Alaska Airlines Is Buying Hawaiian Airlines. Ok For Customers But A Kind Of Dumb Deal?

Alaska Airlines has announced a deal to buy Hawaiian Airlines for $1 billion cash and assumption of $900 million in Hawaiian Airlines debt. They will keep the two separate brands, though combine their loyalty programs. The deal is expected to close in 12-18 months, subject to approval of Hawaiian’s shareholders and making it through anti-trust review.

To the extent that any merger ever has customer upside, this one probably does, but it presents real operational challenges and only modest benefits for Alaska. And it may face opposition from the Biden administration.

What Is Alaska Airlines Getting?

Hawaiian Airlines has been a money-losing airline, even when other U.S. airlines have been making money. There are basically two reasons for this.

  1. The intra-island market is brutal. Southwest has brought a ton of capacity, lowering fares. It’s not a place to make money anyway, in fact at one point the Department of Transportation recognized this allowing Hawaiian Airlines to enter a joint venture with intra-island carrier Aloha Airlines.
  2. Asia Pacific opened late. Flying to Japan and South Korea was a money-loser, while other U.S. airlines made money flying to Europe.

Unable to do profitable Pacific flying, Hawaiian experimented with new domestic mainland flights which weren’t making money either. However Asia should do better going forward.

Hawaiian doesn’t have a big presence in markets Alaska cannot enter on its own. They don’t have an overlapping fleet. They’re buying this airline for less than $2 billion including assumption of debt because there isn’t that much there.

It’s clear why Hawaiian would do this. They haven’t seen profitability in some time. But for Alaska, they can afford the deal, but what they get is fairly limited. By the way the entire population of Hawaii is only about 1.5 million people. While Alaska may rationalize some of the combined operations (“$235 million of expected run-rate synergies”), they plan to maintain both brands which will limit the savings. The integration will be costly, and the combined airline far more complex given new research into the Pacific for Alaska.

Competitive Dynamics

According to Cirium schedule data, Hawaiian Airlines is operating 47 routes this month.

Hawaiian operates 28 mainland – Hawaii routes. Alaska Airlines serves 12 of those routes. That’s overlap on 43% of Hawaiian’s mainland – Hawaii routes, and overlap on 25% of Hawaiian’s total route network.

This month Alaska Airlines is operating 828 flights between the U.S. mainland and Hawaii, compared to 888 for Hawaiian. Only United comes closer to Hawaiian with 840 flights. and United actually flies more seats to Hawaii than Hawaiian does. Combined the two airlines would be by a wide margin the largest between the mainland and Hawaii.

Airline Flights Seats ASMs
AA 483 100,298 295,694,790
AS 828 144,306 375,062,226
DL 526 111,139 349,027,855
HA 888 211,887 582,103,778
UA 840 214,831 637,030,377
WN 684 119,700 304,727,675
TOTAL 4,249 902,161 2,543,646,701

That said, Hawaiian simply doesn’t operate to congested airports that Alaska cannot serve without them, or where other airlines cannot add service should the combined carrier pull back or raise fares.

In other words, there’s a simple concentration case that the Department of Justice is likely to look at and perhaps make. But there’s not really any risk of market dominance. Put another way, recent behavior suggests that this is the kind of deal that the Biden administration might seek to block that but that other administrations (such as a past Obama administration) would not.

Fleet

Alaska just got rid of its Virgin America Airbus planes. Hawaiian Airlines operates both Airbus narrowbodies (A321neos) and widebodies (A330s) though they are taking delivery of Boeing 787-9s.

Maybe they shouldn’t have unloaded their Airbus fleet after all? Suddenly they no longer see the benefit of a simplified fleet. At least they should have a smooth pilot union integration, with same-union representation.


Hawaiian Airlines Airbus A330 Business Class

An Introduction To Asia Pacific

The only thing of real value that Alaska seems to be buying here is a Pacific route network. They do not currently have the fleet or local stations (or even traffic rights, though they could obtain those) to service places where Hawaiian is already well-established.

In addition to flights between Hawaii and the U.S. mainland, and intra-island Hawaii, Hawaiian Airlines serves:

  • Auckland and Sydney
  • Fukuoka, Tokyo Haneda and Narita, and Osaka in Japan
  • Seoul
  • Papeete, Pago Pago, and Raratonga

What This Means For Customers

Hawaiian Airlines HawaiianMiles isn’t a very good program. Mileage Plan is better. However the one unique benefit of Hawaiian’s program is that confirmed upgrades for double miles are available more often than not. I’ve taken advantage of 25% transfer promotions to use expanded availability of upgrades, moving 40,000 bank points over to Hawaiian to upgrade $300 flights to business class.

