{"id":4566,"date":"2015-12-09T13:24:20","date_gmt":"2015-12-09T18:24:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/virgin-america-an-invisibly-lean-approach-to-premium-service\/"},"modified":"2015-12-13T12:24:33","modified_gmt":"2015-12-13T17:24:33","slug":"virgin-america-an-invisibly-lean-approach-to-premium-service","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/virgin-america-an-invisibly-lean-approach-to-premium-service\/","title":{"rendered":"Virgin America: An Invisibly Lean Approach to Premium Service"},"content":{"rendered":"<p>I\u00a0am a loyal customer and shareholder of Virgin America (VA), a luxury-branded, low-cost airline\u00a0offering flights to 21 North American\u00a0destinations for business and premium leisure travelers. When I first bought stock in the IPO\u00a0last year, I\u00a0hadn&#8217;t yet taken FIN1 and had little understanding of VA&#8217;s\u00a0business model, let alone the operational\u00a0strategy driving that model. I only knew that VA was a brand and service that I loved, and that whatever\u00a0I consistently experienced on VA flights was a competitive advantage that customers and investors would recognize.<\/p>\n<p>Indeed, unbeknownst to most passengers, VA&#8217;s &#8220;secret sauce&#8221; is a set of operational design choices that deliver a high-tech, seamless customer experience and\u00a0command a revenue and <a href=\"http:\/\/www.travelandleisure.com\/slideshows\/best-domestic-airlines-for-business-travel\/2\">brand<\/a>\u00a0premium. To understand how VA&#8217;s operations\u00a0support core\u00a0elements of its customer promise, I offer a few examples of particularly strong strategy-operations alignment:<\/p>\n<p><strong>Customer Promise #1 &#8211; A Hip, Comfort-First Experience in the Skies<\/strong>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4648 alignright\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-safety-video-300x155.jpg\" alt=\"VA safety video\" width=\"300\" height=\"155\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-safety-video-300x155.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-safety-video.jpg 580w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p><span style=\"text-decoration: underline\">The Experience<\/span>: The VA in-cabin atmosphere\u00a0reflects the innovative, stylish, and adventurous\u00a0character of the Virgin parent brand. Passengers are greeted with VA&#8217;s signature mood lighting, ample legroom, in-seat WiFi\/power outlets, touchscreens for food and entertainment purchases,\u00a0and a musical safety video featuring dancing flight attendants (11 million YouTube views to date).<\/p>\n<p><span style=\"text-decoration: underline\">Operational Supports:<\/span>\u00a0VA made early investments in customer-facing technology that has elevated its offering above those of\u00a0legacy\u00a0airlines. VA&#8217;s decision to offer a lower density seating configuration delivers on passenger comfort. To offset these heavier investments in the customer experience, VA has also capitalized on low-budget, high-impact features like mood lighting\u00a0that further differentiate its service at minimal cost.<\/p>\n<p><strong>Customer Promise #2 &#8211; Premium, Uniform\u00a0Service at Competitive Fares\u00a0<\/strong><\/p>\n<p><span style=\"text-decoration: underline\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4647 alignright\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-inside-300x199.jpg\" alt=\"VA plane interior\" width=\"300\" height=\"199\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-inside-300x199.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/VA-inside.jpg 500w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/>The Experience:\u00a0<\/span>VA provides\u00a0service on or above par with legacy airlines, at\u00a0ticket prices that are competitive with low-cost carriers. Customers\u00a0receive the same premium service from\u00a0VA staff across the VA network. The airline has been able to maintain accessible pricing and consistent service while simultaneously increasing its revenue per available seat mile (RASM) by 9.3% from 2012-2013 (<a href=\"https:\/\/l3-documents.appspot.com\/brands\/VA\/prospectus.pdf?rmid=20141104_loyal_ipo_catchup&amp;rrid=812596655\">Virgin America IPO prospectus<\/a>).