Alaska and Hawaiian Finalize the Merger After Agreeing to Largely Hollow DOT Conditions

After the US Department of Justice (DOJ) decided to let the Alaska/Hawaiian merger review period pass without saying a word, it seemed like the merger was a done deal. But then, something curious happened. The US Department of Transportation (DOT) kept delaying handing out its fairly standard approval. It clearly wanted something, and now we know what it was.

After Alaska and Hawaiian agreed to DOT’s demands, the approval was given, and Alaska can now officially say — in the immortal words of the Perfect Strangers theme song — nothing’s gonna stop me now.

DOJ is the department tasked with reviewing mergers for antitrust violations. That was always the big hurdle. But DOT just allows the transfer of international route authorities. Still, Sec Buttigieg clearly wanted to stretch his department’s authority and try to extract some concessions. The headline of the press release says it all.

USDOT Requires Alaska and Hawaiian Airlines to Preserve Rewards Value, Critical Flight Service as Merger Moves Forward

This is an attempt to show that DOT is doing something good, when it reality it probably significantly overstepped its bounds. For Alaska, however, it had to make more sense to agree to these mostly hollow promises instead of trying to take this to court. I don’t blame the airline one bit.

The agreement is publicly filed in the docket with only a few commercially-sensitive redactions, so we have a good idea of what Alaska is agreeing to do here. This agreement lasts for six years, and that’s a lifetime in this industry. So, what will Alaska do? Let’s see if I can put some themes together.

Keep Flying Routes With Limited or No Competition

Specifically, the government says that the new combined airline has to keep flying every route that each airline flies independently where there is either no other competition or only one other airline providing competition.

Not only does the new airline have to keep flying the routes, but it has to schedule with the “intent to operate at least 90 percent of the number of flights or 90 percent of the number of seats operated on such route by the Combined Carrier in the year-to-date period through August 31, 2024.”

Which routes are included? If we’re looking at the 12 months ending August 31, it’s all from Honolulu and Kahului to the West Coast. Specifically, it’s from each of those airports to Portland, San Diego, San Francisco, San Jose, and Seattle.

Of those, Portland from both Honolulu and Kahului along with San Diego from Kahului are only served by Hawaiian and Alaska today. In Honolulu – San Diego and San Jose from both Honolulu and Kahului, Southwest is the third carrier. In Seattle to Honolulu and Kahului, it’s Delta. Lastly, in San Francisco from both Honolulu and Kahului, it’s United.

This is in no way onerous. These are bread-and-butter markets for Hawaiian, and there is little to no chance the airline would want to walk away. Seeing the wording here, it looks like they can switch to smaller 737s instead of A321neos if they want and still maintain the number of flights, so they have good flexibility.

Maintain the Interisland Market

Alaska had to agree to a variety of rules around the interisland market. First, it has to maintain flying at a level “similar to” the flying it had on December 2, 2023. That’s the day Alaska announced it would buy Hawaiian. This is a pretty nebulous requirement, but it’s not going to be hard to achieve.

The airline also has to agree to maintain all of Hawaiian’s existing interline agreements at current or more favorable rates. The primary concern here was giving other airline customers access to Hawaiian’s interisland network. Since Hawaiian is the only game in town that partners with other airlines — as of now — this was important.

Alaska also has to maintain the interline agreement with Mokulele to smaller Hawaiian islands on Essential Air Service routes or with any airline that takes over the service. Alaska further has to continue its “longstanding commitment to and support for” the EAS program.

All of this is important for Alaska and Hawaiian to maintain anyway. Hawaiian has a lot of seats in the interisland market, and it needs to fill those. The interline agreements are hugely helpful and provide no real downside for the airline. Alaska also has a strong interline partner strategy, so it would be very strange if these were to be cut off at Hawaiian.

Oh — one last thing on this — Alaska has to agree in Honolulu to not sign agreements that “indirectly exclude or unjustly discriminate against a carrier that is a new entrant or smaller competitor.” Basically, DOT is making sure that if there are new entrants, Alaska won’t try to block them by squatting on space. Would Alaska rather keep new entrants out? Sure. But this is not a serious issue.

Help DOT Push Its Loyalty Goals

As we know, DOT wants to throw its weight around when it comes to loyalty programs, so this was a great opportunity to force the issue. That, at least, was the conspiracy theory I threw out on last week’s The Air Show, and it sure looks less crazy now. (Unrelated… this week on The Air Show, we talk about the Boeing strike. Have a listen.)

But since I was right, it’s time to push my next conspiracy theory that this has been in the works for years….

Original image via Jon Ostrower

Just kidding. Let’s take the tinfoil hats off this week.

The basics here involve keeping the HawaiianMiles program intact as is until they create the new combined program. I can’t imagine Alaska would have bothered tweaking that program anyway since it will be gone soon enough. DOT also wants Alaska to allow 1:1 transfers between the two programs. That must have been the plan anyway.

In the new loyalty program once it’s combined, it gets a little stickier. Some of the requirements are irrelevant. The airline has to keep a 1:1 ratio when moving miles in the new program, and it can’t have miles expire. Status has to stay consistent until the end of the program year when the change happens.

This is where I start to get confused. Alaska has apparently agreed that it will “ensure that all miles in the new combined loyalty program can be redeemed on fully refundable award tickets at no less than xx per mile on flights operated by the Combined Carrier.” The actual dollar amount is redacted, but the point is that there will be a ceiling on the number of miles tied to the selling price of a fully refundable ticket.

Alaska does not have a revenue-based program today, so this is strange. I assume the idea is that this number is higher than what Alaska does today, so it just prevents big devaluations. The program can keep being mileage-based if Alaska wants, but it just can’t get too pricey. But in a nod to the importance of credit card programs, DOT says that Alaska can alter this if the amount of money paid for miles by a credit card partner drops.

Another tangible restriction is that Alaska can’t have change or cancel fees on award tickets. They don’t have them today, but six years is a long time to guarantee it won’t change.

Then, firmly tying this agreement to DOT’s loyalty efforts, the department magnanimously agrees that if it puts out a rulemaking on loyalty programs that is less onerous than this, Alaska can abide by the new rules instead.

But Wait, More DOT Goals

This isn’t just about DOT’s loyalty goals. It has also made Alaska further comply with the Customer Service Dashboard requirements where airlines get green checks for doing what DOT wants.

The bulk of the work is just making sure Hawaiian aligns policies with what Alaska already does. No problem there. But Alaska wil make two changes to satisfy DOT.

First, it will provide at least one free standard carry-on and at least two free standard checked bags for military members. Second, it will waive change fees for service members who have to reschedule due to a military order.

Alaska already allows 5 checked bags for free, and anyone can bring a standard carry-on. And as for change fees, I guess that applies to Saver basic economy fares? There may be some corner cases here that aren’t covered, but this is all going to have a minor impact at most.

In the end, Alaska did not have to give up much to seal the deal with DOT, but DOT can crow about it as if it extracted incredible concessions. In the end, the deal is done and everyone seems happy. Now the hard integration work begins.