Virgin America: The Low-Cost, Luxury Airline

Marketing Plan

Presented by: Angela Romero-MonsalvePresented to:  Prof. Perttula

MKTG 649-3

SFSU

History of Virgin America

Virgin America is a subsidiary of the Virgin Group, which is a venture capital conglomerate,

composed of 400 companies worldwide owned by Sir Richard Branson. The concept behind this

business model is to infuse each subsidiary with the Virgin brand and core values in order to

invest in different business areas. The Virgin brand is intrinsically linked to its owner, Sir

Richard Branson. Branson infused the core values of being unconventional, hip, and innovative

to each of the conglomerate’s subsidiaries with a keen emphasis on delivering high-quality

products for a low price. 1These core values are present in Virgin America because it provides

high-quality travel at a low cost. Virgin America’s primary operations are located in San

Francisco International Airport and its headquarters are in Burlingame, CA.

Virgin America started its flight operations on August 8, 2007 with an aim to provide low-cost

travel with high-quality service between major cities across the east and west coasts, such as

New York City, San Francisco and Los Angeles. By 2012, Virgin America has expanded its

travel destinations to 13 cities in the U.S., such as Seattle, Portland, Dallas, and Philadelphia.

The reason why Virgin flies to these destinations is because these destinations are major

metropolitan cities where the target audience, the “creative class”, frequents for business

purposes, as explained in the next section “Target Audience”.

Target Audience

According to David Cush, Virgin America’s Chief Executive Officer, the airline’s offering is

primarily targeted at the “creative class” who are young, urban, tech-savvy professionals using

smartphones to frequent social media sites, such as Twitter, Facebook, and Wordpress. 2 This

target market rages from 25 to 40 years old, lives in urban areas, and socializes on the web. The

“creative class” encompasses two generational cohorts—the millennials, who were born between

mid 1970s and mid 1990s 3 and the Generation X, who were born between mid 1960s and mid

1 Marketing Minds. The Virgin Brand. 2012. Web. 04/09/12. <www.marketingminds.com.au/branding/virgin.html>2 Young, Eric. “Virgin America targets ‘creative class’ with social media”. San Francisco Business Times, October 11, 2009. Web. 04/09/12 <www.bizjournals.com/sanfrancisco/stories/2009/10/12/focus2.html>3 French, Dana (2005-11-21). "Generation Y versus Baby Boomers". Furniture Today. Retrieved 2009-11-27. "Born between 1976 and 1994, more than one-third of Gen Y is still under 18."

1970s. Gen X is the main focus of Virgin America because Gen Xers are in a life stage cycle

where they travel for work and/or have capital to start entrepreneurial ventures, which require

travel. The main reason why its operations are located in San Francisco is to cater to hub of

technological start-ups in Silicon Valley. As a marketing strategy, Mr. Cush aligned the product

offering with the primary target market. Because Silicon Valley people are computer-savvy, and

need to work and multitask during the flight, Virgin America offers in-flight Internet, gaming

platforms, and plugs for electronics. Also, the “creative class” will pay for comfort, luxury and

high quality service, which is why Virgin America offers customized leather chairs, ample

legroom and a friendly staff. 4Lastly, the Quantcast demographic analysis reveals that Virgin’s

target market is: males and females between the ages of 25-44 who are affluent and have at least

a college education, which parallels the “creative class” target market description.5

Product

Virgin America offers low-cost travel with high-quality service, providing premium

entertainment and productivity options while being trendy and hip. To fulfill the low cost brand

promise, virgin follows a low-cost airline business model, having only one type of aircraft, the

Airbus A320. Following Southwest, the market leader on low cost, Virgin America uses a point-

to-point route networks and doesn’t add many connections.

Virgin America offers a touch-screen entertainment and productivity platform because, JetBlue,

the leader in comfort and premium entertainment offers it. This touch-screen platform uses the

Red™ system, which is the most sophisticated entertainment system in the airline industry,

offering music, movies, and games. For productivity purposes, Virgin created a partnership with

Google to provide Gogo® in-flight Internet. The airplanes also come equipped with Ethernet

jacks and USB plugs in every seat because Virgin wants its passengers to use their productivity

devises to get work done while traveling. The main cabin is also equipped with white leather

seats, ample chair space, and mood lighting, resembling first class cabins. Lastly, the flight

attendants are meticulously trained to provide a friendly and consistent service.

4 Grossman, David. “Virgin America designs a low-cost airline for business travelers”. USA TODAY, 9/9/2009. Web. 04/09/12. <www.usatoday.com/travel/columnist/grossman/2009-09-09-virgin-america_N.htm>5 Quantcast Corporations, 2012. . Web. 04/09/12. <www.quantcast.com/virginamerica.com>

Price

Virgin’s pricing is in the lower-end of the spectrum, because its price offering is similar to

Southwest, the leader in low-cost air travel. Virgin America offers airlines tickets from San

Francisco International Airport to Los Angeles International Airport for $69 dollars. Also,

Southwest offers tickets for the same route at the same price, $69 dollars.

