Breaking: DOJ Approves Alaska & Virgin America Merger, But At A Cost…

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, which have been caused by the Department of Justice not giving the deal their blessing. 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 allegedly also asked 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.

Last we heard, it sounded like the merger’s closing was being pushed off until 2017, though that seems to have abruptly changed, as the merger is finally proceeding.

Bloomberg is reporting that Alaska Airlines has won U.S. antitrust approval for their acquisition of Virgin America. Unfortunately it’s coming at the expense of much of their codesharing agreement with American, apparently. I guess we’ll soon see what that looks like in practice.

Alaska-Virgin-America

Per the article:

Alaska Air agreed to “substantially reduce” the scope of a codeshare agreement with American Airlines to preserve competition, according to a filing Tuesday in federal court in Washington. The codeshare agreement allows each airline to market tickets for certain flights on the other’s network.

The agreement with the Justice Department likely clears the way for the completion of the deal. The combined airline will become the fifth largest in the U.S. based on passenger traffic, displacing JetBlue Airways Corp., which lost to Alaska Air in the bidding to link up with Virgin America.

Wow! That’s an interesting twist for sure. What’s funny is that Alaska and Delta have been feuding in Seattle for years, though have continued to partner. You’d think that they would have tried to cut some ties with Delta first, but I suppose both airlines have realized that they’re better off working with one another than against one another.

I’ll be curious to see how much the partnership between Alaska and American is being cut, and what that looks like in practice. We still don’t know when exactly this deal will close.

What do you make of this development?

Comments

  1. Not surprising, since American is one of the largest airlines in the world after they merged with US Airways. Worry about your Alaskan Airline portfolio!

  2. We expect the ‘frenemies’ relationship with Delta to get even more terse as American will have no incentive going forward to work with Alaska. Every man for himself and the Battle in Seattle will grow exponentially! It will also shall develop into the West Coast Battle in short time!

    Secondly, we dot see the code-sharing continuing indefinitely with Delta. With the departing of CEO Richard Anderson from Delta the relationship may have gained a longer life….but eventually Delta will break off ties with Alaska Airlines.

    Running to the store to buy some more popcorn to watch this reality show from the front lines!

  3. We expect the ‘frenemies’ relationship with Delta to get even more terse as American will have no incentive going forward to work with Alaska. Every man for himself and the Battle in Seattle will grow exponentially! It shall develop into the West Coast Battle in short time!

    Secondly, we do not see the code-sharing continuing indefinitely with Delta. With the departing of CEO Richard Anderson from Delta the relationship may have gained a longer life….but eventually Delta will break off ties with Alaska Airlines.

    Running to the store to buy some more popcorn to watch this reality show from the front lines!

  4. According to the press releases I’ve seen:
    “Alaska did agree to LIMITED changes to its codeshare agreement with American Airlines.”

    From what I’ve read, it’s mostly on those routes where Virgin overlapped with American.

  5. DOJ did the right thing by limiting codeshares between AS and AA to promote competition. Depending on what “substantially reduce” means in terms of domestic and international routes, this could also lead to AA reevaluating its overall relationship AS. The overall merger lucked out in not having to divest gates at key hubs as AS and VX do not have much overlaps in their route network currently. It would be interesting to see how DL would respond at SEA as this DOJ sidebar would reopen some new opportunities.

  6. I see this as bad news for consumers, as I have seen the other airline mergers in the past.

    I am not too optimistic about what this will bring. All I can do is hope that this will not a) drive up prices in the markets I fly, b) reduce the benefits of the Alaska frequent flyer loyalty program c) reduce the available inventory to use my declining valuable Alaska points.

    However, I am pleased that this may only be limited changes. Also, I am pleased to see them keep Delta, as lately American has just been getting worse and worse.

  7. Nooooo! I was planning to drop AAdvantage and do a status match to Alaska since I won’t spend enough EQDs and pretty much all my flights are either AA or AS.

