The merger between Alaska Airlines and Hawaiian Airlines cleared its last regulatory hurdle Tuesday, and when it finalizes will become the first major U.S. airline combination since 2016 when federal regulators allowed Alaska to merge with Virgin America.
The U.S. Department of Transportation announced Tuesday that it was granting the airlines’ request to combine and operate international routes under one certificate — authorization required to provide air transportation as a merged carrier under a single Federal Aviation Administration operating certificate.
Alaska Air Group, the parent company of Alaska Airlines, said Hawaiian Airlines President and CEO Peter Ingram will step down immediately following the completion of the $1.9 billion transaction.
Industry expectations are that the merger could happen quickly, possibly as soon as today.
Joe Sprague, Alaska Airlines’ current regional president of Hawaii/Pacific, will be named the new Hawaiian Airlines CEO and lead the interim leadership team overseeing Hawaiian’s operations while Alaska pursues a single operating certificate, which could take another 12 to 18 months.
Sprague will oversee all aspects of Hawaiian Airlines’ operations until the FAA finalizes Alaska’s request for a single operating certificate. Until then the airlines will operate as one organization with two separate airline operations, under two individual operating certificates. After the certificate is granted, the airlines will function as a single operation with two public-facing brands, Hawaiian Airlines and Alaska Airlines.
Hawaiian shareholders, who approved the merger Feb. 16, will get $18 a share in cash as part of the deal, which includes $900 million in Hawaiian debt.
Sprague said in a statement, “We have a unique, once-in-a-generation opportunity to combine two incredible companies with aligned values and 90-plus year legacies of serving and connecting local communities. I am deeply honored to work alongside these strong leaders from Hawaiian Airlines to lead the airline’s people, operations, and brand through this transition while sustaining our commitments to safety and service.”
The deal comes after a protracted period of losses for Hawaiian Airlines, whose financial performance has been strained since at least COVID-19. Hawaiian reported a second-quarter net loss of $1.30 a share, or $67.6 million, as compared with a $12.3 million net loss a year ago. When adjusted for nonrecurring costs, the second-quarter loss came to $1.37 a share.
Hawaiian Airlines has a history that goes back to 1929. It is the state’s largest carrier, with about 150 daily interisland flights and over 230 systemwide. It offers nonstop flights between Hawaii and 16 U.S. gateway cities, as well as service to American Samoa, Australia, the Cook Islands, Japan, New Zealand, South Korea and Tahiti.
Alaska Airlines and its regional partners serve over 120 destinations across the U.S., Belize, Canada, Costa Rica, Mexico, the Bahamas and Guatemala.
According to the joint application that Alaska and Hawaiian filed with the DOT on July 15, their combined airlines will serve “54.7 million passengers annually and operate to 138 destinations, including nonstop service to 29 top international destinations in the Americas, Asia, Australia, and the South Pacific.”
Alaska said in a news release Tuesday that the combining of the airlines “will unlock more destinations for consumers and expand choice of critical air service options and access throughout the Pacific region, U.S. continent and globally.”
Alaska added that “the transaction is expected to enable a stronger platform for growth and competition in the U.S., as well as long-term job opportunities for employees, continued investment in local communities and environmental stewardship.”
It’s still unclear how the merger will affect Hawaii’s 7,400 employees, particularly the 1,400 or so nonbargaining unit members, as Alaska had said earlier that it expected to maintain and grow union jobs.
Generally, there has been broad support for the merger. Most of the submittals in the DOT’s docket supported the merger, and a host are from airline labor unions. High-level support also came from Washington Gov. Jay Inslee, Oregon Gov. Tina Kotek and Hawaii Gov. Josh Green, who sent a letter to the USDOT in strong support of the merger.
Green said in a statement Tuesday, “Throughout the merger process, my administration advocated for the interests of the people of Hawai‘i. We wanted to make sure consumers’ miles were preserved and workers’ jobs were preserved; we need investment in our local airports and expansion of our capacity as a travel hub — and we needed the Hawaiian Air brand to be retained, because it is important to our people. It was my opinion that if those conditions were met, the U.S. Justice Department should not oppose the merger. It is a big deal, a big day.”
Not everyone agrees. A suit was filed in April on behalf of eight passengers who claimed that the merger would result in higher fares, job losses and fewer flights, and cause injury to Hawaii’s economy.
The passengers were represented by antitrust attorney Joseph Alioto and Tatiana Wallace of the Alioto Law Firm in San Francisco, and Terence O’Toole, Andy Lautenbach and Kukui Claydon of the Starn, O’Toole, Marcus and Fisher law firm in Honolulu.
