Alaska Air gets OK to buy Virgin America

  • By DAVID KOENIG and ERIC TUCKER
  • Tuesday, December 6, 2016 10:03pm
  • News

WASHINGTON — Alaska Airlines has won government approval to buy rival Virgin America after agreeing to reduce its flight-selling partnership with American Airlines.

Parent company Alaska Air Group Inc. said Tuesday that it expects to close the $2.6 billion deal soon and greatly increase its presence in the huge California market.

The Justice Department filed a lawsuit and settlement agreement in federal district court in Washington.

Seattle-based Alaska is the nation’s sixth-biggest airline, and California-based Virgin is eighth. Together, they will become the fifth-biggest.

The airlines still face a private lawsuit to block the deal. Alaska and Virgin executives have expressed confidence they can resolve that lawsuit, which is pending in federal district court in San Francisco. A settlement conference is scheduled Wednesday.

To win the government’s approval, Alaska will stop selling seats on American Airlines flights — a so-called code-sharing agreement — on 45 routes. Alaska said the concession will cost it between $15 million and $20 million a year in revenue assuming it gets many of those customers back on Alaska planes.

Alaska gets $320 million, or 6 percent of its revenue, from code-sharing. Of that, $190 million comes from American, $65 million from Delta Air Lines Inc., and another $65 million from other carriers.

Alaska also agreed to notify the government before it tries to sell or trade assets that Virgin America got from American Airlines and US Airways when those two carriers merged in 2013. The assets include takeoff and landing slots at New York’s LaGuardia Airport and Reagan Washington National Airport and gates at Dallas Love Field.

The Alaska-Virgin America tie-up is the latest — and among the smallest — in a series of deals that have reduced the number of competing airlines in the U.S. The Obama administration’s Justice Department, which was criticized for approving the American-US Airways deal after extracting relatively modest concessions, took a surprisingly long time to review Alaska’s purchase.

A Justice Department official said that the election of Republican Donald Trump did not affect the timing of Tuesday’s settlement announcement, adding that negotiations have been in progress for months.

Both Alaska and Virgin America have loyal followings on the West Coast, but their images contrast sharply.

Alaska regularly ranks near the top of the Transportation Department ratings for on-time performance and gets high marks from Wall Street for its financial prowess. Virgin America, founded with backing from British billionaire Richard Branson, is more stylish, with younger cabin crews and mood lighting.

Alaska CEO Brad Tilden has said that he might keep Virgin America as a separately branded airline, an approach that has had mixed results elsewhere in the airline industry.

Koenig reported from Dallas.

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