Alaska Airlines and Virgin America have formally announced a merger agreement in which Alaska will acquire Virgin America for $2.6BN. No, April Fools was four days ago.
I’ll try to sum it up through a series of frequently asked questions (FAQs):
Q: Why are Alaska and Virgin America merging?
A: Put simply, Alaska wishes to dominate the West Coast market, enjoy greater access to slot-restricted airports like DCA and JFK, and expand services to Hawaii. It sees positive synergies between the two carriers, similar customer-service models, and limited route overlap.
Q: Why is Alaska paying so much?
A: That’s my question too. Virgin is profitable for the first time and only because oil prices remain low.
Q: What will the new carrier be called?
A: The new carrier will called Alaska Airlines.
Q: When will the merger be complete?
A: Alaska and Virgin hope to have a single-operating certificate by 2018.
Q: Does anything change now?
A: No, as of now the two carriers and their loyalty programs will remain totally separate.
Q: Doesn’t Alaska have a “proudly” all Boeing fleet and Virgin America an all Airbus fleet?
A: Yes, and that is certainly an argument against the synergies between the two carriers. My hunch, and it is just a hunch, is that Alaska will slowly phase out Airbus (over the next decade or longer) and all new orders will still come from Boeing.
Q: Who will run the new airline?
A: Alaska’s CEO Brad Tilden will remain CEO and the company will remain in Seattle.
Q: Are any employees expected to be cut as a consequence of this merger?
A: Not at this time.
Q: Was Richard Branson in favor of this merger?
A: No, but his voting cohort was not strong enough to overcome the merger frenzy (and perhaps at $2.6BN he should have just laughed and walked away with a tidy profit).
Q: Will Alaska Airlines become an AMEX or CITI transfer partner (like Virgin America is now)?
A: Impossible to say now, but that could be one upside to the merger.
Q: Does this mean the end of the Delta relationship?
A: That writing has on been on the wall for years now, but any potential relationship change with Delta (and American Airlines) has not been announced.
More details about the merger on a new “Flying Better Together” website which concerningly sounds like the “Flying Together” motto of the combined United – Continental. Alaska also published a blog post with corporate fluff that you can skip.
Here’s a video from Alaska CEO Tilden about the merger:
Alaska hopes that it can beef up its presence in the lucrative Washington DCA and New York JFK markets, but I bet we will see federal regulators extract some slot concession from Alaska in exchange for allowing the merger to proceed.
I think this is terrible news, even though there is (almost) always some good that comes from mergers and acquisition. Alaska had a great thing going and its new brand refresh, Emirates devaluation, and now acquisition of Virgin show a new and arguably dangerously aggressive path. Progress always marches on, so they say, but I believe Alaska bought Virgin America over fear of competition from a combined Jet Blue – Virgin America and that reactive decision may come to haunt Alaska financially.
The two carriers talk about great corporate cultures and good relationships with employees and consumers, but the cultures are very different and cannot co-exist unless the two sets of employees remain separated. We will see if Virgin dies along with its name (though CEO Tilden has indicated that the Virgin brand may stick around in some capacity).
Will Alaska finally upgrade to a cutting-edge product to better compete with JetBlue MINT, American, Delta, and United on transcon routes? No word yet, but I think it will need to in order to find success and that is actually more important than any slot acquisition.
In any case, I wish I would have purchased Virgin America stock on Friday!
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