Alaska Airlines and Virgin America won approval Tuesday from government officials to merge, but only after Alaska agreed to reduce a code-sharing agreement with American Airlines.
The Fort Worth-based carrier coordinates with Alaska on over 300 flights, which prompted concerns by the Justice Department over competition if the merger with Virgin America was allowed.
“Although Alaska would become only the fifth-largest domestic airline as a result of the proposed merger, its extensive codeshare agreement with the largest domestic airline, American, threatens to blunt important competition supplied by Virgin today,” the Justice Department said in a court filing. “Although the codeshare agreement effectively extends Alaska’s geographic reach — potentially strengthening Alaska’s ability to compete against other carriers like Delta and United — it also creates an incentive for Alaska to cooperate rather than compete with American.”
In a settlement with the department, Alaska agreed to end its code share with American on routes where Alaska, American and Virgin America have competing non-stop flights. Code-share agreements allow airlines to market and sell tickets on specific flights in each other’s networks.
Alaska will lose the code share on 40 of 270 American flights in the agreement, and American will lose the code share on 20 of 80 Alaska flights.
“Even with these changes, we are committed to continuing our long-standing and valued relationship with Alaska,” American spokeswoman Martha Thomas said. “We will continue to provide benefits to our customers for code-share travel on Alaska and the opportunity to earn and redeem AAdvantage miles on flights operated by Alaska and their regional carrier, Horizon Air.”
Thomas said it will honor all existing bookings and expects the affected code-share flights to be removed from the airlines’ systems in early 2017.
Alaska Air said the code-sharing concessions represent a revenue loss of about $60 million a year. But the airline believes it will recapture 70 percent of that through its own passengers. The dropped flights involve 45 markets, the company said.
Alaska’s $2.6 billion deal to purchase Virgin America was announced in April. Both carriers serve the Metroplex with a handful of flights. Alaska operates daily flights to Portland, Ore., and Seattle from Dallas/Fort Worth Airport. and Virgin America operates flights from Dallas Love Field to five destinations.
Virgin America beat out other airlines to obtain two gates at Dallas Love Field from American, and it’s unclear whether Alaska plans to keep those gates. When the merger was announced, Alaska’s chief commercial officer, Andrew Harrison, said Alaska would evaluate all Virgin America assets including the Love Field gates.
This report includes material from Bloomberg News.