  8. AA will continue to build it’s presence at LAX. SEA is not a particularly desirable portal for flights headed West towards Hawaii and Asia. If Alaska uses the newly acquired routes from Virgin and to offer more flight options to EWR, I will fly them in a heartbeat. Going to JFK from NJ is a hassle. If I can head to EWR for a flight to LAX on Alaska, I will choose that over JFK on AA if the price is the same. I think AS is a very good airline and have never had any issues with them. I wish them the best of luck.

  9. Ben must really hate this deal he always talks about how AS overpaid, News flash if Jetblue was willing to pay close to the deal price they did not over pay. Now lucky says “Unfortunately it’s coming at the expense of much of their codesharing agreement with American, apparently. I guess we’ll soon see what that looks like in practice” What the press release says is the majority of codeshares will remain intact.

  10. Lucky, you really should stick to travel reviews and credit cards. Your understanding of the facts here is either just off or intentionally mistated. Either way Brietbart would be proud.

    In no way is “much of” the codesharing agreement with American affected. It’s essentially limited to the routes where Virgin and American had been directly competing. Conceivably (and remaining to be seen) American and Alaska could add codeshares on Virgin routes that did not directly overlap with American, which would offset the codeshares they are supposed to drop.

  11. I just wish they would codeshare/market DFW-SEA so I could get back to earning full AS miles on AA flights that have far better time options. I have been forced to do DFW-PDX-SEA on the return every week.

  12. Alaska is going to have a stranglehold on transcontinental slots at Reagan National. Those slots out west are few and far between, and Alaska is going to have the vast majority of them. With Reagan being the airport of choice for most of DC those routes should be very profitable for Alaska with high fares.

  13. @Lucky —> Alaska has said that codeshare concessions will affect 45 of their markets, as quoted on Bloomberg.com (https://www.bloomberg.com/news/articles/2016-12-06/alaska-air-wins-u-s-approval-for-virgin-america-takeover)

    According to Gary over at View from the Wing, the biggest markets/routes affected are:
    Los Angeles – New York JFK, Boston, Seattle, and Chicago
    San Francisco – Chicago, Dallas

    So I am *guessing* that — for example — Alaska, which both flies into DFW and currently codeshares with American on flights into DFW, will a) stop all codeshares with AA into DFW; b) continue to service DFW on AS flights, as they currently do; and c) continue to service DAL using their Virgin America routes . . . I can’t see them giving up DFW altogether.

  14. The DOJ ruling isn’t as bad for AS as it could have been, given the delays and the DOJ’s slapdown of QF and AA last week. I was expecting them to be ordered to drop either the DL or the AA codeshare outright, or at least have to reduce domestic codesharing much more than they have. The revenue hit from the AA codeshare limitations will be in the tens of millions a year, apparently – annoying, but not anything that would change the overall economics of the merger.

    I saw a report CrankyFlier linked to (I bookmarked it on my PC at work and deleted the e-mail, so I can’t get to it right now) that also stated that AS will have to have approval if they want to give up any slots at LGA or DCA or gates at DAL, but no divestiture is required. I’m guessing that smaller players would be given first shot at any LGA or DCA slots, and new entrants given first chance for DAL gates; if there were no new market players at DCA then I’d guess it’s “anybody but WN”.

    It seems a bit harsh, given the DOJ’s rather laissez-faire attitude toward mergers in the last decade, but all in all it really isn’t that big of a deal right now. The impact on future growth could be more significant, as the AA codeshare is now limited and I expect the DL codeshare to continue to shrink. Growth is going to have to come the old-fashioned way now.

  15. Not surprised to see them choose to dump the skunk that is the new AA rather than strong Delta. I just wonder why they think the Delta link has a future.

  16. As someone who flies from Victoria, I’m interested to see how this plays out. Seattle makes a nice alternative to Vancouver and the competition heats things up quite nicely while I wait for YYJ to be a true international airport.

  17. Very happy with this merger as I have been flying with Alaska for 40+ years. Fly a lot to Seattle so hoping for som competitive fares while AA AK and Delta battle it out.

  18. @tassojunior I’m not sure AS was given a choice on which codeshare relationship to cut back. The AS/DL relationship has been slowly shrinking ever since DL launched the “Battle of Seattle”, and I believe the DOJ saw the AS/AA relationship as reducing competition more than AS/DL.

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