WSJ: Alaska Air Nearing Deal to Acquire Virgin America

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Wall Street Journal was reporting on Saturday that Alaska Air Group (company behind Alaska Airlines & Horizon Air) has emerged as the likely acquirer of Virgin America.

Virgin America Alaska

Virgin America put itself up for sale in March and it was widely reported that both JetBlue and Alaska had made offers to buy the airline.

You can read more about this development on WSJ (access here), on Bloomberg (access here), on New York Times (access here) and on Reuters (access here).

Here’s an excerpt from WSJ:

The company is nearing a deal to buy Virgin America after beating a rival bid by JetBlue Airways Corp., people familiar with the situation said.

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

Alaska Air is expected to pay upwards of $2 billion for Virgin America, which has a market value of about $1.5 billion, following a surge sparked by recent news that the company was in play, one of the people said.

And Bloomberg’s thoughts:

The combination might help fend off Delta’s expansion in Seattle, where Alaska Air carried more than half of the passengers in 2015, split between the main jet operations of Alaska Airlines and the turboprops of the company’s Horizon unit. Delta has established a West Coast hub and jumping-off point to Asia and wants to almost triple the number of gates it holds, to 30. Excluding regional partners, Delta had about 13 percent of the travelers there last year, according to the Bureau of Transportation Statistics.

And Reuters about marketshare:

Virgin America accounts for about 1.5 percent of U.S. domestic flight capacity, while Alaska Air and its subsidiary Horizon Air account for 5 percent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note. JetBlue accounts for 6 percent, according to the note.

New York Times thinks California is the reason:

Virgin America accounts for about 1.5 percent of U.S. domestic flight capacity, while Alaska Air and its subsidiary Horizon Air account for 5 percent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note. JetBlue accounts for 6 percent, according to the note.

Conclusion

Both Alaska Airlines and Virgin America are based in the West Coast. My first thought was that JetBlue might have been better acquirer as it has strong presence on the East Coast and combining this with Virgin’s presence in California would have been win-win.

It is interesting that Branson wants to sell his share just when the airline became profitable likely ending the Virgin America’s name in few years time. Likely the best time to cash out when the price of the oil is low?

If the Alaska Air is the acquirer, this would mean that the Elevate program where I have had 40K miles sitting for a while would merge to Mileage Plan in couple of years time.

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