If You Thought the Alaska/Virgin America Merger Was Anti-Competitive, Take a Look at San Francisco

Alaska Airlines, SFO - San Francisco, Virgin America

I can’t recall anyone outside of the federal government thinking that the Alaska/Virgin America merger was in any way anti-competitive, but all you need to do is look at the new routes being rolled out to see proof that it’s the opposite. Last week, Alaska announced its next round of growth, and it is a markedly different strategy compared to what Virgin America has done previously. This, by the way, is not a bad thing.

Take a look at this map via the Great Circle Mapper.

As you can tell, San Francisco is seeing a whole lot of new destinations being added to the route map, and these aren’t markets you would have expected from Virgin America as a standalone airline.

Virgin America was always focused on serving the big markets with its hip-and-cool product. New York, LA, Chicago, Miami(ish, via Ft Lauderdale), etc. Eventually, as the airplanes kept coming, it had to find other places to expand. The airline looked at leisure markets (Mexico first, then eventually Hawai’i) and smaller markets with a hip vibe (Austin, Portland, Palm Springs). For me, the question was always… where are they going to go next? Some higher profile markets failed, like Orlando and Philadelphia. Hawai’i may be doing well, but it always made me nervous that flying to the islands was the next best use of an airplane.

Virgin America had paused deliveries for awhile, but aircraft have been coming into the fleet again, and the Virgin America strategy didn’t leave me seeing many options. Enter, Alaska.

Alaska has been wildly successful by adding mid-size markets from Seattle with low frequency. Right after the merger, we saw a glimpse of that strategy coming to San Francisco with the easy adds of Minneapolis and Orlando. (Orange County came back on the map too.) But last week, the big announcement of many new routes was more interesting.

First, Philly is back. This is just one of those gaping holes that Virgin America couldn’t make work very well. Add in the ability to codeshare with American on connections beyond that hub and you have a winner. But look at the rest of what’s coming. We have single daily flights to New Orleans, Indianapolis, Raleigh/Durham, and Baltimore. All of these look like they were ripped out of a page in the Alaska Seattle playbook. They’re also markets Virgin America doesn’t seem likely to have touched on its own.

These are all being operated with A320s. John Kirby, who runs network planning for Alaska, had this to say about the plan.

The 2017 Fall schedule is our first real opportunity to begin optimizing where we deploy our expanded fleet, including Airbus equipment. Virgin America has five A321 deliveries coming this year that we will deploy to high demand markets, freeing up existing Virgin America aircraft to take on other missions. In addition, some of these new markets are red-eyes, which don’t require additional Airbus units. For this initial announcement, we feel the Airbus fleet is best suited for this expansion, especially from SFO, where Virgin America has such a strong presence. We will continue to look at the schedule in the months to come and match capacity to demand as we continue to move forward on our commitment to provide West Coast guests the most nonstop options of any carrier.

But this just scratches the surface. Virgin America had nothing smaller than an A319 (and it doesn’t have many of those). Now with Alaska’s Embraer 175 regionals, it can go deeper into smaller markets. In this round of announcements, Albuquerque and Kansas City were added.

The other thing Alaska is doing is using those Embraer 175s to beef up service at surrounding airports, something Virgin America never could do successfully on its own. This announcement included flights from San Jose to Tucson, Austin, and Los Angeles.

There’s no question that when you add up the pieces, you have a powerful airline in the Bay Area.

  • Core Virgin America SFO hub to big cities
  • Alaska presence at other Bay Area airports (San Jose, Oakland, Santa Rosa)
  • Smaller aircraft serving thinner markets
  • American partnership to provide utility to tiny cities
  • International partners (both Virgin America and Alaska)

This has a better chance of becoming a true competitor to United at San Francisco than Virgin America ever could have been. People in the Bay Area should be thrilled to have the extra competition. Now will it actually be a profitable strategy? Alaska is betting what worked in Seattle will work in the Bay Area. I’m naturally more skeptical, as always. But it does seem like this is something the airline could pull off, especially in the booming Bay Area economy where there’s room for growth.