There will be more Hawaii award space for Mileage Plan and oneworld frequent flyer members, and presumably more ways to get to Hawaiian’s Pacific destinations. That’s largely good. Alaska runs a good airline. And transitioning HawaiianMiles members to Mileage Plan is largely though not entirely a positive. From a service perspective as well this merger presents few concerns.

However Hawaiian has been a money-loser and cleaning up some of the money-losing routes might not be to the liking of all of Hawaiian’s customers.

Merger Bottom Line

For Mileage Plan and oneworld frequent flyers this is great. For Hawaiian customers this should be fine-to-positive. It’s Alaska shareholders that may not benefit from the merger integration costs in order to swallow an unprofitable airline. Although perhaps the biggest beneficiaries will be the transaction and anti-trust lawyers whose billable hours will be immeasurable.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Aren’t the A330’s being replaced anyway?

    And I doubt Alaska will have a problem off loading the 321 neo’s at favorable deals to other carriers that are waiting for 32X’s.

    My guess is that Boeing and Alaska have a vested interest in staying “all boeing”. And they might give Alaska a good deal on more MAX 9/10’s to get rid of the 321’s.

  2. Gary as a G100k and a Hawaiian PUALANI platinum I can tell you that Hawaiian has a great product and inept management and tech from the AOL days. Alaska is getting a steal at $18 a share. Simply updating systems and management will make this a home run

  3. @ Gary — Wasn’t expecting this news. Seems odd, but I guess welcome?? I love Alaska Airlines, so I suppose this should be a good thing for customers.

  4. So they’ll be acquiring a TON of debt and just about every type of airplane EXCEPT the 737…..seems like a great proposition.

  5. IN a package deal, Delta could take the 717s, A330s and A321NEOs
    AS could start SEA longhaul service with the 787

  6. The real loser out of this IMO is B6. Rather than getting into a bidding war, overpaying, and facing serious anti-trust headwinds, they could have purchased an airline which runs the same planes they do, opens a new market for them, and has a rewards program that would have been easy to integrate. Plus they probably wouldn’t have been forced to abandon their AA partnership! AS will benefit simply by being able to shift many of their 737s to new domestic markets while letting HA continue their current routes but with less competition and thus higher fares. It’s an ok pickup for them, but it would have been a phenomenal one for B6.

  7. Perhaps the impetus to short term fend off a potential takeover and long term to leverage flights from HNL to Asia into nonstops from the west coast using long thin routes resulting a network that like what UA has now. If management has aspirations to run with the big dogs, that’s a way to do it. Or die trying.

  8. The lawyers working the deal side and the lawyers working the antitrust concerns will have billable hours that will be anything but immeasurable since they will want to stick all of those billable hours onto clients and/or have to assign their work to client/billing codes to get internal credit as well as to maximize income generated from legal work undertaken as part of this transaction and getting it across the finish line. They won’t leave money on the table, if they can help it. Their bonuses and revenue split count on measuring all of it as much as they can.

  9. I like the idea of Alaska getting access to some lay flat seats for long haul. It will be interesting how they use these airlines to compliment each other. This may also be attractive if they can set up long layovers in Hawaii on Transpacific routes. I think it’s a steal for what they are paying. we’ll see if it can survive Bidenomics in an election year.

  10. Thanks! For LAX fliers good news since AS killed many if their nonstops like LAX-LIH. Pled HA has lie flats LAX-HNL, I think they are the only ones.

    Can you link to one of your posts talking more about double miles for guaranteed upgrades on HA?

    If you don’t have one, can you write one?

  11. Finally, DL can invent an excuse to close its bleeding SEA hub and not admit they fumbled in their SEA strategy! 😛

  12. Buying Hawaiian increases the chance that Alaska can survive long term and other airlines not allowed to acquire Alaska.

    Hawaiian doesn’t offer Alaska too much but then the price is not that high. It will be a less risky way for Alaska to get 787’s and fly them from Seattle. They can start with only one aircraft and one flight a day while an Alaska-alone airline wouldn’t start out so limited with a new aircraft.

    In the long run, the Hawaiian name may be better because it already has some name exposure in the Pacific and Japan. The Hawaiian name can also attract some passengers to Hawaii in a way that the Alaska name doesn’t attract too many passengers in the Continental US to fly to Anchorage.

  13. The story here is the value you can create by swapping out one loyalty program for another. My guess is that they see substantial accretive value and then the downside is that Alaska has to run more airline to get it. This is also a bet that the Durbin legislation on interchange fees does not pass.

