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Virgin America is bringing transcontinental fares down to earth

You’ve heard of the Southwest Effect? It’s the decrease in ticket prices that goes hand-in-hand with Southwest’s launching service from a new airport. It’s a phenomenon welcomed by consumers, who find themselves freer to move about the country (to paraphrase one of Southwest’s clever ad tag lines), and feared by other airlines, which find themselves forced to match Southwest’s low fares.

According to Scott McCartney’s latest “Middle Seat” column in the Wall Street Journal, we should now make way for the Virgin Effect. It’s the same dynamic as the Southwest Effect, except in this case it applies specifically to the impact on cross-country fares from newly launched flights from Virgin America.

According to McCartney, Virgin’s entry into the transcontinental market has pushed the lowest New York-Los Angeles coach fares below $300, down from $350-$400. And unlike the Southwest Effect, which is limited to coach prices, Virgin’s presence extends to first-class travel. Whereas one-way first-class fares on American and United are $2,500, Virgin sells its first-class seats for $699 each way.

McCartney cites a long list of airlines, including People Express, MGM Grand Air, and Tower Air, which have gone head-to-head with the mega-carriers on the New York-Los Angeles route and failed. But he doesn’t expect Virgin to suffer the same fate, citing the airline’s “deep pockets and long-term dreams.”

Separately, if you’re wondering about the nature of the relationship between Virgin America and Virgin Atlantic, as I have been, there’s somewhat less to it than the name would suggest. Virgin Atlantic is a minority shareholder and leases the Virgin brand name to Virgin America. But Virgin Atlantic had little to do with the business model of Virgin America.

According to a recent interview with Virgin America chief, Fred Reid, Virgin Atlantic has given Reid a free hand in designing the carrier to cater to the U.S. marketplace.

So Virgin America does not reflect the irrepressible creativity of Virgin America’s own chief, Sir Richard Branson. Whether that independence is for better or for worse remains to be seen.

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