As the dust settles on arguably the biggest surprise announcement of the year for US commercial aviation, Hawaiian Airlines’ chief executive Peter Ingram says there is probably no better match for Hawaiian than Alaska Airlines.
“We have thought about consolidation over the years as we’ve seen other consolidation in the industry, and about what companies might make sense if we were ever to consider combining Hawaiian with someone else,” Ingram told FlightGlobal on 5 December, two days after the news broke that Alaska Air Group intends to acquire Hawaiian.
“And there has always been the thought that Alaska would clearly be on a very, very, very short list,” Ingram adds.
Alaska Air and Hawaiian Airlines’ parent Hawaiian Holdings announced on 3 December a proposed deal under which Seattle-based Alaska will pay $18 per share of Hawaiian’s stock – $1 billion in total. Alaska will also take on $900 million of Hawaiian’s debt. It’s expected to close in 12-18 months.
The combined company - if and when it gains Hawaiian shareholder and US regulatory approval – will be led by Alaska chief executive Ben Minicucci and headquartered in Seattle, Alaska says. Minicucci has pledged to keep the Hawaiian brand. But “behind the curtain” the airlines will operate as one entity.
The carriers say combining their operations will cost $400-500 million in one-time transaction costs to pull off, but insist doing so makes sense for many reasons.
Alaska and Hawaiian were born in the 49th and 50th US states, respectively, both of which have transportation challenges. Many isolated communities in Alaska are unreachable by ground, and the Hawaiian archipelago, located 2,500nm (4,000km) southwest of the US mainland, is surrounded by the vast Pacific Ocean.
“The two airlines … really understand the importance of air transportation to remote communities in a way that it is harder to gain that perspective in the mainland United States, where you have the interstate [highway] system that connects so many places,” Ingram says. ”It’s very different here, where there’s no ground transportation from Honolulu to Maui or Kona or Hilo.”
’EYES WIDE OPEN’
He cites similar cultures and lack of network overlap as further reasons for the Hawaiian-Alaska collaboration. That final point may come under major scrutiny by US government’s antitrust attorneys.
Across the continent, all eyes are on JetBlue Airways’ proposed acquisition of Spirit Airlines, which is currently the subject of a trial in a Boston courtroom. The US Department of Justice (DOJ) sued to stop the $3.8 billion transaction, and a decision is expected before the end of the year. The government alleges that deal would be anti-competitive because it will remove an important low-cost competitor and increase ticket prices.
Also, earlier this year, a judge struck down JetBlue’s “Northeast Alliance” initiative with American Airlines, for similar reasons. The DOJ had likewise challenged that partnership in court.
Both Alaska and Hawaiian claim their tie-up is “pro-consumer, pro-competitive”.
“We went into this with eyes wide open, as did the Alaska team and their board,” Ingram says. “We would expect that the regulators will take a look at this deal discreetly and on its own merits, as opposed to trying to fit it into the box of any other transaction that may be in the news or in dispute right now.”
While Alaska executives say they have been considering acquiring Hawaiian since early in the year, that airline’s executives approached Hawaiian “late in the summer”, Ingram says, with much of the work completed during the third quarter.
“We were very diligent about trying to keep it quiet,” he says, and therefore many Hawaiians were shocked as they awoke to the news on Sunday morning, wondering if they will lose their home-state airline.
“There’s always a love-hate relationship with a hometown airline,” Ingram says. “It’s the first punching bag people go to when there are petty grievances about little things that have gone wrong over the course of a travel journey. None of us in this business are ever perfect. But I think there’s a lot of pride here as well.”
GLOBAL OPERATIONS
That pride goes back to the company’s founding in 1929, when it operated its first passenger flight from Honolulu to Maui. The “vast majority” of Hawaiian’s employees have always been residents of Hawaii.
“We compete on a global stage with the largest airlines in the world,” he says. “Our competitors are American, Delta, United, Southwest, Qantas, Korean Airlines – every single one of them is larger than us, they are all global businesses.”
“Honolulu-based Hawaiian Airlines was the underdog that has taken on all these behemoths, and now it’s going to be a part of another business,” he says.
“Alaska recognises that there’s a tremendous amount of equity built up in the brand and the culture of the company, and that’s why they have made it very clear that they do intend to sustain the Hawaiian Airlines brand going forward and continue to operate with a single operating platform and a dual brand.”
“I think that’s an absolutely wise decision.”
For the 7,300 airline employees, the announcement was “earth-shaking”, and will take time to process. Unions quickly tried to calm members, saying they are evaluating the deal. Alaska has committed to keep union jobs, but questions about non-union-represented employees remain unanswered and job reductions seem imminent.
That said, Hawaiian has expertise in operations Alaska does not.
“Ben [Minicucci] and his team recognise that there are some things that we do that Alaska doesn’t do today, like flying widebodies internationally, and operating in Japan and Korea and Australia and New Zealand, for which you not only need the frontline workers, but you need the non-union staff that support those activities,” he says.
In addition to new Airbus A321neos and ageing island-hopping Boeing 717s, Hawaiian flies A330s to places as far away as Tokyo, Sydney, Papeete, New York and Boston. In a few weeks it expects to receive its first of 12 Boeing 787 Dreamliners, which it plans to deploy to far-flung international destinations and on popular routes to the US mainland. Hawaiian’s first passenger 787 flight is scheduled, to San Francisco, on 15 April.
‘WILD RIDE’
Ingram, who has been at Hawaiian for almost two decades, declines to speculate about his own future, or his legacy.
“We haven’t had any discussions about a role” in the future company, he says. “My focus is on what I’m doing for the 12 to 18 months, or however long it takes, to get through this period.”
He says he is “absolutely committed to be at Hawaiian through the closing”.
“This is the greatest place I’ve ever worked. I’ve had unbelievable experiences. The company has grown from a little over 3,000 employees to over 7,000 employees. When I joined, we had 25 airplanes, none of which we owned – they were all on operating leases [and] the company had just come out of bankruptcy. We’ve got 62 airplanes today and will be growing more over the next year. We’ve built up an international network, we’ve added the A321s to build a hub in Maui. We’ve been through a global financial crisis and a global pandemic.”
“It’s been a wild ride and the ride is still ongoing.”
