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Corporate-20190421T100727Z-001.zipCorporate/Alaska Air closes Virgin America acquisition.docx
Alaska Air closes Virgin America acquisition
With the deal, Alaska becomes the fifth-largest airline by traffic
By Susan Carey, The Wall Street Journal, 14 December 2016
A Virgin America plane taxis past an Alaska Airlines plane at Seattle-Tacoma International Airport in Seattle in April. Alaska Airlines’ parent company, Alaska Air Group, said Wednesday it has closed its $2.6 billion acquisition of Virgin America. PHOTO: ASSOCIATED PRESS
Alaska Air Group Inc. ALK -0.76% said it closed its $2.6 billion acquisition of Virgin America Inc. on Wednesday, eight days after the Justice Department approved the deal with minor concessions. It raised about $2 billion in financing to fund the purchase and used cash for the balance.
For Brad Tilden, chief executive officer of Seattle-based Alaska, it has been a long road since his company in April won the bidding war when rival JetBlue Airways Corp. JBLU -0.74% dropped out because the price got too high. “It took longer to get the deal through the Justice Department than we expected,” he said in an interview. “But we respect the job they do.”
In buying San Francisco-based Virgin America, Alaska becomes the fifth-largest airline by traffic, vaulting ahead of JetBlue. But four industry behemoths, all enlarged by mergers of their own recent years, control more than 80% of the domestic market. Mr. Tilden said he is undeterred. The purchase gives his company a ready-made network in California, a market that generates 2½ times the number of daily passengers as Alaska’s big markets of Oregon, Washington and the state of Alaska combined.
The enlarged carrier will offer the most nonstop flights to the most destinations from the West Coast, and will be able to better capitalize on Virgin’s slots at congested East Coast airports. To cement the new relationship, Alaska on Monday will let its Mileage Plan members earn miles on Virgin America flights and vice versa, with both carriers’ elite members receiving priority check-in and boarding on the other’s flights. On the same day, customer will be able to buy Virgin America tickets on Alaska’s website.
“The huge focus is making things as easy as possible for our customers,” said Mr. Tilden.
Work has already begun on the work of blending the employees, with focus groups interviewing workers and senior leaders, an online discussion forum established for both groups and the selection of “culture champions” who will take feedback to managers. “We’re very optimistic,” the CEO said. But integrating the groups “is the critical thing we have to get right.”
Alaska’s employees are heavily unionized and more numerous. So the Virgin employees, unionized or not, probably will be swept into the unions representing their classes of work after the requisite elections. The International Association of Machinists union, which bargains for Alaska’s reservations and customer-service agents, clerical workers and ramp workers, already has said it would become the agent for employees in those categories at Virgin.
Virgin’s pilots voted to join the same union as Alaska’s aviators, but have yet to negotiate their first contract. The Virgin flight attendants voted to join the Transport Workers Union, a different union than the one representing Alaska’s attendants.
Mr. Tilden said some major decisions haven’t yet been made, including what to do with the Virgin brand, which is flashier and more brash than Alaska’s understated style, and whether to keep Virgin’s Airbus A320 planes. Alaska has an all-Boeing 737 fleet.
He said the brand questions will be settled into the next few months but the fleet decision—one type or two—won’t be made until later in the year. If Alaska decides to stick with the Boeings exclusively, it will take several years for the leases on the Airbuses to expire.
Virgin America, which took wing in 2007, has won many awards for its mood-lit cabins, touch-screen personal entertainment and white leather seats in first class. During its brief life, it attracted a cult following among San Francisco’s tech workers, some of whom have said they won’t be happy if the carrier’s onboard personality disappears.
Alaska, founded 84 years ago in the state of Alaska, also wins awards but is known more for its technological innovations for passengers on the ground. It was the first U.S. airline to sell tickets online, for instance, and the first to offer Web check-in. But both have similarly low costs, offer reasonable fares and provide more passenger amenities than ultradiscount carriers such as Spirit Airlines Inc. and Frontier Airlines Inc.
Mr. Tilden said there are “really loyal people” who fly each airline. “Certainly people are concerned” that their favored brand will go away. But he said what is hearing more from fliers is, “This deal makes so much sense. I’ll have more ways to earn and burn miles.”
