The Virgin America planes, with its iconic pink-and-purple color schemes, will soon disappear from the skies, its merger partner Alaska Airlines said on Wednesday.
Alaska Airlines’ $2.6 billion acquisition of the California-based Virgin America has made the combined carrier the fifth largest airline in the United States. This merger is part of a decade-long trend of industry consolidation that, for passengers, means a continuation of relatively cheaper prices and paying for additional amenities.
In 2015, New York Times columnist Andrew Ross Sorkin wrote that the US airline industry has now shrunk to “an uncompetitive oligopoly.” Aviation fuel prices have dropped dramatically but ticket prices haven't. But other analysts disagree.
After a period of consolidation, the airlines are becoming like other industries, such as the cellphone carriers, which have a decent balance between profits and benefits for consumers, says trade publication Airline Weekly Managing Partner Seth Kaplan.
“The airline industry previously was a hyper-competitve industry, more competitive than most other industries,” Mr. Kaplan tells The Christian Science Monitor in a phone interview. “Now they've merged, for most consumers, there are still choices.... So it's no surprise that now the airlines are producing the kinds of profits you also see in other industries.”
Although air travel was regarded as a luxury in its early days, it's become a form of mass transportation. In 2015, an estimated 32 million people worldwide traveled by air, according to the International Cvil Aviation Organization.
Deregulation by the US federal government in the mid-1970s spurred the growth of new carriers which led to competition, lower fares, and more people traveling by air, says Jan Brueckner, professor of economics at University of California, Irvine.
But deregulation amid strong competition in the industry, Kaplan says, also drove prices (and profit margins) down, and eventually sent some airlines into bankruptcy. The airline losses climbed with the Sept. 11, 2001 attacks and rising fuel costs. Those two factors helped to decrease air travel and increase airline operation costs. As a result, 10 US carriers merged into four during the first decade of the 21st century; American Airlines acquired US Airways in 2013 to become the world's largest carrier and Delta purchased Northwest in 2008.
During the era of bankruptcies and mergers, airlines began the process of “unbundling” – fares shifted from an “all-you-can-eat buffet” to an à la carte approach, in which consumers pay for what they consume, according to Kaplan. Today, most airlines charge additional fees for services that were previously included in the tickets, such as snacks and checked bags.
This shift, which kept airfares low enough to remain a transportation option for the masses, is likely to continue in the future, Kaplan says.
“On one hand, this is how [other] businesses operate. Airlines were actually the anomaly in the old days,” he says. “But on the other hand, it's become some sort of shock to consumers who have become accustomed airlines doing things a certain way.”
Virgin America has developed a cult of enthusiasts, it is not enough to justify a decision of maintaining two brands after the merger, Kaplan says.
“Virgin was not a [financially] successful airline, but it was a loved airline by consumers ... and that's why it chose to sell itself,” he says.
But Kaplan says this may be the last merger of its kind because the government won't let the consolidation continue. Antitrust laws tend to limit these merger trends. Companies become monopolies, prices rise, and consumers lack choices. But he adds that some smaller airline mergers could be possible.
Alaska Airlines said it will adopt many of Virgin’s distinguishing features, such as back-seat entertainment and music – in addition to the mood lighting.
"Our goal from the very beginning of this merger was to become the go-to airline for people on the West Coast, with low fares, convenient flights, a premium product and genuine, caring service," Brad Tilden, chief executive officer of Alaska Air Group said in a statement.
While the Virgin America brand is likely to go away in 2019, its founder billionaire entrepreneur Richard Branson has already sets its eyes on commercial space travel. Earlier this month, Mr. Branson launched a new company called “Virgin Orbit” – a spinoff from Galactic Ventures – to focus on its space tourism businesses, according to Fortune.
“As the years passed, we learned that government is not in the business of taking you and me to space; they have other priorities,” Branson wrote in a post announcing the new company. “It is up to private enterprise to learn from what government had started and pave a way for other applications for their technology and discoveries.”