It’s late August, and that means it’s the time of year when news slows to a crawl in the airline world. During normal times, I wouldn’t feel compelled to even write a post on the progress of the Alaska/Hawaiian merger after recent events, but, well, here we are. So let’s talk about where things stand.
All eyes were on the US Department of Justice (DOJ) which per the Hart-Scott-Rodino Act has 90 days to decide whether to sue to block the closing of a large merger. That clock doesn’t start when the merger is announced but rather once all the necessary documentation has been submitted. Alaska and Hawaiian provided reams of data on multiple occasions. When the clock finally started, it was set to expire in early August.
Though I didn’t personally see a good reason to block the deal, I’ve felt that way before and I consistently have been proven wrong. What’s more, judges have agreed with the DOJ, so I decided to just assume DOJ would try to block this as well.
As the deadline approached, Alaska and Hawaiian announced short extensions to the 90-day period. This happened twice with the final extension going to August 20. My assumption was that either a) they were working on a final settlement, and it wasn’t done yet or b) the airlines were trying to desperately convince DOJ of the merits of the deal despite the expectation that it was going to sue to block the coupling.
In the end, the most boring thing possible happened. DOJ took no action and the review period expired. There was no deal. There was no lawsuit. DOJ just declined to take action.
This doesn’t mean DOJ can’t sue in the future if it thinks there are antitrust concerns, but the best opportunity to do that is before a merger closes. Once it does, it’s much harder to break something up. By declining to sue, DOJ is giving tacit approval to the combination.
This has been the biggest hurdle by far that recent deals have had to overcome, so the general assumption should be that it will now close. But there is still the matter of the US Department of Transportation (DOT) giving its approval.
DOT isn’t looking at this from the same perspective since DOJ is the one that takes the lead on antitrust enforcement. Specifically, this is how DOT describes its role in mergers.
The Department does exercise jurisdiction over the transfer of international operating authority in conjunction with airline acquisitions as well as ensuring that the acquiring entity meets the Department’s citizenship and continuing fitness requirements to be a U.S. certificated air carrier.
This is generally a more technical reading of the situation, and it can require a settlement to get over some hurdles if they exist. Remember, DOT signed a deal with American and JetBlue effectively approving the Northeast Alliance between the two airlines. DOJ came in later and decided to sue over it, but DOT had extracted notable concessions first.
So what is DOT really going to be doing here? Here’s a statement from Susan Kurland, Assistant Secretary for Aviation & International Affairs from back when the American/US Airways merger was under review.
As to international routes, the carriers must apply to DOT for approval to consolidate the international routes they individually hold under one certificate, which is part of the merger process. By statute (49 U.S.C. 41105), DOT may approve a transfer of such routes only if we find that it is consistent with the public interest. As part of that analysis we must examine the transfer’s impact on the viability of each airline party to the transaction, competition in the domestic airline industry, and the trade position of the United States in the international air transportation market.
We would only decide an international route transfer case after we had established a formal record and given all interested persons the opportunity to comment. If DOT determines that the transfer would be contrary to the public interest on competitive grounds or for another reason, DOT could disapprove the transfer in whole or in part.
DOT may also review any code-share arrangements concluded between the merging carriers. In DOT’s experience, code-share arrangements would likely be necessary during the early phases of integration after the transaction is closed.
Finally, at DOT, we take our responsibility for consumer protection seriously. For example, if carriers in pursuing or implementing a merger were to engage in unfair or deceptive practices, we have ample authority to protect affected consumers based on our unfair and deceptive practices statute (49 U.S.C. 41712).
Alaska and Hawaiian filed their request for international route transfers on July 15. And if you look in the docket, youʻll find nothing but letters of support from politicians and unions alike. Publicly, support has also been very strong from politicians in the states that would be most impacted, including Hawaiʻi Governor Josh Green who put out a public statement supporting the merger.
Itʻs hard to imagine DOT would be able to block this, though there could be some guarantees required to promote adequate service levels or something along those lines as the process rolls on. We don’t know what that might be, but now we just have to wait to see what DOT does.
And this is why I say during busier times I wouldn’t have even written about it. DOJ did nothing, and so now the big question is when DOT will give its decision. Once that’s done, then the merger can work toward completion. And that’s when the interesting posts can be written.
29 comments on “Alaska and Hawaiian Await DOT’s Ruling on Merger”
This merger frankly makes little sense. Hawaiian Airlines is struggling on many fronts. Tourism to Hawaii is down sharply from its pandemic and immediate post-pandemic growth and has leveled off. The engine issues on the 321 fleet have challenged HA’s operations. WN dumping capacity on inter-island routes has also hurt HA’s bottom line. HA’s fairly extensive long haul network is also not performing well, due to the strength of the dollar.
