Despite The Merger, The Virgin America Brand May Not Be Going Anywhere

In April it was announced that Alaska would purchase Virgin America in a $2.6 billion deal. Most people seemed to agree that Alaska way overpaid for Virgin America, though as more details emerged, it became clear that there was a bidding war. Ultimately Alaska wanted to keep Virgin America away from JetBlue, since the airline would have become a huge threat to their hometown markets with such a merger, when you combine JetBlue’s East Coast presence with Virgin America’s West Coast presence.

Given that both Alaska and Virgin America are based on the West Coast, they’re marketing themselves as the “premier West Coast airline.”

Alaska-Virgin-America-Merger

Up until now we’ve been told that the Virgin America brand will cease to exist, with Alaska being the surviving brand. However,  the “Virgin America brand could continue to serve as a role in driving customer acquisition and loyalty,” which seems like a nice way of telling Virgin employees that they better start learning about Alaska. 😉

While it goes without saying that Alaska is in charge with this merger (given that they’re the ones making the purchase), it seems to me like they’d be giving up a lot of brand equity.

While Alaska is beloved in the Pacific Northwest, once you leave the West Coast people know very little about the airline. Most people assume the airline is based in Alaska, as the name suggests, rather than Seattle.

Alaska-737

Personally I think they’d be much better off maintaining the Virgin name, at least to some degree. Virgin is a globally known brand, and is almost universally loved. While the airline’s business model left a bit to be desired prior to this takeover by Alaska, they were still a beloved airline.

Well, it looks like Alaska’s management might be coming to their senses, and realize that there is value to the Virgin America brand. Alaska’s management is considering keeping both brands around, as many other merged airlines outside the US have done.

Virgin-America

Per Scott Mayerowitz at the Associated Press:

Alaska Airlines CEO Brad Tilden said Wednesday that he might keep the Virgin America brand, running it and Alaska as two different products within the same airline group.

A decision hasn’t yet been made but Tilden noted that European carriers have kept their own identity following mergers.

“We are looking at that because we do believe in the power of the Virgin America brand and we don’t want to lose all that loyalty and revenue that exists today,” Tilden said at the end of a speech at The Wings Club, an aviation professional group that frequently hosts CEOs as speakers.

In a brief interview with The Associated Press after the speech, Tilden said he is “taking a good look at running two brands for some period of time, perhaps forever.”

There have plenty of airlines outside the US which have done this before. For example, British Airways and Iberia have the same parent company, Lufthansa and Swiss have the same parent company, and Air France and KLM have the same parent company. So while the carriers are aligned in many ways, they maintain their individual identities.

Bottom line

Kudos to Alaska for realizing the value in Virgin branding. I’m curious to see what they end up deciding on. If they otherwise align operations enough, I could see merit to them keeping around both the Alaska and Virgin America brands, and continuing to operate them independently. Both are strong brands in different markets.

Hell, sometimes I wish American would do that with US Airways, so I could know which planes to avoid. 😉

What do you think Alaska should do — kill the Virgin America brand, maintain both brands, or adopt the Virgin brand (which isn’t happening)?

Comments

  1. That’s a great move Alaska – if you’d really pull it off that way. This strategy could only work if the two airlines involved are beloved and respected. But if Frontier were to buy Spirit? oh hell, I’d drop the Spirit name in a heartbeat!!!…and consolidate asap!!!…or better yet, come up with a new name.

  2. Just call it Virgin Alaska, install some northern lights themed mood lighting and be done with it…

  3. Two good brands…. as we say “it’s a quality problem to have”.

    I’m excited about this. Alaska’s customer experience (and focus on those paying the fares) is second-to-none.

  4. No opinion on the name other than to say that I have never thought there was that much difference between Alaska and the Big Three domestic carriers. They have average to good customer service which is really par for the course on American airlines. The only areas where they excel is with when you have a problem that isn’t resolved on the day of your flight, they tend to not blow you off like some operators do. Not exactly a customer service aspect that I think should be used to set them apart because hopefully it is an infrequent experience. That said, I think it may also be that I do not fly with them regularly so there’s a limited sample size. Virgin America on the other hand- same issue of limited experience with them notwithstanding- has never left a bad or even mediocre impression with me.

    Either way, unless I move west (not happening) I can’t see either airline being all that important to me and branding is generally pretty far down on my list of concerns. Call it “Polished Turd Airlines” for all I care so long as the staff aren’t rude, the seats are reasonably comfortable and you can get me where I am going with minimal fuss or delay.