  14. The only regulatory push back I can foresee is at the state level in AS & HI. Too many remote communities in both states rely on air connectivity for essential needs. Legislators in both states are going to demand covenants many of these communities are served no matter what economic conditions exist.

  15. A thought – this article is written from a pretty US-centric perspective (understandably, of course). But, is there a sizeable market of customers ex-Asia / Australia / New Zealand flying to the PNW / AK that could be served either directly (e.g. NRT-ANC) or through HNL? I’m thinking of Japanese visitors interested in Alaska or the Australians that populate the BC ski resorts in the winter.

  16. @Gary. There’s a true fleet benefit here in that some of the west coast to Hawaii flights don’t need a true business class. Those planes would be extremely useful to Alaska on their transcon routes, where they are currently uncompetitive with the majors.

  17. Gene says:
    December 3, 2023 at 6:10 pm
    @ KS — Delta never makes bad decisions. Only non-premium arilines make such errors.

    remind me how many times DL started *then* killed SEA-KIX ? 3 times ?? Either the re-re-starting up was the mistake or the re-re-cancelling of it was the mistake. You can’t have it both ways.

  18. Wow, didn’t see this one coming!…

    Although I think a merger with B6 would have been better, I support this, as the industry needs further consolidation. I’ve come to view the airline industry as a natural oligopoly due to its high barriers-of-entry and the enormous requirements for economy-of-scale.

    I do think that the merger business plan should envision a merging of brands as well. And honestly at the end of the day, Hawaiian has a more appealing ring than Alaska. And AS isn’t based in Alaska anyway.

  19. Henry LAX et al,
    DL has added and dropped multiple Japanese routes for the same reason that UA petitioned the DOT to move its IAH-NRT route to HND (despite the fact that they went ape crazy) when DL asked to move a route….
    and the reason is because actual arrivals from Japan to the US are heavily dependent on the value of the Yen to the USD and the Yen is very weak right now, just as it has been in the past.
    Actual arrivals from Japan – not what UA carries in connecting traffic via Tokyo – is down more than 20% – one of the biggest declines of any country in the world other than China – whose government has disregarded the treaty it agreed to with the US for air service.
    and the same thing has happened over and over for years.

    It’s funny how fixated a few people are with DL’s failure in SEA considering how significant this deal is – but it shows that even the kids on a.net can stay more focused on the topic.

    They will also be disappointed that DL is going nowhere in SEA.
    In fact, where is this vaunted SEA hub that AA was going to build w/ AS?

  20. Hawaiian was very profitable before Covid…. Inter island fare wars hurt, but HA has a 30% higher load factor then SWA and is getting a 40% higher yield on the tickets they sell…plus twice as many flights as SWA. Prices are normalizing. It’s not inter island that is hurting.
    The big hurt for HA has been Japan being so slow to recover, flights were mostly empty till a few months ago. Japan was HA’s most profitable sector …Alaska stands to be a premium Transpac airline with this deal. Both airlines have a very good product. HNL will be Alaska’s second largest hub with tremendous potential for future growth…..very smart way for Alaska to grow, they’re gonna own the Hawaii market and be a major player to Asia.

  21. Since I have flights on both Hawaiian and Alaska coming up, I like the idea of a partnership. The Plumeria Lounge and Premier Club should be included with Alaska Lounge membership, or at least with Lounge+. Hawaiian’s tenuous linkup with United has never benefitted me but I hope JAL, Korean Air and Hawaiian’s other partners allow us to use Alaska miles more easily for more TPAC flights.

  22. I would assume that Alaska’s acquisition of Hawaiian won’t get in the way of a potential attempt for AS to get hitched with JetBlue carrier down the road.

  23. Wow, I will miss the Hawaiian service now on HA. With these mergers, this specialized on board service will probably be eaten up.

  24. From a non-USA view, how will the Asian rim (Japan, Australia, New Zealand, & Korea) react to an airline named Alaska (land of the frozen tundra and an oil pipeline) react.
    Hawaii means tropical breezes, black sand beaches, an occasional volcano eruption, and the ghost of Don Ho.
    Don’t want to scare off these holiday seekers.

  25. I like the idea of a “big” airline which calls Hawaii home. Alaska should sell Hawaiian’s Airbus fleet and focus on buying Dreamliners. Imagine nonstop flights from JFK to Maui, Reagan National to Honolulu, and dare I say something to/from China?

    The problem with this strategy is that they need lounges to compete at these outposts, so the path of least resistance is using AA hubs.

