In a move that will make it the 5th largest airline in the United States, Alaska Airlines Group, parent company of Seattle-based Alaska Airlines, announced that will be acquiring Virgin America in a $2.6bn deal — more than $1bn over Virgin’s market cap, illustrating the attractive nature of its route network and brand.
As of now, it is unclear whether or not the Virgin brand will remain, or be folded in to the Alaska Airlines brand. Mekanism was recently named AOR for Alaska after a long run by WongDoody, based in Seattle. Mekanism opened a Seattle office to service the account.
The deal expands Alaska’s California presence and gives it a stronger foothold in the coveted San Francisco market (where Virgin America is based). Upon regulatory approval, the merged airline would supplant JetBlue’s place on the US-based largest airlines list behind American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
"We will be the airline of the West Coast," said Alaska Air CEO Brad Tilden on CNBC.
Virgin was in not in financial dire straits, which is usually one of the hallmarks of an airline takeover. Alaska, however, is a profitable airline and saw an opportunity.
"The industry structure has changed. We thought it was a good time to grow,” noted Tilden.
Sir Richard Branson, who owns 54 per cent of the airline through Virgin Group, Ltd. and New York-based Cyrus Capital Parnters LP, weighed in on the merger, conceding that airline consolidation was something that couldn’t be stopped, even with his clout and influence.
“Because I'm not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover. So there was sadly nothing I could do to stop it,” said Branson in a statement on the Virgin site.
When it began flying in 2007, Virgin America signaled a new era of domestic flight in the United States. The perception of “cattle cars” in US flying gave way to well-appointed interiors and amenities — with a slick launch from Anomaly in 2007. In further “cool” moves, the San Francisco-based airline introduced entertaining safety videos and a more engaging and intuitive website that made booking flights less of a chore. Additionally, the airline built a robust community through social media and is considered one of the market leaders in using social as a customer service and revenue tool.
For its part, Alaska Airlines has long been considered a customer service darling, winning “Highest in Customer Satisfaction Among Traditional Carriers” by J.D. Power for eight straight years. Additionally, the airline has strong on-time performance, coming in at #1 for six years in a row by FlightStats.
It is also the leading carrier in the competitive Seattle market, where Delta has planted its flag over the past few years, making it a gateway hub for Asia. Additionally, the two airlines continue to compete in similar markets with Delta launching service to Alaska cities (traditionally the domain of Alaska) and Alaska moving in with service to Delta hubs such as Atlanta (where Delta is based), Minneapolis and New York’s JFK. For years, the two airlines have been codeshare partners, though that relationship has eroded over the past few years in light of moves by both airlines.
Airline integrations often take years to fully accomplish and the fate of the Virgin America brand is still one of the key talking points after news of the merger broke. However, signals that it may not survive were evident as Alaska noted that it may pare down to a single aircraft. Alaska has long been a Boeing-only fleet and Virgin America has been flying exclusively Airbus. Virgin America’s loyalty program will also be absorbed into Alaska’s Mileage Plan program.
In a further twist, Delta owns 49 per cent of Virgin Atlantic, which could possibly be problematic as it relates to anything "Virgin."
Additionally, David Cush, Virgin America CEO, told CNBC that he will not be part of the future and will “exit gracefully” after the deal officially closes.