=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/02= /11/BUGMD4TS3P1.DTL ---------------------------------------------------------------------- Wednesday, February 11, 2004 (SF Chronicle) SFO rolls out red carpet to woo new Virgin USA David Armstrong, David R. Baker, Chronicle Staff Writers Cheerleaders, divas, drag queens, skateboarders and politicos spent the past two days trying to entice fledgling airline Virgin USA to put its headquarters in the Bay Area. San Francisco International Airport, which has suffered a steep drop in passenger traffic from the dot-com implosion, post-Sept. 11 fear of flying and SARS, is vying with Boston's Logan and Washington's Dulles airports for the nascent carrier's affections. Virgin USA is expected to make a decision at the end of this month. At present, Virgin USA is a virtual airline. The brainchild of British entrepreneur Sir Richard Branson, it does not yet have the required U.S. majority owner required by U.S. law. Nor does it have any aircraft or a flight schedule. But Virgin does have the potential to generate upward of 2,000 Bay Area jobs, according to the airline's officials. The proposed headquarters, which is scheduled to be an administrative and maintenance center, may also be key to renovating and reopening SFO's Terminal 2. Airport Director John Martin said it would be a perfect fit for Virgin USA, which is intended to be a low-cost carrier flying domestic routes. Reopening the terminal, now closed for lack of money and air traffic, needs to be a market-supported decision, he added. SFO has courted and won low-cost carriers such as AirTran, America West and ATA Airlines of late, after Oakland International Airport landed Southwest Airlines and JetBlue Airways. Virgin USA would in theory be a robust low-cost carrier that would get SFO a bigger share of that fast-growing market. Surrounded by the likes of San Francisco Mayor Gavin Newsom, Gap Chief Executive Officer Paul Pressler and venture capitalist Ann Winblad at a Monday night party in the home of state Sen. Jackie Speier, D-Hillsborough, Virgin USA's CEO, Frances Farrow, indicated that dollars and cents, in addition to the intangibles, will drive the airline's decision. "Quality facilities, cost of living for our employees, operating expenses and quality of life are all important," Farrow said. "Personally, I would love to live here," she said, smiling as a "Beach Blanket Babylon" cast member wearing an enormous hat strolled by in Speier's sunken living room. "We are not looking for a hub," Farrow said. "We are looking for a place to put our administrative headquarters, train staff and do maintenance." In addition, Virgin would operate flights out of SFO, initially from the International Terminal and, in time, shuttered Terminal 2. Newsom said he is helping to woo Virgin because he places "a high priori= ty on it. I strongly believe that San Francisco and the region are a good fit for the Virgin brand, which is an exciting, cutting-edge brand." The mayor took part in a closed-door marketing pitch to the Virgin team and gave Farrow a sampler package of his PlumpJack wine just before the meeting. Farrow's team of seven senior executives visited Boston last week. Boston city officials won't reveal very many details of their pitch. But it includes an offer of cheap office space in two buildings within a federal empowerment zone along the waterfront south and east of Boston's downtown. Virgin could receive annual federal tax credits of $3,000 for each employee who lived and worked in the zone, said Susan Elsbree, spokeswoman for the Boston Redevelopment Authority. The buildings also face Logan Airport across a narrow stretch of Boston's harbor, a point the city highlighted with Virgin executives. "You can throw a baseball at Logan," Elsbree said. "We took them there a= nd did the whole thing. We pointed at the planes and said, 'Those could be your planes.' " Like Logan, Dulles has the space for a young airline. The airport recent= ly built two new concourses, is adding a traffic control tower and is conducting environmental studies for a new runway, said Tara Hamilton, spokeswoman for the Metropolitan Washington Airports Authority. Bay Area authorities and SFO officials were mum about what they are offering. After lunching on sushi and dim sum in SFO's handsome Aviation Museum, Newsom, Martin and other officials adjourned to a back room for some hardball negotiating with Virgin executives. However, at the request of SFO officials, the San Mateo County Economic Development Association indicated it has led the pitch to Virgin USA since September. SAMCEDA President Deberah Bringelson declined to discuss details of the incentive package offered to Virgin USA, but she did say that it includes employee training and real estate opportunities. Bringelson isn't talking about just any old training, though. Besides offering Virgin USA the nation's most educated workforce -- the Bay Area has more college grads per capita than anywhere else -- she said that the airline executives specifically asked whether their employees would have opportunities to learn performance art and other ways to entertain their passengers. That explains why SFO arranged for so much colorful entertainment Tuesda= y, starting in the morning when the Virgin USA representatives left their hotel and found ballet dancers awaiting them outside. Later, there was the Stanford chorus and a tap dance troupe. Virgin USA's request for this kind of employee training is not unusual from a young, edgy company that offers a festive atmosphere on flights and a belly-up bar for business-class passengers. Some airline industry analysts wondered whether SFO could offer enough to entice Virgin, which would be an independent spin-off of Branson's international carrier, Virgin Atlantic Airways. "I'll put this as delicately as possible, but I think Grand Island, Neb., has a better chance than San Francisco," said Michael Boyd, principal of the Boyd Group aviation consulting firm. Boyd said the airport's stiff fees, among the highest in the nation, as well as its difficult climate, would pose trouble for a low-cost startup airline, complicating its finances and its schedule. "The weather that everyone loves when they're sipping Irish coffee and looking at the pier -- it doesn't work so well for air traffic control," Boyd said. Long plagued by delays due to rain, wind and fog, low-fare leader Southwest Airlines left SFO in January 2002 because it could not get its flights out on time. SFO also has faced more financial difficulties than its competitors, said Kurt Forsgren, a director at the Standard & Poor's research firm. Dulles, Logan and SFO all saw their credit ratings cut after the Sept. 1= 1, 2001, terrorist attacks, which prompted tourists and business travelers to cancel their plans. But Logan and Dulles both rate higher than SFO, with A- plus ratings instead of SFO's A, Forsgren said. "Financially, SFO is certainly the most stressed in terms of costs and debt levels, which will certainly be a consideration in the ultimate decision, " he said. Competing for airline business may well become more frequent for SFO. In October, the airport hired a San Francisco marketing and advertising firm, the M-line, to come up with a strategic marketing plan for SFO. The M-line recruited a team of cheerleaders from Bay Area high schools to greet the Virgin executives and positioned skateboarders, surfers and a drag queen draped in red -- the Virgin Atlantic color -- around the airport as part of SFO's charm offensive. "We realize the airport needs to be a more responsive partner with its airline tenants," said Jane Sullivan, the airport's marketing manager. Chronicle staff writer Ilene Lelchuk contributed to this story.E-mail the writers at davidarmstrong@xxxxxxxxxxxxxxx and dbaker@xxxxxxxxxxxxxxxx -----= ----------------------------------------------------------------- Copyright 2004 SF Chronicle