Study: Virgin America could depress US fares

Virgin America could save U.S. passengers $786 million per year, or $88 per roundtrip, in reduced fares once the airline becomes certified as a new entrant in the domestic airline market. According to a study conducted by the aviation and economic research firm The Campbell-Hill Aviation Group Inc., the introduction of low-fare service by Virgin America would reduce market fares, increase service frequency and capacity, and stimulate new passenger traffic.

Of the $786 million in annual fare savings, approximately 84 percent of this would be a benefit to current passengers. Virgin America also could create 3.3 million new passengers, attracting customers who are more price sensitive.

The study examined the expected national and regional benefits of Virgin America’s potential services on fares and passenger traffic for a theoretical set of markets based on service and fleet objectives already announced in public documents.

“If crowded planes and higher air fares this summer are not enough evidence, what Campbell-Hill has found confirms that the U.S. market needs another airline,” said Virgin America CEO Fred Reid. “Whether it’s lower fares, better service or simply more consumer choice, Virgin America can’t wait to bring these tremendous benefits to U.S. consumers. We are pleased that the DOT, as promoter of consumer interests in the U.S. aviation market, recognizes what is at stake and is moving forward with a timely review of our application.”

The San Francisco market and Bay Area residents stand to benefit the most, according to the study, with Virgin America’s presence saving San Francisco passengers $402 million each year, and stimulating 1.7 million new passengers in and out of the market.

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“These tremendous direct cost and service benefits to flying consumers will have a ripple effect across regional economies,” said Brian Clark, Virgin America vice president of planning and sales. “Increased passenger traffic in turn stimulates spending on tourism and local businesses, bringing additional benefits to communities we hope to serve.”
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