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.
Bottom line
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?
Acquiring them could work if they maintain their operations and look as if they are independent but they have access to a larger network.
Per the Bureau of Transportation Statistics (https://transtats.bts.gov/) Alaska is #5 in domestic market share with 6.4% and Hawaiian is #10 with 1.8%. Combining will give them 8.2% and still be #5 with less than half the market share of any of the Big 4 that each have more than 16%.
The current FTC has never met a merger they like, so I am sure they will try to block it. But it seems pretty...
Per the Bureau of Transportation Statistics (https://transtats.bts.gov/) Alaska is #5 in domestic market share with 6.4% and Hawaiian is #10 with 1.8%. Combining will give them 8.2% and still be #5 with less than half the market share of any of the Big 4 that each have more than 16%.
The current FTC has never met a merger they like, so I am sure they will try to block it. But it seems pretty obvious that the intent of the Sherman Act is not to block mergers between #5 and #10 market share companies, especially when they will be half the size of the top 4 after merging. FTC will try to claim Hawaii is its own market, but if the new combined company raised prices, is there anything stopping any of the other airlines from entering the market?
well said and reasoned, Ben.
the DOJ does have to take a look at AS/HA but it is unlikely they will find objections as they do with B6/NK for reasons you cite.
The concentration of market power from the mainland to Hawaii is offset by the fact that there are multiple carriers in the market and AS and HA do not share a common hub although they do fly some routes - alongside...
well said and reasoned, Ben.
the DOJ does have to take a look at AS/HA but it is unlikely they will find objections as they do with B6/NK for reasons you cite.
The concentration of market power from the mainland to Hawaii is offset by the fact that there are multiple carriers in the market and AS and HA do not share a common hub although they do fly some routes - alongside other carriers.
Although NK is increasingly struggling financially, HA has been struggling for a longer period of time. I'm not sure either carrier is ready to use the "failing carrier" excuse to offset some DOJ concerns but those arguments are possible.
I'd be more worried about Alaska biting off way more than it can chew financially and end up screwing itself over by trying to be too much, too soon. It's clear that Delta's encroachment into Seattle has Alaska's feathers and jimmies sufficiently ruffled.
Looking at, and being guided by the Sherman Act is one of the DOJ's responsibilities. However, it is only *part* of the equation. Common-sense would be for the DOJ to examine the Hawaii market over the past 20-25 years to see how it has changed. And boy, hasn't it changed dramatically.
2000 and thereabouts - HNL was an enforced refueling stopover for many international carriers flying across the Pacific. Bringing in many 'stop-over' tourists and...
Looking at, and being guided by the Sherman Act is one of the DOJ's responsibilities. However, it is only *part* of the equation. Common-sense would be for the DOJ to examine the Hawaii market over the past 20-25 years to see how it has changed. And boy, hasn't it changed dramatically.
2000 and thereabouts - HNL was an enforced refueling stopover for many international carriers flying across the Pacific. Bringing in many 'stop-over' tourists and revenue. The islands had two reasonably successful resident carriers (Hawaiian and Aloha) which had the domestic market to themselves. Unfortunately, the Asian Financial crisis, 9/11, the development of the B747-300 eroded much of that success. As international carriers began over-flying HNL, passenger numbers decreased, along with revenue. HNL no longer operated as a transit stop from Australia, Japan, Hong Kong etc to the mainland.
Regrettably, Aloha did not survive. Hawaiian on the other hand, chose to expand their market share by adopting international flights - something that Aloha was unable to do. Hawaiian went out and secured smaller widebody frames and began to serve much of the nearby South Pacific islands, while adding long-haul markets such as Seattle and New York city. Their network expanded accordingly, all the while operating as 'value' (but not LCC) carrier.
These changes have been significant and have had a far higher impact on the Hawaiian islands, compared to markets/hubs dropped by the majors : think Delta with their shrinkage from DFW and the North East, UAL and their retreat to EWR from JFK and LGA.
Then, Southwest (among a few smaller competitors) saw fit to throw their hat into the HNL ring. Hawaiian is a small carrier which hasn't been able to wield the same heft as AA or UA, in regard to slots for new aircraft - and sadly, their orders for widebodies have been affected by COVID and and the consequent backlog of Airbus and Boeing. I believe that the DOJ needs to put its glasses on and consider this market as a specific consideration, rather than as the mainland acquisition by Alaska.
The true reality of this would be that the Hawaiian market (and population) would benefit from partnering with Alaska. And Alaska - by dent of this acquisition - could grow to join the top 3 legacies. The alternatives of Chapter 11 reorganization or having AA / UA / DL swoop in and take over - are not appealing. This market is quite different in needs and wants to those carriers on the mainland.
While everyone and his dog operate Australia-LAX, SFO (QF, AA, UA, DL, NZ, only HA and FJ operates via HNL on their own metal. It is a respected carrier in both Australia and New Zealand - an has done well to expand their market. I also think that Hawaiian's biggest challenge is its low capitalisation, rather than the prospect of bankruptcy. The additional B787's they have on order and for delivery will only help them grow. These issues also need to be taken into consideration IMHO.
Good analysis @kimshep! I agree!
lol, not sure why it lists me as "guest". This comments thread plugin leaves a lot to be desired...
I don't think the DOJ will stop it. But they need to impose certain binding conditions on the merger. Chiefly, Alaska should not be allowed to dump the A321neos prematurely the same way they did with Virgin's A320neos. Granted they will likely think twice now given how much they probably regret dumping those A320neos prematurely with their "PrOuDlY B0e1Ng" slogan which came back to bite them.
Tell us you have no idea how Alaska operates, without saying you have no idea how Alaska operates.
The inter island flights offered by Southwest hardly “compete” with Hawaiian. While they’ve brought costs down, the Southwest flights are both infrequent and inferior as they arrive/depart from Terminal 2 in Honolulu. Tourists may take them, but residents mostly fly Hawaiian still. Give me a 717 over a Max any day.
They don’t make the 717 anymore, the airframes are soon to be timed out, and even old parts are becoming hard to find. Can’t disagree on your Max comment, but the 717’s days are numbered.
Hopefully this merger goes through. All the Hawaiian miles I have banked will become more useful if they merge into the Alaskan miles program.
Yeah, the Jetblue situation is very different. I suspect by most accounts, Hawaiian is jetting toward bankruptcy. Alaska has a very strong argument that there is no realistic version of Hawaiian maintaining as a standalone company. So despite the numerous hesitations that the Feds will likely express in various ways (possibly even suing), the options are really the merger or Hawaiian likely gets sold for parts - I can't imagine some equity firm or anyone...
Yeah, the Jetblue situation is very different. I suspect by most accounts, Hawaiian is jetting toward bankruptcy. Alaska has a very strong argument that there is no realistic version of Hawaiian maintaining as a standalone company. So despite the numerous hesitations that the Feds will likely express in various ways (possibly even suing), the options are really the merger or Hawaiian likely gets sold for parts - I can't imagine some equity firm or anyone else stepping in to acquire with their current debt and the Feds establishing that a merger is out of the question. Alaska may not be best at keeping it's word, but if Hawaiian completely dissolves, that would be absolutely devastating to Hawaiian consumers. I feel far more confident this merger will happen in some form, despite any half-attempted opposition.
I could not have said it better.
You think the government is being too aggressive by fighting the Jet Blue Spirit merger?
I mean, Jet Blue is specifically trying to buy a competitor so they can not merge with Frontier to be a strong LCC that keeps prices down across the country. I would certainly hope the government would fight that, as the US has quite high costs for airline tickets and needs stronger competition at the lower end of the market.