New Low-Cost Airline Stirs Up Controversy

May 31 - KGO (KGO) -- Effort to start a new, low-cost airline has set off a big controversy locally and in Washington over its partial foreign ownership. The battle is over Virgin America airlines, which is one-quarter owned by British billionaire, Sir Richard Branson.

The Bay Area courted Virgin America to be its home base because the airline pledged to hire 2,000 employees and contribute close to $400 million in economic benefit.

Now it's grounded because it's caught up in a firestorm of opposition. One of the most vocal is Continental Airlines. In its filings with transportation officials, Continental says Sir Richard Branson's 25-percent ownership raises questions about Virgin America being American.

Fred Reid, Virgin America CEO: "We have a minority investor with 25-percent rights of voting on the board of directors, U.S. investors with 75-percent votes, U.S. management and a U.S. chairman, a U.S. CEO. That's all according to the law, so you know, friendly investment from a friendly country is really good for America."

Reid has taken his case to the court of public opinion, speaking to a group of Cal alumni from the Haas School of Business.

Over 3,000 letters have been filed in support of Virgin America -- many of them from Bay Area business and political leaders, including Mayor Gavin Newsom, Safeway and the San Francisco Giants.

ABC7 aviation analyst Ron Wilson believes opponents are trying to stifle competition.

Ron Wilson, ABC7 aviation consultant: "When other airlines come in, especially low-fare carriers, and start the competitive nature of the business and start cutting fares and that sort of thing, then other airlines have to meet that cost, and they don't like that. They'd rather make a little more money."

Wilson argues there's room for new, low-cost airlines. Six years ago, 72 carriers flew out of SFO. Today, it's down to 49.

Haas Business School Dean Tom Campbell says the marketplace will decide if there's room for Virgin America.

Tom Campbell, Haas School of Business Dean: "The best way to determine that is to let the individual carriers compete. The low-cost, better service will prevail. That's the American way as opposed to having the government select who we're going to favor and who we're going to keep out."

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