Finally, Alaska and Virgin America Takeover Approved

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It’s been a while in the pipeline, but finally, Alaska Air group has gained US antitrust approval for its planned takeover of Virgin America Inc. The deal will significantly grow Alaska’s ability to compete in the lucrative transcontinental US market. The approval led to Alaska shares closing 2% higher at $84.80, while Virgin shares were up 0.6% at $56.80. The new combined airline group will be the 5th largest carrier in the US, displacing JetBlue; with 80% of the US aviation market being controlled by the top 4 airlines.

The Details

To get approval, Alaska had to make some concessions to the US antitrust authorities. Alaska will have to reduce the width and breadth of its marketing for American tickets. The change is designed to ensure that Alaska is competing with American rather than being a partner. This measure will result in a 50% reduction of Alaska passengers on American flights. This reduction is expected to cost Alaska $60 million in lost revenues, although, with the increased revenue from Virgin America passengers, the overall impact should be in the $15 to $20 million range.

In a written statement, Renata Hesse, the head of aviation antitrust at the DOJ, stated that “Today’s settlement ensures that Alaska has the incentive to take the fight to American and use Virgin’s assets to grow its network in ways that benefit competition and consumers.”

The deal does not involve Alaska surrendering any of its assets, although the concessions on codeshare flights with American will affect 45 markets, according to Alaska.

The approval almost brings to a close the process started in April, with Alaska’s $2.6 billion cash bid to purchase Virgin America. Although the deal is still subject to court approval, this should be a formality after the approval of the DOJ. Brad Tilden, Alaska’s CEO, is quoted in a written statement: “We couldn’t be more excited about receiving DOJ clearance. With this combination now cleared for take-off, we’re thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers.”

New Opportunities for Alaska

When completed, Alaska will be able to offer some major expansion to its route network out of Washington and Oregon. The company will also be able to expand its business into JFK, Los Angeles, San Francisco, Newark Liberty International, and Reagan National Airport. The deal will boost Alaska’s revenue by 27% up to $7 billion.

The new combined company will have major hubs in Seattle, Anchorage, Portland, Oregon, as well as Los Angeles, and San Francisco. Alaska plans to keep the Virgin brand along with its corporate structures unchanged and will look at further expanding and developing both brands.

Finally, Alaska and Virgin America Takeover Approved
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Comments

  • I can’t wait till my VA miles get combined with my AS miles, this is great news!

  • I really like Alaska but given that I fly out of ORD, the merger doesn’t help much. I mean I will have access to more destinations, but I suspect I will still have to fly to one of the hubs (probably Seatle) to get to these destinations. That is highly inconvenient for me.

  • And now waiting news about the merge of the two frequent flyer programmes.
    Even though I think the details will be disclosed quite late.

  • How long do we have before Alaska starts to curtail using Alaska miles to book American Airlines flights?

    • I don’t forsee this happening any time soon. AA and AS have a well-established relationship and while the DoJ will step in to make sure markets remain competitive, I doubt we’ll see a change in earning/redemption any time soon.

  • hopefully the ratio when combining miles will be decent as Virgin miles are worth much more than Alaska miles.

  • I know Sir Branson isn’t too happy about losing his Virgin America baby and truthfully it would have been better for JetBlue to win the Virgin America bid in terms of airplane types and routes but all in all this merger should work out for the benefit of the customer especially since it sounds like it more of financial takeover rather than a full merger so all of Alaska’s and Virgin’s planes, customer services, points, etc. should all remain in place as is.

  • Still nothing on how to transfer my stranded Virgin America miles to Alaska…

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