=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/c/a/2008/12/23/BUK714QV24= .DTL --------------------------------------------------------------------- Tuesday, December 23, 2008 (SF Chronicle) How CEO kept Virgin America aloft in tough year George Raine, Chronicle Staff Writer (12-22) 17:53 PST -- When crude oil topped $145 a barrel in July, it was= a sobering time for the airline industry. The cost of jet fuel was wreaking havoc on carriers from coast to coast. And it sure didn't help to hear the growing chorus of experts opining on how much higher the price of oil would go, recalls Virgin America CEO David Cush. "Everyone was saying it would go to $200," said Cush. "Then all these Wa= ll Street analysts were crawling over each other to make the higher prediction." The experts were wrong, thankfully, but the rise in fuel prices, said Cush, was more significant economically for the industry than the aftermath of the 2001 terrorist attacks, which chilled flying for a time. Eight U.S. airlines failed in 2008, about 36,000 industry jobs will be lost by year's end and many airports across the country have lost commercial service as airlines contracted because of high fuel prices. And we're not out of the bog yet. Recession has set in. Navigating a nascent airline out of this quicksand, particularly while competing with the major carriers, is some task. But Virgin America, started in Burlingame back in 2007, found its way out of the summer and sees profitability on the horizon, according to Cush. Plummeting oil prices have certainly helped. In July, fuel was 55 percent of total company costs. Today, it's less than 20 percent. Cush said he thinks the privately held company will have one or two profitable quarters in 2009 and added, "We hope to have full-year profitability in 2010, which is really what the projections were several years ago." Cush has a two-pronged strategy to survive and, he hopes, thrive. Part o= ne is to keep workers focused on the goal of providing a superior product at a good price. Part two is to pull back on ambitious growth plans that dated to a more bullish time. Remarkably, there have been no layoffs. Message to employees He said he told his 1,400 employees, "In the end, during tough times, wh= at matters is putting out a great product that people want to buy. As long as you are doing that, at the right price, everything is going to be OK." That satisfied the messaging requirement. The other part was not to order as many airplanes as the company anticipated it would need when growth plans were written several years ago. (Virgin America flies Airbus A320-family aircraft.) In addition, beginning in June, Virgin America eliminated 30 percent of flights on Tuesdays, Wednesdays and Saturdays, the lightest days for the company, and kept flying at capacity the other days. The full schedule was reinstated for Thanksgiving, is being restored for Christmas and will return in the summer, said Cush. "The nice thing about David moving quickly to slow down growth was that = we did not have to have layoffs," said Don Carty, the former chairman of AMR Corp., the parent of American Airlines, and now the chairman of the board at Virgin America. "He also has a characteristic essential in the airline business - he is a glass-is-half-full kind of guy. You need to be that in good times and turbulent times," said Carty. Cush, a native of Shreveport, La., who has lost most but not all of his Southern voice, was at American for 22 years, rising to vice president of global sales. Over the years, Carty gave him tough assignments, he said, and he was long considered a rising star. Now the two former American execs are trying to fly this new airline into profitability. Virgin America's original plan was to rather quickly get up to as many destinations as possible, perhaps with an eventual ceiling of 30 cities. That target is still moving. Cush thinks the company is sized for 30 cities, although the number may eventually be less. "The acceptance we have in the urban areas is very strong, and we don't want to outgrow our model." Carty has a different view. "It still can be a very substantial airline.= I don't think there is an arbitrary ceiling." There have been setbacks. Virgin America was offered gate space at Newar= k, but only during the wee hours of the night, and turned it down. The carrier sorely wanted to be in Chicago, but this month was unable to lease a gate at O'Hare International Airport from three legacy carriers. Three days later, the company announced the start of service to Boston from San Francisco and Los Angeles beginning Feb. 12. While growth has slowed, Virgin America is not stopped in its tracks. There were 17 airplanes in the fleet in May. There are 24 now and there will be 28 in February. Boston will be the carrier's eighth destination in what is largely a coast-to-coast route strategy for the airline. The other cities served are Las Vegas, New York, San Diego, Seattle and Washington. Wide range of fares Virgin America is categorized as a low-cost airline, but the fare can climb: You can buy an advance $149 ticket for the West Coast-to-Boston route, or you can buy a $999 first-class ticket on the same flight. "They're different products," said Cush. "We can't be the airline for everyone," Cush said in an interview. "We have a very specialized product, we have a very specialized target audience and we are going to make sure we do not catch the disease a lot of airlines do, which is to decide they can be everything to everyone and they outgrow their business model." Virgin America airplanes have an interactive entertainment system that gets rave reviews; there's soft lighting and there is a full-court press to attract the tech-savvy and business travelers. There will be Internet service on all of the carrier's flights in either April or May, the first airline that can say that. Employees at the South San Francisco office of Elan Corp., an Ireland biotech company, who have flown Virgin America on business trips report there is a "wow factor," said Makiko Krammer, the travel manager. Elan, a corporate client, is getting only a modest discount from Virgin America, she said, because it is already a low-cost carrier. "Some employees seem to be happier with Virgin America than with the legacy airlines," she said. "The executives not so much." Swashbuckling British businessman Richard Branson had the idea to create Virgin America, but he has a minority interest because the U.S. limits foreign holdings in domestic airlines to 25 percent of the voting stock and 49 percent of the capital. The carrier's core investors are Branson's Virgin Group and VAI Partners LLC, a group funded by private investment firms Black Canyon Capital in Los Angeles and Cyrus Capital Partners in New York. Carty is an investor as well. In March, about the time Frontier Airlines sought bankruptcy protection and Aloha Airlines and ATA Airlines went out of business, the investors poured an additional $100 million into Virgin America in a second round of funding. At the time, that gave Virgin America $400 million in shareholder-contributed capital. Cush won't divulge the amount of capital currently in the bank, but said, "Let's call it a couple hundred million more than that ($400 million) right now." And that, he said, is enough capital to fund the business plan for three years without requiring a trip to capital markets. The series: During the last two weeks of the year, The Chronicle Business staff is running a series of profiles on prominent business leaders in the Bay Area who are managing their way through the severe economic downturn.David Cush Age: 48 Title: President and CEO of Virgin America Most recent book read: Although I should probably say "The Art of War" or "The Prince," it was actually a copy of "Angela's Ashes" by Frank McCourt that was left in the hotel room I stayed in during Thanksgiving break in Hawaii. Favorite business maxim or quote: "If you don't know where you are going, you might end up someplace else." -Yogi Berra E-mail George Raine at graine@xxxxxxxxxxxxxxxx ----------------------------= ------------------------------------------ Copyright 2008 SF Chronicle <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".