By Alyssa Dunbar

On April 4, 2016, Virgin America and Alaska Airlines announced their intention to merge and create a premier airline for the West Coast.[1] Virgin America’s strong foundation in California, combined with Alaska Airline’s core markets in Alaska and the Pacific Northwest would give the two airlines strong footing in the West Coast airline industry. Alaska Air Group, the parent company to Alaska Airlines, has agreed to acquire Virgin America for $57.00 per share, bringing the aggregate transaction value to $4 billion.[2]

In September, fliers and travel agents filed a lawsuit against the airlines in U.S. District Court for the Northern District of California in San Francisco to block the merger. The plaintiffs allege that if Alaska Airlines acquires Virgin America, a major force in the market place would be removed.[3] The plaintiffs are concerned that fares and airlines fees would be raised as a result of the merger and that the merger violates antitrust laws.[4] The plaintiffs are seeking the court to enjoin Alaska Airlines and Virgin America from finalizing their merger.[5] U.S. District Court for the Northern District of California Judge William Alsup is presiding over the case and has set the trial date for December 7, 2016.[6]

On October 20th, District Judge William Alsup ordered Alaska Airlines to give the court and the plaintiffs a seven-day notice before finalizing the merger. He added that “any consummation will be subject to divestiture,”[7] meaning the court will not allow the deal to be finalized before the December trial.[8]

Photograph by Kohei Kanno from Sunnyvale, United States (Virgin America Airbus A320-214 N639VA) [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons.

This consumer lawsuit is not the only action cooling the airlines’ jets from completing the transaction. Shortly after announcing the merger, the Department of Justice’s (“DOJ”) antitrust division began reviewing the merger. After the DOJ’s routine “second request” for information on the merger, the airlines pushed back their date for closure from September 30th to October 17th.[9] Since October 17th has come and passed, and the DOJ has kept quiet on approving the deal, the companies are aiming to finalize the deal by the end of 2016. Journalists and industry experts speculate that the DOJ may hesitate to approve the deal because airline consolidation over the past years has disrupted competition in the airline industry.[10]

This lawsuit and DOJ investigation create turbulence for the companies’ hopes to join as one airline. However, from looking at past airline mergers, this one will most likely end with the companies’ desired result. If given approval to merge, Alaska Airlines and Virgin America will only hold 6% of the market share. Compared to the next four largest airlines, American Airlines, Delta, United, and Southwest Airlines, who hold 84% of the market share, 6% is a thumbnail of the market share for the airline industry. However, DOJ has been scrutinized by Congress and think-tanks for not being tough on antitrust laws after approving the American Airlines merger with US Airways in 2013.[11]

For a successful merger, Alaska Airlines and Virgin America will have to put up a tough fight to gain their desired result. If the two airlines are allowed to merge, all airlines companies should expect new rules to be promulgated to protect consumers and deter anticompetitive behavior by the airlines. For example, these airlines may have to concede data-sharing between one another and the number of gates they hold at particular airports. Additionally, the companies will be closely watched by government agencies, such as DOJ and the Department of Transportation, to ensure that price collusion does not occur. While these mergers resulted in profitable business for the airline companies, the unintended result is a closer eye by big brother on day-to-day transactions and the unlikelihood that another merger may occur in the near future.

[1] Alaska Airlines, Customer Q&A on Alaska Airlines and Virgin America merger, Blog, (Apr. 7, 2016), https://blog.alaskaair.com/alaska-airlines/news/asplusvx-customer-questions/.

[2] Virgin America, Alaska Air Group to Acquire Virgin America, Creating West Coast’s Premier Carrier, About Our Airline, https://www.virginamerica.com/cms/about-our-airline/press/2016/alaska-air-group-to-acquire-virgin-america-creating-west-coasts-premier-carrier, (last visited Oct. 30, 2016).

[3] Susan Carey, Judge Overseeing Lawsuit Over Alaska Air, Virgin America Merger to Move Ahead with Trial, Wall Street J., (Oct. 21, 2016), https://www.wsj.com/articles/judge-overseeing-lawsuit-over-alaska-air-virgin-america-merger-to-move-ahead-with-trial-1477079700.

[4] Id.

[5] Id.

[6] Id.

[7] See Carey, supra note 3.

[8] Andrew M Harris, Alaska Air Merger Suit Judge Warns He’ll Block Pre-Trial Closing, Bloomberg, (Oct. 21, 2016), https://www.bloomberg.com/news/articles/2016-10-21/alaska-air-merger-suit-judge-warns-he-ll-block-pre-trial-closing.

[9] Susan Carey, Alaska Air, Virgin America Cool Their Jets, as They Await Deal’s Approval, Wall Street J., (Oct. 20, 2016), https://www.wsj.com/articles/alaska-air-virgin-america-cool-their-jets-as-they-await-deals-approval-1476995715.

[10] Ashlee Kieler, What’s Holding Up Merger of Alaska Airlines & Virgin America?, Consumerist, (Oct. 21, 2016), https://consumerist.com/2016/10/21/whats-holding-up-merger-of-alaska-airlines-virgin-america/.

[11] Mary Beth Quirk, U.S. Proposes Deal to Allow the American Airlines-US Airways Marriage to Finally Happen, Consumerist, (Nov. 12, 2013), https://consumerist.com/2013/11/12/u-s-proposes-deal-to-allow-the-american-airlines-us-airways-marriage-to-finally-happen/.