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Alaska Airlines to Buy Virgin America for $2.6B
- dazbradbury 11y ago"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." - Sir Richard Branson, Virgin founder.
- jvm 11y agoCan we do away with these absurd foreign ownership laws yet? Why would we want to discourage people from investing in our country?
- ibejoeb 11y agoWe're not. Branson owns 31% of the company. He is only capped on shares with voting rights.
- cwyers 11y agoHow is not allowing people to have influence over corporate decisions commensurate with the size of their investment not discouraging that sort of investment?
- ibejoeb 11y agoHe's free to invest. He's not free to control. As an investor, he's making out very well with a ~50% premium. Surely you can recognize the merit in keeping domestic control of transportation, which is the reason these regulations exist.
- greggyb 11y ago> Surely you can recognize the merit in keeping domestic control of transportation, which is the reason these regulations exist. Not OP, and not trying to be glib, but I think you're skirting the major objection by assuming agreement here. Differential privilege due to happenstance of birth location seems a pretty arbitrary line to me, in need of justification.
- Tobani 11y agoIt sounds like the requirement is citizenship. Citizenship isn't exactly happenstance of birth location.
- dsl 11y agoAs an american I can't own property or a business in _most_ of the world, without a local proxy. We also have programs that will give you citizenship if you commit to investing money long term and taking an allegiance to the United States.
- JoshTriplett 11y ago> Surely you can recognize the merit in keeping domestic control of transportation That doesn't seem entirely self-evident, and that's part of the subject of this discussion thread. There are already extensive regulations on the operation and safety of airlines, most of them likely for good reason. Why, above and beyond those regulations, do we additionally need to limit ownership? If the answer is "handwave handwave safety handwave security", then I'd point out that there are dozens of other industries even more ingrained into the US where someone looking to do damage could do far more harm than they ever could with an airline, and none of those industries have prohibitions on foreign ownership.
- RockyMcNuts 11y agowell, you wouldn't want foreign airlines giving their governments information about military and VIP movements, letting their intelligence services intercept and tamper with shipped packages, maybe fit planes on interesting routes with surveillance equipment. i.e. the stuff the US does.
- sangnoir 11y ago> you wouldn't want foreign airlines giving their governments information about military and VIP movements Just how magical is the the extra 2% that takes one from an "OK/freiendly" 49% foreign shareholder to a 51% (or 50% +1?) "oh no, intel stealer!". I sort-of understand the control argument, but not the secrecy argument you are making doesn't hold up.
- RockyMcNuts 11y agoit was tongue in cheek, but yeah, that 2% (or .01%) to go from junior partner to running the show is pretty magical. (ask a game theorist, or Al Gore!)
- tacos 11y agoHuh? I just transferred from a Kawasaki train car to a Canadian bus with an Isuzu Engine to board an Airbus that was routed to JFK via British flight controllers, fueled by imported oil. Glad we got it nailed down.
- the_hangman 11y agoCorrect. But none of those entities are controlling transportation infrastructure in the United States. They're manufacturing vehicles or parts necessary for those vehicles, or controlling the air traffic on a completely separate continent. The law's intent (not saying that I agree with it) is to ensure that the air transit infrastructure in the United States is controlled by U.S. citizens, not that every piece of transportation equipment worldwide is manufactured and controlled by the U.S.
- kchoudhu 11y ago> Surely you can recognize the merit in keeping domestic control of transportation No, I really don't. In times of true national crisis, emergency powers allow the US government to commandeer the civil air fleet for military uses. The rest of the time, these foreign ownership restrictions prevent better operators from taking ownership stakes and fixing the efficiency problems that plague uncompetitive mainline US airlines. I for one would LOVE to see what an ME3 carrier could do with, say, American Airlines.
- ubernostrum 11y agoI for one would LOVE to see what an ME3 carrier could do with, say, American Airlines. Depends. Is that an ME3 carrier on its own, or an ME3 carrier with an unlimited government subsidy to keep it afloat no matter how much money it loses? Because the latter is what really exists -- those airlines aren't run as for-profit businesses, they're run as vanity projects by the backing governments.
- kchoudhu 11y agoI'm not sure the links between the government and the ME3 carriers are as clear as you think. And even if they were (and this is going sound scandalous): who cares? If some Emirati government wants to subsidize my domestic travel within the US, they should feel very free to do so! I'll take the better service and cheaper prices in a heartbeat.
- enraged_camel 11y ago>>Surely you can recognize the merit in keeping domestic control of transportation And yet we're almost completely dependent on foreign countries for oil, without which most of our transportation methods would crumble.