As we learned in class, the airline industry is characterized by high fixed cost and very low

variable cost, which is why airlines aim to maximize revenues by engaging in price

discrimination. Figure 1: Price Discrimination depicts several price points that Virgin America

offers for the same flight from San Francisco International Airport to John F. Kennedy

International Airport. The main categories are: Main Cabin, Main Cabin Refundable, Instant

Upgrade to Main Cabin Select, Main Cabin Select, First Class, and Refundable First Class.

Virgin America offers fundable tickets mainly for business travelers because this kind of ticket

allows for flexibility. This feature appeals to businesses because business meetings are often

rescheduled or because other coworker could fly instead. On the contrary, leisure travelers rarely

reschedule vacations.

Also, there is three price points: Main Cabin,

Main Cabin Select, and First Class, which correspond to three different locations in the airplane

and an increasing amount of amenities. For example, the Main Cabin offers for-pay

entertainment, for-pay food and drinks, and no free luggage check in. In contrast, First Class has

exclusive reclining chairs, and unlimited free entertainment, food, drinks, and checked bags.

Distribution

Figure 1: Price Discrimination

Source: VirginAirlines.com

There are two main distributions channels for Virgin America’s tickets. The main one, which

accounts for 70% of the Airline’s ticket revenue is the company website, Virginamerica.com. 6

The other 30% comes from online travel agencies, such as Travelocity or Expedia. Virgin’s

tickets sales are mostly online because the “creative class” gravitates towards the web to do its

shopping, instead of going to brick-and-mortar travel agencies. Sporadically, Virgin America

distributes its plane tickets through discount websites, such as Groupon or Living Social. Virgin

sells its tickets via discount websites because of its cost structure. Because it has high fixed cost

and low variable cost, it is preferable to get more passengers in the flight at a discounted rate

than losing that revenue.

Competition

The airline industry is characterized by having high fixed

costs and fierce price competition. As a result, airlines

created several alliances as means to increase revenue

and efficiency while reducing costs. There are three

major airline alliances: Oneworld with a market share of

22.7%, SkyTeam with 28.3%, and Star Alliance with the

majority of the market share of 37.6%.7

This is key for Virgin America because it’s an independent airline,

which means it has no alliances. This factor places Virgin America at a disadvantage when it

comes to reducing cost via increased purchasing power or increasing revenue via costumer

sharing, as the big three alliances do. Virgin America’s disadvantage is shown in it lower profits

compared to airlines that are members of alliances. Virgin America’s operating profit, shown in

blue, is often at the bottom when compared to Spirit Airlines, Alaskan Airlines, Jet Blue

Airways, and AirTran, demonstrated by Figure 2: Domestic Operating Profits. 8

6 Grossman, David. “Virgin America designs a low-cost airline for business travelers”. USA TODAY, 9/9/2009. Web. 04/09/12. <www.usatoday.com/travel/columnist/grossman/2009-09-09-virgin7

CAPA. “Virgin Atlantic to join alliance for firepower to compete with 'mega' mergers”.Centre For Aviation, 13th September, 2011. Web. 04/09/12.< www.centreforaviation.com/analysis/virgin-atlantic-considering-its-options--to-join-alliance-o-compete-with-mega-alliances-44259>8 CAPA. “Virgin America’s David Cush says the airline's unique formula will drive success”. Centre For Aviation, 13th September, 2011. Web. 04/09/12. <www.centreforaviation.com/analysis/virgin-americas-david-cush-says-the-airlines-unique-formula-will-drive-success-58673>

Figure 2: Domestic Operating Profit

Source: CAPA

Promotion

Because Virgin America’s target market is the “creative class”-- young, urban, tech-savvy

professionals using smartphones to frequent social media sites, such as Twitter and Facebook--

the best place to reach them is online. For promotions and advertising, Virgin America is mainly

active in 2 social networking sites: Twitter and Facebook. Twitter is the main promotional

vehicle for Virgin America. It aims to attract new customers in the tech-savvy market with

Promoted Tweets, which are advertisements that appear in the feed of people who aren’t

following Virgin. This is a good strategy because even thought Virgin America has over 300,000

followers, it can increase its revenues via more customers. 9 Moreover, Virgin did a Twitter

promotion through Promoted Tweets called “Fly Forward, Give Back”, which resulted in the

fifth most successful day in ticket sales. 10

Virgin America aims to create brand awareness, engage customers, and increase emotional bonds

by being highly responsive with its followers. After analyzing Virgin America’s Twitter stream,

I concluded that it respond to all the Tweets from followers, which is highly unusual for a

company. Virgin America embraced Twitter as a vehicle for guest services, a social media

strategy never seen before in the airline industry. For example, if a guest misses a flight and

Twits about it, Virgin responds by rebooking another flight for that guest.

