Alaska Air Group announced yesterday it was buying Virgin America for a deal of $2.6B. The deal is pending regulators agreement and shareholders vote, but the majority holder in Virgin is apparently in favour. Richard Branson may not be happy, since it was put through by the majority holding and not him, but with his share of the proceeds being over $700M, he'll be crying all the way to the bank. (If he ploughs it back into space flight, that could be really impressive.) There was a slight fall in Alaska's shareprice after the announcement, but it is still up towards a high point for the last 12 months. However they are going to have to debt finance this purchase, so unless it starts paying for itself quickly, they could see a further downturn. Fitch has them on negative watch. The effects on other airline shares could be interesting. It provides Alaska Air Group with new routes, more aeroplanes, and more West Coast access, and some sources are saying it would also make a saving of over $200M annually. It does reduce the number of competitors, but the newly expanded airline might be more competitive overall due to bulk savings. Is this likely to be part of a larger expansion strategy by Alaska, or a one-off merger? I don't see how they can fund further purchases without taking on more debt than perhaps is safe.
My former brother in law who lives in Alaska always flys ALaska Airlines, and finds it to be a really good airline with one that gives individuals lots of choices. I think they have a very good ontime record too. THis is one of the airlines that I think does a very good job
I was definitely a little surprised when I heard this news the other day. I do not really know a whole lot about the aviation industry but I always thought that Virgin was one of the big boys and did not think much of Alaska Airlines, but I guess it goes to show you never to judge or make assumptions. I am sure there are several example of companies that are bigger than I thought...you learn something new every day.
Yeah I was a bit surprised by this too, I didn't realise that Alaska Air was a bigger company. Could be a good move, looks like they had a lot of cash standing by and had to find a way to use it. And as the OP said, this is probably a one off thing since they basically burned through their cash and took on some extra debt to make this happen, so it's unlikely they will do anything else (on such a large scale) anytime soon. Time to see how it goes before making another big move.
Ha, seems like we were all surprised by this deal. While I can't say I know too much about airlines outside of the big dogs, I'm surprised to hear that Virgin America is only worth 2.6 billion and that Alaskan has the muscle to even gobble them up. That said, with oil prices low I think it's a great time to buy up the competition in this space and without looking at the books it seems like a good deal in theory.