- cwyers 11y agoFrom Merriam Webster: Full Definition of discourage dis·cour·aged dis·cour·ag·ing transitive verb 1 : to deprive of courage or confidence : dishearten <was discouraged by repeated failure> 2 a : to hinder by disfavoring <trying to discourage absenteeism> b : to dissuade or attempt to dissuade from doing something <tried to discourage her from going> To hinder by disfavoring. Foreign investors are disfavored -- they can invest, but under different (and less favorable, hence disfavored) terms. They are hindered in the process. You can make a case that this hindrance is a good thing, if you want to, I guess. But you're trying to do so while at the same time claiming it doesn't exist.
- throwaway_xx9 11y agoFor those puzzled by the dictionary quote, the OP used the work discouraged correctly, but cwyers couldn't parse the OP's comment because of the negatives.
- cwyers 11y ago...I've read over this thread a few times, and my best guess is that you think I can't parse my own comment.
- alistairSH 11y agoI wonder what makes USDOT think a foreign national is any more or less likely to follow the rules than an enormous multi-national corporation like United or Delta? These foreign-ownership rules do strike me as counter-productive protectionism.
- tn13 11y agoFor the same reason they think banning drugs will make people stop using it. Government does not care about outcome it cares about the show they need to put up to convince people they are doing something good.
- JamilD 11y agoThe airline industry is extremely protectionist. I'd rather fly on Qantas JFK-LAX (they do fly that route) but cabotage rules prevent them from selling tickets on it. Because evidently if any competition comes to the domestic aviation industry, US airlines are doomed.
- Spooky23 11y agoHistory has pretty much established that competition in the space is destructive. Allowing international carriers transiting the US to do intra-city flights soaks up demand and lowers route profitability for busy routes. Past practices were to balance demand across city pairs so as to avoid local monopolies (ie. Minneapolis and Delta/Northwest) and ensure universal service. Deregulation broke all of that, so we have price competitions at the cost of a race to the bottom in service and industry cycles of bankruptcy and consolidation. Long term, that means monopoly levels of service and pricing.
- getpost 11y agoHuh? Airline deregulation since 1978 is one of the poster children for improved service to consumers. Any transportation business is inherently subject to the flux of fuel prices and demand as it varies with overall economic activity. If anything, difficulties airlines now face are compounded by the degree of regulation that is still in force.
- pbreit 11y agoI don't think this is any ole foreign ownership laws. There's a national security interest among other things.
- nonameface 11y agoThe rules and laws around this are interesting: "The United States (U.S.) airline industry is unique among industries in being governed by federal statutes requiring air carriers seeking to be certified in the U.S. to be “owned or controlled” by a “citizen” of the U.S.1 This requirement is enforced by the Department of Transportation (DOT) performing “fitness reviews” on applicant airlines to ensure they meet the “citizenship” definition.2 Historically, the U.S. has limited ownership and control to U.S. citizens for four primary reasons: the protection of a fledgling U.S. airline industry, the regulation of international air service through bilateral agreements, concern about allowing foreign aircraft access to U.S. airspace, and military reliance on civilian airlines to supplement airlift capacity.3" Of Particular interest to this Virgin America deal: Voting equity up to 25 percent and nonvoting equity up to 49 percent by a foreign entity is allowed, and any equity above these levels must be held in trust or converted to debt. Foreign holdings will be counted cumulatively towards these totals. (page 24) Source: http://dailyairlinefilings.com/public/furlan.pdf http://dailyairlinefilings.com/public/furlan.pdf
- leejoramo 11y agoThank for listing the rational of why foreign ownership is treated differently for airlines than most other industries. Two of these reasons are difficult to overcome. First the way international flight agreements are negotiated between countries. Changing this would essentially require all nations with airlines to agree to these changes at the same time. A difficult task. Maybe this is occurring within European Union context? Second, most nations see their airlines as a source of transportation in times of national emergency. The government can demand that the commercial air fleet be used for the military (or other agencies). I believe that this has only occurred once in the USA, during the first Gulf War. In the USA, the government officially "contracts" with the airlines to provide their fleet on demand. Some have argued that these contracts are a hidden form of subsidy. In any case it is hard to see how any government will allow foreign ownership of airlines due to this military use. More on Civil Reserve Air Fleet (CRAF) the US military use of airliners : http://fas.org/man/dod-101/sys/ac/craf.htm http://fas.org/man/dod-101/sys/ac/craf.htm
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- scurvy 11y agoHave his relationships with the majority shareholders deteriorated that much? It sounds like there was more going on than we know, and the non voting ability was a convenient scapegoat. That or they all wanted to cash out and bank a nice payday.
