Justice Department in
talks with Alaska Air on Virgin deal: sources
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[October 18, 2016]
By Mike Stone and Diane Bartz
WASHINGTON
(Reuters) - Alaska Air Group Inc <ALK.N> pressed on with talks with the
U.S. Justice Department to reach a deal for approval to buy Virgin
America Inc <VA.O>, two people close to the matter said Monday as a
deadline for the government to complete the merger review passed.
The late-stage discussions included the possibility of Alaska
jettisoning part of one or more code-sharing agreements it has with
larger U.S. carriers as a concession for winning antitrust approval, one
of the people said. Alaska Air and Virgin America had agreed not to
close their merger until Oct. 17 so the Justice Department could finish
its review.
The sources asked not to be named to protect business relationships.
In code-sharing agreements, an airline that does not fly a particular
route sells tickets on behalf of another carrier that does. Both
airlines place their identifying codes on the flight, and travelers can
earn frequent flyer miles under either carrier's loyalty program.
The U.S. Transportation Department must approve code-shares involving
U.S. airlines to ensure they do not restrict competition.
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Alaska has code-share arrangements with larger U.S. rivals American
Airlines Group Inc <AAL.O> and Delta Air Lines Inc <DAL.N>. The merger
would open the possibility of the airlines agreeing to share codes on
flights currently operated by Virgin America, which might alter
competition at a time when the top four carriers control more than 80
percent of the U.S. market.
The Justice Department declined comment. Alaska did not immediately
respond to a request for comment.
"The most problematic requirement would be that Alaska drop its domestic
codeshares with American and Delta. We estimate these relationships
drive close to an estimated $350 million of annual revenue to Alaska,"
JPMorgan analyst Jamie Baker said in a research note last week.
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![](../images/101816pics/busine31.jpg)
A combination photo shows Virgin America plane (bottom) in San
Diego, California on April 4, 2016 and an Alaska Airlines plane
(top) at San Francisco, California on April 14, 2015 respectively.
REUTERS/Files
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Removing only certain routes from the agreements, such as from Dallas, would be
"less onerous," Baker said.
Alaska
said on Friday that it was making "good progress" in talks with the Justice
Department on the $2.6 billion deal, which was announced in April.
One of the two sources said that Alaska had expected that it would be able to
work out a deal with the government before Monday but pressed on after the
deadline.
The merger would make Alaska the top carrier on the U.S. West Coast and the
fifth largest U.S. carrier after American, Delta, United Continental Holdings
Inc and Southwest Airlines Co.
(Reporting by Mike Stone and Diane Bartz in Washington; Additional reporting by
Jeffrey Dastin in New York; Editing by Soyoung Kim and Leslie Adler)
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