I love being right! :)

AS-VX combo would be great for SF Bay Area - strong competitor to UA and WN fortress hubs at SFO and OAK respectively. Also prefer AS mileage program.

Excerpted from today's WSJ:

Low-fare startup Virgin America Inc. may soon have a new owner.

Takeover offers from two other U.S. airlines— JetBlue Airways Corp. and Alaska Air Group Inc. —are due by the end of the week, according to a person familiar with the matter, in what could signal the latest wave of consolidation in the industry. A preferred buyer could emerge as early as this week, the person said, though a final deal could take longer to complete. The details of the potential offers couldn’t be determined.

The possible takeover of Virgin suggests consolidation in the industry is moving to the regional carriers and ultradiscounters after mergers between 2008 and 2013 combined eight big carriers into four, which now control more than 80% of the U.S. domestic market. The four, in order of size by U.S. traffic, are American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc. and Southwest Airlines Co.

Virgin America, a small carrier based in Burlingame, Calif., near San Francisco International Airport, was launched in 2007 and 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.

***

The takeover talks were reported earlier by Bloomberg.

Virgin America went public in November 2014, and its founding shareholders, Richard Branson’s Virgin Group Ltd. and New York-based investment adviser Cyrus Capital Partners LP, still control about 54% of the shares.

Helane Becker, an analyst with Cowen & Co., said those large holders could be seeking to monetize their investment.

She added that JetBlue would make the most sense for Virgin from an aircraft, network and product-offering perspective. JetBlue, the No. 5 U.S. airline by traffic, operates the same types of narrow-body Airbus A320s as Virgin America. The two compete on some major transcontinental routes. JetBlue also has a reputation for offering superior service at relatively low fares.

The person familiar with the matter said JetBlue would be seeking to boost its West Coast presence by buying Virgin America. Alaska’s Alaska Airlines unit was interested in boosting the price passengers paid for their tickets in its existing markets, this person said.

Alaska Air Group, the parent of Alaska Airlines, is the No. 6 U.S. carrier by traffic. The Seattle based-company, which has been around for more than 80 years, hasn’t made major airline acquisitions since the 1980s.

Under U.S. regulations, a foreign carrier would be limited to buying just 25% of Virgin America, although its voting share could go up to 49%. Virgin Group and Cyrus had to redo their initial plans for the equity in the new airline to satisfy U.S. regulators.

Four solid AS motives:

1. Buy SFO beachhead as hedge against war of attrition with DL at SEA.
2. Acquire VX premium transcon F product for deployment on cherry routes: SEA/SFO/LAX -- JFK/EWR/BOS/DCA. Alaska's Mint play.
3. Bulk up so AS is too big for a legacy to digest.
3. Prevent B6 from getting VX and changing domestic balance of power to AS' disadvantage -- see below:

A competitive landscape with five legacy or national network carriers (AA, UA, DL, WN, B6+VX) and six thinner, or outright slender, B-tier carriers (AS, HA, F9, NK, SY, G4) is fundamentally more daunting for the remaining smaller survivors than today's landscape with four legacies and eight B-tier airlines. Now we're at a tipping point. AS would be more vulnerable.

Good points.

Regardless, I think we can agree that we are probably seeing the beginning of the end of the Virgin brand in the US? :(

I guess it could end worse (bankruptcy).

Alaska: ugh. If that happens, and they redeploy VX's planes only to "premium" routes (like the SFO/LAX to NYC routes, which are the one set of routes where VX is *not* competitive with its F product), and stick AS's mom-and-pop planes everywhere else, I will be switching. The complete brand disconnect (and total non-overlap of fleets) seems like it *should* be a dealbreaker, though the anti-competitive reasons others have brought up do make sense (and are, of course, bad for consumers).

Hoping B6 buys it and they stay at DAL

B6 stated years back they preferred DAL over DFW. One of the many reasons they'd be interested in a deal.

Unfortunate, I really like the Virgin brand. Virgin Hotels are starting up and expanding though.

Actually, as a serious question: Virgin has at least some brand power to speak of. Even if Alaska (for example) bought the company, why not simply have two brands (with full interlining of tickets, etc.) under one company instead of bothering to "merge away" the second brand? You could still merge ticket desks (where appropriate), co-locate most flights in the same terminals, and take advantage of other economies of scale. Consider it a version of the "Delta approach" (e.g. the pile of foreign carriers DL owns chunks of).