- toomuchtodo 11y ago> That or they all wanted to cash out and bank a nice payday. Hence, the problem with the equities market, and why you should never go public if you can afford it.
- scurvy 11y agoI was implying that Branson actually wanted the sale, too.
- toomuchtodo 11y agoSorry I didn't realize that when you said "they" (assumed plural shareholders).
- jdamon96 11y agoWow the stock shoots up 40%. Weren't there rumors for weeks of this occurring?
- sjm-lbm 11y agoI follow the airline industry, and this offer is $600 million more than the most recent rumors ($2 billion even). I'd assume this accounts for a lot of the bump (and simple "the deal is further along than it was last week" progression accounts for the rest).
- personlurking 11y agoMight want to fix the link to show this: https://www.virgin.com/news/alaska-air-group-acquire-virgin-america https://www.virgin.com/news/alaska-air-group-acquire-virgin-...
- bbarn 11y agoWhy? The direct from the founder's mouth article is a Hacker News tradition, practically. It's also a much more honest sounding piece than the PR approved version above.
- jlees 11y agoAgree, I think the tone of this piece is really interesting. It's sadness, laced with evangelism; a hope that the new acquirers will recognise what makes Virgin great, and absorb those qualities rather than replace them. But mostly sadness. Not what you would necessarily expect.
- mabbo 11y agoIf anyone is taking over or merging with Virgin America, I'm glad it's Alaskan. I've never been unhappy with flying with them. A couple examples of little things they do that are clever and should be copied by everyone else: check your bag at the gate 30 minutes before boarding and you can board early; a guarantee that your checked luggage will be in your hands 20 minutes after landing, or you get $20. They are an airline that are trying things, experimenting.
- koolba 11y ago[emphasis mine] > A couple examples of little things they do that are clever and should be copied by everyone else: check your bag at the gate 30 minutes before boarding and you can board early; a guarantee that your checked luggage will be in your hands 20 minutes after landing, or you get $20. Is that (gate check bag) for free? 20 minutes or $20 sounds like a great idea too.
- jbeda 11y agoIt isn't "gate checking" as your bag will show up in baggage claim with the other checked bags. They'll sometimes do real gate checking for people in first but it usually isn't necessary.
- JoshTriplett 11y ago> Is that (gate check bag) for free? Yes. They make an announcement asking for anyone willing to check their bag at the gate rather than carrying it on, and anyone who does so gets priority boarding (at the same time as the "families with small children and anyone who needs more time to board")
- raisedbyninjas 11y agoI don't see why anybody is anxious to board early unless they are jockeying for a bin for their carry-on or have a seat in a luxurious first or business class. First class already gets to board early, so I'm not sure what appeal this policy is supposed to have.
- darkclarity 11y agoAs far as I know, Virgin is pretty much a franchised brand. Their trains are run by other transport companies, their cable TV is run by another telecoms operator, their banks are run by another institution etc.
- btgeekboy 11y agoI still think JetBlue was a better fit. Alaska's a west coast, all 737 fleet. Now they own another west coast airline (i.e. they overlap) with a ton of Airbus. Alaska's probably getting something good for their $2.6b, but I haven't figured out what exactly.
- HelloMcFly 11y agoOne of the main reasons speculated why Alaska is doing this is to make it significantly more difficult for another airline (primarily Delta) to take them over.
- djcapelis 11y agoApparently Virgin only owns 8 of those planes and the rest are leased, so the speculation I read is Alaska is just likely to change them all over to 737s eventually. And if they have the capital to operate that same system using purchased planes and not leased planes, then they'll be running the same routes with more favorable finances than Virgin was able to.
- arcticbull 11y agoAgreed. JetBlue has what Alaska is missing: An east coast network and a very solid trans-continental product to compete on the SEA/SFO/LAX-JFK flights. And they both operate comparable Airbus equipment where Alaska is an all-Boeing shop. That's going to make finding technical cost reductions difficult.
- kin 11y agoI agree. As a flyer of all 3 airlines, I thought JetBlue was pretty much just Virgin America in blue color.
- Turing_Machine 11y agoAlaska Airlines flies to a lot of places that aren't on the west coast. https://www.alaskaair.com/travelinfo/destinations https://www.alaskaair.com/travelinfo/destinations Also, they've recently put in for a route to Cuba, if I remember right.
- tdburn 11y agoI wonder how this will effect the Boom investment from Virgin?
- goodJobWalrus 11y agoI wonder what will happen with that letter of intent for the investment in that boom sonic plane startup. Was that investment announcement somwthing legally binding? (I didn't follow that closely)
- Trisell 11y agoThe deal with Boom appears to be with Virgin Atlantic, which it a different company from Virgin America, due to the ownership laws that are causing Branson to bail on Virgin America.
