JetBlue, Alaska Air Bidding for Virgin America
March 28 2016 - 8:10PM
Dow Jones News
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, a small, San Francisco-based
carrier, 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, 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.
Virgin America, 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.
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 mergers have winnowed
opportunities for smaller carriers.
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.
Write to Susan Carey at susan.carey@wsj.com, Robert Wall at
robert.wall@wsj.com and Dana Mattioli at dana.mattioli@wsj.com
(END) Dow Jones Newswires
March 28, 2016 20:55 ET (00:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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