Chief U.S. District Judge Derrick Watson dismissed the lawsuit Aug. 12 on the grounds that the plaintiffs lacked standing. Six days later Alioto and his colleagues filed a motion to reconsider, and on Aug. 21 sought to block the combination, but Watson denied the temporary restraining order.
Alioto told the Honolulu Star-Advertiser that the legal team had filed motions to stop the acquisition because “of the obvious threat that fares will be increased, available flights will be reduced, Hawaiian personnel will be fired, and operations will be transferred to Seattle.”
Robert Rivkin, United’s senior vice president and chief legal officer, told the DOT on Aug. 27 that the merger had the potential to affect United’s “interline, codeshare, special prorate, and loyalty agreements with Hawaiian Airlines.”
United’s complaint initially prompted some speculation that other carriers also might complain. However, it never became an issue.
The DOJ actually extended its review period three times before its anticlimactic decision to let its formal review period expire. That was a nail-biter for merger supporters as it was the DOJ, along with the attorneys general of Massachusetts, New York and the District of Columbia, who filed a civil antitrust lawsuit in 2023 to block the merger of JetBlue and Spirit. In that case the DOT followed the DOJ’s lead.
Aviation historian Peter Forman said he viewed the DOJ extensions as part of the process, and was not surprised that the merger cleared the final DOT hurdle.
“I felt that if they were not going to approve it; we would have heard during the Department of Justice review,” he said.
Forman added that what was different was the specificity required by the DOT, and its impact on mergers in the future.
Airline mergers were once more common, and the “Big Four” U.S. airlines all gained size and stature when they completed mergers between 2008 and 2013. Southwest Airlines/AirTran Airways merged in 2008, U.S. Airways/American Airlines merged in 2013, United Airlines/Continental Airlines merged in 2010 and Delta Air Lines/Northwest Airlines merged in 2009.
“I don’t recall anywhere near this many caveats in any airline mergers before,” Forman said.
The USDOT under the Biden administration has taken a more proactive approach to the department’s merger review, and would not allow Alaska and Hawaiian to proceed unless they agreed to binding, enforceable public-interest protections.
USDOT said the protections are aimed at preventing harm to the traveling public, rural communities and smaller airline competitors. The department said, “Alaska and Hawaiian are required to protect the value of rewards, maintain existing service on key Hawaiian routes to the continental United States and inter-island, preserve support for rural service, ensure competitive access at the Honolulu hub airport, guarantee fee-free family seating and alternative compensation for controllable disruptions, and lower costs for military families.”
USDOT said the protections for Alaska and Hawaiian travelers are effective upon issuance of the exemption order and the closing of the merger, and address a broader range of harm than previously considered under prior deals.
U.S. Transportation Secretary Pete Buttigieg said in a statement, “Our top priority is protecting the traveling public’s interest in this merger. We have secured binding protections that maintain critical flight services for communities, ensure smaller airlines can access the Honolulu hub airport, lower costs for families and service members, and preserve the value of rewards miles against devaluation. This more proactive approach to merger review marks a new chapter of DOT’s work to stand up for passengers and promote a fairer aviation sector in America.”
MERGER REQUIREMENTS
The U.S. Department of Transportation required Alaska and Hawaiian to agree to key enforceable public-interest protections, including:
>> No expiration for HawaiianMiles miles and Alaska Mileage Plan miles earned prior to conversion into the new combined loyalty program.
>> Rewards members can transfer HawaiianMiles miles to and from Alaska Mileage Plan miles at a 1-to-1 ratio prior to the launch of the new combined loyalty program.
>> Under the new combined loyalty program, the combined airline must match and maintain the equivalent status levels that HawaiianMiles members hold under the HawaiianMiles program, and match and maintain status levels and conferred benefits that are equivalent to Alaska’s Mileage Plan program.
>> The combined airline must not impose change or cancellation fees on rewards redemption tickets for travel on carrier-operated flights.
>> The combined airline must maintain robust levels of service for critical Hawaiian interisland passenger and cargo service and for the key routes between Hawaii and the mainland at risk of a loss of competition.
>> The combined airline must preserve its support for Essential Air Service in Alaska’s and Hawaii’s small, rural communities where such service is a lifeline to health care, education and economic well-being.
>> Both airlines will update their customer service plans to provide at least one free standard carry-on and at least two free standard checked bags for service members and their accompanying spouse and children. They also will waive change fees for service members and their families who reschedule flights due to a military order or directive.
Source: USDOT
