Virgin America airline ripe for takeover bid

Low-fare aviation start-up Virgin America may soon have a new owner.

Low-fare start-up Virgin America may soon have a new owner.

Takeover offers from two other US airlines — JetBlue Airways and Alaska Air Group — are due by the end of the week, a source says, in what could signal the latest wave of consolidation in the industry. A preferred buyer could emerge as early as this week, the source said, though a final deal could take longer to complete. The details of the potential offers couldn’t be determined.

The possible takeover of Virgin suggests consolidation in the industry is moving to the regional carriers and ultradiscounters after mergers between 2008 and 2013 combined eight big carriers into four, which now control more than 80 per cent of the US domestic market. The four, in order of size by US traffic, are American Airlines Group, Delta Air Lines, United Continental Holdings and Southwest Airlines.

Virgin America, a small carrier near San Francisco International Airport, was launched in 2007 and was a steady money-loser until 2013, when it started turning itself around by slowing its breakneck growth and filling more of its seats with higher fares.

Virgin America, now the ninth-largest US airline by traffic, has started expanding again. It took five new Airbus planes in 2015, has five more coming this year and recently ordered 10 more. The company, which has a market capitalisation of $US1.7 billion ($2.26bn), has launched service to Hawaii, expanded into Denver and Dallas and added flights out of Los Angeles.

But its chief executive, David Cush, has complained the company can’t get the gates or slots it needs to grow freely. Part of the problem, he has said, is that all the mergers have winnowed opportunities for smaller carriers.

Virgin America went public in November 2014, and its founding shareholders, Richard Branson’s Virgin Group and New York-based investment adviser Cyrus Capital Partners, still control about 54 per cent of the shares.

Helane Becker, an analyst with Cowen & Co, said those large holders could be seeking to monetise their investment.

She added that JetBlue would make the most sense for Virgin from an aircraft, network and product-offering perspective. JetBlue is the No 5 US airline by traffic.