Alaska Air has announced it is buying Virgin America, beating out rival JetBlue in a bidding war and leapfrogging the latter to become America's fifth-largest airline. The company paid $57 per share in cash for Virgin America (a total of $2.6 billion), but says the deal's aggregate value is nearer to $4 billion once items like debt and aircraft operating leases are taken into account.
Virgin America has a strong brand in California
Both Alaska Air and Virgin America have a solid footprint on the West Coast, and the merger will allow the combined company to strengthen its presence in key cities like San Francisco and Los Angeles. In a press release, Alaska Airlines says that getting a better foothold in the key California market offers a clear "platform for growth."
Despite being just nine years old, Virgin America has a particularly strong brand in California, where it's often praised by the denizens of Silicon Valley. And although it's only America's ninth-largest airline, it's the second largest in San Francisco in terms of seats offered (even if its 10 percent of the city's capacity is overshadowed by United's 40 percent share). Alaska Airlines CEO Brad Tilden told The Wall Street Journal that the company will "spend a couple of years" working out how to best take advantage Virgin America's brand, although fans of the company will be hoping this doesn't mean cutting costs.
whaaaaaaa— ಠ_ಠ (@MikeIsaac) April 2, 2016
please dont crapify virgin b/c i love it https://t.co/c1MKTrioNO
The combined footprint of Alaska Air and Virgin America. (Image credit: Alaska Air)
Both Tilden and Virgin America CEO David Cush are confident that the companies will receive regulatory approval for the merger, although this could still take a year or more. "We have very little overlap," Tilden told the WSJ. "Our belief is these are complementary networks and this will get regulatory approval." And while the resulting airline will become America's fifth-largest, it'll still be small compared to the ruling quartet, which between them oversee more than 80 percent of US domestic capacity.