Hawaiian Airlines says ‘Aloha’ to $1.9 billion merger with Alaska

HONOLULU — Before passengers boarded the plane from Everett, Washington’s Paine Field Airport bound for Oahu in late December, one gate attendant cautioned over the PA against leaving valuables behind at the airport, such as one’s “wife or children.” The joke drew some laughter from travelers bound for the tourist paradise and most populous of Hawaii‘s islands.

On the trip, male flight attendants sported aloha shirts in the colors of Alaska Airlines: white, light green, and two different shades of blue. The workers seemed to have a slightly more relaxed attitude than normal. When flyers piled up near the rear bathrooms, attendants simply offered them the galley and went about their business elsewhere on the plane.

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At the same time the Alaska attendants were easing passengers into an “island time” mentality, their airline was pursuing a merger with rival Hawaiian Airlines. The two announced a tentative deal for Alaska to acquire Hawaiian for $18 a share on Dec. 3.

Though Hawaiian Airlines has publicly said that it is open to any offers, other airlines have not been beating a path to its cockpit door. The joint press release tucks the reason for that reluctance away in a dependent clause. The total transaction is valued at “approximately $1.9 billion, inclusive of $0.9 billion of Hawaiian Airlines net debt,” the airlines admit.

At the same time as many airlines have been posting profits, Hawaiian has been in the red. For instance, it reported a loss of $12.3 million before taxes in 2023’s second quarter and $240 million in 2022.

“The 94-year-old carrier … was disproportionally and uniquely affected by the pandemic when Hawaii shut down to tourists from March 2020 to November 2021,” trade publication Aviation Week reported. The debt Hawaiian has taken on while trying to pull out of that tailspin has dragged the whole enterprise down.

Will U.S. regulators allow the merger? That might hinge on a decision by U.S. District Judge William Young out of Massachusetts in an antitrust trial. The Justice Department sued to stop the acquisition of Spirit by JetBlue, and he has to decide the matter. A ruling is expected soon.

If Young rejects the government’s case entirely or allows the merger to go through with limited additional divestiture by JetBlue to ensure competition, the Alaska-Hawaiian deal will likely face minimal scrutiny. If it goes the other way, most airline mergers and acquisitions will be put on the back burner until after the next presidential election.

Assuming the deal is allowed, who stands to benefit the most?

“It’s a great deal for Hawaiian shareholders,” Gary Leff, author of the influential View from the Wing travel website, told the Washington Examiner. “The airline faces a lot of competition and not a lot of options, and Alaska is paying a strong premium for the stock.” For Alaska, however, “the benefit is not so clear.”

Past protests have prevented significant inter-island transportation by ferries but the market for air travel to and between the islands continues to be robust. The beating Hawaiian took during its long COVID-19 lockdown has allowed other competitors to erode its historic market share.

In fact, not Hawaiian but United is “currently the largest player between the mainland and Hawaii, and American, Delta, and Southwest all aggressively serve the islands,” Leff said. “Meanwhile Southwest Airlines has substantial capacity within the islands driving down fares.”

So, what does Alaska get out of the deal? The Daniel K. Inouye International Airport in Honolulu, named for the late, long-serving Democratic senator, “will become a key Alaska Airlines hub, enabling greater international connectivity for West Coast travelers throughout the Asia-Pacific region with one-stop service through Hawai‘i,” the two airlines explained.

“Honolulu is a terrible connecting option for flights between the mainland and most destinations in Asia,” Leff countered, though there are exceptions. Japanese tourists came to and through Honolulu in significant numbers before the worldwide pandemic. It’s obvious from walking the streets of Hawaii’s capital city that some of that traffic has returned and continues to ramp up.

Leff tried to game out how Alaska will handle a merger. “[T]hey’ll get an education in serving some Asia-Pacific destinations — though at the cost of integrating another airline and its workforce and taking on greater fleet complexity,” he said. “They just offloaded the Virgin America Airbus aircraft that came with their last deal, and now they’ll get more. … We might see Alaska reduce capacity with smaller planes in the future flying between the islands, and that could raise fares from today’s money-losing levels.”

Both airlines are aggressively pitching the benefits of a merger to flyers (and regulators), and here Leff thinks they have at least half a point. Post-merger, Hawaiian Airlines flyers would get “a much better frequent flyer program and Alaska Airlines (and Oneworld partner) customers gain access to award travel on Hawaiian’s flights — Hawaii is one of the most popular places to redeem miles — as well as additional options beyond to places like Sydney and Auckland,” he said.

Nor will residents of the islands get short shrift, the airlines argue, touting “expand[ed] service and convenience by tripling the number of destinations throughout North America that can be reached nonstop or one stop from the Islands while maintaining robust Neighbor Island service and increasing air cargo capacity.”

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Still, if seen through, the merger will inevitably lead to some changes that current flyers will not like. Hawaiian flights offer free rum for some adults, a practice that is unlikely to survive in the face of Alaska’s pay-to-quaff model. On the flight to Honolulu, even a nonalcoholic beer went for $8.50.

There are other Hawaiian touches that many travelers have come to appreciate, too. Brett Snyder listed the relevant terms of the deal on his Cranky Flier website, ending with, “Alaska has agreed to sign a 100-year deal to keep POG juice on all Hawaiian-branded flights.” He added, “Ok, that’s not true … wishful thinking.”