An Alaska Airlines plane flies past the U.S. Capitol before landing at Reagan National Airport in Arlington, Virginia, U.S., January 24, 2022.
Joshua Roberts | Reuters
Alaska Air GroupCompany executives worked for months on the plan to buy rivals Hawaiian Airlines. Airlines leaders will now spend much more money trying to convince regulators to allow the takeover.
It could be the latest in a series of challenges President Joe Biden's Justice Department has filed against aviation deals it considers anticompetitive.
The $1.9 billion cash and debt deal, announced Sunday, comes less than a year after the Justice Department filed a lawsuit to block a new deal: JetBlue Airways'$3.8 billion cash acquisition of budget airline Spirit Airlines. The Justice Department argued that Spirit's purchase would harm consumers in the form of higher fares if the budget carrier were absorbed by JetBlue. Earlier this year, the Department of Justice successfully severed JetBlue's partnership with JetBlue US airlines in the northeastern US.
In both that limited alliance and the Spirit acquisition, JetBlue argued it needed to work together to better compete with larger rivals and grow amid a shortage of planes and pilots.
After more than ten years of airline mergers, four airlines remain: American, Delta, Southwest And United – control over approximately 80% of US aviation capacity. According to data from Cirium, Alaska has a more than 5% share of U.S. airline capacity and Hawaiian has less than a 2% share.
The Alaska-Hawaii deal comes as Hawaiian faces a host of challenges, including the Maui wildfires, increased competition in Hawaii from the Southwest and a slower recovery of some long-haul routes to Asia.
The Alaska-Hawaiian and JetBlue-Spirit deals differ in approach, but the Alaska takeover could still face hurdles with regulators.
For example, JetBlue plans to remodel Spirit's tightly packed yellow planes to remove seats and bring more amenities on board, such as seat-back screens, while phasing out the Spirit brand and model entirely. Alaska, meanwhile, said it plans to maintain separate Hawaii and Alaska brands, two airlines that are critical to the far-flung states they serve.
That's unlike Alaska's 2016 acquisition of Virgin America, when Alaska spent years shedding Virgin's brand name and fleet of Airbus jets in favor of a streamlined Boeing airline.
The Justice Department declined to comment Monday on the Alaska-Hawaii deal, but some experts said they expect a challenge from regulators.
“The starting point is skepticism,” said William Kovacic, a professor at the George Washington School of Law and former chairman of the Federal Trade Commission.
He said the Justice Department's review of the deal will focus on where Hawaiian and Alaska compete and “examine how the two companies would have expanded their services in different ways had the merger itself not occurred.”
Executives from Alaska and Hawaii have defended their deal, citing little overlap and the opportunity to expand their reach. The airlines' CEOs said the deal will help them expand their networks, giving Alaska access to Hawaiian's network in the Asia-Pacific region and expanding Hawaiian's current reach with Alaska's network in the US.
“We believe this is unique from others pursuing combinations,” Alaska CFO Shane Tackett said in an interview with CNBC. “We have a very similar product offering and we have very limited network overlap.” He said the two airlines have about 3% overlap with seats and 12 routes.
In the Justice Department's lawsuit against the JetBlue-Spirit deal, “they're really leaning heavily on the catalytic role that Spirit in particular has, but that Spirit and JetBlue can play in the marketplace,” said Samuel Engel, a lecturer at the Boston University's Questrom School of Business. Business and senior vice president at consulting firm ICF. “I don't think anyone has ever made that argument about Alaska and Hawaii,” he added.
“That said, the attitude of this government has suggested that there are not many mergers that they would embrace,” he said.
Executives from Alaska and Hawaii said they expect the deal will take 12 to 18 months to close, a timeframe that would take it beyond next year's presidential elections and possibly lead to a new administration.
Shares of Hawaiian nearly tripled Monday to $14.22 per share, although still below the proposed purchase price. Alaska shares lost 14.2% to end the day at $34.08.