Richard Branson Pledges to Start a New Virgin America, and the 6 Winners in the Deal to Buy Them

The founders of L’Avion, all business class airline to Paris, were hemorrhaging but managed to luck into a deal to sell to British Airways (the airline is now OpenSkies). Not content to have gotten out ahead, these same people started all over with La Compagnie.

Richard Branson seems to say he wants to pull the trick. In an interview with Barbara Peterson he says he won’t let Virgin America die.


Virgin America Snack Basket

  • He abstained from the decision to sell. He didn’t even vote against it, despite claiming to be saddened by the deal.

  • Oh, but he really preferred this deal! Because he “felt Alaska would be slightly more likely to treasure the brand than JetBlue” although considering Alaska said nothing of the sort in their investor call he probably only feels that way because it’s the deal that got done.

  • Alaska said thanks, but no thanks to Branson’s continued involvement.

    Branson said he’s met with the Alaska management and has offered to continue his ceremonial duties promoting Virgin America: “I have been to every inaugural flight of Virgin America, and I am happy to do that and anything I can,” he said. He admitted he doesn’t have a financial stake in the new combined carrier, saying he’d wanted to take Alaska stock rather than cash, and “begged the board to let me do that. They didn’t let that happen.”

  • If the Virgin brand doesn’t survive, he’ll start another airline.

    “Virgin America will never disappear from the United States,” the Virgin Group founder told us yesterday, following the merger of his beloved U.S. airline with Alaska Airlines earlier this week.. he will back a new airline to carry on the Virgin name, if it comes to that. “People love Virgin with a passion that hasn’t existed since the early days of aviation, and I am certainly not going to let it go to waste, even if it means starting all over again” as a new domestic airline.

    ..The brand licensing reverts to him. “I love starting things,” Branson said. “But if we do come back again, we may need to work with another carrier, to get us into airports.”

    It would be interesting to see what ‘working with another carrier’ would look like, Delta already owns 49% of Virgin Atlantic and has a joint venture with Virgin Australia — and has heavy influence through ownership stakes in airline brands like Aeromexico and Gol.

The deal is done, and since Alaska Airlines is unlikely to continue to operate Virgin America as a separate brand — and continue to pay Virgin Group 0.7% of its revenue off the top — Virgin America is expected to go away, perhaps sometime in 2018. (Although with a separate Airbus fleet, they might choose to do that with an intention of eventually returning those aircraft, if they could negotiate a lower fee to continue to use the brand temporarily.)

Here are the winners in Alaska’s acquisition of Virgin America, in order:

  1. Virgin America’s shareholders who receive an 86% premium over share price just 2 weeks earlier before takeover speculation began
  2. United, with one fewer competitor up and down the West Coast
  3. Delta who becomes the de facto ‘Virgin America’ as joint venture partner with Virgin Australia and part-owner of Virgin Atlantic… whether or not Branson starts up a new airline with them sometime in the future.
  4. American who has an opportunity to grow its codeshares with Alaska across the Virgin America network (big benefit to them in San Francisco, where they happen to already be co-located)
  5. JetBlue, who did not pay $2.6 billion
  6. Alaska, who gets to offload a fleet of Airbus aircraft many of which are due for heavy maintenance, who will now slow share buybacks and dividends to a trickle, and who in its investor call didn’t even know for sure if they’d terminate the 0.7% brand licensing fee to Richard Branson or what interest rate they’d pay on their debt.

As long as fuel prices stay low, Alaska management won’t fall under too much scrutiny for having paid such a premium because they’ll keep making money.  Though Alaska on the investor call said they prefer to focus on benefits of the deal not costs, costs are important because of the opportunity cost of what else they might have done to drive shareholder value.  Already we know they slow dividends and share repurchases.  They could have done a different deal.  Or they could have given all their passengers hookers and blow.

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 InsideFlyer.com, 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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Comments

  1. Number 6 is wrong. Alaska is a loser for grossly overpaying. The true number 6 is Southwest. Just this week Southwest had to reduce its fares to match a Virgin America sale. The same thing happens maybe 20 times per year. Southwest will save many millions in fare matching with VX gone.

    Once upon a time when you wanted to watch for low fares that other carriers would match, you subscribed to Southwest’s emails. For at least the past five years when you want to catch low fares on Southwest, you subscribe to emails from Virgin America and JetBlue. Those emails are your only notice of Southwest’s best fares: Fare matches are never publicized by the matching airline.

    The loss of Virgin America will more than halve my annual savings from these fare matches. I will not be happy to see VX go. I never flew them but they saved me hundreds and hundreds of dollars flying Southwest, including one trip on a single day’s notice for $29+tax each way.

  2. Although Branson seems to be bailing out of the airlines carrying his name, I wouldn’t put it past him to start over in the USA. He seems to have a love affair with all things aviation. Whilst none of his airlines have been massively successful, they have all run sound operations and have done far better than commentators ever expected, so perhaps he has a knack for starting airlines.

  3. I don’t think Sir Richard could have voted on the deal as he is a minority shareholder and a non-American. Even if he could have it wouldn’t have had a difference. Didn’t Delta have a low-cost spinoff airline years ago? I can’t imagine it would want to launch Virgin American version 2.0.

  4. The losers are the travelers and club members. This downturn started when they awkwardly switched to Comenity Bank. The cards were constantly being turned down even when a charge was AT the airport with Virgin!. This year I stopped using the card even though it meant I will lose Goldmember status after my Christmas gifts were completely messed up due to the unreliablility of the card and Comenity. Gifts I thought were bought and shipped were not purchased. Had to buy all over again and many items were no longer available. Terrible bank with bad customer service. Wait time on the phone could be hours. Then they stopped flying to PHL – the reason I became a Virgin member, choosing Newark instead. Now, without warning, Alaska buys the airline. Use your points NOW before they’re no longer valid and your member status is worthless. Alaska WILL ruin the airline.

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