Alaska closes Virgin merger
The Seattle carrier’s $2.6-billion purchase makes it the nation’s fifth-largest airline.
With the parent company of Alaska Airlines closing its deal to buy Virgin America, the now fifth-largest domestic carrier is set to do battle to be the dominant airline on the West Coast.
Alaska Air Group closed the $2.6-billion acquisition of Burlingame, Calif.-based Virgin America on Wednesday, a week after the Justice Department gave the deal its blessing.
Even though the two airlines’ operations won’t be combined immediately, travelers can buy Virgin America tickets on the Alaska Airlines website starting Monday.
Alaska Airlines executives said the newly merged airline will focus on becoming the dominant West Coast carrier, with a combined fleet of 286 planes and 18,800 employees. Together, the two airlines operate 289 daily flights from California. On Dec. 21, Alaska plans to announce new daily flights from San Francisco to Santa Ana, Minneapolis and Orlando, Fla.
The purchase of Virgin America by Alaska Air Group represents the latest in a series of airline combinations that have raised the ire of antitrust activists and came after a bidding war with New York-based JetBlue.
Industry experts predict that the two will eventually form a single carrier to compete with its larger rivals in battleground markets including Los Angeles and San Francisco.
“Ultimately this is going to be one airline,” said Seth Kaplan, founding partner for the trade magazine Airline Weekly. “Most certainly it will be called Alaska.”
The headquarters for Alaska Air Group will remain in Seattle, and Brad Tilden will still be chief executive. Ben Minicucci, chief operating officer of Alaska Airlines, will also serve as CEO of Virgin America.
The new carrier faces its strongest competition on the West Coast from Dallasbased Southwest Airlines, which is the dominant airline in most mid-size California airports such as Burbank’s Bob Hope Airport and Oakland International Airport.
“Together, they’ve become a meaningful competitor,” Kaplan said of the Alaska union with Virgin America.
In larger airports such as Los Angeles International Airport and San Francisco International Airport, he said, Alaska and Virgin America will face off with major carriers American Airlines and United Airlines.
Combined, Alaska and Virgin America control about 6% of the nation’s domestic flights. The country’s four bigger carriers — American, United, Delta and Southwest — control more than 80% of domestic flights.
Some analysts worry that snags and technical glitches could cause headaches for fliers during the consolidation of Virgin America under Alaska Air Group.
“We are positive on the combination, but [Alaska Air Group] has to prove it can integrate operations seamlessly, which has been a challenge for some other merger/acquisitions,” equity research company CFRA Research said in a statement Wednesday.
Starting Monday, members of Virgin America’s loyalty rewards program and Alaska’s rewards program can earn points on either airline’s flights. Alaska Air Group is still evaluating how to bring the two programs together.
“We plan to make this the most customer-friendly merger ever,” Tilden said.
The entire process of merging labor contracts, payroll and reservations for the two airlines, as well as bringing the carriers under one operating permit, could take a long as four or five years, said Helane Becker, an airline analyst for Cowen Group.
But Alaska and Virgin America may have an easier pathway than some competitors because they can avoid making some of the same mistakes made by many of the airlines that merged in the last decade, Becker said.
“It’s going to be a long process,” she added.
Alaska Air Group said it will continue to operate Virgin America flights under the Virgin brand while it conducts customer research on the best way to move forward. Kaplan noted that Alaska must pay a licensing fee to the Virgin Group, founded by billionaire Richard Branson, to keep the Virgin America name.
Virgin America has a reputation for popular onboard amenities, such as its signature mood lighting and touch-screen entertainment system. Alaska Airlines is known as a no-frills, discount flier with reliable ontime service.
To ensure that American Airlines continues to face competition, the Justice Department required that Alaska Airlines end its codesharing agreement with American on those flights that complete with Virgin America, including routes out of Los Angeles International Airport. Under codesharing agreements, airlines can to sell tickets to its customers on flights operated by rival airlines.