- lettergram 11y agoLetters of intent usually are not legally binding in any way. I However, I really don't know about Boom's specific case.
- gulpahum 11y agoRichard Branson is one of my favourite entrepreneurs. Virgin Atlantic and Virgin Australia are still his, right?
- kijeda 11y agoHe sold the majority of Virgin Australia many years ago (back when it was called Virgin Blue).
- JamilD 11y agoVirgin Atlantic is 49% owned by Delta, and for all intents and purposes is essentially "Delta UK"
- jen20 11y agoIt is 51% owned by Branson (or an interest over which he has control), however. As a _very_ frequent Virgin Atlantic and Delta flyer, I can assure you there is nothing about Virgin Atlantic which approaches the terribleness that "Delta UK" implies.
- perezdev 11y agoIt blows my mind that Minecraft was purchased for $2.5B and Virgin America was purchased for $2.6B.
- kin 11y agoThere was a Tumblr that had a list of things that are cheaper than Whatsapp's $16B acquisition. It's pretty insane how much bigger of an industry some things are over others.
- vthallam 11y agoHaha! Well if you compare that way, there are numerous examples of a piece of software doing well(or have more market cap) than a physical company with many machines and thousands of employees!
- deleted 11y ago[deleted]
- tamana 11y agoWhat you are seeing is that, even though Virgin is huge and expensive and provides a lot of value, the industry is competitive and very little of that value is profit to the owner. Whereas Minecraft has a niche and is very profitable.
- oh_sigh 11y agoWhy do investors ever park their money in airlines?
- mozumder 11y agoIt's a really profitable industry these days. Low oil prices reduce costs. Plus, ticket prices haven't gone down because routes are consolidated to reduce competition between airlines.
- trsohmers 11y ago"If you want to be a Millionaire, start with a billion dollars and launch a new airline." --Richard Branson (on starting Virgin Atlantic)
- dmritard96 11y agoJust a few days ago there was a fantastic article on the lack of competition in the economist. It pointed to the recent consolidation of the airline industry. Kind of amazed that there will be one less player. http://www.economist.com/news/briefing/21695385-profits-are-too-high-america-needs-giant-dose-competition-too-much-good-thing http://www.economist.com/news/briefing/21695385-profits-are-...
- tlrobinson 11y agoAny else notice every photo in this post is either Richard Branson, 6 attractive women, or Richard Branson with 6 attractive women?
- swampthinker 11y agoBy God, I see 6 Bransons in this picture: https://res.cloudinary.com/www-virgin-com/f_auto,q_80/virgin-com-prod/sites/virgin.com/files/vx_safety_video.jpg https://res.cloudinary.com/www-virgin-com/f_auto,q_80/virgin...
- maxblackwood 11y agoI only see 5.
- shoyer 11y agoIndeed, it struck me as very awkward and sexist. I enjoyed flying Virgin America, but losing this part of their culture will not be a bad thing.
- bogomipz 11y agoCan you show me another airline's promotional material that shows unattractive flight attendants?
- bbarn 11y agoSad, but not surprising. It seems like good customer service just doesn't scale for airlines. Back to being stuck with being treated like crap by your airline, or paying less to be treated slightly crappier by your airline.
- potatolicious 11y agoEhh, I wouldn't despair just yet - Alaska itself is not a particularly big airline. I've flown with them lots and they are heads and shoulders above the legacy turdbucket of United/Delta/American. If VX had to be sold to anyone, I'm glad it's to Alaska.
- bbarn 11y agoGood to hear. I honestly hope they just treat the employees well. I flew six? times on Virgin, and the experience was always made excellent by the staff. They must be treating them very well for them to be as good at what they did.
- vinay427 11y agoI wouldn't group United/Delta/American together. From my experiences and those of most travelers I talk to, Delta is certainly a step above the other two, and American is probably second. United completely mishandled the Continental merger, and has had a host of reliability and service issues. My main gripe with Delta is their continually devaluing (without warning) miles program. Alaska, meanwhile, has one of the most widely useable miles with their many airline partners for earning and redeeming.
- albertcolby 11y agoVirgin America is my fave way to fly cross country. This is beginning of the end of the quality service. :(
- throwaway_xx9 11y agoAnybody know if Alaska Airlines's maintenance procedures have improved over the years? They had an ugly crash involving failure to do Mx on jack screws in the past.
- wiseleo 11y agoThere goes my favorite airline. Given choice, I choose to fly VA. Just booked a couple more tickets yesterday for a quick trip. It's just painless.