Two months ago, when Alaska Airlines bought Virgin America for $4 billion, the consensus prediction was that San Francisco-based Virgin would be slowly integrated into Alaska until it was nothing more than a historical footnote. In other words, what customers love about Virgin would be lost in transition.
That’s how these transactions typically play out. Witness TWA’s absorption into American. Or Continental’s into United. Or Piedmont’s into US Airways.
Except in this case, the contrast between the acquirer and the acquired is more pronounced than usual. Merging Alaska and Virgin is a bit like merging Microsoft and Apple. Both are solid companies, well loved and respected by customers and Wall Street alike. But there’s little overlap in their corporate cultures or business practices. In a merger of such disparate companies, the dominant company grows, the recessive company disappears; there is no best-of-both-worlds outcome.
And so, since the merger announcement, Virgin loyalists have been bemoaning the incipient death of their beloved airline. Rightly so. In an era of increasing homogenization, Virgin stands out as a company with real character and zest. The disappearance of Virgin from the domestic airline landscape would be a huge loss.
An Alternative Scenario
In a presentation to the Wings Club in New York this week, Alaska CEO Brad Tilden gave Virgin loyalists cause for hope. As reported by the Associated Press, Tilden pointedly alluded to the possibility of continuing to run Virgin as a separate brand and operation: “We are looking at that because we do believe in the power of the Virgin America brand and we don’t want to lose all that loyalty and revenue that exists today.”
Business as usual, but under new ownership? Indeed, the two carriers could coordinate schedules, share codes, cross-participate in each other’s loyalty programs, share resources, and so on – the same types of cooperation and coordination that stitch together airlines partnering in global alliances such as SkyTeam and the Star Alliance.
It’s possible, sure. But the odds of an independent future for Virgin are, in the long run, low. From a purely financial standpoint, there’s the issue of the licensing fee (0.7 percent of revenue) that Richard Branson’s Virgin Group charges to use the Virgin America name. There’s the general messiness and extra costs of managing two separate operations. And never discount the power of the corporate ego to push for more rather than less centralized control.
Even if Alaska were to operate Virgin as a separate company, how independent would it really be? Would it get the resources it needs to keep out-innovating competitors, including Alaska itself?
Alaska doesn’t expect to close the deal and receive a single operating certificate until early 2018, so there are almost two more years left to partake of the Virgin America experience. Enjoy it while you can.
Reader Reality Check
How hopeful are you that Virgin America will survive this merger more or less intact?
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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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