Alaska Airlines announced Monday that it would acquire Virgin America in a $4 billion deal that, if accepted by shareholders, would make it the fifth-largest airline in the U.S.
As the consolidation trend continues in the airline industry, Alaska’s parent company, Alaska Air Group, is aiming to increase its footprint at airports across the country. Prior to the merger, Alaska Airlines primarily operated flights along the U.S. West Coast, but with the addition of Virgin’s routes, will have a larger presence along the East Coast in major cities like New York and Washington, D.C.
“The combination expands Alaska Airlines’ existing footprint in California, bolsters its platform for growth and strengthens the company as a competitor to the four largest U.S. airlines,” Alaska Air said in a statement.
While the deal will merge Virgin America’s 60 planes into Alaska’s existing fleet, the new airline will have a fleet of just around 280 planes operating 1,200 daily departures – well below the levels of its four larger competitors.
In comparison, American Airlines, the largest U.S. carrier operates around 1,500 aircraft and Southwest, the number four carrier, runs 683 planes.
Branson: no alternative
Alaska Air Group agreed to pay $2.6 billion in cash for the U.S. carrier created by British entrepreneur Richard Branson in 2007. With Virgin’s debt added in, the total value of the deal will jump to about $4 billion.
Branson took to the Virgin website to air his dissatisfaction with the deal, which he said “there was sadly nothing [he] could do to stop.”
In a lengthy letter, Branson explained that since he is not a U.S. citizen he could not control more than 25 percent of the company’s shares, according to U.S. law, so he took the company public in 2014.
He said the merger was all but inevitable.
“In 2007, when the airline started service, 60 percent of the industry was consolidated. Today, the four mega airlines control more than 80 percent of the US market. Consolidation is a trend that sadly cannot be stopped,” he said.
Following the merger, the company will control 5.5 percent of domestic airline passengers, compared to the 4.2 percent controlled by the next largest carrier JetBlue. The four largest airlines, American, Delta, United and Southwest control a combined 83 percent of passengers.
