"I would be lying if I didn’t admit sadness that our wonderful airline is merging with another," wrote Sir Richard Branson shortly after Virgin America's takeover by Alaska Airlines was announced on Monday. In a thought-provoking post on the Virgin Group's blog, he fairly bares his soul as few CEOs do, over both the merger and the future prospects for the U.S. airline industry.
If you're used to Branson's ever-smiling, upbeat and energetic public persona, this will come as a shock, as this game-changer, entrepreneur, innovator, adventurer, rock-n-roller, (not too) bad boy and rabble rouser who always seems ready for a party showed his more serious side.
Virgin America was born in 2007 out of frustration, Branson wrote. "As more airlines consolidated and grew larger and more focused on the bottom line, flying in the U.S. became an awful experience." So the airline started "with the goal of making flying good again."
Virgin America fans will tell you that it's pretty much accomplished that. It made standard in-flight amenities that its competitors are still struggling to implement - in-flight wi-fi, power outlets at seats, mood lighting, seat back entertainment - plus a fun vibe that no other airline even attempted to match. And it's still considered a low-cost carrier.
All this combined to win Virgin America has about every major U.S. travel award.
So it wasn't mere braggadocio when Branson wrote "Our innovative, stylish, guest-focused product and experience (and even our safety video) have made such an impact that our little airline forced the big legacy airlines to step up and find ways to compete."
In short, he credits Virgin America with making flying "no longer a dreaded chore: it is something to look forward to." Many passengers would agree, despite the airline's limited routes and underwhelming frequent flyer program.
So why didn't he stop the deal?
Officially, he couldn't. "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," he wrote. "So there was sadly nothing I could do to stop it."
Now, let's be clear: The outcome could have been a lot worse for Branson. After all, he owns a reported 30 percent of the company's stock, and Alaska offered a deal worth $2.6 billion. You do the math.
It could also have been a lot worse for Virgin America. Plenty of travelers have nice things to say about Alaska Airlines, which has won a slew of awards in its own right, and many Virgin Atlantic devotees are sighing with relief that the other reported suitor for this deal, JetBlue, did not prevail.
And certainly both airlines and their passengers will benefit from Virgin's transcontinental routes and Alaska's superior frequent flyer program.
But for fans of Virgin America, here's the problem: Alaska hasn't indicated how far it will go to integrate Virgin's innovations into its own operations, or let them just fade away. After all, Alaska just went through its own rebranding earlier this year.
Another alternative might be to let Virgin remain its own separate brand (like Alaska's Horizon Air subsidiary). After all, as Marketing Week notes, "Few corporate brands have ever created such a powerful halo effect," as Virgin. But so far there's been no public discussion of that. Alaska says only that "Some elements of the Virgin America brand, which has been a powerful driver of customer acquisition and loyalty, could continue well into the future."
Branson wrote that "The important thing now is to ensure that once Alaska witnesses first-hand the power of the brand and the love of Virgin America customers for our product and guest experience, they too will be converts and the US traveling public will continue to benefit from all that we have started."
Bigger picture, Branson also fears for the future of the U.S. air travel market. If Virgin America was born out of frustration, it was also born out of competition, which has gotten increasingly scarce these days. "Today, the four mega airlines control more than 80 per cent of the US market," he noted, up from 60 percent consolidation in 2007. "Consolidation is a trend that sadly cannot be stopped."
Implication: if we're not careful, it could be a one-way trip back to the bad old days.
