After the US Department of Justice (DOJ) decided to let the Alaska/Hawaiian merger review period pass without saying a word, it seemed like the merger was a done deal. But then, something curious happened. The US Department of Transportation (DOT) kept delaying handing out its fairly standard approval. It clearly wanted something, and now we know what it was.
After Alaska and Hawaiian agreed to DOT’s demands, the approval was given, and Alaska can now officially say — in the immortal words of the Perfect Strangers theme song — nothing’s gonna stop me now.
DOJ is the department tasked with reviewing mergers for antitrust violations. That was always the big hurdle. But DOT just allows the transfer of international route authorities. Still, Sec Buttigieg clearly wanted to stretch his department’s authority and try to extract some concessions. The headline of the press release says it all.
USDOT Requires Alaska and Hawaiian Airlines to Preserve Rewards Value, Critical Flight Service as Merger Moves Forward
This is an attempt to show that DOT is doing something good, when it reality it probably significantly overstepped its bounds. For Alaska, however, it had to make more sense to agree to these mostly hollow promises instead of trying to take this to court. I don’t blame the airline one bit.
The agreement is publicly filed in the docket with only a few commercially-sensitive redactions, so we have a good idea of what Alaska is agreeing to do here. This agreement lasts for six years, and that’s a lifetime in this industry. So, what will Alaska do? Let’s see if I can put some themes together.
Keep Flying Routes With Limited or No Competition
Specifically, the government says that the new combined airline has to keep flying every route that each airline flies independently where there is either no other competition or only one other airline providing competition.
Not only does the new airline have to keep flying the routes, but it has to schedule with the “intent to operate at least 90 percent of the number of flights or 90 percent of the number of seats operated on such route by the Combined Carrier in the year-to-date period through August 31, 2024.”
Which routes are included? If we’re looking at the 12 months ending August 31, it’s all from Honolulu and Kahului to the West Coast. Specifically, it’s from each of those airports to Portland, San Diego, San Francisco, San Jose, and Seattle.
Of those, Portland from both Honolulu and Kahului along with San Diego from Kahului are only served by Hawaiian and Alaska today. In Honolulu – San Diego and San Jose from both Honolulu and Kahului, Southwest is the third carrier. In Seattle to Honolulu and Kahului, it’s Delta. Lastly, in San Francisco from both Honolulu and Kahului, it’s United.
This is in no way onerous. These are bread-and-butter markets for Hawaiian, and there is little to no chance the airline would want to walk away. Seeing the wording here, it looks like they can switch to smaller 737s instead of A321neos if they want and still maintain the number of flights, so they have good flexibility.
Maintain the Interisland Market
Alaska had to agree to a variety of rules around the interisland market. First, it has to maintain flying at a level “similar to” the flying it had on December 2, 2023. That’s the day Alaska announced it would buy Hawaiian. This is a pretty nebulous requirement, but it’s not going to be hard to achieve.
The airline also has to agree to maintain all of Hawaiian’s existing interline agreements at current or more favorable rates. The primary concern here was giving other airline customers access to Hawaiian’s interisland network. Since Hawaiian is the only game in town that partners with other airlines — as of now — this was important.
Alaska also has to maintain the interline agreement with Mokulele to smaller Hawaiian islands on Essential Air Service routes or with any airline that takes over the service. Alaska further has to continue its “longstanding commitment to and support for” the EAS program.
All of this is important for Alaska and Hawaiian to maintain anyway. Hawaiian has a lot of seats in the interisland market, and it needs to fill those. The interline agreements are hugely helpful and provide no real downside for the airline. Alaska also has a strong interline partner strategy, so it would be very strange if these were to be cut off at Hawaiian.
Oh — one last thing on this — Alaska has to agree in Honolulu to not sign agreements that “indirectly exclude or unjustly discriminate against a carrier that is a new entrant or smaller competitor.” Basically, DOT is making sure that if there are new entrants, Alaska won’t try to block them by squatting on space. Would Alaska rather keep new entrants out? Sure. But this is not a serious issue.
Help DOT Push Its Loyalty Goals
As we know, DOT wants to throw its weight around when it comes to loyalty programs, so this was a great opportunity to force the issue. That, at least, was the conspiracy theory I threw out on last week’s The Air Show, and it sure looks less crazy now. (Unrelated… this week on The Air Show, we talk about the Boeing strike. Have a listen.)
