High finance: How Alaska and JetBlue mergers could reshape the domestic airline business
- January 1, 2024: Vol. 11, Number 1

High finance: How Alaska and JetBlue mergers could reshape the domestic airline business

by Frank Holmes

Airline consolidation is not only relatively common but necessary for growth and competitiveness, and the recent announcement of Alaska Airlines’ planned acquisition of Hawaiian Airlines is a prime example of this trend. The move, valued at $1.9 billion, signifies more than just a business transaction. It represents a strategic positioning for future growth in a highly competitive, highly concentrated sector.

Once the deal is completed, Alaska and Hawaiian will have a combined market share of about 8.2 percent, making it the fifth-largest U.S. airline — unless JetBlue Airways succeeds in getting regulatory approval to acquire rival low-cost carrier Spirit Airlines. More on that later.

Alaska’s offer to purchase Hawaiian for $18 per share includes taking on $900 million in debt, but the potential advantages are substantial. The Washington state-based carrier not only gains a significant foothold in the lucrative, $18 billion Hawaii market but also achieves several strategic benefits:


  • Capacity rationalization: The deal allows for better competition with Southwest Airlines by rationalizing capacity between the West Coast and Hawaii.
  • Fleet expansion and flexibility: Alaska will acquire widebody aircraft for long-haul flights and increase fleet flexibility for varied route options.
  • Enhanced network utilization: The merger promises improved utilization of large narrowbody aircraft within the combined networks.


The announcement sent Hawaiian’s parent company shares soaring 193 percent on Dec. 4, reflecting the market’s optimistic view of the deal. This positive reaction underscores a broader trend in the airline industry, where smaller players seek mergers to stay competitive against larger rivals.

JetBlue’s case to acquire Spirit

Parallel to the Alaska-Hawaiian deal, JetBlue officially wrapped its case in federal court the week of Dec. 4 to acquire Spirit for $3.8 billion. If approved, the deal would reshape the U.S. airline industry, potentially challenging the dominance of the four major carriers and marking the most significant instance of airline consolidation since the American-US Airways merger in 2013.

According to Evercore ISI’s Duane Pfennigwerth, who was present for closing arguments on Dec. 6, the judge’s line of questioning “read favorably for a settlement,” and JetBlue appeared to have “a more cohesive argument [than the Justice Department], which required less clarification by the judge.”

Among the most compelling arguments made by JetBlue attorneys is that the New York City-based carrier requires scale to grow and compete against the Big Four airlines. Smaller competitors are expected to fill the gaps created by an outgoing Spirit, which JetBlue insists can’t make it alone in the current marketplace anyway.

The Justice Department is not so sure. The agency claimed a JetBlue-Spirit merger would wipe out half of all ultra-low-cost carrier capacity in the United States, depended on by many price-conscious Americans. Further, “Spirit anchors pricing in larger markets and is an innovator, with self-service bag drops an example of a recent innovation,” writes Pfennigwerth, summarizing the Justice Department’s line of reasoning.

As of this writing, the decision was expected after Dec. 13.

Back to the long-term average

Domestic airline stocks rallied on the positive news, with the NYSE Arca Airlines Index closing up nearly 13 percent from the previous week. This represents the largest weekly gain for the group since November 2020.

Taking time from its court case in Boston this week, JetBlue raised its financial outlook for 2023, with expected annual revenue growth of 4 percent to 5 percent, up from earlier guidance of 3 percent to 5 percent, and a smaller-than-anticipated adjusted loss. This uplift is buoyed by strong bookings and operational performance.

Also, Delta Air Lines reported robust holiday travel demand and increasing corporate bookings, projecting a bright end to 2023 and solid beginning to 2024. Speaking at the Morgan Stanley Global Consumer & Retail Conference, Delta CEO Ed Bastian doubled down on the carrier’s positive 2023 guidance, citing record revenues for the Thanksgiving holiday. Christmas bookings look to be “very, very strong,” Bastian said.

During his presentation, Bastian shared an interesting chart that showed air travel as a percentage of GDP has returned to the long-term average. Since 1980, soon after deregulation, commercial air travel expenditure has historically averaged around 1.3 percent of the U.S. economy, with notable deviations occurring as a result of 9/11 and the 2009 financial crisis. However, the most significant disruption was during the pandemic, resulting in approximately $300 billion of lost demand from 2020 to 2022.

The recent travel boom, Bastian pointed out, is a response to pent-up demand, though it’s only brought the industry back to the 1.3 percent average without addressing the missing $300 billion gap. Bastian expects to recoup this amount over the next few years as demand remains near present levels.

The 2024 forecast

On a final, encouraging note, the International Air Transport Association forecasts net profits of $25.7 billion for the global airline industry in 2024, with operating profits reaching a record $49.3 billion. North American carriers, which were first to return to profitability in 2022, are set to collect a combined $14.4 billion in profits, the agency says.

This projection, coupled with an expected surge in passenger traffic, paints a picture of an industry on the cusp of a historic rebound.

The airline industry’s journey through the pandemic was fraught with challenges, but its rapid return to profitability is a testament to its resilience and adaptability. As the Alaska-Hawaiian and JetBlue-Spirit deals take shape, it’s clear that the industry is not only recovering but is actively reshaping itself for a new era of growth and competition.


Frank Holmes is CEO and CIO of U.S. Global Investors. The original version of this story appeared on the U.S. Global Investors’ website. Read it here.

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