This morning, Virgin America’s stock soared on a report that it may be for sale. According to Bloomberg News, the company has hired bankers to examine alternatives after having been approached about selling all or part of the company.

There’s certainly no guarantee that somebody is tendering for the entire company. It may be a firm buying outstanding stock from one of the owners. An equity ownership would open up far more opportunities for a current shareholder to monetize, including the possibility of a foreign buyer.

About Virgin America

Virgin America is a (sort of) low-cost carrier (LCC) in the JetBlue version of the term. In terms of costs, it tends to fall somewhere between the true LCCs and the network carriers, although its longer average stage length tends to help with costs. On the other hand, it offers premium products such as multiple cabins of service, in-flight entertainment and Wi-Fi on almost all flights. It also has cool mood lighting and a heck of a long-haul first class product. In other words, it attempts to combine reasonable prices with amenities. As a new airline in the early stages of growth, it is able to keep its average costs low, with lower absolute hourly costs and high capacity growth.

While Virgin America shares part of its name with Richard Branson’s Virgin Group, it is actually a publicly traded company, although VX Holdings (Richard Branson’s firm) and hedge fund Cyrus Capital, who has three airlines among its most recently reported holdings, share over 50% of the company between them. PAR Capital, a closely held Boston hedge fund, is the third-largest holder. PAR has a history of investing in airlines but has, until recently, not been an activist investor. That changed with its recent actions at United Airlines. I have no idea what their role in the discussions is, if any.

The frequent flyer program is nothing to write home about. You’ll earn five points per dollar spent and, like many of the other LCCs, there are no blackouts on awards, although the price varies based on the underlying cash cost of the ticket. Unfortunately, there’s not much of an international route network. They do give lots of freebies, though. Somehow, I have almost 4,000 points, even though I’ve only flown them once and the ticket was under $100. In fact, you can get 500 points just for signing up.

But Who Wants Them?

Aye, there’s the rub. If somebody were trying to buy the entire company, I’m not sure who would want this company or how an acquisition would go. The obvious choices, at least from a geographical and fleet commonality point of view, would be Spirit and JetBlue. An international carrier couldn’t do it because there are foreign ownership restrictions (although it could take an equity ownership) and a major carrier would never clear the regulators.

Spirit is out. Virgin America is all about brand. So is Spirit, except the brand is exactly the opposite of VA’s. No way this one would work out.

The “most likely most-likely” candidate is JetBlue. Virgin America has gates in slot-restricted airports in New York, DC, LAX and San Francisco that JetBlue covets. It has a similar fleet type with the Airbus product. And both have loyal fans among their customer base (Shareholders, who are not so big on giving out freebies such as IFE, are apparently not among their fans.).

But there are issues. Other than the gates, Virgin doesn’t have much to offer. Over 50% of its available seat miles (ASMs), a measure of capacity, is on transcontinental routes, where JetBlue also has plenty of capacity. These routes are not only highly competitive but Virgin also loses its cost advantage. Why? Because the most expensive parts of the flight are take-off and landing. In the air, all airlines have virtually the same cost structure, meaning that, on long flights, network carriers are able to amortize their higher corporate expenses. It’s the short-haul routes where LCCs make a difference, and those costs would continue to rise. VA has higher per hour labor costs than JetBlue does. Guess how airline managements get airline employees to buy into a merger? I can promise you that they will not be lowering the pay of legacy JetBlue employees. There’s only one way left to equalize pay. Goodbye, cost advantage.

The only buyer that is left would be a non-airline company, possibly private equity (PE). PE would make sense: Virgin America has a pretty clean balance sheet, so it could follow the time-tested tradition of putting in a small amount of cash as equity and borrowing a ton. Hopefully, they could sell the airline later for a huge profit, meaning a very large return on their investment. Virgin America has just started to generate a profit but, like the other airlines, it was a massive beneficiary of lower fuel prices. Thus, if fuel spikes or demand falls off, the company could be in deep trouble. And customers might not be happy, either. A new owner might decide to lower costs by shoving in extra seats or taking away some of the amenities.

But hey, that’s the way it works. As long as they don’t get rid of the mood lighting…