But since I was right, it’s time to push my next conspiracy theory that this has been in the works for years….
Original image via Jon Ostrower
Just kidding. Let’s take the tinfoil hats off this week.
The basics here involve keeping the HawaiianMiles program intact as is until they create the new combined program. I can’t imagine Alaska would have bothered tweaking that program anyway since it will be gone soon enough. DOT also wants Alaska to allow 1:1 transfers between the two programs. That must have been the plan anyway.
In the new loyalty program once it’s combined, it gets a little stickier. Some of the requirements are irrelevant. The airline has to keep a 1:1 ratio when moving miles in the new program, and it can’t have miles expire. Status has to stay consistent until the end of the program year when the change happens.
This is where I start to get confused. Alaska has apparently agreed that it will “ensure that all miles in the new combined loyalty program can be redeemed on fully refundable award tickets at no less than xx per mile on flights operated by the Combined Carrier.” The actual dollar amount is redacted, but the point is that there will be a ceiling on the number of miles tied to the selling price of a fully refundable ticket.
Alaska does not have a revenue-based program today, so this is strange. I assume the idea is that this number is higher than what Alaska does today, so it just prevents big devaluations. The program can keep being mileage-based if Alaska wants, but it just can’t get too pricey. But in a nod to the importance of credit card programs, DOT says that Alaska can alter this if the amount of money paid for miles by a credit card partner drops.
Another tangible restriction is that Alaska can’t have change or cancel fees on award tickets. They don’t have them today, but six years is a long time to guarantee it won’t change.
Then, firmly tying this agreement to DOT’s loyalty efforts, the department magnanimously agrees that if it puts out a rulemaking on loyalty programs that is less onerous than this, Alaska can abide by the new rules instead.
But Wait, More DOT Goals
This isn’t just about DOT’s loyalty goals. It has also made Alaska further comply with the Customer Service Dashboard requirements where airlines get green checks for doing what DOT wants.
The bulk of the work is just making sure Hawaiian aligns policies with what Alaska already does. No problem there. But Alaska wil make two changes to satisfy DOT.
First, it will provide at least one free standard carry-on and at least two free standard checked bags for military members. Second, it will waive change fees for service members who have to reschedule due to a military order.
Alaska already allows 5 checked bags for free, and anyone can bring a standard carry-on. And as for change fees, I guess that applies to Saver basic economy fares? There may be some corner cases here that aren’t covered, but this is all going to have a minor impact at most.
In the end, Alaska did not have to give up much to seal the deal with DOT, but DOT can crow about it as if it extracted incredible concessions. In the end, the deal is done and everyone seems happy. Now the hard integration work begins.
24 comments on “Alaska and Hawaiian Finalize the Merger After Agreeing to Largely Hollow DOT Conditions”
Can someone please explain to me the difference between this acquisition, and the JetBlue/Spirit? I honestly am baffled at how the Feds like to apply laws differently.
The whole notion that one was a ULCC and the other wasn’t doesn’t make sense to me. A business can change its model whenever it wants, so I never really understood that argument.
Also, congrats to AS and HA!
A lot more route and general network overlap between JetBlue/Spirit which would reduce competition on a lot of routes. The only real overlap between AS/HA is a few west coast – Hawaii flights, which is why they agreed maintain service on those.
The ULCC vs. non-ULCC doesn’t really make sense to me either, but I don’t think it really mattered to the DOJ.
Had Spirit disappeared, a lot of working class and poor people would have to go back to riding Greyhound because Frontier would have raised prices because of no competition.
JetBlue didn’t want to merge with Spirit. They wanted Spirit’s planes and pilots so they could grow their own brand faster.
The court didn’t like that a ULCC was going away, and that’s not the case here.
But it probably only delayed the inevitable when Spirit fails.
AviationNerd – This is pretty different. There is FAR less overlap between AS/HA than there was for B6/NK. B6/NK also operates in highly congested areas where new entrant access is very difficult. That’s not the case for AS/HA. Lastly, the business model difference is key. AS/HA have the same basic business model. B6 actively noted that it was going to convert NK to the B6 model, removing seats and increasing fares. Sure, anyone can change a business model, but it’s probably not great to say you’re going to make these changes and then get government approval.
