Deal would be first airline merger since 2013
Alaska Airlines is expected to buy Virgin America very soon. Alaska’s purchase of Virgin America would amount to $2 billion. An announcement is expected to be made on Monday. The purchase would be the first U.S. commercial airline merger since U.S. Airways and American Airlines combined in 2013. It would boost the size of Alaska Air’s home market by allowing it to expand into lucrative hubs such as San Francisco and Los Angeles.
Alaska Air and its partner regional airlines serve more than 100 cities in the United States, Canada, Costa Rica and Mexico. It has a market capitalization of $10.2 billion. Virgin America accounts for about 1.5 percent of U.S. domestic flight capacity, while Alaska Air and its subsidiary Horizon Air account for 5 percent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note. JetBlue accounts for 6 percent.
Mega-mergers in the past decade have reduced the U.S. industry to four top players that control more than 80 percent of the market. The Wall Street Journal reported earlier on Saturday that Alaska Air had emerged as the likely winner of an auction for Virgin America. The potential transaction is expected to draw close scrutiny from government regulators who have become suspicious of the increased prices. The Department of Justice challenged American’s takeover of U.S. Airways but lost the fight.
Alaska Air has worked to increase its network beyond the West Coast including to Hawaii. It has come under pressure from Delta who is fighting to make the Pacific Northwest a major hub for its network. The parent company of Alaska, is the country’s sixth-biggest airline by passenger count. Reuters adds “Asian airlines have also expressed interest in buying Virgin America, although they would have to partner with a U.S. bidder under foreign ownership rules governing U.S. airlines.”