Alaska Airlines made a deal to acquire Virgin America back in April, beating out JetBlue which was also bidding.
The deal won’t close until at least the end of the year, and they do not expect a single operating certificate until the beginning of 2018. So Virgin America is going to remain a separate airline for nearly two years.
It was judged almost a foregone conclusion that the Virgin America brand would disappear.
- No reason to pay Richard Branson. Virgin America pays 0.7% of revenue off the top to Virgin for the brand.
- Incompatible fleet. Virgin operates a fleet of Airbus aircraft, Alaska is all-Boeing (they joked “We’re such a big fan of a single fleet that we bought another single fleet”).
The Virgin America A320s are leased, and those begin expiring in 2020. Alaska can cancel future orders at low cost.
Alaska was seen as unlikely to keep the Virgin planes, and said at the time of the acquisition that they hadn’t decided what to do with them. They might keep them around flying the existing Virgin America product for a short time.
- Virgin America’s Brand Wasn’t Central to the Deal. The reason for doing the deal was access to congested airports where Virgin America has a foothold. It’s why they overpaid, there were simply no other carriers out there with similar assets to buy. It wasn’t the fleet or the brand that they were intending to buy.
- Alaska’s Marketing Seen as Key to Making the Deal Work. The deal’s synergies that justify the high price were largely said to be driven by Alaska’s loyalty program.
Nonetheless, Scott Mayerowitz is reporting comments by Alaska Airlines CEO Brad Tilden that the Virgin brand could be retained.
A decision hasn’t yet been made but Tilden noted that European carriers have kept their own identity following mergers.
“We are looking at that because we do believe in the power of the Virgin America brand and we don’t want to lose all that loyalty and revenue that exists today,” Tilden said at the end of a speech at The Wings Club, an aviation professional group that frequently hosts CEOs as speakers.
…In a brief interview with The Associated Press after the speech, Tilden said he is “taking a good look at running two brands for some period of time, perhaps forever.”
Alaska may just not be ready to make an announcement about the end of the Virgin brand, or they may be negotiating to keep it at least for a short time. There’s no way that Alaska will continue to pay as much as Virgin did to license the name for very long. On the other hand it’s free money to the Virgin Group (unless they were otherwise going to launch a new US airline). Virgin might take less.
Even if the Virgin name stayed on, the experience would change. There’s a good likelihood that Alaska would want to shrink the Virgin footprint. Even if they keep around Airbus plans for some time that fleet will almost certainly shrink as leases expire.
With most airlines the brand experience for the customer is tied primarily to the frequent flyer program. Virgin does have mood lighting and seat back entertainment and.. Richard Branson. But the Virgin America Elevate program is sure to go away as a distinguishable entity.
- When Alaska made the deal they were explicit that a key driver of revenue would be greater penetration of the Alaska Airlines co-brand credit card in California and the Bay Area especially. The Bank of American Alaska Airlines Visa will be the credit card for the combined carrier.
- Alaska’s management talked about merger synergies being driven by the loyalty program. Mileage Plan will be the frequent flyer program as well, even if they called it Virgin America Mileage Plan and Alaska Airlines Mileage Plan. (Which is too bad because — trust issues notwithstanding — Alaska Airlines is a good frequent flyer program but Virgin America’s offers unique partner redemption value.)
Alaska’s Tilden cites the Lufthansa Group model, and those airlines use Miles & More as their frequent flyer program.
So even if Virgin America were kept as a separate brand as part of the airline group, it won’t really be Virgin America at least for very long. And that’s even if Alaska is willing to pay licensing fees for the name and hang onto Virgin America’s incompatible (and soon to be more expensive) fleet for some time which holds the Virgin America inflight product.
Still, I’ll hold onto Tilden’s words as hope we’ll see a continuation of the best domestic first class product (outside of transcon routes) in the country.