Virgin America: The Low-Cost, Luxury Airline Marketing Plan Presented by: Angela Romero-Monsalve Presented to: Prof. Perttula MKTG 649-3 SFSU
History of Virgin AmericaVirgin 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 thisbusiness model is to infuse each subsidiary with the Virgin brand and core values in order toinvest in different business areas. The Virgin brand is intrinsically linked to its owner, SirRichard Branson. Branson infused thecore values of being unconventional, hip, and innovativetoeach of the conglomerate’s subsidiaries with a keen emphasis on delivering high-quality productsfor a low price.1These core values are present in Virgin America because it provides high-qualitytravel at a low cost. Virgin America’s primary operations are located in San FranciscoInternational Airport and its headquarters are in Burlingame, CA.Virgin America started its flight operations on August 8, 2007 with an aim to provide low-costtravel with high-quality service between major cities across the east and west coasts, such asNew York City, San Francisco and Los Angeles. By 2012, Virgin America has expanded itstravel 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 majormetropolitan cities where the target audience, the “creative class”,frequentsforbusiness purposes,as explained in the next section “Target Audience”.Target AudienceAccording to David Cush, Virgin America’s Chief Executive Officer, the airline’s offering isprimarily targeted at the “creative class” who are young, urban, tech-savvy professionals usingsmartphones to frequent social media sites, such as Twitter, Facebook, and Wordpress. 2Thistarget 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 betweenmid 1970s and mid 1990s 3and the Generation X, who were born between mid 1960s and mid1Marketing Minds. The Virgin Brand. 2012. Web. 04/09/12.<www.marketingminds.com.au/branding/virgin.html>2Young, 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. "Bornbetween 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 cyclewhere they travel for work and/or have capital to start entrepreneurial ventures, which requiretravel. The main reason why its operations are located in San Francisco is to cater to hub oftechnological start-ups in Silicon Valley. As a marketing strategy, Mr. Cush aligned the productoffering with the primary target market. Because Silicon Valley people are computer-savvy, andneed to work and multitask during the flight, Virgin America offers in-flight Internet, gamingplatforms, and plugs for electronics. Also, the “creative class”will pay for comfort, luxury andhigh quality service, which is why Virgin America offers customized leather chairs, amplelegroom and a friendly staff. 4Lastly, the Quantcast demographic analysis reveals that Virgin’starget market is: males and females between the ages of 25-44 who are affluent and have at leasta college education, which parallels the “creative class” target market description.5ProductVirgin America offers low-cost travel with high-quality service, providing premiumentertainment and productivity optionswhile being trendy and hip.To fulfill the low cost brandpromise, virgin follows a low-cost airline business model, having only one type of aircraft, theAirbus 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 andpremium entertainment offers it. This touch-screen platformuses theRed™ system, which is the most sophisticated entertainment system in the airline industry,offering music, movies, and games.For productivity purposes, Virgin created a partnership withGoogle to provideGogo® in-flight Internet. Theairplanes also come equipped with Ethernet jacksand USB plugs in every seat because Virgin wants itspassengers to use their productivity devisesto 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 attendantsare 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>5Quantcast Corporations, 2012. . Web. 04/09/12. <www.quantcast.com/virginamerica.com>
PriceVirgin’spricing is in the lower-end of the spectrum, because its price offering is similar toSouthwest, the leader in low-cost airtravel. Virgin America offers airlines tickets from SanFrancisco International Airportto 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 lowvariable cost, which is why airlines aim to maximize revenues by engaging in pricediscrimination. Figure 1: Price Discrimination depicts several price pointsthat Virgin Americaoffers for the same flight from San Francisco International Airport to John F. KennedyInternational Airport. The main categories are: Main Cabin, Main Cabin Refundable, InstantUpgrade 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 ticketallows for flexibility. This feature appeals to businesses because business meetings are oftenrescheduled or because other coworkercould fly instead. On the contrary, leisure travelers rarelyreschedule vacations. Figure 1: Price Discrimination Source: VirginAirlines.comAlso, there is three price points: Main Cabin, Main Cabin Select, and First Class, whichcorrespond to three different locations in the airplane and an increasing amount of amenities. Forexample, the Main Cabin offers for-pay entertainment, for-pay food and drinks, and no freeluggage check in. In contrast, First Class has exclusive reclining chairs, and unlimited freeentertainment, food, drinks, and checked bags.
