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.
- 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.
- 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.
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.
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.
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
- 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.