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Who Is Buying Richard Branson’s Virgin America?

By Abdul Kuddus
Published on: 08:28 PST, Mar 23, 2016

Virgin America, known for its upscale service, is selling itself or a part of the business following buyout offers from potential investors, according to reports. “The carrier, which flies to destinations throughout the U.S. and Mexico, is working with a financial adviser after receiving takeover interest,” Bloomberg reported.

The budget airline flies to 21 destinations in the U.S. and Mexico. Backed by British billionaire Richard Branson, Virgin America started operating from San Francisco in 2007, and has since built its own fan base.

Branson also has stakes in gyms, hotels, and telecommunications companies around the world.

But the company hasn’t commented on the speculations on mergers or acquisitions. Speculators expect the company may sell a part of it to the strategic investors, the whole company, or back out of the deal if the talks break down.

Reports of the potential sale comes less than two years after Virgin Airlines raised more than $300 million in an IPO. Wall Street took the news seriously and Virgin Airline’s shares reportedly shot up to 15 percent, according to reports.

“Virgin America, a relatively small airline with a fleet of 58 aircrafts, went public in 2014 at $23 a share and branded itself as a chic, low-cost airline. The company raised roughly $307 million that day,” Fortune reported.

The budget airline, currently valued at about $1.5 billion, has the best combination of service and remains a favorite among travelers for its comfortable leather seats, mood cabins, on-board Wi-Fi facilities, and has won consistent honors such as the United States best airline rated by Travel and Leisure.

“We attract both leisure people and tech people who want to be flown in a slightly more hip airline than our competitors,” Branson said in an interview to Bloomberg.

Initially, skeptics did not see a market for Virgin America in the United States. But the airline has weathered through huge losses to come out successful. Despite stiff competition from domestic American airlines, the profits of Virgin America rose in 2015, according to USA Today.

The airline continues to survive with Southwest Airlines and American Airlines waging fare wars in the competitive Dallas market.

The innovative offers like mood-lit interiors with custom-designed classes of service, touch-screen entertainment systems, and an on-demand food and cocktail menu makes the airline an attractive option for many flyers.

“Any sale, however, would come amid Virgin America’s plans to grow capacity by around 15% this year and by around 10% annually in the years to come, according to a Cowen & Co. research note last month,” Investor’s Business Daily reported.

Back in 2012, Delta Airlines had hinted takeover interest in Virgin group but a deal did not come through. Again, following a series of strong results since Virgin’s 2014 IPO, the news of takeover shows Branson’s company is alive and doing well.

Virgin America’s stake to sell itself shows it is positioning as a market player amid aviation giants like Spirit, Delta, Southwest, and American. Given that no specifics and no decisions have been made by Virgin America, the outcome is a matter of speculation.

“While information is limited at this point, we do not believe another airline would be the logical buyer of the company given the current regulatory environment, Virgin’s lack of aircraft ownership or dominant slot holdings, among other factors,” USA Today quoted Jamie Baker of J.P. Morgan in an investors note.

Who then is Virgin America’s eventual buyer, if there is one? Some non-airline investor or a bigger airline or company looking for just another profitable merger? Or it could be a hotel chain looking for connections between its outlets and Virgin America’s air routes. Any guesses?

[Photo by Frazer Harrison/Getty Images]

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