Department of Justice Standing in the Way of Alaska-Virgin America Merger

Earlier in the week Alaska Airlines agreed to delay the close of its acquisition of Virgin American to at least October 17 in order to give the Department of Justice more time to review anti-trust issues.

Of course the Justice Department doesn’t need ‘more time’ so they can think deeply about the issue and decide what to do. They’ve clearly expressed reservations about the deal. We can conclude:

  1. Alaska Airlines feared that if they moved to close, the Department of Justice would sue to block the deal.

  2. Instead they’re negotiating over concessions to satisfy DOJ and avoid a lawsuit to block the merger.

Among airline mergers, this is the one most likely to be pro-competitive. It creates an airline much better able to compete against United, Southwest, Delta, and American. It will remain smaller than all 4. Although from the announcement of the merger, they did tout becoming the largest West Coast airline.

The Department of Justice likely has a weak legal case. It settled with American Airlines for weak concessions — the airline didn’t get to grow beyond the US Airways footprint at Washington National, it had to give up a few New York LaGuardia slots, and it had to give up its 2 gates at Dallas Love Field that it wasn’t using.

At the time critics thought the deal was too weak, but if the alternative was a lawsuit there’s a good chance it was more than the Department of Justice would have gotten. The DOJ’s case was stronger against American and US Airways than it is against Alaska and Virgin America.

And DOJ insistence that American give up its gates at Dallas Love Field set off the chain of events that has Delta, Southwest, and the city in court — because Delta had been using those American gates, they went to Virgin America instead, and United did a deal to transfer the remaining non-Southwest deal to… Southwest. In other words, the DOJ competition concessions had consequence of being anti-competitive.

It’s unclear what the Department of Justice would even want out of Alaska-Virgin America.

  • There are a handful of gates and slots at congested airports, like Washington National and Dallas Love Field. They’re a bit player in both places.

  • Alaska would grow slightly in Seattle, but it would be perverse for DOJ to stop this handing a victory to larger Delta.

  • They grow in San Francisco, making them more formidable against United, it would be an odd victory for DOJ to stand in the way of real competition there.

This seems an exercise of power, of extortion, what can the Department of Justice take to avoid unnecessary legal expense and delay?

With a new October 17 deadline, we should know soon enough.

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. Agree completely. If the DoJ wanted to stop an airline merger, it should have stopped DL-NW, UA-CO, or AA-US. Allowing three mega-carriers to emerge and then *not* allowing AS-VX to merge and provide a counterweight to them would be ludicrous. Personally, I’d love to see an AS-B6-VX merger. Now that would *really* be in a place to challenge the Big Three.

  2. I could see the concession being “you have to keep operating at DAL”. This would probably work out OK for AS; I think serving SEA/PDX/SFO/LAX/DCA/LGA-DAL wouldn’t be too shabby as far as service goes (they could probably swap out the existing VX DAL-LAS service), and they could probably still do SEA/PDX-DFW to connect to AA.

  3. We have the Justice department to thank for the current AA/US, DL/NW and UA/CO oligopoly.

    Thanks Washington! You guys are doing a great job! Said no one ever

  4. This is the first airline merger that I’m hoping goes thru. As somebody sitting on a boatload of British Air and AA miles, I’d love to welcome the Virgin America route schedule to the OneWorld alliance.

  5. I’ve got no skin in this game, but I share your outrage at the DOJ’s apparently behavior in this matter. That said, I still think it extremely likely this deal will soon close, perhaps after the DOJ extracts its pound (more likely, quarter-ounce) of flesh, just to strut its power.

    This type of things happen when we elect politicians with little business sense, who then appoint lawyers with even less sense.

    BTW, I still think the merger that hurt consumers the most is the one nobody thinks of. That was Southwest’s purchase of AirTran. “Everybody” loves Southwest, so they can get away with pretty much anything, but I’m pretty sure the reason they bought AirTran was to eliminate their number one price competitor. Note what happened to AirTran’s hub in ATL — it dramatically shrunk. Now I’m not sure the disappearance of AirTran was all that bad for the American consumer, but I’m pretty sure airfares would be lower today if AirTran still existed.

  6. Do you think AS will stay the only major carrier offering 100% miles flown on econ tickets? This would cause me to change to them since they would cover all of my non-stop transcon routes out of LA.

    I notice that AA allows AS to give me less miles now when I credit AS flights to AA than I would get actually flying on AA, which is becoming even more a horrid junkyard of an airline.

  7. My thinking is the DOJ will force AS/VX to give up their sublease on Love Field and fly out of DFW, which AS is already doing. This will fix their DL vs WN ongoing court drama, as those 2 gates could go back to the City and be deemed “Common Use.” Or maybe DL gets to sign a sublease on a gate, and 1 is common use….whatever.

    DL will keep getting to fly from DAL, WN gets back full use of their 18th gate, and maybe even some space opens up for someone else (B6?) to fly 6-8 flights a day out of DAL.

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