In early December 2023, plans were announced for Alaska Airlines to acquire Hawaiian Airlines in a $1.9 billion deal. Hawaiian has been struggling in recent years due to a variety of factors, while Alaska is looking to grow, and viewed this as an attractive opportunity.
When the merger was announced, one immediate question was whether this deal would face any regulatory scrutiny. After all, the Department of Justice (DOJ) under the Biden Administration has taken a very aggressive approach with trying to block consolidation. The DOJ has sued to block the merger between JetBlue Airways and Spirit Airlines, and we’re currently awaiting the outcome of that trial. So, what does that mean for Alaska and Hawaiian?
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DOJ has until February 7 to try to block Alaska & Hawaiian merger
As flagged by Aviation Week, on January 8, 2024, Alaska and Hawaiian filed a Premerger Notification and Report Form under the HSR Act with the Antitrust Division of the DOJ. This is essentially an official heads up to regulators, and their first opportunity to express any concerns.
This now requires a 30-day waiting period, which would expire on February 7, 2024. However, that could be shortened if the DOJ grants “early termination,” and it could be lengthened if the DOJ requests additional information or documents.
The implications here are that if the DOJ wants to try to block the merger between Alaska and Hawaiian, those concerns could be filed in the coming weeks. So by early February, we may have a sense of whether the DOJ intends to attempt to block this merger.
However, it’s worth noting that even at a later period, the DOJ could still issue a Second Request, if the agency isn’t able to resolve its concerns during an initial investigation period.
Will the DOJ try to stop Alaska’s takeover of Hawaiian?
Arguably in the past, regulators didn’t do enough to block industry consolidation, back when we saw the “big three” US carriers being formed through mergers. Now they seem to be going to the opposite extreme, blocking the smaller players from merging to better compete with the bigger players.
Admittedly the two mergers we’re seeing right now are very different — JetBlue’s takeover of Spirit would see an ultra low cost carrier eliminated in favor of a larger and more competitive national carrier. Meanwhile Alaska and Hawaiian have similar business models, but just have different route networks, fleets, etc.
But at the end of the day, the two deals could potentially be challenged for similar reasons, as this all comes down to proving that mergers would harm consumers under the Sherman Act. Given how the airline being taken over is so tied to a particular state, the biggest concern here would be whether consumers in Hawaii would be harmed by this takeover. This would include both the impact on the inter-island market, as well as the impact on the Hawaii to mainland market.
When it comes to inter-island flying, Hawaiian has been increasingly struggling with this in recent years, as the airline has faced competition from Southwest, which didn’t even previously fly to Hawaii. While Alaska states that it intends to maintain Hawaiian’s presence in Hawaii, how can we be sure of that? When Alaska acquired Virgin America, that was also largely about growing in California and even New York, but that hasn’t necessarily stayed a priority as time has gone on.
What about traffic between Hawaii and the mainland? Based on December 2023 traffic numbers, United had 23.5% market share, Hawaiian had 23.2% market share, and Alaska had 16.9% market share. So while neither airline is even the biggest between the mainland and Hawaii, the airlines would have around 40% market share combined.
That’s by no means a monopoly, but it does represent significant consolidation, and it means the combined airline would have nearly twice as much service between the mainland and Hawaii as the current largest carrier in the market.
It’s anyone’s guess how this plays out. Personally I think the current DOJ is zooming in a bit too far with the action it’s taking against airlines, rather than looking at the big picture. Under the best of circumstances, airlines are mildly profitable. The airline industry is highly cyclical, requires a ton of capital, and has challenging labor agreements that are hard to renegotiate. Never mind the issues we’ve seen with aircraft manufacturers. As much as airline executives try to convince investors otherwise, it’s a really lousy business.
The airlines that are in the process of being acquired are airlines that aren’t currently profitable, and that have no simple path to profitability. Sure, money losing airlines that offer value are good for consumers… until they go out of business, and then it’s a very different story.
Several weeks ago, Alaska announced its intentions to acquire Hawaiian. The airlines have now made some regulatory filings, starting the clock for the DOJ to attempt to challenge this takeover. Only time will tell how this plays out.
Common wisdom seems to be that there’s a risk of regulatory scrutiny here, but it’s less likely than the concerns over JetBlue’s takeover of Spirit. Personally I think the DOJ is being a bit too aggressive across the board here.
However, if the DOJ is going to be consistent with its attempted challenges, it does seem that there should be some concerns about this takeover as well, including the impact on consumers in Hawaii. This takeover could impact both inter-island traffic, as well as traffic between Hawaii and the mainland. Alaska and Hawaiian would have a combined roughly 40% market share.
What’s your take — do you think the DOJ will challenge Alaska’s takeover of Hawaiian?