During lockdown restrictions caused by the pandemic, airlines found themselves in a challenging financial situation, becoming potential targets for mergers and acquisitions. However, even prominent sector representatives required additional financing to survive and had no opportunities to purchase competitors.

After the crisis, not all airlines could regain their positions, with Hawaiian Holdings Inc. (NYSE: HA) being one of them. On 3 December 2023, Alaska Air Group Inc. (NYSE: ALK) announced its plans to acquire the company. Today, on 11 December 2023, we will delve into this deal, explore possible factors that could impede its completion, conduct a technical analysis of these shares, and examine their further outlook.

Overview of the acquisition

It was announced on 3 December 2023 that Alaska Air Group Inc. would purchase Hawaiian Holdings Inc. for 1.9 billion USD or 18 USD per share, 270% higher than the stock value recorded at the close of trading on 1 December 2023. It is worth noting that the overall deal value comprises a debt of 0.9 billion USD.

The parties have agreed that:

  • Ben Minicucci, presently the president and chief executive officer of Alaska Air Group Inc., will be the CEO of the combined company
  • Both Hawaiian Airlines and Alaska Air brands will be preserved
  • The company will be headquartered in Seattle
  • The deal is expected to close in 12-18 months

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Market reaction to the acquisition

On 4 December 2023, the day following the release of the acquisition news, Alaska Air Group Inc. stock lost 15.83%, dropping from 39.80 to 33.50 USD per unit. The stock reaction is understandable: investors view this decision as an additional risk to the company.

This entails the risks of a failed deal at the initial stages and onward potential challenges in integrating the acquired company into the existing business, along with associated financial costs. Subsequently, there is a possibility of facing risks such as potential losses, a decline in client loyalty, and, consequently, a decrease in market share.

Alaska Air Group Inc. stock response to the acquisition news
Alaska Air Group Inc. stock response to the acquisition news*

Hawaiian Holdings Inc.'s share price skyrocketed 193.81%, climbing from 4.85 to 14.25 USD per unit. This significant response from investors can be attributed to the announced purchase price of 18 USD, which was considerably higher than the market price at that time. Nevertheless, it is important to note that the share value did not reach 18 USD. Investors may have concerns that the regulators might block the deal for antitrust reasons.

Hawaiian Holdings Inc. stock response to the acquisition news
Hawaiian Holdings Inc. stock response to the acquisition news*

Profile of Alaska Air Group

Alaska Air Group Inc. is a US airline specialising in passenger and air freight transportation, with subsidiaries including Alaska Air Inc., Horizon Air Industries Inc., and McGee Air Services.

According to the company, it operates 138 routes in North America, including 29 international destinations. As of November 2023, the fleet consists of 303 aircraft. Based on information from Statista for February 2022 to January 2023, Alaska Air Group Inc. holds the fifth position among US airlines in domestic market share – 6.2%.

As the Q3 2023 report shows, operating revenue for January to September increased by 9.85% from the corresponding period in 2022, reaching a record 7.87 billion USD. Net profit soared by 558.33% to 237 million USD or 1.86 USD per share.

According to Macrotrends, the company’s debt increased from 9.34 billion USD in Q1 2020 to 11.07 billion USD in Q3 2023, with a debt-to-equity ratio of 1.01 – indicating an equal proportion of debt to equity. Based on Finviz data, the business margin in the last 12 months exceeds 19%, enabling the company to generate net profit and buy back its shares.

Profile of Hawaiian Holdings

Hawaiian Holdings Inc. owns Hawaii's oldest airline, Hawaiian Airlines, established in 1929. According to the company, as of November 2023, its fleet includes 32 aircraft and operates flights to 31 destinations. Based on the information from Statista for February 2022 to January 2023, the corporation holds a 1.9% share in the US market, ranking tenth by this indicator.

Hawaiian Holdings Inc.’s report for Q3 2023 states that revenue for January to September rose by 7.17% compared to the statistics for the same period in 2022, reaching 2.04 billion USD, while net loss decreased by 16.12%, down to 159.31 million USD.

As the Finviz data indicates, the business margin is 3.56%, and the debt-to-equity ratio is 11.45. Based on these statistics, it can be presumed that the corporation may go bankrupt.

This situation will likely deter stock market participants, preventing them from investing in the company and potentially negatively affecting its stock price. Hawaiian Holdings Inc.’s shares have dropped from a high of 31 USD recorded in June 2021 to a low of 3.85 USD in October 2023, marking a decline of 87.6%.

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Strategic benefits of the acquisition of Hawaiian Holdings Inc. for Alaska Air Group

According to a presentation from Alaska Air Group Inc. to investors on 3 December 2023, the acquisition of Hawaiian Holdings Inc. could provide the corporation with the following advantages:

  • Fleet growth: increase in the aircraft fleet from 302 to 365
  • Passenger traffic: 25% growth, reaching 54.7 million passengers
  • Daily departures: 22% increase in daily flights
  • Loyalty programme membership: 24% growth in the number of active participants in the loyalty programme
  • Potential revenue growth: an expected 27% increase in revenue
  • Enhanced market position: strengthening market positions in the US
  • Leadership in the Hawaii market: attainment of a leadership position in the Hawaii market, estimated at 8 billion USD

Potential challenges and disruptions

As reported by the Associated Press on 19 May 2023, the federal court in Boston annulled the partnership between American Airlines Group Inc. (NYSE: AAL) and Jetblue Airways Corporation (NYSE: JBLU). This decision was made because the deal could reduce competition levels in the aviation industry.