  5. As long as they harmonize on the AS frequent-flyer program, I don’t care that much. I have mostly liked flying both of them, so if they want to keep both or go with either one exclusively it’s fine by me.

  6. Giel’s suggestion about the Northern Lights mood lighting is pretty darn great.

    I think ditching the Virgin America brand will equate to ditching customers. I know plenty of people who love flying Virgin America. Why risk alienating a bunch of customers? These people may take their business elsewhere instead of flying the same route on Alaska. Plus, Alaska now can introduce its product and routes to loyal Virgin customers. Isn’t the possibility of more business a good thing?

  7. Alaska is known for thinking outside the box – an innovative edge that has served them well.
    I love AS and I love VA, so why not keep both brands? This would be great for the employees (and loyal customers) at both airlines. If anyone can pull it off successfully Alaska can.

  8. It’s worth noting, from the perspective of having lived in the PNW for decades, that Alaska already played this script out with the Horizon JV-eventual-merger. Every couple of years the “Horizon” logo on the Q400s gets smaller and smaller… but it’s still got a tiny “Horizon” on the planes.

    It was “Horizon by Alaska” for awhile, after “we are a separate brand” for quite a long time.

    As long as operations merge, though, I could care less about what’s written on the planes.

  9. IF AAG can keep their costs in check, I’m with Tachyon and SAN Greg: why not keep both brands? VA can keep being their stylish LCC battler (ie. compete with WN and B6) while AS can focus on winning share away from the US3 esp. DL in the PNW.

    Also: lol @zo

  10. Virgin America pays a material royalty for the use of the Virgin name, which undoubtedly will play a major role in Alaska’s decision.

    Per Virgin America’s 2015 10-K: “In connection with the 2014 Recapitalization, we and certain entities affiliated with the Virgin Group entered into amended and restated license agreements related to our use of the Virgin name and brand, which provided for, among other things, an increase in the license fee that we pay to the Virgin Group from 0.5% to 0.7% of total revenue commencing in the first quarter of 2016 until our annual revenue exceeds $4.5 billion.”

  11. I am sure that there is something in the documents addressing royalties and frankly if your making money then the “vig” is just a cost of doing business. I much prefer the VA product over the still stale AS product, there are things AS just can not seem to get right, but they make money. However others are nipping at their heels hence the buy.

    Look for FF’s it’s all about points and status so if their reciprocal who cares, really.

  12. I love Virgin America, and would definitely go out of my way to fly them over another domestic airline. The same is not true about Alaska. If they can pull the European style merger off, that would be the best merger ever! There is tremendous value in the Virgin brand, much more so than Alaska. This would also allow Alaska to keep their “Proudly all Boeing” titles,

    To the other people above, if you call it “Virgin Alaska,” people will still think it’s based in Alaska.

    And to the people commenting on the royalty, so keep in mind the cost to repaint and refit Virgin America’s entire fleet.

  13. This would be great if it came to pass. Virgin America is the only US airline I go out of my way to fly (after that its just schedule/price considerations), and it has been dismaying to think the brand was going away.

  14. I think the royalties to Virgin for the brand could be a swing factor here, as a few people have mentioned. 0.7% total revenue is a very significant cost in an industry with generally thin margins. What this comes down to is whether customer loyalty to Virgin America can offset the significant royalty payments.

  15. It makes sense to keep the Virgin brand around given its brand equity. Also, this would suggest that Alaska’s plan is to keep/gain market share in an out of SFO and California generally, not shift more capacity to Seattle (as Mike suggested)

  16. This a great idea. By operating Virgin as a separate airline, Alaska can increase their presence at SFO without impacting their on-time percentage.

  17. I am one of those who goes out of my way to fly Virgin, while apart from them, it’s simply schedule and fare. I think the attitude of the Virgin employees is more upbeat and fun – like it’s actually cool that you’re flying somewhere, rather than acting like mean schoolteachers, almost scolding the customer. I like the Virgin sexy lighting, their safety video rap with nuns, the soap in their bathrooms doesn’t dry my skin out and isn’t the total lowest-cost-possible item that it is on all other airlines…let’s see; what else – their ordering from the seat is fantastic and of this century; they have free episodes of House of Cards. I truly hope that Alaska operates the two brands separately. I live in SF and love their choice of routes from my city.

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