Why An Alaska & American Merger Makes Sense, But Probably Won’t Happen

I know that airline mergers are insanely unpopular with consumers, and arguably they often end up being counterproductive, and bad business decisions.

Personally, I don’t think all mergers are bad, especially due to how airlines in the United States are essentially subsidized by their loyalty programs. As I see it, the goal should be to have as much competition as possible among airlines with robust loyalty programs, since those are the airlines that can actually “afford” to compete efficiently (meaning they don’t need to make that much money transporting passengers, since they can generate billions from their loyalty programs).

Along those lines, while so much merger talk in recent times has involved United, JetBlue, etc., I’d like to lay out the case for what I think the most obvious and logical merger would be.

American needs Alaska, Alaska could use American

As I see it, the case for an American and Alaska merger is pretty straightforward:

• American is in a rut on so many levels, as it has fallen behind Delta and United; in terms of network, one of its biggest issues is not having a lucrative West Coast hub — Los Angeles (LAX) is a market American can’t win — and having access to Seattle (SEA) as a transpacific gateway would be huge, and allow American to again compete
• With Alaska having merged with Hawaiian, it’s questionable how profitable that deal will end up being, as Alaska goes from a really well-run niche carrier, to one that’s trying to figure out its strategy, especially given how unprofitable Hawaiian has become in recent years; we’ve seen Alaska axe all kinds of long haul Hawaiian services, though one wonders to what extent the airline will be able to make Hawaiian operations profitable, and also, how profitable the carrier’s long haul network out of Seattle will be

Strategically, the most important point here is that American’s senior, legacy management, can be allowed nowhere near this new airline. Let American actually be run like an airline that wants to win. I think one other noteworthy point here is that Nat Pieper, American’s Chief Commercial Officer, spent years at Alaska before moving to American (with a brief stint at oneworld), so surely he sees the merit to this, as he realizes what a mess American is in.

Keep in mind that Alaska and American already both belong to the oneworld alliance, and on top of that, have a strategic partnership. Alaska is even trying to join American’s long haul joint ventures, which would allow the airlines to coordinate fares, schedules, etc.

Would such a deal be good for consumers, get approval?

Let me of course acknowledge that some people are probably yelling at their consumers “WTF is wrong with you to want to ruin Alaska in this way?” I hear you. As I see it, the goal here would be to have Alaska be the dominant airline, and take its corporate culture and passenger experience globally, rather than just having American swallow up Alaska.

Am I saying that customers should 100% be rooting for this merger? No, I wouldn’t go that far. But I’d actually argue there is a lot of consumer upside here:

• If Alaska and American are already partnering closely, and if Alaska were to join the oneworld long haul joint ventures, there wouldn’t be many competitive implications here; there is very little meaningful overlap between the networks of Alaska and American, at least in a way that would impact the competitive dynamics
• If the airlines merged, Seattle definitely wouldn’t lose any of its importance, since it’s such a strong hub for the airline, and it could be such a powerful transpacific gateway
• I get concerns about passenger experience and corporate culture, but Alaska has done an amazing job with both soft product and loyalty, and expanding that to American would be good for consumers

Now, let me of course emphasize that the absolute worst case scenario would be for the airlines to merge and to still have Robert Isom as CEO. That would be a disaster, and we’d go from having one rudderless airline, to two rudderless airlines. But with competent management, I think this is actually part of a larger, logical turnaround plan.

As far as getting regulatory approval goes, that depends entirely on who is in the White House, and how this is pitched. I mean, I’ll admit this is the major roadblock. Regulatory approval for airline mergers is a major PITA, and often the concessions required make the deals even more questionable:

• Beyond federal approval, states can also challenge mergers, and that can make this a serious headache
• The standards used for merger approvals vary so wildly; JetBlue and Spirit were blocked for violating the Sherman Act, while Alaska and Hawaiian weren’t blocked, even though Alaska has slowly been cutting Hawaiian’s long haul network, and shifting it to Seattle
• Corporate culture of a company aside (which is important, but generally not a key consideration for anti-trust rulings), I think it’s hard to argue that this would be bad for consumers, given their current lack of network overlap, plus the fact that they already partner

Anyway, I could go on and on, but I do think that this is the most logical merger we could see among the six largest US carriers at the moment. Now feel free to come at me with your pitchforks…

Bottom line

I tend to think that among the “big six” US carriers, a merger between American and Alaska is the most logical, at this point. The airlines already partner, and have very complementary networks. As I see it, the deal would have to be that Alaska management (or Nat Pieper) take over, and that Alaska is essentially taken globally, rather than American swallowing up Alaska.

For American to actually compete in the long run, it needs a transpacific hub, and being third place in Los Angeles just isn’t a winning strategy. Seattle, meanwhile, offers the most geographic upside, and I feel like there’s a lot more that could be unleashed if the two airlines worked more closely together.

With Nat Pieper now heading up American’s commercial strategy, I’ve gotta imagine that this is something that is on his radar, given that he previously worked at Alaska. Could this be one of the explanations for why American management is suddenly sucking up to Trump?

So, how much do you disagree with me about the merits of an American and Alaska merger? 😉