Alaska Air Group acquires Hawaiian Airlines creating more choice for travelers

It has been announced that Hawaiian Holdings, Inc. (NASDAQ: HA) and Alaska Air Group, Inc. (NYSE: ALK) have signed a definitive agreement whereby Alaska Airlines will purchase Hawaiian Airlines for $18.00 per share in cash, totalling a transaction value of approximately $1.9 billion, including $0.9 billion in net debt owed by Hawaiian Airlines.

Customers will be able to travel to more destinations thanks to the combined company’s increased selection of essential air service options and access throughout the Pacific region, the continental United States, and the world. Stronger growth and competitiveness in the United States, long-term job possibilities for workers, ongoing community investment, and environmental stewardship are all anticipated benefits of the acquisition.

Alaska Airlines and Hawaiian Airlines are both based in the 49th and 50th states of the United States, which are particularly dependent on air travel. As such, they have a strong dedication to taking care of their staff, visitors, and communities. With a combined network that will give travellers more options and increased international connectivity through airline partners like oneworld Alliance, this merger will build on the 90+ year legacies and cultures of these two service-oriented airlines, preserve both beloved brands on a single operating platform, and protect and grow union-represented jobs and economic development opportunities in Hawai’i.

“This combination is an exciting next step in our collective journey to provide a better travel experience for our guests and expand options for West Coast and Hawai’i travellers. We have a longstanding and deep respect for Hawaiian Airlines, for their role as a top employer in Hawai’i, and for how their brand and people carry the warm culture of aloha around the globe. Our two airlines are powered by incredible employees, with 90+ year legacies and values grounded in caring for the special places and people that we serve. I am grateful to the more than 23,000 Alaska Airlines employees who are proud to have served Hawai’i for over 16 years, and we are fully committed to investing in the communities of Hawai’i and maintaining robust Neighbour Island service that Hawaiian Airlines travellers have come to expect. We look forward to deepening this stewardship as our airlines come together, while providing unmatched value to customers, employees, communities and owners.”

Ben Minicucci, Alaska Airlines CEO.

“Since 1929, Hawaiian Airlines has been an integral part of life in Hawai’i, and together with Alaska Airlines we will be able to deliver more for our guests, employees and the communities that we serve. In Alaska Airlines, we are joining an airline that has long served Hawai’i, and has a complementary network and a shared culture of service. With the additional scale and resources that this transaction with Alaska Airlines brings, we will be able to accelerate investments in our guest experience and technology, while maintaining the Hawaiian Airlines brand. We are also pleased to deliver significant, immediate and compelling value to our shareholders through this all-cash transaction. Together, Hawaiian Airlines and Alaska Airlines can bring our authentic brands of hospitality to more of the world while continuing to serve our valued local communities.”

Peter Ingram, Hawaiian Airlines President and CEO.

Complementary networks and improved choice for the airlines’ passengers

Customers on the West Coast and throughout the Hawaiian Islands will have more options and competitiveness due to the complementing local, international, and cargo networks that are combined because of the following:

• Maintaining exceptional brands: The merged airline will preserve the industry-leading brands of Hawaiian Airlines and Alaska Airlines while merging onto a single operating platform, allowing travellers to experience each company’s exceptional hospitality and service with ongoing excellence in operational dependability, trust, and guest satisfaction—a characteristic for which both businesses have received constant recognition.
• An improved product line up suitable for a wide range of customers: In order to make air travel accessible to a wide range of consumers across a range of cabin classes, the combination maintains and expands high-quality, best-in-class product offerings with price points. This includes greater choice between Alaska Airlines’ low-cost, high-value options and Hawaiian Airlines’ international and long-haul product on par with network carriers.
• Complementary networks expand travel options: More options and improved connectivity across the networks of both airlines will be advantageous to travellers travelling throughout the continental United States, the West Coast of the United States, and the Pacific. With 138 destinations served, including 29 popular international locations in the Americas, Asia, Australia, and the South Pacific, as well as combined access to over 1,200 destinations through the oneworld Alliance, passengers will have more options and improved connectivity.
• Expanded service for Hawai’i: By multiplying the number of North American locations that can be accessed nonstop or with just one stop from the Islands, the combination will improve convenience and service for residents of Hawaii while preserving strong Neighbour Island service and expanding air cargo capacity.
• Strategic Honolulu location: With one-stop service via Hawai’i, Honolulu will become a major hub for Alaska Airlines, providing increased international connection for West Coast travellers across the Asia-Pacific region.
• Enhanced rewards for loyalty programmes: Through the transaction, Hawaiian Airlines’ loyalty members will receive improved benefits through the combined airline’s industry-leading loyalty programme. These benefits will include expanded global lounge access, benefits of the co-brand credit card offered by the combined programme, and the ability to earn and redeem miles on 29 global partners as well as elite benefits on the entire fleet of oneworld Alliance airlines.

