ALASKA AIR GROUP, INC. — Proxy Solicitation & Information Statement 2016

Apr 4, 2016

DFAN14A 1 d173847ddfan14a.htm DFAN14A DFAN14A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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Virgin America Inc.

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Alaska Air Group, Inc.

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Filed by Alaska Air Group, Inc.

Pursuant to Rule 14a-12 under the

Securities Exchange Act of 1934, as amended

Subject Company: Virgin America Inc.

Commission File No.: 001-36718

The following is a slide presentation presented by executives from Alaska Airlines and Virgin America on an investor and media conference call and webcast on April 4, 2016.

The Premier Airline for People on the West Coast

Safe Harbor This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and are not guarantees of future performance. Forward-looking statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Please refer to the risk factors described in Company’s filings with the Securities and Exchange Commission, including the detailed factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. 2

Important information for investors and stockholders This communication may be deemed to be solicitation material in respect of the merger of Virgin America with a wholly owned subsidiary of Alaska Air Group. Virgin America intends to file relevant materials with the Securities and Exchange Commission (the “SEC”), including a proxy statement in preliminary and definitive form, in connection with the solicitation of proxies for the merger. The definitive proxy statement will contain important information about the proposed merger and related matters. BEFORE MAKING A VOTING DECISION, STOCKHOLDERS OF VIRGIN AMERICA ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER RELEVANT MATERIALS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT VIRGIN AMERICA AND THE MERGER. Stockholders will be able to obtain copies of the proxy statement and other relevant materials (when they become available) and any other documents filed by Virgin America with the SEC for no charge at the SEC’s website at www.sec.gov. In addition, security holders will be able to obtain free copies of the proxy statement from Virgin America by contacting Virgin America’s Investor Relations Department by telephone at (650) 762-7000, by mail to Virgin America Inc., Attention: Investor Relations Department, 555 Airport Boulevard, Burlingame, California 94010, or by going to Virgin America’s Investor Relations page on its corporate website at http://ir.virginamerica.com. 3

Important information for investors and stockholders Alaska Air Group, Virgin America and certain of their respective directors, executive officers and other employees may be deemed to be participants in the solicitation of proxies from Virgin America’s stockholders in respect of the merger. Information concerning the ownership of Virgin America securities by Virgin America’s directors and executive officers is included in their SEC filings on Forms 3, 4, and 5, and additional information about Virgin America’s directors and executive officers is also available in Virgin America’s proxy statement for its 2016 annual meeting of stockholders filed with the SEC on March 25, 2016, and is supplemented by other public filings made, and to be made, with the SEC by Virgin America. Information concerning Alaska Air Group’s directors and executive officers is available in Alaska Air Group’s proxy statement for its 2016 annual meeting of stockholders filed with the SEC on April 1, 2016. Other information regarding persons who may be deemed participants in the proxy solicitation, including their respective interests by security holdings or otherwise, will be set forth in the definitive proxy statement that Virgin America intends to file with the SEC. These documents can be obtained free of charge from the sources indicated above. 4

Alaska + Virgin by the Numbers Annual Alaska Virgin America Revenues $5.6 Billion $1.5 Billion $7.1 Billion Annual Passengers 32 Million 7 Million 39 Million 152 Boeing Aircraft 52 Q400 63 Airbus 282 15 regional jets + = Daily Departures 1,000 200 1,200 Destinations 112 24 114 Pre-Tax $1.3 Billion $200 Million $1.5 Billion Profit AS and VX have 22 current destinations that overlap.

The Premier Airline for People on the West Coast Deal Facts Management Structure Transaction: $2.6B all cash deal CEO: Brad Tilden Airline Name: Alaska Airlines COO: Ben Minicucci Total Employees: 18,300 CFO: Brandon Pedersen Corporate Office: Seattle with continued presence in San Francisco CCO: Andrew Harrison

Our shared passion for service is widely recognized Virgin America Consumer Reports Widely recognized FORTUNE 4 STAR AIRLINE SKYTRAX as best in class TRAVEL+LEISURE Conde Nast Traveler Alaska AIRLINES “Highest in Customer Satisfaction Among Traditional Carriers in North America, Eight Years in a Row” #1 Traditional Carrier 8 straight years

