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Is Alaska Airlines at Risk of Losing Virgin America Customers?

By Motley Fool Staff - May 3, 2018 at 8:45AM

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Alaska Air Group recently retired the Virgin America brand. Now it needs to focus on keeping Virgin America's best customers in the fold.

Virgin America gained a big following in California with its mood lighting, upscale amenities, and hip image. However, Alaska Air (ALK 2.80%) acquired Virgin America in late 2016 and it recently retired the Virgin America brand.

In this episode of Industry Focus: Energy, the team talks about whether retiring the Virgin America brand poses a risk to Alaska Air's financial performance. Most travelers are motivated by price and convenience more than brand loyalty. However, Virgin America did have a passionate base of fans who valued its luxurious -- and expensive -- first class seats.

A full transcript follows the video.

This video was recorded on April 26, 2018.

Sarah Priestley: One move that they did make is, obviously, reuniting the Virgin America brand under the Alaska brand. Some have argued that this maybe alienated some Virgin Atlantic loyalists. I don't know how many loyal air travel passengers there are. [laughs] Maybe I'm just speaking from my own experience, but I feel like a lot of people are really going with the cheapest or most convenient option, as opposed to sticking with a carrier, unless they're a credit card follower for the points and the miles and things like that.

Adam Levine-Weinberg: Yeah. I would say, the biggest risk to Alaska from the Virgin America merger is not in losing the volume. The vast majority of people who are flying Virgin America would fly Alaska, or at least would consider flying Alaska. Virgin America was known for having this eight-seat first-class cabin in all of its planes, which was very fancy, basically one flight attendant for just those eight people, humongous seats that were really cushy, all kinds of other perks. And it was a seat where you weren't allowed to get an upgrade just for flying a lot, you had to actually pay for the seat. People liked that because it was exclusive, so there was a certain small class of people who were paying $1,000, $1,500 one way for these seats on routes, and that's obviously very profitable.

On the other hand, it was only eight seats per plane, so it's still not the majority of Virgin America's revenue by any means. But, it was an important part of that business. Alaska will still have a first-class section. It's actually going to be a little bit bigger. But, the seats themselves won't have as much legroom, and they just won't be as much of a standout, so the revenue premium that it's getting there will probably be smaller. But, you look at the economy cabin, I don't expect to see much pushback from former Virgin America customers at all.

Priestley: Yeah. I think that Virgin America did a fantastic job with a lot of their marketing, but as you said, it's probably not going to hamper Alaska much at all.

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