Photographer: Michael Nagle/Bloomberg

Virgin America Almost Began as JetBlue

If Branson’s U.S. airline goes to its rival, it would merge two carriers with a very long history.

Back in the 1990s, airline entrepreneur David Neeleman was chafing under a five-year noncompete agreement Southwest Airlines Co. boss Herb Kelleher made him sign after buying his small, low-cost carrier, Morris Air.

While awaiting liberation, Neeleman bided his time by starting a software company and consulting on the launch of Southwest clone WestJet Airlines Ltd. in Canada. But he was thinking bigger: a U.S. airline based at New York’s John F. Kennedy International Airport.

David Neeleman
David Neeleman
Photographer: Chris Ware/Bloomberg

So he called Richard Branson, the world’s preeminent airline brand name, about helping to launch a Virgin carrier in America. Branson would be the minority owner, owing to U.S. laws limiting foreign control of airlines. Virgin America would fly from JFK and exploit the airport’s underused daytime hours. Neeleman, a college dropout and father of 10 who, like Branson, is revered as a visionary in the airline world, would be the boss.

“We were pretty close to getting a deal,” Neeleman said in Glory Lost and Found, a recent book on Delta Air Lines Inc. and the post-9/11 U.S. airline industry. 

Yet it wasn't meant to be, owing to clashes over Branson’s level of control and how much he’d be paid for the Virgin name, Neeleman recounted.

“I didn’t want his interference,” he said of Branson. “I just wanted his name.”

Some two decades later, the airline Neeleman did start, JetBlue Airways Corp., may swallow up the airline Branson went on to form without him, Virgin America Inc. Bloomberg News reported on March 28 that JetBlue and Alaska Air Group Inc. are vying to buy the carrier, according to people familiar with the matter.

Back in 2000, Neeleman raised $130 million to get JetBlue off the ground with service to Buffalo, N.Y., and Fort Lauderdale. Branson, after failing to get U.S. rules on foreign ownership changed, forged ahead with a minority stake in Virgin America, which is based in suburban San Francisco. Investment firms Cyrus Capital Partners, Par Capital Management, and Apex Capital LLC together own about 34 percent of the airline, which went public in November 2014 at $23 per share.

Both entrepreneurs sought upscale travelers who wanted a bit of style onboard, like Virgin’s mood lighting, and didn't mind paying a bit extra for a better experience. Branson’s U.S. venture began service in 2007, seven years after Neeleman’s startup took to the skies. Virgin America borrowed several ideas from the JetBlue playbook. One of them: Lease brand-new jets, which carry lower maintenance costs than older aircraft. JetBlue had chosen Airbus A320s as its core fleet type, the same decision Virgin America management later made.

Another critical idea: Invest heavily in the onboard product and screens at each seat. That meant free live satellite TV on JetBlue; Virgin America offered a system of music, movies, and TV, with a mix of free and pay offerings. Virgin America also incorporated into its Red inflight system an electronic ordering scheme so that passengers could purchase food and drinks from their seats, a boon to harried flight attendants, especially on longer flights.

Analysts see Virgin America as an easier fit with JetBlue, given the Airbus fleets (Alaska flies Boeing) and the overlap on routes from Los Angeles and San Francisco to the East Coast business centers. JetBlue would almost certainly be able to firm up pricing on transcontinental routes with a Virgin America takeover (and the blessing of the U.S. government's antitrust enforcers), and its increased heft would make it a bigger player at airports such as Newark Liberty, Washington Dulles, Chicago O’Hare, and Las Vegas.

As Virgin America sits on the block, the two men who tussled over its birth have largely moved on: Neeleman is running a low-cost airline in his native Brazil, slowly stitching it together with TAP, the former national airline of Portugal. Branson still has his Virgin America stake, but is focused on new business ventures, including space tourism and Caribbean cruises.

That said, JetBlue may have been on his mind back in 2000 when another Virgin-branded, low-cost airline began flying. That carrier, now called Virgin Australia, flew down under for about a decade in a bid to challenge Qantas Airways, the higher-cost incumbent. It was called Virgin Blue.

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