No question it is a probably couple of years early to speculate about the potential for a merger between Alaska and JetBlue.
Yet already in 2018, a few events may be read as early indicators that such a merger is far from inconceivable, in an industry where consolidation is recurrent and where a combination of the fifth and sixth largest airlines, one now focused on the West Coast and one now focused on the East Coast, could produce a sixth national airline – boosting competition in an already competitive industry.
Alaska acquired Virgin America in 2016. Most analysts believe the merger is going well, although shares are down 12% year-to-date. “A rough winter of weak revenue trends driven by intense competitive capacity [should] give way to improving margins and better stock performance later this year,” Buckingham Research analyst Dan McKenzie wrote recently.
Alaska’s Jan. 25th earnings call produced an intriguing exchange, which began when Stifel analyst Joseph DeNardi asked CEO Brad Tilden to “talk about your appetite for [merger and acquisition] in the future, and [about] whether your experience with Virgin makes your more or less comfortable looking at acquiring other airlines in the future.”
Tilden responded, “That is a great question that I don't think we're going to answer. But I will just say, the Virgin experience has been a good one.
“The company has got an $8 billion platform today,” Tilden continued. “It's considerably better than our platform before. That brand has pushed us. Those people were great marketers. If you look at the way Alaska is promoting itself, I think it's activated something inside us in terms of getting into California, growing loyalty.”
Tilden might have said something along the lines of “we’re busy digesting what we have, not really thinking beyond that.” He didn’t.
Additionally, an inescapable trend that supports merger speculation is that Alaska and JetBlue are both highly individualistic regional airlines becoming less so. Both are becoming more like everybody else.
Alaska, long an all-Boeing operator, has started to operate Virgin America’s Airbus fleet. JetBlue, once a non-union airline with far superior customer amenities in coach, is becoming more unionized with less superior amenities
JetBlue is in the final stages of negotiating a pilot contract, while the Transport Workers Union has collected enough flight attendant signatures to request a union election. TWU and the International Association of Machinists are trying to organize other work groups. Alaska, meanwhile, is 80% to 85% unionized, a spokeswoman said.
Once known for offering expansive leg room in coach, JetBlue, under pressure from Wall Street, keeps moving to offer less. As the carrier updates the interiors on its fleet of 130 A320s, pitch will decrease to 32 inches from 34 inches.
The big three all offer 30 inches in some coach seats, so JetBlue’s default seat will still be better, but less of an advantage that it was.
As for the fleet, the website Airline Geeks reported last month, on the same day as the earnings call, that, “On Wednesday, Alaska Airlines revealed its first, long-awaited Airbus A320 in the Alaska livery. The lucky aircraft, registration: N625VA, is the first from the Virgin America fleet to be repainted.”
Virgin America’s Airbus leases do not start to expire until 2020. In July, Tilden said of Alaska’s Airbus fleet, “If I were to guess, they won’t be in the fleet permanently,” according to the Puget Sound Business Journal.
Still, the three global U.S. airlines all operate dual fleets. The fourth big carrier, Southwest, is all Boeing. The fifth biggest carrier, merged Alaska, will operate a dual fleet, at least for several years.
It’s easy to imagine that the Airbus people are saying that the best argument for operating the A320 is to try it.
In some ways, a merger between Alaska and JetBlue would reflect the 2005 merger between US Airways and America West, said airline consultant Bob Mann.
That merger was called "project barbell" because it combined two high presences at opposite ends of the country. "This too would be a barbell," Mann said. If it occurred, it would no doubt lead to a search for a mid-continent hub -- the exact same search Steven Wolf conducted when he took over as CEO of US Airways in 1996, charged to look for a merger.
An existing commonality is that JetBlue and Alaska have similar strategies for accumulating international partners. "They have played the multilateral international codeshare to the hilt," Mann said. "They are not aligned but they have the best portfolios. That puts a lot of cherries on top of the sundaes."
Getting very far ahead of ourselves, what name would the merged carrier take?
“I don’t think the Alaska name would go away,” Mann said. “It has such a strong heritage.”
