Buying VX...
 

Hindsight is always 20/20. No one could have predicted the coronavirus shutdown, and I’m not an Alaska insider. But while I don’t even hold stock directly, I own a little of Alaska through a couple of different mutual fund purchases, so I am asking those more knowledgeable than me; Did any good come out of the VX acquisition?

I’m not trying to play the blame game, just curious. It appears to me that VX was bought pretty much as a defensive move to keep them out of what Alaska considered to be ‘their’ turf in California. Shortly after, that Alaska sold off the east coast assets and doesn’t really appear to want the A320 aircraft.

Judging by the APC threads the VX pilots were less than enthused about the acquisition. The senior guys felt compelled to stick because seniority is seniority, but some were really upset with losing East Coast basing. The junior VX FOs - well, some stuck and some jumped to other majors back when they were hiring.

So in they end all that Alaska seems to have gotten was less competition in California and a number of pilots too senior to go anywhere else, and pre-COVID and apparently facing a pilot shortage that might have been reason enough to buy VX. But that wasn’t the scenario that fate chose to play out.

While no airline is unscathed in this mess, the Big Three have been hurt particularly badly by the loss of international flying and Alaska by the loss of Hawaii flying.

The way it looks right now, Alaska, UAL, and DAL are downsizing and retrenching, which will open up gates in the very areas Alaska bought VX to defend. AA looks like they are betting on an early comeback, perhaps because with their debt load if they don’t get one they are heading for bankruptcy anyway. SWA and the ULCCs seem to be planning to compete aggressively as well, in hopes of gaining domestic market share in some of the very areas that Alaska bought VX to defend.

And it looks like we have - temporarily at least - an actual glut of well qualified but soon to be furloughed airline pilots.

So I’m not casting stones, no one could have anticipated the black swan event, but merely asking the question. Did Alaska actually gain anything by the VX acquisition?

It got rid of a competitor, it kept B6 from entrenching themselves on the west coast, and allowed Alaska to rapidly expand to help fend off competition in key markets (Seattle).

Good answer. Now the let's see if how long it takes for this to turn into a ****ing match.

How did it affect B6? Genuine question.

People much smarter than you made the decision. How about this, instead of posting a bunch of pointless words under an even more pointless thread, go get yourself a juice box and let the adults make the big boy decisions.

So you have no actual answer? Just vitriol?

You came to the wrong place if you want honest answers and no snark.

Welp. That didn’t take long.

OP. Excellent troll post. 10/10. Kudos


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B6 was the other realistic buyer (A foreign carrier and Delta were supposedly the others) in the bidding war that ultimately drove the price up. They then had to either grow organically on the west coast or find another partner to merge with.

I haven't followed their expansion so i'm not going to comment on how that's gone.

The rational to buy VX at that time made sense...

Like you said, hindsight is 2020. If Corona had hit in 2016, the year the deal was consummated, maybe it would have been unnecessary to do so, as there's a great chance VX would've folded.

Well said...I would add grossly overpaid too but that was because of B6.

If B6/VX happened then Alaska would have been pigeonholed in SEA/PDX with DL growing larger and nowhere to reasonably expand with a new west coast competitor likely to enter/grow many short haul west coast markets further fragmenting the market.

AS buying VX blocked B6, who has completely failed to form a west coast short haul strategy since then (LGB is a disaster, and likely to disappear completely). B6 has grown their transcon market share, which has been lucrative and something AS hasn't really seemed to focus on.

In hindsight, I think AS bought VX out of fear of the possible outcome vs the probable outcome. B6 wanted out from LGB, and if they merged with VX then I think the transcon flying would have expanded more than we have seen already along with Hawaii flying and leisure Mexico type destinations from LAX/SFO leaving LGB as a ghost town. Short haul west coast was never going to be a big segment for the combined carrier, but AS was worried mostly about that.

When we get through collapsing in on ourselves and likely returning to a single fleet it will be curious to see if anything from the merger is left. Happy to be much closer to the end. Feel bad for the bulk that are just stuck in the middle wondering what if anything comes next....

it saved them four billion dollars and a lot of problems.

B6 had a lot to gain from winning the auction, way more than AS did. B6 lost the auction but made AS pay far more for VX than it was worth. Big winner was VX stock holders that got a nice unexpected return from that dumpster fire.

Whats happening now will mitigate some of the sour grapes B6 felt and also amplify the cost vs value paid by AS. B6 will gain the extra gates at LAX and SFO it was after in the VX bidding due to covid while at the same time AS is pulling back from those airports. So in the end AS paid way too much just to delay B6 expansion into SFO/LAX for 5 years.

B6 has also run AS off the vast majority of the transcon game before all this, just like it was in the process of running VX out before they went under. That battle is over, especially now that it looks like even more gates and growth can happen for B6 at sfo/lax.

AS fears of B6 competition in the west was a phantom when the real threat was WN in California which was totally un phased by AS getting VX. AS is back to square one being a big fish in SEA and PDX and no more tricks left up its sleeve to keep B6 out of LAX/SFO nor out compete them on transcons with their old fashion 737 1st class vs MINT.

