Alaska Airlines Gave Away Key Advantage In Hawaiian Deal

Alaska Airlines has been given the green light by the DOT to acquire Hawaiian Airlines this week in a $1.9bn deal, but they may have handcuffed themselves. 

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Alaska Airlines Gets The Go-Ahead

Alaska Airlines has received final approval from the U.S. Department of Transportation (DOT) to proceed with its $1.9 billion acquisition of Hawaiian Airlines. This landmark decision, announced in mid-September 2024, follows the U.S. Department of Justice’s earlier decision not to challenge the merger. The acquisition marks the first major airline merger since Alaska’s purchase of Virgin America in 2016.

The DOJ sued to stop both the JetBlue Northeast Alliance (that it had previously approved) and JetBlue’s proposed acquisition of Spirit Airlines.

Under the deal, both Alaska and Hawaiian Airlines will maintain their individual brands while combining operations, expanding their route network to over 130 destinations and growing their fleet to more than 360 aircraft. Several conditions were put in place to protect consumers, such as ensuring the continued value of frequent flyer miles, preserving essential routes for residents in Hawaii and Alaska, and keeping competitive access to Honolulu International Airport. The merger is expected to create a stronger presence for the combined airline, particularly in the West Coast and transpacific markets, though it will likely result in some higher prices for consumers due to reduced mainland-Hawaii flights operated on large aircraft.

DOT Sets Conditions Of Approval

As is common with such mergers, a list of conditions accompanied the approval of the acquisition.

“The protections for Alaska and Hawaiian travelers are effective as of the issuance of the exemption order and the closing of the merger and address a broader range of harms than previously considered under prior deals. They include the following:

• Protecting the value of rewards: Alaska and Hawaiian agreed to the first-ever rewards protections against devaluation that ensure that consumers will receive the rewards, benefits, and status they have earned. Specific rewards protections include:

  • No expiration for miles earned under current programs: All HawaiianMiles miles and Alaska Mileage Plan miles earned prior to conversion into the new combined loyalty program must not expire.
  • Transfer miles at 1:1 ratio: Rewards members can transfer HawaiianMiles miles to and from Alaska Mileage Plan miles at a 1:1 ratio prior to the launch of the new combined loyalty program. Each outstanding HawaiianMiles and Alaska Mileage Plan mile must be converted into a mile in the new loyalty program at a 1:1 ratio, resulting in all members having the same number of miles before and after conversion.
  • Maintain value of miles: The combined airline must not take any actions that would devalue HawaiianMiles miles, must maintain the value of each unredeemed HawaiianMiles mile earned prior to the merger closing, must honor all active HawaiianMiles promotions from prior to the merger closing, and must continue to award HawaiianMiles miles at the same or greater value. The combined airline must maintain a minimum dollar value for all miles in the new loyalty program, measured by the guest-facing value of miles redeemed for carrier-operated flights. [emphasis mine]
     
  • Match, maintain, or increase status: 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, match and maintain status levels and conferred benefits that are equivalent to Alaska’s Mileage Plan program, and match or increase status and conferred benefits as necessary to ensure members of each existing loyalty program are treated no less favorably relative to status, including by matching or increasing members’ elite status in the new combined loyalty program, for the remainder of the applicable program year.
  • No new junk fees: The combined airline must not impose change or cancellation fees on rewards redemption tickets for travel on carrier-operated flights.

• Maintaining critical inter-island and continental routes: Hawaii’s rural island communities are uniquely dependent on the passenger and cargo services provided by Hawaiian Airlines. The combined airline must maintain robust levels of service for critical Hawaiian inter-island passenger and cargo service and for the key routes between Hawaii and the continental United States at risk of a loss of competition.

• Preserving support for essential air service in Alaska and Hawaii: 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.

• Ensuring competitive access to Honolulu hub airport: The combined airline is barred from directly or indirectly taking actions that would discriminate against new airline entrants or smaller competitors’ access to airport infrastructure as part of new or existing investments at the Daniel K. Inouye International Airport in Honolulu, a key vacation destination and hub for the State of Hawaii.

• Guaranteeing fee-free family seating: Hawaiian Airlines must join Alaska Airlines in guaranteeing adjacent seats for children 13 or under and an accompanying adult at no additional cost for all fare types.

• Providing alternative compensation for delays and cancellations caused by the airline: Hawaiian Airlines must join Alaska Airlines in providing a travel credit or frequent flyer miles when, due to circumstances within the control of either airline, a flight is cancelled and they wait three hours or more for a new flight, or a flight is delayed by three hours or more from the scheduled departure time.

• Lowering costs for service members and their families: The two airlines must lower costs for the nation’s military and their families, a significant population in both Alaska and Hawaii, by waiving certain fees. 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 will also waive change fees for service members and their families who reschedule flights due to a military order or directive. ” – DOT

Broad Scope, Vague Language, Limited Abilities

Protects Hawaiian Miles Value

The benefactor – on paper – is Hawaiian Airlines flyers and stockholders. The chief concerns seem to be the essential intra-island air service which the airline has agreed to maintain. Hawaiian enjoyed a near monopoly on those flights over the years with competitors like Aloha going out of business. Southwest Airlines runs flights between the islands now too but preservation of Hawaiian’s position on these routes will keep service consistent and provide choice for consumers.

Doesn’t Direct Alaska Mileage Plan Value

The DOT alludes to a new combined loyalty program but otherwise doesn’t instruct Alaska Airlines to keep the same value for users as it does for Hawaiian. It refers to requirements for Mileage Plan’s elite and award redemptions, it limits new “junk fees” but it doesn’t call out the addition of such fees on paid travel.

Combined Loyalty Program Valuation Locked In

As stated above: “The combined airline must maintain a minimum dollar value for all miles in the new loyalty program, measured by the guest-facing value of miles redeemed for carrier-operated flights.” There’s no date requirement attached to this condition, which assumes it will maintain the current value of the program for guests in perpetuity.

What Alaska Airlines Gave Away

The broad, open-ended language of the DOT conditions will default to the benefit of the consumer in any disagreement of adverse changes to the award chart. Where Alaska may have given away too much in order to get the deal done is its ability to raise rates over time. While Delta is entirely out of control with its redemption cost increases, over time, Alaska’s already low rates for redemptions can’t really increase. That’s a problem for the airline. At some point Alaska will have to raise rates and it really can’t inflate its award chart.

The DOT was specific that this applies to carrier-operated flights (not partner flights) but reducing the value of the program overall (by reducing partner redemptions as it did with Emirates) could violate the agreement.

It also becomes handcuffed to remaining equal in elite numbers but if there was a swell of a large number of high end elites (which could happen with its utilization of Hawaiian’s long haul fleet flying Alaska Airlines flights from Seattle and Portland to the world.) If top tier MVP elites tripled next year, the airline couldn’t increase the requirements to preserve the elusiveness of its most loyal tiers. That too could be a concern.

Conclusion

In a move to ensure the closing of its acquisition of Hawaiian Airlines, Alaska may have devalued its program and offering to banks rather than strengthened it. The airline also loses the ability to raise redemption rates at a time when it is likely to begin selling long haul premium products.

What do you think?

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