An Alaska Airlines aircraft flies past the U.S. Capitol before landing at Reagan National Airport in Arlington, Virginia, U.S., January 24, 2022.
Joshua Roberts | Reuters
Alaska Air Group‘s executives spent months working on its plan to purchase rival Hawaiian Airlines. The airlines’ leaders will now spend many more attempting to persuade regulators the acquisition should go ahead.
It could possibly be the newest in a string of challenges brought by President Joe Biden’s Justice Department against airline deals it views as anticompetitive.
The $1.9 billion money and debt deal, announced Sunday, comes lower than a yr after the Justice Department sued to dam one other deal: JetBlue Airways‘ $3.8 billion money acquisition of budget carrier Spirit Airlines. The Justice Department argued that the acquisition of Spirit would harm consumers in the shape of upper fares if the budget airline is absorbed by JetBlue. Earlier this yr, the Justice Department successfully broke up JetBlue’s partnership with American Airlines within the U.S. Northeast.
In each that limited alliance and the Spirit acquisition, JetBlue argued it needed to team up to higher compete with larger rivals, and grow, when planes and pilots are briefly supply.
Greater than a decade of airline mergers left 4 airlines — American, Delta, Southwest and United — answerable for around 80% of U.S. airline capability. Alaska has a greater than 5% share of U.S. airlines’ capability and Hawaiian has a lower than 2% share, in response to Cirium data.
The Alaska-Hawaiian deal comes as Hawaiian has faced a bunch of challenges including just like the Maui wildfires, increased competition in Hawaii from Southwest and a slower recovery of some long-haul Asia routes.
Deal differences
The Alaska-Hawaiian and JetBlue-Spirit deals are different in approach, however the Alaska acquisition could still face hurdles with regulators.
For instance, JetBlue plans to rework Spirit’s tightly packed yellow planes to take out seats and convey on board more amenities like seat-back screens, while eliminating the Spirit brand and model entirely. Alaska, meanwhile, said it plans to maintain separate Hawaiian and Alaska brands, two carriers which can be key to the far-flung states they serve.
That is different from Alaska’s 2016 acquisition of Virgin America, when it spent years eliminating Virgin’s branding and fleet of Airbus jets in favor of a streamlined Boeing airline.
The Justice Department declined to comment on the Alaska-Hawaii deal on Monday, but some experts said they expect a challenge from regulators.
“The place to begin is certainly one of skepticism,” said William Kovacic, a professor on the George Washington School of Law and a former chair of the Federal Trade Commission.
He said the Justice Department’s review of the deal will give attention to where Hawaiian and Alaska compete and “consider how the 2 firms may need expanded service in alternative ways were it not for the merger itself.”
Alaska and Hawaiian executives have defended their deal, citing little overlap and the flexibility to expand their reach. The carriers’ CEOs said the deal will help them expand their networks, giving Alaska access to Hawaiian’s network within the Asia-Pacific region and expanding Hawaiian’s current reach with Alaska’s network throughout the U.S., for instance.
“We’re confident that this is exclusive from others which can be pursuing combos,” Alaska CFO Shane Tackett said in an interview with CNBC. “Now we have very similar product offerings and now we have very limited network overlap.” He said that the 2 carriers have a few 3% overlap with seats and 12 routes.
Within the Justice Department’s lawsuit against the JetBlue-Spirit deal, “they really lean heavily on the catalyzing role that Spirit specifically, but that Spirit and JetBlue can play out there,” said Samuel Engel, a lecturer at Boston University’s Questrom School of Business and senior vice chairman at consulting firm ICF. “I do not think anyone has every argued that about Alaska and Hawaiian,” he added.
“That said, the posture of this administration has suggested there usually are not many mergers they might embrace,” he said.
Alaska and Hawaiian executives said they expect it to take 12 to 18 months to shut the deal, a timeframe which might push it beyond next yr’s presidential election and potentially right into a latest administration.
Hawaiian’s stock nearly tripled on Monday to $14.22 a share, though still below the proposed purchase price. Alaska’s shares lost 14.2% to finish the day at $34.08.
