Alaska Airlines could be headed toward a showdown with Richard Branson over millions of dollars in licensing fees.
Alaska took control of Virgin America last year. Branson, the British billionaire who helped create Virgin America, told reporters in Seattle this week that Alaska must pay royalties for the Virgin name under a licensing deal that runs until 2040.
But Alaska Airlines has a different opinion because it plans to drop the Virgin brand, probably in 2019.
Alaska’s general counsel said Wednesday that Branson was correct only about the length of the contract.
“What he didn’t mention is there are lots of ways out of the contract,” Kyle Levine said Wednesday. “No, we do not need to keep paying for a brand that we are not using.”
In a written statement, Branson’s UK-based Virgin Group said the licensing agreement with Alaska has “clear obligations”, including a royalty payment, and that Alaska has said Virgin America will honour its obligations.
Virgin Airlines paid US$7.7 million in licensing fees to a Branson-controlled company in its last full year before the Alaska takeover. But that was before a 40 percent rate hike that likely pushed the fee to more than $10m.
Branson has grumbled that he believed Alaska’s leaders would value the Virgin brand but have instead ripped the heart out of it.
The conflict with Branson resurfaced Wednesday as executives of Alaska, the nation’s fifth-biggest carrier, detailed their post-merger strategy to investors in New York.
Seattle-based Alaska, which paid $2.6 billion for Virgin America to grow in California, said they will decide by year end whether to eventually dump Virgin’s Airbus planes.
The company plans to add more seats, making planes more crowded, and will replace Virgin planes that hold fewer than 150 passengers with 178-seat Boeing 737 jets on lucrative transcontinental routes.
Alaska will give first-class passengers more legroom by placing rows 41 inches (104cm) apart, but they decided against lie-flat seats that have proved popular on the bigger airlines. That would require reducing the total number of seats, and Alaska officials said they don’t operate enough overnight flights to justify the change.
Shares of Alaska Air Group Inc. fell $2.03, or 2.1 percent, to close at $94.30.