It’s clear skies ahead for the latest tie-up in the airline industry, but with an important caveat. The Department of Justice has approved the merger of Alaska Air Group (NYSE: ALK) and Virgin America (NASDAQ: VA) — as long as the former can “significantly reduce the scope” of its current codeshare agreement with peer American Airlines.
Codesharing is when two or more airlines market the same flight under their own brand names and flight numbers.
In its response, Alaska said it “couldn’t be more excited” about the approval. The carrier emphasized that most of its codeshare flights with American Airlines will remain intact after it complies with DoJ’s requirement.
In April, Alaska struck a deal to acquire Virgin America for $57 per share in cash. The total value of the deal is pegged at roughly $4 billion.
The DoJ had expressed concerns that the combination of the two airlines would limit competition. Both companies agreed to give the Department more time to analyze the deal. According to a Bloomberg report, they also sent representatives to meet with top officials in the DoJ’s antitrust division in September.
The approval is certainly a positive development for stockholders of both Alaska Airlines and Virgin America, although it was largely expected; the share prices of both companies rose only marginally on the news. With its size, the new company will have less of a need for codeshare agreements. It’ll also be a major player on West Coast routes; both carriers are based in that region.
At the moment, Alaska is the No. 6 airline on the domestic market, and Virgin America is No. 9. Combined, the new company will be No. 5.
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