Indeed, VX's strategy is flawed, and it's tragic that the company's executives are making six figures when they clearly don't even understand Porter's five forces, which they should have all extensively used in business school.

You'll be surprised. I mean, take at NK for instance, without a doubt a terrible airline, but after changing its strategy it has been consistently profitable. Read Revenue Management by Robert Cross, an excellent, enjoyable book that provides many examples of how just a small increase in annual revenues obtained from better RM practices can make a company profitable.

Hence my point about having more affordable, realistic F fares that would attract more passengers to buy instead of training passengers to upgrade.

In some markets, that's certainly true, but you can't generalize. Take the US-Australia market, SQ was denied the right to fly this route, but Virgin Australia and Delta were granted rights, and the F and J fares have gone down, while W/premium economy has even been introduced, so this isn't indicative of an inelastic market at all.

Some of the regression models in the articles you provided seem well done, but be careful, as some of the articles are based on European airlines, which operate under very different regulations than U.S. airlines do. Also, let's not forget that Europe was the birth place of true ultra low-cost airlines like Ryan Air as well as excellent full-service airlines like BA that has even expanded its World Traveler Plus prem Y product to all its long-haul flights.[/QUOTE]

If they are "very inelastic," how is it that all airlines are offering fares as little as $158 one-way? Clearly, this can't be true, because by definition, an inelastic market implies that customers are not sensitive to price increases and thus, to maximize revenue, it only makes sense for a company to charge higher fares. With fares that low, VX is not the only one that is missing out on higher revenues.

Great point! I think this is a prime example of Branson's flawed logic--just because VS revolutionized the industry when it introduced prem Y doesn't mean that it is going to be a successful product domestically. The whole concept of premium economy in the U.S. is just basically to keep frequent flyers happy due to the fact that the big guys now have so many frequent flyers than even top-tier flyers are often missing their upgrades. VX prices its Main Cabin Select excessively high when guests don't even get a separate cabin. To make matters worse for VX, DL already offers essentially the same seat on premium transcon flights up front, and both AA and UA have already announced that their entire premium transcon fleets will be retrofitted with flat beds in F and J, making VX's F an inferior product... quite sad considering all the efforts of VX advertising its F cabin with international business class seats when these seats will soon not be that great and VX's management needs to reevaluate this immediately.

VX can't go with the extremely high density seating of NK because it is not trying to become an ultra low-cost airline and you know that NK's fares are much, much lower. Nevertheless, I do agree with you that VX should consider putting more seats in its regular Main Cabin.