Virgin America Inc., the low-cost airline partly backed and fully branded by British entrepreneur Richard Branson, launched on Wednesday with a splash of publicity -- but found its first flight delayed by a midsummer New York storm.

The delay was a timely reminder for the new airline -- which offers leather seats, mood lighting, entertainment systems, first-class seating and low fares on point-to-point flights -- that the U.S. domestic market is fraught with difficulties.

The American airline industry is abysmal, Virgin Group founder Branson said at New York's John F. Kennedy Airport before passengers boarded the first flight. The reason they go bust is they don't offer any service to the customer.

U.S. carriers such as Delta Air Lines Inc. and Northwest Airlines Corp. have only just emerged from lengthy restructurings in bankruptcy as they cut costs to deal with higher fuel prices and tougher competition.

Unfortunately for Branson, Virgin America's first flight to San Francisco missed its departure time after a downpour hit New York, flooding subways and stopping traffic.

What a strange day, said Branson. I think half our guests haven't made it to the airport.

TOUGH BATTLE TO LAUNCH

Like JetBlue Airways Corp. seven years ago, San Francisco-based Virgin America is accenting hip customer service on flights aboard new Airbus A320 aircraft in an attempt to build loyalty in an industry with sharply deteriorating reliability and customer satisfaction.

Virgin America spent nearly two years under regulatory scrutiny and won approval to operate from the U.S. Transportation Department only after promising to restructure its ownership and board and distance itself from Branson's Virgin Group, which runs Virgin Atlantic Airways Plc.

It's been a tough battle to try to get Virgin America up and running, Branson said on Wednesday, reflecting on the opposition he faced from competitors and regulators.

Several U.S.-based carriers and unions opposed Virgin America's entrance on grounds that Branson would control the company in violation of a U.S. law that limits control of airlines to U.S. citizens. Virgin Group holds a minority stake in the company, which the law permits.

Transportation authorities also worried that Virgin America Chief Executive Fred Reid, a veteran U.S. and international airline executive, was too close to Branson and overseas interests and insisted he be replaced within months after Virgin America's inaugural flight.

Reid did not make it to the JFK launch party before the flight because of the bad weather.

EXPANSION PLANNED

With Virgin's bumpy regulatory ride behind it, the carrier is now focused on building its business with $44 one-way base fares between San Francisco and Los Angeles and $139 between San Francisco and New York. First class on the New York-San Francisco route is $389 one-way.

JetBlue, AMR Corp.'s American Airlines and other rivals are competing on price, but JetBlue has no first-class seating and bigger airlines risk irritating frequent fliers -- who relish upgrades -- by filling their premium seats, especially at a discount.

Some industry experts believe Virgin America will capitalize on unprecedented customer dissatisfaction and trigger a service war, rather than a fare war.

This is going to be a service leader, said fare guru Terry Trippler, a Minneapolis-based consultant.

Trippler said Virgin America will automatically have an advantage on transcontinental flights simply because it is based in San Francisco -- the city's only major hometown airline. They will get those originating passengers. That will give them a bump. It will give California a bump, he said.

We'd love to be able to fly most Americans to most major cities, said Branson before the first flight, promising rapid expansion of the new airline, which he said would ultimately operate a fleet of 100 planes.

Dave Barger, chief executive of New York-based JetBlue, told analysts in a conference call two weeks ago that Virgin America overlaps on 10 percent of JetBlue's routes. We're not going to take it lightly, he added.

(Reporting by John Crawley, Justin Grant and Bill Rigby)

Richard Branson