The merger of Virgin America and Alaska Airlines will bring together two nimble, popular carriers with total revenues estimated at $7 billion, but some turbulence is expected.
Alaska competed against JetBlue for Virgin America’s favor since January and ultimately won with a $2.6 billion offer. Pending regulatory approval from the Department of Transportation, the combined operations of Alaska and Virgin will become the fifth-largest U.S. fleet, leapfrogging JetBlue.
Yet history shows mergers can be cumbersome, difficult on brands, and fraught with conflict as corporate cultures clash.
Last week, Alaska Airlines said its brand will be applied to the combined fleet, though it will assess the ways the Virgin America culture "could continue to serve a role in driving customer acquisition and loyalty," according to Bloomberg. Neither Virgin America nor Alaska Airlines returned requests for comment.
Marcomms experts say they doubt the combined company will be able to use both brands. Communications consultant Dan Reed contends, "I don’t see how you keep both brands."
"It just doesn’t make sense; they have to pick one," he adds. "Their marketing approaches are so different, both can’t exist…It’s too expensive to have two different brands and two different marketing approaches. It’s very difficult to sell that, and it’s costly."
Reed notes the other practical concerns that Alaska Airlines would face if it keeps the Virgin America brand, such as the cost of retraining staff and what to do with Virgin’s fleet of leased Airbus planes, noting they are direct competitors with Alaska’s Boeing fleet.
Reed theorizes that Alaska Airlines bought Virgin America to remove a competitor, but it is staying silent on its strategy due to regulatory concerns.
The deal, agreed to last week, created a company with 1,200 daily departures, nearly 300 aircraft, and hubs in cities including Seattle, Los Angeles, and San Francisco. The deal will also give Alaska a bigger footprint at various airports in California.
However, the deal also creates something of an identity crisis. Founder Richard Branson said last week that he started Virgin America in 2007 "out of frustration" about poor flight experiences caused by industry consolidation. However, since then, consolidation has only grown, with just four airlines controlling 80% of the market.
"I would be lying if I didn’t admit sadness that our wonderful airline is merging with another," Branson added in a forthcoming and brutally honest blog post on the merger.
Caeli Communications founder John McDonald, a former comms VP at American Airlines when it merged with U.S. Airways, disagrees with the assumption that consolidation results in lower-quality flight experiences.
"If you look at consolidation over the past 10 years, without a doubt consumers have seen more flights to more locations, and they’ve seen massive investments in customer service technology," McDonald said. "There have been investments worth billions in customer service products because the airline industry is more efficient and they can get the capital necessary to make innovations. And I don’t think consolidation reduces competition — I don’t buy that at all. They don’t have fewer choices, they have more choices for routes and service than they otherwise would’ve had."
Besides the customer experience itself, the lifeblood of Virgin America has been its brand: mood lighting, high-end in-flight entertainment systems, humor, irreverence, and, of course, Richard Branson. McDonald said the Virgin Group founder’s "cult of personality" gives Virgin America a style all its own.
When asked how Alaska Airlines could capture the strength of the Virgin America brand, McDonald says, "It’s going to be a challenge. The people at Virgin may say, ‘That’s it. We’re being taken over by Alaska and we’re not going to be the quirky and fun Branson people again.’"
"That’s understandable, but it’s not necessarily correct. They need to figure out how to embrace this and morph it into something bigger and better going forward," he adds. "You really need to bring those two together and acknowledge they both are strong and successful brands."
Reed says it’s "unknown" if Alaska Airlines can retain the loyalty of Virgin America customers.
He thinks the process of retrofitting Alaska planes with Virgin amenities would be an expensive endeavor.
"Then you have to ask: Will the traditional, loyal Alaska customers want that?" Reed asks. "Or will they revolt?"
Compromises will be made, predicts Levick SVP Patrick Hillman. For example, the quality of amenities offered by Virgin may have to be axed. But transitioning Virgin America’s friendly customer service to Alaska Airlines could be key.
"What they have to do if this merger is going to be successful is take the good parts of that culture and not only maintain them, but also port them over to Alaska," Hillman says. "The level of amicability and friendliness among the staff, their overall happiness, these things are going to be critical. It shouldn’t just be about access and more flights and lanes."
That means Virgin’s fun and friendly atmosphere will have to continue not only in its airplanes, but also in its executive offices.
"The only way to do it is to make sure there are no immediate changes in corporate culture," Hillman notes. "And if there are changes, they have to make sure there isn’t a lack of personality felt immediately after the announcement."