The $1.9 billion deal Alaska Airlines signed with Hawaiian Airlines on December 3 would enable the competitors to collaborate on the 12 routes they both fly between the Aloha State and cities on the U.S. West Coast–a small part of their overall networks. Does that mean the Antitrust Division will challenge the deal?
I see a couple of ways to assess the odds of action by the Antitrust Division.
The first involves the 2023 Draft Merger Guidelines. Although they haven’t taken effect, they reflect the thinking of Antitrust Division (and FTC) leadership, and several of them seem on point.
Going Through the Guidelines
Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets.
Guideline 2: Mergers Should Not Eliminate Substantial Competition Between Firms.
Eliminating Hawaiian as a competitor in service to and from the U.S. mainland would significantly increase concentration in a market that already at least “moderate” concentration under the Herfindahl-Hirschman Index even if you include flights to and from inland cities. The fact that Hawaiian and Alaska now go head to head in at least 40.1 percent of the West Coast-Hawaii service (and probably significantly more) strongly implies the merger would “eliminate substantial competition between” them.
Guideline 3: Mergers Should Not Increase the Risk of Coordination.
Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market.
Coordination on pricing, scheduling, and other aspects of competition becomes easier with fewer competitors, especially in a market that already has only a few large ones. With its West Coast headquarters (in Seattle), Alaska now poses a threat to fly to Hawaii from other coastal cities.
Guideline 8: Mergers Should Not Further a Trend Toward Concentration.
Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.
The fact that Alaska bought Virgin America in 2016–a year after Virgin started service to and from Hawaii–implicates draft Guidelines 8 and 9. That fact that Aloha Air went out of business in 2008 won’t help. The Hawaiian debut of Southwest in 2019, on the other hand, will.
Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers.
After Southwest started serving Hawaii in 2019, wages for airport workers increased from $13 or $14 an hour to $20. The Antitrust Division has made a point of scrutinizing mergers for signs they would lower wages for workers.
Recent Enforcement History
The second consideration pertains to the Antitrust Division’s recent record with airline combinations. Earlier this year, the Antitrust Division won a court fight over blocking an alliance between Jet Blue and American Airlines. Just today, it finished a trial in which it seeks to enjoin another pending merger–a $3.8 billion deal between Jet Blue and Spirit. And the Division under Jonathan Kanter has often pointed to the industry as one that the more permissive enforcement approaches of previous administrations regrettably allowed to consolidate, with an irretrievable loss to the industry’s competitive vigor. The Attorney General himself promised that the Justice Department “will continue to protect competition and enforce our antitrust laws in the heavily consolidated airline industry.”
Alaska and Hawaiian said they have not spoken to the government about any potentially problematic aspects of their Merger Agreement. Promising to sell some or all of the 12 most concerning routes to a competitor might save the deal, as similar moves have in other cases. The most likely buyer–still scrappy Southwest–might pose its own set of concerns for Alaska. But talk they must.