The Alaska Airlines acquisition of Hawaiian Airlines is different than the JetBlue acquisition of Spirit, but why?
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I reported Sunday the breaking news that Alaska Airlines intended to announce an acquisition of Hawaiian Airlines imminently. Details flowed after that breaking news that included the purchase price, a staggering $1.9 bn, fleet rationalization, incorporation into the oneworld alliance, and so much more.
I’ve been clear that I feel the US consumer is better served by JetBlue and Spirit remaining competitors but on the surface, what is so different about the Alaska-Hawaiian Airlines tie-up that has me singing a different tune? A lot.
Market Position
Alaska Airlines and Hawaiian Airlines run a similar market position. Neither promote themselves as low-cost carriers and while there are certainly deals to be had, neither are heavy discounters. The mainland to Hawaii is a major source of revenue for both but neither own the market outright.
Alaska primarily flies to domestic US destinations with some Caribbean and Mexico thrown in as they are within the range of Alaska’s 737 equipment. Hawaiian, however, flies to many more international destinations in the Pacific from Seoul to Sydney.
I think one challenge in the Alaska-Hawaii deal is that at the time of the acquisitions, they will have more traffic to the Hawaiian islands than any other carrier and may have to divest some slots.
Spirit and JetBlue are different market segments. Spirit is a ULCC and the only one in the US that flies between major airports on both business and leisure routes on regular schedules. Frontier doesn’t do that anywhere close to the same degree, and Allegiant doesn’t do that all. JetBlue, while not a network carrier, is also not a discounter. They fly an amazing premium product on long-haul flights in Mint class but those flights compete at premium price points.
What’s different about these two acquisitions, is that JetBlue has been clear it will integrate Spirit into its model as soon as possible eliminating the only ULCC option flying regularly between major business cities and leisure. Alaska has said it will initially operate both carriers independently as two separate brands and folding Hawaiian into Alaska will not remove a different carrier type from the market.
Lift
Hawaiian simply isn’t that large of a carrier. I was shocked that they held as many Airbus A330s as they do and have as many 787s coming online. Still, it’s not nearly the size of other US carriers by equipment, seat, or routes.
Spirit Airlines, for example, has 37,577 seats on all Airbus A320 family aircraft. Hawaiian Airlines, by contrast, has 14,679 seats split almost evenly amongst long-haul and short-haul aircraft (36 and 37 respectively including orders.)
Absorbing less than one-third of the seats into Alaska is a different proposition than JetBlue’s mission. Further, JetBlue openly competes with Spirit on many of these routes. Hawaiian and Alaska Airlines compete on some routes throughout North America, but none of the international flying. Hawaiian flies to major East US coast destinations which Alaska cannot. United operates 6,800 daily seats to the islands and Southwest Airlines has been a strong new entrant to the market as well.
Fleet
Alaska is proudly a Boeing carrier, except Horizon, and for a period while it operated leased jets from its Virgin America acquisition over a decade ago. That said, it’s not just any Boeing, it’s the 737 and they fly it coast-to-coast. Hawaiian has larger jets but a far smaller fleet.
Matthew highlighted during a call Alaska Airlines held for investors on Sunday in which management alluded to the discontinuation of operating Airbus equipment at some point in the future. Matthew notes that management mentioned acquiring an operating airline with long haul equipment is the easiest way to integrate larger aircraft and long haul flying to the mix.
Matthew speculated that Alaska might want to fly these planes to London, and places further afield, perhaps oneworld hubs like Tokyo and Sydney. That could make a lot of sense when considering Hawaiian was flying Honolulu to Boston – that probably doesn’t have the same effect as what Alaska could do with the same aircraft from Seattle. That makes sense based on what management said, and could be a perfect way to capture loyal Seattle customers that currently have to fly another carrier for business beyond North America.
It still seems strange to picture an Eskimo-tailed 787 at Heathrow and I think it would be hard to earn destination traffic.
Conclusion
The Alaska Airlines acquisition of Hawaiian Airlines is different than other acquisitions and mergers in recent years. While it would help Alaska to further entrench itself into the Hawaiian market, they wouldn’t own it outright even if they continue to grow its long haul fleet and operate current routes as they are. The acquisition also doesn’t remove a unique and powerful market force such as the JetBlue acquisition of Spirit, and it’s also not as meaningful of an acquisition as Hawaiian is dramatically smaller than either JetBlue, Spirit, or Alaska. The two deals are not equal, they are, in fact very different and for different reasons one looks better than the other.
What do you think?
“It still seems strange to picture an Eskimo-tailed 787 at Heathrow and I think it would be hard to ea…..”
No more strange than Westjet or Turkmenistan at Heathrow.
The odd things will be if Hawaiian FAs fly on routes not to or from Hawaii and if some Alaska 787 fly Hawaii to Asia or Hawaii A330 or 787 fly Seattle to Asia or Europe. I don’t think they will segregate the 787s completely.
Hope the government blocks this.
I hope so too. Fares to Hawaii from Portland and Seattle quite often are $800+ one way. Even $1000+ one way during spring breaks in the respective regions. This merger will reduce competition and increase fares. Hope it is rejected.
