Saturday 3 December 2016

Alaska Air buys Virgin America in £1.82bn deal

Published 04/04/2016 | 22:06

Alaska Air is buying Virgin America (AP)
Alaska Air is buying Virgin America (AP)

Alaska Air is buying Virgin America in a deal worth 2.6 billion US dollars (£1.82bn).

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Alaska hopes to become travellers' preferred airline on the West Coast and a tougher competitor to giants American, Delta and United on transcontinental routes.

The deal would vault Alaska over JetBlue - the losing bidder for Virgin America - to become the nation's fifth-biggest airline by passenger traffic.

Since it started flying in 2007, Virgin has helped bring down fares on transcontinental routes between California and New York.

Some analysts believe the merger will reduce bargain fares. Mergers and acquisitions have already reduced nine major US airlines to four and made it easier for the survivors to limit flights, an indirect way to avoid cutting prices. Now two smaller carriers are combining, again leaving passengers with fewer choices.

"We think (Virgin) was a price disruptor in the industry, so we think we will see less discounting on these routes," said Jim Corridore, an analyst with S&P Capital IQ.

But Alaska's CEO, Brad Tilden, said Alaska and Virgin thrive because they keep their costs - and as a result air fares - lower than bigger airlines.

"We don't have any intention of straying from that strategy," Mr Tilden said.

Alaska faces the risk that Virgin's most passionate passengers will not like their new airline. The combined company plans a campaign to keep those key customers happy and flying.

"I think our biggest advocates, because they are so invested in the brand, will be disappointed," Virgin America CEO David Cush said in an interview. "We are going to make sure that we spend the proper amount of time with them to explain that we think this is a good deal."

Alaska ranked second among US carriers in on-time performance last year, trailing only fair-weather Hawaiian Airlines. Virgin was fifth. Alaska had the industry's lowest complaint rate. Virgin's rate was in the middle of the pack, three times higher than Alaska.

While Alaska charges bag fees, it was the first to add a guarantee - if a checked bag is no t at the pick-up area within 20 minutes, fliers get 25 dollars off a future trip or 2,500 bonus miles.

The proposed merger would give Alaska a bigger presence in Virgin's key markets of San Francisco and Los Angeles and a foothold at busy airports in New York and Washington DC.

Mr Tilden said the goal is to be "the premier airline for people along the West Coast".

"One of the main things customers want is for you to fly them to places they need to go. This is going to put us in a better position to do that," Mr Tilden said.

The combined airline would operate about 1,200 daily flights and control 5.5% of domestic air travel, compared with 4.2% for New York-based JetBlue. It would still lag far behind American, Delta, United and Southwest. Those four control 83% of domestic seats, according to an Associated Press analysis of data from Diio, an airline-schedule tracking service.

It will be based in Seattle with Mr Tilden as its CEO. Alaska said the deal would add to its adjusted earnings per share in the first full year.

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