Alaska Airlines to buy Hawaiian Airlines for $1.9 billion

Alaska Airlines and Hawaiian Airlines said on Sunday that they would combine, the latest set of U.S. airlines seeking to grow and compete via merger.

Under the agreement, Alaska Airlines would buy Hawaiian for $18 per share, or roughly $1.9 billion. That includes $900 million in debt.

In a joint announcement, the airlines said that the merger would allow both carriers to compete effectively across the U.S. and globally while expanding destinations and entrenching the combined carrier on the West Coast.

Both airlines' brands would continue to exist "on a single operating platform," the carriers said, with a single loyalty program. It was not immediately clear what parts of the airlines brands and operations would be kept separate and which would be combined, or how the differentiated brands could function as an integrated operational entity. In a presentation to investors, the airlines predicted run-rate synergies of approximately $235 million.

During a conference call with investors Sunday afternoon, Alaska Airlines CEO Ben Minicucci said the airlines would feature two brands from a customer-facing perspective, but would work on a single operating certificate and would combine work groups from both airlines under a single collective bargaining agreement.

Later on Sunday during a press conference, Minicucci said that a lot of how the two brands will coexist under the same entity is yet to be determined.

"The reason we don't have all the answers right now because it hasn't been done," he said. "And so we actually have to go through it and ensure that we can execute it well."

Mincucci compared the combined frequent flyer program to a hotel program like Marriott Bonvoy, which functions as an umbrella for separate hotel brands.

The combined entity would be based in Alaska Airlines' headquarters of Seattle, with Honolulu as a key hub.

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"This combination is an exciting next step in our collective journey to provide a better travel experience for our guests and expand options for West Coast and Hawai'i travelers," Minicucci said in a press release.

Minicucci would lead the combined entity, the airlines said.

The carrier would be the fifth-largest in the U.S. in terms of fleet size, with 365 aircraft.

Should the pending merger of JetBlue and Spirit be approved in federal antitrust court, the combined Alaska-Hawaiian would drop to the sixth largest; Spirit will have 204 aircraft at the end of 2023, while JetBlue had 296 as of the end of the third quarter, according to both respective airlines.

Hawaiian Airlines has struggled since the COVID-19 pandemic, and is on track to record a loss for 2023. The reopening of much of Asia, particularly Japan, has been a boon, with roughly 25% of Hawaiian's revenue coming from transpacific passengers, according to some estimates. The airline also faces stiff competition from Southwest on inter-island routes and routes from the West Coast.

Hawaiian Airlines And Oneworld would bring an expanded network for Alaska Airlines

Following the transactions, the combined airline would be part of the Oneworld airline alliance, which Alaska joined in early 2021.

According to the carriers, the combined airline would initially service 138 destinations across its network, including 29 international markets. More than 1,200 destinations would be accessible through Oneworld partners.

The combined airline would have 31,200 employees and an estimated 54.7 million annual passengers.

The two airlines said that they would remain fully committed to Hawaii, with a strong operational presence and a leading position in the $8 billion leisure market.

The combined carriers would have more than 50% of the Hawaiian air market share, and would "retain and grow union represented jobs" in the state. Alaska currently allocates more than 10% of its capacity to Hawaii. The carriers would retain pilot, flight attendant and maintenance bases in Honolulu.

Will the DOJ move to block the Alaska-Hawaiian merger?

The airlines did not address whether or not they would expect the merger to be challenged by regulators.

The Biden administration has proven to be anti-consolidation across various markets and industries, including airlines.

The Department of Justice (DOJ) successfully sued to stop a partnership between JetBlue and American Airlines, called the Northeast Alliance, arguing that the partnership amounted to a de facto merger.

Related: JetBlue once planned to buy Alaska Airlines, court testimony reveals

A proposed merger between JetBlue and Spirit — in which JetBlue would acquire Spirit and absorb it under its brand — was also challenged by the DOJ citing antitrust laws. Closing arguments for that trial are scheduled for Tuesday.

Alaska and Hawaiian say that less than 3% of their network routes overlap. Of 1,400 combined flights per day, the airlines only share 12 overlapping markets, Minicucci said on the investor call.

Alaska CFO Shane Tackett said that the two airlines have been in talks for a "long time," and Minicucci added that there was no connection between the timing of the announcement and the JetBlue-Spirit trial.

Employee groups react to merger news

Early reactions from employee groups at the two airlines were cautious.

The Association of Flight Attendants, which represents cabin crewmembers at both carriers, suggested that it would support the merger as long as benefits for employees were guaranteed.

"Our first priority is to determine whether this merger will improve conditions for Flight Attendants just like the benefits the companies have described for shareholders and consumers," the union said in a statement. "Our support of the merger will depend on this."

Alaska has 6,800 flight attendants, while Hawaiian employs 2,200.

The International Association of Machinists and Aerospace Workers (IAM), which represents employees from various workgroups at both airlines, echoed the flight attendants' statement.

"Our membership at Alaska and Hawaiian Airlines are rightfully proud of the work they've done to make these carriers successful," said IAM District 141 official Mike Klemm. "We will use every resource necessary to ensure that their livelihoods are protected during this acquisition."

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