Alaska Air Group (ALK:NYSE) made waves on today by announcing an agreement to acquire Hawaiian Holdings Inc. (HA:NASDAQ) for US$1.9 billion. This blockbuster deal sent Hawaiian Airlines' stock price skyrocketing 188% at the time of this writing.
The purchase price offered by Alaska Airlines represents a 270% premium over Hawaiian's closing share price on the previous Friday. This massive premium reflects the growth opportunities and synergies Alaska sees from bringing the Hawaiian brand under its umbrella.
Why is Alaska Airlines Willing to Pay So Much?
Alaska Air views Hawaiian as a profitable airline that has faced some recent headwinds, including issues with its Airbus fleet, that masked its earnings potential. Hawaiian achieved double-digit operating margins from 2010-2019, representing an attractive long-term investment.
Additionally, Alaska management highlighted network synergies from the deal, with the ability to offer substantially more connecting flights through an integrated route map. The combined entity will also have over 50% market share for Hawaii flights, a lucrative and popular destination.
What Does This Deal Mean for Frequent Flyers?
Frequent flyers stand to gain from expanded reciprocity and additional redemption opportunities once the airlines integrate their operations, loyalty programs, and networks:
- Hawaiian will join the Oneworld airline alliance, giving Mileage Plan and HawaiianMiles members lounge access and elite benefits across Oneworld airlines
- Award travel will be expanded across the networks of both airlines
- Elite status will be matched across programs, offering more upgrade opportunities and perks
While the loyalty programs will eventually be combined, Alaska intends to maintain the Hawaiian brand and its strong local loyalty base.
What's Next for Approvals?
The deal is expected to close 12-18 months from now, pending shareholder, antitrust, and regulatory reviews. Alaska management expresses confidence that regulators will approve the tie-up given the limited route overlaps between the two airlines.
If all goes as planned, the deal represents a massive opportunity for Alaska to expand its presence in Hawaii and across the Pacific. Hawaiian loyalists also stand to gain from amplified benefits and earning potential through integration into the global Oneworld alliance. Both management teams paint the acquisition as a win-win for customers, employees, and investors alike.
Why Buy This Stock?
In light of the news, Investors Observer put out an article titled "Should You Buy Alaska Air Group, Inc. (ALK) Stock Monday Morning?". In it, the news above is detailed as well as a general analysts recommendation. The article says, " ALK has an average analyst recommendation of "Strong Buy." The company has an average price target of US$52.25."
TipRanks has Alaska Group Holdings rated as a "Strong Buy," as well, with a 12-month target of US$50.09.
Reuters also highlights the company as a "Buy," based on an accumulation of analysts' coverage. Reuters also gave Alaska Air an Optimized Score of 7, saying, "Historically, companies with an Optimized Score of 7 have tended to moderately outperform the market over the following 12-month period."
Prior to his news, a few "Sell" recommendations were put out on the company. However, we shall see what updates become available as the news spreads further.
Streetwise Ownership Overview*Ownership and Share Structure
According to Reuters, management and insiders own 0.35% of the company. President and CEO Benito Minicucci is the largest shareholder in his category at 0.09%, with 0.12 million shares.
The bulk of shares, 79.37%, are with institutions. The Vangaurd Group Inc. owns 11.28%, with 14.44 million shares. Victory Capital Management Inc. has 6.23%, with 7.98 million. BlackRock Institutional Trusts Company N.A. has 4.83%, with 6.19 million. Dimensional Fund Advisors LP has 3.73%, with 4.78 million. State Street Global Advisors (US) has 3.17%, with 4.06 million, and PRIMECAP Management Company has 3.03%, with 3.88 million.
The rest is in retail.
Market Watch reports that the company has a market cap of US$5.09 billion and 128.05 million shares outstanding.
It trades in the 52-week range between US$30.75 and US$57.18.
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