Alaska-Hawaiian Airline Deal Is Exposed to Anti-Merger Fervor

Alaska Air Group Inc. and Hawaiian Holdings, Inc. in early December announced Alaska Airlines’ plan to buy Hawaiian Airlines for $1.9 billion, while agencies were concluding the bench trial over the government’s challenge to the merger between JetBlue Airways Corp. and Spirit Airlines, Inc. Alaska declared it would assume $900 million of Hawaiian’s debt but keep the airlines separate, much like it operates Horizon Air.

The US airline industry is confronting aggressive government antipathy toward mergers. Based on the pleadings filed in the JetBlue-Spirit case, this seems to be grounded predominantly in remorse over past merger approvals rather than a legal position based on law or prior practice.

Previously, the merger of relatively small airlines wouldn’t prompt inordinate legal opposition. But although Alaska Air Group’s proposed acquisition would have easily been approved in the past, it’s vulnerable to the current wave of anti-merger actions.

Neither Alaska nor Hawaiian has significant market power. Alaska Air Group is the fifth-largest US airline, slightly ahead of JetBlue, but isn’t widely known beyond the West Coast. Its biggest operation is in Seattle, though it increased its California footprint in 2016 by buying Virgin America Inc. for $2.6 billion after a bidding war with JetBlue.

Hawaiian Airlines’ domestic market share is only a quarter of Alaska Airlines’, operating flights throughout the island chain and to the US mainland. The airline has just two East Coast destinations—New York and Boston—and relies heavily on traffic between Asia and Hawaii.

Hawaiian isn’t even the biggest carrier to the islands, as United operates more nonstop flights. And Hawaiian has been losing money and could beef up its competitive position with support from the Alaska Air Group.

Alaska and Hawaiian have claimed the deal is unobjectionable because of limited route overlap and expanded reach. Alaska would access Hawaiian’s network in the Asia-Pacific region, and Hawaiian would expand its current reach with Alaska’s network throughout much of the US.

These factors have been tossed aside in favor of political dogma stating that mergers are bad and regulators want to block them. But the Department of Justice previously allowed much larger carriers to merge.

Efforts to block the JetBlue-Spirit tie-up, the American-JetBlue Northeast Alliance, and now perhaps Alaska’s acquisition of Hawaiian, appear to have more to do with regret over allowing American, United, and Delta to complete prior acquisitions.

The aggressive government stance is reflected in its stated position that the Boston judge handling the proposed JetBlue-Spirit merger is powerless to condition approval on further slot or route divestitures. Instead, the court must either approve or reject the very idea of the merger, with zero ability to perform equity and impose conditions that will make the tie-up lawful.

In its post-trial brief, the government asserted, “This merger is plainly anticompetitive and cannot be saved,” adding that “the only adequate remedy here is a full-stop injunction barring Defendants from consummating the merger agreement underlying this action.”

Even if the DOJ doesn’t challenge Alaska’s acquisition, state and local governments attacking the JetBlue-Spirit transaction—such as Washington, D.C., Maryland, Massachusetts, New Jersey, New York, and North Carolina—may independently file a case given the aggressive position they took in that litigation.

Also, the Department of Transportation in March 2023 announced it would independently try to block that deal by refusing regulatory approval. It stated it “fully supports the Justice Department’s lawsuit under the Clayton Act” and separately would “deny the exemption application” filed by the airlines for permission to operate under common ownership prior to the requested transfer.

Regardless what the DOJ and the federal courts decide, the DOT could try to scuttle the deal if it decides the linkage hurts competition.

This staunch position is unprecedented, contrary to the Airline Deregulation Act of 1978, and nearly verbatim of a letter Sen. Elizabeth Warren (D-Mass.) wrote to Transportation Secretary Pete Buttigieg in September 2022 urging him to block airline mergers.

An airline merger that historically would have been approved is now subject to political headwinds that are extraordinary in their nature and vigor.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Roy Goldberg is partner in the Washington, D.C., office of Stinson.

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