Alaska brand stays. We will explore options for the Virgin brand in the future. Virgin

We are bullish on the industry. 1977 33 years 2009 -$52B 2010 6 years 2015 $45B Changed Industry Dynamics Fundamentally changed industry structure Returns focused leadership teams Constrained airport real estate Growth in leisure travel New revenue sources 9

We’re confident in our own business and our ability to create value for our constituencies. Safe Great Operation Award Winning Service READY SAFE GO THE WALL STREET JOURNAL. “Highest in Customer Satisfaction Among Traditional Carriers in North America, Eight Years in a Row” 2015 2014 2013 1 Alaska Alaska Alaska 2 Virgin Amer. Virgin Amer. Delta 3 Delta Delta Virgin Amer. 4 Southwest JetBlue Southwest 5 JetBlue Southwest Jetblue Employee Engagement Strong Balance Sheet High Margins Forbes 2016 AMERICA’S BEST LARGE EMPLOYERS S&P Fitch BBB+ BBB BBB- BB+ BB BB- B+ POWERED BY STATISTA Southwest Alaska JetBlue Southwest Alaska JetBlue 13% 13% 14% 19% 24% S& Ind Leg LC Ala

Consolidation has led to dominance of just four airlines. Airline Domestic Market Share (Revenue) 1980 1990 2000 2010 2015 PSA USAIR TWA HAWAIIAN Alaska EASTERN SOUTHWEST AIRLINES TWA spirit HAWAIIAN Continental Airlines SOUTHWEST.COM TWA HAWAIIAN spirit AirTrans jetBlue Continental Airlines spirit airlines jetBlue FRONTIER AIRLINES Alaska EASTERN AmericanAirlines UNITED AIRLINES USAIR DELTA UNITED AIRLINES AmericanAirlines nwa UNITED AmericanAirlines Delta UNITED Southwest.com AmericanAirlines DELTA Southwest UNITED DELTA American Airlines Market share of 4 largest carriers 61% 68% 61% 65% 84% Total domestic revenue pulled from Form 41 data. Airlines included in sample set: American, Aloha Alaska Jetblue, Continental, Delta, Frontier, Airtran, Hawaiian, American West, Spirit, Northwest, Pan American, Sun Country, TWA, ATA, United, US Airways, Virgin America, Southwest and Midwest Express 11

Acquiring Virgin America Provides a Platform for Growth Powerful West Coast Network Enhanced Partnerships Access to Constrained Airports JFK California Customer Base Opportunity to Grow & Improve Loyalty Virgin america Increased Influence Alaska Mileage Plan 4000 1234 5678 9123 00/00 CURIS L MARTIN 1234 VISA SIGNATURE Sources: Bureau of Economic Analysis, DOT O&D Data and Published Schedules Market concentration defined as the ratio of the #1 carrier’s market share to the #2 carrier’s market share

California is our single largest opportunity Population 11.9 Million Daily Passengers North America 71,700 AK 0.7M WA 7.2M OR 4.0M Population 39.1 Million Daily Passengers North America 185,700 CA 39.1M 2.5x PacNW Daily Passengers 3X PacNW Population

with very attractive characteristics. Characteristic Metric US Rank Population 39.1M #1 Gross State Product $2.3T #1 North America Pax/Day 185,700 #1 Intl Passengers/Day 11,750 #3 Gross State Product Growth 4% #4 Sources: Bureau of Economic Analysis, DOT O&D Data and Published Schedules Market concentration defined as the ratio of the #1 carrier’s market share to the #2 carrier’s market share 14

Alaska is heavily invested in California, but not to the extent required to establish a meaningful presence. Alaska North America Seat Share 52% 43% 52% 7% Alaska Daily Seats – Top States Rank State Daily Seats 1 Washington 39,654 2 California 22,747 3 Oregon 14,333 4 Alaska 12,770 Average daily scheduled seats for YE3Q16

With Virgin America, we obtain valuable gates and landing slots on the East and West Coast. SFO 8 Gates LAX 6 Gates JFK 23 Slots LGA 12 Slots EWR 15 Slots DCA 10 Slots DAL 2 Gates