And now you can expect the Alaska logo to change with the Eskimo to include a lay/s.
Wondering what you think will happen to HA operations at LGB. Popular take it that AS will be pulling out sooner rather than later.
Greg – I wouldn’t expect AS to pull out of Long Beach. Until the airline finds a way to fly from Orange County to Hawai?i, Long Beach remains a very desirable gateway to the islands from a large swath of geography. Not the same issue going up to the Pac NW.
Good to know since it wasn’t covered by the “thou shall not drop restrictions” as far as I could tell. If LGB would relax the commuter slot to allow the E175 it could be used it might make the airport more useful for the combine carrier.
That will happen about the same time as icebergs form in Long Beach harbor.
Hi Didnt the gov say AS could not pull out of existing routes? Did I read that wrong?
If AS has a price cap on award prices for 6 years, that can affect availability. A price control sounds good at first, but the law of supply and demand is not optional and the dollar inflation rate is not 0. It seems DOT lives in a vacuum.
It’s a price cap per refundable fare dollar, so if dollar prices on revenue tickets increase, reward prices can go up as well. Shouldn’t be too much of an issue.
This merger is a long term, not a short term play. In other words, 6 years means nothing.
What this merger does do is lock down the West Coast market for Alaska and by extension Oneworld.
When an airline has a clear schedule/network edge, these “fortress markets” (for lack of a better word) work very well for many airlines. Qantas in Australia, Delta in the deep south, Star Alliance in Central and Eastern Europe, etc etc.
I’m not an expert at this, but I would think that with Alaska/Hawaiian dominating that market, or potentially dominating it; also combining that with AA and Oneworld, that I would make it pretty hard for any new entrant to enter and succeed in Hawaii from the West Coast. If this makes sense what I’m saying. I’m only 19, so I do not know a lot about this stuff, and I am only thinking theoretically .
This definitely doesn’t sound too good for Southwest.
Don’t sell yourself short! One of the very positive points with this blog is that everyone has a voice – and at 19 you will see things that old fogies (like me!) don’t see! You make a good point, and it’s beyond my ability to comment constructively!
I found it interesting that they are looking at (as we know) the value of frequent flyer accounts, and how easy it is for an airline to randomly devalue those points. I know we can expect more on that topic from CF, as well as the Feds
Southwest isn’t a new entrant West Coast-Hawaii anymore, nor West Coast in general; they’ll be fine. If anything, in markets where AS + HA + WN is too much capacity, AS/HA can e.g. swap HA A321neos or even A330s for the same number of 737s (down to MAX8/800). Or if there are AS/HA flights on top of each other on narrowbodies they can swap in two narrowbodies for a 330 or 787, potentially with upgauges elsewhere in the schedule to maintain 90% of seats…and those are in markets where AS/HA are either the only airlines or two out of three. So they can drop LAX capacity without restriction.
In short, this merger will result in fewer seats West Coast-Hawaii on routes where the two airlines compete, so that winds up as *more* opportunity for Southwest, not less. And it’s a competitive market as it stands (all three alliances plus WN) so…should be fine.
This does makes the credit card program for the combined entity a lot more attractive, as there’ll be long haul on AS/HA metal from at least Seattle (which is an awesome connecting point to Japan/Korea when Russian airspace isn’t closed), and Hawaiian cardholders will be able to spend their miles on something that doesn’t touch Hawaii.
I remember asking a loooong time ago (Ostrower at FlightBlogger time ago) who the first narrowbody-only carrier to go widebody might be. Alaska was maybe my third guess, though not by merger. Reality can be strange. I imagine the big three will throw a lot of resources into encouraging those planes to stay in Hawaii and not get comfy in Seattle.
Being locked into interisland service sounds like it creates a no-win situation for Southwest. I wonder if they’ll bail on that.
Alaska is part of oneworld, and AA wanted to make Seattle into an international gateway with AS feed but failed. I don’t think AA would mind in the slightest if AS started running long-haul out of SEA (and maybe even PDX) since AA seems to like pawning off as much long-haul as possible to partners. Would be super interesting to see an attempt to get SEA-HND going on an AS/HA 787. Heck, SAN might have some options as well.
Delta OTOH won’t be happy that AS can do long-haul on their own metal, but it’s not the worst thing for Delta to have to compete on long-haul out of SEA (which…I’d love to connect there across to the north Pacific rather than LAX).
