Alaska Air buys Virgin America, but what does it really get for $4 billion? The deal that was announced on Monday calls for Alaska to pay $57 per share in cash. That is a 47 percent premium to Virgin’s closing price last Friday. The deal vaults Alaska ahead of rival, and losing bidder JetBlue, to become the fifth largest airline in the nation. The merger is seen as a way for Alaska Airlines to increase its pricing power due to the removal of one of its competitors. Mergers and acquisitions have reduced nine major US airlines down to four, making it easier for the remaining carriers to limit flight capacity.
Alaska Air buys Virgin America, what comes next?
The combined airline will control around 5.5 percent of the domestic air travel market. This means Alaska will still lag way behind American, Delta, Southwest, and United. Comparing the 2 air carriers route maps, it looks like Alaska does not really gain any new destinations from this merger. It does give Alaska some slots at La Guardia Airport in New York, but they already had access to the airport via code sharing flights with American Airlines. The biggest question is whether Alaska overpaid for the small airline with only about two dozen destinations. The reply to that question has been that it was a once in a lifetime opportunity to grow overnight in California, while strengthening their hold on Oregon and Washington. The deal is expected to generate $225 million a year in cost savings. It will also expand Alaska Airlines presence the East Coast by adding Virgin America’s slots at the controlled airports of Washington Reagan National, and New York City’s John F. Kennedy International and LaGuardia. The new merged air carrier will be based in Seattle, Washington.
Image from www.alaskaair.com