Airlines Claire Cain Miller 01.11.07, 6:00 AM ET SAN FRANCISCO - = Virgin America, a new low-fare airline, is set to take off. Its shiny = new red and white plane, christened Jefferson Airplane, is idling at = San Francisco Airport. Its champagne-soaked launch party drew = California luminaries like Governor Arnold Schwarzenegger and rock = star Grace Slick. Its pilots and flight attendants are hired, trained = and ready to fly. = There's just one problem: America won't let them. After a 13-month = delay, on Dec. 27 the U.S. Department of Transportation rejected = Virgin's application on foreign ownership grounds, citing its = connections to Richard Branson's Virgin Atlantic after a lobbying = campaign by Continental, Delta and American. Virgin America says the = airline is technically independent and meets U.S. guidelines = (foreigners provided less than 25% equity and fill fewer than 1/3 of = board and management positions). = "They don't have a highfalutin problem with foreign equity," chief = executive Fred Reid says of the big airlines. "They're = opportunistically killing the competition." So Virgin America is planning to take the fight to the passengers. = The linchpin of the campaign: letVAfly.com, where people can sign = petitions urging Congress and the DOT to give Virgin its wings, is = expected to launch next week. The airline will push people there = through cheap viral marketing on social media sites Digg, YouTube and = Boing Boing, along with a few pricier newspaper ads. To seduce the = American public, on Jan. 17 Virgin will invite TV cameras on its = planes to show off their interiors, closely guarded until now. = The campaign goes hand in hand with Virgin's people-centric = philosophy. Most Americans despise airlines, Reid says. "Try to go to = a cocktail party and say you work for an airline. You'll never be = able to get another drink because you=92ll be peppered with hate = stories." He=92s trying to fix that by giving the people what they = want, starting with the chance to name Virgin's planes on its Web = site. But first, he needs the people to help him get off the ground. Reid says his airline will have costs 30% to 50% less than those of = the legacy carriers while offering passengers more frills. Had Virgin = been up and running the last two years, it estimates the low fares = would have saved U.S. consumers $780 million. How will it afford to = offer more for less? That=92s the beauty of starting from scratch. No one knows the difficulties of the airline business better than = Reid, who was president of Delta until 2004. Burdened by terror = threats and fuel costs, the six so-called legacy airlines have been = in and out of bankruptcy. Meanwhile, low-cost carriers like Southwest = and Jet Blue steal their passengers. The low-fare carriers have grown = their market share from 5% to 30% in 15 years and that figure is = projected to reach 50% in the next decade. = They keep their costs lower than the legacies by hiring less = experienced employees without pensions, flying point-to-point instead = of inefficient hub-and-spoke routes, and using one or two jet models = so they don't have to train pilots and mechanics on a dozen different = varieties of planes. = But simply following the low-cost business model is not enough, as = Reid learned at Delta when he was chairman of its low-fare airline = Song. It ultimately flopped because it was still burdened by the = budget, corporate culture and toxic management-labor relations of old- timer Delta, says Richard Gritta, University of Portland finance = professor who studies the aviation business. "Song was a smash hit = with the customers, but it was not sustainable because it didn't = start from scratch," Reid says. = His first mark on the clean slate at Virgin America: The airline = bought 34 new jets, Airbus 320s and 319s that run about $50 million = apiece. They burn fuel more efficiently and break down less often = than older planes. The bigger airlines can't afford a new fleet. = Virgin will also save by outsourcing ground and baggage crews and = partnering with work-from-home call center provider Willow. = Virgin will use newer and cheaper technology than even six-year-old = Jet Blue had when it launched. That will start with digitizing the = crews' manuals, so they're wirelessly updated each time the plane = lands. This mundane step will save a lot of money. It's tedious for = airlines to replace all the paper books each time a manual gets = changed, and the number-one source of FAA fines is manuals that = aren't up-to-date. = Reid is also using cheap technology to give customers perks and try = to win over the eight of 10 fliers who dislike their experiences on = the legacy airlines. = This will start with a simpler, uncluttered Web site that lists = lowest fares first. Passengers will be able to order food and drinks-- whatever they want, whenever they want it--on the screens at their = seats. = Virgin aims to offer more in-flight entertainment than any other = airline, including personal screens 50% bigger than Jet Blue's and = will include all-digital live TV, movies and video games, and = keyboards, electrical outlets, and game controllers at each seat. It = will add broadband Internet as soon as it's available for aircraft. = The Virgin brand will also help--unlike most startups, it already has = name recognition and a good reputation, says Edward Faberman, = director of the Air Carrier Association of low-fare airlines. The legacies don't have a chance of catching up. "The legacy carriers = have the most to lose. That's why they=92re trying to keep Virgin out," = = Gritta says. Tearing out all their old systems and replacing them = with new ones would be prohibitively expensive. "Trying to retrofit = everything is a disaster. Virgin is buying modern equipment and has = the capital to do it." = Of course, Virgin's employees, planes and technology will eventually = grow old and start costing more. The risks start even earlier. Some = 150 airlines have gone bankrupt since 1982, according to Gritta's = research, and almost all have been startups. = But Virgin America won't even be able to try if the federal = government won't let it fly. = The best slide auction on the net: http://www.auctiontransportation.com/sites/psa188/