Following a year of steep declines in unit revenue and flight capacity sales, Virgin America is reportedly on sale. The potential deal came after British billionaire and airline owner Richard Branson planned to explore a sale.
Virgin America has been operating since 2007 offering flights between the East and West coasts but the budget airline has only started making money in the last two years, CBS News notes. Unfortunately, the company faced decreasing sales last year due to the growing rivalry in the airline business despite the fact that it expanded flights to Denver, Dallas and Hawaii.
Now, Virgin America may soon be taken over by JetBlue Airways Corp and Alaska Air Group Inc. According to The Wall Street Journal, unnamed sources revealed that buyout offers from the aforementioned companies will be due by the end of the week and a preferred buyer could emerge as early as this week.
Analysts said that among the two interested buyers, JetBlue will benefit more from the Virgin America acquisition. The reason? The takeover will reportedly expand its presence on the West Coast, including Los Angeles and San Francisco while complementing JetBlue's headquarters in New York as well its network on the East Coast, Bloomberg reports.
In addition, the possible merger would also abolish a competitor on lucrative cross-country routes. But if Alaska Airlines will be the emerging buyer, the buyout would eliminate a rival on the West Coast and expand Alaska's route network in Mexico.
Sterne Agee CRT analyst Adam Hackel also revealed that buyers would also benefit from Virgin America's corporate accounts with major technology companies including Facebook Inc and Alphabet Inc. Reuters also adds that the potential buyers would have to assume Virgin America's aircraft leases, which would likely be at above market rates, and might as well have to increase its pilots' lower-than-average wages.
Meanwhile, shares of all three airlines rise on Monday following the news of a possible merger broke, as per Fool. Virgin America increased more than 10 percent, while JetBlue and Alaska Airlines rose more modestly and by Tuesday, Virgin America saw another 1.5 percent growth in mid-morning trading.
Virgin America is the ninth largest airline in the United States. And its probable acquisition would be the latest in a series of mega-mergers among U.S. airlines in the past decade, paving the way to four top players: American Airlines, Delta Air Lines, United Continental Holdings and Southwest Airlines. These companies control more than 80 percent of the market.