<\/p>\n<p><span style=\"text-decoration: underline\">Operational Supports:\u00a0<\/span>VA generates substantial cost advantages (31% lower cost per available seat mile than legacy airlines) through a\u00a0streamlined operating model centered on its\u00a0modern, fuel-efficient fleet of 55 Airbus A320 planes. Unlike its competitors, VA utilizes a single aircraft\u00a0and engine type, which translates to 1) lower maintenance costs and spare part inventory levels, 2) more efficient scheduling via interchangeable flight crews, and 3) a standardized customer experience across the fleet. \u00a0The entire fleet is financed via operating leases,\u00a0half of which are set to expire before 2022: the\u00a0leasing model\u00a0frees VA from hefty, upfront capital burdens and affords significant flexibility around leasing terms and\u00a0fleet upgrades. Outsourcing of non-core activities like ground handling, engine maintenance, and call center functions also reduces SG&amp;A expenses,\u00a0which further amplifies VA&#8217;s cost efficiencies.<\/p>\n<p><strong>Customer Promise #3 &#8211; A Business-Friendly, Reliable Route Network<\/strong><\/p>\n<p><span style=\"text-decoration: underline\">The Experience:\u00a0<\/span>VA&#8217;s route network currently\u00a0provides point-to-point, on-time service to high-traffic business and leisure destinations in the United States and Mexico. \u00a0The Elevate loyalty <a href=\"http:\/\/travel.usnews.com\/rankings\/travel-rewards\/airline-rewards\/virgin-america-elevate\/\">program\u00a0<\/a>and accompanying\u00a0<a href=\"https:\/\/www.virginamerica.com\/cms\/elevate-frequent-flyer\/partners\/credit-card\">credit card\u00a0<\/a>encourages frequent flyer retention and rewards business travelers for higher-price purchases via its revenue-based points structure\u00a0(i.e. gain points per dollar spent instead of number of miles flown). The airline&#8217;s policy of not offering free upgrades to first class, regardless of status, increases the exclusivity of this cabin and enables more\u00a0value capture from these seats.<\/p>\n<p><span style=\"text-decoration: underline\">Operational Supports:\u00a0<\/span>Thanks to its standardized fleet and point-to-point design, VA achieves high aircraft utilization rates and achieves\u00a0flight times that are, on average, seven minutes <a href=\"http:\/\/www.travelandleisure.com\/articles\/its-official-virgin-america-is-fastest-airline-in-the-country\">faster<\/a> than the industry average. \u00a0To expand capacity and network coverage, VA has engaged in measured, strategic growth to high-traffic destinations like Dallas, New York, and D.C. With a 20% fleet size increase expected in 2016, the airline is positioned to further strengthen its functional value proposition to business and premium leisure travelers &#8211; particularly on routes originating in its LA and SF hubs (see <a href=\"https:\/\/l3-documents.appspot.com\/brands\/VA\/prospectus.pdf?rmid=20141104_loyal_ipo_catchup&amp;rrid=812596655\">prospectus<\/a>).<\/p>\n<p>The design and operations of the Elevate rewards program\u00a0have the\u00a0potential to amplify loyalty among tech-savvy, ego-expressive customers. By rewarding travelers for money (not miles) spent with the\u00a0airline and its partners, the Elevate program offers multiple points of entry to travelers and differentiates itself from the long-haul-oriented rewards structures of other frequent flyer programs.<\/p>\n<p><strong>Looking Ahead<\/strong><\/p>\n<p>VA&#8217;s 2014 IPO enabled the company to de-lever significantly and to raise capital for strategic growth. The airtight operating model represents a substantial competitive edge as VA expands its\u00a0route network and\u00a0customer base.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Virgin America leverages operational smarts to deliver the hippest customer experience in the skies. <\/p>\n","protected":false},"author":447,"featured_media":4650,"comment_status":"open","ping_status":"closed","template":"","categories":[9,805,1212,717],"class_list":["post-4566","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-airlines","category-premium-service","category-section-a","category-tom-challenge-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Virgin America: An Invisibly Lean Approach to Premium Service - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/virgin-america-an-invisibly-lean-approach-to-premium-service\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Virgin America: An Invisibly Lean Approach to Premium Service - 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