How Will Alaska Air’s Market Share Change Post The Virgin America Deal?

+29.17%
Upside
38.21
Market
49.36
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ALK: Alaska Air logo
ALK
Alaska Air

Alaska Air, which along with its regional partner airlines serves more than 100 cities in Alaska, the Lower 48, Hawaii, Canada, Mexico, and Costa Rica, plans to acquire Virgin America in an all cash deal of $2.6 billion. Virgin America is a low-cost airline based in California, providing premium services on routes across the United States and Mexico, with primary focus on Los Angeles and San Francisco and a smaller presence in Dallas Love Field. Hence, Alaska Air’s primary objective to acquire Virgin America is to expand its footprint on the West Coast through access to the California market, while integrating Virgin America’s Dallas services with its existing operations. Thus, this merger will create a sizeable low-fare airline, which will provide a premium product and quality services to its passengers, while challenging the market share of large network carriers on the West Coast.

Below, we estimate the market share of the major US Airlines in 2016, based on their system capacity (measured by Available Seats Miles). We also notice that post the Virgin America deal, Alaska Air will hold more than 6.5% of the total domestic airline market (in terms of the capacity). While this may not impact the legacy carriers such as American Airlines, United Continental, and Delta Air Lines in the short term, it could lead to stiff competition for these airlines in the long term.

ALK-Q&A-merger-14

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Have more questions about Alaska Air (NYSE:ALK)? See the following links:

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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