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Airline JVs under scrutiny in Qantas-American; Delta-Aeromexico; Alaska-Virgin America merger

Concerns over the US Department of Justice obstructing the merger between Alaska Air Group and Virgin America were laid to rest in Dec-2016: the agency cleared the tie-up through a fairly benign requirement that Alaska and American must relinquish some codesharing routes. The result is that Alaska and Virgin America will bolster their combined positions at key US markets in order to compete more effectively with larger US network airlines.

DoJ’s blessing is a major milestone for Alaska. Since the company announced its plans to acquire Virgin America in Apr-2016, it has continually stated that it expected to close the deal by YE2016, after gaining DoJ’s approval. But the initial closing date was pushed back in order for DoJ to gain more time to review the transaction. The extended review caused jitters among Alaska’s investors about potentially onerous conditions to be imposed by DoJ, but ultimately the agency’s requests were rational.

In the last weeks of 2016 US regulators have pointed a new direction for joint venture, but the message is not entirely clear. Adopting a reasoned approach to the Alaska-Virgin America tie-up while rejecting a proposed joint venture between Qantas and American, and driving Aeromexico and Delta to reconsider their JV after imposing conditions the airlines deemed to be unworkable. In part, those decisions reflect the influence smaller airlines have exerted on the current US Presidential administration.

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