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Alaska Air Buying Virgin America? Say It Ain’t So!

SmarterTravel

Alaska and Virgin America are two great airlines that consistently deliver low fares and an outstanding customer experience. By bringing them together, we are creating the premier airline for people who live anywhere on the West Coast.

That’s Brad Tilden, Alaska Airlines CEO, announcing his airline’s acquisition of Virgin America.

The Deal: Details

As confirmed this morning, Alaska Air Group will purchase Virgin America for $2.6 billion, creating the country’s fifth largest airline.

Alaska claims the combination will deliver $225 million annually in cost savings, some of which undoubtedly will come from eliminating redundant jobs. Revenue is projected to increase 27 percent, to more than $7 billion.

RELATED: Virgin America Will Match Your Elite Status

Shareholders of both companies have already approved the deal, which must now be reviewed by regulators.

Virgin America’s Elevate program will be folded into Alaska’s Mileage Plan. No word yet on timing, or how Elevate points will be converted in Alaska miles.

The deal is expected to close by the end of 2016.

The Deal: Effects

The transaction raises three questions: Is it a good fit? Is it a good deal? And is it good for consumers?

Alaska and Virgin America are both good companies, as Tilden rightly boasted. And yes, they’re both airlines. But that doesn’t make them good merger partners.

Perhaps acknowledging the challenges ahead, Tilden vowed to “do our best to seamlessly integrate the two operations.” Easier said than done.

The two carriers operate incompatible loyalty programs. Alaska is a Boeing operator; Virgin America flies Airbus jets. Alaska’s marketing persona is good-guy friendly; Virgin America’s is city-hipster. And not least when it comes to consolidating two companies, their corporate cultures couldn’t be more distinctly different.

Like Dr. Frankenstein’s monster, it will walk and talk, but not particularly well. And the combination is more likely to be less rather than more than the sum of its parts.

As for the deal’s financial rationality, it’s worth remembering that Virgin America’s market value was less than $1.5 billion before rumors of a bidding war ginned up its share price. That suggests that Alaska is paying a hefty premium for Virgin. That premium might be justified if there were obvious cost and revenue synergies to be enjoyed, but this combination offers no such assurance.

And lastly, from a consumer perspective, however the chips fall with respect to loyalty programs, aircraft, inflight entertainment, and the like, this merger is yet another step towards consolidation, in an industry where 80 percent of the business is already controlled by just four companies. Those cost savings that are always touted as the byproduct of mergers aren’t likely to translate into lower ticket prices for travelers. If anything, the continued erosion of competition will have the opposite effect.

Reader Reality Check

In so many ways, I will miss Virgin America. You?

More from SmarterTravel:

After 20 years working in the travel industry, and 15 years writing about it, Tim Winship knows a thing or two about travel. Follow him on Twitter @twinship.

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