Alaska-Hawaiian Airlines Merger: DOJ’s Ruling Expected Today – Potential Concessions Revealed

by Gary Leff on August 19, 2024

Unless there’s another extension, we’ll learn today whether the Department of Justice signs off on an Alaska Airlines – Hawaiian Airlines merger, or files suit against it. The parties have been negotiating feverishly over conditions that Alaska would agree to in order to avoid government opposition. And there’s some suggestion now about what concessions may be demanded.

The Biden administration has opposed most business combinations. They’ve had mixed success at best – except in the airline industry. They won verdicts against the JetBlue partnership with American Airlines and against JetBlue’s acquisition of Spirit, leaving the New York market less competitive and ultra-low cost carrier Spirit Airlines on the brink of collapse.

• The deal doesn’t create monopoly or consolidation on inter-island flights within Hawaii, though many observers expect Alaska to reduce seat capacity on these frequently money-losing routes (though Hawaiian outperforms Southwest flying between the islands). These are brutal routes with low fares, and Alaska might offer fewer seats on regional jets which could lower costs and boost fares.
• It would create some consolidation between the mainland and Hawaii, but these are highly competitive routes. United, American and Delta all are big players here as well.
• There’s been no clamoring of opposition to the deal. Hawaiian politicians have been supportive. Unions haven’t been outraged.

All this suggests that a deal should be possible, notwithstanding that the Biden administration has opposed most forms of consolidation and cooperation (successfully in the airline industry, less so outside of it).

While it’s unclear what a deal could look like that allows Alaska Airlines to move forward with its acquisition of Hawaiian without DOJ opposition, I suggested two possibilities directly related to the acquisition.

• Route guarantees. Alaska could agree to maintain existing flying between the islands for a certain period of time, or not to drop capacity for a period of time where Hawaiian and Alaska currently compete.
• Gate space in Honolulu. They could be forced to give up some of their prime real estate to foster competition.

And I offered two potential, unrelated remedies that DOJ could seek.

• Gates and slots at other congested airports. There’s no reason that remediation has to come in the form of routes or assets directly implicated by the merger. When US Airways wanted approval of its deal to acquire American one of the things it gave up was gate space at Dallas Love Field (ironically to Virgin America, since acquired by Alaska, though partially now utilized by Delta rather than a small low cost airline).

  Alaska’s assets in this regard are limited – beyond-perimeter slots at Washington’s National airport, some slots at New York JFK, but they could be asked to give up prime real estate in Seattle or San Francisco (for instance).

• The West Coast Alliance Alaska partners with American Airlines, DOJ could be asking Alaska to choose – Hawaiian or American. Dropping American Airlines codesharing wouldn’t be especially impactful to passengers. While status members would miss reciprocal upgrades, as long as Alaska remains in oneworld most of the benefits for customers would remain. And American hasn’t really taken advantage of the partnership – they haven’t built up the Pacific hub in Seattle they had planned.

Beat of Hawaii suggests that the two items under discussion are, in fact, the two directly-related items that I offered.

DOJ might impose conditions on the merger, such as a commitment to maintain current seat capacities and flight frequencies on interisland routes for a certain period, possibly for up to a decade. This would ensure that Alaska Airlines does not reduce service levels, which could lead to increased pricing and diminished accessibility for Hawaii’s residents.

…DOJ could require Alaska to relinquish some of its control over key airports like Honolulu (HNL) and Seattle (SEA) to prevent anti-competitive behavior. To us, that appears a less likely concern than the interisland issue.

Hawaiian shareholders are on edge – the deal gets them a huge premium, and share price will likely drop markedly if DOJ files suit. The airline is on shakier ground than the largest carriers.

Alaska is overpaying for relatively limited assets, but gains widebodies and some experience in transpacific flying.

HawaiianMiles members will see their miles become much more valuable, assuming an almost inevitable 1:1 conversion into Alaska’s Mileage Plan. But there might be some needed consolidation along the way, as well as presaging Alaska’s expansion into long haul, as long as DOJ doesn’t kill this like they killed competition in the Northeast and the ultra-low cost carrier market.

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