The Alaska Airlines acquisition of Hawaiian Airlines is different than the JetBlue acquisition of Spirit, but why?
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.
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.
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.
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.
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?