Alaska Air High-Stakes Gamble: Alaska Air Group Inc (ALK.N) announced a bold move on Sunday, revealing its acquisition of Hawaiian Holdings Inc (HA.O) for a substantial $1.9 billion, encompassing debt. This strategic move positions Alaska Air in the volatile airline industry, taking a calculated bet on Hawaiian’s lucrative routes amidst U.S. antitrust regulators’ concerns about consolidation.
The deal, valued at $18 per share in cash, presents a staggering premium, nearly four times Hawaiian’s closing price on Friday. The hefty premium reflects the challenges faced by Hawaiian, including Maui wildfires, elevated fuel costs, and jet engine recall issues contributing to a significant 65% share price drop over the last 12 months.
Antitrust regulators, already wary of consolidation in the airline sector, are likely to scrutinize this acquisition, echoing the ongoing legal battles over JetBlue Airways Corp’s (JBLU.O) proposed $3.8 billion acquisition of Spirit Airlines Inc (SAVE.N).
Despite the skepticism, Alaska Air remains confident in the deal’s approval by the end of 2024, emphasizing the limited overlap of the two airlines, with only 12 shared flights out of the 1,400 they collectively operate. Alaska Air CEO Ben Minicucci expressed optimism about the Hawaiian market, considering it a stronghold for tourism, weddings, and anniversaries.
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The deal, if approved, would grant Alaska Air control of over 50% of the market for Hawaii flights, a key destination for global tourists. Defending the 270% premium offer, Alaska Air justified it as a bargain, valuing Hawaiian at 0.7 times its annual revenue, significantly below the industry average of 1.7 times, and expecting a minimum of $235 million in annual savings.
Alaska Air initiated discussions with Hawaiian over the summer, aiming for a strategic tie-up. Despite Hawaiian’s recent challenges, Alaska Air highlighted its historical profitability and operating margins, fluctuating in mid-teen percentages between 2010 and 2019.
The acquisition is projected to yield high single-digit earnings gains for Alaska Airlines within the first two years, with no significant impact on long-term balance sheet metrics. The combined company, headquartered in Seattle under Minicucci’s leadership, will maintain a mixed fleet initially, with the possibility of future rationalization. Honolulu will emerge as a key hub for Alaska Airlines.
The International Association of Machinists and Aerospace Workers (IAM), representing 600,000 manufacturing and aerospace employees, expressed intentions to safeguard the rights of its members at both carriers in response to the acquisition.
Our Reader’s Queries
Can you earn Alaska miles on Hawaiian Airlines?
Alaska’s Mileage Plan and Hawaiian’s HawaiianMiles program have come together to offer a reciprocal frequent flyer agreement. This means that members of both programs can earn mileage credits and use awards on each other’s route networks. It’s a win-win situation for frequent flyers who can now enjoy more benefits and flexibility while traveling.
Who owns Alaska Air?
Seattle-Tacoma International Airport, Portland International Airport, Ted Stevens Anchorage International Airport, and Los Angeles International Airport serve as the main hubs for this company.
Where are Alaska Airlines hubs?
Alaska Airlines is a low-cost carrier that has the potential to become an ultra-low-cost airline due to the earnings from reward and loyalty points. The airline recently reported a strong quarter with a net income of $139 million and a pre-tax margin of 6.8 percent.