Virgin America is reportedly considering a sale.
Virgin America Inc., the airline backed by U.K. billionaire Richard Branson, is reaching out to potential buyers about a sale of part or all of the company, people with knowledge of the matter said.
The carrier, which flies to destinations throughout the U.S. and Mexico, is working with a financial adviser after receiving takeover interest, the people said, asking not to be identified as the matter is private.
(Emphasis mine.)
As of this writing Virgin America shares are up sharply on the news.
There’s not a lot of room for consolidation left in the US airline industry, and there’s only a limited appetite for it among federal regulators.
After Delta bought Northwest, Continental acquired United, Southwest bought Airtran and US Airways took over American each of the largest 4 airlines has been made bigger through a merger.
These deals were done in a different era, when airlines were struggling financially and working to survive. There was a belief that consolidation would help both the individual carriers and the industry as a whole.
By the time the American-US Airways deal was being done, though, and even though American was in bankruptcy the Justice Department opposed the merger and finally settled for some minor concessions.
Virgin America isn’t large. They started in 2007 with 22 aircraft and have grown to about 60. (They recently petitioned the DOT to lift the limit on the number of aircraft they can have.) In contrast, American Airlines has close to a thousand.
Still, we can be pretty confident that United Airlines wouldn’t be permitted to buy them given overlapping strength in San Francisco. And major carriers generally might face a tough time in a political season.
Nonetheless, we’ve seen speculation about consolidation in the low cost carrier sector. Spirit’s former ownership took over Frontier and seems to be mimicking its model. One could imagine the new Spirit CEO (who sold AirTran to Southwest) doing a deal with Frontier.
And it’s conceivable that JetBlue, a more boutique-style carrier focused on New York, bulking up on the West Coast by aligning itself with Virgin America. Such a deal could actually make for a stronger competitor to the prevailing large four domestic airlines and increase rather than reducing competition.
Nonetheless, this is a small indication that consolidation — which has only just begun in the hotel industry — might not be over for airlines. It could also free up Virgin America CEO Dave Cush to become Secretary of Transportation in a hypothetical Trump administration.
(HT: @gobears99)
Jetblue-Virgin seems unlikely as the premium Jetblue would have to pay + integration costs and focus. VX’s focus airports aren’t slot restricted so Jetblue could launch competing service whenever they want (subject to available aircraft and a few DAL / LGA slots). Great to eliminate a competitor, but hardly seems worth the cost. Though new management is more aggressive.
Same trouble for legacies + government approval concerns, particularly in an election year.
Other airlines (spirit, allegiance) likely don’t have the money or anywhere close to similar operating model and customer base to make it worthwhile.
So the only thing left is some PE firm that thinks they can do some scaling that Cush couldn’t figure out over past few years
Could one of the 3 ME airlines buy it to have access to the US domestic market? That would be AMAZING to put people like Mr. Anderson from Delta in his place.
Virgin America’s superior in-flight experience is their differentiator. A merger with another US carrier would destroy that value. A buyout from a non-US airline might not.
Gary, UA bought CO. I know it doesn’t look, feel, or smell like it, but that is what happened.
http://www.nytimes.com/2010/05/03/business/03merger.html?_r=0
@Uncle Jeff as a technical legal matter that is correct, as a practical matter it is not
@Santastico – US government limits foreign ownership of US airlines
Foreign airlines cannot own more than 25% of a US airline (it is one of the reasons along with unions, are why airfares are so expensive in North America, when compared to Asia, Europe, Australia).
JetBlue looks like the most logical partner. Start trying to build a major competitor to the big 4.
Couldn’t AS be a potential buyer?? Would love to see them expand and challenge the big 3 in a bigger way.
Would be great to see a combination with AS and would integrate nicely with route structure. Also maybe keep the best parts of both cultures.
Maybe time soon to apply for that VX Comenity card though I expect one of the key perks (waived change fee) will go bye-bye in a merger.
@Gary: Is Virgin an American company? I thought they were from the UK.
@Santastico It would be interesting to see one of the ME3 buy in.
@Santastico: It is a US company, though Virgin Group (UK) holds a 25% stake.
@Santastico Virgin America is a US company that licenses the Virgin brand and has a small minority ownership abroad
@Jim A they could be.
Isn’t the DOT limiting the number of planes an airline can have already limiting competition?
@Nathan Drake they would argue that they do it with new airlines to make sure the carrier is able to handle its growth from a safety standpoint. Virgin America filed asking for the limits placed on it to be eliminated (they’ve already been increased) as it’s a much more mature operation nearly ten years in.
There are several possibilities for the name of a combined company:
“Virgin Alaska”, “Virgin Frontier”, “Blue Virgin”, “Virgin Spirit”, “Hawaiian Virgin”. Even “Virgin Hooters” – oops, Hooters Air is defunct for quite some time.
It’s official I just heard who is buying them. It’s sure deal. Just announced is that Bangkok Airways is going to buy them. The new name is, wait for it……Bangkok Virgin
Seriously, maybe Trump is buying them.
SHOOT!!! Love Virgin! Better get some flying in before they wreck it!!
Delta did not buy Northwest. At the time that merger occurred, it was announced as a ” stock swap merger of equals” by Richard Anderson and Doug Steenland. You can look it up.