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Alaska acquires Virgin America

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  • Alaska acquires Virgin America

    Just received this email from Alaska. Sure hope the combination works out OK as Alaska is my favorite airline. (Alaska has a 737 fleet while VA has an Airbus fleet.)
    Creating the Premier
    West Coast Airline.
    Good morning. As one of our most valued customers, we wanted to be the first to share with you some exciting news that Alaska Airlines is acquiring Virgin America, combining two leading airlines both known for low fares and award-winning customer service. With complimentary West Coast-based networks, operational excellence and a strong commitment to innovation, the joining of Virgin America and Alaska will expand our existing California footprint and grow our transcontinental network, giving you more travel options with 1,200 daily departures nationwide.

    We'll keep you updated on the timing and plan for integrating our two airlines.

  • #2
    Great move, on their part - though, not without significant risk to the AS considering the cost of the transaction.

    Best case scenario;
    - Reorganize the fleet at VX, and streamline it as the premium experience that it is knowns as. Extend the reach of the airline by expanding the trans-con services to SEA (further strengthening their position against DL there, in their ongoing battle for SEA). Keep the routes to Hawaii, but rationalize both airline's services to maximize capture of the market share.
    -Surrender specific routes to a better suited AS product. VX battled it out at DAL, and they attempted, were slow in, and were only minutely successfully at these smaller, domestic runs. Not that it is in AS's interests to hash it out, versus WN at DAL - but they have greater exposure to smaller runs in their network and do compete on the West Coast effectively - perhaps economies of scale and better intelligences can make markets work, and better utlilisize slots where VX failed, or did not have the time to develop.

    Now, here's where things get a little savory.

    If the above were done, (rationalizing VX to what it is today, minus the need for the short-haul where it has suffered - using it as a glove, and how it was intended - as a premium passenger experience on premium routes - at a lower cost to the operator than at conventional airlines competing) - and the Trans-Con services rationalized to place higher yielding traffic on the VX product, thus brining it to a local tour-de-force feeds of AS at their mutual hubs and especially if expanded to have that synergy out of SEA - it would be a trout slap to DL. AS is essentially doing what DL did internationally (buy the Virgin Brand glove, and make it work to your advantage Trans-Atlantic), on a smaller scale (buy the Virgin Brand glove, and make it work to your advantage Trans-Continental). If you codeshare with AA, as AS has committed to so well in the past - reduce the competiton (an advantage VX did not have) and you end up with a very competitive spade against DL.

    Now, turn to DAL. AA never needed DAL. It can, and perhaps should serve it. Competitively, though, they necessitate the services to check WN.
    What if, though, you now had a competitor to WN (a la, AS redeploying services to fill the VX retraction to better markets) to fight that battle for you.
    Best case scenario - you surrender the market fully and let AS run the show, confident that you codeshare on almost anything that they do there, so you benefit from their presence there - all the while checking WN with a product that is likely better suited to competitively compete against WN, there.
    It is unlikely that AA will retreat, so now, use that premium product to cherry pick specific markets and as you codeshare with AS, work with them to make the markets work.

    In short, this move adds to everyone's portfolio.

    B6 stands to gain, but not by much. One less competitor, yes, but which one will they lose? Will AS keep the VX brand (which is better suited to compete against B6) and run that great product against the big boys? Or, will AS make it a go, as they have been doing, and see what happens with more slots to work with?

    UA stands to gain - less competiton at SFO for now...- will AS be willing to take on DL at SEA, UA at SFO, and then duke it out for southern California? They do that well now, but they can afford to cherry pick. That means a little less pressure on UA as VX inevitably winds down/is redeveloped. What will be concerning to UA, is that if any slots are surrendered, or if a vaccum is opened up - will it allow other competitors to come in, who might be better inclined to challenged UA (such as an expansion of WN), or just challenge everyone (a la Spirit). Sure, UA can fight it off - they already do, but right now with as much change happening as it is with UA, focusing their energies on current agenda is perhaps best.

    DL wins slightly, as it will now be able to have one less competitor, but AS is not stupid enough to sit on their laurels.

    AA wins as their cozy relationship with darling AS is set to improve both economies of scale.

    The one person that perhaps loses, is the consumer. I would not want to see VX fail, and perhaps this is the best possible outcome for them - but with one less competitor on the field (which, admittedly might have happened anyway) - that rationalization of services if rarely better for prices offered to the consumer.

    If, AS can right size the product, and expand (in many cases - Eastward where VX has the capacity) then perhaps we might see AS grow, and bring greater competiton to the Eastern part of the US. In that way, greater numbers of consumers will gain access to a product.

    Here's to hoping, and great job AS! Here's to a great future ahead for both AS and VX!
    Whatever is necessary, is never unwise.

    Comment


    • #3
      Originally posted by AA 1818 View Post
      Best case scenario; - Reorganize the fleet at VX, and streamline it as the premium experience that it is knowns as.
      I think you can forget the VX product ever existed. It was fun while it lasted, to be sure, but it was never sustainable in the US market.

      Comment


      • #4
        Originally posted by ATLcrew View Post
        I think you can forget the VX product ever existed. It was fun while it lasted, to be sure, but it was never sustainable in the US market.
        I wholly agreed with this statement, until the realization sunk in - the investors were right all along. They sold their airline, for a profit. It was, in a business sense - successful. Sure, not as massive growth as was expected (but that dimension of expectation is highly subjective). They carved a niche, and perhaps the product might not survive in present glory, into the future - but they certainly were sustainable. AS's large check, as soon as negotions were opened, certified it.

        I was surprised by the purchase. I assumed that the airline would fail, and that what could have been had at a contracted/valued sale price, could be picked off by competitors. Financials at the airline certainly never outwardly promoted a good financial outlook. The indicators were there. Management wanted to sell at this point of the fuel cycle - as opposed to making one last go.

        Suddenly - negotions. SALE. Even if AS received a fantastic price (which they did not, according to experts both pre and apex sale prices were overvalued) - the expeditious nature of the sale spoke libraries about the value of the airline and its place. Whether AS retires the brand tomorrow (unlikely in short-term, likely long-term), it does say alot that they paid, that much, for an airline that certainly did it their way, all the way (and whether or not it was profitable to the public eye, or in a short term sense - at the end, investors went home very happy). As an airline, it did not grow as well as others. As a business, it was not as wildly successful as many had hoped.

        A huge success? No. A failure? Certainly not. Remember, this could have ended up with VX at total bankruptcy, no return for investors, debtors in trouble, and a completely disbanded workforce.
        Whatever is necessary, is never unwise.

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