The planned acquisition of Virgin America by Alaska Airlines
parent Alaska Air Group won't have the same profound effect on the corporate
and agency market as did predecessor deals among the major legacy carriers.
Neither Alaska nor Virgin America has the largest corporate footprints, neither
has the breadth of U.S. destinations that attract corporate contracts and
neither has a wide international network or participates in a global alliance.
Still, each carrier has fans among business travelers, particularly on the U.S.
West Coast, and the would-be new Alaska Airlines would offer them a broader
range of services.
Details are scarce regarding any potential new corporate
sales structures or strategies from the new Alaska; Virgin America and Alaska
will operate separately until the acquisition receives approval from
shareholders and federal regulators. One aspect is clear, though: Business
traveler customers of each will have a greater number of available destinations
post acquisition.
"With the purchase of Virgin, Alaska obtains eight
additional gates in San Francisco, six gates at LAX, two gates at Dallas Love
Field, 12 slots at LaGuardia, 23 slots at JFK, 15 slots at Newark and 10 slots
at Washington National," noted Cowen & Co. analyst Helane Becker in a
Monday research note. "The combined entity will operate 1,200 daily
departures and will control 16 percent of the market in San Francisco and 11
percent in LAX, as well as maintaining hubs in Seattle, Anchorage and Portland."
The addition of such key destinations, especially in the New
York metropolitan area, opens doors for Alaska, perhaps establishing it as a
more worthy competitor to American Airlines, Delta Air Lines and United
Airlines. "For consumers and smaller businesses, the benefits associated
with increased network breadth and improved in-flight experiences are
indisputable, in our view," said J.P. Morgan analyst Jamie Baker in a
Monday research note.
Alaska would bring aboard an airline with some Silicon
Valley enthusiasts—Virgin America CEO David Cush on Monday estimated 70 percent
of the carrier's corporate clients were technology companies, many of which are
multinational.
Still, whatever additional opportunities the airlines'
combined network brings, they will be confined to the United States. All but a
handful of destinations served by Virgin America and Alaska are domestic. Neither
Alaska nor Virgin America belong to the Oneworld, Star Alliance or SkyTeam
global alliances, though Alaska has codeshare agreements with several
international carriers, most notably American Airlines. Virgin America has
codeshare agreements with China Eastern, China Southern and Singapore airlines,
as well as Virgin Australia.
Alaska Airlines executive vice president and chief
commercial officer Andrew Harrison during a Monday conference call said joining
the two carriers' partnerships could create additional opportunity.
"Virgin America has some Chinese carriers and Singapore
Airlines, but … the bigger opportunity here is when you combine both of our
partners," he said. "We are going to be looking at all of this, at
all of their relationships and what makes sense. At this stage, it's too early."
Frequency's Future
After the acquisition closes, Alaska will envelop members of
Virgin America's Elevate loyalty program into its own Mileage Plan program,
according to a letter sent to Virgin America agency partners by senior vice
president of sales and planning John MacLeod.
"Alaska is committed to ensuring that loyalty members
of both airlines will maintain the same high-value rewards they've come to
enjoy in both programs—with access to an even larger network," according
to MacLeod, who noted the programs would operate independently until closing
but that the carriers would provide "updates and details on program
integration as we move closer to completing the transaction."
Res System
Commonality
Both Alaska Airlines and Virgin America use passenger
services systems furnished by Sabre, dodging the difficulties of integrating
independent reservation technology, a process that has bedeviled some merging
airlines in the past.
"Virgin America uses Sabre for its reservation system,
as do we," Harrison said. "Virgin America is a newer company, so we
are going to be looking hard at technology, especially across the commercial
realm. There are certain systems that we have here that I believe will move us
forward. A lot of work is to be done there, but we feel very confident we will
have a good process and come out with a better product."
Regulatory Questions
Alaska hopes to have all regulatory approval secured prior
to an expected transaction closing date of Jan. 1, 2017. The involved carriers
expect smooth sailing, but analysts aren't yet ready to completely rule out
federal interference. After all, the U.S. Department of Justice in 2013 shocked
the industry by filing an antitrust suit against the merger of American
Airlines and US Airways. That suit was
settled upon the carriers' agreement to divest slot pairs and gates at
several airports, including Dallas Love Field, where Virgin America picked up a
pair of divested gates.
Alaska and Virgin America, though, don't have nearly the
same size or breadth as American and US Airways did. In fact, Baker wrote,
there are only seven routes where Alaska and Virgin America overlap, and in
none of these will the acquisition reduce service to that of a single carrier.
He contrasted that with the 2010 acquisition of AirTran Airways by Southwest
Airlines, in which service on 15 routes was reduced to a single carrier, and
that deal was approved by DOJ.
Still, given the AA-US Airways experience, caution is
warranted. "Alaska margins are above those of the industry," Baker
wrote. "And Virgin's first-ever profits coincided uncomfortably with—wait
for it—the very consolidation (American-US Airways) that the DOJ now appears
to regret. Still, domestic [revenue per available seat mile] is languishing,
consumers are winning and the sector as a whole remains nicely profitable. It
is impossible to argue need-based consolidation in the
face of these realities, in our view."