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Why Alaska Airlines’ CEO Is Losing Sleep Over Virgin America Merger

Virgin America Joins Ranks Of U.S. Low-Fare AirlinesVirgin America Joins Ranks Of U.S. Low-Fare Airlines
A Virgin America plane passes under a water canon as it arrives at San Francisco International Airport.Photo courtesy of Virgin America—Getty Images

This story has been updated to reflect a comment from Alaska Airlines.

Alaska Airlines (ALK) bought Virgin America (VA) back in April, and now has some big decisions to make.

CEO Brad Tilden says that the company is currently debating whether or not to keep the Virgin America brand up and running, operating it separately from Alaska, the Associated Press reports. “It is the thing I am losing the most sleep over with our merger,” he told J.P. Morgan analyst Jamie Baker.

Baker noted that the two brands have vastly different cultures, catering to distinct customer bases. Alaska is popular in the Pacific Northwest, particularly in Seattle, where it’s headquartered. It has the lowest complaint rate in the U.S. airline industry with the best on-time performances. It also offers a guarantee that compensates travelers with either 2,500 bonus miles or $25 towards their next trip if their checked bag doesn’t appear at the pickup area on time.

Virgin America, on the other hand, has loyal customers in Silicon Valley and offers more upscale, albeit less practical, amenities. It has in-flight Internet, mood lighting, and individual televisions at each seat on which fliers can order food and drink, either for themselves or to be sent to someone else. However, the name is quite expensive. In the nearly 10 years it’s been operational, the airline has spent upwards of $22 million in licensing fees.

 

Baker doesn’t seem confident that the merger could successfully maintain two distinct brands. He says it “adds complexity and expense and potentially confuses passengers and employees,” though similar strategies have worked in Europe. For example British Airways, Iberia, and Aer Lingus all have a common owner, though they’re run as separate products.

Whether Alaska chooses to keep Virgin America as a separate brand or not, Fortune‘s Cyrus Sanati previously wrote that the merged company would need to find a way to attract a younger and more urbane audience in order to compete with big names like Delta (DAL), American (AAL), and United.

“No decisions have been made on the Virgin America brand and all options are being evaluated,” an Alaska Airlines spokesperson told Fortune. “Everything is still on the table.”