Alaska Airlines Virgin America Merger
I reported last night that Alaska was rumored to close the deal with Virgin America for roughly $2.5 billion. Now, the purchase has been made official and the actual cost is $57 per share or about $2.6 billion. Once you account for debt and other factors, that price actually jumps up to about $4 billion.
In their press release, Alaska mentions some of the highlights of this deal:
- Deal combines two leading airlines known for outstanding customer service and low fares.
- Alaska Airlines expands its California presence, while creating new opportunities for growth and competition.
- Expanded route network benefits customers, with 1,200 daily departures.
- Transaction is expected to be accretive to adjusted earnings per share in first full year, increases annual revenues 27 percent to more than $7 billion and offers $225 million total net synergies annually at full integration.
- Alaska Airlines Mileage Plan™ to welcome Virgin America Elevate® members.
- Company headquarters to remain in Seattle.
Goodbye Virgin Elevate
One thing that is always speculated about is what happens to a loyalty program when airlines merge. Well, Alaska didn’t waste any time.
Following closing, Alaska Airlines will welcome Virgin America Elevate loyalty program members into its Mileage Plan, ranked #1 by U.S. News and World Report. With Alaska Airlines Mileage Plan, members are able to redeem award miles for travel to more than 900 destinations worldwide, rivaling global alliances. Until the transaction closes, both loyalty programs will remain distinct – with no short-term impact on members. Upon closing, the programs will be merged. Alaska Airlines is committed to ensuring that loyalty members of both airlines maintain the same high-value rewards they’ve come to enjoy in both programs – with access to an even larger network.
Since we know that the programs will merge, it becomes time to speculate how miles/points will be calculated from the old program to the new one. Greg the Frequent Miler calculates Elevate points as roughly worth 2X MilagePlan miles so the conversion will be interested. He even talks about a plan where you could do an indirect transfer from Membership Rewards or Citi ThankYou to Alaska via Elevate. An interesting idea.
Before you go transferring points, it is important to know the timeline with which this deal is to close. Tentatively the companies have announced a January 1, 2017 date for closing the deal with a goal of operating under one certificate by 2018. This deal does still need to be approved by regulators as well.
The merger, which has been approved unanimously by the boards of directors of both companies, is conditioned on receipt of regulatory clearance, approval by Virgin America shareholders and satisfaction of other customary closing conditions. The companies expect to complete the transaction with regulators’ approval no later than Jan. 1, 2017.
This is a big deal for Alaska and it is costing them dearly. They paid about double of what Virgin America was worth about a month ago and over $1 billion more than the company’s value on Friday. While they will have to figure out how to merge products and fleets, it seems like both companies are committed to doing it and to maintaining their reputations as being among the best and highest quality airlines.
What do you think? Did Alaska overpay? Are you excited about this new combined airline? Let us know in the comments!