All these factors are of course reversible and temporary but what does HA bring to AS, really?
The DoJ likely doesn’t care as much because combining these two airlines doesn’t cut service, or raise prices. The F9/NK merger that B6 disrupted would have been approved. The B6 excuse that it needed more planes and pilots and the grossly high price it was willing to pay for NK are what scuttled that folly of a deal.
In the end, American will acquire parts of JetBlue or swallow it whole. B6’s future is not bright, when you consider its refocused route map on Northeast to Florida, San Juan, and Mexico beach markets.
Assume much? There’s no way to know if the Frontier/ Spirit merger would have been approved if JetBlue didn’t get itself entangled in it as the DOJ has been hostile towards large mergers in the Biden administration. As for JetBlue itself, you & a few others here need to stop the JB bashing… it’s become old & American is not swallowing them up as that merger would be denied by the DOJ outright.
B6, like all the products of the evil mind of Neelzebub, deserves to be bashed as much as possible, as do the Noo Yawk Yankers and the Massholes who are their biggest fans. As for swallowing the fetid corpse of that misbegotten airline, AA will share the meal with UA. AA gets Noo Yawk and UA gets Florida.
Oh it’s the troglodyte back again, just do us all a favor and change your sn to dumbass. Cause your comments reflect the intelligence of a dung beattle. Go back to your garbage chi(shit) town airline that ranks lowest in favorability for traveling public just like your garbage politicians.
Seriously? You are going to insult someone’s intelligence by when you can’t spell “beetle”. It’s better to keep your mouth shut and only appear to be a fool. You chose to open your mouth and prove it. Bravo.
B6 did itself no favors in their arguments for the merger, but ultimately the strongest argument the government had was a massive overlap between the two (Spirit and JetBlue) both in terms of specific segments, but even more so between Metro areas.
I suspect that Frontier and Spirit would’ve had similar challenges, but might’ve been able to argue that a larger carrier could make a better ULCC competitor, rather than B6’s admission that they wanted to eliminate a competitor (a bad thing to say in antitrust review!)
As far as AS/HA goes, there’s much less overlap between the two, and Hawaiian is quite small compared to either B6 or NK.
I’m a bit surprised the DOJ didn’t reach a deal with the carriers and actively endorse the deal – I’m sure Alaska would’ve preferred that finality rather than the tacit approval here.
I’m curious about the sequence here, and maybe it’s just a difference in administration. But when other mergers have reached the end of the DOJ review period, the DOJ has issued a statement. But the complete silence here is a bit odd. Officially, they’ve issued statements saying they’re closing the investigation.
For example, here’s the statement for DL-NW: https://www.justice.gov/archive/opa/pr/2008/October/08-at-963.html
And here’s one from Southwest-AirTran: https://www.justice.gov/opa/pr/statement-department-justice-antitrust-division-its-decision-close-its-investigation
JetBlue is, for all intents and purposes, a re-creation of either Eastern or National. And yes. I agree. Eventually it will be either swallowed up or carved up.
Eastern: The Wings Of Man. JetBlue: The Wings of Satan.
National: I’m Kathy, fly me. JetBlue: I’m Karen the Succubus, feed me.
I’m not convinced that it makes sense from a business point of view, but I’d venture a guess and say that Alaska has a business case for the deal and is holding its cards close to the vest. My guess is that some route rationalization will free up some planes to deploy elsewhere in the combined network. Given the backlog of plane orders, this might make a lot of sense.
As a consumer, selfishly I like the deal. I live in San Diego and am an Exec Platinum in AAdvantage. I try to do all of my west coast flying on Alaska (and credit the flights to AA, thank you Oneworld alliance).
On a trip to Sydney in 2019, rather than try to truck it up to LAX, I flew to Honolulu on Alaska and then on a separate ticket booked HNL-SYD on HA with about 60 minutes in between. It was brilliant.
Seems like there is potentially a lot of synergy to be able to utilize Hawaiian’s widebodies to consolidate Western US to/from Hawaii service and redeploy Alaska’s narrowbody planes to expansion/frequency increase
Airlines are constrained in finding airplanes and pilots. That would be my guess in Alaska’s desire. There’s enough demand to fill at least a couple of Hawaiian’s wide bodies from Seattle to the islands for sure and they can deploy the Alaska 737s they currently use for those routes elsewhere.
