Posted on: 04 April 2016 by Mark Howells
Alaska Air Group (parent company of Alaska Airlines and Horizon Air) and Virgin America have announced a definitive merger agreement under which Alaska Air Group will acquire Virgin America for $57.00 per share in cash, which – including existing Virgin America indebtedness and capitalised aircraft operating leases – means the aggregate transaction value is approximately $4.0 billion.
Alaska Air Group believes that with an expanded West Coast presence, a larger customer base, and an enhanced platform for growth, Alaska Airlines will be positioned to provide more choices for customers, increase competition and deliver attractive returns to investors.
The combination expands Alaska Airlines’ existing footprint in California and strengthens the company as a competitor to the four largest US airlines (American, Delta, Southwest and United). For Virgin America customers, service will expand in the thriving technology markets in Silicon Valley and Seattle.
The combined airline will also offer more frequent connections to international airline partners departing Seattle, San Francisco and Los Angeles. In addition, this transaction will open up growth opportunities in important East Coast business markets by increasing Alaska Airlines’ access to slot-controlled airports like Ronald Reagan Washington National Airport and the two primary New York City-area airports, John F Kennedy International Airport and LaGuardia Airport.
“Our employees have worked hard to earn the deep loyalty of customers in the Pacific Northwest and Alaska, while the Virgin America team has done the same in California. Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability and outstanding customer service,” declared Brad Tilden, chairman and CEO of Alaska Air Group. “With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel. We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as standalone companies to make us an even stronger competitor nationally.”
Virgin America president and CEO David Cush commented, “Our mission has always been to create an airline that people love – and we accomplished that while changing the industry for the better. Joining forces with Alaska Airlines will ensure that our mission lives on, and that the stronger, combined company will continue to be a great place to work and an airline that focuses on an outstanding travel experience.”
According to Alaska Air Group, the combined airline will retain its safety-centric, employee-focused culture. Both airlines, for example, have been named among America’s ‘best employers’ by Forbes, which annually ranks 500 US companies based on responses to a survey of American workers.
On the safety front, both Alaska Airlines and Virgin America are listed on the IATA Operational Safety Audit (IOSA) registry, a globally recognised benchmark for the airline industry. Alaska Airlines has been on the registry for 10 years and Virgin America has qualified for six years.
Together, the combined airline will have 1,200 daily departures, with hubs in Seattle, San Francisco, Los Angeles, Anchorage, Alaska, and Portland, OR. It will have a combined fleet of approximately 280 aircraft, including regional aircraft, with an average age of 8.5 years.
Following closing, Alaska Airlines will welcome Virgin America Elevate loyalty programme members into its Mileage Plan. With Alaska Airlines Mileage Plan, members are able to redeem award miles for travel to more than 900 destinations worldwide, rivalling global alliances. Until the transaction closes, both loyalty programmes will remain distinct – with no short-term impact on members. Upon closing, the programmes will be merged.
The combined company expects to achieve $225 million annually in total net synergies at full integration. One-time integration costs are expected to be between $300-350 million. The combined airline is projected to have annual revenues of more than $7 billion. Alaska Air Group expects the transaction to be accretive to adjusted earnings per share in the first full year, excluding integration costs.
The transaction builds on both companies’ strong financial performance. In 2015, Alaska Air Group achieved a record full-year adjusted net income of $842 million, which increased 47% over 2014. Alaska Airlines also grew passenger revenues by 5% year-over-year, and has increased dividend payments by 175% since initiation in 2013. In 2015, Alaska Airlines added 20 new markets and 10 new cities to its growing network and 11 new aircraft. As of 31 March 2016, Alaska Airlines had $1.6 billion in unrestricted cash and short-term investments.
Since its successful IPO in 2014, Virgin America has reached a number of milestones, most recently reporting a record annual year-over-year net income of $201 million, an increase of 139% in FY2015, the highest in company history. In 2015, Virgin America also outperformed the industry in domestic unit revenue growth and began growing the airline with 10 new aircraft deliveries.
The combined organisation will be based in Seattle under the leadership of Tilden and his senior leadership team, who collectively have nearly 15 decades of combined airline industry experience. Until receiving regulatory approval to close, Tilden and Cush will co-lead a transition team, which will develop a specific integration plan.
While the companies apply for a single operating certificate, Alaska will maintain its new, refreshed brand and will work closely with Virgin America to learn more about the award-winning Virgin America brand and customer experience. And over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to play a role in driving customer acquisition and loyalty to get the best from both brands.
The companies expect to complete the transaction with regulators’ approval no later than 1 January 2017.