Alaska Air confirms plans to acquire Virgin America – USA TODAY
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The deal is reportedly worth $2.6 billion. Video provided by Newsy
One of the nation’s oldest airlines announced plans to buy one of its newest Monday, when Alaska Airlines’ parent company confirmed a $2.6 billion deal to acquire upstart Virgin America.
The move breathes life into a wave of industry consolidation that appeared to have ended after the American-US Airways merger that closed last year.
The latest deal would bring together Seattle-based Alaska Airlines and San Francisco-based Virgin America, combining airlines that each enjoy strong customer service reputations into a single West Coast juggernaut.
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It also comes after four mega-mergers since 2008, deals that took eight of the USA’s biggest airlines and combined them into four larger carriers that now collectively control about 80% of the U.S. market.
“For an airline like Alaska, that says scale is relevant,” Brad Tilden, CEO of the Alaska Air Group that includes Alaska Airlines, said about the backdrop under which his company made a move for Virgin America.
Alaska Airlines, which has roots tracing to 1932, is the dominant carrier in the Pacific Northwest. It’s the busiest carrier at both the fast-growing Seattle-Tacoma International Airport and at Oregon’s Portland International.
Virgin America began flying only in 2007, launched with the partial backing of British tycoon Sir Richard Branson and his global Virgin brand. The airline has become a major player in California, establishing its biggest hub in San Francisco as well as another in Los Angeles.
Virgin America began putting out feelers in March to test the waters for a potential buyer, which is when Alaska Air initiated its takeover bid. There was also a competing offer from JetBlue, but Alaska Air won out after what Tilden called a “hard-fought competition.”
“We didn’t really set out to sell the company when we were approached by Alaska,” Virgin America CEO David Cush said on a Monday morning call to discuss the merger with investors and journalists. “But we are happy with the outcome of this transaction. The price paid is a big win for our shareholders. Our employees will join a vibrant, well-run company. Being part of a bigger airline offers greater job security in a highly consolidated industry.”
The deal is valued at $57 per share in a deal worth about $2.6 billion.
Jim Corridore, an analyst with S&P Global Market Intelligence, says that the deal is great for Virgin America and would likely be a boon — eventually — for Alaska investors as well.
“It’s a great move for Virgin’s stockholders,’’ he says. “Alaska is paying a very high price for these assets but they were forced into a bidding war with JetBlue. I think it’s going to be a great deal for them but take a little bit for the payoff to come, based on the price they paid.”
Alaska Air said its acquisition of San Francisco-based Virgin America will give it a “solid foothold in California,” the USA’s most populous state.
Tilden pointed to San Francisco International, where he said Alaska Airlines currently flies on only one of the top 10 routes from the airport. “With this acquisition, we’ll fly to all 10,” Tilden said. Also underscoring the importance of California, Tilden said picking up Virgin America’s transcontinental routes affects “how much customers living in California can concentrate their travel with us.”
“Our goal is to be the premier airline for people who live on the West Coast,” Tilden said, calling Virgin America’s California holdings “really valuable real estate.”
“It gives us a shot at being your go-to airline if you live anywhere up and down the West Coast.”
Combined, Alaska Airlines and Virgin America said the combined company would have 1,200 daily departures, with hubs in Seattle, San Francisco, Los Angeles, Anchorage and Portland, Ore. Its headquarters will remain in Seattle.
Virgin America’s Elevate frequent-flier members would be “welcomed” into Alaska Air’s MileagePlan program. And Alaska Airlines said it intended to acquire a single operating certificate for the two carriers.
Beyond that, however, the fate was not immediately clear for the Virgin America brand or for its fleet of Airbus aircraft.
Alaska Air currently uses only Boeing 737 jets for its “mainline” service, though regional partners Horizon and SkyWest fly Bombardier turboprops and regional jets for Alaska Air.
Alaska Air Chief Operating Officer Ben Minicucci said during the call it was too early to know whether Alaska Air would keep Virgin America’s Airbus jets or look for ways to get rid of them.
“We’re going to continue to operate the Airbus fleet in the near future. We’ll decide in time whether we go to a single fleet or if we’ll operate a dual fleet,” Minicucci said.
Similarly, the fate of the Virgin America brand also remained uncertain. Alaska Airlines pointedly said its own brand — recently refreshed with an updated logo and airplane paint scheme — would remain.
But Alaska Air officials were less committal about the Virgin America name. They acknowledged it had become a “powerful” brand with strong customer loyalty but said only that Alaska Air will consider ways to incorporate the brand “down the road.”
The most pressing next step for Alaska Air officials may be winning regulatory approval for the deal. Alaska Air and Virgin America overlap only on a small number of routes, usually a key criteria looked at by regulators in airline mergers. However, the spate of mergers during the past decade may leave Alaska Air and Virgin America facing hostile attitudes from Washington regarding yet another merger.
Kyle Levine, Alaska Air Group’s vice president of legal and general counsel, said the company had not yet approached regulators about gaining approval for the deal.
“We know they’re going to take a close look at it. We think we have a good story to tell about us increasing competition and better positioning us to compete against much bigger carriers,” he said, noting there is “very little overlap” between the two airlines’ route networks.
Analyst Corridore predicted Alaska Air will also will get a green light from regulators, who have already greenlighted much bigger mergers like United-Continental, Delta-Northwest, Southwest-AirTran and American-US Airways.
“It will be shocking if the regulators chose to focus on Alaska/Virgin rather than American/US Airways,’’ Corridore says. “So I don’t think that will be a problem.’’
But not everyone predicted smooth sailing. Jaime Baker, an airline analyst at JP Morgan, suggested regulators may take a tougher stand than with previous mergers. He noted that the Department of Justice — which had previously signed off on the past four big mergers — opened an antitrust probe last year investigating several U.S. airlines for possible collusion,
“Setting aside empirical analysis, the reality that the DOJ and DOT are investigating recently merged entities shouldn’t be ignored,” Baker warned in a research note.
Contributing: Charisse Jones
Alaska Air confirms plans to acquire Virgin America – USA TODAY