Alaska has recently flown SEA to HNL as much as 5x daily on the 737. That’s not a market you need high frequency for, they just don’t have anything larger. Hawaiian already flies an A330 + A321 – definitely some opportunity to consolidate those 6 narrowbody flights into a handful of widebody frequencies. The larger gauge is itself an efficiency boost but it also frees up gate space in Seattle.
With intra-island as well AS would have a much easier time making additional Hawaii flying feasible. Imagine markets like BOI-HNL on the 737-8.
What’s most interesting to me is what will happen with intra-island? Time after time that has proven to be too small to support multiple carriers. Southwest has been losing money hand-over-first on it but is large enough to easily sustain the losses. Will combined AS/HA try to push them out? AA/DL/UA/AS have happily been serving Hawaii for decades without intra-island.
Yes, gate space at SeaTac is also at a premium. Hard to see how Alaska grows much more without bigger planes that they currently don’t have.
Depending on DoT concessions, this merger won’t be great for Hawaii in the short term.
Alaska will shift and slash capacity from the lower yielding Hawaiian routes, to where Alaska needs that extra focus – SEA/PDX.
I do wonder if ALK can swap out their 789s for 787-10s, which are a perfect fit for Hawaii.
I’m curious about what more AS could add to SeaTac. I thought they pretty much went everywhere that made sense and then some. PDX might have some opportunities, but they don’t face as much competition there.
As long as AS doesn’t push the Airbuses out and replaces them with those crappy MAX’s I’m happy.
AS was clearly surprised that the merger wasn’t approved when the DOJ review period ran out so the question – which they clearly want to see answered – is what is holding up the DOT from approving the merger. None of the statutory reasons the DOT should have an interest matter other than 1. HA provides intrastate codeshare service to many other airlines who rely on HA to “complete” their Hawaii networks and 2. AS has an extensive codeshare and non-JV alliance relationship with AA. The DOT might have an interest in some requirements on those regards but you would think they would have come up in discussions so far – and it would seem that neither issue is worth scuttling the merger over.
The longer it takes for the DOT to indicate why it isn’t signing off, the more it would seem they have some type of concerns.
As you know there are two seperate but intertwined petitions before the DOT, the international route transfers and the exemption. I read that the last time the route transfers took several months to approve so the exemption appears to be the one holding up the whole thing. As you said something must be holding up the exemption.
The Merger checks many of the boxes for what the regulators would deem an “anti-competitive” combination in what is already a highly concentrated market in the hawaii-mainland city pairs….HNL/OGG to LAX. SAN,SFO,SJC.PDX in the case of PDX will go from 2 carriers to an outright monopoly and the others arent much better in the event of a merger. Nothing the unions or politicians say is gonna change that fact not to mention if the DOT approves the route transfer they have to send a report to congress documenting why this is a good deal for consumers…That will be an interesting read to say the least…
Route Airline Service Pre-merger Post-merger
Hololulu (HNL) – Los Angeles (LAX) ALK, HA, UAL, DAL, AAL, LUV 6 5 6 5
Maui (OGG) – Los Angeles (LAX) ALK, HA, UAL, DAL, AAL, LUV 6 5
Hololulu (HNL) – San Diego (SAN) ALK, HA, LUV 3 2
Maui (OGG) – San Diego (SAN) ALK, HA, LUV 3 2
Hololulu (HNL) – San Francisco (SFO) ALK, HA, UA 3 2
Maui (OGG) – San Francisco (SFO) ALK, HA, UAL 3 2
Hololulu (HNL) – San Jose (SJC) ALK, HA, LUV 3 2
Maui (OGG) – San Jose (SJC) 3 2 ALK, HA, LUV 3 2
Hololulu (HNL) – Seattle (SEA) ALK, HA, DAL 3 2
Maui (OGG) – Seattle (SEA) ALK, HA, DAL 3 2
Hololulu (HNL) – Portland (PDX) ALK, HA 2 1
Maui (OGG) – Portland (PDX) ALK, HA 2 1
I think this proves why the deal isn’t particularly anti-competitive. There are exactly two (2) routes which will go from having multiple carriers to only one. Out of the hundreds and hundreds of routes the two airlines collectively serve.
On the flip side, you’ll get significantly better schedule options for Hawaii-based travelers.
Very few mergers are truly good for consumers, but this one is about as benign as it gets imo.
And then you have to worry about reduced interisland flights post merger…I don’t care what ALK says….The flights are losing money they will scale them back not to mention the regional interisland carriers in Hawaii like Mokulele are surely working behind the scenes to prevent this since they rely heavily on codesharing and their leverage goes down significantly if HA gets taken out.
Unless Alaska still has enough Dash 8s. I saw three parked at PDX last week.
