Virgin America CEO: DOT Satisfied With US Ownership Structure
August 11 2009 - 11:21AM
Dow Jones News
The U.S. Department of Transportation has assured Virgin America
that the airline's ownership structure is compliant with U.S. law,
David Cush, chief executive of the San Francisco Bay area carrier,
said in an interview Tuesday.
The airline is 25%-owned by founder Richard Branson, head of
Virgin Group in the U.K. Under U.S. law, 75% of voting stock must
be held by U.S. citizens. Competitor Alaska Air Group Inc. (ALK)
has called Virgin America's ownership into question and asked the
DOT to investigate, believing that two U.S. private equity groups
were selling their stakes in Virgin America.
Cush said Tuesday, "We've still got the same ownership," adding
that, in private talks with Virgin America, the DOT has said that
"it is comfortable with our situation."
The agency hasn't commented publicly on the matter, although
Sen. Patty Murray, D-Wash., last month asked the DOT to do so. The
U.S. investors also haven't commented.
Regarding day-to-day business, Cush said passenger bookings are
looking stronger in August and September, mainly due to leisure
travel fueled by industry fare sales.
The airline industry continues to face a triple threat from weak
passenger revenue, rising fuel costs and tight capital markets.
"The industry fundamentals are the worst I've seen in my 20
years in the industry," Cush said. He added that the
intra-California market has been clobbered by the U.S. recession,
while traffic on routes to and from California is gradually
improving.
The airline Tuesday said it would expand direct service to Fort
Lauderdale, Fla., from San Francisco and Los Angeles. The carrier
has adequate liquidity, and access to capital, to continue a
long-term expansion plan, Cush said, expecting to add two or three
new routes in 2010 and a similar number in 2011.
"A long-term growth plan will bring economies of scale on the
cost side and add revenue with a stronger route network," Cush
said.
So far, the airline, which started operations in 2007, has
reported heavy financial losses.
Virgin America plans to increase its fleet to about 50 aircraft
from 28 in the next two years, Cush said. While financing new
aircraft has been difficult, Cush said he expects to get assistance
from the manufacturer when the aircraft are ordered. Virgin America
operates a fleet of A320 aircraft made by Airbus.
Cush said competitors are keeping an eye on the bid from
Southwest Airlines Co. (LUV), the largest domestic passenger
carrier in the U.S., to buy Frontier Airlines Holdings Inc.
(FRNTQ). "There are a number of implications for us," he said. "The
fact that they plan to move more capacity into Denver [Frontier's
home base], that could take some pressure off the California
market."
-By Ann Keeton, Dow Jones Newswires; 312-750-4120;
ann.keeton@dowjones.com