DOJ poised to clear Alaska Air Group's acquisition of Virgin America

The Antitrust Division of the U.S. Department of Justice (DOJ) is poised to approve the acquisition of Virgin America by Seattle-based Alaska Air Group, though technical steps remain before the approval becomes final.

Seattle-based Alaska Airlines announced late Tuesday morning that the DOJ's Antitrust Division had completed its review and approved Alaska Air Group's (NYSE: ALK) acquisition of Virgin America (NASDAQ: VA). Alaska Air Group is the parent company of Alaska Airlines, Inc. and Horizon Air Industries, Inc.

"We couldn't be more excited about receiving DOJ clearance for our merger with Virgin America," said Alaska Air Group Chairman and CEO Brad Tilden. "With this combination now cleared for take-off, we're thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers."

However, as with many transactions that involve the government, it was not as straightforward as it appeared.

The DOJ filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the merger on Tuesday, but contemporaneously filed a proposed settlement that, if approved by the court, would resolve the competitive harm alleged in the lawsuit.

An industry source, speaking on background, confirmed that the Byzantine maneuverings were par for the course.

"The way the process works in these cases is that the DOJ simultaneously filed with a federal judge its lawsuit along with the settlement agreement it has reached with Alaska to resolve that very suit," the source told TheTravelPro. Accordingly, the DOJ, "Has cleared/approved the merger on the understanding that Alaska accept certain conditions."

For its part, Alaska spokespeople confirmed that steps remain to be completed but are confident that the agreement will get to official nod soon.

"The DOJ and Alaska both expect the D.C. court to approve the settlement shortly," an airline spokesperson said in an email, noting that, "There will be a 60-day public comment period, but the DOJ will not require us to wait until that comment period is over to close [the acquisition]."

The proposed settlement requires Alaska to discontinue its codeshare arrangement with American Airlines (NASDAQ:AAL) on routes where Virgin competes directly with American and also where Alaska would likely initiate new service in competition with American, post-merger. DOJ would allow continued codesharing on routes that could offer some consumer benefits; for example, on routes to destinations one of the airlines would not likely serve on its own in the near term.

“Smaller airlines, such as Alaska and Virgin, provide a critical competitive check on the larger carriers,” Renata Hess of the Justice Department’s Antitrust Division, said. “Although this merger offers hope that a strengthened Alaska can be an even stronger competitor than before, because of Alaska’s extensive codeshare agreement with the world’s largest airline, the merger threatened to blunt important competition and reduce choices for consumers. Today’s settlement ensures that Alaska has the incentive to take the fight to American and use Virgin’s assets to grow its network in ways that benefit competition and consumers.”

Not everyone is happy

The Business Travel Coalition, a group that interprets idustry and government practices, issued a statment applauding the DOJ for filing the antitrust suit but which stopped short of endorsing the proposed settlement.

"Preserving competition and the incentive to contest new markets is paramount in a domestic industry where four airlines control some eighty percent of seats – down from eleven airlines in recent years," the group said in a statement.

The Business Travel Coalition sees more competition as a preferable alternative to reduced competition.

“Virgin America and Alaska Airways are both innovative, quality airlines that provide the competitive rivalry necessary to discipline prices for consumers and keep pressure on airlines to improve customer service levels on many routes,” Kevin Mitchell, BTC's founder, said in a statement. “Start-up airline entry is very difficult today and remedies for the many competition and consumer problems are few. As such, the preservation of existing competition is critically important.”

Filing opens 60-day comment period

Although Alaska has said it expects DOJ to allow the transaction to close, both the DOJ's suit and the proposed settlement are subject to a 60-day comment period.

"As required by the Tunney Act, the proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register," the DOJ said

"Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Kathleen O’Neill, Chief, Transportation, Energy, and Agriculture Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8000, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest."

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