When Alaska Airlines came to an agreement with the Department of Justice to extend their review period, the thinking was that there was the possibility of a deal that would have the government sign off on the combination.
- The government clearly had concerns, and wanted concessions
- It wasn’t clear how likely it was that a deal could be reached – it could have just meant a last ditch effort by the airline to offer something. The government doesn’t mind extra time, and could file suit to stop the deal whenever they wished.
- Now, though they’ve come to an agreement for an additional 24 hours. That carries meaning.
The government now has until August 16th to conclude its review. An additional day means those involved in the negotiations think they’re close – close enough that a deal is possible, and without much more time. It’s unclear what Alaska would be required to give up in order to avoid an anti-trust suit.
It doesn’t mean an agreement will be reached, but it seems a much higher probability than just a day ago when Hawaiian Airlines shares fells as much as 13% before recovering, on the expectation that the likelihood of a deal would decline based on DOJ opposition.
Alaska is overpaying for Hawaiian (a 3.5x premium over where shares were before the merger announcement) – a great deal for Hawaiian Airlines shareholders, and not a great deal for Alaska Airlines shareholders. Alaska is buying:
- A Honolulu hub that has no moat. Mainland – Hawaii flying is highly competitive, with United currently the largest player but also significant flying from American, Delta, and Southwest.
- Money-losing intra-Hawaii flying. Southwest Airlines dumps a tremendous amount of capacity with low loads in these markets. Historically there’s not been enough demand to support heavy competition between the islands (at one point the federal government even granted anti-trust immunity to Hawaiian Airlines and Aloha Airlines operate together between the islands).
- Debt and integration costs. Mergers are distractions, they’re expensive to work through, and they rarely generate promised synergies.
- An incompatible fleet and weak market positions in Asia Pacific. But Alaska does get some knowledge about flying to Asia and widebody aircraft.
Hawaiian Airlines customers will probably see reduced capacity between the islands but that’s reasonable. Their miles will become worth far more, and it’s a great add for mileage members of other oneworld programs so bring Hawaiian into the fold. There’s also an increase in concentration on U.S. mainland – Hawaii routes. But Hawaiian is also an undersized, troubled carrier and the deal potentially protects competition.
The problem here isn’t really anti-trust (monopoly) it’s that Alaska Airlines is overpaying for an asset that will distract them from other execution and growth.
Where else could Alaska realistically grow?
This merger reeks of AS’ Virgin America merger. Both were terrible ideas. AS should have focused on merging with B6 instead.
I give it 5 years before AS walks away from 50% or more of Hawaiian’s operations – just like they did with Virgin. Complete waste of money, my guess is that this may sink AS (which has been a dumpster fire for a while).
I don’t see any other carrier that would be compatible with Alaska. There has long been rumors of a JetBlue / Alaska merger. But B6 is a serious dumpster fire now. This Alaska /Hawaiian merger is a slippery slope. It could easily spell doom for Alaska.
The situation with Virgin is that it’s operations were duplication. Virgin was a disrupter. It’s operations were rolled into Alaska
This deal is different. Assuming DoJ requires no capacity reductions on primary hub routes there is no issue. Flights will actually be expanded to hawaii from more cities to take advantage of the Honolulu hub. More inbound flights to Honolulu will have more interislad passengers
So what you’re telling me is to transfer all my MR to Hawaiian with the current 20% bonus?
Who does your art work? It’s wonderful!
I’m really curious where AS would fly the HA widebodies
They’ll be OneWorld but it’s hard to imagine AA and AS being allowed in a JV together even if AA wanted AS in the JV. A true Alaska widebody SEA hub would likely kick delta out of Seattle given they’re half the size of Alaska already and international flights are the only delta advantage in Seattle
I wonder how SWA feels about this. They’ve apparently bee, n losing money to undercut HA until it collapses, and then they can raise the rate, maybe even to exorbitant levels. But if it’s AS, do they continue that strategy?Do the residents get to enjoy a giant game of chicken until one of them gives up and leaves the market?
More valuable?
Hawaii J to Hawaii is lower than AS at the common prices, no?
What do you think about applying for a Hawaiian Airlines credit card once the merger is approved?
@Jeff – absolutely! HawaiianMiles will get more valuable to the extent they become Alaska miles (and it would be tough to convert them at anything other than 1:1). The one thing I will miss is Hawaiian’s upgrade availability using their own miles…
I think AS will allow HA to operate HNL to Europe via SEA scooping additional traffic from SEA. While London LHR slot might take time to secure, other destinations will likely welcome new service.
In addition, new nonstop service to Asia from SEA, operated by Hawaiian will likely follow.
jiburi
THis is good for both airlines and their customers.
All the doom and gloom “Oh no, Alaska will go under, we’re all going to die…” Just silly. This is super positive and a win for both. Don’t be fooled, this is the only way either of these airlines will survive another 50 years and be able to compete with the big four.
Replying to MaxPower…..the logical AS wide body routings would be SEA – LHR, CDG, NRT, ICN. Possibly SEA – SYD. All dependent on route authorities and slots.
Another mainland company attempts to take over an Island company, with no hope in a win win situation. Years ago, Bank of America came to the islands and bought up Honolulu Federal Savings and Loan. Years later, Bank of America closed up shop, left many islanders unemployed and left town. Today, you can’t find a Bank of America ATM in Hawaii. MACY’s comes in and buys up Liberty House, only to shut down several stores through out the island as it just can’t make any money. Now Alaska Airlines “MAY” merge with Hawaiian Airlines and promises to keep Hawaiian Airlines for Hawaii. Time will tell when the Alaska Airlines “BEAN COUNTERS” look at the bottom line for Hawaiian operations.
@Randy
I agree those are the logical adds except…
those are all routes covered by AA JVs with BA/IB, JL, and QF.
I just wonder how Alaska would do on those routes if their oneworld partners have little incentive to help them since they already coordinate with AA.
For example, why would BA want to provide much connection to an AS SEA-LHR flight if they already fly LHR-SEA and Alaska is, in essence, a competitor.
After all the NEA history, I find it hard to imagine that the current government would allow two domestic carriers to be in a Joint venture together but perhaps if it was carved out to add only Alaska international at SEA, HNL, PDX, SAN, and SFO (their hubs aside from LAX)
Alaska is “Proudly All Boeing.” What will they do with those Hawaiian A330s?
Southwest can afford to dump capacity interisland because they do so to rotate aircraft from and back to the mainland, thus saving the substantial cost of maintenance facilities in Hawaii.
United has substantial facilities there because of historical necessity and union contract requirements.
There’s a reason UA didn’t buy Aloha, or put in its own interisland service way back when.
Hawaiian expanded beyond interisland years ago when business from Japan was exploding, allowing them to feed their interisland flights and fend off WN or anybody else. But those days are gone and they aren’t coming back.
Tourism in general in Hawaii is past its golden years, sort of like when Acapulco was THE place to go in Mexico. Alaska will get some widebodies the can use to Alaska in the summer and Hawaii in the winter. Hawaiian will shift corporate overhead to the mainland where they won’t be paying Hawaii wages to clerks against WN’s Texas workforce.
That’s it. If HA doesn’t get bought by AS, or perhaps UA at a bargain price, they have no long term future,