US airlines’ plans for growth are limited by antitrust concerns

CHICAGO, Dec 6 (Reuters) – A shortage of new planes, jet engines and pilots has left U.S. airlines little choice but to pursue growth through acquisitions – putting them in the sights of antitrust regulators.

Alaska Airlines ( ALK.N ) surprised analysts and industry representatives with its plan to buy Hawaiian Airlines ( HA.O ) for $1.9 billion even before a judge ruled on the U.S. Department of Justice (DOJ) case against block JetBlue ( JBLU.O ) proposed merger with Spirit Airlines ( SAVE.N ).

But supply and labor constraints are so severe that airlines like Alaska are likely to continue to pursue deals despite the Biden administration’s aversion to more consolidation. American Airlines ( AAL.O ), United, Delta and Southwest Airlines ( LUV.N ) currently control 80 percent of the domestic market, leaving little room for growth.

“It’s an industry that’s constantly looking for an angle,” said Addison Schoenland, a partner at consulting firm AirInsight. “If Alaska doesn’t move on Hawaiian, what’s to stop someone else from moving on Hawaiian?”

The deal will give Alaska — a primarily domestic carrier that operates narrow-body aircraft — wide-body planes to Hawaii, pilots and international networks, opening a runway for growth in long-haul international markets.

In an interview, Alaska CEO Ben Minicucci said the timing was right for the deal, which he described as “a great investment, a great change” for the company.

Alaska told analysts on Sunday that operating long-haul international flights would be much more expensive and much more difficult.

Courtney Miller, a consultant who advocated for a merger between the two airlines as early as 2019, said Alaska would likely have to invest roughly the same amount it pays Hawaiian to start its own smaller international operation.

Entering long-haul international flights using Hawaiian’s fleet of wide-body aircraft and international networks is a better option, he said.

With both Boeing ( BA.N ) and Airbus ( AIR.PA ) facing supply chain problems, the deal allows Alaska to avoid a long wait for new planes. It also reduces the need to hire and train pilots during an industry-wide staffing crisis and saves the company the fight for slots at international airports.

“The risk is much lower,” said Miller, who now runs consulting firm Visual Approach Analytics.

Mergers and acquisitions create economies of scale that help offset rising operating costs. Alaska will face a challenge on that front, however, as it integrates the Hawaii fleet, Schoenland said.

While the Seattle-based airline flies Boeing 737s, Hawaiian’s fleet has several Airbus planes, so a combined company would have to rely on different parts and mechanics for repairs. Minicucci said that while the combined company would continue to operate a mixed fleet for now, he did not rule out a review of the aircraft mix.

Legacy airlines such as Delta ( DAL.N ) and United ( UAL.O ) managed to ease inflationary pressures due to strong bookings for flights to Europe and Asia. But a decline in domestic travel demand has hurt earnings for domestic carriers, including Alaska.

Such growth concerns prompted JetBlue to make a hostile bid for Spirit last year to try to expand JetBlue’s domestic footprint and help it capitalize on growth in leisure travel between the US East Coast and the Caribbean.

But the deals face challenges in convincing antitrust regulators that they benefit competition and consumers.

Former Federal Trade Commission Chairman William Kovacic, who now teaches at George Washington University Law School, said the DOJ is likely to take a close look at the Alaska transaction.

“They approach the airlines with the view that merger policy is too permissive and allows for excessive concentration,” he said.

Our standards: The Thomson Reuters Trust Principles.