DistributionThere are two main distributions channels for Virgin America’s tickets. The main one, whichaccounts for 70% of the Airline’s ticket revenue is the company website, Virginamerica.com. 6The other 30% comes from online travel agencies, such as Travelocity or Expedia. Virgin’stickets sales are mostly online because the “creative class” gravitates towards the web to do itsshopping, instead of going to brick-and-mortar travel agencies.Sporadically, Virgin Americadistributes its plane tickets through discount websites, such as Grouponor Living Social. Virginsells its tickets via discount websites because of its cost structure. Because it has high fixed costand low variable cost, it is preferable to get more passengers in the flight at a discounted ratethan losing that revenue. Figure 2: Domestic Operating ProfitCompetitionThe airline industry is characterized by having high fixedcosts and fierce price competition. As a result, airlinescreated several alliances as means to increase revenueand efficiency while reducing costs. There are threemajor airline alliances:Oneworld with a market share of22.7%, SkyTeam with 28.3%, and Star Alliance with themajority of the market share of 37.6%.7 Source: CAPAThis 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 itcomes to reducing cost via increased purchasing power or increasing revenue via costumersharing, as the big three alliances do. Virgin America’s disadvantage is shown in it lower profitscompared to airlines that are members of alliances. Virgin America’s operating profit, shown inblue, is often at the bottom when compared to Spirit Airlines, Alaskan Airlines, Jet BlueAirways, and AirTran, demonstrated by Figure 2: Domestic Operating Profits.86 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>8CAPA. “Virgin America’s David Cush says the airlines unique formula will drive success”. Centre For Aviation, 13thSeptember, 2011. Web. 04/09/12. <www.centreforaviation.com/analysis/virgin-americas-david-cush-says-the-airlines-unique-formula-will-drive-success-58673>
PromotionBecause Virgin America’s target market isthe “creative class”-- young, urban, tech-savvyprofessionals using smartphones to frequent social media sites, such as Twitter andFacebook--thebest place to reach them is online. For promotions and advertising, Virgin America is mainlyactive in 2 social networking sites: Twitter and Facebook.Twitter is the main promotional vehiclefor Virgin America. It aims to attract new customers in the tech-savvy market with PromotedTweets, 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 9increase its revenues via more customers. Moreover, Virgin did a Twitter promotion throughPromoted Tweets called “Fly Forward, Give Back”, which resulted in the fifth most successfulday in ticket sales. 10Virgin America aims to create brand awareness, engage customers, and increase emotionalbondsby being highly responsive with its followers. After analyzing Virgin America’s Twitterstream, I concluded that it respond to all the Tweets from followers, which is highly unusual fora company. Virgin America embraced Twitter as a vehicle for guest services, a social mediastrategy never seen before in the airline industry. For example, if a guest misses a flight andTwits 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 attemptto increase brand loyalty because Virgin hasover 200,000 followers.While followers don’ttranslate into engagement, Virgin has over 5,000 people “talking about this”, which represent thenumber of people actively engaging with the company.Virgin’s FacebookPage showcases events,promotions, new routes and links to other less important social media sites, such as Instagramand Pinterest. Because Virgin America is positioned as a high-tech airline, it wants to attract atech-savvy target market, which socializes on the web. As a result of the direct engagement viasocial media, Virgin was able to achieve a Net Promoter Scoresimilar to Apple’s, which enjoyshigh loyalty among its customers.A Net Promoter Score is a marketing tool used to measure9 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>
customer’s loyalty. In conclusion, Virgin has turned one-time customers to loyal fans throughsocial media engagement. 11In addition, Virgin America has refrained to use TV ads because it isa startup airline with a small target market that doesn’t have much reserve capital. On the otherhand, TV ads are designed to reachthe mass markets and are extremely costly. As a result, a TVcampaign would not serve Virgin’s goal, which is whyVirgin has notused TV ads. Figure 3: Event PromotionGuerrilla MarketingVirgin America engages on guerrilla marketing campaigns thatseamlessly blend several marketing channels, such as the “Fly TheBeard” campaign. Virgin America and the San Francisco Giantspartnered to create a plane that has a beard in honor of baseballstar,Brian Wilson. The campaign was promoted via a You Tube video Source: Virgin’s Facebookbecause You Tube is another website that is frequented by the creative class. Another componentof the campaign is event marketing. Virgin set up a footprint that looked like an airplane in frontof AT&T Park. It also had photographers taking pictures of people in a fake beard behind a cutout that resembles Virgin’s iconic print ads, see . The goal of the campaign is to take a picture ofthe bearded plane and Tweet it to@VirginAmerica using the #FlyTheBeard hash tag. Virginselects the best pictures every month and the winners get free flights, andVirgin America ClubLevel passes.12There are several reasons why Virgin did this campaign. First, partnering with a high profileorganization like the San Francisco Giants increases brand awareness. Moreover, a Quantcastdemographic analysis reveals that the Giants fans are males between the ages of 20-35 who areaffluent and have at least a college education. 13 The Giant’s target marketdemographicsparallelVirgin’s demographics closely, which illustrates that Virgin was aiming togain customers from the Giants because these two companies have a similar target market.Breath of Fresh Airline Multimedia Campaign11Bush, 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>12Virgin America. 2012. Web. 04/09/12. http://www.virgin.com/travel/news/fly-the-beard-with-virgin-america13Quantcast Corporations, 2012. . Web. 04/09/12<http://www.quantcast.com/sanfrancisco.giants.mlb.com>
Figure 4: Print Ad Virgin’s main campaign was called a “Breath of Fresh Airline” and it was introduced in 2011. This multi-media campaign usesonline banner ads, You Tubevideos,print, and out-of-home billboardsas its main pillars.14However, 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.Source: Virgin’s Website Figure 5: Out-Of-Home 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 adsshow 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 Source: Virgin’s Website “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 Internetbecausethat 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. 14VirginAmerica. 2012. Web. 04/09/12. < http://www.virginamerica.com/press-release/2011/virgin-america-launches- breath-of-fresh-airline.html>