Ben Minicucci, president and chief operating officer of Alaska Airlines, takes the additional role of CEO of Virgin America, effective Wednesday, and Peter Hunt, Virgin’s chief financial officer, will serve as president of the unit. Those appointments will remain in effect until the two carriers receive a single operating certificate from the Federal Aviation Administration, targeted for the first quarter of 2018.
Mr. Tilden said the combined airlines still are on track to generate $175 million in annual revenue synergies by 2020 and $50 million in net cost savings by then. The Justice Department’s condition—that Alaska scale back its route partnership with American Airlines Group Inc.—will affect 45 routes among the hundreds where the two code-share, or offered the other’s flights as if they were their own. The CEO said that curtailment could reduce annual revenue by $60 million and earnings by $15 million to $20 million.
But Alaska hopes to recapture some of that revenue by flying its own customers on its own planes. Moreover, Mr. Tilden said, the combined airline will get to keep many aspects of the American code-sharing agreement, which can help Alaska customers reach smaller cities on American after changing planes in American’s hubs, and vice versa.
© Dow Jones & Company, Inc.
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Corporate/Alaska Airlines-Virgin America merger still a work in progress.docx
Alaska Airlines-Virgin America merger still a work in progress
By Michael Goldstein, Forbes, 13 June 2018
A Virgin America plane, left, taxis past an Alaska Airlines plane, Tuesday, April 24, 2018, at Seattle-Tacoma International Airport in Seattle. (AP Photo/Ted S. Warren)
The top U.S. airlines in terms of market share as of January 2018 are American, with 18.3% of the domestic market, with Southwest (18.2%), Delta (16.8%) and United (14.9%) close behind. Jet Blue trailed the Big 4, with 5.5% of the market, followed by Alaska with 4.8%. However, the datadoes not seem to include Virgin America, which began merging with Alaska in 2016.
When Alaska’s market share is combined with Virgin’s 1.1% share, other sources rank the Alaska/Virgin combination as the 5th largest airline, ahead of Jet Blue. But even if the combined Alaska/Virgin entity controls 6% of the market, it has a long way to grow to compete with the top four players.
(Full disclosure: I own stock in Southwest Airlines and Jet Blue.)
While Alaska Airlines was ranked the leader among US airlines again in terms of service, a number of indicators suggest that the merger may still be a work in progress. (The fact that Alaska lost my checked bag on a recent 1st Class former Virgin flight from Newark to Los Angeles, did not retrieve it for two days, then woke up my entire household by delivering the bag at 4:57AM may be such an indicator.)
Alaska announced its acquisition of quirky, yet innovative Virgin America, founded by Richard Branson in 2004, in December 2016. The purchase price was $2.6 billion. Virgin continued to operate its own flights until April 24 of this year. That’s when Virgin’s Flight 1947 made its last take-off from Los Angeles, on a 9:35PM flight to its former home base of San Francisco.
Taylor Rice, Kelcey Ayer and Ryan Hahn of Local Natives perform live, acoustic set at 35,000 feet on Virgin America Flight ahead of Lollapallooza held on Virgin America flight number 232 on July 28, 2016 in Los Angeles, California. (Photo by Michael Tran/Getty Images)
Many pieces were written about the end of the innovative Virgin experience, including this letter from founder Branson on how “there is a point at which we have to let go.”
But in reality, although the two airlines have finally merged their passenger-service systems and gone to one logo at airports, the Virgin experience is still in place on many Alaska aircraft. They are still painted in Virgin America colors, still equipped with Virgin America literature and equipment and still crewed by flight crew in Virgin America uniforms. A flight attendant on a recent “Alaska” flight told me it would take another year for Virgin crews trained on the Airbus A321 to be certified on Boeing aircraft in Alaska’s existing fleet, and vice-versa.
