Alaska Air Group has agreed to acquire Hawaiian Airlines for $1.9 billion, expanding the fifth largest U.S. airline into a combined organization that plans to maintain both brands.
The $18 per share cash deal has been approved by both airline boards and will still face regulatory approvals as well as a vote from Hawaiian Holdings, Inc. shareholders.
“With this acquisition, Alaska adds another Top 25 U.S. market to our network, making Honolulu our second largest hub,” said Alaska CEO Ben Minicucci during a Dec. 3 investor call. “We’ve become the clear leader in the $8 billion Hawaii market, unlocking hub economics and one of the most globally attractive leisure markets with a proven long-term track record of profitability ... While we do not view this combination as an imperative for the continued success of Alaska, we do see this as a unique opportunity at this moment in time to accelerate and enhance the strategy that we’ve been deliberately cultivating over the past several years.”
The carriers offer a combined 336 domestic and international routes in December and, together, could offer greater international connectivity throughout the Asia-Pacific region with Honolulu as a key gateway. Their cumulative in-service fleet numbers 276, according to the Aviation Week Network Fleet Discovery database, with 83 aircraft remaining on order for Alaska, and 12 for Hawaiian.
The deal comes amidst heightened scrutiny on industry consolidation under the Biden administration. An antitrust trial challenging the merger of Spirit Airlines and JetBlue Airways is set to soon wrap up in federal court. The U.S. Justice Department (DOJ) filed suit to block the East Coast combination eight months after the two airlines announced their intent to merge, describing Spirit and JetBlue as “two of the most significant rivals today,” and contending that a merger would have anticompetitive effects on more than 150 routes.
Alaska has yet to speak with the government about its own deal, Minicucci told investors, but he expressed confidence in its uniqueness, noting that of about 1,400 flights a day, the combined network would have just 12 overlap markets. “There’s no relationship between what we’re doing and what’s happening with Spirit and JetBlue,” Minicucci said. “And frankly, we’re not even watching it that closely. We’re focused on Alaska’s long-term future … this transaction had no bearing on what was happening there.”
Should its acquisition of Hawaiian go through, it would be Alaska’s second in less than a decade after acquiring Virgin America in 2016. Minicucci attributed the timing of the Hawaiian plan as coming down to opportunity, and a fair price. Alaska CFO Shane Tackett said the deal represents “one of the most attractive valuations in the last 20 years of airline mergers.”
Minicucci told investors the combination was an opportunity the airline had “looked at for a while” and would create a stronger competitor to network carriers. Cumulatively, the Big Four have a domestic market share of approximately 67.7% while Hawaiian has a 1.8% share, and Alaska has 6.4%, according to data from the Bureau of Transportation Statistics for September 2022-August 2023.
“As each of the Big 4 offer wide-ranging service to/from Hawaii and the Big 3 to the Asia-Pacific region, this combination will best compete with them, given their market positions up and down the California Corridor and in the Mountain and Southwest regions of the U.S.,” says William Swelbar, chief industry analyst at Swelbar-Zhong Consultancy, in discussing the combination against historical context. “This reminds me of the thinking in the 1980s when airlines were merging with direct competitors to build large market share positions in hub cities throughout the U.S. to better compete with large incumbent carriers at the time of deregulation.”
Hawaiian, Post-Pandemic
Hawaiian, a carrier with nearly 95 years of history, has struggled to turn a post-pandemic profit, facing familiar constraints including engine-related groundings, as well as increased competition from Southwest Airlines on the domestic front. It reported a net loss of $48.7 million for the third quarter, widened from a net loss of $9.3 million in the year-ago quarter. Hawaiian CEO Peter Ingram said the merger had been approved with unanimous support from the board and would provide the scale and resources necessary to accelerate investments in guest experience and technology while also preserving the Hawaiian brand. Minicucci called the transaction’s projected returns compelling from both a financial and strategic standpoint.
“Simply put we are acquiring a hub in a premium global leisure market that has the potential to approach Seattle in size, at a valuation that is amongst the best achieved over the past 20 years of airline M&A,” said Minicucci. “We see a fantastic opportunity to add this highly complementary business to drive at least $235 million in identified synergies, which we believe has significantly more upside. And with many of the same leaders in place that managed the effective execution of the Virgin America acquisition, our team is bringing experience, a pragmatic attitude, lessons learned, and a proven playbook to drive another successful integration following a closing process that we expect may take 12 to 18 months.”
Should the merger be terminated for specified circumstances outlined in the agreement, Hawaiian will be required to pay Alaska a termination fee of $39.6 million. Should it be terminated due to lack of shareholder support, Hawaiian will reimburse Alaska for up to $25 million in out-of-pocket costs and expenses incurred by Alaska in connection with merger-related transactions. Approval by Hawaiian shareholders is expected to be sought in the 2024 first quarter. Conversely, if Alaska terminates the merger under specified circumstances, it will be required to pay Hawaiian a termination fee of $100 million. The termination fees were outlined in a regulatory filing released Dec. 4.
As it stressed a commitment to maintain the separate brands, Alaska noted it would maintain and grow union-represented jobs in Hawaii, including preserving pilot, flight attendant, and maintenance bases in Honolulu and airport operations and cargo throughout the state—backing a strong operational presence with local leadership to support the combined network.
“We determined early on in our diligence process if we were to proceed with a combination, both the Alaska and Hawaiian brands would remain,” said Minicucci. “The operations of the companies will be combined, but both brands will continue to fly proudly and serve guests throughout our network ... both Alaska and Hawaiian have built significant legacies in our respective geographies, and with guests for over 90 years. The importance of these histories and value of these brands is too great not to preserve.”
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