Back in December of 2023 Alaska Airlines Holdings, the parent company of Alaska Airlines, announced that it had entered into an agreement to purchase Hawaiian Airlines for roughly $1.9 billion. This proposed merger would make the combined entity the fifth largest airline in the United States after the big 4; American, Delta, Southwest, and United.
Last month, we reported that the proposed merger had cleared a major regulatory hurdle as the U.S. Department of Justice (DOJ) let the time period to complete its regulatory investigation of the proposed combination expire without taking any action.
Now, the Department of Transportation (DOT) has given the merger the go ahead as the DOT issued an order to grant an exemption relating to the transfer of international route authorities in the combination of Alaska Airlines and Hawaiian Airlines. With this exemption in place, the two companies expect to close their merger transaction in the coming days.
In connection with the DOT’s issuance of the order, the two airlines and the DOT agreed to certain commitments. These commitments align with the plans Alaska announced at the time it signed the transaction. Alaska describes these commitments as being “consistent with its longstanding commitment to exceptional customer service, serving air service dependent communities, and an industry-leading loyalty program”. These commitments are not expected to impact the synergies of the deal.
Alaska/Hawaiian Merger Conditions
The DOT announced that it secured “binding, enforceable public-interest protections from Alaska Airlines and Hawaiian Airlines prior to the close of their merger.” At a high level, as part of the merger, Alaska and Hawaiian are required to protect the value of rewards, maintain existing service on key Hawaiian routes to the continental United States and inter-island, preserve support for rural service, ensure competitive access at the Honolulu hub airport, guarantee fee-free family seating and alternative compensation for controllable disruptions, and lower costs for military families.
The bulk of the protections are related to protecting the value of rewards for Alaska Mileage Plan and HawaiianMiles members. These include the following:
- No expiration for miles earned under current programs: All HawaiianMiles miles and Alaska Mileage Plan miles earned prior to conversion into the new combined loyalty program must not expire.
- Transfer miles at 1:1 ratio: Rewards members can transfer HawaiianMiles miles to and from Alaska Mileage Plan miles at a 1:1 ratio prior to the launch of the new combined loyalty program. Each outstanding HawaiianMiles and Alaska Mileage Plan mile must be converted into a mile in the new loyalty program at a 1:1 ratio, resulting in all members having the same number of miles before and after conversion.
- Maintain value of miles: The combined airline must not take any actions that would devalue HawaiianMiles miles, must maintain the value of each unredeemed HawaiianMiles mile earned prior to the merger closing, must honor all active HawaiianMiles promotions from prior to the merger closing, and must continue to award HawaiianMiles miles at the same or greater value. The combined airline must maintain a minimum dollar value for all miles in the new loyalty program, measured by the guest-facing value of miles redeemed for carrier-operated flights.
- Match, maintain, or increase status: Under the new combined loyalty program, the combined airline must match and maintain the equivalent status levels that HawaiianMiles members hold under the HawaiianMiles program, match and maintain status levels and conferred benefits that are equivalent to Alaska’s Mileage Plan program, and match or increase status and conferred benefits as necessary 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.
- No new junk fees: The combined airline must not impose change or cancellation fees on rewards redemption tickets for travel on carrier-operated flights.
In addition to the protections around the frequent flyer programs, the airlines and the DOT have agreed on additional concessions in the following areas:
- Maintaining critical inter-island and continental routes: Hawaii’s rural island communities are uniquely dependent on the passenger and cargo services provided by Hawaiian Airlines. The combined airline must maintain robust levels of service for critical Hawaiian inter-island passenger and cargo service and for the key routes between Hawaii and the continental United States at risk of a loss of competition.
- Preserving support for essential air service in Alaska and Hawaii: The combined airline must preserve its support for Essential Air Service in Alaska’s and Hawaii’s small, rural communities where such service is a lifeline to health care, education, and economic well-being.
- Ensuring competitive access to Honolulu hub airport: The combined airline is barred from directly or indirectly taking actions that would discriminate against new airline entrants or smaller competitors’ access to airport infrastructure as part of new or existing investments at the Daniel K. Inouye International Airport in Honolulu, a key vacation destination and hub for the State of Hawaii.
- Guaranteeing fee-free family seating: Hawaiian Airlines must join Alaska Airlines in guaranteeing adjacent seats for children 13 or under and an accompanying adult at no additional cost for all fare types.
- Providing alternative compensation for delays and cancellations caused by the airline: Hawaiian Airlines must join Alaska Airlines in providing a travel credit or frequent flyer miles when, due to circumstances within the control of either airline, a flight is cancelled and they wait three hours or more for a new flight, or a flight is delayed by three hours or more from the scheduled departure time.
- Lowering costs for service members and their families: The two airlines must lower costs for the nation’s military and their families, a significant population in both Alaska and Hawaii, by waiving certain fees. Both airlines will update their customer service plans to provide at least one free standard carry-on and at least two free standard checked bags for service members and their accompanying spouse and children. They will also waive change fees for service members and their families who reschedule flights due to a military order or directive.
On paper, these concessions all seem reasonable and should be a positive for travelers on both airlines. The Department of Transportation under Secretary Pete Buttigieg is also showing its feelings on a variety of topics around air travel with a focus on consumers.
I was somewhat surprised at how reserved the concessions were given what we’ve seen from this administration regarding the Northeast Alliance between American and JetBlue and the proposed merger between JetBlue and Spirit which was shot down.
Ben Minicucci, Chief Executive Officer of Alaska Air Group, had this to say after the approval and concessions were announced:
“We look forward to formally welcoming Hawaiian Airlines’ guests and employees into Alaska Air Group. We sincerely appreciate the exceptional care and service that employees of both companies have continued to show for one another and our guests throughout this process, and the support of both airlines’ labor unions, as we proceed to realize the vision for this combination and build a stronger future together.”
More information about the combined organization will be announced in the coming days.
Summary
The path has been cleared for Alaska Air Group’s purchase of Hawaiian Airlines. The merger between Alaska and Hawaiian will make the combined carrier the fifth largest passenger airline in the United States. However, both airlines are expected to operate under separate identities.
The concessions as a whole seem like a win for travelers and gives us a glimpse into the thought process for the DOT. One thing I wish they had forced them to change is the name. Alaska and Hawaiian are interesting names for an airline group headquartered in Seattle.
Also, could you imagine the look on the faces of a legacy Hawaiian crew when they find out they’re going to Fairbanks in January?!