Captain Michael Adams holds up a large Copper River king salmon as he stands with first officer Bob Hood, left, in the doorway an Alaska Airlines 737 airplane, Friday, May 18, 2018, at Seattle-Tacoma International Airport. (AP Photo/Ted S. Warren)
Alaska puts a happy face on this “journey.” The airline noted in May that “We have successfully moved to one reservation system...[and] we now have one airport brand, website, mobile app and call center. All of this work means our merger is now 75 percent complete.” Nonetheless, the airline notes that it is “expected to take until the end of 2019 for the completion of a single brand experience on all Alaska aircraft.”
Integration has proved challenging in other ways as well. This year, most airlines have seen their stocks lose altitude, primarily for rising fuel prices as well as concerns about safety and aircraft buying sprees leading to overcapacity. Over the last 52 weeks, United stock dropped 8.47%, American lost 12.15% and Southwest lost 14.26%, while Delta gained 3.55%. But Alaska stock has lost -30.09 % over the last year, the biggest loser among the top five US airlines. (All numbers based on end-of-day stock prices on June 11, 2018.)
One growth challenge may be from Alaska’s geographic focus. Alaska’s top hubs for flights include LAX, SeaTac, SFO (also a key hub for Virgin), Portland and Anchorage—all West Coast cities. But more than 58% of the US population still lives east of the Mississippi River.
Close-up of paper showing logos of Alaska Airlines and Virgin America in advance of the merger of the two airlines, on a light wooden surface, September 19, 2017. (Photo by Smith Collection/Gado/Getty Images)
And while LAX with 84 million passengers is certainly a major hub, the other Alaska hubs pale in comparison to the traffic centers of the major airlines. Atlanta, Delta’s stronghold, is the world’s busiest airport, flying more than 104 million passengers a year. Chicago’s O’Hare is a United/American duopoly that handles 80 million passengers a year. American Airlines hub DFW boasts 67 million passengers. And at Newark Airport, Alaska Airlines and Virgin together accounted for about 1.25 million passengers in 2017, which would make the combined entity the sixth largest carrier at EWR. But the leader at Newark, United, accounted for more than twenty times this total, flying 28 million US and international passengers.
Even at hubs where Alaska is strong, the combined company has a way to grow. Alaska ranks fifth at Los Angeles International Airport, despite strong service up and down the West Coast and to Mexican destinations. And while Alaska is now the second largest carrier in San Francisco, the number one player, United, accounts for more than 40,000 seats a day at SFO, almost four times as many as Alaska.
The airline recently acknowledged its West Coast focus by announcing it would close its New York pilot base by September, asking more than 100 pilots to relocate to either Los Angeles or San Francisco.
Alaska also announced it would fly 13 flights a day out of Paine Field in Everett, WA, creating a secondary airport to the increasingly crowded SeaTac. Paine Field, which currently does not have commercial service, is primarily known as the final assembly area for Boeing’s big commercial jets. But the FAA announced it wants to take another look at the environment impact of the new flights, which could delay Alaska service scheduled for fall.
Even if it’s been a bumpy flight so far, many believe that it’s only a matter of time before the merger pays off for Alaska shareholders. A Seeking Alpha article titled “Alaska Airlines: Catalysts Start Now” acknowledges issues like Alaska's adjusted EPS of only $0.14 in Q1, down from $1.05 in 2017 and $1.45 in 2016. Capacity also grew faster than revenue passenger miles, resulting in a lower load factor.
But although the Seeking Alpha analysts calls the integration period so far “disastrous,” they believe that the benefits of merger synergy will be finally realized in 2018 and 2019. “Only $36 million of the merger synergies were captured in 2017 leaving the majority of the $300 million of synergies for after the transition.” Should oil prices remain stable, the analyst believes that Alaska will put more passengers into the expanded number of seats, while the synergies finally start boosting profits.
What we probably won’t see: a merger with another smaller player, such as Jet Blue or Frontier, especially after Alaska’s issues digesting Virgin America. With 68% of the US market still dominated by the Big Four, Alaska’s challenge will be to prove that bigger doesn’t necessarily mean better—or more profitable.
© Forbes Media, LLC.
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Corporate/Alaska Airlines wants to buy Virgin America, but is it a good fit.docx
Alaska Airlines wants to buy Virgin America, but is it a good fit?
