Alaska Air Group Inc made a significant announcement on Sunday, revealing its plans to acquire Hawaiian Holdings Inc for a staggering $1.9 billion, debt included. This move is not just about expanding Alaska Air’s footprint; it’s a strategic bet on an airline with highly sought-after routes, especially as U.S. antitrust regulators are closely watching the aviation sector’s consolidation.
A Closer Look
Alaska Air is set to pay $18 per share in cash for Hawaiian, which is nearly four times Hawaiian’s closing price on the preceding Friday. This substantial premium reflects the impact of various challenges on Hawaiian’s shares, including the Maui wildfires, high fuel costs, and recall issues with some jet engines on Hawaiian’s Airbus SE (AIR.PA) planes. These factors led to heavy losses for Hawaiian, with its share price plummeting by 65% in the last 12 months.
The acquisition is likely to draw the attention of antitrust regulators, especially considering the ongoing legal challenge against JetBlue Airways Corp’s proposed $3.8 billion acquisition of Spirit Airlines Inc. Antitrust enforcers have historically been wary of mergers involving smaller airlines, despite the U.S. aviation sector’s dominance by four major players: United Airlines , American Airlines, Delta Air Lines, and Southwest Airlines.
Market Dominance and Tourism Appeal
With this deal, Alaska Air, valued at $5.1 billion, would gain control of over 50% of the market for flights to Hawaii, one of the world’s top tourist destinations. Alaska Air CEO Ben Minicucci expressed optimism about the future of tourism in Hawaii, stating, “This is where people want to come spend time and vacation and have weddings and anniversaries. This is something that we believe will remain strong for years to come.”
Minicucci also shared his confidence in regulatory approval by the end of 2024, citing minimal overlap in the two airlines’ operations. Additionally, Alaska Air defended its 270% premium offer as a strategic bargain, noting that the deal values Hawaiian at just 0.7 times its annual revenue – significantly below the industry average.
Hawaiian faced financial struggles in 2023, with a net loss of $159.3 million in the first nine months, although this was an improvement from the previous year. Factors contributing to these losses included reduced air traffic due to the Maui wildfires, a 4% increase in jet fuel costs, and grounding of some Airbus A321neo fleet due to engine issues.
Expected Gains and Fleet Management
Alaska Air anticipates high single-digit earnings gains within the first two years of the acquisition, with no significant long-term impact on balance sheet metrics. The company, which switched to an all-Boeing 737 fleet after retiring Airbus planes from its Virgin America acquisition, plans to operate a mixed fleet for the time being.
The combined entity will be based in Seattle, with Minicucci at the helm, and Honolulu will become a key hub for Alaska Airlines. The International Association of Machinists and Aerospace Workers (IAM) has pledged to protect the rights of members at both carriers during this transition.
Alaska Air’s acquisition of Hawaiian for $1.9 billion is a bold step, aimed at expanding its market dominance and capitalizing on Hawaii’s tourism appeal.
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