According to the Associated Press, in November 2023, the Biden administration intervened in another deal in this sector. The US Department of Justice approached the court to prevent JetBlue Airways Corporation from acquiring Spirit Airlines Inc. (NYSE: SAVE) for 3.8 billion USD, citing antitrust law violations.

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Given the information above, regulatory authorities may block the deal between Alaska Air Group Inc. and Hawaiian Holdings Inc. As observed, the Biden administration seeks to decrease consolidation in the aviation industry to maintain competition at previous levels.

Detailed stock analysis of Alaska Air Group

Due to the COVID-19 pandemic, Alaska Air Group Inc. shares hit a minimum of 20.00 USD in March 2020. Subsequently, the prices moved upwards and reached a high of 74.25 USD by April 2021. Since then, they have declined, and by 11 December 2023, they had approached the minimum values recorded in 2020.

The chart shows a descending channel, within which the quotes are declining. They have nearly reached the channel's lower boundary, indicating oversold conditions and possible price growth. It is worth noting that the price is testing the support level around 33.00 USD. The combination of these factors may signal a potential rise in the stock's value towards the trendline and, if it breaks, towards the resistance level of 54.00 USD.

However, in a negative scenario, the quotes might breach the 33.00 USD support level and likely trigger a price decline to 24.00 USD.

Alaska Air Group stock analysis*

Expert predictions and forecasts

  • According to Barchart, nine out of eleven analysts have assigned a Strong Buy rating to Alaska Air Group Inc. stocks, while two have rated them as Hold. The average target price is 41.00 USD
  • According to MarketBeat, six out of nine experts have given these stocks a Buy rating, with three rating them as Hold. The average target price is 57.25 USD
  • According to TipRanks, ten of thirteen analysts have designated a Buy rating for the airline's stocks, and three have rated them as Hold. The average target price has reached 41.00 USD
  • Based on a Stock Analysis post, three out of ten specialists have assigned a Strong Buy rating, four have given a Buy rating, and two have rated them as Hold. The average twelve-month stock price forecast for Alaska Air Group is 61.46 USD
  • Experts at Simply Wall St predict that the corporation's profit and revenue will increase annually by 53.2% and 4.8%, respectively. The return on equity is expected to reach 14.8% in three years

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Conclusion

If Alaska Air Group Inc. succeeds in completing the takeover of Hawaiian Holdings Inc., this will help strengthen its position in the US aviation market, increase its fleet size, expand its route network, and boost passenger traffic. Under these conditions, this acquisition could positively impact the corporation's stock value.

However, there are risks of regulatory hurdles and the onset of a long-anticipated economic recession. A recession could reduce passenger traffic, which, in turn, may negatively affect the corporation's financial standing.

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1. How could the acquisition of Hawaiian Holdings Inc. by Alaska Air Group Inc. affect the overall stock market?

The acquisition could potentially influence the broader stock market of airline shares by altering the competition dynamics. Investors and analysts will likely closely monitor the integration process and its impact on market share and operational efficiency. This move could also trigger other mergers and acquisitions and mergers in the industry, potentially affecting market trends.

2. How might the deal affect Alaska Air Group Inc.'s stock in the long term?

In the long term, the impact of the deal on Alaska Air Group Inc.'s stock will depend on how effectively the company integrates Hawaiian Airlines into its operations and realises the expected synergies. If the acquisition leads to market share gains, enhanced operational efficiency, and route network expansion, it could positively impact the company's stock. However, possible regulatory and integration challenges and an adverse market reaction might pose risks.

3. What are the potential risks associated with this acquisition?

In the initial stages, risks might revolve around regulatory decisions regarding the acquisition. Subsequent risks could include potential integration issues, such as aligning corporate cultures and systems. Additionally, the risk of adverse consumer and investor reactions should be considered. Furthermore, there is a risk of not achieving the expected synergic effect and operational efficiency, which could affect the financial performance of Alaska Air Group Inc.

4. How might the deal affect Hawaiian Airlines' brand and operations?

Much will depend on the strategic goals of Alaska Air Group Inc. According to the preliminary agreement between the parties, the Hawaiian Airlines brand will be retained.

5. What should investors watch for in the coming months?

Investors can monitor regulatory decisions and the reactions of other industry representatives. If the acquisition is approved, particular attention should be given to the integration process, financial performance, and consumer response. Moreover, it is crucial not to overlook broader trends in the aviation market, as they can significantly affect the acquisition's success.

6. How could the acquisition of Hawaiian Holdings Inc. by Alaska Air Group Inc. affect travellers?

This impact is likely to be noticeable, with more routes becoming available, improved service quality and loyalty programmes being optimised. However, airfare prices could increase due to potentially reduced competition, especially on specific routes previously served by both companies.


* – Past performance is not a reliable indicator of future results or future performance.

The material presented and the information contained herein is for information purposes only and in no way should be considered as the provision of investment advice for the purposes of Investment Firms Law 87(I)/2017 of the Republic of Cyprus or any other form of personal advice or recommendation, which relates to certain types of transactions with certain types of financial instruments.

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