Alaska Airlines chief executive Ben Minicucci says that the planned acquistion of Hawaiian Airlines will benefit not only the companies, but also employees and consumers, and it was the right opportunity for the Seattle-based company at the right time.
The all-cash transaction, announced earlier in the day on 3 December, is worth about $1 billion dollars. Alaska will pay $18 per Hawaiian share, and will also assume $900 million of Hawaiian’s debt, for a total of $1.9 billion. Executives expect it to close sometime in 2025, pending Hawaiian’s shareholder and US aviation regulator approvals.
“We liked what we saw,” Minicucci tells an investor webcast. “[Hawaii] is a top-25 market in the country, it’s an $8 billion market in which we will be the clear market leader with $4 billion of revenue, and [Honolulu] becomes our second hub.”
“Strategically [it’s] a step change for us, to accelerate our financial performance and the growth of our network,” he adds.
He calls the $1.9 billion price-tag for the 94-year-old Honolulu-headquartered carrier “fair”.
“It’s an attractive opportunity that you just can’t let go, so that’s why we acted on it at this time.”
Alaska’s chief financial officer Shane Tackett, adds, “The strategic rationale made a lot of sense.”
Hawaiian chief executive Peter Ingram sought to appease critics who might think that the island archipelago in the middle of the Pacific Ocean, about 2,500nm (4,000km) southwest of the US mainland, will be losing its hometown airline.
“The Hawaiian brand will remain an important part of our home state, with Honolulu becoming a strategic hub for the combined airline,” he says. The deal, he adds, ”honors and preserves the nearly century-long tradition of the two brands”.
The combination allows Honolulu-headquartered Hawaiian to join the OneWorld alliance, of which Alaska is a member. Together, the carriers will offer service to 138 destinations, including nonstop service to 29 international destinations in the Americas, Asia, Australia and the South Pacific, and combined access to over 1,200 destinations through OneWorld, the companies say.
DUAL-BRAND STRATEGY
The transaction itself, executives say, will cost about $400-500 million in one-time transaction costs.
While Alaska will maintain the Hawaiian Airlines brand, everything else about the company will change, Minicucci says.
“This approach will be unique in the industry – it’s a dual brand strategy, behind the curtain there will be one operating certificate,” he says. That also means the work groups will be combined under a single collective bargaining agreement.
The airlines’ managements have informed unions at both companies, and the executives promise to be “in listening mode” as employees and customers digest the news.
“With some of the folks we have talked to there’s a strong understanding of the compelling nature of the transaction, but I think people are processing the information right now so it’s too soon to draw any conclusions about any of that,” Hawaiian’s Ingram says.
During the conference call, pilot union Air Line Pilots Association, International (ALPA) released two statements – one from each airline’s master executive council (MEC).
“We are hopeful that this new merger agreement will provide benefits to our guests as well as the pilots of both Hawaiian and Alaska Airlines,” Hawaiian’s MEC says.
Alaska’s MEC, meantime, adds that it is “evaluating the business case for this merger and what it may mean for pilots of both Alaska and Hawaiian Airlines as well as our passengers and other stakeholders”.
GOVERNMENT BLESSING?
Executives do not directly address the elephant in the room, namely, if the US government’s aviation regulators will bless the transaction.
“We haven’t spoken to the government yet on this, but I think our deal is unique in a lot of ways,” Minicucci says. The networks are complementary, he adds, and together the two airlines have 1,400 flights a day, with only 12 overlapping markets.
“From a competitive standpoint that lands really, really well,” he says. “It’s a pro-consumer combination, its pro-competitive, makes us larger, to compete against the big four [airlines] that have an 80% market share, so we are hopeful it will be seen in a positive light.”
That’s the same argument JetBlue Airways is making in its attempt to acquire Spirit Airlines, a $3.8 billion deal that was announced in 2022, but is currently the subject of a federal antitrust lawsuit.
The US Department of Justice sued in March to block JetBlue’s proposed acquisition of Spirit, arguing the deal would eliminate one of the largest ultra-low-cost carriers, to the detriment of consumers seeking affordable air travel.
The trial began in Boston in late October, and is expected to be decided by the end of the year.
Minicucci says, however, that the proposed acquisition has “no relationship” to anything happening between JetBlue and Spirit.
“We are focusing on Alaska’s long-term future,” he adds.
SYNERGIES
The two airlines, which together transported more than 54 million passengers in the first eight months of the year, see promise in combining disparate networks and fleets, to the tune of synergies of $235 million.
“This deal made sense without synergies, so the synergies represent strong upside for the long-term value for Alaska shareholders,” says Alaska’s Tackett. He adds that figure is a “conservative” estimate, and more can be expected. “There’s upside beyond that. It is our desire to articulate a synergy number that we have a very high degree of confidence we can objectively deliver.”
“The opportunities far outweigh some of the complexities we have to deal with,” Minicucci adds.
Those complexities include merging two very different fleet strategies. Hawaiian operates a mix of Airbus and Boeing jets. It flies 23 ageing 717s on intra-island routes, and deploys 18 A321neos both within its home state and flights between Hawaii and the US mainland. Hawaiian’s long-haul fleet includes 25 A330s, and it holds unfilled orders for 12 787-9s, the first of which is scheduled for delivery next year, according to Cirium fleets data.
Alaska’s fleet includes Boeing 737s – it has 220 of those jets, including 737NGs and 737 Max. It holds orders for another 89 737 Max. It also operates 83 Embraer 175s and has nine more of those on order, according to the companies’ investor presentation.
