Making A Merger – Alaska’s Virgin America Takeover

Alaska Airline’s purchase of Virgin was a bold step from the airline’s management. Integrating two very strong brands with very different fleets and fiercely loyal staff was never going to be easy, but Alaska took the challenge head-on. CEO Bran Tilden spoke this week about how it made the merger a success.

Alaska Airlines 737
How did Alaska Airlines make the merger work? Photo: Alaska Airlines

The attractions of Virgin

Alaska Airlines was doing just fine by itself prior to the Virgin America merger. Throughout the early 2010s, the airline grew at around 7% a year, a far more rapid growth than was typical for the industry at the time. So when it transpired that Alaska wanted to buy out Virgin America, it was a surprise, to say the least.

Speaking at Routes Reconnected this week, CEO of Alaska Airlines, Brad Tilden, noted the impetus for going ahead with the merge. He said,

“We felt like we needed more scale. The US industry was changing. American and US Air and America West were one airline, Continental and United had become one airline. Delta and Northwest, AirTran and Southwest… We felt like we needed to scale up.”

Virgin had a significant presence in both LAX and SFO airports. While Alaska was doing well in the Pacific Northwest, it still lacked a strong position at these key airports. In the end, that was what sealed the deal for Alaska Air’s management. Tilden said,

“Virgin gave us critical mass at both SFO and LAX.”

Alaska Airlines (More to love Livery) Airbus A321-253N N927VA (4)
Merging the brand was just the first step. Photo: Vincenzo Pace | JFKJets.com

Buying out an airline is just the first step towards making a merger work. With differing fleets, customer experience, and business models, there was a lot more work needed to get these two companies to sing to the same tune.

Getting the buy-in of the people

One of the critical elements of the Virgin-Alaska merger was getting the ex-Virgin America people on side. Just as the airline had built up a fiercely loyal following in the US on the passenger side, it also stimulated a similar level of loyalty within its staff. Tilden explained how Alaska worked with these people to bring them on board, saying,

“We did a program called Momentum … in groups of 60 or 70 employees. We brought all the Virgin people through and we talked to them about their history and the unique things that Virgin America did great.

“[Virgin America] were a disruptor in a lot of ways, breaking the mold. We honoured all of that fantastic stuff, all that fantastic loyalty that they had built for that brand, but we also introduced them to Alaska.”

Alaska Airlines
New people and new planes all had to be assimilated. Photo: Vincenzo Pace | JFKJets.com

At the time of the merger, Alaska was by far the bigger airline. In terms of size, Alaska boasted around 72% compared to Virgin’s 28%, and that in itself brought with it a multitude of advantages for Virgin’s staff. Tilden explained how Virgin’s people were sold on the idea of a larger budget, bigger fleet and more flying activity. Overall, it would be a positive move for their careers.

“Importantly, we gave them a lot of time to poke at us and push at us and ask questions, to resolve all the anxiety they might have been feeling. But then at the end of those sessions we’d say, will you help us? Will you help us in our goal of creating an airline people love. And honestly, I think the results speak for themselves.”

Still work to be done

The merger between Alaska and Virgin America went about as smoothly as it could. Integrating a fleet of Airbus aircraft into an airline that had been ‘Proudly All-Boeing’ for more than 50 years was a challenge, but one Tilden was willing to accept.

Flying a mixed fleet comes with inefficiencies that can significantly impact the airline’s balance sheet. Tilden has made no secret of his wish to move back to an all-Boeing fleet, but that transition is going to take time. Most recently, Alaska undertook a swap of 10 Airbus A320s in exchange for 13 Boeing 737 MAX 9s, so the needle is slowly moving in the right direction.

Alaska Airlines Airbus A321-253N N928VA
The Airbus aircraft are slowly leaving the fleet. Photo: Vincenzo Pace | JFKJets.com

In terms of aligning brands, the transition is largely completed. Some elements of the Virgin brand can be seen in Alaska’s operations and passenger experience today, while others have fallen by the wayside. In the end, these were two strong airlines with very loyal customers, and for the most part, the customers seem to have accepted the changes.

With the move to become a oneworld airline and a closer cooperation with American Airlines in its future, it seems that, for Alaska, the only way is up.

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