Incentives Deal of the Month
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Virgin's Dual NYC/San Franby JACK LYNE, Site Selection Executive Editor of Interactive Publishing
U.S. HQs Could Create 3,000 Jobs
NEW YORK Virgin Airlines, after tying the knot on its own sort of bicoastal marriage, is revving up its engines to fly full-throttle into the U.S. market:
Backed by London-based conglomerate Virgin Group (www.virgin.com), the newly created Virgin USA has announced that it's setting up dual headquarters in New York and San Francisco.
The winning sites' "remarkable incentives" helped set them apart in the nine-month headquarters search, Virgin officials asserted. Totaling $26 million, those subsidies "will help the airline to design a new low-cost operation that will create as many as 3,000 new jobs over the next five years," according to the corporate release that accompanied the announcements.
San Francisco will be Virgin USA's principal hub and will serve as what the company's calling its "Ops HQ." At this point, the West Coast operational headquarters looks more likely to create the most new jobs.
Chief Executive Fred Reid, however, unveiled the twin-coast decisions in the East Coast city that will be Virgin USA's corporate headquarters.
"We received a heart-warming welcome in both cities," Reid said in New York, the largest U.S. travel market.
"After careful deliberation, we felt that pairing New York and San Francisco would provide the best foundation for a business model that allows us to deliver a better experience and better value for air travelers," explained Reid, who resigned April 1 as Delta Air Lines (www.delta.com) president and COO to take the reins of Virgin's soon-to-be-announced U.S. arm.
Virgin USA, added Reid, also considering sites in Boston, Los Angeles, Philadelphia and Washington, D.C.
Virgin Predicts 1,500-1,650 SanVirgin USA will be competing with low-cost American carriers like Jet Blue (www.jetblue.com) and Southwest Airlines (www.iflyswa.com).
Fran Workers within Two Years
Both New York and San Francisco offer market-share opportunities for the new airline. Neither is dominated by a single carrier.
Virgin USA plans to rapidly become a major Bay Area employer. The Ops HQ, said Reid, plans to hire 1,500 to 1,650 workers within two years, including pilots, engineers, maintenance technicians, flight attendants and dispatchers.
San Francisco, the third-largest U.S. travel market, provides an unusually deep pool for those hires. Bankrupt United Airlines (www.united.com) has laid off thousands of Bay Area employees.
Virgin USA will be the first airline to locate its operational headquarters in California.
Gov. Arnold Schwarzenegger (R) called the airline's decision "fantastic news for California. I'm thrilled the airline has decided to take advantage of California's many advantages - a vast market, a qualified work force, a wonderful lifestyle, an excellent operating climate and a government committed to making it easier for businesses to succeed."
San Francisco Mayor Gavin Newsom (D) characterized the new corporate addition as a natural fit.
"The new Virgin-branded airline startup is a perfect match with San Francisco in so many ways," said Newsom. "The Virgin brand is unique, and San Francisco is the world's most unique city."
Golden State SupplyingCalifornia is providing a $15-million package of state and local incentives.
$15 Million in Subsidies
Virgin USA's subsidies include state-sponsored job-training programs and the creation of a new California enterprise zone at San Francisco International Airport. The newly minted zone will provide the company with various tax breaks.
In addition, San Francisco International is providing Virgin USA with free use of a number of unused gates in what was once the airport's international terminal. The terminal has been scheduled for renovations, but the work has been delayed by lack of funding.
The airport further offered the company a five-acre (2.4-hectare) site. But the company opted instead to open its new operations center in a still-unspecified existing building near the airport.
Virgin USA chief Reid has strong Bay Area ties. A San Francisco native, he graduated from the University of California at Berkeley in 1973.
Reid: NYC 'Reflects Virgin Brand'Virgin USA's East Coast corporate headquarters will initially hire 300 employees, said Reid, "creating up to 700 jobs in New York City over the next 15 years." He praised the city and state for their "innovative support services."
"Culturally," Reid added, "both New York City and San Francisco reflect the Virgin brand's fun, dynamic style, making it an ideal place for us to recruit creative, skilled employees who can deliver on our vision of outstanding customer service."
Gov. George E. Pataki (R) said that Virgin's headquarters choice "proves once again that we are the business capital of the world."
New York is providing $11 million in incentives. State and city subsidies include sales tax benefits for equipping, renovating and making ongoing capital expenditures for its headquarters facility, employee-training assistance, energy savings, and funding for marketing and community development. Virgin gets an extra $600,000 grant from the city's Job Creation and Retention Program if it locates its headquarters in Lower Manhattan.
"The airline industry is an important engine of our economic growth," said Mayor Michael R. Bloomberg (R), "and we must do all we can to support expansion as we continue to create opportunities for all New Yorkers."
Virgin expects to fly out of both Kennedy and La Guardia International Airports, Reid said.
Virgin Must Still Add AmericanIt remains to be seen, however, just when Virgin USA will actually take flight.
Investors to Get U.S. Regulatory OKs
The new airline must first secure U.S. regulatory approvals. To do that, the company will have to bring on still-unspecified American financial partners.
U.S. law requires that foreign companies can only own only 25 percent of voting rights in any domestic air carrier. American statutes further specify that foreign citizens can't own more than 49 percent of a domestic airline. Virgin Group is owned by maverick British billionaire Richard Branson (who was knighted by Queen Elizabeth in 1999).
Reid didn't name any prospective U.S. investors. He added, however, that Virgin was not interested in setting up a joint venture with an existing U.S. airline. Neither does it have any interest in starting its new line "from the shell of another [U.S.] carrier," he emphasized. "This carrier [will be] born in the USA."
The American-born company can expect stiff competition in a crowded transcontinental market characterized by cutthroat price pressures.
Virgin and Branson, though, have a history of bucking tradition and succeeding. The company currently operates three airlines: Virgin Atlantic, which flies international routes to and from the United States; Virgin Express, which flies within Europe; and Virgin Blue, which offers low-fare flights in Australia.
The U.S. line doesn't yet have an official brand name.
Virgin's American arm expects to name its airplane vendor soon, Reid said. And the company, he added, is projecting that its commercial flights will be aloft by sometime next year.
Editor's note: For more on Virgin and other corporate projects in the Bay area, check out the Northern California Spotlight in the forthcoming September 2004 issue of Site Selection. It's the final installment of a three-part editorial series on the Golden State: Look for the Central California Spotlight in the July issue, and to read the Southern California Spotlight, click here.
©2004 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.