Alaska Air buys Hawaiian Airlines for $1.9 billion

New York
CNN
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Alaska Airlines (Alec) announced on Sunday that it would buy the competitor Hawaiian Airlines (Ha) for $1.9 billion.

The acquisition was the culmination of “several months” of negotiations, according to Alaska Airlines CEO Ben Minicucci. It will include $900 million of Hawaiian Airlines’ debt.

“This is a great deal that brings together two airlines with amazing loyalties in our region,” Minicucci said at a news conference, adding that the merger will give customers in both states expanded domestic and international options.

The transaction is expected to take between Nine and 18 months will see both companies retain their brands, a unique decision that Minicucci and Hawaiian Airlines CEO and President Peter Ingram says was made out of respect for the companies’ nearly 100-year legacy. Airlines and the communities they serve.

Both states are “uniquely dependent on air travel,” Alaska Airlines said in a news release Sunday. The airline currently serves 19 cities, many of which are not connected by roads.

Alaska will pay $18 per share in cash for each Hawaiian Airlines share under the terms of the deal, a 270% premium to Friday’s closing price. Hawaii stockswhich is down more than 50% so far this year, is up more than 180% in pre-market trading, while shares Alaska Airlines It fell more than 12% in pre-market trading.

The deal will need approval from federal antitrust regulators before it can be completed. Most airline mergers in recent decades have been approved with little trouble, allowing a series of mergers that have reduced the 11 largest U.S. airlines to just four major airlines controlling 80% of the country’s air traffic.

But the Biden administration has done a lot Tougher stance on antitrust issues, especially regarding airline mergers, arguing that they lead to higher prices by reducing the options available to passengers. He already won End of the alliance Between American Airlines and JetBlue in the northeastern United States, this is a challenge Proposed merger between JetBlue and Spirit Airlines. Closing arguments in the federal court case over the merger are scheduled to begin on Tuesday.

But Minicucci said that while he had not spoken to regulators about his proposed deal, he said this merger would be different among other airline groups in which the two companies serve many of the same routes.

“When these complementary networks are combined, we will have about 1,400 flights per day,” Minicucci said on a call with investors on Sunday. “In those 1,400 flights, we only have 12 overlapping markets. So, from a competitive standpoint, I think it’s really, really good.”

Hawaiian Airlines was struggling financially and seemed to need a partner. While the major U.S. airlines have all returned to profitability helped by strong travel demand and rising airfare prices, Hawaiian has been facing increasing competition in its home market since entering… Southwest Airlines On the market in 2019.

Increased competition has led to a decline in average revenue from passengers per available seat flown by Hawaiian Airlines, a key measure of airline ticket prices. This fare measure is lower compared to last year and to the same period before the pandemic. It has reported just one profitable quarter since the start of the pandemic, and losses increased last quarter as well as year-to-date, despite lower fuel costs.

Part of the financial pressure comes from… High labor costs. At the beginning of the year, it reached an agreement with the pilots’ union for a 32% pay increase over the four years of the contract, including an immediate 16% pay increase. While pay increases of this magnitude have become common across the airline industry, the new contracts have helped raise the airline’s labor costs by 18% so far this year.

The merger would also turn Honolulu into the company’s second-largest hub, “enabling greater international connectivity for West Coast travelers throughout the Asia-Pacific region with one-stop service through Hawaii,” according to the press release.

Alaska Airlines’ fleet will expand from about 300 to 365 aircraft, serving a total of 138 destinations, including “nonstop service to 29 major international destinations in the Americas, Asia, Australia and the South Pacific,” the company said in a statement. launch.

Due to Alaska’s membership in the Oneworld international airline alliance, Hawaiian Airlines loyalty customers will have access to enhanced benefits such as lounge access, an enhanced credit card loyalty program and the ability to earn and redeem more miles.

“At Alaska Airlines, we are joining an airline that has long served Hawaii and has a complementary network and shared service culture,” Ingram said. “With the additional scale and resources this transaction with Alaska Airlines provides, we will be able to accelerate investments in our guest experience and technology, while maintaining the Hawaiian Airlines brand.”

Minicucci, who will become CEO of both companies, has heralded the move as “pro-consumer” and will allow. For the country’s fifth-largest airline to compete more aggressively with United, Delta, Southwest and American Airlines, which currently hold 80% of the domestic market share.