A week and a half ago word got out that Virgin America was shopping itself to potential buyers. There was plenty of speculation about who those buyers could be.
I suggested right away that I thought the most logical would be JetBlue.
- Both airlines offer a somewhat premium ‘experience’
- Virgin America’s strength is on the West Coast and JetBlue is strongest on the East Coast
- Both carriers are largely operators of Airbus aircraft
While some speculated it could be Delta, Hainan Airlines, or Etihad, on Monday it was reported that both JetBlue and Alaska were bidding for the airline.
Alaska Air Group Inc. has emerged as the likely winner of an auction for Virgin America Inc., people familiar with the matter said.
Alaska Air is nearing a deal to buy Virgin America, after beating a rival bid for the airline by JetBlue Airways Corp., the people said.
There is no guarantee Alaska ultimately will clinch the deal, but if it does, an announcement could come Monday, they added.
Virgin America shares are up about 28% since the takeover speculation began. The airlines market cap grew from about $1.15 billion to $1.47 billion. The expected acquisition price is reportedly in the neighborhood of $2 billion.
Alaska Airlines runs a fantastic operation. They’re one of the most on-time airlines and one of the most profitable. That’s remained true even as they’ve grown substantially and fended off Delta’s attack on their home base of Seattle.
Alaska is a Boeing operator, already strong in the Pacific Northwest and also Los Angeles. Virgin America gets them a San Francisco hub (while Virgin America doesn’t have a lounge there, Alaska’s smaller operation gets Board Room members access to Cathay Pacific’s lounge) but perhaps more importantly access to operations in congested airports in the Northeast and also at Dallas Love Field.
It’s not as obvious a fit as with JetBlue, for instance there’ll be a lot of overflying of the San Francisco hub up and down the West Coast. However there’s unlikely to be significant anti-trust concerns given that both carriers are smaller players in the US domestic aviation market. Whether JetBlue or Alaska was going to be the acquirer the deal probably makes them a more formidable competitor against the Big 4 of American, Delta, United, and Southwest rather than reducing competition in most markets.
For consumers, if we assume that Virgin America is ultimately folded into Alaska Airlines:
- The unique Virgin America onboard product likely becomes less differentiated.
- The Elevate program presumably gets folded into Mileage Plan.
Elevate points are a somewhat deflated currency worth roughly two airline miles. Account balance transfers will need to reflect that.
Virgin America’s program is revenue-based for both accrual and redemptions, except for partner redemptions. Alaska says they’re not planning to go revenue-based. Both airlines partner with Emirates, so presumably the strong value Emirates business class redemptions available through Virgin America will ultimately suffer the fate as the Mileage Plan no-notice devaluation.