Alaska Airlines has announced that it will acquire Hawaiian Airlines for $1.9 billion. The deal, which includes Alaska Airlines taking on the debt of the smaller carrier, remains subject to regulatory approval from US antitrust authorities.
The tie-up with Hawaiian would give Alaska control of more than 50% of the market for US to Hawaii flights, which is described as one of the world’s most popular tourist destinations.
Alaska Airlines has agreed to pay $18 per share, almost four times Hawaiian’s most recent market share value. The inflated offer is an indication of the beleaguered state of Hawaiian’s share price following several key issues that have adversely affected the island airline in the past year.
The Maui wildfires, high fuel costs, and ongoing engine recall issues affecting Hawaiian’s Airbus A321neo fleet have all contributed to heavy losses and a resulting 65% share price drop over the last 12 months.
The takeover move will create the fifth-largest US airline with a combined fleet of 365 aircraft. The deal creates a combined network offered by the two airlines of 138 destinations and over 1,200 destinations through Alaska Airlines’ membership of the oneworld Alliance.
Currently, Alaska Airlines operates on 311 routes, on which it competes directly with Hawaiian on just 12 (4%) of those. Therefore, the airlines complement each other pretty well. The deal also significantly strengthens the combined airlines’ dominant position on the US West Coast, where both have a strong presence at key gateway airports such as Los Angeles (LAX), San Francisco (SFO), and Seattle (SEA).
However, while the airlines’ route networks may complement each other, their fleets do not. The Alaska Airlines fleet features 229 Boeing 737s supplemented by 81 Embraer ERJ-170s operated by its partner, Horizon Air. Meanwhile, Hawaiian’s fleet consists of 18 A321neos, 21 Airbus A330-200s, plus 19 aging Boeing 717 twinjets. It also has 12 Boeing 787-9 Dreamliners on order.
The takeover will see each airline maintain its own identity but will offer passengers a single, merged loyalty program. The aims of the new partnership, according to Alaska Airlines, are “to strengthen service in Hawaii, particularly for residents with expanded Continental US access and new connections to Asia and the Pacific. Honolulu will become a strategic hub, enhancing international connectivity through Hawaii”.
“Hawaii is where people want to come to spend time and vacation and have weddings and anniversaries,” said Alaska Air CEO Ben Minicucci. “This is something that we believe will remain strong for years to come.”
The deal is bound to attract antitrust scrutiny from US authorities. US regulators are already busy challenging the proposed $3.8 billion takeover of low-cost carrier Spirit Airlines by JetBlue Airways. With 80% of the US market dominated by just four major players (American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines), authorities are taking a more stringent approach when dealing with other deals that could potentially lead to further consolidation in the marketplace.
The deal has a projected closing time of 12-18 months, but this will depend on both the obtaining of regulatory approvals and shareholder consent at both airlines.