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What Did JetBlue Lose in the Alaska Air-Virgin America Deal?


Nov. 20 2020, Updated 2:25 p.m. ET

JetBlue loses additional exposure to the West Coast

JetBlue (JBLU) has a strong presence on the East Coast with a major presence in New York, Boston, and the Caribbean. The airline has a much less commanding presence on the West Coast. However, California-based Virgin America (VA) has a strong presence on the West Coast, especially in Los Angeles and its base of operations, San Francisco.

Alaska Air Group (ALK) also has a significant presence on the West Coast, although the routes are significantly different than Virgin America’s routes. For more details, please read Alaska Air Group Can Derive Route Benefits from the Acquisition.

A Virgin America acquisition would have not only given JetBlue (JBLU) a stronger West Coast presence, it also would have made it a formidable competitor to Alaska Air Group (ALK) in that region. The merger would have also strengthened JBLU’s transcontinental routes.

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Future course of action

One possible way forward is that JetBlue (JBLU) may look to expand throughout the West Coast through the organic route. However, strong growth for JBLU in the region looks difficult because Alaska Air Group’s position is expected to get stronger after the merger.

Also, there are limited slots available at San Francisco International Airport and Los Angeles International Airport. In our view, JetBlue may do better to focus on becoming an East Coast specialist.

Also, JetBlue can now focus on strengthening its balance sheet, which was one of the reasons that it could not outbid Alaska Air. An acquisition of Virgin America (VA) would have led to more debt and would have worsened its balance sheet.

JetBlue (JBLU) forms 2.6% of the SPDR S&P Transportation ETF (XTN).

Outbid Alaska Air?

Another possibility is that JetBlue may come up with a counterbid for Virgin America. However, this seems unlikely given the fact that Alaska Air Group has already paid a hefty premium for Virgin America. To learn more, please read Is Virgin America Really Worth the Premium Alaska Is Paying?

Next, we will discuss how the Alaska Air-Virgin America deal can impact Delta Air Lines (DAL).


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