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Alaska Air Buys Virgin America in Healthy $2.6 Billion Merger

Ally Schmidt

What Can We Expect from the Alaska Air–Virgin America Deal?

The deal

Alaska Air Group (ALK) recently announced its $2.6 billion ($4 billion including debt and leases) acquisition of Virgin America (VA). The merger will be unique in the history of the airline industry. Past acquisition targets have usually been companies that are on the verge of bankruptcy or in similar financial turmoil.

However, both Alaska Air Group and Virgin America are not only financially stable, but they are also ranked high in terms of quality and passenger satisfaction. According to Airfare Watchdog, Alaska Air is ranked number one and Virgin America is ranked number two in terms of overall performance.

To learn more about the deal, please read the Market Realist series, Alaska Air Group-Virgin America Merger: Fifth-Largest US Airline.

Market share

American Airlines (AAL) currently enjoys the highest market share of 26% in the United States, followed closely by Delta Air Lines (DAL) and United Continental (UAL) with a 24.4% and 24.3% market share, respectively. Together, the top four airlines form almost 85% of the market share.

JetBlue Airways (JBLU) currently holds fifth place and has a 4.9% market share. Alaska Air Group stands in sixth place and has a 3.9% market share. After the deal, Alaska Air will become the fifth largest airline in the US industry with a 5.1% market share, moving ahead of JetBlue.

If JetBlue had acquired Virgin America (VA), it could boast of a combined market share of 6.1%. In fact, JetBlue was a serious bidder against Alaska Air for VA’s acquisition.

A Virgin America acquisition would have had many benefits for JetBlue, which we will discuss in our next article. We will also discuss what JetBlue stands to lose after the Alaska Air-Virgin America deal.

Investors can gain exposure to airline stocks by investing in the PowerShares Dynamic Leisure & Entertainment ETF (PEJ), which holds more than 20% in airline stocks.

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