Last updated: 10:49 AM ET, Thu March 24 2016

Is a Virgin American Merger On The Way?

Airlines & Airports | Josh Lew | March 24, 2016

Is a Virgin American Merger On The Way?

Photo courtesy of Thinkstock

Yesterday, Bloomberg reported that Virgin America was reaching out to potential buyers in an effort to sell part or all of itself. Investors responded positively to the news, as the stock price went up 14 percent during trading on Wednesday.

The move shows that, although there won’t be any major mergers amongst legacy carriers for the time being, the era of consolidation might not be over just yet.

Virgin America's recent success

The move to sell is not, as many might expect, a case of a struggling company looking for a lifeline. Virgin America is a relatively small carrier, but it has been profitable of late. 2015 was a banner year, and it was the third straight year of profitability.

Virgin has been expanding its rather limited number of routes. It recently added flights to Denver and Hawaii, and it has also made improvements to its in-flight offerings by adding faster Wi-Fi and testing the idea of offering Netflix to passengers for free.

It looks like the next move for Virgin America will be to continue its growth with the help of a new partner or a new owner. Nothing official has been announced yet, so there is still a chance that the rumors could end up coming to nothing. Also, Virgin has yet to comment on the Bloomberg piece. 

READ MORE: Virgin is Luring Travelers with Connectivity and Content

Who could be interested in merging or taking over Virgin America?

Delta currently has a large minority stake in Virgin America's sister airline, Virgin Atlantic. Would Delta, which has become known for acquiring shares of smaller airlines, want a piece of another member of the Virgin Group? Or would another of the legacy carriers be interested in gaining control of the newest and coolest brands in the U.S. airline industry?

It is certainly not out of the question that a larger airline would want a controlling share of Virgin America. United Airlines is making in-roads in San Francisco, so it could benefit from Virgin's hub there and perhaps use it as a feeder service for its growing number of international flights.

International airlines

Another possibility is that international carriers would like to use a majority stake in Virgin to increase their reach in the United States. Chinese carriers such as Hainan Airlines have been trying to expand in the U.S. Acquiring a small airline like Virgin America might be a great way to speed up the process and provide an already-build network of connecting routes.

READ MORE: Virgin America Starts Fare War With Hawaii Flights

A merger of peers

Then there is the possibility of a merger of airlines that are (more or less) peers. JetBlue, with a strong presence in the East and Southeast, could benefit from joining forces with Virgin America, with its Western hub and cross-country routes.  

Unlike the legacy carriers, JetBlue, like Virgin, has a youthful, cool image and next generation in-flight entertainment offerings. So although JetBlue’s network is bigger, this would be a more-equal merger than if Virgin was bought by a larger legacy carrier or a major overseas airline.

There has been no official news or specific rumors at this point, so Virgin could still pull back and continue to operate as an independent carrier. That said, there would be some benefits for them if they choose to merge with another airline. 


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