Alaska Airlines Expected to Buy Virgin America, As Soon as Monday

A week and a half ago word got out that Virgin America was shopping itself to potential buyers. There was plenty of speculation about who those buyers could be.

I suggested right away that I thought the most logical would be JetBlue.

  • Both airlines offer a somewhat premium ‘experience’
  • Virgin America’s strength is on the West Coast and JetBlue is strongest on the East Coast
  • Both carriers are largely operators of Airbus aircraft

While some speculated it could be Delta, Hainan Airlines, or Etihad, on Monday it was reported that both JetBlue and Alaska were bidding for the airline.

Now it appears that Alaska Airlines is close to a deal to acquire Virgin America, according to the Wall Street Journal (HT: @Jack_McKenize.)

Alaska Air Group Inc. has emerged as the likely winner of an auction for Virgin America Inc., people familiar with the matter said.

Alaska Air is nearing a deal to buy Virgin America, after beating a rival bid for the airline by JetBlue Airways Corp., the people said.

There is no guarantee Alaska ultimately will clinch the deal, but if it does, an announcement could come Monday, they added.

Virgin America shares are up about 28% since the takeover speculation began. The airlines market cap grew from about $1.15 billion to $1.47 billion. The expected acquisition price is reportedly in the neighborhood of $2 billion.

Alaska Airlines runs a fantastic operation. They’re one of the most on-time airlines and one of the most profitable. That’s remained true even as they’ve grown substantially and fended off Delta’s attack on their home base of Seattle.

Alaska is a Boeing operator, already strong in the Pacific Northwest and also Los Angeles. Virgin America gets them a San Francisco hub (while Virgin America doesn’t have a lounge there, Alaska’s smaller operation gets Board Room members access to Cathay Pacific’s lounge) but perhaps more importantly access to operations in congested airports in the Northeast and also at Dallas Love Field.

It’s not as obvious a fit as with JetBlue, for instance there’ll be a lot of overflying of the San Francisco hub up and down the West Coast. However there’s unlikely to be significant anti-trust concerns given that both carriers are smaller players in the US domestic aviation market. Whether JetBlue or Alaska was going to be the acquirer the deal probably makes them a more formidable competitor against the Big 4 of American, Delta, United, and Southwest rather than reducing competition in most markets.

For consumers, if we assume that Virgin America is ultimately folded into Alaska Airlines:

  • The unique Virgin America onboard product likely becomes less differentiated.

  • The Elevate program presumably gets folded into Mileage Plan.

Elevate points are a somewhat deflated currency worth roughly two airline miles. Account balance transfers will need to reflect that.

Virgin America’s program is revenue-based for both accrual and redemptions, except for partner redemptions. Alaska says they’re not planning to go revenue-based. Both airlines partner with Emirates, so presumably the strong value Emirates business class redemptions available through Virgin America will ultimately suffer the fate as the Mileage Plan no-notice devaluation.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. What does this mean for alliances and points earning with Delta and American do you think?

  2. @Roger nothing changes directly as a result of this deal, if it happens. Alaska as the surviving company would have all of its Mileage Plan contracts remaining intact. They could certainly shift their strategy going forward but Virgin America wouldn’t necessarily provide impetus for them to do so. A San Francisco hub doesn’t put them into new competition with either, really.

  3. Looks like there will be some used A320s on the market if this goes through.

    Wonder which routes are actually profitable for Virgin America.

  4. Great news for AS… This gives them something decent from NY… Expect to see that grow. If there was no devaluation it would be all good news for them.

  5. Over the past few years, Virgin America has initiated most of the intra-California fare sales. Southwest has been a huge disappointment on fares, refusing to reduce them from record levels when fuel prices dropped through the floor. I fear what Southwest will do after VX’s fare leadership ends.

  6. Great. Not. Yet more consolidation into a USSR-style one airline for all. Boring! Sad to see Virgin America’s unique brand going to the graveyard in favor of yet more one size fits all. At this rate we’ll see Hawaiian swallowed up, then Jet Blue. It’ll be Southwest and Spirit cattle carlines, and then Alaska, United, Delta, American. Eventually ‘synergy’ will once again be the buzzword for consolidating the Final Four into the Two (sic intended) Big To Fail. Sorta like the U.S. auto and banking industry. Nothing at all to cheer about, save for the VA shareholders profits. Just remember: Capitalism hates competition. And if you think I’m off base consider Boeing’s CEO latest lame excuse blaming Airbus for the recently announced layoffs. Huh, there are just two major commercial aircraft manufacturers in the world! If Boeing was the only one left standing, they’d find something, anything, to blame for this or that. Like infant children!

  7. Well, this would be good way around Alaska’s one-partner award limitation for those of us who can’t take an Alaska flight to many big hubs.

    AUS to SFO / LAX would be nice to have for CX biz redemptions.

  8. This strikes me as extremely odd.

    At bottom, AS has demonstrated that it can grow organically – save positions at slot controlled airports, AS gets little that it cannot do by itself.

    And when will AS abandon the name “Alaska”? No doubt they are the dominant carrier in Alaska, but they can hardly be considered merely a pacific northwest regional carrier now.

    Its all very bizarre to me.

  9. And there aren’t THAT many assets at JFK, DCA, DAL that Virgin American’s got for the $2 billion Alaska would ostensibly be paying. And they get an incompatible fleet.

  10. Yeah, odd. I guess I trust AS management as to their savvy (EK devaluation notwithstanding), given that they’ve recently fought DL effectively at SEA (Finland vs the USSR in 1939-40?); and over many years grown in the face of LCC competition. But I’m waiting and very curious to see what their vision is.

  11. “And when will AS abandon the name “Alaska”? No doubt they are the dominant carrier in Alaska, but they can hardly be considered merely a pacific northwest regional carrier now. ”

    When will Emirates change its name? Or Qantas? Or Southwest? Or British? 😉

  12. @dcasea Thrree of those four names are related to their core hubs. The fourth, Southwest, actually is similar, flies tons of flights from five southwestern airports (DAL, PHX, HOU, LAX, AUS).

    I would expect Alaska to do the same (keep core name), though the Virgin name might actually have more cache from a worldwide flyer/differentiated experience standpoint.

  13. If you add a bar across each side of Virgin’s March 31 logo you get AVA. Alaska Virgin America. Maybe that was part of an inside joke?

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