Is the Virgin America Name Worth Keeping?
As Alaska Air Group Inc. executives took a victory lap after sealing the deal to buy Virgin America Inc., one thing was clear: The familiar Eskimo on the tail of their planes was there to stay.
What's unclear, though, is the fate of the arguably better known Virgin America brand. Globally, Richard Branson’s urbane splash of red has helped sell a diverse array of businesses, from water and wine to mobile phones, health clubs, and even banking services. Does Virgin have a home within an 84-year-old airline that boasts a strong, if regional, brand identity of its own?
“We believe it’s driving a big revenue premium for Virgin," Alaska Air Chief Executive Officer Brad Tilden told analysts on Monday. "We just want to learn more about it. So, there is a chance that we could use the Virgin America brand in some form down the road.”
One reason Alaska Air executives might keep the brand alive, at least for a time, would be if they consider it critical to retaining the carrier's loyalists in California, a huge market and key reason Alaska agreed to pay $2.6 billion in cash. Combined, the new company will have $7 billion in annual sales.
For Virgin, keeping its flag flying in as many American cities as possible is of foremost concern. Branson said this week that he was sad about Virgin America's sale, which he could do nothing about because he was a foreign investor. One can understand why: While Virgin flies its international Virgin Atlantic airline from some U.S. cities (and has a branded hotel in Chicago, with others planned), Virgin America is the company’s most prominent brand in America.
“Brad Tilden, Chief Executive of Alaska Airlines, has already talked about the strength of the Virgin brand and I look forward to discussing with him how we can keep that culture and the brand flying for years to come,” Branson said in a separate statement.
Using the Virgin name isn’t free. Virgin America began paying Virgin Group Ltd. a higher fee this year for use of the name: 0.7 percent of the airline's roughly $1.5 billion in annual revenue, up from 0.5 percent. The carrier has paid $22.2 million in license fees over the past three years.
The good news for Branson is that Alaska Air doesn't seem to think that paying to keep the brand would be too expensive. The payment to Virgin “is not huge in the grand scheme of things,” Brandon Pedersen, Alaska’s chief financial officer, said on Monday. If Alaska were to decide not to retain the Virgin brand, it’s unclear how Virgin Group might use it. A company spokeswoman declined to comment on that matter.
In January, Alaska Air introduced a new brand of its own, as well as aircraft livery aimed at “smoothing and modernizing the Eskimo for the digital age and adding invigorating pops of color around his ruff.” The company said it was the biggest change to its brand in 25 years. Alaska Air’s Eskimo livery dates to 1972; it has made the Inuit figure an unmistakable symbol of the carrier, and indeed of the 49th state, ever since. (Alaska Air also made a short film to explore the disputed question as to who the man is.)
Given the expense of maintaining two brands, as well as Alaska Air's recent brand update, several analysts predicted that the Virgin America logo will probably be dropped altogether.
“Alaska is as likely to keep the Virgin America name long-term as it is to order a bunch of Airbus A380s,” Henry Harteveldt, a travel analyst with Atmosphere Research Group, said. “Operating a dual-brand airline would be an extremely expensive proposition.”
Recent U.S. airline merger history also suggests that Virgin America may disappear, given the decisions by Delta, United and American to retire, respectively, the Northwest, Continental and US Airways brands once those deals closed. Harteveldt noted that the last U.S. airline holding company to fly distinct mainline brands was Texas Air in the 1980s, which operated Continental Airlines and Eastern Airlines.