Two marketing budgets, two HR departments and back offices, two operations and network planning staffs, two sets of pilots/FA/ground crews and employees, you can't interoperate fleets and get any efficiencies out of it, it means you have questions to resolve like "So I'm an AS/VX elite, I'm flying the other airline, what's my experience? How many miles/VX points do I get? Does this count for AS/VX EQM or partner EQM?", you have two sets of certifications to the FAA to make every time you want to do something across the fleet.

In other words, you get all the headaches of a merger and none of the benefits/synergies. If you just wanted to interline tickets or operate as a partner airline you could do that any day without throwing a ton of cash at VX to acquire it.

FWIW, AS had a well regarded regional brand (Horizon/QX) that it got rid of to put under the Alaska brand. So they've basically rejected the approach you are suggesting already. I don't see why VX is so awesome that this changes the calculus. If it was VX wouldn't be putting itself up for sale (this is about people deciding to cash out).

Still wondering where you got the idea HA and AS are teamed up in any way, incidentally...

+1. I can see ASVX being a very slow merger though similar to how WN and FL merged and phased FL out.

This news really bums me out. Here's to hoping that a non-airline entity is the ultimate acquirer and propels VX rather than dismantles it.

It doesn't help I'm sitting on close to 100k of elevate points too. Also feeling pretty dumb for getting the VX CC a couple months ago.

Same here... I decided to give my business to VX this year after dropping UA and now sitting on 80K points and the premium CC as well.... Made Gold already and now it can potentially disappear.

The only constant in this industry is change.

On the AS/HA bit: I've got a friend who lives in Seattle who flies AS who told me that. Obviously bad information, but I rely on him if I'm wondering about AS just as he'd likely turn to me for questions about VX (and I was, in fact, responsible for showing him VX...the main hangup he has with VX vs AS is the ability to get some exceedingly convenient nonstops out of SEA).

As to them "throwing money at" VX, have we considered the possibility of AS (or indeed B6) taking a stake but not full ownership as a defensive move against the Big Four (I include WN here...40 years of deregulation later and all I think we got was a single letter swap: BN to WN) or one another...something which would also allow one or two of the "big players" in the initial startup to cash out? AS might be able to afford a 25% stake with their cash-on-hand (25% of $1.8bn, which would be a premium on the post-merger rumor price, comes to $450m; AS has about $1.3bn cash/equivalent-on-hand and while they can't drain that to $0 [though they could presumably do a commercial paper float if it got low] they probably don't need every penny on hand).

Assuming I'm AS, I probably don't want to merge with VX for all the reasons we've discussed...but a "non-merger merger" which basically gives me full access to three hubs on the West Coast (such an arrangement would have something like 15-20x daily flights SEA-LAX and a bit over 10x daily flights SEA-SFO) has a lot of benefits I can imagine.

I'm inclined to think an AS minority stake might be the best thing we can hope for since it would probably blow up any other merger options.

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AAddicted: On the one hand, I'm in your boat several times over; on the other hand...unless things blow up overnight, put those points to use on VS in UC (or in a similar arrangement). Depending on what comes out over the next week or two I may be going to the UK quite a bit over the next year...

AS's mileage program is the one thing that is better than VX, so I wouldn't worry about that (except the F you'd get upgraded into is crap, like UA). But much better international partner awards.

I do wonder how scarce these awards are going to become in the coming days/weeks.

That does seem to be the case. Jetblue literally only has one partner carrier that can be redeemed on - Hawaiian. One cannot even calculate the conversion of B6 points to a HA award without calling and finding out. B6 is probably the worst carrier in terms of partners second only to Southwest and the Tier 3 carriers (Spirit, Allegiant, Frontier).

In the case of AS, the partner carrier choices are far better. Considering VX points are worth .02/point on VX metal (Even better on partners) let's hope that 100k elevate points are not only = 100k AS miles as the ppm is not comparable to what we have today.

Bad news regardless of outcome I'm afraid. Still hoping for VX to emerge after all of this in some form.