Alaska-Hawaiian merger will protect frequent flyer miles as part of major DOT agreement

The Department of Transportation said on Tuesday that it had taken a major step toward approving the merger between Alaska Airlines and Hawaiian Airlines, effectively allowing the two airlines to close the deal.

As part of the step, the airlines and the DOT also locked in some major protections for frequent flyers sitting on big stashes of Alaska Mileage Plan or HawaiianMiles points.

The DOT said that it had approved the airlines' "exemption" request, which would allow the carriers to operate as two separate airlines under the same owner before combining operations. In other words, Alaska Airlines is clear to take ownership of Hawaiian in accordance with the airlines' merger agreement.

While that suggests the merger is a done deal and will eventually be cleared in full, the DOT still must approve the airlines' "transfer request," which would allow them to operate as a merged airline under a single operating certificate. That approval remains subject to a variety of requirements, DOT officials said on Tuesday, and will depend on the FAA's review and sign-off on safety and operational plans.

Approving the exemption request and allowing the transactional part of the merger to close with the transfer request still outstanding allows the airlines a greater degree of regulatory certainty as they move forward with the operational aspects of the merger.

It's also an unusual step.

Before granting the approval, the DOT secured several commitments from the two airlines, which Transportation Secretary Pete Buttigieg characterized as "preserving air service" and "better serving passengers." The commitments accompanying DOT's approval — which include the frequent flyer provisions — appear to be unprecedented.

"This is the first time that the [DOT] has required airlines to agree to binding, enforceable protections as a precondition before we would consider allowing a merger to move forward," Buttigieg said during a press briefing Tuesday afternoon. "This new approach prioritizes the public interest from the outset."

Under the agreement, the two airlines must preserve all current Essential Air Service routes, along with current levels of service within the Hawaiian islands, and between Hawaii and the continental U.S. The carriers are also prohibited from taking any actions that would harm competition at Honolulu's Daniel K. Inouye International Airport (HNL).

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On the "better serving passengers" side, the two airlines agreed to a variety of consumer commitments requested by DOT, the agency said. These include guaranteeing that families with children can sit together without added fees and promising compensation for certain delays and cancellations. The airlines also promised to lower costs for traveling military service members.

The airlines also agreed that they would not devalue either carrier's frequent flyer miles as part of the merger, nor take away any benefits from each tier of elite status during the process of combining into a single program.

Members of Alaska's Mileage Plan program and HawaiianMiles will be able to transfer miles between the two at a 1:1 ratio ahead of the launch of a combined program in the future, DOT said. The combined airlines are prohibited from devaluing HawaiianMiles that were earned before the merger closes, and must continue awarding miles under the program at the same rate or higher. The combined airline also has to maintain a minimum value for all miles in the new program as "measured by the guest-facing value of miles redeemed for carrier-operated flights." It was not clear what that minimum value would be set at.

Both airlines also agreed to match and maintain status benefits across the two programs in order to avoid any level being devalued, DOT said, so as to "ensure members of each existing loyalty program are treated no less favorably relative to status, including by matching or increasing members’ elite status in the new combined loyalty program, for the remainder of the applicable program year" when the new program is launched.

The merger made its first major leap forward last month when it received implicit approval from the Department of Justice, which opted not to block it with an antitrust suit ahead of a key deadline. The airlines still needed to await DOT's approval of the exemption request before closing the deal.

The $1.8 billion dollar combination will be the largest U.S. airline merger since Alaska Airlines bought rival Virgin America in 2016.

It stands in stark contrast to another recent merger deal that was ultimately blocked by DOJ.

In January, the DOJ won an antitrust suit blocking JetBlue's planned acquisition of Spirit Airlines. During a monthlong trial in federal court in Boston last fall, the DOJ argued that the merger would hurt competition across the industry. DOJ similarly sued in 2022 — successfully — to block the Northeast Alliance between JetBlue and American Airlines, which would have seen the two airlines codeshare on each other's flights and coordinate their route networks.

The combined Alaska-Hawaiian would be the fifth-largest airline in the U.S. in terms of fleet size, with 365 aircraft.

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