As far as Hawaii, that fruit is being picked off of AS's vine by WN and I'd imagine sometime in the future by a MINT expansion there too.

As long as we're playing "what if" why don't we consider what if Alaska had grown organically instead of buying VX? The cost to start Virgin America and grow it to 60 aircraft was about $900 million dollars. Alaska could've done the same thing starting in 2007: ordered an additional 60 737s and used them for California expansion. This expansion would've been cheaper and easier for Alaska than it was to launch and grow VX because Alaska was already an established airline with a network, loyalty program, credit card, ttraining department, maintenance etc. I'm guessing that Alaska could've grown itself in California to the size of VX for $600 million vs Virgin America's $900 million.

Alaska's risk aversion meant that Alaska paid $4 billion for what it could've done by itself for $600 to $900 million. That $4 billion was money earned by the Alaska employees and it went straight into the pockets of the billionaire hedge fund owners of Virgin America (Cyrus Capital still owned over 50% of VX's stock at the time of the merger, Branson 25%, various characters from American airlines history held around 10%.)

I think Brad and Ben are smart guys and they learned from this mistake. I'm hopeful that they'll be more aggressive in the future.

......so you’re saying an Alaska/JetBlue merger is imminent, huh?

Not to beat the dead horse...

I may be wrong in the history, apologies in advance it I am...

The actual cash outlay for VX stock was something like $2.6bn. The other $1.4bn of "debt" (the total of $4.0bn) was calculated off the aircraft lease payments, those payments were covered as VX was cash flow positive/profitable at the time of purchase. In addition, AS gained $600m in cash that VX had on hand.

S

It's logical, from a business perspective.

After you filter out the management personalities and parochial emotional investment.

Both could stand to be larger in the era of mega-legacies and the 8,000# LCC.

Sheeeh that’s gonna be a lot of Airbuses to park.

That falls under "parochial emotional investment".

Alaska’s attempt to aggressively take on Southwest in California a couple of years ago was about as dumb of a management decision as they come . There was no way WN was going to let that happen and the results, along with their bad purchase decision of VX, will put them in a world of hurt with California and Hawaii when COVID comes to an end.

Alaska blew the merger on day 1 when they kept the Alaska brand. Then they alienated the high yield California people by killing everything those people flew Virgin for. You can't keep California with a PNW strategy, the people are just too different.

If they find themselves in a long-term "shrink to success" model, ceding to SW in CA and who knows who in the PNW, then the management team will have get out of their PNW shell. Or the board will find someone who will, probably someone who already has an airline and has a bigger picture outlook.

But COVID might actually afford an opportunity, if the big three are flailing badly enough.

Assuming Hawaii stops dithering in August...

I haven’t seen any indication that the board is anything but enamored with Brad and Ben though. They seem to be just as happy staying close to their regional roots as well.

As long as it works. If they get pushed out of CA and have another enemy inside their fortress walls, it will be time to rethink. I doubt the board will go along with retreat to success, it's been tried and has never worked with airlines, and everybody knows that now. B&B are on the board... they might try to stick to their paradigm as long as they aren't getting their lunch eaten but at some point they're not stupid by any means. If confronted with an existential threat, I'm sure they'll do something.

Good points...hope you’re right. Past performance and their current knee-jerk reactions don’t exactly inspire confidence ha

Exactly.
I'm sure they would have preferred not to have bought VX when they did, for the price they did, but the ramifications of JB or another carrier doing so, was just a little too close for comfort.

I hated the VX acquisition from day one and wish it never would have taken place. Having said that...they should have resurrected the Jet America name. Pretty sure Alaska still owns the rights to the name. It encompasses the whole country (instead of just one state) and would have been a nice nod to Virgin America (and a middle finger to Sir Richard).

Let's assume for a minute that AS has just grown organically. On Oct 1st AS would be furloughing. No sweet no-fly lines for up to 24 months. No early outs (apparently being negotiated this week). Having two fleets makes it much more difficult for them to furlough.

Is this thread REALLY happening? 🤣🤣🤣

Those sweet 24 month no fly lines were supposed to be signed off yesterday by the brain trust in Angle Lake. I wouldn’t take it as a given they will actually happen. I read the email giving the explanation of why they were not, but I have no trust of the two Bs keeping their word on anything. I do appreciate everything the union is trying do for the pilots, it’s certainly a herculean effort given the group of people they have to negotiate with.

It seems so. I'm still head scratching over what should have been a one page troll post.

Yeah we must be really bored at home if we resorted to digging this up again.

And it would be plug-and-play in the future, just insert the word "blue" in the middle.

Before this current industry downturn is over, if ALK gets cheap enough, I just don't see how SWA doesn't make a play for them.

Hope I'm wrong. :eek:

I hope you're right.

Well there is that whole SWAPA thing...

Alaska is certainly a frustrating place to work, to say the least. In my opinion a buy out by southwest would it be the great savior many think it would be, remember AirTran? A merger with another ALPA carrier would be far more desirable.