Alaska Airlines will buy Hawaiian Airlines for $1.9 billion in a cash transaction, a move that would make the combined carrier the 5th largest in the US market (or 6th, if the JetBlue/Spirit deal survives legal challenges). Unlike most other mergers, however, the company plans to embrace the complexity of multiple product offerings as it intends to keep both the Hawaiian and Alaska brands in service.
When we look at the history and legacies of each one of these brands that have been in service for over 90 years, the loyalty they have engendered in each of these geographies, this is the best approach to ensure maximum success with with customers, with employees with communities that we serve.
– Ben Minicucci, Alaska Airlines CEO
Keeping both brands makes the merged entity unique. It also addresses one of the major mistakes the company made in its acquisition and integration of Virgin America. Rather than dither for a year to decide how to present to the public, the company is providing clarity on that facet from the outset. And while it likely helps with maintaining heritage and some customer affinity in key markets, it is just part of the increased complexity.
Alaska Airlines CEO Ben Minicucci confirmed, “Behind the curtain will be one operating certificate with collective single collective bargaining agreements for each each one of our unions.” The operating structure is very different from the major European airline groups in that way. It will truly be a single mainline airline, but with different brands serving different routes. And, in some cases, different products on board.
Cabin configurations
Minicucci suggested to investors that both carriers “are offering a premium product” today. He also notes that the Alaska 737s and Hawaiian A321neo product offerings are “very similar and very compelling.” They are, indeed, similar on board, though limited inflight entertainment on both and lack of inflight connectivity on the Hawaiian side limits just how compelling the offering is.
Perhaps the most notable conflict on the cabin side will be with inflight connectivity providers. Alaska Airlines is 100% committed to Intelsat, with 2Ku on the 737 fleet and plans to install the new multi-orbit system on its regional jets. Hawaiian is offline today, but with plans to eventually install Starlink’s IFC offering on board. That program has slipped a few times and, with the new deal, could disappear completely.
Update (5:36p EST 4 Dec): In a message to employees the company recommitted to the Starlink deployment, “We’ll move forward with investments that will add to our company’s strength — including launching service with our 787s and installing Starlink’s world-class Wi-Fi aboard our long-haul fleet.”
The lie-flat beds on the long-haul fleet are necessary and add complexity, but Minicucci acknowledges they are necessary to serve those markets. And that complexity – so long as it is limited to the twin-aisle aircraft – is probably not too challenging.
Mixed fleet challenges
Alaska Airlines just managed to retire the Airbus jets it acquired with Virgin America. They were not worth the increased complexity in its fleet plan. With this deal, however, the company will once again become an Airbus operator. Hawaiian operates 18 A321neo and 14 A330 passenger planes. Unlike with the branding decision, the company did not immediately confirm plans with respect to the mixed fleet, though at least initially nothing will change.
A dozen A330s are approaching the end of their lease term, with the option for a renewal on the table. Previously Hawaiian had planned to return these, shifting its long-haul operations to the 787s on order. With a merger, however, that decision would be reevaluated. The company cites “potential to cross-fleet widebody aircraft on high-demand long-haul routes not currently served” as justification for keeping the A330s around a bit longer.
This includes potentially basing some wide-body aircraft on the mainland. Indeed, a key motivation for the deal is enabling long-haul international expansion for Alaska Airlines in a cost-effective manner. But longer term that will almost certainly be a 787 play. Minicucci described the 787s as “both growth and replacement airplanes” in the Hawaiian order book. But future deployments, whether to Honolulu or the mainland, “is something that we’ll look into.”
The A321neos similarly fill a unique role in the market, with increased range and capacity compared to the 737 MAX fleet Alaska brings to the combined pair. While the company was able to justify removing the A320 family before, it may need the additional capacity to keep some routes between the mainland and the islands in service, at least until the MAX 10 deliveries begin.
And Minicucci did not entirely rule out fleet rationalization down the line. While stating the “opportunities far outweigh some of the complexity we have to deal with” in the merger, he also left open the potential to “rationalize” the fleet going forward if there are opportunities to drive costs down.
On the interisland front, the company expects that its 717 fleet can continue to serve the market through the end of the decade. But rather than only considering smaller jets (i.e. E2s or A220s) as replacements, management also believes the 737 is a viable option. In addition to increased payload capacity, Minicucci cited the carrier’s experience operating 737s across Alaska in other tiny markets, noting Alaska could “bring that expertise and knowledge” to the combined entity.
Single brand for loyalty
One area where things will align completely is with loyalty. Despite having two consumer-facing brands for the airline operations there will be a single loyalty program going forward. Plus, the carrier expects to remain in the OneWorld global alliance, integrating the Hawaiian routes into that offering. Because everything will be a single airline on the back end this integration should be relatively straightforward. The Mileage Plan program already has all the necessary links into the global partnerships.
Global gateway at Honolulu
The companies expect Honolulu will continue to be a major part of the operations, including the global gateway it operates for connectivity from the US mainland to Asia and Oceana. Alas, the additional time required to connect in Hawaii often makes routings via Honolulu significantly longer for travelers. And while the idea of a stopover in Hawaii is compelling for some leisure travelers, it is unlikely to be valuable for the business travel market.
That the company is already talking about basing some of the pending long-haul fleet on the mainland rather that in the islands is telling on that front.
Other good takes on the HA/AS news:
- Alaska Airlines should buy Hawaiian Airlines – Contrairy Analysis from 2019
- Alaska’s Plan to Acquire Hawaiian Makes Sense
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derek says
It has been done before. 20 years ago, Horizon had a single operating certificate but ran a separate Frontier Expr
Seth Miller says
Running a separate airline with some of the planes is not the same as running a fully integrated operation but also having some of the flights branded differently. It probably shouldn’t matter, but I understand the value to the local communities (and possibly in some international markets) with not shedding the Hawaiian brand.
Lars says
I wouldn’t read too much into the stated intent to maintain two brands. All it means is they’ll continue operating as two brands for as long as management deems fit. Though it would be weird to fly an Alaska branded 717 between the islands. I could see the dust settling with inter-island being the last part keeping the branding, and possibly being spun off to keep costs low.
Seth Miller says
Sure. But they’re still planning to keep it longer than any other recent merger. So that’s significant and comes with some challenges.
derek says
Express operation. This time, it will be too tempting to fully separate the brands. Some 737s will be used on the Hawaiian side with Alaska livery. Inter-island 717 will likely remain totally Hawaiian.
Seth Miller says
They specifically mentioned (potentially, eventually) moving some interisland ops to 737s. But I’d expect those to be rebranded if it happens. No reason they can’t run some of those 737s to the mainland as well, wearing the HA colors.