  26. Just flew rt from HNL to SEA. The Hawaiian Air terminal in HNL is a real coup for AK. Way nicer and roomier than any other terminal in Hawaii. Alaska will be extremely well positioned to benefit from its position of what will now be a very strong hub in Hawaii. According to the news, AK will keep the Hawaiian Air name. It will be one airline on a single operating certificate with merged seniority lists but use the Hawaiian Air name on the Hawaii flights. Smart move…… Hawaiian has strong brand recognition and is a great marketing tool for expanding transpac flights.

  27. @ exitrowseat….my post addressed what you sad….the joint news conference from the two CEO’s yesterday was quite clear that the Hawaiian Air name and their Hawaii expertise would not be squandered.
    I’ve always thought that the reason that Hawaiian Air is the only airline to survive deregulation intact (every airline that existed when the Deregulation Act was signed either merged to survive in it’s present form or disappeared, everyone but Hawaiian) was because the Hawaiian Air name is too much of what they are worth, paint another name on the side of their planes and you lose a huge marketing tool…..seems Alaska knows that and there will be two airlines operating as one going forward.

  28. Whoops, said, not sad….this merger is certainly not sad!….. potentially the best possible combination of Hawaiian’s marketing strengths being enhanced by Alaska’s expertise and strengths to really grow in the Pacific Rim

  29. This article misses the point entirely. Alaska is likely buying Hawaiian now precisely because its loosing money. If you read any other article on the subject, you can see the acquisition price is 0.7 times the revenue vs the industry average valuation multiple of 1.7. Hawaiian is also likely unprofitable due to short-term events – airbus engine recall, maui wildfires and fuel costs. Alaska’s statement

    “The deal is expected to generate high single-digit earnings gains for Alaska Airlines within the first two years with no material impact on long-term balance sheet metrics, the company said.”

    Implies this is a home run – very few acquisition opportunities with this little risk in the airline industry….

  30. Not sure how any ‘merger’ (elimination) is ever positive for consumers or employees. They’ll eliminate overlapping routes of course (kinda makes sense from a business perspective really) which will decrease service and increase prices. They’ll eventually kill the brand even though they would promise or pledge not to. Basically, they’ll just eliminate Hawaiian all together.

    So when is enough enough? The jetblue elimination of Spirit should not be allowed and neither should this be. It’s a matter of time until Frontier makes a go at Alegiant.

  31. Pat: The runway at Washington National Airport is far too short for a 787 trying to fly nonstop from there to Honolulu. Perhaps you are thinking about Washington Dulles International Airport (which also should have that name dropped; like Ronald Reagan, John Foster Dulles was no saint either).

    We have flown on Hawaiian Airlines. The Airbus A330 is a very quiet and pleasant airplane, especially for couples as the 2-4-2 seating means no third person, a stranger, with us. And no one is more than one “excuse me” from the aisle. But Alaska is totally in bed with Boeing and things do not look good for that fleet.

  32. Thankfully CHADMC is not in charge of approving this merger. Biden will be gone in 2024 and if DT or another GOP is the next POTUS than this merger will be approved. This is good for AK in keeping other hostile bid takeovers from happening.

  33. @Gary, with all due respect, wouldn’t AK stock dropping the very next day be indicative of a lot of people that are making a call without really knowing what’s going on? Early days on this deal. Here in Hawaii the reaction by most, from the Governor, to the local business leaders interviewed, the leading Hawaii based airline analyst, even the local Business news reporters are all cautiously optimistic (some very bullish on this). Saw another blog that called this a match made in Heaven… Hawaiian has a lot of great strengths and experience in the market not to mention great name recognition. But combining with Alaska, shedding debt and the expertise AK brings in areas HA is lacking (read fix their technology and call center issues!) not to mention shedding 900 mil of debt makes for a very strong position in Hawaii for Alaska/Hawaiian to grow throughout the Pacific Rim is my take. Hawaiian and Alaska are two very high quality products

  34. and can’t stress enough how the centerpiece for the joint announcement by the CEO’s was pretty clear that keeping the Hawaiian brand is crucial to the success of this…I know I know CEO’s lie and some will say I’m naive for believing them, but they were quite convincing. They understood what Hawaiian means to Hawaii and the people that live here. The name recognition is not something to be squandered.

  35. to @Freds point…All of HA’s losses are a result of a perfect storm of Covid, the Runway 8L closure, flying to Japan with empty airplanes till about 6 months ago, the NEO issues, their technology issues, the Lahaina fire, SWA’s $39 intro fares to try and get established in the market….. all are not issues going forward. Getting rid of the 900 million debt that resulted from 2019 on means AK starts with a fresh slate and tremendous potential in Hawaii with a very strong brand name to support it

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