Requiring high interisland service levels though…yeah, that’s going to hurt Southwest’s interisland ambitions. Now that WN can do redeyes, this may be the thing that pushes them to turn planes for redeyes rather than bouncing around interisland as much, leaving AS/HA with something much closer to an interisland monopoly again.
Biden administration documented and practices a “whole of government” approach to M&A that has FTC/DOJ handle core antitrust-&-competition issues such as overlap-&-concentration across routes, seats, gates, and slots while the other Agencies (eg DOT) handle matters over/above/outside the core antitrust-&-competition issues.
In this light, I think the term “Hollow” is being used relative to lack of remedies required by FTC/DOJ as compared to the limited scope of DOT “concerns” in the areas “outside the core antitrust-&-competition areas”. In general, any conditions applied by Agencies beyond the FTC/DOJ is the new norm of the Biden administration’s “whole of government policy”. DOT is probably an ideal Agency to practice this policy given its long-term broad-&-extensive operational-&-regulatory role in the Airline industry.
As to Alaska:Hawaiian, it bears some resemblance to Lufthansa:ITA in that strong positions (hubs, marketshare) in top markets (Hawaii, Italy/Rome/Milan) were added to the corporate parent’s network and P&L. It will be interesting to watch Alaska and Lufthansa progress in obtaining their desired synergies.
It will also be interesting to watch how Alaska evolves the use of the Hawaiian wide-body fleet (A330, B787) across the broader network.
My conspiracy theory is Mayor Pete transferred gazillions of Amex MR to Hawaiian last month with the 20% bonus and now hus DOT is making sure those becomes the more “valuable” Alaska miles with a guaranteed no devaluation until all are redeemed!/s
The route conditions are unlikely to be challenged in court in this case but looks to me like DOT stands a good chance of losing if they were. They weren’t required by DOJ on competitive grounds and DOT doesn’t have jurisdiction over domestic routes. The route requirements don’t look like a big deal in this case but could be if DOT does more of this in the future.
Why was Alaska so adverse to keeping Virgin America’s Airbuses and relying on the dreadful MAX’s and now they will reincorporate Airbus aircraft in its fleet. What changed?
Baron – With Virgin, the Airbuses added no real value. With the exception of the small A321neo fleet which stuck around the longest, Alaska could use 737s to do all the missions of the other airplanes. There was no reason to bother keeping that small, separate fleet. With Hawaiian, the A330 widebody is not something Alaska can do with its own fleet. Over time, it may consolidate around the 787, but that would be down the line. The A321neo also served a helpful niche. It’s only slightly larger than the MAX 9, but it has much better range. That had limited utility for Alaska in the lower 48 (though it had some), but it becomes much more important when connecting the islands.
From the NYTimes Article with Alaska’s CEO, he mentioned they will almost certainly add are long-haul operations from Seattle. Delta’s long-haul international routes from SEA today are LHR, AMS, CDG, ICN, PVG, TPE (new), and HND.
Looking at LF data, it looks like LHR is losing a ton of $$, PVG is about breaking-even, TPE (new route) was doing well but with the new incoming capacity looks like it will be breaking-even, while the other routes do quite well (~high 80’s LFs).
What would Alaska’s long-haul opportunity be?
LHR is a clear opp. esp. if they can join the AA/BA JV – BA is the only one that can make SEA-LHR work profitably and has by far the top LFs (Delta’s already reduced frequency on this route before). HND would be as well but the AA/JAL JV would be a tougher argument and you’d need the slot – if they can get it, it would be a clear advantage. TPE is probably overserved, but if Starlux joins OneWorld as desired (and given Alaska’s current partnership w/ them), I could potential. SYD and MNL could be new markets perhaps with the former esp. attractive if they can join the Qantas/AA JV. Maybe try SE Asia?
Outside that though, what else? Paris, Amsterdam, and Seoul will be tough being SkyTeam hubs – seasonal flights to Paris I’m sure would work but yearlong Delta would have the advantage. PVG is probably breaking even (or slightly profitable), but we all know about the China lack of demand – maybe that changes?
At a first glance it looks like they have a clear path to weaken Delta internationally from SEA but will take hits on their own performance as well to do so which would be a risky proposition.