Alaska Airlines announced that it is acquiring Virgin America at $57 per share or ~ $2.6 billion in a transaction expected to close by January 1, 2017. There’s a new microsite for the deal.
Alaska’s CEO makes the announcement:
- $225 million annually in synergies. That’s surprisingly low, since it would encompass not just layoffs of duplicative roles but also revenue from sharing passengers across the broader network and cost savings from putting better fleet utilization. (On the other hand, Alaska Airlines will go from a single mainline aircraft family – the Boeing 737 – to a mixed fleet of Boeing and Airbus aircraft.)
- $300 – $350 million in integration costs. Of course I’ve never seen an IT project come in under budget.
Alaska Airlines’ Mileage Plan will be the surviving loyalty program. They’re being non-committal about the Virgin brand at this point, although it seems inconceivable they would continue to pay to licensing. Perhaps they’re looking at what they can keep in terms of branding without paying.
And over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands.
Alaska will be focused on this integration not just until the deal closes at the beginning of 2017 but likely for 18 months after that. Everything stays for more less the same for the moment — I got a question last night about someone traveling with Virgin America this week, and whether there’s anything they needed to know or do differently. Absolutely not now, or for the forseeable future.
Eventually the Virgin America product is likely to become closer to the Alaska product, although they’ll need to be differentiated in some way in the Los Angeles and San Francisco – New York JFK trancon market. Perhaps they’ll invest in a new and improved Virgin America inflight product with a subfleet for those routes, since while Virgin America’s domestic first class product is superior to all other US airlines in other markets, it actually lags in the transcon market.
Alaska will grow in San Francisco and Los Angeles and gain access to constrained airports at New York’s JFK and LaGuardia, Washington National, and Dallas Love Field. But they won’t be the largest player in any of those markets. They’re going to be even stronger on the West Coast than they are today, but that has its limits with San Francisco placed between existing strength markets of Seattle, Portland, and Los Angeles. This does not make Alaska a national carrier, despite their becoming the nation’s 5th largest.
Anyone interested in listening to the conference call can do so at 8:30 a.m. Eastern at 1-800-300-0356, conference ID 82998792.