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Why The Alaska-Hawaiian Merger Could Be Good For The US Airline Market

by Staff

Summary

  • The merger will likely have limited impact on competition due to few overlapping routes.
  • By streamlining operations and connecting networks, this could lead to service expansions.
  • Alaska’s potential to enter more competitive air routes is significantly higher with a larger network and greater economies of scale.



Alaska Airlines and Hawaiian Airlines are well on their way to executing their proposed merger, with Hawaiian’s shareholders approving the acquisition just last week. Undeniably, this merger would have a tremendous effect on the industrial organization of the commercial aviation market.

According to the Department of Transportation, Alaska is the 5th largest airline in the United States, controlling a market share of 6.4%. Hawaiian sits as the 10th largest airline in the nation, controlling a 1.7% market share. If merged, Alaska would remain the 5th most prominent carrier in the industry, a consolidation that many have raised concerns would come to the detriment of the consumer through the elimination of competition.

Photo: Minh K Tran | Shutterstock


However, the merger actually demonstrates a strong potential for increased service expansion and will not greatly affect the competitive landscape on individual routes. As a result, there is a very strong argument to make that this merger could greatly benefit both the consumer and the level of competition in the highly saturated market as a whole.


Limited changes in competition

One of the primary arguments economists make against airline industry mergers is that they can create firms with such heavy market power that they can drastically increase prices on many routes. However, the adjustments that this merger would make to operational networks would be significantly limited and not drastically change the level of competition in the market as a whole.

An Alaska Airlines Embraer E175 (Operated by SkyWest Airlines) tail and a Hawaiian Airlines Airbus A330 tail at Sacramento International Airport.

Photo: christianthiel.net | Shutterstock


Hawaiian Airlines and Alaska Airlines currently only compete on six routes, all of which connect Honolulu’s Daniel K. Inouye International Airport (HNL) with cities along the West Coast. These flights include connections to Los Angeles (LAX), Portland (PDX), San Diego (SAN), San Francisco (SFO), San Jose (SJC) and Seattle/Tacoma (SEA).

Collectively, the two carriers operate 336, only six of which are set to actually see a decrease in competition as a result of the merger, according to Aviation Week. In fact, only one of these routes, Honolulu to Portland, is only flown by Alaska and Hawaiian, the others are all served by one or more other carriers.


Operational potential

While the potential reduction in competition is relatively limited to a few West Coast to Hawaii routes, there could be a whole host of benefits from this merger for the consumer. With a larger fleet, Alaska will be able to improve its economies of scale, reducing operational costs and allowing the new carrier to enter newer routes.

Alaska Boeing 737 MAX

Photo: The Global Guy | Shutterstock

With better operating economics, Alaska can enter more competitive air routes, increasing competition with legacy carriers and thus lowering prices for the consumer. In this manner, consumers will continue to have more options on routes all across the United States.


Related

Analysis: Winners and Losers From Alaska Airlines’ Acquisition Of Hawaiian Airlines

Which industry players are in a stronger position as a result of the merger?

Furthermore, Hawaiian is only the fourth scheduled US carrier to operate widebody aircraft, and the airline already serves a number of long-haul destinations. With Hawaiian at its disposal, the springboard is undeniably in place for Alaska to pursue JetBlue-style transoceanic flights, an expansion that could increase competition on notoriously expensive transpacific connections. Hawaiian already serves a number of destinations in the Asia-Pacific region from its Honolulu hub.

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