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American Airlines - Alaska Airlines Partnership

Virgin America route map

American Airlines and Alaska Airlines have an extensive partnership in place that allows the two airlines to transfer passengers onto each others network and gives members of American Airlines that have status the equivalent on Alaska Airlines and vice versa. It gives American Airlines access to Alaska Airlines extensive network on the West Coast of the United States/Canada and in Alaska, both areas American Airlines is much weaker. A deal between Virgin America and Alaska Airlines will expand the Alaska network substantially, especially in San Francisco and give American Airlines indirectly also a much larger network. The major benefit for American Airlines is it gets these benefits while putting up zero cash and being exposed to zero risk from such an acquisition. American Airlines already sends 5,000 passengers per day, or about 2% of their total passengers onto Alaska Airlines and this was before the American Airlines and U.S network combined.

A Virgin America Aircraft

The Wall Street Journal is reporting that Alaska Airlines (NYSE:ALK) has made close to a $2 billion bid for Virgin America (NASDAQ:VA) with a deal expected to be announced Monday. American Airlines (NASDAQ:AAL) should be the biggest third party beneficiary if such a deal does indeed come through.

Summary

As Alaska Airlines looks to acquire Virgin America, American Airlines will be the largest third party beneficiary.
American Airlines has an extensive relationship with Alaska Airlines and would benefit from a much larger hub in Los Angeles and a new hub in San Francisco for Alaska Airlines.
American Airlines will see substantial benefits while having zero risk in the deal making it an attractive play.
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