Alaska Airline’s parent company is set to buy competing airline Virgin America. That was still below the $57-per-share bid, which represents a premium of about 86 per cent from Virgin America’s stock price before reports in March that the airline was considering a sale. “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”, the billionaire wrote on Virgin’s website. Debt included, Alaska Air values the overall deal to be worth about $4 billion.
Advertisement
Virgin Airlines founder Richard Branson said he was “sad” and disappointed about the merger. It went public in November 2014 with an initial stock offering that jumped 30 percent on its first day of trading.
Virgin, which in 2013 turned profitable, earned over $340.5 million in 2015, which was a company record. The airline slowed down its rapid growth and got help from low fuel prices.
While a combined Alaska-Virgin America would not affect the size rankings at the top of the United States industry, the new carrier would surpass JetBlue for fifth place, based on passenger traffic.
Alaska announced that its deal for Virgin would add 200 departures daily to its almost 1,000 it has now. And most recently, American Airlines merged with US Airways to create the world’s largest airline group.
With Alaska Air’s investments, it would be able to focus on its expansion beyond its Seattle base where it is now experiencing market pressure from rival Delta Air Lines which wants to consolidate a base in the West Coast.
The combination will also enhance Alaska’s access to slot-constrained East Coast hubs, including John F. Kennedy International Airport and LaGuardia in NY, and Ronald Reagan Washington National. Alaska Air now flies Boeing Co 737s. It’s too early to say how it might affect service for traveling Alaskans, but if any of the Virgin brand makes it onto Alaska’s jets, passengers can expect a flashier ride.
For the fourth year in a row, Virgin America is tops in airline quality among the biggest US airlines.
The most immediate question to be answered at Boston’s airport is: What terminal will the combined airline use?
The Alaska Air buyout of Virgin America indicates that consolidation has shifted to smaller players. Alaska Air Group Inc., shares fell $4.01, or 4.9 percent, to $78 about an hour ahead the market open.
Advertisement
Alaska Air’s clean balance sheet means it will have no problem funding the deal and an acquisition should add to earnings even before accounting for the $225 million in eventual projected synergies, according to data compiled by Bloomberg.
