Virgin America's business flounders as it doubles down on party planes

By Sarah Lacy , written on December 14, 2012

From The News Desk

Lesson No. 1 in business is to know who your customer is. I'd add the corollary of assuming that they aren't one-dimensional.

Virgin America has long courted a hip, tech-savvy, stylish base of customers who value design and Internet access and style over a large network of hubs and routes and the most cost-effective fares. It wasn't a surprise the airline was a hit with the startup set -- for the wifi on every flight alone. In addition, they headquartered in San Francisco, and actively courted this group in press events by putting shows like Boing Boing and Diggnation in seat backs.

The airline has limited routes, but regular flights between San Francisco and other startup, tech, and media hubs in the US -- all places this demographic likely files regularly on business. Virgin flights between San Francisco and New York are called "Nerd Birds," and earlier this year the company floated the option of buying out an entire plane to go to CES -- with your company's logo on the side of it.

Even a fool could understand why this is an attractive demographic. They fly frequently, have high disposable income, and Tweet like hell about what they like. Look at the comment stream on any Apple story to see how brand loyal they are when a brand delights them.

Hell, that's one reason I feel bullish about our site's future: Just by virtue of covering technology and startups, our demographic is highly educated, highly indexed to make more than $150,000 a year, and is right in the age sweet spot advertisers care about.

But Virgin has a weird, almost pandering view of this customer as being only those things. Buzzfeed's Jonah Peretti likes to talk about his readers as people at Parisian cafes: They may be reading a philosophy book, but they turn around to pet the cute dog at the next table. In other words, the same person is capable of liking a cat picture and reading intelligent breaking news.

For Virgin, it doesn't seem to have occurred to them that your average affluent, tech-savvy, hip customer who frequently flies Virgin for work or a weekend might also be a parent. This despite a considerable baby boom that's recently gone on in Silicon Valley.

As I first Tweeted about weeks ago, Virgin America is increasingly adopting a strangely hostile attitude towards families traveling on their planes. If they were up front about this -- say, if they limited the number of babies allowed to fly in a cabin or charged extra for a lap infant -- I'd actually be fine with that. Buying a plane ticket is a transaction, and if they chose not to accept my business, that's their right. I don't get upset when I can't take my child into bars, for instance.

Instead, the approach is much more subtle, inconsistent, and disingenuous. Virgin is happy to accept money from traveling families. But they do little things to make the traveling experience worse for them. I don't mean the crews on the flights -- to a person, the flight attendants have always been wonderful when I'm traveling with my son. It's more in the form of anti-family policies that no other airline seems to share.

Sometimes the policies are simply worse relative to other airlines, and sometimes they are worse relative to the treatment a parent would get traveling alone -- which makes little financial sense given I spend three times as much when I bring my son and nanny with me on a business trip than when I travel alone.

At Virgin America's newly rebuilt hub in SFO, they've stopped allowing families to go through the shorter security line. I travel very frequently, and this is the only terminal in the US where I've experienced this. Indeed, it's the only airport at SFO where this is the policy. And it's a relatively recent development. When I've asked SFO staff -- on several occasions -- they've said Virgin has specifically dictated the change.

Virgin has denied this saying that they merely have input into what the terminal can do, but that it's ultimately TSA's call. Given SFO doesn't have this policy at any other terminal and it was constructed specifically for Virgin's headquarters, this sounds like passing the buck to me. Virgin has stated that families can always wait in line at the terminal and ask for special assistance. But the point of priority screening is to help streamline the travel process for families, not add another line for them to stand in. If you've ever traveled with small children, it's a laughable "solution" to the problem.

And now Virgin America has opened its first dedicated lounge -- sorry, "loft" -- in Los Angeles, and there's a child ban on that one as well.

We're not just talking about just crying babies. It's anyone under 12 years of age. You could have a very mature pre-teenager that you are traveling with, who wants to sit and do her homework in a comfy spot. Even after paying two full first class tickets, you could not go into the lounge together. Is there any other first class lounge for an airline with a policy like this? That's generally considered one of the benefits you are purchasing for paying so much extra.

In an email exchange, a Virgin representative explained that the reasoning was simply that a bar was the focal point, and so they couldn't allow in minors. But 13 years old certainly isn't drinking age, so that explanation makes little sense. Furthermore, the Virgin spokesperson said the people who travel with them in that airport are overwhelmingly single and business travelers. That seems to back up my theory that this is a passive aggressive slight on those few travelers who do have families more than it rebuts it. And it backs up the bizarre one-dimensional way they view their demographic. If you have a lot of miles, you're likely to fly the same airline with your family on vacation, as you'd fly to New York on business.

Trust me when I say, that if you are nodding and saying "This is a great policy! I hate other people's kids!" -- I get it. Only a few years ago I was the person on a plane hoping the baby didn't sit next to me. Babies can't always be controlled and in a limited space, that can definitely be a frustration.

But unless Virgin's entire customer base plans on never having children, the company is basically cutting off the possibility of having life-long customers. Worse still, they'll lose their customers when they're in their maximum earning potential years.

Think about what you are doing when you chose to fly an airline regularly. You are building a lifetime value of mileage points. Points that frequently get you extra perks, like upgrades and lounge access. Imagine you spend your rocking 20s flying an airline every week for work, only to attain the highest gold status. Now, you're in your 30s and you decide to settle down. Wouldn't you be furious that you could no longer enjoy the benefits you earned -- or paid outright for -- as a customer, simply because you happen to be traveling with one of your kids?

Meanwhile as Virgin puts off families, it's tweaking its ads and messaging to be less around affluent early adopters and more around drunk partiers. If you look at the billboards on the highway that leads to VirginAmerica's San Francisco hub, you see a progression from ads depicting gorgeous sophisticates enjoying wifi and legroom to in-air clubs in full party mode. The San Francisco to Las Vegas flight is called "the party plane to Sin City," even if it leaves at 8 am Monday morning.

I'm writing this from the Friday afternoon "party plane" flight to Vegas on Virgin right now. And while one group of five girls seemed to be en route to a girls' party weekend, most of the rest of the full plane are doing work, watching TV quietly, or are families. You could hear a pin drop on this flight -- and that includes my 15-month-old sitting next to me, quietly eating a veggie pouch. Looking around, the people on this flight seem more the original incarnation of Virgin's ideal customer -- the urban, affluent, tech-oriented consumer, not drunk 21-year-olds.

All of this is even more befuddling when you consider how poorly VirginAmerica's business  is performing. The San Francisco Chronicle reported in August that Virgin America has posted a net loss of $671 million and an operating loss of $447 million. The situation has gotten dire enough that Bloomberg reports that the airline will have to cut back on flights and ask employees to take voluntary work leave in 2013. Really, now is the time to alienate loyal customers who want to pay you more money for more seats, just based on the age of the people they are traveling with?

In a New York Times article about the very serious challenges the airline faces, chief executive of the airline David Cush smugly waved them away saying, “We’re too good to fail.” That was back in 2010. Two years later, as the airline's struggles have only intensified, that very smugness seems part of the problem.

Cool doesn't make you succeed: Treating your highest-spending, most loyal customers well does. It was that top tier customer service that made everyone love Virgin America so much to begin with -- not the mood lighting and techno music on the planes.

After all, rewarding loyalty is the reason airlines came up with frequent flier programs to begin with. And the reason they don't come with restrictions on who you travel with.

[Illustration by Hallie Bateman]