Alaska Airlines Acquisition of Virgin America Approved by Department of Justice

T he commercial aviation industry in the United States officially shrunk a little more due to consolidation, as the United States Department of Justice approved the acquisition of Virgin America Incorporated by Alaska Airlines earlier today after the completion of its review…

Alaska Airlines Acquisition of Virgin America Approved by Department of Justice

…but although Alaska Airlines was not required to divest any assets as a condition of clearance, the approval was under the condition of a caveat: Alaska Air Group Incorporated must significantly reduce the scope of its codeshare agreement with American Airlines — the largest airline in the world — in order for the $4 billion acquisition to be completed to create the fifth largest carrier in the United States and expand the presence of the consolidated airline in the western United States.

Despite the caveat, the majority of codeshare flights between Alaska Airlines and American Airlines are expected to remain intact. According to the Department of Justice:

To address the transaction’s likely competitive harm, the proposed settlement requires Alaska to significantly reduce the scope of the codeshare agreement. Specifically, in order to reduce Alaska’s overall dependence on the codeshare and limit Alaska’s incentives to cooperate with American, the proposed settlement prohibits Alaska and American from codesharing on routes where Virgin and American compete today and on routes where Alaska would otherwise be likely to launch new service in competition with American following the merger. At the same time, the settlement permits Alaska and American to continue codesharing in limited circumstances where it is unlikely to lead to competitive harm and may offer some benefits to consumers. For example, the settlement would permit either airline to rely on the codeshare to serve destinations it would otherwise be unlikely to serve on its own in the near term. The department explained that this last type of codesharing can potentially benefit consumers by extending each carrier’s network and is less likely to lead to anticompetitive harm.

The proposed settlement requires Alaska Airlines to obtain approval from the Department of Justice before selling or leasing any of the gates or slots that were divested to Virgin America — in order to preserve the competitive benefits brought about by the divestures to Virgin as part of the American-US Airways settlement — and expressly prohibits Alaska Airlines from transferring any interest in the assets to American Airlines. This requirement ensures that American Airlines does not directly or indirectly regain control of the assets it divested to Virgin America to settle the challenge of the Department of Justice to the American-US Airways merger.

Alaska Air Group Incorporated — which is the parent company of Alaska Airlines, Incorporated and Horizon Air Industries, Incorporated — agreed to that concession, according to its official press release.

“We couldn’t be more excited about receiving DOJ clearance for our merger with Virgin America,” said Brad Tilden, who is the chairman and chief executive officer of Alaska Air Group Incorporated. “With this combination now cleared for take-off, we’re thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers.”

News pertaining to the acquisition has not been found on the official Internet web site of Virgin America at the time this article was written.

The announcement of the intent of Alaska Airlines to acquire Virgin America occurred on Monday, April 4, 2016 — leading some people to initially believe that the news might have been a belated April Fool’s Day joke.

Alaska Airlines acquired Virgin America for $2.6 billion in cash. The new entity will be based in Seattle, Washington.

A civil antitrust lawsuit was filed today by the Antitrust Division of the United States Department of Justice in the United States District Court for the District of Columbia to block the merger — along with a proposed settlement that would resolve the competitive harm alleged in the lawsuit, if approved by the court. A lawsuit was also filed in the United States District Court in San Francisco by private plaintiffs.

What We Know

Let us first stick to what we do know — or can fairly reliably predict, anyway:

  • The transaction has been unanimously approved by the boards of directors of both airline companies; and is subject to approval by the shareholders of Virgin America — an airline which launched in 2007 and is currently based in the San Francisco area.
  • The Alaska Airlines | Mileage Plan and Virgin America | Elevate forums on FlyerTalk will most likely eventually be combined into one new forum with the former forums as sub-forums of the new forum.
  • Your frequent flier loyalty program miles are expected to be combined seamlessly, with the Alaska Airlines Mileage Plan frequent flier loyalty program to be the surviving entity — although exactly how and when is still unknown. If you have “orphaned” frequent flier loyalty miles in both programs, congratulations — you are that much closer to be able to redeem them for an award ticket without having to lift a finger; and that is one of the few benefits of the merging of two airlines. I expect my Virgin America Elevate frequent flier loyalty program miles to be integrated into my Alaska Airlines Mileage Plan account.
  • Competition in the commercial aviation industry in the United States will be reduced to four major airlines: American Airlines, United Airlines, Delta Air Lines and Southwest Airlines — all of which completed major merger deals within the past ten years — and several smaller entities which include Alaska Airlines, JetBlue Airways, Spirit Airlines, Frontier Airlines, Allegiant Air and Sun Country Airlines.
  • Bradley D. Tilden will be the president and chief executive officer of the new entity.

Questions Yet to Be Answered

Now, the questions on which I do not intend to speculate — despite marketing jargon which suggests otherwise, in some cases — include but are not limited to the following:

  • Will capacity and service increase or diminish?
  • Will airfares increase?
  • What problems will occur as a result of merging the corporate cultures?
  • Will the partners of Virgin America be retained by Alaska Airlines?
  • Will the travel experience improve or worsen overall?
  • How many employees will be relieved of their positions from the merged entity?
  • How will routes be adjusted for efficiency regarding the new Alaska Airlines?
  • What hub airports will disappear into oblivion?

Summary

So what should you do about it?

Nothing. What can you do — aside from take the whole thing in stride and wait and see what actually happens?

If you are mourning the loss of anything even remotely related to the merger between Alaska Airlines and Virgin America, guess what? The sun will still rise tomorrow, and the planet will still revolve. Life goes on; and the airlines will operate as business as usual — for now.

However, if you are truly miserable about this news, you can always defect to another frequent flier loyalty program — even though they are dwindling in numbers — or quit the “game” altogether.

In the meantime, whether or not the consolidation will benefit you remains to be seen — but history suggests that the answer is weighted towards not beneficial to you.

Photograph ©2015 by Brian Cohen.

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