Current Thoughts (Mostly Hawaii)

Could Hawaiian have been Alaska? (Part II, how much to be?)

As the news came down that Alaska and Hawaiian Airlines have signed an agreement with the Department of Justice to not consummate their merger until 90 days after the last request for information by the Dept, it was about time for PHwSF to return to this subject, continuing its series looking at the merger.

You can read the other parts of this series, talking about the merger itself and the government’s reaction to it; who owns Hawaiian now; how the airline may benefit from a pre-check plan between Japan and Hawaii; and a “what if”, part 1, of whether Hawaiian could have been like Alaska Airlines.

This fifth article, “part 2”, continues examining a hypothetical “what does plan B look like” if the DOJ says no to the merger, forcing Hawaiian to figure out how to expand, on its own, and how much it would cost to do that. For this examination, we’ll look at how much it would cost Hawaiian to buy out another airline that services the West Coast, like how Alaska bought Jet America and Horizon in the 80s.

Just to refresh from part 1, it was determined that to set up a new hub in a city on the mainland, most likely it would be someplace like Las Vegas, and to just set up the beachhead would cost about $1 billion, with much more in the out years to just keep their dominance.

Thesis: If the Dept. of Justice rejects Alaska’s buyout of Hawaiian, and if Hawaiian was forced to figure out how to expand, who would they be able to buy, and at what price?
PC: “Hawaiian Airlines Airbus A321-271N (A321neo) N202HA at New York-JFK Airport” by Adam Moreira (AEMoreira042281) is licensed under CC BY-SA 4.0.

But what if Hawaiian didn’t have time to set up a full-blown mainland operation that is like that of Alaska’s dominance out of Seattle? Then the second-best way to expand is to buy out an airline company that already operates in the region and integrate their operations and services to Hawaiian, to create that position in the mainland, relatively quickly.

Let’s see how that plays out.

BUYING OUT AN AIRLINE is not a simple process, and it gets more complicated the larger the buyout is. Anyone who has been an observer of airline mergers over the last 15 years has seen relatively smooth mergers (Delta with Northwest) and ones that just felt like a train wreck every time you looked at it (United and Continental). The buyout of any one airline by Hawaiian, in this scenario, would face similar challenges of merging culture, operational style, equipment synergy, and overall financing of the transaction.

Alaska Airlines, in its history of expansion out of Seattle, has seemingly had a green thumb when it comes to the integration of airlines during its expansion. Their first big purchase in the 80ʻs was that of Northwest regional airline Horizon Air for $85 million ($266 million in 2024 dollars) and of course the buyout of Virgin America for $4 billion in the mid 2010ʻs. Smaller purchases they made of Jet America in 1987 for $14 million gave Alaska the ability to grow its market share while keeping the airline together as it grew.

Not an easy feat.

So, if Hawaiian were to target someone to buy out, who would it be, if we were examining setting up a hub on the mainland, and starting mainland-only services? In research, PHwSF has come up with this list of potentials,

  • Allegiant Air: Based out of Las Vegas, NV. With about 126 planes flying to over 100 destinations, its business model is more of a “travel club” with full package tours and travel attached to air transportation. It’s currently revamping its fleet, with the purchase of new 737-MAX planes.
  • Avelo Airlines: Headquartered in Houston, TX, it was founded by a former United Continental executive who took over a couple of smaller operators to form Avelo, with about 1,000 employees currently. Flies 737-800 planes, it has a presence on the West and East Coasts.
  • And, finally, to include “all possibilities”, we include a buyout by Hawaiian of Alaska Airlines. And we already know what Alaska brings to the table in that transaction.

Now, let us see what it would take for Hawaiian to buy each of them, hypothesizing that Hawaiian can obtain financing at the levels of these purchases, and even more with post-purchase integration and adjustments.

