Richard Branson Explains Why He’s Being Forced to Sell Virgin America
Richard Branson, the British billionaire founder of Virgin Group, the London-based conglomerate, has dished on a proposed merger between Virgin America (VA), the United States airline he founded in 2007, and Alaska Air (ALK). Which word best sums up his emotional state? Sad, by his admission.
Branson attributes the potential sale to inexorable forces at work in the airline industry. “Consolidation is a trend that sadly cannot be stopped,” he wrote on his company’s blog. “I would be lying if I didn’t admit sadness that our wonderful airline is merging with another.”
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The record exec turned air carrier king built up Virgin America decades after founding Virgin Atlantic, his first airline, across the pond in 1984. The impetus to found both “started out of frustration,” he said. Of what, you ask? You may have guessed it: airline consolidation.
“As more airlines consolidated and grew larger and more focused on the bottom line, flying in the US became an awful experience,” Branson wrote. Although there have been gains (in-flight Wi-Fi, touch-screen entertainment, electrical outlets), the consolidation problem has only worsened, he said.
Today the four largest airlines in the U.S.—American (AAL), United (UAL), Delta (DAL), and Southwest (LUV)—control about 80% of the domestic market. There were nine major players a decade ago.
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Virgin America debuted its initial public offering in November 2014. The airline has won numerous industry awards since, including “best domestic airline” for the two most recent years as ranked by reader survey in Fortune and sister publication Travel + Leisure.
As Branson explains, most of the company’s decision- and deal-making power is reserved for its board of directors. “Because I’m not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover,” Branson wrote of his powerlessness to halt the pending merger. “So there was sadly nothing I could do to stop it.”
Still, Branson doesn’t have much to gripe about. His company Virgin Group owns more than 30% of the company’s stock, and will make out like a bandit as Alaska Air pays $2.6 billion to buy the business. The Guardian pegs Branson’s financial windfall at more than $786 million.
Virgin America’s share price has surged more than 80% since March when reports first surfaced that the airline would be entertaining bids. Alaska beat out rival JetBlue (JBLU) in the bid, which regulators and shareholders have yet to approve.