Airline analysts, experts tout deal between Alaska, Hawaiian

Hawaiian Airlines’ pending $1.9 billion sale to Alaska Airlines was praised by industry analysts and experts as a positive development that is expected to receive clearance by the U.S. Department of Justice and benefit the flying public.

There had been speculation for years about Hawaiian getting snapped up by a larger competitor, but the announcement Sunday caught some by surprise while others said it was just a matter of time following other consolidations between larger carriers throughout the industry.

“I wasn’t terribly surprised because that’s what’s happening in the industry,” said Hawaii aviation expert Peter Forman. “Mergers (occur) to get critical mass so that you can compete with the other big carriers. So I think it was only a matter of time before Hawaiian was involved in a merger. And I think Alaska is just the very best choice as a partner. I think it’s going to work well.”

Forman said the cultures of the two airlines are similar and that the carriers have only 12 overlapping departures out of 1,400.

There aren’t as many obstacles to overcome to get federal approval as there are currently with the proposed JetBlue-Spirit budget airline merger, according to Henry Harteveldt, a travel industry analyst at San Francisco-based Atmosphere Research Group.

“This is a different merger than JetBlue-Spirit because of the potential loss of a budget airline, and low-fare capacity that represents,” Harteveldt said. In the case of Hawaiian-Alaska, while the two airlines do compete aggressively on price, none is a budget airline. I don’t anticipate the same degree of objections.”

Still, the announcement of the deal caught Harteveldt by surprise.

“It was a surprise,” he said. “I wasn’t expecting to see Alaska and Hawaiian merge. I don’t think many people who are in or who follow the industry were expecting this. So it was a surprise. I’ve been an industry analyst for 23 years, and throughout my career, there have been rumors of different potential combinations for Hawaiian, including possibly American Airlines, Delta Airlines and others.

“But I think it’s become increasingly clear in the past few years that none of the big four U.S. airlines would be given permission by the Biden administration to acquire another airline. And that left very few potential suitors for Hawaiian. JetBlue was always rumored to be an airline that potentially could merge with Hawaiian. Alaska certainly was one that people wondered if they would pursue a merger with Hawaiian. But now we know the answer to that.”

Southwest Airlines, which entered the Hawaii market in March 2019 following the shutdowns of Aloha Airlines (March 2008) and Mesa Air Group’s go! (April 2014), had been making inroads in interisland routes and trans-Pacific travel to and from Hawaii.

“The big earthquake to competition was when Aloha was put out of business by Mesa Air Group,” Forman said. “No one could fill those boots like Aloha did, so there’s been a lot of turmoil interisland, and to and from Hawaii when Aloha disappeared.

“Now Southwest wants to be an equal competitor in the interisland business, but they’re going to have to earn it by delivering a good product because Hawaiian has been determined not to let them buy market share by undercutting Hawaiian’s lowest prices. In the early 1980s when Mid Pacific (Air) came in and was able to underprice Hawaiian by $5 on interisland fares, Hawaiian took a huge cut, and it almost put Hawaiian out of business. Hawaiian learned a lesson that you can’t let a competitor underprice you in the market. That’s been their way of doing things ever since. It’s a financial reality that you have to match fares if you’re going to be a long-term competitor in that market.”

It’s unlikely there will be a fare war, according to aviation consultant Mike Boyd of The Boyd Group in Evergreen, Colo.

“No way,” he said. “The capacity will not change much.

“Alaska is just adding additional routes. Hawaii has a lot of latent and unrecognized value in a world where leisure destinations are getting dicey. Take this to the bank: Hawaii is in line for huge growth because other leisure destinations are in deep trouble — Mexico, near Latin America, etc.”

Forman also agrees that fares hardly will be affected.

“I think fares are really not going to be impacted much because there is no price war going on between Hawaiian and Alaska,” he said. “I think it’s going to be mostly neutral in terms of the impact on fares to and from Hawaii. I think the one place it would affect Southwest is on their ongoing effort to break into the interisland market because they’ve been trying in the past to find a way to pressure Hawaiian financially so that they could establish themselves with a lower cost than Hawaiian on a ticket. Everybody who has tried to compete with Hawaiian has tried to do the same thing, and now with the financial backing of Alaska, I think Southwest realizes they’re not going to be able to buy market share, they’re going to have to acquire it the traditional way, which is to do a lot of flying and make people happy.”

Southwest said it doesn’t comment on the subjects of specific pricing and real-time reporting of traffic figures, mergers and acquisitions.

“We don’t have any comment to offer today,” the airline said. “We’ll continue to compete in the marketplace with our award-winning hospitality, friendly service, and low fares.”

Forman said Southwest is going to have to take a wait-and-see approach before deciding how to counter its new, larger rival. The deal is expected to close in 12 to 18 months.

“I think to and from Hawaii from the mainland, it’s not going to affect them very much,” he said. “But I think they (Southwest) are going to have to reassess how they do the interisland, whether or not they’re going to pressure Hawaiian to yield on giving Southwest a price advantage. I don’t think that it’s ever going to happen. I think Hawaiian is going to have enough financial stability after this merger that Southwest cannot use their greater size as a weapon in the interisland competition. So I think it makes the interisland competition much more fair because now you have two airlines that have more similar backing.”

Harteveldt said if the merger is approved, the big question is what other airlines will do.

“Obviously, if the merger goes through, the biggest risk for the Hawaiian market is two airlines that currently fly to Hawaii from several points on the mainland will become one,” he said. “So it will be interesting to see what other airlines backfill the exit of whether it’s Alaska or Hawaiian, depending which airline ends up continuing to operate the mainland-Hawaii service. But I think it’s also interesting to step back and look at the potential for Alaska to evolve its mainland U.S. network to potentially more connecting passengers to the flights to Hawaii, and for Hawaiian to potentially expand its flying both from Hawaii to the mainland as well as to other destinations in the Asia-Pacific region. There could be some very interesting growth opportunities. It would not surprise me to see a combined Alaska-Hawaiian using its expanded network to compete more vigorously with some of the larger, more established trans-Pacific airlines, potentially using price as a key tool to attracting customers.”

Harteveldt also noted that since Alaska is a member of the Oneworld alliance, which provides seamless travel and rewards for frequent flyers, adding Hawaiian to the mix would create a lot of growth opportunities.

“But we cannot ignore the fact that there is a risk that on some routes we may see a loss of one airline,” he added.

Forman said the merger actually would increase competition because Hawaiian and Alaska would be more capable of competing against the big four airlines, which ranked by capacity are United, American, Delta and Southwest.

“It can be a lot more attractive for somebody traveling because there’s more combinations of trips that can be put together under one fare,” Forman said.