Alaska Air buys Virgin America to expand West Coast flights

As part of the deal, Alaska agreed to pay $57 in cash for each share of Virgin stock, a considerable premium over Virgin’s Friday closing price of $38.90 per share.

The merger expands the existing footprint of Alaska Airlines in California and boosts its platform for growth.

“We are going to be taking a look at all of these”, said Alaska Airlines chief commercial officer Andrew Harrison in reference to the Love Field gates and East Coast airport slots that Alaska is acquiring in the merger.

As a brand, Alaska Airlines will prevail, but the Alaska CEO also hinted that the Virgin image may live on in some form.

Boards at both companies have approved the deal, which is expected to close by 1 January next year, but it still needs to be approved by Virgin America shareholders. Including Virgin America’s debt and aircraft lease obligations, the transaction value amounts to about US$4 billion, according to the release.

At first glance, forking out $4 billion for some terminal space, landing rights, and a few jets makes little sense, but a deeper analysis shows that Alaska’s move, though risky, may be a smart buy for three key reasons.

Ann Zaninovich, the Alaska Airlines spokesperson tells Forbes that they are still in the process of determining how they will combine the programs – which is scheduled for the beginning of 2017.

Tilden added that the company will offer customers with more attractive flight options for nonstop travel given its expanded network and strong presence in California.

The acquisition of Richard Branson-inspired airline will catapult Alaska Airline over JetBlue. The airline now is the sixth-largest U.S.-based carrier by traffic and is serving 90 destinations in the United States, Canada as well as Mexico.

As a result, the combined company would create a major force in the US West Coast region, with hubs in San Francisco, Los Angeles, Seattle and Portland, and a combined fleet of approximately 280 aircraft providing 1,200 daily departures.

Branson’s Virgin empire started in 1984 with Virgin Atlantic, a European-based company with bases in London, England.

JetBlue issued a statement saying that it wants to grow on the West Coast and on transcontinental routes, but that the price of an acquisition got too high — it would be better for JetBlue to grow on its own.

Virgin America’s large presence in San Francisco and Los Angeles also allows Alaska to fortify its position in those two very competitive markets.

It expects to achieve $225 million in annual net synergies upon full integration with low-priced carrier Virgin America, and is estimating one-off integration costs of $300-350 million.

Alaska shares fell $3.09, or 3.8 percent, to $78.92, while Virgin shares soared $16.21, or 41.7 percent, to $55.11.