Settlement clearing Alaska-Virgin merger filed by Justice Dept. in federal court

WASHINGTON — A proposed settlement that would clear Alaska Air Group Inc.'s $2.6 billion acquisition of Virgin America Inc. was filed in federal court Tuesday, requiring Alaska to roll back its ticket-marketing agreement with aviation giant American Airlines to better preserve competition on those routes shared by American and Virgin.

In court documents, the Justice Department is requiring Alaska to reduce its so-called American codeshare program —which allows both airlines to sell tickets on dozens of shared flight routes — on at least 20 routes where American competes directly with Virgin.

Those routes, according to court documents, comprise about two thirds of Virgin's network, representing an estimated $8 billion in annual commerce.

"Virgin's presence in these markets provides a critical alternative for consumers and helps keep American's prices lower than they otherwise would be,'' the court documents state.

Brad Tilden, Alaska's chief executive officer, said the company "couldn't be more excited'' with the settlement that effectively clears the deal, pending court approval.

"With this combination now cleared for take off, we're thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers,'' Tilden said.

The codeshare reduction, Tilden said, applies only to a limited number of the 250 flights where Alaska is able to market for American. A reciprocal arrangement allows American to sell tickets on 80 routes served by Alaska.

"We remain confident in the merits of this transaction," Tilden said. "The expanded West Coast presence and larger customer base create an enhanced platform for growth, which is good for investors, employees and especially customers — who benefit from more choices, increased competition and low fares."

Renata Hesse, acting chief of Justice Department's Antitrust Division, said the smaller Alaska and Virgin airlines provide "a critical check'' on larger industry carriers that the agreement seeks to preserve.

“Although this merger offers hope that a strengthened Alaska can be an even stronger competitor than before, because of Alaska’s extensive codeshare agreement with the world’s largest airline, the merger threatened to blunt important competition and reduce choices for consumers,'' Hesse said. "Today’s settlement ensures that Alaska has the incentive to take the fight to American and use Virgin’s assets to grow its network in ways that benefit competition and consumers.”

The deal would merge the sixth-largest airline with the ninth-largest airline, Virgin, making Alaska the fifth-largest domestic airline and significantly boost its position in the West.