Analysis: US airlines' plans for growth constrained by antitrust concerns

Hawaiian Holdings

06/12/2023 15:46

By Rajesh Kumar Singh
       CHICAGO, Dec 6 (Reuters) - Shortages of new planes, jet
engines and pilots have left U.S. airlines with little choice
but to pursue growth through acquisitions - which then puts them
in the crosshairs of anti-trust regulators.
    Alaska Airlines  ALK.N  surprised analysts and industry
officials with its plan to buy Hawaiian Airlines  HA.O  for $1.9
billion even before a judge rules on the U.S. Department of
Justice's (DOJ) lawsuit aimed at blocking JetBlue's  JBLU.O 
proposed merger with Spirit Airlines  SAVE.N .
    But supply and labor constraints are so onerous that
airlines like Alaska will likely keep chasing deals despite the
Biden administration's aversion to more consolidation.
Currently, American Airlines  AAL.O , United, Delta and
Southwest Airlines  LUV.N  control 80% of the domestic market,
leaving little room for growth.
        "This is an industry that is constantly looking for an
angle," said Addison Schonland, partner at consulting firm
AirInsight. "If Alaska didn't move on Hawaiian, what would stop
somebody else moving on Hawaiian?"
    The deal will provide Alaska - primarily a domestic carrier
that flies narrowbody planes - Hawaiian's widebody jets, pilots
and international networks, opening a runway for growth in
long-haul international markets.
    In an interview, Alaska CEO Ben Minicucci said it was the
right time to do the deal, which he described as "a great
investment, a great step change" for the company. 
    Alaska told analysts on Sunday that pursuing long-haul
international flying on its own would be much more expensive and
much more difficult.
    Courtney Miller, a consultant who advocated for the merger
between the two airlines back in 2019, said Alaska would
probably have to invest around the same amount it is paying for
Hawaiian to launch its own smaller international operation.
    Getting into long-haul international flying by using
Hawaiian's fleet of wide-body jets and international networks is
a better option, he said.
    With both Boeing  BA.N  and Airbus  AIR.PA  facing
supply-chain problems, the deal allows Alaska to avoid a
prolonged wait for new planes. It also reduces the need to hire
and train pilots during an industry-wide staffing crunch and
saves the company from fighting for slots at international
airports.
    "The risk is much lower," said Miller, who now runs
consultancy firm Visual Approach Analytics.
    Mergers and acquisitions create economies of scale that
helps offset soaring operating costs. Alaska, however, will be
challenged on this front as it integrates Hawaiian's fleet, said
Schonland.
    While the Seattle-based airline flies Boeing's 737 planes,
Hawaiian's fleet has a number of Airbus jets, so a combined
company would have to rely on different parts and mechanics for
repairs. Minicucci said while the combined company will continue
to operate a mixed fleet for now, he did not rule out reviewing
the plane mix.
    Legacy airlines like Delta  DAL.N  and United  UAL.O  have
been able to mitigate inflationary pressures due to strong
bookings for flights to Europe and Asia. But softening domestic
travel demand has hurt earnings of domestic carriers including
Alaska.
    Similar growth concerns prompted JetBlue to launch a hostile
bid for Spirit last year to try to expand JetBlue's domestic
footprint and help it capitalize on the surge in leisure travel
between the U.S. East Coast and the Caribbean.
    The deals, however, face challenges in convincing anti-trust
regulators that they are pro-competition and pro-consumer. 
    Former Federal Trade Commission Chairman William Kovacic,
who now teaches at George Washington University law school, said
the DOJ is likely to look at Alaska's transaction carefully.
    "They approach airlines with a view that merger policy has
been too permissive and allowed excessive concentration," he
said.

 (Reporting by Rajesh Kumar Singh, Editing by Nick Zieminski)
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Reuters Messaging:
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