From day one, the combined carrier will have the largest seat share on the West Coast 22% 21% 16% 12% 12% 7% 2% 1% Alaska AIRLINES America jetBlue spirit airlines Share of West Coast Seats *North America Seat Share from Alaska, Oregon, Washington, and California YE3Q16; total is less than 100% because smaller “other” category is excluded 17

and a significant presence at all major metropolitan areas. Anchorage 46 Flights 9 Gates Seattle 291 Flights 32 Gates Portland 123 Flights 20 Gates San Francisco 73 Flights 10 Gates Bay Area 115 Flights LAX 79 Flights 12 Gates LA Basin 102 Flights Average scheduled daily flights for Alaska and Virgin America YE3Q16

Based on seat share, we will become the second largest carrier in SFO and relevant in a fragmented LAX Passengers per Day Each Way Sacramento Oakland SFO 36K San Jose Burbank LAX 49K Ontario Palm Springs SEA 31K John Wayne Long Beach San Diego PDX 17K SFO Alaska AIRLINES Other 5% 16% 12% 11% 10% 46% LAX Alaska AIRLINES Other 9% 11% 24% 20% 18% 18% with opportunity to further expand in other important California airports Map represents Year-End Q1 ‘15 Domestic PDEW, Pie Charts represent YE Q3 ’16 Domestic Seats

Our market position in San Francisco moves from a distant #6 to a strong #2 SFO Customer Utility 6% Alaska - Today Service in Top 10 Markets from SFO Rank Market 1 JFK 2 LAX 3 Las Vegas 4 Chicago 5 Boston 6 Seattle 7 Newark 8 San Diego 9 Denver 10 Dulles

Our market position in San Francisco moves from a distant #6 to a strong #2 SFO Customer Utility 58% 6% Alaska - Today Alaska - Post Merger Service in Top 10 Markets from SFO Rank Market 1 JFK 2 LAX 3 Las Vegas 4 Chicago 5 Boston 6 Seattle 7 Newark 8 San Diego 9 Denver 10 Dulles

And our utility in LAX increases substantially LAX Customer Utility 10% Current Service in Top 10 Markets from LAX Rank Market 1 JFK 2 San Francisco 3 Chicago 4 Seattle 5 Las Vegas 6 Denver 7 Newark 8 Honolulu 9 Boston 10 Atlanta Utility percentage represents share of domestic revenue for the year ended Q32015.

And our utility in LAX increases substantially LAX Customer Utility 52% 10% Current Future Service in Top 10 Markets from LAX Rank Market 1 JFK 2 San Francisco 3 Chicago 4 Seattle 5 Las Vegas 6 Denver 7 Newark 8 Honolulu 9 Boston 10 Atlanta Utility percentage represents share of domestic revenue for the year ended Q32015.

Combining our loyalty programs and networks will provide greater benefits for West Coast customers and FLY America 4000 1234 5678 9010 4/18 SIR RICHARD BRAKSON Elevate! VISA SIGNATURE Alaska Mileage Plan 4000 1234 5678 9123 00/00 CHRIS L MARTIN MILEAGE PLAN NUMBER 1234 VISA SIGNATURE

a partner portfolio that gives our customers expansive global reach. But more importantly Hainan Airlines CHINA EASTERN CHINA AIRLINES KOREAN AIR CATHAY PACIFIC SINGAPORE AIRLINES FIJI AIRWAYS Australia QANTAS Alaska AIRLINES American Airlines DELTA HAWAIIAN AIRLINES AEROMEXICO LATAM AIRLINES ICELANDAIR BRITISH AIRWAYS AIRFRANCE KLM Virgin atlantic Emirates

we’ve created a strong West Coast airline for our customers.

