The value of this step was estimated at $1.9 billion. This means more than just a business deal. This represents a strategic location for future growth in a highly competitive and focused sector.
When the deal is completed, Alaska and Hawaiian will have a combined market share of about 8.2%, making them the fifth-largest U.S. airline, unless JetBlue Airways (NASDAQ:) succeeds in obtaining regulatory approval for the purchase. More on this later.
Alaska’s offer to buy Hawaii for $18 per share currently trades at $13, including taking on $900 million in debt, but the potential upside is significant. The Washington state-based airline not only has a significant share of the $18 billion Hawaiian market; But it also benefits from a number of strategic benefits:
- Capacity rationalization: The deal allows it to better compete with Southwest Airlines (NYSE:) by rationalizing capacity between the West Coast and Hawaii.
- Fleet expansion and flexibility: Alaska will purchase wide-body aircraft for long-haul flights and increase fleet flexibility for a variety of route options.
- Improve network usage: The merger promises to improve the use of large, narrow-body aircraft within the combined network.
The announcement sent shares of the Hawaiian parent company soaring 193% on Monday. This reflects the market’s positive view of the deal. This positive reaction reinforces broader trends in the aviation industry. Small players pursue mergers and acquisitions in order to compete with larger competitors.
JetBlue case for spirituality
In conjunction with the Alaska-Hawaii deal, JetBlue officially closed its case in federal court last week to buy Spirit for $3.8 billion. If approved, the deal will reshape the American aviation industry. It could challenge the dominance of the Big Four airlines and be the most significant example of airline consolidation since the 2013 merger of US and American Airlines.
That’s according to Duane Pfennigwerth of Evercore ISI, who attended closing arguments on Wednesday. The judge read “optimistic about the settlement,” and JetBlue appears to have a “more coherent argument.” [than the Justice Department]“This requires less explanation from the judge.”
The most compelling argument offered by JetBlue’s lawyers is that the New York-based airline needs scale to grow and compete with the Big Four airlines. Smaller competitors are expected to fill the void left by Spirit’s departure. Which is something JetBlue insists it can’t do alone in the current market. .
The Justice Department isn’t so sure. The agency claims that the JetBlue-Spirit merger would eliminate half of the low-cost carriers’ (ULLC) capacity in the United States. He is counting on many price-conscious Americans.
“Spirit has priced itself into a mass market and is innovative,” with self-serve bags being an example of the latest innovation, Pfenniwirth wrote, summarizing the Justice Department’s reasoning.
The decision is expected early this week.
Return to the long-term average
Domestic airline stocks rose last week on positive news, with the NYSE Arca Airlines Index closing up nearly 13% from the previous Friday. This represents the group’s largest weekly profit since November 2020.
JetBlue is taking legal action in court in Boston and revised its 2023 financial forecast to expect annual revenue growth of 4% to 5%, up from its previous guidance of 3% to 5%, and a lower-than-expected adjusted loss. This increase was driven by strong bookings and operating results.
Delta Air Lines reported strong demand for holiday travel and an increase in corporate bookings. Delta CEO Ed Bastian predicted a bright end to 2023 and a strong start to 2024, at the Morgan Stanley Global Consumer and Retail Conference, citing the airline’s positive guidance for 2023. Claiming it will provide income for the Thanksgiving holiday. Christmas bookings appear to be “very strong,” Bastian said.
During his presentation, Bastian shared an interesting chart showing that air travel as a percentage of GDP has returned to its long-term average since 1980, shortly after deregulation. Commercial air travel costs have historically averaged about 1.3% of the U.S. economy. While notable deviations occurred as a result of September 11 and the 2009 financial crisis, the most significant disruptions occurred during the pandemic. This results in a loss of demand of an estimated $300 billion in the period from 2020 to 2022.
Bastian points out that the recent tourism boom is a response to pent-up demand. Even that would return the industry to an average of just 1.3%, without addressing the missing $300 billion gap. Bastian is expected to repay this money in the next few years. This is because demand remains near or above current levels.
The International Air Transport Association (IATA) forecasts operating profits in 2024
Finally, the International Air Transport Association (IATA) estimates that by 2024, the global aviation industry will generate net profits of US$25.7 billion. Its operating profits will reach 49.3 billion US dollars. North American airlines, the first to return to profits in 2022, are set to collect combined profits of $14.4 billion, the International Air Transport Association said.
These expectations are coupled with expected increases in passenger volume. It paints a picture of an industry on the cusp of a historic revival.
The aviation industry’s journey through the pandemic has been fraught with challenges. But its quick return to profit is a testament to its resilience and adaptability. While the Alaska-Hawaii agreement and JetBlue-Spirit were formed. It’s clear that the industry is not just recovering. But it is also actively reshaping itself in preparation for a new era of growth and competition.
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Disclaimer:: Collectibles may change daily. The holdings were reported at the end of the last quarter. The following securities mentioned in this article were held by one or more accounts managed by US Global Investors as of (09/30/2023): JetBlue Airways Corp., United Airlines Holdings (NASDAQ:) Inc., Alaska. Air (NYSE: ) Group Inc., Hawaiian Holdings (NASDAQ:) Inc., Southwest Airlines Co., American Airlines (NASDAQ:) Group Inc., Delta Air Lines Inc. (NYSE:)., SkyWest (NASDAQ:) Inc.., Frontier Group Holding Company.
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