On a peaceful Sunday, $ALK agreed
to acquire $HA
for $1.9 billion. In this acquisition, Alaska Airlines and Hawaiian Airlines will share resources with each other while maintaining each of their respective brand identities. With amped up competition
and a plunge in travel to Hawaii due to the fires in Maui, Hawaiian Airlines has struggled immensely compared to other airliners. Buying out Hawaiian Airlines when investors are fearful to invest in the stock is bold but may also be a smart move for Alaskan Airlines.
- Hawaiian carries ~7 million passengers annually
- Alaska's average revenue per passenger is $150
- Alaska can achieve $20 million in annual cost synergies
- 10% net profit margin
This means that Alaska Airlines will receive:
- $1.05 billion in additional revenue
- an additional $105 million in net profit
On a $1.9 billion acquisition, the ROI on this deal looks to be ~7%. Even if the returns may be similar to what one could get in treasuries or corporate bonds, Alaska Airlines sees this opportunity as "once in a lifetime". As travel demand to Hawaii returns to normal, the ROI that Alaska will gain from owning Hawaiian Airlines will grow. I say bravo to management for capitalizing on the opportunity.