Looking For West Coast Dominance, Alaska Airlines Buys Virgin America
by Daniel McCarthyAfter weeks of speculation, the parent company of Alaska Airlines said on Monday that it has agreed to buy Virgin America for $2.6 billion.
The boards for both airlines have approved the deal, which brings two of the largest domestic air carriers in the United States together under one company and gives Alaska a total of 1,200 daily departures in its route network.
Competition from JetBlue drove the price up but in a conference call announcing the deal, Alaska’s board of executives said it was happy with the deal and hoped it will help expand its presence on the West Coast, particularly in California.
“The way we look at it is, Alaska has done really, really well,” said Alaska CFO and executive vice president of Alaska Air Group Brandon Pedersen. “We’re likely to be your airline if you live in Washington, Oregon, or Alaska. We just wanted more canvas to work with [and] this gives us California.”
While Alaska had been working on “something like this” for a long time, its CEO Brad Tilden said the Virgin move was more valuable because there isn’t a lot of overlap between the two airlines, meaning the purchase is almost all pure addition.
The deal gives Alaska a long-sought network in California, a state where it has become increasingly difficult to organically build a network of slots because of their low supply and high demand.
“California is a very large state with a lot of carriers in there and a lot of competitors,” said executive vice president and CCO Andrew Harrison. “When we looked at it, credit to Virgin America, they have done an amazing job at building a network at slot constrained networks from west to east and building an amazing foundation and they’ve taken a number of years to do that.”
And though there is no timetable for the merger to be fully completed, the groups will be putting a plan together shortly.
The deal still has to be approved by the Department of Justice but the biggest challenge, according to Tilden, is integrating the labor front for both airlines. Alaska has already had a sit-down with representatives from the labor groups yesterday.
Another challenge the group will have to deal with is the integration of two fleets with different aircraft, as Alaska flies Boeing 737s and Virgin’s fleet is made up of Airbuses. The group said it won’t make a decision about fleet integration and whether or not it will move toward one single aircraft type for a few years.
As for combining two airlines with extremely different cultures and customer bases, Tilden said he believes the groups will realize they have “way more in common” than they expect. The key, he said, is taking the merger slowly, and doing everything possible to “bring [the customer groups] together.”