We believe there is significant demand for low-fare carriers that offer a premium product. North America Revenue Network Carriers UNITED DELTA American Airlines 66% 12% 19% 3% Low Fare Premium Product Carriers Alaska america HAWAIIAN AIRLINES jetBlue Low Cost Carriers Southwest s sun country airlines Ultra Low Cost Carriers spirit allegiant FRONTIER AIRLINES

We were pioneers in managing to ROIC and consistently create significant value for our owners. After-Tax Return on Invested Capital 10.7% 11.7% 13.0% 13.6% 18.6% 25.2% 2010 2011 2012 2013 2014 2015 Alaska

We are generating strong margins, consistent with high-quality industrial companies. Industry and Sector Leading Pre-Tax Margin (2015) 13.0% 13.1% 13.9% 18.8% 24.0% S&P 500 Industrials Legacies LCC’s Alaska Alaska’s pre-tax margin is higher than all but 10 companies included in the S&P 500 Network: AAL, DAL, UAL. LCC’s : LUV, HA, JBLU, SAVE, and ALGT Industrials refers to all industrial companies included in the S&P 500 29

We have a track record of balanced cash flow allocation. $6,060M $493M $3,007 M $1,395M $1,221M Cash Flow from Operations Pension Contributions Capex (Aircraft/Other) Cash Returned to Shareholders Debt Payments Net of Borrowing 2010 to 2015 cash generation and deployment. Capex includes both aircraft and other capex

We have reduced our leverage and now have an investment-grade balance sheet Debt-to-Cap 81% 67% 27% 2008 2010 2015 AIRLINE CREDIT RATING S&P Fitch BBB+ BBB BBB- BB+ BB BB- B+ B B- SOUTHWEST Alaska allegiant air. jetBlue + SOUTHWEST + Alaska + + jetBlue + Investment Grade 31

We are extending Alaska’s track record of successful growth to a larger platform Mainline ASM Growth by Year, 1995–2015 Overall Growth Rate: 7.7% Industry Growth Rate: 1.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E *U.S. Domestic Industry Data from A4A Combination of the two powerful networks in the West creates meaningful synergies. Virgin and Alaska are both low-cost high-value carriers. We now have a strong growth platform.

This acquisition produces higher pre-tax profits at similar margins. Pre-Tax $ $1.3B $200M $1.5B $225M $100M $1.6B Alaska Virgin Alaska + Virgin (Pre-merger) Run-Rate Synergies Interest and Intangible Amortization ALK + VA (Post-merger) ALK+VA based on 2015 adjusted earnings. Synergies shown are run-rate synergies Pre-Tax Margin % 24% 13% 22% 23% Alaska Virgin Alaska + Virgin (Pre-merger) Run-Rate Synergies Interest and Intangible Amortization ALK + VA (Post-merger) 33

Significant synergies create value for our owners. Average Annual Run Rate Estimates Revenue Synergies $175M Net Cost Synergies $50M Total Synergies $225M We expect one-time costs to total ~$300M - $350M

These synergies are in line with recent deals in the sector. Net Synergies $680M $2.0B $1.0B - $1.2B $225M > $400M > $1.0B 6.5% 6.3% 3.9% 3.1% 2.8% 2.7% Average: 4.4% of Annual Returns Nwa Alaska Virgin America Southwest.com Airtran Source: SEC filings by other airlines Notes: Delta / Northwest announced merger with $1.1b in synergies and revised upward to $2.0b after closing. Average reflects actuals only 35

We expect synergies to ramp up quickly. 100% 90% 65% 30% 2017 2018 2019 2020 We expect the deal to be accretive in year 1

We expect to finance the transaction with cash on hand, aircraft debt and a temporary slowdown of share buybacks. Acquisition Price Equity Purchased $2.6B Net Debt and Leases Assumed $1.4B Total $4.0B Financing Sources Cash $0.6M Debt and Leases Assumed $1.4B New Debt Issued $2B Total $4.0B 37

Post merger, our leverage remains one of the lowest in the industry Debt-to-Cap 40% 46% 48% 58% 63% 65% 66% 78% 84% LUV JBLU DAL ALK SAVE ALGT UAL HA AAL Jetblue Alaska Airlines Spirit Airlines Allegiant Source: OALs come from 2015 10-K reports. ALK is a pro forma modeled on the combined carrier.

and in line with S&P 500 industrials. Debt-to-Cap ~50% by end of 2017 58% ~45 % Half of S&P 500 Industrials have leverage between 40-60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100+% Post Close 2020 We are committed to “re-de-leveraging” the balance sheet 39