Alaska Airlines is attempting to buy the airline Virgin America.
By Spencer Raymond, Oregon Public Broadcasting, 31 March 2016
An Alaska Airlines Boeing 737-800 painted with the airline’s new tail logo and livery Tuesday, Jan. 26, 2016, at Seattle-Tacoma International Airport in Seattle. Ingrid Barrentine/for Alaska Airlines
Bloomberg News reported this week that Seattle-based Alaska Air Group, Inc. and JetBlue Airways Corp. have both submitted takeover bids to Virgin America, Inc.
While all three airlines operate in the Pacific Northwest, Alaska dwarfs both Virgin America and JetBlue in both routes and passenger capacity.
Virgin America flies from Portland to San Francisco, and from Seattle to San Francisco and Los Angeles. Those are routes Alaska also flies, so a Virgin takeover will probably not affect air travelers in the Northwest much.
It’s the first time since 2008 — when Delta Air Lines bought Northwest Airlines — that a carrier with a substantial presence in the Pacific Northwest has been in a deal like this.
Airline industry analyst and writer Brett Snyder told OPB’s All Things Considered that Alaska might be interested in Virgin America not so much to absorb the Northwest routes, but to eliminate a competitor, especially in California.
“What we have seen from Alaska lately is a much greater expansion into some secondary airports in California,” Snyder said. “They’ve been growing San Jose. They’ve been growing San Diego. Virgin America has a large presence in both San Francisco and Los Angeles. This could help Alaska cement its position up and down the West Coast even further.”
Alaska Airlines declined to comment, and a timeline for a deal is unknown.
Alaska and Virgin America have some important differences, including in-flight experience and different fleets of planes.
“The airlines have very different corporate cultures,” said Ben Schlappig, who runs the airline industry blog, One Mile At A Time. “While they’re both good cultures, Alaska’s is more Pacific Northwest, while Virgin America is more hip and showy.”
The different interiors of Virgin America (left) and Alaska Airlines (right) are striking. A potential takeover of Virgin by Alaska would require Alaska to evaluate the different interiors, integrate any changes (or not), or come up with something new entirely. Left: TGPRN Virgin America/PR NEWSWIRE; Right: Courtesy Alaska Airlines
Virgin America is well known for its flashy interior, complete with mood lighting and leather seats. That contrasts pretty heavily with Alaska’s more conservative, earth-toned interior design. Alaska does have leather seats, especially in their newer planes, but they’re streamlined and basic, instead of plush and feature-rich like Virgin America.
“(Virgin America has) a first class cabin that, while small with only eight seats, is actually a much nicer seat than the traditional first class seat that Alaska Airlines has. So they’re different first class products,” Snyder said.
If Alaska does take over a Virgin fleet, Alaska would have to evaluate the in-flight product and decide what, if anything, to integrate into their existing product.
“People always think about the mood lighting,” Snyder said, “which doesn’t really mean much in the scheme of things.”
But, based on its routes, Virgin America serves more California customers than it does passengers from the Pacific Northwest, and the flashy interiors may be part of the sell to California travelers.
A merger with Virgin America may signal an in-flight experience change for Alaska.
“If they found that (the inflight product) was important to the San Francisco or L.A. markets, (Alaska) could bring that out, but it’s not clear that that’s the case,” Snyder said.
JetBlue is known for a trendiness similar to Virgin. Both have seat-back entertainment, are relatively new airlines and fly Airbuses.
“I can see the synergies between JetBlue and Virgin America,” Schlappig said, “though I don’t think Alaska and Virgin America would be a good fit.”
As for the planes themselves, Alaska is “Proudly All Boeing,” flying several variations of the 737. The airline even prints that slogan on the side of their aircraft.
Virgin America flies Airbus A320s exclusively. A fleet of the same planes allows an airline to run a streamlined operation because things like pilot skills, maintenance and parts are consistent.
“Alaska has been so successful as an airline because of what a lean operation they run,” Schlappig said.
“Chances are Alaska could operate both (aircraft) if they wanted to,” Snynder said. “But in the long run, you would probably expect to see that Alaska would want to get back to a more simple operation with a single 737 fleet.”
