Alaska’s Purchase Of Virgin America Gets Justice Department Approval

The Justice Department today approved Alaska Airlines’ purchase of Virgin America that was announced back in April (JetBlue was the other bidder that lost).

Alaska must scale back its codesharing with American Airlines for the deal to be approved. This will reduce American Airlines coded pasengers on Alaska’s flights by half. The deal doesn’t have affect on Alaska’s partnership with Delta.

You can read more about this development on Bloomeberg’s website here, WSJ here and The Seattle Times here.

Here’s and except from Bloomberg:

Under an agreement with the Justice Department announced on Tuesday, Alaska Air must reduce the scope of a marketing accord that allows it to sell tickets for American Airlines flights on over 250 routes. The change will ensure the merged Alaska Air competes against American rather than partnering with it, regulators said.

The restrictions will reduce by about 50 percent the volume of Alaska Air passengers on American flights, according to the government.

WSJ:

The $2.6 billion merger deal, struck in April, would create the fifth-largest U.S. airline by traffic, surpassing JetBlue Airways Corp, which lost a bidding war for Virgin America. Still, even after the merger, the combined carrier would control just 6% of the domestic market, compared with the four U.S. giants that control more than 80% as a result of a series of megamergers since 2008.

Antitrust enforcers said they would prohibit Alaska and American, which is the nation’s top airline by traffic, from code-sharing on routes where Virgin America and American compete today, as well as on routes where Alaska would otherwise be likely to launch new service in combination with American following the merger.

And the Seattle Times:

The two airlines have very different styles.

Virgin, a smaller airline with a limited route network, differentiated itself by offering a unique product. Passengers enjoyed a fun-filled service vibe and technological innovations such as ordering food on their seatback touch screens and mood lighting.

Alaska is more mainstream, relying on an efficiently run regional network to attract passengers.

Conclusion

This will mean reduced competition among the US airlines that will lead to higher fares. Not sure how Alaska will be able to retain the Virgin America fliers that may not like the Alaska’s style that recently included having prayer cards on business class meal trays (was ended when partnership with Emirates started).

This will mean that eventually the Virgin America brand will go away and the Elevate frequent flier program is merged to Alaska’s Mileage Plan.