Alaska-Hawaii regulators may have antitrust objections

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US airline takeovers are hard to pull off at the best of times. Differences in worker contracts, IT systems and corporate cultures make integrations difficult. Now throw into the mix the Biden administration’s aggressive antitrust regulators. There are more reasons to avoid consolidation than pursue it.

Unless you are Alaska Air. The fifth-largest airline in the US has struck a deal to buy smaller rival Hawaiian Airlines — for $1.9bn, including debt.

Alaska’s cash offer of $18 a share represents a premium of more than 100 per cent to Hawaiian’s three-month average share price. It is still an opportunistic move. Hawaiian shares have lost more than two-thirds of their value over the past 12 months. A slow recovery in tourism from Asia, growing competition from Southwest Airlines and the recent wildfires in Maui have all weighed on demand.

Hawaiian, which has not made an annual profit since 2019, is forecast to book a net loss of $310mn this year.

Alaska believes these challenges will pass. It is projecting $235mn of “synergies” — mostly cost savings one would hope. Taxed and capitalised, these would be worth about $1.8bn, or more than three times the premium. The companies say the Hawaiian leisure air travel market is worth $8bn a year.

Unfortunately for the partners, the regulators have taken a tough stance against consolidation in the airline industry. They successfully sued to unwind the American and JetBlue alliance in the north-east, and are trying to block JetBlue’s proposed takeover of Spirit.

Alaska — like JetBlue — will argue that consolidation is needed to create a stronger company to compete against the industry’s traditional Big Four airlines. Unsurprisingly, given the distance between the 49th and 50th states to join the US, the two airlines have few overlapping routes.

The 16 per cent collapse in Alaska’s share price on Monday suggests the market thinks this deal will stay grounded. Spirit’s share price offers little comfort. It is sitting at around $16, or less than half of JetBlue’s offer of $33.50.