An announcement by Alaska Airlines and Virgin America Airlines about extending the timing of their proposed merger has some observers wondering whether the deal might have run into problems with the Justice Department’s antitrust regulators.
The two airlines said this week they have “agreed with the Justice Department” that they won’t consummate their deal until after October 17, unless DOJ clears it for an earlier date. Previously, the two airlines said they wouldn’t close the deal before September 30. “The extension gives the DOJ additional time to review the proposed merger,” the airlines said.
This naturally spurred some speculation about what might be going on. The Motley Fool, for instance, ran a story this week headlined: “Is the Alaska Air-Virgin America merger on the rocks?”
Over the past decade or so, the Justice Department has given the nod to much larger airline mergers, showing little or no antitrust concern over the market concentration they would bring. After Delta-Northwest, United-Continental and Southwest-AirTran easily passed DOJ muster, there was rising criticism of the government for not doing enough to protect consumers from industry consolidation.
Thus when the American-US Airways deal came along in 2013, DOJ got a little tougher, ordering the two airlines to give up slots and gates at a number of airports to low-cost carriers, “in order to enhance system-wide competition in the airline industry resulting in more choices and more competitive air fares for consumers,” the agency said.
But Alaska and Virgin said this week that in spite of the delay, they remain “confident they will address any concerns and obtain regulatory approval” for their merger, “given the airlines’ largely complementary networks, the relative size of the merger compared to past airline combinations, and both Virgin America and Alaska’s emphasis on customer service.” They argued that a combined Alaska-Virgin America will provide “more robust competition against the Big Four airlines, which control 84 percent of the domestic market.”
The Street weighed in with this: “It’s highly unlikely that regulators would scuttle the marriage of the two carriers, especially because there’s so little overlap in their routes. Other than competing on the Los Angeles-Seattle route and a smattering of routes out of San Francisco, the two airlines don’t compete at all. But a combined entity would dominate West Coast regional air travel, proving a moneymaking boon for already strong Alaska Air.”
Even The Motley Fool, in an analysis after its scary headline, concluded that “there is little reason to worry” about DOJ impeding the merger’s outcome. “There is no good reason for federal antitrust regulators to block it,” the publication said. It noted that since the deal was announced last spring, Virgin’s financial performance has “deteriorated,” but still, “Alaska Air doesn’t seem to be having second thoughts” about the merger.
So what do you think will happen? Will the deal go through as easily as we once thought? What’s the reason for the delay? Leave your comments below.
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