Will Alaska Airlines keep the Virgin America brand alive? CEO Brad Tilden, speaking at the Wings Club in NYC this week, suggested that the idea is under consideration. Similar language has been used a few times since the merger was announced but this is arguably the strongest endorsement of such an approach yet.
And it makes zero sense.
Tilden suggests that one simply look to Europe to see the success of major mergers where the individual brands have survived and where the parent company thrives. The three mega companies have, indeed, kept the individual brands but suggesting that as the epitome of success may involve a bit too much rose tinting in the glasses. Multiple union contracts makes for management headaches, increased costs and reduced flexibility. Sure, US Airways survived its America West merger with union challenges but it did so in spite of those issues, not because of them. More recently, bickering between the Air France and KLM halves of the company have shown that such splits continue to create strife, not to build profits.
Perhaps we can assume the workforce combines and that union issues aren’t the challenge. Now you’re just running two separate products within the same company. Seeking historical references of success for such an approach leaves one without much to go on. The European examples do so by serving separate markets and even then it is only marginally successful. Getting to a stronger position for the new Alaska Airlines means the markets will almost certainly overlap, and in those scenarios examples from prior US mergers are more relevant.
Ted or Song come to mind and neither is something the new Alaska Airlines should want to emulate. Building a split product necessarily means describing one as “premium” over the other and that alone could create the challenges amongst both the employees and the customers which the airline must avoid for the merger to succeed. Perhaps the only example of a successful “product-within-an-airline” is the Delta Shuttle, with different catering, dedicated boarding areas and other benefits. And even there the true success is hard to quantify.
And then there’s the most glaring problem with the plan: it is expensive. Keeping the Virgin America brand means paying the ongoing licensing fee to the Virgin Group. And all the other costs and inefficiencies of running two operations. But paying out a chunk of cash every year for that brand name, just to keep customers confused and to pretend there are differences behind the scenes is hard to justify. Repaint the planes or don’t, but that’s a one-time merger expense that gets to go in the “special” section of the earnings report. And it doesn’t continue to pay out, year after year.
Keeping the brand may sate some frequent fliers worried about losing “their” hip, fun airline. But where would they go? For the west coast flights the other option at SFO is United Airlines, hardly seen as a fun operator. For the transcon flights JetBlue is the obvious competition but that’s going to be a challenge whether the Virgin brand remains or not. And a more formidable one with the increased Mint service launching next year.
There are many challenges with integrating the brands, the customers and the operations of the two airlines. The correct way to avoid those would have bee to skip the merger, not to pretend after the fact that such a split can be justified, operationally, financially or otherwise.
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