The antitrust division of the Department of Justice (DOJ) on
Tuesday approved Alaska Air Group's approximately $4 billion acquisition of
However, in an effort to protect competition within the
increasingly consolidated U.S. airline industry, the DOJ made the approval
contingent upon Alaska reducing the number of flights that it codeshares with
The DOJ said that the provision would reduce by
approximately 50% the number of Alaska passengers flying on American. However, Alaska
downplayed the impact that the stipulations would have on its American
"Alaska did agree to implement limited changes to its
codeshare agreement with American Airlines," the carrier said. Alaska and
American partner on approximately 330 routes, and most of those will remain intact,
The DOJ said that the Alaska-American codeshare arrangement
discourages Alaska from competing aggressively with American on routes both
carriers serve and encourages it to forego launching new service in competition
In the DOJ's Competitive Impact Statement, filed with the
U.S. District Court in Washington, D.C., attorney Katherine Celeste wrote that
Virgin America competes directly with American on 20 routes, or approximately
two-thirds of its network. Virgin, she said, "has aggressively competed
with American on many of these overlap routes in ways that have forced American
to respond with lower fares and better service."
As a stipulation for approving the merger, the DOJ is
prohibiting Alaska from codesharing with American on routes that Virgin America and
American both fly. Regulators are also requiring Alaska to end all codeshares
on routes that Alaska and American both fly.
In addition, the companies won't be allowed to begin
codeshares on routes emanating from one of their respective hubs. Allowing such
codeshares, the DOJ said, would discourage future competition.
In one final measure, the DOJ is forbidding Alaska from
giving up the two Virgin America gates at Dallas Love Field as well as Virgin's landing
rights at Washington Reagan National and New York LaGuardia, unless Alaska receives prior approval.
Virgin was awarded access privileges at those capacity-constrained
airports as a stipulation of the DOJ's 2013 approval of the American-U.S.
The Alaska-Virgin merger would combine Alaska, the sixth
largest U.S. carrier, with Virgin, the ninth largest, creating a combined
airline that is the fifth largest in the country. Alaska said that it plans to
close on the transaction "in the very near future," but will take
into account a federal class-action lawsuit filed in September by consumers who
say they will be harmed by the merger.
"Lawsuits of this kind are not uncommon with mergers.
The company believes the plaintiffs' claims are without merit and plans to
defend its acquisition of Virgin America accordingly," Alaska said.
Alaska CEO Brad Tilden has held out the possibility that it
will keep the Virgin brand rather than subsuming it within the Alaska brand. In
either case, the acquisition bolsters Alaska Air Group's transcontinental
network, which is a specialty of Virgin.
"With this combination now cleared for takeoff, we're
thrilled to bring these two companies together and start delivering our low
fares and great service to an even larger group of customers," Tilden said
in a statement.
The DOJ approval came after months of delay, likely because
the parties were negotiating a compromise related to safeguarding airline
competition. Alaska and Virgin had hoped to finalize the deal on Sept. 30.