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36 comments on “If You Thought the Alaska/Virgin America Merger Was Anti-Competitive, Take a Look at San Francisco

  1. The exciting part for me is that the flights will be operated under the Virgin America brand.

    Alaska has been adding flights here at BWI; started with Seattle, then added LA, with SD an Portland (seasonal) coming soon. I believe that Alaska has a real shot at success with their latest expansion. I’d certainly rather fly them on transcontinental flights than other LCCs (WN) or the ULCC (Spirit) that flies from my market.

  2. So is Virgin being operated as its own airline, owned by Alaska? Or will we start seeing A320’s with eskimo’s on the tail? (you may have answered this in an earlier post, I can’t recall though.)

      1. It is being reported here as Virgin America planes, as opposed to the other routes that I mention which are all on Alaskan.

        1. What’s Alaskan? Is there an airline here in the United States called “Alaskan Air”? I’m not aware of one.

    1. MattP – Though the final brand decision has not been made regarding Virgin America, it will all eventually be Alaska. What we don’t know is if there’s going to be some kind of Virgin sub-brand, though my bet is that the answer is no. At this point, we’re just so early in the merger that the sub-brands will still be operating on their own. And when an Airbus goes into a market, that means it’ll be Virgin America for now.

  3. Cranky – do we know what the SFO gate situation will be in the future for these two? Seems like they need a better co-location set-up than International (AS) and T3 (VX) that requires a tram/walk with a security reentry if connecting pax. I think Alaska planned on moving to T1 when its complete – but not sure thats enough space for AS+VX.

      1. Alaska is moving to T2 (not sure of the exact time frame). Common use 59 becomes dedicated Alaska gate, and the airport is just about finished building a new gate (Gate 50 becomes 50A and 50B).

    1. Frank- I don’t know the final plan but presumably American will co-locate legacy AA and US gates while Virgin America and Alaska will co-located. I can’t imagine that can be done until the Terminal 1 redo is completed.

  4. I question whether T2 is going to do long term for AS/VX given that half the terminal belongs to AA. Does 1/2 of T2 really offer that kind of capacity for an airline looking to expand? Can the #1 and #5 airlines share one lone terminal at the 7th busiest airport in the U.S.?

    And how long before there’s a call for AS to add a lounge which is something VX should have done when T2 opened.

    I am hoping that this is going to help drive down UA’s Hawaii fares though I do wonder what the increased feed to SFO is going to do to AS’s capacity to Hawaii from SJC and OAK. AS spent a lot of time building up those routes and now SFO is going to put pressure on AS to shift priorities there. HA must be licking its chops.

  5. This is what I kind of expected. AS will add routes where it can make money. VX always wanted sex appeal. That’s why AS was in a position to buy VX (among other reasons).

  6. This article fails to explain the incredible, incalculable market significance of sexy winks and having vestiges of an aging baby-boomer billionaire floating around the airline’s marketing-driven “avant-garde” culture. How will Alaska address the giant, gaping hole that will be left behind without America’s Leading Airline for Sexy Winks (TM)?

    Speaking of Sir Rick — why aren’t Virgin America employees more upset about how he used them as props to build an airline that was designed, from day one and from the ground up, to be sold in a 10 to 15 year timeline? I, for one, would feel very betrayed by that — learning that your God Idol is actually a cynical businessman just like the rest of them. Man, the little guy just never can get ahead, I guess.

    1. I can’t think of a single Virgin company that hasn’t been partially divested or sold off. Branson has been “a cynical businessman” from Day 1 – probably why he’s been successful.

      1. I’ll tell you what — if you start seeing Branson’s face showing up around your workplace, you better get out of there.

        But, again, I fully recognize how he has an incredible power to sway baby-boomers into thinking he’s just some cool dudebro who made it big. Ask any average 50-year-old and there’s a better chance than not that you’ll get at least SOME kind of “swoon” in response.

