Justice Department in talks with Alaska Air on Virgin deal: sources

Mon Oct 17, 2016 8:54pm EDT
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By Mike Stone and Diane Bartz

WASHINGTON (Reuters) - Alaska Air Group Inc (ALK.N: Quote) pressed on with talks with the U.S. Justice Department to reach a deal for approval to buy Virgin America Inc VA.O, two people close to the matter said Monday as a deadline for the government to complete the merger review passed.

The late-stage discussions included the possibility of Alaska jettisoning part of one or more code-sharing agreements it has with larger U.S. carriers as a concession for winning antitrust approval, one of the people said. Alaska Air and Virgin America had agreed not to close their merger until Oct. 17 so the Justice Department could finish its review.

The sources asked not to be named to protect business relationships.

In code-sharing agreements, an airline that does not fly a particular route sells tickets on behalf of another carrier that does. Both airlines place their identifying codes on the flight, and travelers can earn frequent flyer miles under either carrier's loyalty program.

The U.S. Transportation Department must approve code-shares involving U.S. airlines to ensure they do not restrict competition.

Alaska has code-share arrangements with larger U.S. rivals American Airlines Group Inc (AAL.O: Quote) and Delta Air Lines Inc (DAL.N: Quote). The merger would open the possibility of the airlines agreeing to share codes on flights currently operated by Virgin America, which might alter competition at a time when the top four carriers control more than 80 percent of the U.S. market.

The Justice Department declined comment. Alaska did not immediately respond to a request for comment.

"The most problematic requirement would be that Alaska drop its domestic codeshares with American and Delta. We estimate these relationships drive close to an estimated $350 million of annual revenue to Alaska," JPMorgan analyst Jamie Baker said in a research note last week.   Continued...

A combination photo shows Virgin America plane (bottom) in San Diego, California on April 4, 2016 and an Alaska Airlines plane (top) at San Francisco, California on April 14, 2015 respectively. REUTERS/Files