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4-Traders Homepage  >  Equities  >  Nyse  >  Alaska Air Group, Inc.    ALK

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Alaska Air : Virgin America will disappear into Alaska Airlines in 2019

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03/24/2017 | 12:36pm CEST

Virgin America, the California-based carrier with the blue mood lighting and high-tech entertainment system, will be fully absorbed by Alaska Airlines by the end of 2019 as Alaska strives to become the West Coasts dominant airline.

Only three months after Alaska Airlines parent company completed the $2.6-billion acquisition of the popular upstart airline launched by billionaire Richard Branson, Alaska Air Group says it will retire the Virgin America brand.

Since the purchase, Alaska Air Group has operated the two carriers as separate subsidiary airlines, with the ultimate goal of combining their forces to compete against bigger air rivals.

We are going to be able to create a real, strong, integrated airline for travelers on the West Coast, said Andrew Harrison, chief commercial officer for Alaska Airlines.

With Alaska Airlines based in Seattle and Virgin America headquartered in Burlingame, the combined operation has a fleet of 286 planes, flying to 118 destination. The carriers employ 19,000 people.

Combined, the airlines represent the nations fifth-largest carrier, behind American, Delta, United and Southwest airlines.

Even though Virgin America will cease operations in 2019, Alaska Airlines plans to incorporate many of Virgin Americas most popular features.

Starting next year, Alaska Airlines will redesign its cabin to include new seats and, in some planes, Virgin Americas distinctive blue lighting. Alaska Airlines staff will also don new uniforms created by Seattle fashion designer Luly Yang.

Alaska Airlines also plans to make permanent a temporary promotion that gives passengers free access to more than 200 movies and TV shows. (Virgin America is known for its touch-screen entertainment system.)

The vibe that Virgin created on board is fantastic, and we want to bring it to Alaska, said Sangita Woerner, Alaska Airlines vice president of marketing.

Since launching in 2007, Virgin America has developed a devoted following and won several consumer awards from Conde Nast Traveler and Travel & Leisure magazines. It has focused on young, hip business travelers, flying between Los Angeles and San Francisco, as well as from the West Coast to New York and Washington, D.C.

But the carrier struggled to make money through the recession and the years that followed. It didnt report its first profitable year until 2014. Despite Virgin Americas popularity, most industry experts agreed that it makes financial sense for Alaska Air Group to combine the two airlines as one operation.

Henry Harteveldt, an airline industry analyst with Atmosphere Research Group, said Alaskas decision wasnt a surprise because it will enable the company to create a more convenient flight schedule, reaching more destinations and becoming a formidable opponent to the bigger carriers.

I think Alaska will be very able to fight at or above its weight, Harteveldt said.

Still, he expects that the carrier wont be able to hold on to all of the customers who favored Virgin America.

Alaska and Virgin are two very different brands and very different cultures, he said.

Alaska Airlines had been known as a blue-collar airline with reliable service. But with the acquisition of Virgin America, the carrier said it is now expanding the number or first-class and premium-class seats by 50%, beginning at the end of 2018.

Woerner said Alaska will still target fliers looking for affordable fares and reliable service but will also try to draw in a group called leisure enthusiasts, travelers with a higher income who are looking for a premium travel experience.

The new carrier faces its strongest competition on the West Coast from Dallas-based Southwest Airlines, which is the dominant airline in mid-size California airports such as Hollywood Burbank Airport and Oakland International Airport.

Some questions about the future of the airline remain unanswered.

For example, Alaska Airlines operates a fleet of Boeing planes while Virgin America flies Airbus planes. This means Alaska Airlines must pay for two sets of mechanics and maintenance facilities.

Harrison said he isnt sure if Alaska Airlines will continue to lease or buy both types of planes or will slowly ween the carrier away from the Airbus fleet.

Also, there is a slim chance that Virgin America may live on in the form of another airline.

Alaska Airlines has been paying a licensing fee to Bransons Virgin Group for the name Virgin America. Branson told reporters last year that he might consider relaunching Virgin America if Alaska Airlines decides to retire the brand.

I hope the Virgin America brand never goes away, Branson told radio station WFAA at an event in October in Dallas. If Alaska decides to drop the brand because we didnt actually want the sale to happen well start again and Virgin America will very much back here.

Harrison said creating a new airline in the U.S. would be difficult.

Basically, the U.S. infrastructure is at capacity, he said. Even if someone wanted to start a new airline, youre going to have a great difficulty surviving the mass market.

(c) 2017 All Rights Reversed for Saudi Press Agency Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ($)
Sales 2017 8 138 M
EBIT 2017 1 652 M
Net income 2017 987 M
Debt 2017 1 216 M
Yield 2017 1,24%
P/E ratio 2017 11,82
P/E ratio 2018 10,88
EV / Sales 2017 1,59x
EV / Sales 2018 1,44x
Capitalization 11 692 M
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Mean consensus OUTPERFORM
Number of Analysts 13
Average target price 111 $
Spread / Average Target 17%
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NameTitle
Bradley D. Tilden Chairman, President & Chief Executive Officer
Benito Minicucci Chief Operating Officer & EVP-Operations
Brandon S. Pedersen Chief Financial Officer & EVP-Finance
Patricia M. Bedient Independent Director
Phyllis J. Campbell Lead Independent Director
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