Alaska Air to Buy Virgin America for $2.6B

The latest example of consolidation in the airline industry will make Alaska the fifth-largest U.S. carrier and increase its West Coast presence.
Katie Kuehner-HebertApril 4, 2016

Alaska Air said Monday it would buy Virgin America for $2.6 billion in a move that will strengthen its position as a leading West Coast carrier.

The combination of the two airlines will make Alaska the fifth-largest U.S. carrier, vaulting it up from its current eighth place. It is paying $57 a share for the airline founded by British billionaire Richard Branson, a 47% premium to Virgin’s closing price on Friday.

On news of the deal, Virgin’s stock soared more than 41% to $55.03 in trading Monday.

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“Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability and outstanding customer service,” Alaska Air’s CEO Brad Tilden said in a news release. “With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel.”

The agreement followed a bidding war between Alaska Air and JetBlue Airways, the current fifth-largest U.S. airline behind American, Delta, United, and Southwest.

The airline industry “has rapidly consolidated over the past decade, concentrating power in the United States air travel market among a few major carriers,” the New York Times noted.

With Virgin America, Alaska, which flies many routes from Los Angeles, would add San Francisco as a second California hub. Virgin flies up and down the West Coast, to Hawaii, and to vacation resorts in Mexico, as well as flying transcontinental to the East Coast.

For Virgin America customers, service would expand in the Silicon Valley and Seattle markets, and would also offer more frequent connections to international airline partners departing Seattle, San Francisco and Los Angeles.

Branson, now only a minority shareholder, said he was “sadly” unable to stop the takeover because some of his shares were non-voting. “The important thing now is to ensure that once Alaska witnesses firsthand the power of the brand and the love of Virgin America customers for our product and guest experience, they too will be converts,” he said.

Last year, Virgin posted a profit of $341 million, up from just $60 million in 2014 due to the plunge in the price of jet fuel.