. airline industry must head: scaled back, smarter, more global and perhaps even profitable. With just 122 planes, 13,600 employees and about $5 billion in revenue last year, all the Virgin airlines put together--Branson's Virgin Group has stakes in Virgin Atlantic, Virgin America, V Australia and Virgin Blue in Australia and Virgin Nigeria--are a speck in the eye of the largest U.S. carrier, American, whose 655 planes generated $23 billion in sales.
Yet Branson and his team actually seem to have hope for air travel in the U.S., where poor service and perpetual bankruptcies have turned the industry into a sick national joke. Customer complaints soared 60% last year, a number that will surely get a boost from the 300,000 passengers who endured the abrupt cancellation in early April of nearly 3,300 American Airlines flights for inspections; there may be more at other airlines this summer. Crushed by high fuel prices, four airlines have declared bankruptcy since March 30.
Having brutally slashed costs, staff and service over the past decade, the big airlines still lose money. High fuel prices are a culprit, triggering American's $328 million first-quarter loss, but so is excess capacity, which keeps airlines from raising prices enough to earn a profit. The skimping has turned flying into an ordeal for most passengers. And new "open skies" agreements that have deregulated international travel give better-capitalized foreign airlines more access to travelers to and from the U.S. This accretion of failure has caused some in the industry to lose faith. "There really is no such thing as a healthy airline industry," a former top airline executive told me.
Branson does not accept that idea. Virgin, he says, can succeed where discount and traditional carriers have failed, by offering something different: a hybrid that delivers good service at a reasonable price and eliminates the hub-and-spoke approach that creates mayhem whenever the weather sours. He has convinced his investors, who have so far put $312 million in capital into Virgin America, that this model can work in the U.S. "We're going to shake up the market," he says. Branson expects Virgin America to be profitable within two years. He has done this before: both his British and Australian airlines opened to wide skepticism, and both are profitable billion-dollar businesses. He is now laying out a flight plan for the next great American airline.
Can Cheaper Be Better?
Experiencing the future as Branson imagines it will cost you less than $300, the price of a bare-bones economy ticket between Los Angeles and New York City on one of Virgin America's 149-seat A320s. The planes are new, and the leather seats are comfortable enough for sleeping, even in coach. There are power outlets at every seat. The most profound change, though, doesn't look like much of an improvement at first. Like many U.S. carriers, Virgin America charges for food in economy class. But flight attendants don't dole it out from a cart like gruel in the orphanage; a touchscreen at each seat lets passengers pick what they want and pay by credit card. A few minutes after I swiped my card, an attendant brought my fruit-and-cheese box and a glass of cabernet to my seat. The food was fine, but what I remember more was the simple pleasure of getting what I wanted when I wanted it, freed from the Sisyphean tyranny of the cart.
Why, after all, can't cheaper also be better? The software behind the touchscreens (which also serve as individual video monitors) knows when the turkey-bacon wraps are gone, so they disappear from the screen and you're never disappointed. Meanwhile, the first-class cabin, $1,600 on the New York--L.A. route, has more luxurious, traditional service.
Virgin America's minimalist approach extends much farther than the cabin door, to what CEO David Cush calls its "operating and complexity costs." The airline is flying newer, more fuel-efficient planes and only Airbus models, to simplify maintenance, which it outsources. It flies only point to point, on high-traffic routes that it expects will be profitable. This streamlining allows Virgin America to introduce itself to American flyers with ultra-low fares, which its competitors are scrambling to match after losing a two-year regulatory battle to keep Virgin America out of the U.S. The airline will raise prices eventually, says Rick Seaney, CEO of travel website FareCompare.com just as JetBlue and Southwest did. But Virgin, he predicts, "will try to be different" and hope customers value the services enough to pay for it.
The Virgin Confederacy
Branson is in Los Angeles to celebrate the launch of V Australia, which will begin flying from Sydney to Los Angeles on Dec. 15. With that last piece of the puzzle in place, he proclaims, "I can finally fly all the way around the world on a Virgin plane!" Over lunch, he and the Australians hatch plans to promote it with a classic Virgin publicity stunt, inevitably involving an appearance by Sir Richard.