        He made a fortune off building a disposable airline and selling it to the highest bidder. Super cool, bro. Love your cool hair, dude.

        1. Actually years ago I worked for a company that were traffic advisers when he was bidding for operating rail franchises in UK. He won, we got a success fee, and he took a few staff to fill key positions. They seemed to work well – hard, but well. At the end of the day the guy is trying to keep shareholders and financiers happy. It’s the way of the world for a lot of businesses. The days of corporate loyalty are long gone – and for a lot of businesses they never truly existed in the first place. He’s an entrepreneur that’s sailed close to the edge a few times (and I’m not talking about some of his wilder sailing & ballooning mishaps) – if HSBC had cut him off as threatened many years ago he could’ve been another bum on the street – at least he had the dirty beard for it :)

    2. He had no voting majority in the company. The USDOT stipulates foreigners have to take a certain % as non-voting shares. “Because I’m not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover. So there was sadly nothing I could do to stop it.”

    3. Given the US’ ownership restriction, I don’t really think VX employees can blame Sir RIchard for the sale, especially looking at the history of Virgin Australia. And given all the different players in the US airline market, getting squeezed between the network carriers, Southwest, the rise of the ULCCs, and the two carriers with national scope but a concentration on one coast (JetBlue and Alaska), it was going to be hard for VX to find growth opportunities. Selling was the right thing to do, for shareholders at least – Virgin America was going to be first up against the wall (well, maybe Frontier first, then VX) in the next recession or major oil price run-up.

  7. SFO brings a lot of new opportunities for Alaska. There are markets that UA doesn’t serve from SFO that Alaska could do, i.e. 1x daily DSM-SFO and MSN-SFO on the E175 are real possibilities.

  8. So does this mean VX/AS is giving up it’s LAX transcon/Mexico routes to move aircraft up to SFO for this announced expansion?

    1. David – No, as mentioned in the post Virgin America has 5 new A321s coming in that will be used on existing routes. That will free up A320s to do this.

  9. Im hoping the Virgin America name stays and its a seamless flight experience as far as booking, checking bags etc….it also gives the passenger a choice of Virgins brand of flying or Alaska’s….until the name and service changes, there is still a choice, more options and new cities for Virgin to spread its name….will be interesting to see what the future holds…..

  10. Having dealt with America West flights to SAN, I hope the return A320s can make it on time from the east coast without a tech stop..

  11. Love to see the new routes but Alaska is still a very regional airline IMO. If you’re not SFO or SEA based they are only good for a one off trip here or there. I write this as I sit in a hotel in Mr. Cranky’s backyard…a market I travel to once a year at most but will then hop over to an RDU before heading to an MSP or BNA. I fly DL and make quick turns in ATL and it’s easy. Can’t do that on AS. +90% of my flying is east of the Rockies. What I want to see is an east coast buildup that competes against the 4 airline oligopoly we have since the big mergers of recent history. AS is the airline to do that but IMO is playing it safe. Link some of those new destinations like BNA or RDU to other east coast gateways and build a network WN style, just with “style”.

    1. Jet Blue has a much bigger presence on the east coast than Alaska has, or the combined Alaska/Virgin will have. But of course, you’d have to be in NYC or BOS for B6 to be a viable alternative to the big four for you.

        1. Once AS has absorbed VX, I think they’ll start having discussions with B6 about some kind of alliance…

  12. This playbook hasn’t just been executed at SEA. Alaska has also run the same book from Portland over the last two years, just with smaller planes, slightly fewer destinations and slightly fewer frequencies. As a patron, it’s been a big boost in the utility of the airline.

    SFO got 13 new destinations in one shot using the playbook, but I wouldn’t be surprised if PDX got an equivalent number over the last 18 months.

  13. And now….Condor. Looking forward to your analysis. PDX – Europe is again mileage plan friendly.

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