Virgin’s fleet plan provides us flexibility. 5 5 5 10 10 10 58 63 68 73 73 83 93 2016 2017 2018 2019 2020 2021 2022 Aircraft at beginning of year New deliveries 40

We remain committed to returning capital to our owners via a growing dividend and consistent share buybacks. ANNUAL RETURN OF CAPITAL ($ IN MILLIONS) Dividend Share Repurchase Slow down repurchases during integration $28 $68 $102 $130 $159 $348 $505 $200+ 2013 2014 2015 2016E 2017E 2018E *Dividend spend subject to Board Approval. + Share repurchase based on current expected case – subject to change. 41

Recap 1. We have a track record of being best-in-class operators 2. We have generated return far in excess of our industry peers and our cost of capital 3. Larger platform for growth and deal synergies will allow us to create greater value for all of our stakeholders 4. We remain focused on the quality of our balance sheet and returns to shareholders

It’s time to take our talents to a larger stage. Highest-rated customer service, 8 years in a row. —J.D. Power Number 1 airline in the US, 3 years in a row. —Wall Street Journal The most on-time airline in North America. 6 years and counting. —FlightStats.com 43

Alaska and Virgin both run strong operations. THE WALL STREET JOURNAL 2015 Airline Scorecard Rankings of major carriers in key operational areas, best to worst Overall rank On-time arrivals Canceled Flights Extreme delays 2-hour tarmac delays Mishandled baggage Involuntary bumping Fewest Complaints 1. Alaska Alaska Frontier Alaska Alaska Virgin Amer. JetBlue Alaska 2. Virgin Amer. Delta Virgin Amer. Delta Southwest JetBlue Virgin Amer. Southwest 3. Delta Southwest Alaska Southwest Virgin Amer. Delta Delta Delta Delta 4. Southwest Virgin Amer. Southwest Virgin Amer. Delta Spirit Spirit JetBlue 5. JetBlue JetBlue Delta American Frontier Frontier Alaska Virgin Amer. 6. Frontier United JetBlue United JetBlue United American United 7. United American Spirit JetBlue Spirit Southwest United American 8. Spirit Frontier United Frontier United Alaska Southwest Frontier 9. American Spirit American Spirit American American Frontier Spirit Sources: On-time and canceled flights data for full year 2014 from masFlight. Includes regional affiliate flights, extreme delays which are 45 minutes or longer, compiled by FlightsStats Inc. Two-hour tarmac delays, mishandled baggage, and consumer complaints from Department of Transportation based on 12 months ended in November. DOT involuntary-bumping data 12 months through September. 44

Both of us operate young fleets Fleet Age in Years 22 17 14 12 11 10 10 8 6 5 Spirit Virgin JetBlue Alaska Hawaiian American Southwest United Delta Allegiant Combined fleet age of 8.5 years Source: Airfleets.net. Mainline only. 45

that are highly fuel efficient. Fuel EfficiencyASM’s/Gallon 83 82 76 75 74 70 70 68 66 65 Spirit Alaska Hawaiian Virgin Southwest JetBlue Allegiant United American Delta Our combined fuel efficiency would be over 20% better than legacy carriers Source: 2015 10-K reports. Mainline only. 46

Our customers will benefit. Award winning service Fares lower than legacy airlines Expanded service for Virgin customers to thriving Silicon Valley and Seattle markets More flight frequency to international airlines departing SFO, SEA and LAX New access to capacity-constrained markets

We are committed to taking care of employees READY SAFE GO BEST PLACES TO WORK 2015 for LGBT Equality 100% CORPORATE EQUALITY INDEX Forbes 2015 AMERICA’S BEST EMPLOYERS BEST PLACES TO WORK 2015 for LGBT Equality 100% CORPORATE EQUALITY INDEX POWERED BY STATISTA glassdoor Best Places to Work BEST TRAVEL COMPANY 48

Deal Milestones VA Shareholder April Announcement Integration Planning 2Q/3Q Approval 3Q/4Q ‘16 Regulatory Approval 4Q ‘16 Deal Close Combined Company Two Operating Certificates 1Q ‘18 Single Operating Certificate 49

The Premier Airline for People on the West Coast Alaska AIRLINES + Virgin america