Facebook is the perfect vehicle to engage in 2-way conversations with consumers in an attempt

to increase brand loyalty because Virgin has over 200,000 followers. While followers don’t

translate into engagement, Virgin has over 5,000 people “talking about this”, which represent the

number of people actively engaging with the company. Virgin’s Facebook Page showcases

events, promotions, new routes and links to other less important social media sites, such as

Instagram and Pinterest. Because Virgin America is positioned as a high-tech airline, it wants to

attract a tech-savvy target market, which socializes on the web. As a result of the direct

engagement via social media, Virgin was able to achieve a Net Promoter Score similar to

Apple’s, which enjoys high loyalty among its customers. A Net Promoter Score is a marketing

9 Van Grove, Jennifer. “Tweets at 35,000 Feet: How Virgin America Uses Promoted Tweets”. April 13, 2010. Mashable.com. Web. 04/09/12. <mashable.com/2010/04/13/virgin-america-promoted-tweets>10 Bush, Michael. “Virgin America on Why Twitter, Facebook Are More Important Than TV”. Adage.com, February 09, 2011. Web. 04/09/12. <http://adage.com/article/digital/virgin-america-values-twitter-facebook-tv2/148795>

tool used to measure customer’s loyalty. In conclusion, Virgin has turned one-time customers to

loyal fans through social media engagement. 11In addition, Virgin America has refrained to use

TV ads because it is a startup airline with a small target market that doesn’t have much reserve

capital. On the other hand, TV ads are designed to reach the mass markets and are extremely

costly. As a result, a TV campaign would not serve Virgin’s goal, which is why Virgin has not

used TV ads.

Guerrilla Marketing

Virgin America engages on guerrilla marketing campaigns that

seamlessly blend several marketing channels, such as the “Fly The

Beard” campaign. Virgin America and the San Francisco Giants

partnered to create a plane that has a beard in honor of baseball

star, Brian Wilson. The campaign was promoted via a You Tube

video because You Tube is another website that is frequented by

the creative class. Another component of the campaign is event marketing. Virgin set up a

footprint that looked like an airplane in front of AT&T Park. It also had photographers taking

pictures of people in a fake beard behind a cut out that resembles Virgin’s iconic print ads, see .

The goal of the campaign is to take a picture of the bearded plane and Tweet it to

@VirginAmerica using the #FlyTheBeard hash tag. Virgin selects the best pictures every month

and the winners get free flights, and Virgin America Club Level passes.12

There are several reasons why Virgin did this campaign. First, partnering with a high profile

organization like the San Francisco Giants increases brand awareness. Moreover, a Quantcast

demographic analysis reveals that the Giants fans are males between the ages of 20-35 who are

affluent and have at least a college education. 13 The Giant’s target market demographics parallel

Virgin’s demographics closely, which illustrates that Virgin was aiming to gain customers from

the Giants because these two companies have a similar target market.

Breath of Fresh Airline Multimedia Campaign

11 Bush, Michael. “Virgin America on Why Twitter, Facebook Are More Important Than TV”. Adage.com, February 09, 2011. Web. 04/09/12. <http://adage.com/article/digital/virgin-america-values-twitter-facebook-tv2/148795>12 Virgin America. 2012. Web. 04/09/12. http://www.virgin.com/travel/news/fly-the-beard-with-virgin-america13 Quantcast Corporations, 2012. . Web. 04/09/12<http://www.quantcast.com/sanfrancisco.giants.mlb.com>

Source: Virgin’s Facebook

Figure 3: Event Promotion

Virgin’s main campaign was called a “Breath of Fresh Airline” and

it was introduced in 2011. This multi-media campaign uses

online banner ads, You Tube videos, print, and out-of-home

billboards as its main pillars.14 However, the online banner ads

are the most used because online ads are relatively cheap, the

ROI is easy to track, and it gathers consumer information. I

found that Virgin’s online ads are based on search history

because since I’ve been doing this paper, I’ve been getting

several ones.

The goal of the campaign is to showcase differentiating

features and amenities of the airline, such as entertainment,

mood lighting, and Internet with “cheeky statements” from

passengers. The ads show different passengers framed from

an airplane window, expressing their feelings about Virgin

such as, “landing has never been so bittersweet”. The

passengers’ points of view represent the company’s mission

to make flying fun and stylish. Moreover, from language like

“bittersweet”, we can infer that Virgin is targeting an

educated target market because “bittersweet” is not a

common word. Moreover, Virgin chose to display its ads on the Internet because that is where

the target market spends its time, socializing and working. Lastly, for the print ads, Virgin chose

to deliver them in places transited by commuters, such as train and bus stations, and busy street

intersections because its needs to reach its target market who are working professionals that

commute.

14Virgin America. 2012. Web. 04/09/12. < http://www.virginamerica.com/press-release/2011/virgin-america-launches-breath-of-fresh-airline.html>

Figure 5: Out-Of-Home

Source: Virgin’s Website

Source: Virgin’s Website

Figure 4: Print Ad