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Cheap Frills

Cheap Frills

How many high-profile CIOs can say they got their job through a free ad?

First came Southwest: no frills. Then JetBlue: a few more frills. Now Virgin America: low fares, deluxe service and a new approach to IT

How many high-profile CIOs can say they got their job through a free ad on Craigslist? Probably not that many. But that's exactly how Bill Maguire became vice president and CIO of Virgin America.

Which makes sense. Like any start-up, Virgin America must do a lot with a little, including fishing for IT talent in Craigslist's free pool. That said, Virgin's resources - $US177.3 million in funding and a licence to use the Virgin brand name, purchased from investor Richard Branson's Virgin Management Ltd - are a bit bigger than Craig Newmark's were when he began his eponymous community forum a decade ago.

But, again like Craigslist, the upside is big. Virgin America's plan is to create a new kind of low-cost carrier. Its fares will be in line with the sub-$US300 cross-country round-trips offered by the JetBlues of the industry, but it intends to deliver a customer experience more along the lines of Singapore Air, the first to offer such perks as in-flight high-speed Internet service.

Virgin America executives say they want their airline to embody the next step in the evolution of bargain flying.

They're a bit closed-mouthed about many of the details of what exactly that means, at least until they start selling seats early next year. But they have revealed the plans for their first route (San Francisco International to New York's JFK), their fleet (34 brand-new, fuel-efficient Airbus A320s) and certain in-flight amenities (like seats built by Italian race car seat maker Recaro with thin backs to provide more legroom). They plan to create a simplified fare structure with just a handful of price points that consumers will understand, and they hope to sell 70 percent or more of their tickets through the Web.

And their IT strategy will be, of course, lean and mean.

The Virgin Vision: IT Is Key

Virgin America knows its ability to offer those differentiating amenities to a price-conscious public will depend in great part upon keeping IT costs low. Maguire, whose background features a flair for squeezing pennies until they beg for mercy, will have at his disposal a generation of technology that was not available even as recently as JetBlue's 2001 launch. He plans to deploy a mix of lower-cost (and in some cases no-cost), efficient and agile systems to create the foundation for Virgin's "low-cost, high value" business proposition.

"We're coming along at a time when technology - if you understand how to use it - is a lot more lightweight, fast and flexible," Maguire says. "You don't have to put in a bunch of mainframes to run huge systems like United and American had to."

Maguire, who became Virgin's CIO in January, knows the risk in embracing emerging technologies. But, as his colleagues at the airline are quick to point out, launching Virgin America is itself a huge risk - 160 air carriers have entered bankruptcy since the 1978 deregulation of the industry, and most never emerged. "The mortality rate is extremely high," says Tim Sieber, VP and general manager of airline consultancy The Boyd Group. "I typically tell people: If you start an airline, use your ex-wife's money."

"This whole venture is a risk," echoes Todd Pawlowski, Virgin's VP for guest services and airports, who joined the Virgin executive team three years ago. "If you're risk averse, you don't come to work on this project and you certainly don't work in the airline business. You have to be willing to push the envelope." And that's exactly what Maguire intends to do.

"As CIO, how often do you get an opportunity to build infrastructure from scratch?" Maguire asks. "I get to have a huge impact."

Experience Required

UK entrepreneur Sir Richard Branson has been trying to figure how to break into the US airline industry since the mid-1990s. He founded the full-service transcontinental carrier Virgin Atlantic in London in 1984, but after seeing the success of Southwest Airlines he set his sights on new ways to exploit the low-cost carrier model. That led to his launch of Virgin Blue, a basic-service, Southwest-style carrier in Australia in August 2000. He also considered teaming up with David Neeleman (who in 1993 sold his first low-fare start-up, Morris Air, to Southwest for $US129 million) to license the Virgin brand in the United States. But those talks never bore fruit, and Neeleman went on to found JetBlue, which sought to keep fares low like Southwest but "bring the humanity" back into flying with creature comforts such as live TV, satellite radio and wider seats. Inspired by JetBlue's success, Branson's consultants began examining the prospects for a US carrier that would combine cheap fares with high-end amenities.

The first executive to come aboard the as-yet-unnamed venture was CFO Bob Dana, an investment banker, followed soon after by Pawlowski, who came from Virgin Atlantic's US operations. They developed a bare-bones business plan that was promising enough to attract $US177.3 million in start-up capital. VAI Partners was created to become the majority owner of the company (the US Department of Transportation has rules about foreign ownership, and so Branson maintains a minority interest, and no corporate role). Fred Reid, who previously oversaw operations at Lufthansa and who spearheaded the launch of low-cost Delta subsidiary Song before leaving his post as president and COO of the bankrupt carrier in early 2004, became Virgin America's CEO later that year.

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