Justice Dept. OKs Alaska Airlines-Virgin America merger

Alaska Airlines’ acquisition of Virgin America has been cleared to proceed by the U.S. Justice Department, Alaska Airlines and the agency each announced Tuesday afternoon.

The airline said it was not required to divest any assets by the Justice Department.

"We couldn't be more excited about receiving DOJ clearance for our merger with Virgin America," Alaska Air CEO Brad Tilden said in a statement. "With this combination now cleared for take-off, we're thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers."

Full text: DOJ statement on Alaska Air-Virgin America merger

Though court approval is still needed for the deal to proceed, the Justice Department's decision to sign off on the deal likely clears the last major hurdle for a merger between the airlines. In the wake of the Justice decision, Alaska Air said it plans to close the transaction "in the very near future," though it noted a lawsuit filed by private plaintiffs in U.S. District Court in San Francisco could affect the timing. That lawsuit, which would block the merger, is unlikely to succeed, most industry observers believe.

"We remain confident in the merits of this transaction," Tilden said in Alaska Air's statement.

Alaska Air advised customers of each airline that until after the deal closes, it remains "business as usual ... for fliers traveling on Alaska Airlines and Virgin America. You should interact with either airline as you normally would."

Currently, Alaska is the USA's sixth-biggest airline while California-based Virgin America is No. 8. Together, they would become the fifth-biggest in the nation and would become a dominant player along the West Coast. Alaska Airlines' biggest hubs are in Seattle and Portland, Ore., though it has several focus cities in California and in its namesake state. Virgin America operates large bases in San Francisco and Los Angeles.

While no concessions were needed from Justice to proceed with the acquistion, Alaska Air did agree to walk back its "codeshare" passenger-sharing agreement with partner American Airlines. Alaska said it would “implement limited changes" to the pact. In simplest terms, codesharing pacts allow partner airlines to place their two-letter airport codes and sell seats on each other's flights.

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However, while Alaska Air said it agreed to a "limited" change, Justice described a broader concession. The agency said its "proposed settlement requires Alaska to significantly reduce the scope of the codeshare agreement" with American.

Justice continued, saying the agreement "prohibits Alaska and American from codesharing on routes where Virgin and American compete today and on routes where Alaska would otherwise be likely to launch new service in competition with American following the merger."

To win the government's approval, Alaska will stop selling seats on American Airlines flights — a so-called code-sharing agreement — on 45 routes. Alaska said the concession will cost it between $15 million and $20 million a year in revenue assuming it gets many of those customers back on Alaska planes.

Alaska gets $320 million, or 6% of its revenue, from code-sharing, according to The Associated Press. Of that, $190 million comes from American, $65 million from Delta Air Lines, and another $65 million from other carriers. Alaska Air has codeshare ties with a large number of carriers, though its relationship with Delta has frayed in recent years amid a turf war over Alaska Air's hometown of Seattle.

Bloomberg News adds American "expects to remove its airline code from about 20 of the more than 80 Alaska Air routes in the codeshare relationship."

The number of flights being pulled from the codeshare deal would indicate a concession that seems to fall somewhere between the "limited" phrasing used by Alaska and the "significant" terminology used by Justice.

Regardless, Justice said limiting the codeshare pact between the two would benefit consumers.

“Although this merger offers hope that a strengthened Alaska can be an even stronger competitor than before, because of Alaska’s extensive codeshare agreement with the world’s largest airline, the merger threatened to blunt important competition and reduce choices for consumers," Renata Hesse, Acting Assistant Attorney General of the Justice Department’s Antitrust Division, said in a statement. "Today’s settlement ensures that Alaska has the incentive to take the fight to American and use Virgin’s assets to grow its network in ways that benefit competition and consumers.”

Contributing: Bart Jansen, The Associated Press. 

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