Alaska Air Group has announced plans to acquire Hawaiian Holdings¡ªwhich owns Hawaiian Airlines¡ªfor $1.9 billion, including $0.9 billion?in debt. The two companies have already entered into a definitive agreement, under which Alaska Airlines will pay $18.00?per share as an all-cash transaction.
This year¡¯s devastating wildfires on Maui and the ensuing pause in tourism to the island, combined with rising fuel costs and a recent jet engine recall that tied up some of its Airbus A320neo aircraft have caused Hawaiian Airlines to sustain heavy losses, and its share price has fallen 65 percent in the last 12 months.?
This new accord between two major West Coast carriers is destined to draw the attention of U.S. antitrust enforcers who have vowed to crack down on airline consolidation to prevent monopolization and protect the competitive landscape, and, by extension, consumers.
After all, 80 percent of the U.S. aviation sector is already controlled by the ¡°Big Four.¡±
The Department of Justice is still in the midst of a lawsuit that aims to block JetBlue Airways¡¯ proposed $3.8 billion acquisition of Spirit Airlines, with closing arguments in the case expected to be heard in federal court on Tuesday. If this merger is allowed to go through, JetBlue would become the fifth-largest airline in the nation behind American, United, Delta and Southwest.
Hawaiian Airlines flight. (Photo via Hawaiian Airlines)
This summer, federal regulators managed to break up the so-called?¡°Northeast Alliance,¡± which at that time had been in effect for three years. The arrangement between American Airlines?and?JetBlue Airways, a judge ruled, resulted in a virtual monopoly on routes in the Northeastern U.S. It¡¯s interesting to note that both of these antitrust lawsuits involve JetBlue, which appears to persist undaunted in its pursuit of new partnerships.
Similarly, concerns will likely arise about the stranglehold that an Alaska-Hawaiian merger could create on the destinations these two smaller carriers serve, including the 49th?and 50th?U.S. states, which are their namesakes. As Alaska observed in a press release, both are ¡°uniquely reliant upon air travel¡±, being separated from the Continental U.S. by vast expanses of land and sea.
The proposed amalgamation would result in Alaska and Hawaiian controlling more than 50 percent of the market for flights to Hawaii, one of the world¡¯s most popular tourism destinations.
However, in a Reuters interview, Alaska Air CEO Ben Minicucci seemed confident that regulators would approve the merger by the end of next year, since there¡¯s only a 12 in 1,400 overlap in flights that are currently operated by the two carriers. Through their combined networks, the airlines would take guests to 138 destinations; although participation in the Oneworld Alliance expands that number to 1,200 if you want to count that extended network.?
Going founder Scott Keyes, who anticipated the move made today by Alaska and Hawaiian almost a year ago, expressed his opinion on the matter. "Competition between airlines is the single biggest cause of cheap flights,¡± he said. ¡°A merger between these two airlines¡ªwhose route maps have dozens of flights that overlap¡ªwould result, not in more cheap flights for consumers, but fewer."
However, in its announcement, Alaska affirmed, ¡°The combination of complementary domestic, international, and cargo networks is positioned to enhance competition and expand choice for consumers on the West Coast and throughout the Hawaiian Islands.¡±
While the acquisition agreement has already been approved by the boards of both airlines, it remains conditional on approval by Hawaiian Holdings¡¯?shareholders, U.S. regulatory approvals and other customary closing conditions. If all goes well, the merger is expected to close within 12 to 18 months.
¡°The combined organization will be based in?Seattle?under the leadership of Alaska Airlines CEO?Ben Minicucci. A dedicated leadership team will be established to focus on integration planning,¡± Alaska stated.
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