Alaska, Hawaiian Finalize Merger After Agreeing to Largely Blank DOT Terms – Cranky Flier

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

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

DOJ is the department tasked with reviewing mergers for antitrust violations. That’s always been a huge obstacle. But DOT simply allows the transfer of authority to international routes. Still, Sec Buttigieg clearly wanted to stretch his department’s authority and try to force some concessions. The headline of the press release says it all.

USDOT requires Alaska and Hawaiian Airlines to preserve award values ​​and key flight operations as merger progresses

This is an attempt to show that DOT is doing something good, when in reality they probably overstepped their authority. However, it must have made more sense for Alaska to agree to these mostly empty promises rather than try to take this to court. I don’t blame the airlines one bit.

The agreement is publicly filed with only a few sensitive trade editors, so we have a good idea of ​​what Alaska is agreeing to do here. This agreement is for six years, which is a lifetime in this industry. So what will Alaska do? Let’s see if I can put a few things together.

Maintain flight paths with limited or no competition

The government specifically states that the new combined airline will have to continue to operate all the routes that each airline operates independently if there is no other competition or if there is only one other airline competing with it.

The new airline must not only continue to operate the routes, but also develop a schedule with the “intention to operate at least 90 percent of the number of flights or 90 percent of the number of seats served on the route by the connecting carrier during the year-to-date period through August 31, 2024.”

Which routes are included? If we look at the 12 months ending August 31, it’s everything 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 these, Portland to Honolulu and Kahului, along with San Diego to Kahului, are served only by Hawaiian and Alaska today. In Honolulu–San Diego and San Jose to Honolulu and Kahului, Southwest is the third carrier. From Seattle to Honolulu and Kahului, it’s Delta. Finally, in San Francisco to Honolulu and Kahului, it’s United.

It’s not disruptive at all. These are core markets for Hawaiian and there’s no chance the airline would want to pull out. Seeing the wording here, it sounds like they could switch to the smaller 737 instead of the A321neo if they wanted to and still maintain the number of flights, so they have good flexibility.

Maintaining the inter-island market

Alaska had to agree to a series of rules for the interisland market. First, it must maintain flights at a level “similar” to those on Dec. 2, 2023, the day Alaska announced it would buy Hawaiian. That’s a pretty vague requirement, but it won’t be hard to achieve.

The airline also must agree to maintain all of Hawaiian’s existing interline agreements at current or improved rates. The primary concern here was ensuring that other airline customers could access Hawaiian’s interisland network. Since Hawaiian is the only game in town that works with other airlines—for now—this was important.

Alaska must also maintain an interline agreement from Mokulele to the Minor Hawaiian Islands on Essential Air Service routes or with any airline that takes over the service. Alaska must also continue its “long-standing commitment and support” for the EAS program.

All of this is important for Alaska and Hawaiian to keep anyway. Hawaiian has a lot of interisland market space and needs to fill it. Interline agreements are very helpful and are not a real disadvantage for the airlines. Alaska also has a strong interline partnership strategy, so it would be very strange for Hawaiian to cut them.

Oh—the last thing on this—Alaska has to agree in Honolulu not to sign agreements that “indirectly exclude or unfairly discriminate against a carrier that is a new entrant or a smaller competitor.” Essentially, DOT is making sure that if new entrants come in, Alaska won’t try to block them by taking up space. Would Alaska rather not have new entrants come in? Sure. But that’s not a major issue.

Help DOT achieve its loyalty goals

As we know, DOT wants to throw its weight around when it comes to frequent flyer programs, so this was a great opportunity to force the issue. At least that’s the conspiracy theory I floated last week on The Air Show, and it certainly seems less crazy now. (Unrelated… this week on The Air Show we’re talking about the Boeing strike. Listen up.)

But now that I was right, it’s time to present my next conspiracy theory that I’ve been working on for years…

^{Original photo via Jon Ostrower}

Just kidding. Let’s take off our tin foil hats this week.

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

The new loyalty program is a bit more rigid after the merger. Some requirements are irrelevant. The airline must maintain a 1:1 ratio when transferring miles in the new program and cannot allow miles to expire. The status must remain the same until the end of the program year, when the change occurs.

This is where I get confused. Alaska apparently agreed that it would “ensure that all miles in the new combined frequent flyer program can be redeemed for fully refundable award tickets at no less than xx per mile on flights operated by the Combined Carrier.” The actual dollar amount has been removed, but the point is that the number of miles will be capped at the sale price of the fully refundable ticket.

Alaska doesn’t currently have a revenue-based program, so that’s odd. I assume the point is that the number is higher than what Alaska currently has, so it just prevents a big devaluation. The program could still be based on miles if Alaska wants, but it just can’t get too expensive. But in reference to the importance of credit card programs, the DOT says Alaska could change that if the amount of money paid for miles by a credit card partner goes down.

Another tangible restriction is that Alaska cannot charge fees to change or cancel award tickets. There are none currently, but six years is a long time to guarantee that won’t change.

Then, closely tying that agreement to DOT’s loyalty efforts, the department generously agrees that if it promulgates regulations for loyalty programs that are less burdensome than these, Alaska will be able to comply with the new regulations.

But wait, more DOT targets

It’s not just about DOT loyalty goals. It also made Alaska even more compliant with the Customer Service Panel, where airlines get green checks for doing what DOT wants.

Most of the work is making sure Hawaiian aligns its policies with what Alaska already does. No problem. But Alaska will make two changes to satisfy DOT.

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

Alaska already allows 5 free checked bags, and everyone can bring a standard carry-on. As for change fees, I guess that applies to Saver Economy fares? There may be some extreme cases that aren’t covered, but that will have little impact at best.

Ultimately, Alaska didn’t have to give up much to seal the deal with DOT, but DOT can brag about it as if it had pulled out incredible concessions. Ultimately, the deal was done and everyone seemed happy. Now the hard work of integration begins.