Alaska Airlines sailed through a major milestone this week in its attempt to acquire Hawaiian Airlines, when antitrust regulators declined to challenge the merger as anticompetitive.
The Department of Justice also chose not to impose any conditions on the merger, such as requiring Alaska to guarantee certain levels of interisland service in Hawaii or to divest of any gates or other holdings across its network.
The silence from the department was a best-case scenario for the Alaska-Hawaiian merger. But the deal isn't quite done yet.
Alaska and Hawaiian now must receive permission from the DOT to operate under common ownership while they await final approval for Hawaiian to transfer its international route authorities to Alaska and as they integrate their operations into a single operating certificate.
Still, with the DOJ having successfully sued over the past two years to block JetBlue's planned acquisition of Spirit and to break up the close alliance between JetBlue and American in the New York area and Boston, its decision not to intervene in the $1.9 billion Alaska-Hawaiian deal comes as a major victory.
"This is a significant milestone in the process to join our airlines," Alaska Airlines said in a statement issued immediately after the DOJ's review period expired.
"During the DOJ's review, Alaska worked closely with the Hawaii attorney general to reinforce and expand upon our commitments for the future of Hawaiian Airlines and to Hawaii consumers," Alaska continued. "These include plans to maintain the Hawaiian Airlines brand and local jobs and continue providing strong service between, to and from the Islands."
Alaska plans to keep the Hawaiian Airlines brand distinct while otherwise running the two carriers as a merged airline, with centralized scheduling, a single loyalty program and interchangeable aircraft.
The state government's support of the merger likely played a significant role in the DOJ's sign-off, said Scott Wagner, an antitrust attorney at Miami-based law firm Bilzin Sumberg.
Wagner also said that the limited route overlap between Alaska and Hawaiian, along with the fact that both are full-service carriers, made their case substantially different than the Spirit-JetBlue scenario.
Alaska and Hawaiian serve approximately 140 combined destinations, but they overlap on just 12 routes, including just three in which they are the only two carriers, Cirium flight schedule data shows. Meanwhile, JetBlue and Spirit share a major base in Fort Lauderdale. And the DOJ chafed at the notion of JetBlue replacing the discounted seats that Spirit sells with its pricier product.
"I think the conclusion the DOJ ultimately reached is that the sum of the parts is greater than the whole, and that the combined airline will put more pressure on the Big Four," Wagner said, referencing American, Delta, Southwest and United.
Still, the DOJ's decision not to impose any conditions on the merger came as a surprise to some, especially after the airlines and the DOJ agreed to three separate extensions of the review period between late July and mid-August, spurring speculation that a negotiated agreement was in the works.
"I was not expecting it to pass without any conditions," said Gary Leff, who pens the View From the Wing blog.
Leff thought a likely scenario might have been requirements on interisland Hawaii flying. Though the airline has committed to retaining high-frequency interisland service, the DOJ could have imposed thresholds.
Leff pointed out that while each of the four major airlines, along with Alaska and Hawaiian, are substantial players in Hawaii flying to the U.S. mainland, only Southwest and Hawaiian serve the far less lucrative interisland market.
Leff said Alaska Airlines might decide to maintain interisland frequencies but reduce seat availability by substituting 76-seat Embraer E175 aircraft for the aging 128-seat Boeing 717s Hawaiian is currently using.
"I thought that DOJ might require an agreement to maintain the status quo for some period of time," he said.
The airlines' regulatory journey isn't over yet. The DOT still has the opportunity to impose conditions on the merger, Wagner said. A typical time frame for the department to complete its work would be two or three months, he added.
"It wouldn't surprise me if there are stipulations involved with the DOT approval," Wagner said.