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Airline Merger


According to Bloomberg sources, the rumored takeover of Virgin America Inc. (Nasdaq: VA) by Alaska Air Group Inc. (NYSE:ALKC) may be confirmed as early as the end of November. People familiar with the matter said the two airlines are close to a settlement with U.S. antitrust officials.

Representatives of Alaska Air and Virgin America previously met with U.S. antitrust officials in September. At that time antitrust division chief Renata Hesse expressed concerns about the proposed $2.6 billion transaction.

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Shares Rise

On news of the apparent deal with regulators, Virgin shares closed Friday up $1.10 or almost 2% at $56.55. Alaska Air Group shares closed up less than 1% at $79.47.

So far this year Virgin shares are up 57% and shares of Alaska are down 1.8% thanks, in part, to the premium Alaska will pay to Virgin shareholders.

Complementary Connections

Alaska Air says the combining of routes will be largely complementary. Alaska’s network would expand to add Los Angeles and San Francisco along with the right to operate at New York’s LaGuardia and JFK airports. Also in the mix, New Jersey’s Newark Liberty airport and Washington’s Reagan National.

With cross-country routes among the most lucrative for airlines, Alaska thinks the merger would allow it to become the carrier of choice on the West Coast. Currently Alaska faces competition from Southwest Airlines Co. (NYSE:LUVC) and United Continental Holdings Inc. (NYSE:UALC).

Too Many Mergers Say Some

As recently as October nonprofit news organization, ProPublica claimed the 2013 merger between American Airlines and US Airways, resulting in the formation of American Airlines Group Inc. (TSX:AALC) was politically motivated.

According to ProPublica, behind-the-scenes jockeying by pro-merger and anti-merger forces resulted in the Justice Department suddenly dropping its anti-merger lawsuit with little explanation.

Top Four In Control

Following the approval of the American-US Airways merger, the top four U.S. airlines, American, Delta Airlines Inc. (NYSE:DALC), Southwest and United took over control of 80% of the U.S. market.

The merger between Alaska and Virgin will create the country’s 5th largest airline, further consolidating U.S. airline market share, to the chagrin of Southwest, JetBlue Airways Corp. (NASDAQ:JBLUC) and others in the space.

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Alaska Air’s Performance

Savvy air travelers know that Alaska Air has ranked “Highest in Customer Satisfaction Among Traditional Carriers” 9 years in a row by J.D. Power. The reason this is important is that being ranked highest in customer satisfaction may well be an indicator of a whole host of factors passengers take into consideration.

As Alaska expands it footprint in coming months and years, being on time and offering a pleasant, award-winning experience could make Alaska Air investors almost as happy as the airline’s passengers.



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