However, Snyder said with a large enough fleet it’s not that difficult for an airline to operate planes from two different manufacturers.
Still, it may be awhile before any deal is announced. Bloomberg News reports that negotiations are ongoing.
© Oregon Public Broadcasting.
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Corporate/Alaska Airlines is scrapping the Virgin America brand — here_s what else is going to change.docx
Alaska Airlines is scrapping the Virgin America brand — here's what else is going to change
By Benjamin Zhang, Business Insider, 25 April 2018
![Virgin America Airbus A320]()
A Virgin America Airbus.Flickr/Tomas Del Coro
Virgin America is no more.
Flight 1947, the last to carry the Virgin America name, capped off the airline's decade in operation Tuesday night with a short hop from Los Angeles to its former headquarters in San Francisco. Following the flight, Virgin America's bubbly purple and red color scheme would be wiped from check-in counters and boarding gates in airports around the US. It'll be replaced by the relaxed blue and green motif of Alaska Airlines which acquired VA for $2.6 billion in 2016.
On Wednesday, Virgin America's passenger service system (PSS) will merge with Alaska's in an event called the cutover.
So what does this all mean for consumers?
"At cutover, the two airlines have come together and we have a single set of flight numbers with one schedule we are operating," Alaska Airlines' managing director of process engineering Sandy Stelling told Business Insider.
"Which means all of the passengers' reservations and tickets are in a single system."
![Alaska Airlines Boeing 737]()
Alaska Airlines Boeing 737. AP
In addition, passengers traveling on ex-Virgin America planes will now use Alaska's website, mobile app, and call center.
PSS cutover represents one of the final and most important hurdles for Alaska Airlines as it works to integrate the funky San Francisco-based startup.
For Alaska Airlines CIO Charu Jain, it was important to avoid the mistakes others have made in the past.
According to Jain, who is a veteran of two other airline mergers, including United and Continental rocky 2010 union, a place where things can go terribly wrong is the transfer of reservations and information from the outgoing airline's system to the new one.
So Alaska decided to do something different. Instead of having to move Virgin America reservations over to Alaska's system, the airline would simply sell tickets for Virgin flights on Alaska's system.
"Early last year when we decided on the April 25th date, we started selling (Virgin America) Airbus tickets as Alaska tickets," Jain told us. "So everyone flying on the 25th will have a ticket on Alaska and check in on Alaska's website or app."
![Alaska Airlines uniforms]()
Alaska Airlines' new post-merger uniforms. Alaska Airlines
Another stumbling block is the integration of people. Even though both airlines offer award-winning service, their style, and modus operandai are very different.
To make sure that Virgin America's gate agents and airport staff are ready for the cutover, the airlines co-located employees so they become accustomed to working with one another.
This means locating Virgin America and Alaska gates next to each other and also having VA staff members work the Alaska gates and vice versa, Jain said.
"And any stations that have not (been co-locating) are trained and qualified to be ready," she added. "We feel pretty good, we're going to have extra staffing and command centers where employees can call if they have questions."
One thing that won't immediately change are the planes.
Alaska Airlines operates an all-Boeing fleet while Virgin America is all Airbus. According to Alaska, Virgin's Airbus fleet will be operated alongside its Boeing 737s.
Even though some ex-Virgin America Airbuses have been repainted with Alaska livery, the process of repainting the entire fleet won't be complete until the end of next year. Same goes for the Airbus interiors, which will be reconfigured to Alaska spec.
In addition, Virgin America's Red in-flight entertainment system will remain in operation until the interiors are updated. This means, for the time being, you'll still be able to order food and drinks from the comfort of your seat through the system.
© Insider Inc.
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Corporate/Building From Strength.pdf
B U IL D IN G F R O M STRENGTH The new Alaska Airlines seeks to be the "go-to airline” on the US west coast, byaaronkarp
rom his Seattle office, Brad Tilden, the CEO of Alaska Air Group since 2012, contemplates what it’s going to take to make Alaska’s $4 bil lion merger-acquisition of San Francisco-based
Virgin America a success. Essentially, it comes down to a tried-and-tested formula that he knows and trusts.
