Will The DOJ Force Alaska To Cut Ties With American Or Delta?

In April it was first announced that Alaska would be taking over Virgin America in a ~$2.6 billion deal. Many of us didn’t see this coming, though as the deal progressed we learned that Alaska and JetBlue were both wanting to buy Virgin America, which is why the bidding went so high.

Alaska-Virgin-America-Merger

We still don’t actually know what the future of Alaska and Virgin America will look like in terms of branding, and it sure seems like Alaska doesn’t know either, as they’ve gone back and forth.

For a while Alaska had set a deadline of yesterday (October 17, 2016) for the deal to close. However, last week we learned that wouldn’t happen, though they didn’t provide a specific reason, other than stating that they were making “good progress” towards the deal closing.

The rumors have been that this involves the DOJ, given the series of airline mergers that have happened, and that this merger will reduce competition in the US even further. Well, now it seems like we have a more specific idea of one of the things that might be causing the delay. Specifically, the DOJ wants Alaska to cut their codesharing ties either American and/or Delta, to be sure that sufficient competition remains. Per Reuters:

The late-stage discussions included the possibility of Alaska jettisoning part of one or more code-sharing agreements it has with larger U.S. carriers as a concession for winning antitrust approval, one of the people said. Alaska Air and Virgin America had agreed not to close their merger until Oct. 17 so the Justice Department could finish its review.

The U.S. Transportation Department must approve code-shares involving U.S. airlines to ensure they do not restrict competition.

“The most problematic requirement would be that Alaska drop its domestic codeshares with American and Delta. We estimate these relationships drive close to an estimated $350 million of annual revenue to Alaska,” JPMorgan analyst Jamie Baker said in a research note last week.

This could certainly have big implications for Alaska. We know that Alaska and Delta have been frenemies in Seattle for a long time, and it sure seems like they hate one another. At the same time, they both seem to realize they’re better off working together in some ways than separately.

So perhaps this will be the straw that breaks the camel’s back, so to speak, and this will finally cause Alaska and Delta to cut ties. Or who knows, maybe we’ll be surprised and see them cut ties with American, odd as it might seem. Or maybe the concessions will come in the form of limiting the routes on which the airlines are allowed to codeshare, without discontinuing either partnership.

Alaska-737

Bottom line

It seems like the DOJ is holding up the Alaska and Virgin America deal, and more specifically, Alaska’s codesharing agreements are at least part of the conversation. It’ll be interesting to see if this situation finally causes Alaska and Delta to cut ties.

How do you see this ending for Alaska?

Comments

  1. As someone who flies AKAir out of Alaska even with the reduced reward miles on American and Delta I like that I can do almost all my trip segments whereever I go under AKAir’s reward program and enjoy my status on its partners, as well as generally avoiding United & SW Airlines. Loss of either of these partnerships / codeshares would really decrease the value of AKAir reward program due to lack of loss of international segments and make it more difficult to maintain status on all three airlines.

  2. The DOJ definitely have their heads screwed on backwards. They essentially killed most competition by allowing the big mergers of CO/UA, NW/DL, AA/US, and now are trying to close the barndoor after the horse has bolted by sticking the AS/VX merger? Cretins, all of them

  3. @uk:

    I don’t think it’s that DOJ has their heads on backwards as much as it is that the Big 3 have deeper pockets for lobbying and, well, buying off government officials. I mean, let’s call a spade a spade and just admit that the airlines outright bribe officials. I have a feeling the UA flight for the head or Port Authority is just the tip of the bullshit iceberg when it comes to lining the pockets of government officials – Smisek just got caught.

  4. If I were Alaska I would agree to give up all Delta code shares… I have a feeling that partnership is ending any way…

  5. Anyone concerned that Alaska is just going to take over the few Virgin slots in congested airports that they wanted, return all the Virgin planes, and essentially shut down the airline. They could probably justify the price they paid with the additional revenue from not having another competitor.

  6. Alaska should dig its’ heels in and tell DOJ to back off……..Keeping the code shares does so much more to make a 4th carrier than not……….DOJ stop taking Big 3 bribes………….

  7. This makes no sense. Doesn’t AS’s multiple partnership encourage competition between DL and AA? Forcing them to choose one will result in deeper collusion with one partner rather than competition between the two partners. The only way this DOJ move would make sense would be if they though DL and AS were colluding (i.e. not competing for code shares)… in which case, they should pursue anti-trust cases with DL and AS, rather than going after AS.

  8. I think AS will return the AB as most are leased and AS is all Boeing. AS should drop DL they do really nothing for AS, not that their not a bad carrier, actually pretty good service these days.

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