One less Virgin

smurfjed

After a weekend of speculation around Alaska Airlines and JetBlue Airways attempting to buy Virgin America, Alaska has emerged as the winner, announcing this morning that it was acquiring Virgin for $57 per share in cash.

Combined with Virgin’s debt and aircraft operating leases of approximately $1.4 billion, the ultimate value of the deal is $4 billion.

The deal gives Alaska Air, which has a strong presence on the U.S. west cost, access to important east coast airports in Washington, D.C. and New York City. It will have 1,200 daily departures, making it the U.S.’s fifth largest airline. After the merger, the airline’s headquarters will remain in Seattle.

Brad Tilden, chairman and CEO of Alaska Air Group, will lead the company after the merger is complete, with Virgin America president and CEO David Cush remaining with the company up to that point.

It appears that the Virgin brand will give way to Alaska’s brand, but in the announcement the companies allowed for some wiggle room in the future:

"Alaska Airlines and Virgin America are two of the most respected aviation brands in the United States (and globally in the case of Virgin). While the companies apply for a single operating certificate, Alaska will maintain its new, refreshed brand and will work closely with Virgin America to learn more about the award-winning Virgin America brand and customer experience. And over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands.”

Virgin’s Elevate loyalty program will absorbed by Alaska’s Mileage Plan, which has a broad collection of other airline partners.

Virgin is 54%-owned by Richard Branson’s VX Holdings and New York-based Cyrus Capital Partners LP.

I don't understand why Alaska didn't attempt to build up incrementally rather than purchasing an airline that is half it's size.

Shannon757

smurfjed wrote: »

I don't understand why Alaska didn't attempt to build up incrementally rather than purchasing an airline that is half it's size.

So all the A320 family aircraft will be replaced with 737s I suppose. Good news for Boeing.

Graham

smurfjed wrote: »

I don't understand why Alaska didn't attempt to build up incrementally rather than purchasing an airline that is half it's size.

Instant growth and removes the possibility of JetBlue getting in first which would limit scope for incremental expansion onto the ex-VA routes.

Simon Gruber Says

I know it's just the way business works but, I hate to see an airline brand disappear overnight due to take overs and mergers in the US, especially the airlines that have a long history and iconic liveries. It'll be nothing but AA, UA and DL over there before long.

BonkeyDonker

smurfjed wrote: »

I don't understand why Alaska didn't attempt to build up incrementally rather than purchasing an airline that is half it's size.

Access to gates/slots and reducing competition I would imagine.

Shannon757 wrote: »

So all the A320 family aircraft will be replaced with 737s I suppose. Good news for Boeing.

Possibly - but I would imagine that will not happen in the short term - 50+ 737's will take a bit of time to get I would imagine.

L1011

Boeing is having trouble selling the run-down slots on the NG, and Alaska do pull the "hometown airline" card but its still not guaranteed (and they have no trouble having a hefty prop and RJ division, and also used to use Douglas craft mainline until recently)

J.pilkington

Virgin A were a delight to fly. They played the hip card and had cool interiors and entertainment system.

There is a good pic half way down this article which compares the 2 interiors;
http://airwaysnews.com/blog/2016/04/03/alaska-airlines-virgin-america-from-the-passengers-perspective/

arubex

Seems a heck of a lot of money for access to California and New York gates and slots, seven owed A320s... and over fifty A320 lease obligations that don't start expiring until 2020. So immediately they have to pony-up more money.

Considering Virgin America shares were trading in the high $30s last week, they paid a $20 per share premium!

Interesting comments on airliners.net that perhaps this was a strategic move to block Jet Blue's expansion.

Tenger

Graham wrote: »

Instant growth and removes the possibility of JetBlue getting in first which would limit scope for incremental expansion onto the ex-VA routes.

I think this is the more strategic move. B6 played their hand and showed their interest. Their first bid was unsuccessful, they were going to come back with another bid. AS have a nice West Coast niche market, they dont want B6 muscling in on that.
This could be seen as a defensive move by Alaskan, to block the aggressive move by JetBlue.
VA and B6 had looked like a good combo as both focus on different markets. (West Coast vs East Coast and Eastern States)

Shannon757 wrote: »

So all the A320 family aircraft will be replaced with 737s I suppose. Good news for Boeing.

As above, VA have long lease options on those A320's. So its cough up the cash for Alaska or operate them until the leases run out. And mergers never happen too quickly in the US.

Simon Gruber Says wrote: »

I know it's just the way business works but, I hate to see an airline brand disappear overnight due to take overs and mergers in the US, especially the airlines that have a long history and iconic liveries. It'll be nothing but AA, UA and DL over there before long.

It pretty much already is just AA, UA, and DL. And lets be honest, VA was a nice "hip brand", but its only been around approx 10 years? It was always centered on the California/Tech savvy market. They had maybe 2% of the market share in the US, with AS having 5% and B6 having 6%.
The big 4 (DL, UA, AA, SW) in 2014 had respectively 17%, 15%, 20%, 17% = 69%

The initial investors are definitely happy with how it turned out for them.

BonkeyDonker

arubex wrote: »

Seems a heck of a lot of money for access to California and New York gates and slots, seven owed A320s... and over fifty A320 lease obligations that don't start expiring until 2020. So immediately they have to pony-up more money.

Considering Virgin America shares were trading in the high $30s last week, they paid a $20 per share premium!

Interesting comments on airliners.net that perhaps this was a strategic move to block Jet Blue's expansion.

The Jet Blue thing is interesting, there also seems to be the suggestion with Delta expanding rapidly and aggressively in Seattle that Alaska need to diversify their income base to help counteract this.

Van.Bosch

BonkeyDonker wrote: »

The Jet Blue thing is interesting, there also seems to be the suggestion with Delta expanding rapidly and aggressively in Seattle that Alaska need to diversify their income base to help counteract this.

It's probably only a matter of time before Alaska are bought out.