Then the federal government should bail out Hawaiian-Hawaiian is losing money.
I hope so too. Fares to Hawaii from Portland and Seattle quite often are $800+ one way. Even $1000+ one way during spring breaks in the respective regions. This merger will reduce competition and increase fares. Hope it is rejected by the FTC.
Do I agree with you: Yes & No.
Hawaiian is in a bind!! Traffic to the islands only generates so much premium revenue. Many are cashing in FF miles or other credits via alliances. The onslaught of WN, COVID, & Maui wildfires exposed gaping holes in the business model. Alaska is not purchasing HA for sheer egalitarian reasons. Should there be a change in administration, AK could be put into play as a target; Hawaiian is a means of hedging its bet no matter who is in office. Should they merge, the overlap in capacity between the islands and the west coast could be redeployed as increased frequency in the midwest which draws business PAX. Those B787 in the pipeline would generate the most premium revenue with service to Europe & Asia via SEA, not the islands. Both airlines are looking for economy of scale to hold the big four at bay.
As for the east coast merger, NK is hemorrhaging money at an exponential rate. Nickeling and dimming passengers to death with complete disregard only goes so far. All make a fuss about the listed fare at NK, but once you add all the ruthless surcharges, they are no better than the rest. Those that think they are getting a break are looking at Fools Gold. JetBlue has the east coast, Florida, the Caribbean, and southern California well covered; the Euro foot print is a step in the right direction. Spirit fills a void in the midwest. JetBlue dropped the ball several years ago via Virgin America. This merger is its second chance. It too could fall into play should the administration change or change its mindset. Fortunately, the judge is making noises in B6’s favor. Should it become the 5th largest trunk carrier, its fares will not be determined by B6 headquarters, but by the other four fighting to protect their territory and hubs.
Based on the above, both mergers are a means of survival to compete with the big four.
If they fail, then someone else will gobble them up as time progresses.
These mergers are survival, no more, no less.
Neither AS nor HA have any relevant slots or gates to divest. There are no slots in either Hawaii or the West Coast airports where the airlines overlap. Most of the airports are not gate constrained, either. Competitors can freely launch any routes they want to, as WN has demonstrated.
Hope the government blocks this. He has already pushed his decision from the end of December to January. JetBlue/Spirit would own too much of the east coast, especially Fort Lauderdale (even with JetBlue selling a few slots to Allegiant). JetBlue should be made to sell off more slots to ULCCs Frontier, Allegiant and Avelo (if they can afford it). The moderately priced JetBlue clone Breeze Airways should be sold a few slots too.
For all that hopes .gov blocks it, consider this HA is in terrible shape financially thats a fact. The both have similar cultures and this proposed merger had been talked about for years by Sen. Inouye of Hawaii and Ted Stevens of Alaska , both very close in the Senate supporting each others legislation and issues. They “saw” back then that the two combined airlines would be beneficial.
I for one hope .gov approves this.
“ Matthew speculated that Alaska might want to fly these planes to London, and places further afield, perhaps oneworld hubs like Tokyo and Sydney. ”
It obviously could happen but I do wonder whether AS would fly to LHR, SYD, or TYO. They’d effectively be competing against the AA JVs in all those circumstances rather than as a partner.
Ironically, AA appealing the NEA decision is the best hope AS could have of joining those JVs, assuming AA wants them in. After the NEA ruling, it’s hard to imagine two American domestic carriers being allowed into a common JV where some degree of domestic coordination would seem to be almost required
What exactly is Alaska buying? Not what you all think.
Alaska is buying quick deliveries of a dozen 787s (the first of them about to be delivered in just a few weeks, others coming relatively soon afterwards), with options for another 8. If Alaska just went shopping for 787s at this point, they’d go to the end of a very long line of customers waiting patiently for 787s…any new orders placed now for them wouldn’t get filled for many years.
Alaska is essentially buying a place at/near the front of the line to take deliveries of 787s – a bunch of long-range, fuel-efficient, widebody aircraft capable of flying half-way around the globe.
That they’re getting a little boutique airline based in Honolulu thrown in on the side is just a nice little extra to sweeten the deal (of course they can’t come out and say that). The deal isn’t really about Hawaiian Airlines. It’s about Alaska getting 787s – soon. Pretty sneaky, Chester.
There are no slots to divest at Hawaii. Gate constraints are not there either. Competitors are free to enter the market as they see fit, so I don’t see much issue with this merger. Alaska airlines flyers would likely benefit as they would have transpacific options that aren’t available elsewhere (since American has pretty much pulled out of west coast-transpacific markets in favor of their code-share partners).
I don’t like Alaska Airlines as a company. I’ve always seen them as operating in a way that enabled events that contributed to flight 261. I know there’s been changes, but seeing what they did with Virgin America, I feel like I’m not wrong. Now, Hawaiian is far from being the saint in the room, but this will not end well for those who currently work for them.
I can tell you now, my sense based on historical precedents, is the merged JetBlue/Spirit will not survive more than a decade, and neither will the merged Alaska/Hawaiian. I’m sure I’ll be around by then so you can thank me then 🙂
What slots would be given up in the US-Hawaii market? There are no slots to give.