AVELO: In comparison to the other options presented here, Avelo would come relatively inexpensive for Hawaiian and its investors. Being a young airline, the range that Hawaiian could pay depends a great deal on both the cost of the durable assets of the airline and its financial “goodwill”. Currently estimates place a purchase price at between $500 million and $3 billion. For that purchase, Hawaiian would get an airline that has West Coast hubs in Seattle and Los Angeles that could be expanded upon with a ready-made fleet of planes at least to start.

ALLEGIANT: As the size of the airline to acquire gets bigger, so does the price tag. Currently, it would be between $3 to 10 billion to purchase Allegiant outright by Hawaiian. For that price, they’ll get a lot more employees, and a lot more landing slots in places all over the country, including on the West Coast. Their corporate culture of transporting passengers for leisure would dovetail with Hawaiian’s style. Furthermore, the operation that they have currently is profitable – something which could help Hawaiian should this purchase be needed to fund integration and further expansion. But they would need to be sure that they don’t “kill the goose that lays the golden eggs”.

And, finally, while much more fantastical than any other option, a buyout of ALASKA by Hawaiian could “technically” still happen, but the price tag would be huge. The estimate right now to purchase Alaska outright is in the range of $15 to $40 billion, with any figure no doubt leaning more toward the high end, than the low. But as with size meaning more money, it also means higher costs associated with integration and adjustments that the airline would need to face as they get bought out. Also, like with what happened in the 80s with leveraged buyouts by smaller entities of larger ones, the debt load that Hawaiian would carry on this would make the current $1 billion seem quite small, in comparison.

In an analysis of who else could be purchased, PHwSF also noted these two carriers that are much smaller than Hawaiian that could help with a west coast expansion, with a lot of post-merger money going to expansion, JSX, and Boutique Air. Both would have smaller price tags but both would also have much less of a footprint than the three listed above. While the purchase price might be lower, investors would need to commit relatively big money to fully utilize the network and people involved with these airlines, including recertifying them for larger planes.

In the end, it would be expensive for Hawaiian Airlines to expand by purchasing another airline. However, there are other options available to them. For example, they could make a partial purchase of an airline and gain a seat on the board, allowing them to access some of the markets where that airline flies. Another less expensive option is to form strategic partnerships with other airlines. The Alaska buyout of Hawaiian Airlines seems to be a full-blown strategic partnership with Alaska owning the airline outright, all for one seemingly low price.

Ultimately, the Department of Justice will determine if the buyout by Alaska, or any one of the potential “plan B’s” will come to fruition.

Photo Credits 
Avelo Airlines: "N803XT Boeing 737-8F2 Avelo Air Fort Lauderdale 19.1.23" by Colin Cooke Photo is licensed under CC BY-SA 2.0.
Allegiant Airlines: "N320NV Allegiant Air Airbus A319-111 s/n 2514" by TDelCoro is licensed under CC BY-SA 2.0.

Silent boos and broken bridges

As reported by this blogger on the Hawaii State Senate’s vote to deny Alapaki Nahale-a a second term as a Board of Regent for the University of Hawaii, it was sensed strongly that the vote didn’t go down well with many people.

Especially those who saw the vote in real time, that day, in the gallery.

However, others took issue with it and made it known in various mediums, including print. Both Civil Beat and the Honolulu Star-Advertiser made mention of the vote. And in the case of Civil Beat, included a visual in the form of an editorial cartoon

But seeing how the press reacted to the vote is one thing, it’s another thing to see how those on the inside – university employees – reacted to it. That reaction came soon after the vote, which happened on a Tuesday the 5th of March, that next Friday, the 8th.

Here is what happened.

Every year, the University of Hawaii Community Colleges get together, employees from all seven campuses, in a “confab” of sorts called the Hawaiʻi Student Success Institute, or HISSI for short. This year it was held at the Hawaii Convention Center, and it was estimated by this writer, who attended, that about 1,000 people attended.

It is an all-day event where there is a lunch, during which time there is a presentation made as part of the program. This year, the program revolved around celebrating the 60th anniversary of the University of Hawaii Community College system.