It’s a bit sad that Hawaiian will basically cease to exist other than the brand once this merger closes, even if it makes total business, route, and economic sense and that Alaska is the best of all possible buyers for understanding the importance of the airline to the state it serves, it’s still sad to see a storied airline with such a unique identity coming to a close. Glad I got to fly them this summer while they still truly are Hawaiian through and through
As the surviving carrier and certificate, it is hard to imagine Alaska subordinating its brand to a status any inferior to that of Hawaiian’s. As Hawaiian faces the encroachments of the established legacies, WN, and a softening economy, Alaska will most likely capitalize upon the business centered Seattle region and the upscale lower 48 and mainland leisure markets to the islands with the positives the Hawaiian brand and name evokes among these groups. With the soft product efficiencies Alaska offers and financially excels upon those short west coast to Hawaii routes; minting returns should continue along with serving the island’s predominately leisure market profitably which Hawaiian has done successfully, for so many years in its much storied past.
The fleet outlook i foresee are:
Hawaiian operated by Alaska 787s quickly.
Hawaiian’s domestic fleet rationalized to HA branded 737’s as the merger comes to fruition.
Hawaiian’s current HNL wide-body and international Airbus fleet, routes, and bases retained and made more efficient with partial IFE removal in addition to other economy, business model, and premium cabin enhancements… until Airbus fleet can be replaced with 787’s as long as these routes can be served off course with a 10%-12.5% ROI.
One has to always remember its always easier to shift 737’s to where they are profitable much more so then wide-bodies and thus now is the time for Alaska and Hawaiian’s Employees to really shine more than they do already, to assure wide-bodies and international flying are part of the Airline’s Islands culture going forward rather, than more One World Codeshares through Alaska’s and Hawaiian’s partners.
Alaska would be nuts to push out the Airbuses and rely on Boeing products. I prefer a A321 over a 737 any day. Wider fuselage and more comfortable.
I would rather have the Claw applied to me than fly an A321. I flew one on UA and hated it.
FWIW, if AS is going to be competitive in the international service arena, at the very least, they will need IFE and seatback screens on ALL widebodies. Even AA hasn’t removed IFE for their widebodies. AA knows better. If you are going to to attract foreign travelers you need to be competitive and offer IFE in all cabins. The few international widebody airlines that don’t offer IFE are not attracting higher yield business travelers.
Yes, AS tries to be a LCC, but in other areas – they excel in good overall service – on-board and on the ground. AS needs to offer a competitive international business and premium class cabin/service if they are going to be the airline of choice – especially for the higher end SEA and west coast based VFR traveler – as well as cracking new corporate contracts and markets for the new routes AS will most certainly use the widebodies for. Removing IFE from the widebodies would not be a good start out of the gate. It should be just a cost of doing business.
The other piece that hasn’t been discussed is the Amazon contract. Will AS want to continue that relationship with Amazon? Does AS want to manage a pilot base in CVG? Even though AS does a great job with it’s small all-cargo fleet and other cargo services, I sense the Amazon operation will be a distraction to AS and expect that to be wound down very quickly. So far, only two all-cargo A330’s have entered service.
HA issued warrants for Amazon to purchase up to 15 percent of HA’s common stock – how is that being accounted for?
SO_CAL_RETAIL_SLUT
While I adore this blog, it is clear that many of its participants have never been through FTC/DOJ merger process, especially the dreaded Second Request.
For those interested, here is nice FTC write-up on the process:
https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/mergers/premerger-notification-merger-review-process
The wording is follows after Second Request Waiting Period expires:
“Step Five: The Waiting Period Expires or the Agency Challenges the Deal
The potential outcomes at this stage are:
* Close the investigation and let the deal go forward unchallenged;
* Enter into a negotiated consent agreement with the companies that includes provisions that will restore competition; or
* Seek to stop the entire transaction by filing for a preliminary injunction in federal court pending an administrative trial on the merits.
Unless the agency takes some action that results in a court order stopping the merger, the parties can close their deal at the end of the waiting period. Sometimes, the parties will abandon their plans once they learn that the agency is likely to challenge the proposed merger.”
For hard-core readers, this FTC document shares more color on refinements to the Second Request process.
https://www.ftc.gov/enforcement/competition-matters/2021/09/making-second-request-process-both-more-streamlined-more-rigorous-during-unprecedented-merger-wave
Net net, “no formal approval” letter is NOT required, instead it is the absence of either a Consent Agreement or the filing of a Preliminary Injunction.
I do not have first hand experience with Airline M&A, thus can’t speak to how the DOT process applies (pre?, post?) compared to the normal FTC/DOJ process.
Great blog as always!
If it happens I would rename the airline 4950