“I’ve been in this business a long time now,” he told ATW. “I think success comes from coming to work ev ery day and working hard to do good things for your employees and your customers. That’s what we’re going to do.”
A 25-year veteran of Alaska Air Group who served
as the company’s CFO and then president of the Alaska Airlines subsidiary before ascending to CEO, Tilden is not a showman; he’s a hands-on chief executive who be lieves in meticulous execution and careful decision mak ing. One of his first significant merger decisions was to drop the Virgin America brand by 2019, and it was not taken lightly. Virgin, after all, is a global brand and Vir gin America has a loyal customer base.
“We spent an extraordinary amount of time on it,” Tilden said during an extensive interview at Alaska Air Group’s headquarters just outside Seattle-Takoma In ternational Airport. “At the end of the day, I think it’s
16 ATW May 2017 I atwonline.com
fair to say there is a negative to letting go of the Virgin America brand. There are people who are very passion ate about that brand. There is also, for the rest of our careers, a negative to running two brands— friction and confusion and people who don’t know they could con nect. I’m at peace with the decision.”
Alaska did not buy Virgin America— for $2.6 billion plus the assumption of $1.4 billion in debt, with the deal closing in December 2016— for the brand. Other factors drove the desire to acquire the airline. By 2015, Alaska was rapidly growing beyond its niche as a US Pa cific Northwest carrier. Strong operational performance,
"This is just a merger that was meant to be."
Brad TUden, Alaska Air Group CEO
a cash-positive balance sheet and an annual profit streak dating to 2004 put Alaska in an ideal position to con sider expanding on a larger scale to the US midwest and east coast. But there is only so much transcontinental flying that can be done from bases in Seattle and Port land, Oregon, leading Alaska in 2015 to seriously exam ine acquisition targets.
“We think the geographic fit makes all the sense in the world,” Tilden explained. “Alaska flies to five coun tries and 35 states and more than 100 cities, but you’re really likely to be loyal to us if you live in Alaska, Wash ington or Oregon. We flew into 13 cities in California, but we had no hubs where we had a real concentration of service. We’ve got this strength in the Pacific North west and Virgin America has a lot of strength in Cali fornia, really centered at [San Francisco] SFO and [Los Angeles] LAX. So we said, ‘This is just a merger that was meant to be.’ When you take Alaska’s strength in the Pacific Northwest and the presence we did have in California, along with Virgin America’s real strength at SFO and LAX, we can be this go-to airline. The vision over five, 10,15 years is to be the go-to airline for people who live on the US west coast.”
Since its inception in 2007, Virgin America has done “two big things from a network perspective,” Alaska VP- network planning John Kirby said. “Number one, they went into some of the most competitive and largest mar kets in the US. They fought their way in and established a niche. That’s a very hard thing to do. All of the sudden, Alaska-Virgin America really has a nice service portfolio out of Los Angeles and San Francisco. Number two is es tablishing facilities. LAX and SFO are very constrained.”
Without the Virgin America acquisition, Alaska could never have gained a large volume of gates and other facilities at LAX and SFO.
Alaska was already the largest capacity airline in the Seattle, Portland and Anchorage markets. Combined, Alaska and Virgin America also become the second big gest airline at SFO after United Airlines. Alaska went from a “distant sixth” at LAX prior to the Virgin Amer ica acquisition to “a relevant fifth” after the buy, Kirby
atwonline.com I May 2017 I ATW 17
ALASKA AIRLINES president and acting Virgin America CEO Ben Minicucci is charged with coordinating the integration He travels to San Francisco from Seattle at least once weekly.
pointed out. Alaska-Virgin America also is a big player at San Jose (California) In ternational Airport, where the combined carrier is second in terms of capacity and first in terms of nonstop routes, and ad ditionally has a solid presence at San Di ego International Airport.
