Sure enough, in April, Virgin America announced that it was adding Hawaii to its route map. A daily flight from San Francisco to Honolulu will start on Nov. 2, followed by a daily San Francisco-to-Kahului flight that will begin on Dec. 3. These are Virgin America's first two post-IPO new routes.
Last week, I spent a few minutes talking to Virgin America CEO David Cush about why the company is so excited to move into the Hawaii market. Here's what he had to say.
An aspirational destination
In our conversation, Cush referred to Hawaii as a "prime aspirational destination," particularly for travelers from Virgin America's home state of California.
In short, Hawaii is a key vacation spot where Virgin America's loyal customers want to go. The carrier has had a code share agreement and frequent flyer partnership with Hawaiian Airlines since late 2012, which has given Virgin America customers access to Hawaii. However, Virgin America wants to capture that business for itself, while also providing its distinctive service for travelers going to Hawaii.
One important rationale for offering flights to Hawaii is that it enhances the perceived value of Virgin America's Elevate frequent-flyer program. Many people who are already frequent Virgin America customers have wanted to use their rewards points for free trips to Hawaii.
Virgin America has also already started using Hawaii as a marketing tool to draw people into the Elevate program. Cush told me that sign-ups for the co-branded Elevate credit card spiked in April after Virgin America officially announced the Hawaii flights. Some of those people may not fly Virgin America much today but want to earn points with the credit card to get free flights to Hawaii. However, they may be more likely to use Virgin America for other travel once they get the credit card, since it would allow them to accumulate points even faster.
Expecting solid fares
Of course, an airline can't start flying a new route just to cater to travelers looking to cash in rewards. Award tickets represent about 10% or a little less of the passenger base for other airlines' Hawaii flights, according to Cush, and he expects a similar breakdown for Virgin America.
But Virgin America expects to get good fares on its new Hawaii routes. On a recent conference call with Wall Street analysts, Cush noted two favorable comparisons to the transcontinental market.
First, about 80% of travelers on California-to-Hawaii flights live in California, where Virgin America has a big fan base. By contrast, more than half of tickets sold on flights to New York go to New York-based travelers.
Second, airlines flying nonstop on transcontinental routes have to compete with airlines offering discounted connecting fares through a variety of hubs in the middle of the country. By contrast, there's nowhere in the middle to connect if you're flying to Hawaii.
The result is that fares tend to be higher on California-to-Hawaii routes than on transcontinental routes: and Virgin America still does well on the latter. Additionally, Virgin America has a very attractive first-class section compared with the first-class or business-class offerings other airlines have on their California-to-Hawaii routes.
Expecting a quick ramp-up
Since Hawaii is such a popular vacation destination and there is plenty of pent-up demand for routes to Hawaii among Virgin America's loyal customer base in San Francisco, the carrier expects to post strong results out of the gate. It helps that it will capture the peak holiday season demand on both routes, as well as Thanksgiving travel for the Honolulu flight.
Thus, it's easy to see why Virgin America's management has been so eager to start flying to Hawaii. And with five additional planes scheduled to arrive in 2016, Virgin America could add more flights in time for next summer if its new Hawaii routes perform as well as expected.
Adam Levine-Weinberg owns shares of Hawaiian Holdings, and Virgin America, The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.