And as with all these anniversary events, dignitaries, former college leaders as well as current leaders attended this event. A few of those dignitaries were, as you may have guessed, legislators.

Considering how things went down earlier that week, this is where the program became interesting.

It started with the emcee of the entire day’s event, University of Hawaii Maui College’s Chancellor Lui Hokoana introducing the dignitaries, including the legislators. And then before calling them up to present certificates, he acknowledged their presence and the tension in the room by saying that he would be “addressing the elephant in the room”.

The speakers at the event, in this general order: Lt. Governor Luke, Senator and Senate President Ron Kouchi, and Senator and Chairwoman of the Higher Education Committee in the Senate, Donna Mercado Kim

He then proceeded to thank the legislators for their support of the Community Colleges and noted that the system will still need their support in the future. His presentation felt like the first movement of a dance, no one quite knew what the next steps were.

And then the opening act – a presentation of a certificate by the governor’s office by Lt. Governor Sylvia Luke. Since no one in that room seemed to have an issue with that office, her presentation elicited no real reaction in the room, outside of the courtesy audience clapping after she was done.

Next up, and not in any particular order was, in order of title and house, Senate President Ron Kouchi, Chairwoman of the Senate’s Higher Education Committee Donna Mercado Kim, and Chairwoman of the House of Representatives Committee on Higher Education Amy Perruso.

Getting the easy one out of the way, Perruso read the certificate from the House acknowledging the 60th anniversary.

And then, in order, was Senate President Ron Kouchi. Welcomed to the podium, he started his speech by talking about how he has an open-door policy, and that he would welcome anyone to come to his office and “talk story”. At least Kouchi knew who he was talking to, and tried to break the tension that was growing in that room, standing next to the University President and three current Regents.

He got a short courtesy clap from the crowd. His words, being graded by this blogger, suggested that at least he tried to “make nice” with his words as a form of a peace offering. It came across, though as if he was dancing with two left feet, and his dance partner was standing on the side trying to figure out what he was dancing to.

And then next up was Senator Kim.

If there was a moment where the good Senator could have used words in their most basic form to build bridges with a room full of people who have chosen words for her actions against the University, she must have that speech at her office.

Instead, and as she talked it became apparent that she wasn’t there to build bridges. Instead, she proceeded to tell the room full of university professionals that her actions in the Senate, on the University, are being done in its best interests. There was no reciprocating “open door” call as the President of the Senate made moments earlier.

There was no bread broken between the Senators and the University of Hawaii at the HISSI conference. And judging by the efforts of Senators to try and “make peace”, it would seem that there is a long way to go on that front, too.

Even before she finished her speech-ette, adding that she didn’t want to read the entire certificate but proceeded to read the “therefore” statements in it, this blogger put his head down and knew full well that she didn’t earn any new fans in the room. Instead, she showed her benevolent dictator side and proceeded to tell the room that “I am being a <add adjective here> for your good!”

So much for the peace offering.

If people were arranged differently in that room, maybe standing instead of sitting, no doubt some would’ve turned their backs on the Senator during her presentation. As acknowledgment that it was time to go right after, they walked out with singular focus to exit the room and didn’t make eye contact when they passed the table this blogger was sitting at, with a former Regent sitting at it too.

The Senators – and by extension Perruso and Luke – may have hoped that attending the HISSI event would improve their image among attendees, but it seems they missed their mark. Instead of fostering a partnership between the Legislature and the University, they demonstrated an authoritarian approach to decision-making and only gave money to the University as a token gesture.

To repair this relationship, it appears that both parties have a significant amount of work to do.

_________

Photo Credits: 
Donna Mercado Kim: "File:Donna Mercado Kim.jpg" by Tinachase321 is licensed under CC BY-SA 4.0.
Ron Kouchi: "Ron Kouchi" by ThinkTech Hawaii is licensed under CC BY 3.0.
Sylvia Luke: "Sylvia Luke, 2023" by Maryland GovPics is licensed under CC BY 2.0.
University of Hawaii photo: "The Entrance, University of Hawaii at Manoa," by Mj-bird is licensed under CC BY-SA 4.0.
Hawaii State Senate: PHwSF 

Testing the (Senate President’s) power

As an observer of politics in Hawai‘i, one of the areas that this blogger likes to witness is when a vote comes up that may show just how strong a coalition is for a leader in the Legislature.