When the new Alaska Airlines emerg es in 2019 with a unified brand and a single operating certificate, it will have five hubs— Seattle, Portland, Anchorage, Los Angeles and San Francisco— and two focus cities— San Jose and San Di ego. “Our basic idea is that if you live anywhere on the west coast of the United States, we want to be able to take care of 100% of your travel needs,” Tilden said. “So inter-California, north-south on the west coast, fly you to the middle of the country, fly you to Hawaii, fly you to
FINANCIALS
C O M P A N Y FINANCIAL
YEAR
OPERATING REVENUE ($, 0 0 0 )
% CHG . YEAR OVER
YEAR
OPERATING EXPENSE ($, 0 0 0 )
% CHG. YEAR OVER
YEAR
OPERATING INCOME ($, 0 0 0 )
% CHG. YEAR OVER YEAR
NET INCOME ($, 0 0 0 )
% CHG. YEAR OVER YEAR
ALASKA AIR GROUP
2016 5,931 ,000 5.9 4 ,5 3 2 ,0 0 0 6.6 1 ,349 ,000 3.9 8 1 4 ,0 0 0 -4 .0
ALASKA AIR GROUP
2015 5 ,5 9 8 ,0 0 0 4 .? 4 ,3 0 0 ,0 0 0 -2 .4 1 ,2 9 8 ,0 0 0 34 .9 8 4 8 ,0 0 0 4 0 .2
VIRGIN AMERICA 2016 1 ,5 6 4 ,0 0 0 2.3 1 ,342 ,00 0 -0 .8 2 2 2 ,0 0 0 25.3 N/A N/A
Source: Alaska A ir Group
2016 TRAFFIC
CARRIER PASS
(0 0 0 ) 2016
%CHG. VS 2015
RPKS (0 0 0 ) 2016
% CHG. VS
2015
ASKS (0 0 0 ) 2016
% CHG. VS 2015
LOAD FACTOR
ALASKA AIRLINES MAINLINE 24,42" 6.8 52,870,131 8.3 62,292,435 7.8 84.9
ALASKA AIRLINES REGIONAL (HORIZON AIR) 9,45" 4.8 5,985 ,480 14.9 7,499,549 16.5 79.8
VIRGIN AMERICA 8,073 14.7 19,589,575 16.7 23,451,175 14.8 83.5
Source: Alaska A ir Group
18 ATW I May 2017 I atwonline.com
the east coast, and through our [codeshare] partners fly you internationally. The focus isn’t New York or Boston or Washington Reagan National. The focus is the west coast. But you can’t be an important airline and take care of the needs of people on the west coast without being pretty significant on the east coast as well.”
M a rk e t dynam ics
In terms of domestic market share, Alaska-Virgin America becomes the fifth largest airline in the US, but that ranking needs to be put in perspective, or as Alaska Air Group CFO Brandon Pedersen put it to ATW, “taken with a grain of salt.” The US consolidated majors American Airlines, Delta Air Lines, Southwest Airlines and United Airlines still hold the lion’s share of the US domestic market, dwarfing an even combined Alaska-Virgin America.
“With this acquisition, we went from sixth to fifth. We switched places with JetBlue, but not by much. You still have four giants that dominate 80%-85% of the US market. Now we’re at 6%. JetBlue’s at 5%. We went from 4.5% to 6%. So we really didn’t change. It’s neat to say we’re the fifth biggest. But the size of the business relative to our gigantic competitors still remains about the same,” Pedersen said.
The type of passengers Alaska is seeking to attract has not changed much either, Pedersen said. Along with de ciding to drop the Virgin America brand, Alaska will be reconfiguring the seating on Virgin America’s Airbus A320 family aircraft by mid-2019 to resemble the con figuration of Alaska’s Boeing 737s. That means more— but smaller pitch— business-class seats (41 inches vs. Virgin America’s 55 inches) and adding a premium- economy section. Importantly, Alaska has decided not to try to match New York JFK-based JetBlue Airways’ transcontinental M int product, which features lie-flat seats. Alaska management says it is willing to lose some high-end Virgin America passengers in exchange for making inroads in the broader passenger segment it be lieves Alaska attracts.
“We affectionately refer to it as the ‘bleisure’ mar ket, what I would call higher-end leisure passengers and maybe business passengers, but not global business cus tomers, and we think that market in the US is worth $25 billion [a year],” Pedersen said. “I absolutely think we can compete head-to-head with JetBlue. You’ll have people that become Alaska loyalists and you’ll have peo ple that become JetBlue loyalists.”
