Originally Posted by LonesomeSky

If some entity were to buy Alaska Airlines, it would be expensive. Our current market cap (the value of all shares outstanding, the price to buy the company) is $7.5 billion. That's at our current share price of $58. Any buyout would need to pay a premium on shares. Currently, the consensus price target for Alaska stock is in the $80 to $90 range. Any buyer would have to pay at least that much if not more per share to buy Alaska. The price of such a deal would be north of $10 billion and possibly as high as $12 billion. Of course there are other ways to structure a deal besides a straight cash buyout, but either way, it's going to be pricey.

When talking about those big numbers it's important though to consider the context. For instance, American Airlines current total debt is around $30 to $40 billion. That puts the cost of buying Alaska at 1/4 to 1/3 as much as American airlines is in the hole. Or, consider the VX buyout for $4 billion. Currently, Alaska is worth as much as three 2016 VXs. When you look at it that way, maybe Alaska isn't all that expensive?

​​​​​​There are several reaons why someone would pay so much for Alaska. First of all, Alaska has gates at premier airports. You can't get more gates in Seattle, SFO, LAX, San, etc without buying another airline. Another reason someone might want Alaska is Alaska's great deal on the MAX. As far as I know, all the other US carriers paid full price for the MAX because they signed their deals before the MAX was grounded. Alaska got the deal of the century on narrow body airplanes. And a third reason why Alaska could be a target for a buyout is Alaska's low operating costs. Alaska has the lowest cost per seat mile of any airline outside of the ULCCs. An ability to compete on price is a huge annoyance to Alaska's competitors.

Alaska's biggest strength, as well as its biggest weakness, has always been population and wealth growth in the Pacific Northwest. One thing I've noticed after flying into SEA and PDX 10,000 times is their geography, those cities might as well be islands. They have ocean on one side and mountains and a vast deserts on the other. Airtravel is essential to Pacific Northwestemt cities and just by the quirk of history (deregulation) a small charter airline (Alaska) became the biggest player in town. The PNW has transformed from a depressed logging camp into an information age powerhouse. With a constant 5% annual population increase and an explosion of tech money, Alaska could safely grow organicly while keeping its costs low. The downside to living off this low hanging fruit is that Alaska became risk averse and isolated from industry trends. Now, Alaska struggles fo become a dominant player in California because its value product doesn't match the demographic and they don't have the marketing prowess or confidence to change anyone's mind. Can Alaska continue on as a specialized little island airline? Possibly, but it's also possible that the shareholders might prefer a one time cash jackpot to single-digit long-term growth from a company that operates in a historically volatile market. If it were up to me, I'd prefer to cash out my Alaska shares at a 25% premium and put that money into Amazon.