Why Is Alaska Air Acquiring Virgin America?
Alaska Air Group (NYSE:ALK) plans to acquire Virgin America (NASDAQ:VA) in a deal valued at $4 billion. The combined entity is expected to generate annual revenue of more than $7 billion and is likely to deliver revenue and cost synergies of roughly $225 million, to be realized at the time of full integration. The primary objective of the deal is to expand Alaska Air’s footprint in California and to strengthen its competitiveness against the top four US airlines.
California has a population of 39.1 million, which is nearly 3.3 times the combined population of Washington, Oregon, and Alaska. Further, California handles about 185,700 passengers on a daily basis, which is more than 2.5 times the number of passengers handled by the other three states. However, despite being heavily invested in the region (in terms of daily seats), Alaska Air does not have a sizeable seat share in California. Thus, it makes economic sense for Alaska Air to expand in the region through its merger with Virgin America.
Post the merger, Alaska Air will have a notable seat share in the major cities such as San Francisco and Los Angeles, where it currently does not have much presence. Further, it will have the largest seat share in the entire West Coast, much higher than the legacy carriers. Hence, we believe that the Virgin America deal will allow Alaska Air to realize its plan of expanding its exposure to the West Coast, particularly California.
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Have more questions about Alaska Air (NYSE:ALK)? See the following links:
- How Will Alaska Air Benefit From The Virgin America Deal Operationally?
- How Will The Virgin America Deal Alter Alaska Air’s Capital Structure?
- Has Alaska Air Paid A Fair Price For Acquiring Virgin America?
- Alaska Air’s Earnings Rise On The Back Of Rapid Capacity Growth And Lower Fuel Costs
- How Has Alaska Air Used Its Increased Cash Flows From Fuel Cost Savings?
- How Will Alaska Air’s EBITDA Be Impacted, If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- Capacity Expansions And Fuel Cost Savings Boost Alaska Air’s 2015 Results
- How Do Alaska Air’s Operational Statistics Compare With Its Peers?
- How Does Alaska Air’s Market Share (By Capacity) Compare With Its Peers?
- How Does Alaska Air’s Operating Margins Compare With Its Peers?
- How Much Will Alaska Air’s Revenue And EBITDA Grow In The Next 3 Years?
- How Has The Oil Slump Helped Alaska Air’s Operating Margins?
- How Has Alaska Air’s Revenue And EBITDA Composition Changed Over the Last Five Years?
- How Much Has Alaska Air’s Revenue & EBITDA Grown In The Last 5 Years?
- What Is Alaska Air’s Fundamental Value Based On Expected 2015 Results?
- What Constitutes Alaska Air’s Revenue And EBITDA?
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alaska Air Group
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