Alaska Airlines expects to close on its $1.9 billion acquisition of Hawaiian Airlines in the coming days following conditional approval Tuesday from the U.S. Department of Transportation.
The carriers had already cleared a major hurdle last month when the Justice Department decided not to challenge the deal. Now, the DOT has had its say by granting the airlines interim approval to operate under common ownership while they undertake the task of integrating their operations under a single operating certificate.
However, unlike the Justice Department, the DOT has imposed conditions on Hawaiian and Alaska. These conditions are related to flight levels, customer service and their loyalty programs.
The agreement, which will last for six years upon closing of the merger, requires that the combined company maintain or increase service on all routes in which Hawaiian and Alaska are the only carriers, or on which they are two of the three existing carriers. Existing service levels must also be maintained on Hawaii interisland routes.
In addition, the airlines will have to continue existing interline agreements, including the agreement in place between Hawaiian and Mokulele Airlines on Hawaii regional flights.
And, as the combined carrier makes new investments at Hawaiian's hub in Honolulu, it will not be allowed to take actions that would restrict smaller competitors from accessing the new facilities.
Regarding customer service, the DOT is requiring that Hawaiian adopt two policies that Alaska already has implemented. Hawaiian-branded flights must guarantee adjacent seats for children (13 and under) and an accompanying adult at no additional cost. The DOT also is requiring that Hawaiian provide a travel credit or frequent-flyers miles when a flight is delayed by three hours or more.
In addition, the DOT has required reduced flying costs for military personnel. Both airline brands must provide at least one free carry-on and two free checked bags for service members with a military ID and their accompanying spouse and children. They also must waive change fees for service members and their families who reschedule flights due to a military order or directive.
Regarding the loyalty programs, Alaska has agreed to maintain the value of points in the HawaiianMiles program as they are converted to points in Alaska Mileage Plan. The joint airline will then create a new program in which all miles are converted at a 1-to-1 ratio. Redemption values within HawaiianMiles must also be maintained.
Alaska has guaranteed that miles earned before the merger won't expire over the six-year term of the agreement. And, flyers with status in the HawaiianMiles or Mileage Plan programs must retain their status benefits when the combined loyalty program is created.
Alaska said Tuesday that the DOT's requirements align with its existing merger plans.
"These commitments do not impact the synergies of the deal, which will enhance competition and expand choice for consumers," the company said.
A new CEO for Hawaiian Airlines
Alaska Airlines CEO Ben Minicucci will remain in that position after the merger. Alaska Airlines said that its current regional president for the Hawaii and Pacific region, Joe Sprague, will take over as CEO of Hawaiian, replacing current CEO Peter Ingraham, who had planned to step down once the transaction closes.
Sprague will remain Hawaiian's CEO during the period in which Hawaiian and Alaska are owned jointly but operated separately -- before the carriers combine under a single operating certificate.
Once flying under a single certificate, the Hawaiian and Alaska brands will remain but the company will otherwise be operated centrally as one airline.