Delivering meaningful benefits for communities and employees in Hawai’i

Hawaiian Airlines, one of the biggest employers in Hawaii, has a long history of dedication to its workers, who have formed the company over its ninety-four-year existence, as well as to the surrounding towns, culture, and environment. Alaska Airlines and Hawaiian Airlines, as a single organisation, will uphold this stewardship while continuing to have a significant presence and financial commitment in Hawaii. The merged business will propel:

• Increase in employment represented by unions: Preserve and expand employment opportunities for union members in Hawaii, such as pilot, flight attendant, and maintenance bases in Honolulu, as well as airport operations and cargo around the state.
• Substantial operational presence: To serve the network of the combined airlines, maintain a strong operations presence with local leadership and a regional headquarters in Hawaii.
• Prospects for employees: Increase the number of career advancement opportunities, competitive compensation and benefits, and employee regional mobility.
• Increase of schemes for workforce development: To support future jobs and career opportunities in Hawaii and beyond, maintain and expand access to workforce development initiatives, such as Hawaiian Airlines’ partnership with the Honolulu Community College Aeronautics Maintenance Technology Programme and Alaska Airlines’ Ascend Pilot Academy.
• Monetary contributions to regional communities: Maintaining commitment to investing in Hawaii’s communities by merging and growing the two airlines’ pledges, and collaborate with the state’s local government and communities to create a thriving future for Hawaii.
• Perpetuation of culture: Committed to expanding and improving Hawaiian Airlines’ current initiatives while advancing regenerative tourism in the Hawaiian Islands and making investments in Hawaiian language and culture.

Enhancing sustainability efforts as a combined airline

Alaska Airlines’ five-part path to net zero by 2040 and sustainability goals in areas of carbon emissions and fuel efficiency, waste management, and healthy ecosystems are just a few examples of the airline’s strong commitment to environmental stewardship, which it plans to build upon alongside Hawaiian Airlines. Alaska Airlines placed the largest fleet order with Boeing in its ninety-year history in 2022, concentrating on the Boeing 737-MAX aircraft, which are 25% more fuel-efficient per seat than the aircraft they replace. Additionally, the airline continued to increase the use of route optimisation software, which assists dispatchers in creating routes that reduce emissions, time, and fuel consumption. In their respective regions, both airlines are aggressively pursuing the growth of the sustainable aviation fuel (SAF) sector. These initiatives to combat climate change will go on, as will the funding for locally sourced goods.

Strong financial and strategic motivations to generate significant value

The acquisition provides a significant new platform to support Alaska Airlines’ above-average organic growth and strategically aligns with the airline’s ongoing focus on increasing options for West Coast travellers. The goal of the deal is to give Hawaiian Airlines stockholders a strong premium while generating significant value creation for Alaska Airlines’ owners.

• For Hawaiian Airlines stockholders, an all-cash deal for $18.00 per share, for a total equity value of $1.0 billion, offers a compelling premium.
• Transaction multiple of 0.7 times revenue, approximately one third the average of recent airline transactions.
• The transaction’s synergy potential is conservatively estimated at $235 million in expected run-rate synergies; this amount does not include other recognised upside prospects that may be realised.
• It is anticipated that, excluding integration expenses, Alaska Airlines will see high single digit profits accretion within the first two years post-close, with returns exceeding the airline’s cost of capital.
• Long-term balance sheet measures are not likely to be significantly impacted, and a return to target leverage levels is envisaged in less than 24 months.

Closing conditions

The two boards have given their approval to the transaction agreement. The acquisition is subject to the necessary regulatory clearances, shareholder approval (which is anticipated to be requested in the first quarter of 2024) and other usual closing conditions. It is anticipated to close in a year or two. Alaska Airlines CEO Ben Minicucci will serve as the organization’s leader, and it will be headquartered in Seattle. The task of concentrating on integration planning will be assigned to a special leadership team.

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