Why Can't America's Favorite Airline Make Money?

Since joining the industry in 2007, Virgin America has filled their trophy case with awards from the likes of Conde Nast, Travel + Leisure, and Zagat. They have a young fleet of Airbus planes, equipped with WiFi and "mood lighting," and a staff of attractive, friendly employees. So why is this well-loved airline having trouble making money?

Today, Virgin America announced a $22.4 million net loss for the first quarter of this year. Earning a consistent profit is something that the airline has not been able to do on a regular basis in their history. For $2013, they pulled in their first annual profit of $10.1 million. In 2012, they posted a $145 million loss. In comparison, low-cost competitor jetBlue raked in $428 million last year, and Southwest earned $754 million.

Why Can't America's Favorite Airline Make Money?

Virgin America Airbus A320, by AeroIcarus on Flickr (CC Commercial License)

What's the problem here? People love this airline, but sometimes being popular doesn't equate to profitability. Just ask PeoplExpress, the 1980s juggernaut airline. But what's keeping Virgin America from consistently being in the green? According to The Cranky Flyer, in 2013 the airline went from a load factor-based strategy to a yield-based strategy to find those 2013 profits. What's the difference between the two strategies? Cranky Flyer says:

The yield-based strategy means you charge more for each ticket and you deal with filling fewer seats. The load factor-based strategy is to moderate your fares to fill as many seats as possible.

Virgin America has a network of only 23 cities, and being hubbed in fog-prone San Francisco (SFO) certainly doesn't help operational performance, but passengers seem to be willing to look past that because they love the product overall. It's sort of like a TV show that is beloved by critics, but never attracts a big audience. Let's face it, airlines aren't in business to make fans. Business travelers shy away from Virgin America because of their small network, while flying one of the legacy carriers (American, Delta or United) from SFO pays higher dividends by offering more flight options and better ways to exchange those frequent flyer miles. Their product offering includes WiFi, leather seats, live TV and a First Class - and those things all cause a higher operating cost, reducing the profit margin.

On the other hand, Spirit Airlines is one of the most profitable airlines in the country, and people hate them because of all their ancillary fees. But those fees translate to profit for the airline, and that's what it's really all about. In spite of receiving some of the worst customer service ratings in the industry, Spirit is in no danger of failure because they're making money on a regular basis.

Generally, the American public is too finicky when it comes to buying plane tickets. According to Airlines.org, it's cheaper to fly now than it was 35 years ago. In 1979, the average round trip 1979 air fare was $442.78 (when adjusted for inflation) compared to the 2013 average round trip price of $382.32. And you're wondering why airlines charge you to check a bag? It's because they wouldn't make a profit without doing so!