Final Analysis: The Improbable Marriage
Alaskas union with Virgin America seems odd, but the outcome will ultimately be unsurprising.
February 2, 2017By John Levesque
Despite its origins in the rugged north country, Alaska Airlines is a button-down shirt and wingtips. As recently as five years ago, it distributed Bible verses with its in-flight meals. Virgin America, meanwhile, with a provenance linked to the flamboyant entrepreneur Richard Branson, is more T-shirt and flip-flops. Its aircraft have leather seats and 12 shades of mood lighting. And yet, the two are one. Or at least theyre sitting on the beach under the same umbrella, trying to get along.
The $2.6 billion union of Alaska Airlines and Virgin America under the Alaska Air Group banner had many scratching their heads when it was announced last year. Then it was consummated in mid-December, making Alaska Air Group the fifth-largest airline company in the United States, and many were still wondering.
Alaska has gone to some lengths to acknowledge the improbability of this marriage. It created the web domain DifferentWorks.com and populated it with all manner of information to drive home the point that Alaska and Virgin America are an odd couple that works well together.
This is all a bit of marketing nonsense, of course, since no one really knows if Alaska and Virgin America will work well together. Heck, theyve been together for all of 12 weeks, so this whole Different Works campaign is more wishful thinking than honest assessment.
If youve ever been on the wrong end of a corporate takeover, you know the experience isnt as seamless or as painless as Alaska wants us to believe its going to be. Right now, there are hundreds of Virgin America employees who are concerned, confused and cross. Some will buy into the new gospel being preached by Alaska. Some will hesitate. Some will rebel. Happens all the time.
Branson himself opposed selling off Virgin America, but as a foreign national he could own no more than 20 percent of a United States airline, so he didnt have majority control.
Rights to the Virgin America name revert to Branson if Alaska doesnt continue the brand, so Alaska has some incentive to maintain Virgin America as a separate entity.
Alaska isnt tipping its hand. We appreciate that there is great interest in the future of the Virgin America brand among customers and employees alike, Alaska CEO Brad Tilden said in December. This is a big decision and one that deserves months of thoughtful and thorough analysis. We plan to make a decision about the Virgin America brand early next year.
Keep in mind that this is not a merger of equals. Alaska, with nearly a thousand daily flights and a fleet of 223 aircraft, dwarfs Virgin America, which had 197 daily flights and 63 airplanes at the time the deal closed. Seattle-based Alaska had 15,600 employees; Burlingame, California-based Virgin America had 3,200. Alaskas annual revenue is $5.8 billion; Virgin Americas $1.6 billion.
Given that Alaska has successfully initiated the subtle disappearance of its Horizon Air brand these past few years, it seems reasonable to assume Virgin America is due a similar ride into the sunset. In a world where branding is everything, it makes sense for Alaska to keep the Virgin America brand alive awhile as it gets the lay of the land and takes the temperature of Virgin Americas loyal customers.
It took years, after all, for Macys to subsume all the regional department store brands it had swallowed up. Alaska Air group will likely follow the same course. It will be gradual. It will be subtle. And, in the end, it will be Alaska.
JOHN LEVESQUE is the managing editor of Seattle Business magazine. Reach him at [email protected].