Alaska and Hawaiian Airlines planes take off simultaneously from San Francisco International Airport (SFO) in San Francisco, California, United States on June 21, 2023.
Tayfun Coskun | Anadolu Agency | Getty Images
President Joe Biden’s Department of Justice has successfully disrupted two air links to the court in recent months. This does not necessarily mean condemnation of Alaska Air you plan to buy Hawaiian Airlines.
U.S. District Court Judge William Young on Tuesday sided with the Justice Department and blocked JetBlue Airways$3.8 billion takeover attempt Spirit Airlinessaying that eliminating the carrier known for its low fares would “hurt cost-conscious travelers” who rely on those cheap tickets.
The ruling immediately raised questions about whether an Alaska-Hawaii combination would suffer a similar fate in an antitrust suit. Hawaiian shares fell minutes after the ruling, though they eventually recovered.
“We would be lying to ourselves if we believed that the probability of a successful merger had not diminished after [Tuesday’s] decision,” Deutsche Bank airline analyst Michael Linenberg wrote in a note on Wednesday.
But the pitfalls that scuttled the Spirit-JetBlue deal may offer clues about how Alaska and Hawaii might get along with regulators or in court. The Justice Department did not immediately respond to a request for comment on whether it plans to challenge the proposed Alaska-Hawaii agreement.
“The court in JetBlue was clearly concerned that this merger eliminates a low-cost carrier,” said Herbert Hovenkamp, a law professor at the University of Pennsylvania’s Carey School of Law and an expert on antitrust law.
“What does that say about Alaska-Hawaii, their advisors [and] Lawyers should make sure they can avoid these problems,” he said.
JetBlue and Spirit jointly said they disagree with the ruling and are considering next legal steps, which could include an appeal.
Different kind of deal
Alaska and Hawaii officials have expressed confidence in their nearly $2 billion deal, which includes Hawaii’s debt.
“The decision involving other airlines does not affect our plans to combine with Hawaiian Airlines,” an Alaska Airlines spokesman said in a statement Thursday. “Our agreement combines two airlines with complementary networks, and we believe the transaction will enhance competition and expand choice for consumers.”
A Hawaiian Airlines spokesman said the carrier believes the combination with Alaska “offers compelling benefits to employees, guests, communities and all stakeholders,” but declined to comment on the JetBlue deal.
Alaska agreed in December to buy Hawaii, which has been hit by a sharp drop in bookings after the Maui wildfires increased competition in its home market from Southwest and a slow recovery in travel to Asia.
JetBlue argued that it needed to buy Spirit to better compete with larger airlines, which control about 80% of domestic capacity, a dynamic born of years of mega-mergers.
In the case of JetBlue and Spirit, Young questioned several overlapping routes. The carriers had offered assignments to stabilize the deal, but to no avail.
While combining Alaska and Hawaii won’t sit well with regulators, the two deals are quite different.
Alaska and Hawaii said in an investor presentation last month that they would have less than 3 percent overlap in their combined networks, which would include more than 1,300 daily flights.
“From a competitive standpoint, I think it lands really, really well,” Alaska CEO Ben Minicucci said on a Dec. 3 call with analysts after the merger was announced.
JetBlue had planned to remodel Spirit’s bright yellow and tightly packed planes to resemble its own, which offer fewer seats, more legroom and other amenities.
Alaska, by contrast, has said it plans to keep the Hawaii and Alaska brands separate. Alaska discontinued the Virgin America brand after buying that carrier in 2018.
“In our view, not a single important point raised by the court in the JBLU/SAVE anti-merger ruling is directly applicable to the Alaska deal to buy Hawaiian,” JPMorgan airline analyst Jamie Baker wrote after the Tuesday’s decision.
DOJ challenge
This does not mean, however, that the Ministry of Justice will not initiate the effort.
Biden’s Justice Department is already two-for-two against airline deals, after a separate U.S. District Court judge in May sided with the Justice Department to overturn JetBlue’s partnership with American Airlines in the US Northeast, an alliance that won the administration’s approval during the final days of the Trump administration.
That deal allowed JetBlue and American to coordinate routes and schedules in the Northeast, where they faced congested airports and airspace that made it difficult to compete with larger rivals.
The Justice Department successfully argued that the partnership was anticompetitive, and the airlines last year ended the deal, although American said it would appeal the ruling.
However, the department is fresh off another court victory, which Hovenkamp said may “incentivize him to try to challenge [Alaska-Hawaiian] also.”
Minicucci said last month that the airlines expect the deal to take 12 to 18 months to close. Some analysts, however, say the Justice Department’s victory against JetBlue-Spirit will cast a shadow over the Alaska deal.
“The reality is, even if you think everything will work out, the likelihood of a deal has to be less than it was” before the JetBlue-Spirit decision, said Conor Cunningham, an airline analyst at Melius Research.
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