The acquisition, which reportedly has yet to be finalized, would make the Alaska Air Group the fifth-largest carrier in the U.S., overtaking JetBlue, which currently holds that spot. Alaska Air is reportedly willing to pay around $2 billion for Virgin America, which is owned jointly by Richard Branson and Cyrus Capital Partners, a New York hedge fund.
With a market capitalization of $1.5 billion, the San Francisco-based Virgin America is the ninth-largest airline in the U.S. by passenger traffic. Founded in 2007, the airline attempted a rapid expansion through breakneck discounts, only breaking even in 2013, a year before it went public. Virgin recently began sending flights to Hawaii, a route that cost the company in its fourth-quarter 2015 results.
Alaska Air is based in Seattle and operates mostly in the West, offering numerous flights to Hawaii and Alaska, as well as connections to major East Coast hubs. The purchase of Virgin America would expand the carrier’s footprint in San Francisco nearly four times over, sources told the Journal.
According to those sources, there is just a 6.6 percent overlap in capacity between Alaska Air and Virgin America, giving the acquirer a new set of connections with little redundancy. Alaska Air currently has a market capitalization of $10 billion.
The deal would be one of the largest announced since the wave of consolidation that occurred from 2008 to 2013, which brought 80 percent of American air travel into the hands of just four large companies: American, Delta, Southwest and United Airlines. The industry has enjoyed stellar profits since then, aided by lower energy costs.
The deal could be announced as soon as Monday, the Journal reported.