Virgin America: “O'Hare does remain at the top of our list for our next destination, and we're hopeful that we'll be able to come to a resolution with the city on gates that will allow us to bring our…service to O'Hare by the first half of 2010," Abby Lunardini, Spokeswoman. Source: Chicago Tribune, 12-Dec-2009.
Virgin America considering launching services to Chicago O’Hare “from the West Coast” in 1H2010
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Alaska Air Group: locked in limbo until the government renders a decision on Virgin America merger
Alaska Air Group remains in limbo as it waits for the US Department of Justice (DoJ) to complete a review of the proposed Alaska-Virgin America merger. Alaska had originally hoped to gain government approval and close the deal in early 4Q2016, but the regulatory review unsurprisingly is taking longer than expected. However, Alaska remains confident of finalising the arrangement before the end of 2016, and is taking the proper financial steps to finance its acquisition of Virgin America.
In the short term Alaska is experiencing slightly improving trends in the US marketplace, and its unit revenue improved on a sequential basis from 2Q2016 to 3Q2016. Another positive development for Alaska is a slowing of competitive capacity growth in its markets in 4Q2016 and in early 2017. The tempering of growth is reflective of most US airlines planning to lower capacity expansion in 2017 as higher oil prices heighten the importance of returning to positive unit revenue.
Alaska also plans slower capacity growth of 7% in 2017, versus 8.5% in 2016. Approximately 3ppt of the increase is driven by longer stage lengths and the annualisation of nearly 10 new routes launched in 2016 – a mix of smaller and larger markets with varying levels of competition.
Logic dictates approval of Alaska-Virgin America merger; anti-trust hawks loom large
A pushback in the closing date of the merger of Alaska Air Group and Virgin America – to allow the US government more time for its review of the transaction – created some jitters among investors about the eventual approval of the tie-up, evidenced by a drop in Virgin America’s stock price, which had soared after the deal was tabled in Apr-2016.
Despite the extra time regulators are taking to review the merger, a full-blown rejection of the deal is unlikely given the drastically smaller scope created by Alaska and Virgin America. Indeed, the combined airline creates a more viable entity to compete with the mega-carriers created by previous mergers; not a threat to consumer choice.
Close scrutiny by US regulators was always expected, as are some form of concessions in order for the agreement to ultimately gain the government’s approval. The form those concessions could take has spurred significant speculation from slot divestitures to the relinquishment of gates. Perhaps the key for Alaska is ensuring that the composition of those concessions does not compromise the economics of the transaction.