SEATTLE — Alaska Airlines agreed to buy Hawaiian Airlines in a $1.9 billion deal announced Sunday, potentially putting the company on track for a clash with a Biden administration wary of higher airfares .
The combined company would retain both airlines' brands, an unusual move in an industry where waves of takeovers have led to four major brands dominating the U.S. market. On Sunday, the companies said Alaska will pay $18 in cash for each share of Hawaiian, whose shares closed Friday at $4.86 after losing just over half its value in the year so far.
Officials from both companies called the deal an opportunity to combine two airlines with few overlapping routes, which they said would create a stronger company that could compete with the country's Big Four: American Airlines, Delta Air Lines, Southwest Airlines and United Airlines. It would also create a “clear leader” in the lucrative $8 billion Hawaiian market, Alaska CEO Ben Minicucci said in a conference call with investors.
“We are combining two companies with shared values that have competed and outlasted most through many industry cycles, strengthening our differentiated business model and creating a stronger competitor for network carriers,” he said.
The deal includes $900 million in Hawaiian debt, bringing the total value of the acquisition to $1.9 billion. The combined airline would be based in Seattle, with Alaska-based Minicucci at the helm. The companies predict the acquisition will be accretive to earnings within two years of the deal closing, which is expected to happen between twelve and eighteen months.
The combined airline would join the oneworld Alliance, which also includes American Airlines, British Airways and Cathay Pacific.
Alaska and Hawaiian are both smaller than the country's dominant airlines. They said the deal would merge two complementary networks, increasing connectivity to 138 destinations for passengers traveling across the continental United States and across the Pacific, including non-stop service to 29 international destinations in the Americas, Asia, Australia and the South Pacific.
Hawaiian has a deep and long history in the islands, dating back to its founding in 1929 as Inter-Island Airways.
The companies said they would maintain Honolulu as a key hub and that they were “committed to retaining and growing the union-represented workforce” in Hawaii. They also said the combination would triple the number of destinations that can be reached within one stop in North America for travelers from Hawaii.
For example, customers cannot currently fly Hawaiian to Washington DC, but they could do so through the combined company.
“Aloha, everyone,” Hawaiian Airlines CEO Peter Ingram said on a call with investors.
He said Alaska approached his company about a deal and that “the Hawaiian brand will remain an important part of our home state.”
The deal has been approved by the boards of directors of both companies, but still requires approval from Hawaiian Holdings shareholders. It will also need the blessing of U.S. regulators, who have resisted further airline consolidation for fear it could lead to higher fares.
The Biden administration is already trying to block JetBlue's proposed $3.8 billion acquisition of Sprit Airlines, which would house the nation's largest budget carrier. The Justice Department also won a lawsuit that killed the partnership between JetBlue and American Airlines.
The average domestic airline fare from Seattle during the spring was $409.93. That was up from $293.08 two years earlier, according to U.S. Department of Transportation data. The average domestic fare from Honolulu during the spring was $367.94, up from $329.93 two years earlier.
But given how little Alaska and Hawaii's routes overlap, their proposal may not cause much concern in Washington, said Henry Harteveldt, a travel industry analyst at Atmosphere Research Group.
Just as important, he said, is that neither Alaska nor Hawaiian is an ultra-low fare airline like Spirit. That means combining them won't eliminate the downward pressure on rates that a Spirit buyout could cause.
The airlines will have to work with their unions as they try to streamline their operations, and company officials said they have already spoken to collective bargaining leaders. The Air Line Pilots Association said Sunday it was evaluating the proposal and awaiting more details.
Both airlines have historically paid more attention to their employees than competitors, among other similarities in their corporate cultures, Harteveldt said. It's another reason why he said he thinks a merger between the two could work. ___
This story has been corrected to show that company boards have already approved the deal.