Alaska Buys Virgin America For A Massive Premium, Though Nobody Can Explain Why

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Alaska is buying Virgin America for $2.6B in cash, or about $4B including assumed debt.

That’s nearly double what Virgin America’s market cap was before negotiations started.

Alaska currently has no Airbus aircraft and they’re buying an airline with an all-Airbus fleet. Though most of that fleet is leased, not owned.

Virgin America’s hubs are in Los Angeles and San Francisco, airports that are not slot restricted. Alaska could have grown organically there by just buying more Boeing planes and it would have cost a whole lot less than buying an airline.

They do gain a small presence at slot controlled Dallas/DAL, JFK, LaGuardia, and Washington/DCA.

It’s highly unlikely that Alaska will keep Virgin’s flashy first class or hip vibe. They may even look to sell off Virgin’s leases and the planes that they own.

Virgin America’s mileage program will be rolled into Alaska’s much stronger mileage program.

So what did Alaska gain?

They stopped JetBlue from buying Virgin America (which would have been a far more logical fit) which makes them the number 5 carrier in the US. For now.

They gain some bulk to compete with Delta, which has been encroaching on Alaska’s Seattle hub.

But overall, it’s hard to see what the driving force is to make them overpay so wildly for Virgin America.

Alaska currently has lots of airline partners in OneWorld, Skyteam, and non-aligned partners. It will also be interesting to see if they can hang onto them even as they grow through the merger. I’d wager that they won’t.

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26 Comments On "Alaska Buys Virgin America For A Massive Premium, Though Nobody Can Explain Why"

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Ben

Dan, should we quickly sign up for the 90k VX cc even though there are crazy YQ’s or it’s still not worth it?

Dan

@Ben:
Why quickly? The “90K” offer is for Virgin Atlantic and they have nothing to do with this. And its still a devalued currency.

high end hobo

The only good thing that could come out of this merger is if you can book stopovers on a one way award on legacy VX routes, although I doubt that the new airline would allow that.

Not many of us DDFers have big VX accounts sitting, so that point that “Virgin America’s mileage program will be rolled into Alaska’s much stronger mileage program.” doesn’t help us much.

Coupled with the probability that it’ll probably erode their relationships with partners used for aspirational awards, I’m not too excited about this piece of news.

Itamar Yeger

I read they did it in part to prevent jet blue from doing it and they’re routes only overlap by 15%. They are probably going to try and sell the Airbus planes and buy more Boing jets.

Dan

@high end hobo:
Stopovers will probably be the next thing to disappear overnight.

@Itamar Yeger:
That’s what I wrote, but it’s a ton of cash to spend just to keep JetBlue from buying Virgin America.
And Virgin only owns a small percentage of their planes, so there’s not much in the way of assets to sell.

yossi

Maybe angbang will swoop in with a higher bid ….

ralf
Dan

@yossi:
Lol

@ralf:
Not seeing anything of substance there. Alaska could have grown at LAX and SFO by buying some Boeing aircraft, they aren’t slot controlled airports.

high end hobo

@Dan:
I better book my four city tour of Alaska for 25k miles that I’ve been dreaming of, soon!

Dan

@high end hobo:
Alaska island hopper DO?

Anonymous

@Dan: maybe they plan on selling the Airbus jets to Jetblue and everyone wins?

high end hobo

@Dan:
you don’t seem to excited about it here
http://forums.dansdeals.com/index.php?topic=23342.msg1220395#msg1220395

Are stopovers allowed on the 7.5k intrastate awards?
If so lets start planning and take this to the relevant thread

David R

What will become of mileage transfers from Citi Thank You? Will they allow mileage transfers to Alaska?

yuneeq

It’s a massive premium to the share price, but the P/E is still pretty low, even lower than Alaska’s 12 P/E.

Also, if they will be operated as 2 different brand names there is large amount of “goodwill” value in all of VA’s existing locations that AS can’t simply replicate just by putting planes there.

Dan

@David R:
Doubt it.

@yuneeq:
Except that they won’t remain 2 brands. All Virgin branding is going to go. And the planes will likely eventually all go as well.

Anonymous

Isn’t the virgin brand more valuable?

Dan

@Anonymous:
Alaska is the acquirer and they’re keeping their own name.

Anonymous

@Dan:
I understand they are the acquirer but wouldn’t it nake sense for them to use the virgin brand name?

Shayt

Ha, love Alaska Airlines. Very happy to see this.

Actually have an ulterior motive. Have a $500 credit with Alaska after being on a flight that had an emergency landing in Buffalo last year. http://wivb.com/2015/10/12/plane-with-fire-lands-at-buffalo-airport/

Alaska destinations were pretty limited so this should make my credit a bit more useful.

Yup

What will happen with elal codshare….
Virgin also has best luggage rates for many suitcases…

jim

Hey dan would it be worth it to open up a virgin america CC account now and when they transfer overyou would have points in alaska air?

jim

haha beat me to it, didnt see post from before

noah32

Anyone have any informed guesses on how/if status would transfer over?

Currently VX gold (from amex transfer promotion). What would that compare to in AS? is AS status more valuable?

Thanks.

David

I have been MVP Gold on AS for many years, including prior to Virgin showing up. Alaska makes a huge portion of their revenue from flights up and down the west coast. Since Virgin showed up, there has been a lot more competition on fares. This gets rid of a major downward force on those fares. Bad news for everyone except Virgin shareholders and executives, and the VC firms involved.

MergerAnalysis

Is it for band? No, Alaska air with vibe marketing don’t work together.
Is it for asset, No, mostly leased.
Is it for routes, No, only 15% don’t overlap. = Alaska air will soon fill bankruptcy.

Jack out of the box

Interesting article about the history of Alaska Airlines.

http://www.aish.com/jw/s/Alaska-Airlines-and-the-Jews-of-Yemen.html?s=rab

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