Airlines buying airlines. Mergers. These are the topics that rumors were made for. As I start hearing more rumors about the sale of Virgin America, I wanted to take a closer look at who might buy them — and who wouldn’t. Personally, would I buy them? No. I don’t have the money. If I did, it would be nice, though. A privately-held airline. Immune from Wall-Street capacity discipline bludgeons… heaven!
So now that we know I cannot buy Virgin American… who might?
BUYING VIRGIN AMERICA – JetBlue
They have A32X aircraft, they have a mixed-carrier model (low cost down the back, super premium up front, all while keeping costs under constant focus), and they also lack a strong presence on the west coast outside of the L.A. basin. Gobbling up Virgin America would instantly give them presence in SFO beyond their transcontinental flights. Furthermore, they’d be given instant ETOPS infrastructure that would allow them access to the Hawaii market.
It’s a good synergy. They even share the same reservations infrastructure. The synergy can be driven even further, despite the polar opposite coloring, as their brand identities both focus on targeting millennials and strong focuses on being their hub’s hometown airline. They both spend more money on marketing, because they have ‘hipper’ sounding names — “Even More Space” compared to “Main Cabin Extra” etc. The carriers are also around the same age, so handling the labor part of a potential merger should not cause as much strife as some of the previous merger debacles in this country.
JetBlue would also offer Virgin America instant improvements in its premium cabin across the U.S. As of now, they are the only airline competing in the premium transcon segment with no truly flat product. Combine this with the fact that JetBlue has recently said that they see a desire to expand Mint, and you begin to see that the current domestic first cabin on the Virgin fleet could see its way into becoming a Mint for those of us not fortunate enough to live in a city airlines deem “premium heavy.”
I would be fine if this merger happened, as both a passenger and a finance nerd. The network synergies would benefit many passengers — including me personally. They also would likely not obliterate profitable, but overlapping, routes as, guess what, they don’t have many. The customer would win, except the Virgin America name would probably disappear due to its associated licensing costs and the fact that JetBlue has a larger base of international codeshare partners and catchment area.
BUYING VIRGIN AMERICA – Alaska Airlines
Nope. Virgin America is Alaska with A320s. Alaska would not buy itself, especially when in doing so they’d gain a massive fleet of an aircraft they wouldn’t want. No one would win in that scenario, and Alaska knows it.
BUYING VIRGIN AMERICA – Delta Air Lines
Delta is not about to purchase anything. Even with the retirement of Richard Anderson, purchasing a new airline that doesn’t boost core hubs nor really open up any additional markets for them is cost for a very, very, long term play. Now, yes, if Delta could acquire the A320s for fleet purposes and effectively absorb Virgin America as an amoeba absorbs a plasmid, I could see them considering it. Thing is, I can’t see how you can, as the world’s second-largest airline, say that buying an airline for its aircraft benefits the customers at all. If this was pre-legacy merger-mania yeah, the DOJ would go for it.
Besides, Delta and Virgin America are already friends. Delta is actually friends with every Virgin airline. Virgin Atlantic is practically Delta London. There’s no real reason here; they already get what they need from Virgin America.
BUYING VIRGIN AMERICA – United Airlines
Even the laziest of regulators would see right through this one.
BUYING VIRGIN AMERICA – American Airlines
American: See above. Not allowed. You are welcome to buy an airline to remove competition if your name is Southwest. American — no! You have to come up with a reasonable veil to pretend you are buying up someone to remove competition. I don’t see American doing this when they are already advertising themselves as the best in LAX. Buying up a competitor that doesn’t really compete with you is a waste of money and political capital that can be better used elsewhere!
BUYING VIRGIN AMERICA – Southwest Airlines
Again, not going to happen. Southwest has had ample opportunities to purchase airlines that better fit its model and already has decided against it. Also, it’s not like Southwest is weak in the Bay Area. Cross the bridge to Oakland and you have one of Southwest’s major west coast hubs. No one wins, so no one buys.
BUYING VIRGIN AMERICA – Hawaiian Airlines
I’d actually say they could be in with a shot. Recently, their CEO has realized that to further grow, they may have to leave the sanctuary of their archipelago. How? I really don’t know. Calling an airline that operates from Los Angeles to Chicago Hawaiian Airlines seems a bit of a marketing issue. But I guess Alaska has a lot of flights to Hawaii. Thing is, Hawaiian Airlines is part of a holding company. And HA is crushing it. So, this holding company could purchase Virgin America and operate it in the same lean and mean way they run Hawaiian. I’d change the name, though — licensing fees cost money.
Do I see this happening? I’d say there’s at least a 50% chance. Hawaiian and Virgin actually could work well together. Hawaiian has plenty of A321neo planes on order for service to the mainland. It makes crewing easier, it makes cross-fleeting easier, and it keeps costs down. These are all things that the current Hawaiian management loves. It’s a plus in their eyes. Hawaiian and “mainland Hawaiian” could run like a well-oiled machine. It would not even be too much of a branding exercise. Again, both carriers brand themselves off of style and not being like anyone else. They both have a domestic first cabin. Furthermore, mainland feed from Virgin America could feed an interesting little secondary market Pacific hub out of Honolulu (more than already).
BUYING VIRGIN AMERICA – Spirit or Frontier Airlines
Same reasons for both. I’d rather not see this happen, but it’s not impossible. Wall Street loves a quick buck. Spirit grows like a weed and Frontier wants to grow like a weed, but may need outside blood. A320s, west coast, and lower/low-cost economy model look good to these airlines. Grab the cutlass and hoist the pirate flag, a raider would love to see this happen. I think it would end up only making a quick buck, and have dire consequences.
Oh boy – it’d be a disaster. Forcing the overton window of the market down by removing a mixed competitor would make every other airline worse. That much undisciplined ULCC capacity — just please no! Can you imagine how badly the rest of the airline institutional investors would freak out? We’d be down to 27″ economy seats and no frequent flyer programs in mere seconds! On top of that, the labor fight would be a bloodbath.
BUYING VIRGIN AMERICA – Bernie’s Ethiad Dream
What if the airline isn’t 100% for sale? What if the airline wasn’t even really for sale, but open for a liquidity and advisory injection. Enter Bernie’s dreamworld. Best part, it’s not impossible.
Who loves to invest in small airlines up to as much as they possibly can? What’s an airline that has not joined an alliance, invested in Virgin Australia, and has invested in numerous other airlines?
Etihad. From Abu Dhabi to The World.
They have money, they have motive, and they have opportunity. Etihad can invest up to 49% ownership in Virgin America, and some analysts at Bloomberg think they are interested. Not only do I want this to be true, but it’s good for both airlines. Etihad provides money and knowledge. Virgin America creates an American feeder network into the Etihad Universe, and we have seen that Etihad keeps airline names. Having said that, they bring the Etihad touch to them. Take Etihad’s money, and Etihad gives you a makeover. From Air Berlin to Air Serbia — the customer certainly wins.
Virgin America once marketed themselves as a luxury carrier. Etihad is the premiere luxury carrier. Virgin America markets itself as stylish. I could go on, but the parallels are alarming and great. 49% of Virgin America is a lot of control. It would even get them into the Etihad Guest Frequent Flyer program partnership (forcing me to immediately status match). I can’t see any downside here.
The only thing that I’d want Etihad to change is to get rid of the Virgin brand. It’s not strong here. There are no mega stores, there is Galactic, but that’s not a house-name (yet). Either way, it’s entirely possible that the owners of Virgin America want to cash out as soon as possible. This could be the top of the boom in the airline market cycle. Summary – at least there are some options where the U.S. flyer doesn’t lose.