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.