Alaska Airlines is demanding a public inquiry to clarify the ownership status of rival airline Virgin America. The allegation is that Burlingame CA based, low-cost carrier Virgin America is not 75% owned by US citizens, as is required for domestic airlines.

Virgin's domestic skies?

A report by Andrew Clark in The Guardian UK says that “in a formal petition to the department of transportation, Alaska Airlines has raised concerns over Virgin America’s complex structure in which two hedge funds – Black Canyon Air Partners and Cyrus – have effective control of the business. The petition asserts that the two hedge funds have “put” options allowing them to sell their shares to Branson’s London-based Virgin Group. Alaska Airlines claimed that Cyrus “may well” have decided to exercise this option, handing a sizeable chunk of control to Branson’s empire.”

Virgin America, for it’s part, denies the charges, and says that no changes have been made in the ownership structure which have not been intimated to, and approved by, the DoT. And that if there are any changes made in future, they would be following the requisite compliance procedures.

Alaska Airlines’ main concern here is that Sir Richard Branson is using his considerable financial muscle to unfairly keep the loss-making Virgin America afloat. While 80 other airlines in similar situations either closed down, went bankrupt or were eaten up by bigger rivals in 2008, Virgin America was still able to weather the crisis triggered by high fuel prices and recession induced slowdown in travel.

Joe Brancatelli, Portfolio.com, confirms that Richard Branson is looking for new investors for Virgin America. “According to statistics released last week, the airline lost $175.4 million in the first three quarters of 2008 on revenue of just $259.6 million. In the third quarter, Virgin America’s unit revenue (8.8 cent per mile) was far below the industry norm and its costs (13 cents per mile) far above the industry average. And it had just $25.4 million in cash. Needless to say, Branson, a British citizen restricted by U.S. law to minority-stakeholder status, is looking for new domestic investors.”

If anything, they’re actually spending more money, and adding routes and services for customers. Virgin America spent half a million dollars sprucing up their facilities at Boston’s Logan International Airport’s Terminal B. Boston is Virgin’s eighth destination, behind San Francisco, Los Angeles, New York, Washington, D.C., Seattle, Las Vegas, and San Diego.

And they’re starting service to Orange County, their ninth national destination, in April 2009. They’re also preparing a code sharing alliance with Virgin Atlantic Airways Ltd. and Virgin Blue, giving the domestic carrier global reach for the first time.

Considering all this, Alaska Airlines is definitely right to petition the DoT to separate Virgin America from Branson’s ‘protective custody’. But if America pushes this meme a bit too hard, it could end up as a transatlantic trade dispute between the United States and Europe. Best thing to do, for now, would be to politely ask Branson to step back and let Virgin America compete on fair terms with other budget carriers.

And maybe Alaska Airlines would do well to add mood-lit cabins, in-flight internet and some glitzy toys and gadgets to their flights, if they really want to call it a fair fight.

Photo courtesy Virgin America.