Last updated: 10:01 AM ET, Tue April 05 2016

It's Official: Alaska Air Group to Buy Virgin America

Airlines & Airports | Josh Lew | April 04, 2016

It's Official: Alaska Air Group to Buy Virgin America

Illustration courtesy of Alaska Airlines

Alaska Air Group, the parent company of Alaska Airlines, made its purchase of Virgin America official on Monday. The Seattle-based carrier will pay $2.6 billion in cash, or roughly $57 per share, for the U.S.-based branch of Richard Branson’s Virgin air empire.

The fact that Virgin America has been sold is not surprising. Rumors had been swirling for more than a week after Bloomberg published a report that quoted insider sources as saying that a deal was imminent.

Surprising winning bidder

Even late last week, most of the speculation was focused on JetBlue, which seemed like a natural partner for Virgin America because few of their routes overlapped. Alaska Airlines was reported as another bidder, but was not really considered the frontrunner.

Over the weekend, however, reports emerged saying that Alaska Air Group had outbid JetBlue and would be acquiring Virgin America.

Approval still needed from regulators

The deal is basically done. It has been approved by the boards at both Alaska and Virgin. However, regulators still have to look into the deal and then give their approval, while Virgin America’s shareholders also have to give their blessing to the deal. These things could take time.

Regulators will undoubtedly take a close look at the merger. They tried to block the last major merger in the U.S. airline industry, between American and U.S. Airways, with an antitrust lawsuit. The suit was eventually dropped, but it did show that authorities are worried about a lack of competition as airlines continue to merger, giving fliers fewer and fewer choices.

Where will this new airline fly?

Alaska Air CEO Brad Tilden didn’t seem worried about regulators when he hyped the new merger in a press release: “With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel. We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as stand-alone companies to make us an even stronger competitor nationally.”

Actually, it is not surprising that Alaska made the highest bid. It has long been America’s most financially sound airline. Ironically, the new Virgin/Alaska will become the fifth largest carrier in the United States (after Southwest and the three legacy carriers). JetBlue, the losing bidder in the competition to merge with Virgin, used to hold the fifth spot, but it will now drop to sixth.

Alaska Airlines fliers can expect a greater selection of cross-country flights, more options on the West Coast (Virgin’s hub is in San Francisco), and more services to Mexico and Hawaii. The biggest question that many people have is whether or not Virgin’s trademark hipness will find its way onto Alaska Airlines planes. That remains to be seen. Virgin fliers, meanwhile, will get more West Coast options and more flights to so-called secondary markets. So it seems like a win for everyone involved. The only thing that could make this merger less attractive is if the newly mergered airline had higher ticket prices. That is the danger that comes from having two airlines that operate in the same region.


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