Is Alaska’s Takeover Of Virgin America In Jeopardy?

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

Unfortunately there have been rolling delays in the closing of the deal. Initially the deadline for the merger to close was October 17, 2016. However, it looks like the Department of Justice isn’t approving the deal without some concessions, which are causing big delays.

Alaska-Virgin-America

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. On top of that, the DOJ is allegedly also asking the new airline to give up several gates in both Los Angeles and San Francisco. Combined, these changes could cost Alaska hundreds of millions of dollars in revenue per year, so you have to wonder how they’re feeling about the deal now.

A couple of weeks ago Bloomberg published that Alaska and the DOJ had apparently reached an agreement, and that the deal should close by the end of November.

Well, it’s now December, and there’s still no sign of the deal closing.

TravelSkills reports that apparently negotiations between the Department of Justice and Alaska aren’t complete, and that the Department of Justice will make a decision by the end of the year. So that means it could be another month until the DOJ makes a ruling, and then we could still see Alaska try to contest it. In other words, it’s looking like Alaska won’t take over Virgin America until 2017.

At some point you have to wonder if Alaska might consider bailing on this deal. Arguably they’re already way overpaying for Virgin America, and that doesn’t even account for the potentially major concessions they’ll have to make, which could cost them hundreds of millions of dollars a year in revenue.

The fact that this deal still hasn’t closed and is continuing to be delayed suggests to me that Alaska and the DOJ can’t come to an agreement on the terms. You almost have to wonder if somehow they’ll string this along until the new administration, in hopes of them not requiring as many concessions. That’s entirely speculation on my part, and I’m not even sure what that would look like in practice.

However, something doesn’t seem right here. At a minimum, I don’t think this deal is a sure bet anymore.

What do you make of this situation — will Alaska’s takeover of Virgin America happen, or do you think it will fall through?

Comments

  1. I’d guess that alaska is willing to delay the deal to negotiate with a more business friendly DOJ under the new administration

  2. The JetBlue idea is an interesting one. That would connect them east-west, the airlines serve similar clientele, etc.

    It’s a little odd that the DOJ is worried about a lack of competition with the domestic airline now. Could be someone from the legacy carriers is whispering in a regulator’s ear?

  3. So NOW the DOJ cares about competition after all these mergers that have left us with just three legacy airlines that pretty much control the market? That’s rich.

  4. The only reason this merger is contemplated to save the ultra-liberal (mental disordered) Sir Richard Branson’s investment in Virgin America, which is 1% below the legal allowance for a foreign national. He wants to cash out. This merger shouldn’t even be allowed. Alaska should have merged with American, and US Airways should not have been allowed to merge with ANYONE.

  5. @Jay_dubya I’m not so sure about that. Trump has expressed a lot of skepticism about big mergers in the past. But then again he hated Wall Street just until AFTER the plebeians elected him, so maybe he’ll change his tune on mergers too.

  6. I need this merger to go through ASAP, because my virgin miles are pretty much worthless when it comes to redeeming them for international flights to any place someone would want to go.
    Emirates redemption is ridiculously priced.
    Atlantic ( if that relationship still xists has some ridiculous taxes)
    Singapore ( non existent )
    Virgin australia – only redeemable us hub is LAX
    Hawaiin – can only redeem to and from hawaii

  7. Well if there is a problem with the merger their stock price sure isn’t showing it. It’s done nothing but go up up and up.

  8. I’m really hoping for this to go through so I can use my Virgin America points to fly from Nashville to Seattle on Alaska. Been dreaming of this trip for a while now.

  9. Hi Dennis. There’s always Greyhound. I found a $119 fare on January 4. 62h 45 mins. Eesh. Free wifi, tho. Interesting people!

  10. American/US approved creating world’s biggest airline and insuring airline oligopoly.

    But tiny Alaska/Virgin not approved for hindering competition.

    hahahahahaha, dat DOJ got a sense of humor.

  11. Hmmmmm . . . where to start?

    YES, the idea that the DOJ is balking at this merger, after allowing American/USAir, Delta/Northwest, and United/Continental *is* indeed laughable.

    I see no reason why (e.g.) giving up Alaska’s present gates in SFO’s International terminal should be a problem for anyone — just keep the gates in T2.

    I’m “Gold” w/Virgin America, and my wife is “Silver” vis-a-vis elite status. And while our miles will no longer transfer to Virgin Atlantic (which we used to fly on a regular basis using VX points), they do transfer to Singapore and Virgin Australia. (Since we travel to Europe more frequently than to Asia, that’s a loss that truly hurts.) Now, granted, finding award seats can always be an issue, but even in the worst case scenario, we have enough points for free domestic travel for several flights if the merger does fall through.

    Given Delta’s aggressive strategy @ SEA, I would think that it would be easy for Alaska to give up any codeshares with Delta. They are far more like “frenemies” than true partners. American should be taking advantage of that and strengthening their ties with Alaska to whatever extent they can, short of Alaska joining OneWorld and losing its independent status. Now, if the DOJ is pushing for Alaska to sever ties with American and keep those with Delta, it’s a whole other story . . .

    I am certainly not an airline professional, nor do I have any special insight into these things; I am just a consumer. But even at the time of the initial bidding, a merger with JetBlue made far more sense to me than it did with Alaska. It still does. They are both dedicated Airbus fleets; they have complimentary and synergistic routes/strengths on each of their respective Coasts; etc, etc. The problem now — should the VX-AS merger fall through — Virgin has lost several partner airlines and, in order to remain viable, they would need to reestablish some ties very quickly. OR . . . JetBlue would have to (and hopefully) come to the proverbial rescue.

Leave a Reply

Your email address will not be published. Required fields are marked *