Alaska Airlines has confirmed its intention to purchase fellow domestic carrier Virgin America Airlines. Alaska Air will pay $2.6 billion in cash.
It will also cover any debts and aircraft operating leases for a total price tag of approximately $4 billion. It won out over rival bidder JetBlue Airways Corp in an intense contest. The bidding process, reportedly, was “a fierce back and forth between the two sides, with multiple bids for a number of days.” JetBlue ultimately conceded because the price tag simply became too high. The transaction will make Alaska Air the fifth largest airline in the United States and increase its revenue to more than $7 billion.
“We didn’t really set out to sell the company when we were approached by Alaska,” Virgin America CEO David Cush said on Monday. “But we are happy with the outcome of this transaction. The price paid is a big win for our shareholders. Our employees will join a vibrant, well-run company. Being part of a bigger airline offers greater job security in a highly consolidated industry.”
“With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel,” said Brad Tilden, the Alaska Air chairman and chief executive. “We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as stand-alone companies to make us an even stronger competitor nationally.”
The merger received unanimous approval from the board of directors of both airlines. However it is expected to draw scrutiny from regulators in the US who are concerned that consolidation within the industry will result in higher prices for consumers. Four such mega-mergers have taken place in the airline industry since 2008, putting control of 80% of the US market in the hands of just four carriers.