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.