Commentary

JetBlue, Alaska Said To Be Wooing Virgin America

After allowing that it might be amenable to a suitor last week, Virgin America is entertaining entreaties from JetBlue and Alaska Airlines, Bloomberg Business reported yesterday. It also broke the news last week that Virgin America was talking to a financial adviser after having been being approached about a possible sale.

“Discussions between Virgin America and the two bidders are ongoing, and a deal could be announced as early as next week,” sources that requested anonymity tell Ed Hammond, David Welch and Mary Schlangenstein. “It is unclear if other suitors will emerge, and Virgin America may yet decide to abandon sale negotiations in favor of remaining independent,” they write.

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“This could spell sad news for fans of Virgin America and their guaranteed-to-be-pretty-comfortable and WiFi-equipped planes,” writes Jay Barmann on SFist.com. Most of the dozen commenters on the story agreed. “NOOOOOOOOOOOOOOOOO well that just ruined my day! Virgin is seriously the last good airline left,” pleads one. 

Virgin, which launched in 2007, claims its “experience is unlike any other in the skies, featuring mood-lit cabins with WiFi, custom-designed leather seats, power outlets, and a video touch-screen at every seat back offering guests on-demand menus and countless entertainment options.” 

But it “was a steady money-loser until 2013, when it started turning itself around by slowing its breakneck growth and filling more of its seats with higher fares,” according to the Wall Street Journal

“Now the ninth-largest U.S. airline by traffic, recently started expanding. It took five new Airbus planes in 2015, has five more coming this year and recently ordered 10 more. The company, which has a market capitalization of $1.7 billion, has launched service to Hawaii, expanded into Denver and Dallas and has added flights out of Los Angeles,” write Susan Carey, Robert Wall and Dana Mattioli.

“But its chief executive, David Cush, has complained the company can’t get the gates or slots it needs to grow freely. Part of the problem, he has said, is that all the [big carrier] mergers have winnowed opportunities for smaller carriers,” they continue.

The airline raised about $306 million in an initial public offering in November 2014, the New York Timesreported at the time, pricing its shares at $23 apiece. 

“Though sharing its name with [Richard] Branson’s Virgin empire, Virgin America counts the British billionaire as only a minority shareholder … about 22% of the company’s voting stock, limited in part by American regulations that restrict foreign ownership in domestic airlines to under 25%,” Michael J. de la Merced wrote.

Branson’s fund, VX Holdings, and Cyrus Capital Partners, own 54% of the airline, which is based in Burlingame, Calif., near San Francisco, according to a report issued yesterday by Cowen & Co. analyst Helane Becker that is cited by Bloomberg

“The large shareholders could be seeking to monetize their investment with a sale to another investor or a partial sale to a foreign airline/company that would have a code-sharing agreement attached to it,” Becker said.

“Analysts said a deal could make sense particularly for New York-based JetBlue, which has room to grow on the U.S. West Coast. Both carriers fly the same type of aircraft, which means JetBlue would not need to train pilots or maintenance crew on how to operate Virgin America's planes,” write Reuters’ Greg Roumeliotis and Jeffrey Dastin.

Airline Weekly said in its March 28 issue that JetBlue is ‘the most obvious fit on paper, given what a Virgin merger would do to improve its lot on (transcontinental) markets, where the New York-based airline can still use some help. Then again, does it really want a big increase in transcon exposure while inheriting Virgin’s short-haul problems in Dallas and elsewhere?’” writes Bill Peters for Investor’s Business Daily.

Indeed, Virgin America “would be an unlikely acquisition for Alaska because the two carriers have different planes in their fleets, and because their route structures are very similar,” Seattle-based air travel analyst Steve Danishek tells the San Francisco Business Times’ Patrick Chu.

“I don’t see why Virgin America would be an attractive target for Alaska Airlines at this time,” he said. “If you look at the routes, Alaska goes to all those places.”

But whoever gets Virgin — if anybody does — would benefit from its corporate accounts with technology companies such as Facebook and Alphabet, Sterne Agee CRT analyst Adam Hackel points out to Reuters’ Roumeliotis and Dastin. Apparently, for all its promise, it will be a while before VR totally replaces F2F when it comes to business meetings.

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