Virgin America launches PDX service

Virgin Airlines's first flight to Portland arrives under a water cannon spray welcome as it taxis to the Atlantic Aviation hangar on June 5, 2012.

(The Oregonian/File)

Alaska Airlines' parent company will pay more than $2.6 billion to acquire Virgin America, a coast-to-coast competitor that will significantly expand Alaska's fleet and network.

Alaska Air Group has agreed to pay $57 a share for Virgin America, a nearly 50 percent premium over its Friday share price. It will also take on debt that Alaska said brings the value of the deal to $4 billion.

The purchase will make Seattle-based Alaska the fifth-largest U.S. airline, with a fleet of 280 planes and 1,200 daily departures. It will have the largest market share on the West Coast.

The deal, which will need approval from regulators, is expected to close by the beginning of next year. Fliers will see few changes before then, executives said.

The Wall Street Journal and The New York Times both reported the looming sale over the weekend, saying Alaska beat out rival JetBlue in a fierce bidding war. Virgin America chief executive David Cush acknowledged that Alaska first approached Virgin with an acquisition offer.

Alaska is the dominant carrier at Portland International Airport, through which it flew more than 3.8 million passengers last year. Regional affiliate Horizon flew another 3 million. Virgin, which offers flights between Portland and its San Francisco base, flew about 84,000 PDX passengers.

The takeover of Virgin, a carrier about one-quarter the size of Alaska, would strengthen Alaska's position in its West Coast base, particularly at the airports in San Francisco and Los Angeles, and increase its service to East Coast destinations.

Alaska chief executive Brad Tilden said in a conference call with analysts and reporters that the deal was driven in part by the opportunity to expand in the California market. Limited space in the terminals there and at Virgin's East Coast destinations from there make more incremental expansion difficult.

"This is something where we felt it was perhaps a one-time opportunity to get a strong foothold in California," he said.

As an example, Alaska said it currently serves just one of the 10 largest U.S. airports out of San Francisco International Airport. After the takeover, it will serve all of them.

Virgin's Elevate loyalty program will be merged with Alaska's Mileage Plan program when the deal closes.

The two airlines are in some ways an odd couple, and analysts saw JetBlue as a more likely buyer. Alaska flies mostly Boeing jets, while Virgin has an airbus fleet. They also serve different markets.

But the latter point may have been an advantage over JetBlue, for whom an overlapping network could have posed regulatory issues. Alaska's relative lack of debt also put it in a better position to borrow money to finance the sale, company officials said.

Alaska and Virgin are both noted for their customer service. Virgin was founded to provide stylish coast-to-coast service, and it topped Conde Nast Traveler's Readers Choice Award list for best airline. Alaska was tops among traditional carriers in J.D. Power's airline satisfaction rankings.

Both airlines have strong brands and loyal customers. The Alaska brand will stay, Tilden said, but it's not clear whether the Virgin America brand will be totally phased out.

"In terms of the Virgin brand, we just want to learn more about it," Tilden said. "There is a chance we could use the Virgin America brand in some form down the road."

He noted Virgin's strength among leisure fliers, suggesting a possible focus for the brand.

Virgin America founder Richard Branson said Monday he started the airline "out of frustration" at the customer experience provided by most carriers.

"I would be lying if I didn't admit sadness that our wonderful airline is merging with another," he said in a letter posted on Virgin Group's website. He added that, as a British citizen, most of his shares in the American airline were non-voting shares. "So there was sadly nothing I could do to stop it."

Alaska Air Group stock had fallen 4.6 percent when markets opened Monday, after news of the acquisition had broken.

-- Elliot Njus

enjus@oregonian.com

503-294-5034

@enjus

This post has been edited to reflect the following correction: Alaska Airlines flew more than 3.8 million passengers last year through Portland International Airport, while regional affiliate Horizon flew another 3 million and Virgin America flew about 84,000. An earlier version used figures for just one month.