He added: “There’s sort of this natural presumption that Virgin America loyalists will prefer JetBlue over
ALASKA-VIRGIN FLEET FOR MAY 2017
Model In
Service On
Order Boeing 737-400 10
Boeing 737-400F 6
Boeing 737-700 13
Boeing 737-700F 1
Boeing 737-800 61
Boeing 737-900 12
Boeing 737-900ER 56 14
Boeing 737 MAX 8 20
Boeing 737 MAX 9 17
Total Alaska Airlines mainline aircraft 159 51
Airbus A319 10
Airbus A320 53
Airbus A320neo 30
Airbus A321neo 10
Total Virgin America mainline a ircraft 63 4 0
Bombardier Q 400 52
Embraer E175 1 29
Total Horizon A ir regional aircraft 53 29
S o u r c e : A v i a t i o n W e e k F le e t D is c o v e r y
Alaska. What I would acknowledge is that for some in California, particularly in the Bay Area, JetBlue is just a better known brand ... We will make the Alaska brand, the Alaska experience, just a little more updated, a little more vibrant ... But I don’t think there’s any deficit at all when you compare the Alaska experience with the JetBlue experience ... Those [Virgin America customers] are ours to lose, and I’m feeling quite good about our ability to maintain those customers. Will we lose a few? Sure, we’ll lose a few. But I think we might gain a few as well who perhaps weren’t all that enamored with the Virgin America mood lighting kind of thing.”
Pedersen expects the merger— which combines Alas ka’s 12,000 employees with Virgin America’s 3,000— to generate $300 million in annual synergies, most of which will come on the revenue side.
atwonline.com I May 2017 I ATW 19
■74/asfo / i r g i n a m e r i c a SLt
A L A S K A A I R G R O U P
CEO Brad Tilden.
Boeing vs. Airbus While many decisions regarding the Alaska-Virgin America integration have been made, perhaps the most h.gh-profile decision remains. Alaska operates an all-737 mainline fleet, with more than 150 of the Boeing narrowbodies in the fold and 37 737 MAX aircraft on order, while Virgin America operates more than 6C A320 family aircraft with 40 A220neo family aircraft o-n order. Whether to be a dual- or single-fleet airl.ne is i call Alaska plans to make by the end of this year. But even if it decides to drop the A320s, it will still liksl/ operate the mostly leased Virgin America flee: th-ough 2024, and in 2017 will taxe delivery of five A32Lneos that Virgin America is leasing from GE Capital Aviation Services.
“If we wanted to break the [A320] eases early, we cou.d certainly do so at a cost,” Pedersen said. “That’s probably unlikely because it’s money tha: we would just in effec: throw away. I think a more likely and more rational anproach is for us to just let the leases run out ... Taking out an A320 early and swapring in a 737- 800 doesn’t make economic sense. So we will likely have most or all of those leases run to term. The question that we’re gcir.g to answer this year is should we go back to
a single fleet, and the natural answer for us would be an all-Boeing fleet, or should we continue to operate two fleet types beyond that 2023-2024 timeline when all those Airbus leases are gone?”
Could Alaska eventually seek out widebody aircraft and embark on building a truly global network?
“It’s not wise to put limits on yourself, to say what you’re nor going to do,” Tilden said. “It’s also wise not to be too big for your britches ... We can grow a lot inside out current configuration— narrowbody aircraft and regional airplanes [operated by subsidiary Horizon Air]. The company has grown, in the last 20-25 years, from $1 billion in annual revenue to almost $8 billion. I think we can double in size over the next eight, 10, 12 years just sort of doing what we do now.”
As he steers Alaska and Virgin America tnrough their next evolution, Thden acknowledges he con stantly questions the decisions that must be made. But he also is confident in the ultimate outcome:
“The questions I ask myself are: Are we making good decisions? Did we make the right brand decision? Are we set up now to execute on the decision well? That’s what we need to do. That’s what we need to focus on, and if we do that, we’re going to be ok.” ATW
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