Virgin America has announced its intentions to order 60 new Airbus A320 aircraft with 30 being the A320NEO (New Engine Option) with deliveries taking place until 2019.  That means Virgin America will triple the size of its fleet (or more) over the next 8 years. 

While VA already signaled that they planned to buy 40 new aircraft, an additional 20 reflects a certain confidence that it is going to be earning solid profits going forward.  I’m sure that some of the new aircraft (probably the last ones) will replace some original aircraft in this scheme but it reflects a plan for heavy growth between now and the end of the decade.

Let’s put that growth in perspective.  jetBlue has about 160 aircraft presently serving 63 destinations after being in business for about 11 years.  In that fleet, there are about 115 A320 aircraft (with no orders on the books) and 45 Embraer E-190 aircraft (with an additional 60 aircraft).  I use jetBlue as an example because they are somewhat similar airlines with similar service products. 

So, Virgin America thinks it can grow its mainline fleet to about the same size as jetBlue over about the same period of time.   However, jetBlue got to its size in part by using the E-190s to “feed” traffic into their system from smaller destinations.  This would seem to imply that VA will have to think about a similar strategy. 

I suspect VA will start looking at how to build its network around its focus regions.  There is some opportunity on the West Coast but I think they’ll have to look to feed their system in other places as well.  Places such as DFW, Chicago and on the East Coast into New York City and Washington D.C.

Why order now?  Well, Virgin America is solidly in the Airbus camp and now they know what Airbus will be doing with its product line for the next 10 to 15 years.  With that knowledge in hand, it was an opportune time to make that order since Airbus will be very interested in getting airlines onboard with their decision to re-engine the A320 series.  In other words, they probably got a good deal. 

Why the A320NEO?  That goes to efficiency.  Again, VA knows what Airbus’ strategy will be for the next decade and a half and that means they know what kind of efficiency will be offered.  It only makes sense to get the most fuel efficient aircraft possible when competing here in the United States.  Even those that aren’t NEO aircraft will give VA an advantage in that they’ll be new engines with the latest upgrades available and that translates into money saved against the competition.

And they get one more advantage:  They’re at the head of the line when it comes to other potential buyers in the United States such as Delta or United airlines.   Virgin will be receiving the best, most efficient aircraft available as soon as or even sooner than most of its competition.  American Airlines has no new plans for aircraft other than to keep taking on 737-800s at present.  So on VA’s transcontinental flights, it will likely have the most fuel efficient aircraft available and having that advantage in that competitive marketplace means a greater chance of profitability and competitive advantage when it comes to fares.

Virgin has 2 or 3 years to go when it comes to considering how to feed its network with smaller aircraft.  I wouldn’t look for an order in that area for some time to come.  However, when they do start looking, I suspect the Bombardier CS series will be strong contenders for that airline if VA selects the new Pratt & Whitney GTF engines since Bombardier is offering a similiar engine on that aircraft product line.

Filed under: Airline Fleets by ajax