Shares of Virgin America Inc. are taking off amid speculation that the carrier backed by celebrity entrepreneur Richard Branson has received takeover bids from JetBlue Airways Corp. and Alaska Air Group Inc.
Shares of the Burlingame, Calif., airline surged 10% Monday when talk about a potential merger first surfaced, jumping $3.53 to close at $37.70. Shares rose an additional 29 cents, or less than 1%, Tuesday to $37.99.
If the acquisition occurs, it would be the latest in a series of mergers by the nation's largest carriers that culminated last year with the union of American Airlines and US Airways to form the world's largest airline. More than 70% of the nation's domestic air traffic is now controlled by four carriers: American, United, Delta and Southwest Airlines.
Although the U.S. Department of Justice was initially critical of the American Airlines-US Airways merger, the takeover of Virgin America by another small carrier such as JetBlue or Alaska would probably pass an antitrust review, Helane Becker, an analyst for Cowen & Co., said in a note to clients.
"In our view, another larger [low cost carrier], along with Southwest, would keep the domestic market competitive, and give travelers a competitive fifth choice," she said.
A merger between Virgin America and JetBlue would make the most sense because it would strengthen New York-based JetBlue's offerings on the West Coast, according to industry experts. Also, both JetBlue and Virgin America fly Airbus jets, eliminating the need for JetBlue to retrain pilots or mechanics to operate on jets from a different manufacturer.
Virgin America flies a fleet of 60 Airbus jets. JetBlue has a fleet of 217 planes, primarily Airbus jets, along with about 60 Embraer 190s planes.
JetBlue would also pick up Virgin America's routes to Hawaii, which launched last year.
"It's not the craziest idea, if the price is right," said Seth Kaplan, managing partner of the trade publication Airline Weekly.
Seattle-based Alaska could make a bid for Virgin America to eliminate a competitor on its primary turf, the West Coast, he added. Alaska's biggest markets are Seattle, San Jose, Anchorage, Los Angeles and Portland, Ore. But Alaska Airlines operates a fleet of 150 Boeing 737 jets.
Representatives for Virgin America, Alaska and JetBlue declined to comment about the speculation, which was reported Monday by Bloomberg News and Reuters.
Virgin America, the only major airline based in California, launched in 2007, focusing on Silicon Valley's tech entrepreneurs and West Coast celebrities. But the airline did not post a profitable year until 2013.
Known for its mood lighting and advanced entertainment system, the airline went public last year, raising $305 million from the initial public offering. The company said it intended to use the cash to push for more market share and new routes.
To read more about travel, tourism and the airline industry, follow Hugo Martin on Twitter at @hugomartin.
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