The U.S. Department of Justice has not challenged the Alaska-Hawaii merger. What will the department do?: Travel Weekly

Alaska Airlines reached a major milestone this week in its bid to acquire Hawaiian Airlines when antitrust regulators declined to challenge the merger as anticompetitive.

The Justice Department also decided not to attach any conditions to the merger. For example, Alaska could guarantee certain interisland connections in Hawaii or divest itself of Gates or other interests in its network.

The ministry’s silence was a best-case scenario for the merger between Alaska and Hawaii. But the deal is not quite done yet.

Alaska and Hawaiian must now seek permission from the U.S. Department of Transportation to operate under joint ownership while they await final approval for Hawaiian to transfer its international route authority to Alaska and while they integrate their operations into a single operating license.

Still, the U.S. Department of Justice’s decision not to intervene in the $1.9 billion Alaska-Hawaii deal is a major victory after successfully filing lawsuits over the past two years to block JetBlue’s planned acquisition of Spirit and break up the close alliance between JetBlue and American in the New York and Boston areas.

“This is a significant milestone in the process of joining our airlines,” Alaska Airlines said in a statement released immediately after the Justice Department’s review period expired.

“During the Department of Justice’s review, Alaska worked closely with the Hawaii Attorney General to reaffirm and expand our commitments to the future of Hawaiian Airlines and Hawaiian consumers,” Alaska continued. “This includes plans to preserve the Hawaiian Airlines brand and local jobs, and to continue to provide strong inter-, to- and from-island service.”

Alaska plans to keep the Hawaiian Airlines brand independent, but otherwise continue to operate the two airlines as a merged airline with centralized flight planning, a single loyalty program and interchangeable aircraft.

The state government’s support of the merger likely played a significant role in the Justice Department’s approval, said Scott Wagner, an antitrust attorney at the Miami-based law firm Bilzin Sumberg.

Wagner also said the limited route overlap between Alaska and Hawaiian, as well as the fact that both are full-service carriers, would make their case significantly different from Spirit and JetBlue’s scenario.

Alaska and Hawaiian together serve about 140 destinations but overlap on only 12 routes, including just three where they are the only two airlines, according to schedule data from Cirium. JetBlue and Spirit share a headquarters in Fort Lauderdale. And the Justice Department has been angered by the notion of JetBlue replacing the discounted seats Spirit sells with its more expensive product.

“I think the Justice Department ultimately concluded that the sum of its parts is greater than the whole and that the merged airline will increase the pressure on the Big Four,” Wagner said, referring to American, Delta, Southwest and United.

Still, the Justice Department’s decision not to attach conditions to the merger came as a surprise to some, especially after the airlines and the department agreed to extend the review period three times between late July and mid-August, leading to speculation that a negotiated settlement was in the works.

“I didn’t expect it to pass without restrictions,” said Gary Leff, author of the blog “View From the Wing.”

Leff thought it was likely that there could be restrictions on flights between the Hawaiian islands. Although the airline has committed to maintaining high-frequency inter-island service, the Justice Department could have imposed restrictions.

Leff pointed out that each of the four major airlines, along with Alaska and Hawaiian, are significant players at Hawaii’s airport, which offers service to the U.S. mainland, but that only Southwest and Hawaiian serve the far less lucrative inter-island market.

According to Leff, Alaska Airlines could decide to maintain inter-island frequencies but reduce seat capacity by replacing the aging 128-seat Boeing 717s that Hawaiian currently uses with 76-seat Embraer E175 aircraft.

“I thought the Justice Department might require an agreement to maintain the status quo for a period of time,” he said.

The airlines’ regulatory process is not yet complete. The U.S. Department of Transportation still has the opportunity to impose conditions on the merger, Wagner said. Normally, the time it takes the department to complete its work is two to three months, he added.
“I wouldn’t be surprised if there were conditions attached to the DOT approval,” Wagner said.