The “New” Alaska May Have To Give Up Gates At LAX & SFO, And More…

In April it was first announced that Alaska would be taking over Virgin America in a ~$2.6 billion deal. 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.

Alaska-Seattle

For a while Alaska had set a deadline of October 17, 2016, for the deal to close. However, prior to the deadline we learned that wouldn’t happen. It later became apparent that the reason for this was that the DOJ was concerned about this merger reducing competition too much, and they wanted some concessions from the new merged airline. Rumor had it that the DOJ was asking Alaska to cut codesharing ties with either American and/or Delta, to ensure that sufficient competition remains.

While this obviously isn’t officially from Alaska (their only statement about the delay in the merger is that they’re “making good progress”), TheStreet has a rumor of the concessions that Alaska is being required to make in order for the takeover to close:

A source familiar with the negotiations said in order to win DOJ approval the airlines have agreed to give up two to four gates in both the San Francisco and Los Angeles airports. Alaska will have to terminate its code-sharing agreement with Delta Airlines and limit its code-sharing arrangement with American Airlines to markets where neither Virgin American nor Alaska have service. It was unclear whether the code-sharing with American will have to wound down completely over time.

Ouch! Arguably Alaska already way overpaid for Virgin America (because they got in a bidding war with JetBlue), so it can’t be good if on top of that they’re going to have to give up 2-4 gates at LAX and SFO, and also terminate their codesharing agreement with Delta and limit their agreement with American.

Virgin-America-VX-plane-SFO

On the codesharing front I think it’s worth noting that terminating their codesharing agreement doesn’t necessarily translate to them cutting their partnerships and frequent flyer agreements. However, it very well could, given that there’s limited upside for airlines that are otherwise competitors with one another without a codeshare agreement.

At this point I suspect the deal will close given how far along they are, though I’m guessing they wouldn’t have paid so much for Virgin America if they knew they’d have to make these concessions up front.

Comments

  1. Stupid I say. Why is the DOJ so ridiculous and ineffective lately. Did they get a pay off from someone to force Alaska/Virgin to give up gates? Makes me wonder.

  2. Being a frequent flier on American, but crediting most miles to Alaska. I received a survey from Alaska asking me which MVP elite benefits I value most when flying on American. Seems like they are deciding which joint benefits they are planning to remove…

  3. The flying public always gets burned on these mergers. The DOJ has never disapproved any merger and the concessions are always just token moves to appease the public. Wonder how many “major” US carriers will be around in ten years? One, maybe two?

  4. Stupid, stupid, stupid . . . DOJ lets massive “mega-mergers” through with little or no restrictions (UA-Continental; AA-USAir; DL-Northwest) — even Southwest (4th largest US airline, and 1st in domestic passengers) and AirTran — and let two relatively small airlines attempt to merge and DOJ lowers the hammer!

    Alaska and Delta were self-terminate anyway, given Delta’s (seemingly) ever-increasing presence at SEA and its 49% stake in Virgin Atlantic. After all, VS and VX just cut *their* ties . . . but there’s no reason for DOJ to force Alaska and American to cut codeshare/partnerships/frequent flyer connections.

    As for giving up gates at SFO, that’s a no-brainer and would have happened anyway. After all, only TWO airlines fly out of SFO’s Terminal 2, American and Virgin America. I always presumed Alaska would move out of Terminal 1 into 2, utilizing Virgin America’s gates there, and surrender their gates in T1. I would think something similar would happen at LAX.

  5. @Jjmpdx yes +1, I would much rather keep the super lucrative DL and AA partnerships than the new Virgin routes and cabin mood lighting. I’m sure breaking this up is going to hurt all the award redemption options.

    The DOJ is catching up for not making concessions of the United/Continental and US/AA mergers and over-reacting now. It doesn’t seem fair.

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