Hawaii State Senate, just before the March 5, 2024 floor session
PC: PHwSF

Those leaders, the Senate President and the House Chair are voted in by the members of the respective body, with the majority vote installing the nominee for that position. Leaders in those positions make up a part of the overall leadership of the state, responsible for maintaining business in the respective chamber, as part of the legislative branch.

As with most positions that are voted in by a constituency, it’s up to the holder of it to maintain their support. How they maintain support is sometimes considered part of the “sausage making” that legislation goes through to get passed. And there are times when the velvet curtain of power is pulled back, and one can see who and what is supporting the mechanism.

That velvet curtain got pulled back, for just a moment, on March 4th, in the Hawai‘i State Senate, when the vote went down to confirm or deny the University of Hawaii Board of Regents Interim Chair Alapaki Nahale-a a second five-year term on the board.

Alapaki Nahale-a speaking to his supporters at the State Capitol, March 5, 2024
PC: PHwSF

They denied him that opportunity, everyone knowing full well that the vote was going to be close. But in watching the events unfold that day, this blogger took a look at who voted for and against Nahale-a, and discerned a few things from that vote.

For the record, the vote was 13 against confirming, 12 for. Looking at the list of those who voted against it, one saw real fast that those who did were squarely in the “leadership court” of the Senate.

That court includes what seems to be a set that is styling itself to the people as some sort of accountability club. They include Senators Donna Mercado Kim – chair of the Higher Education Committee; Donovan Dela Cruz – Chair of Senate Ways and Means from Wahiawā, Michelle Kidani – Vice President of the Senate hailing from Mililani and Kurt Fevella – member of the Higher Education Committee and one of 2 Republicans in the Senate, from Ewa. They were able to bring along 9 others to vote down Alapaki, with the President of the Senate going along with this club.

Senator Les Ihara (foreground) speaking in support of Nahale-a, to the Senate President, Ronald Kouchi, March 5, 2024
PC: PHwSF

Now typically if a candidate is at this level of vote – the full floor – they are either voted up or down, generally, by the whole body. But in this case, barely over half did, with the President adding his vote, and no more.

With such a slim margin of victory over an issue like a nomination, that result told this humble blogger that, perhaps, the current Senate President Ronald Kouchi of Kaua‘i didn’t have as strong a lock on his position as he may think he has.

And other pundits with whom I shared this observation, agreed that perhaps the Senate President position is weaker than first assumed.

This could have ramifications later on especially if a person who voted for Nahale-a gets ticked off enough to try and flip at least one of the votes that voted against, then they could have a shot at reorganizing the Senate.

“But really, is that possible?” you may ask, and the answer is “Oh, yah, you betcha”.

After the vote, Nahale-a, his family and supporters draped lei on the Queen Liliuokalani statue and sang a song.
PC: PHwSF

The reason for that is, unlike a measure that is talking about changing a law, or creating a new law that divides people, nominations of candidates elicit more emotion, especially in those who support the person. How they are handled, treated, and eventually decided upon could lead to a rise in emotion that eventually drives the question of whether the current leaders in the Senate should continue.

The way some have expressed Nahale-a’s rejection brought out raw emotion, anger, and in some cases, resolve in those there that the treatment he received by the Senate should not stand.

Will that drive someone to call for a reorganization of the Senate? This pundit predicts that this vote will be one of a few votes that, potentially, could divide the Senate enough to call for that to happen. With the ongoing issues of recovering Lahaina, Governor Green’s push for more housing, legalization of marijuana, and the pressure of a downturn in tourism on the bottom line, there may be votes that will “tip the emotional bucket over” in the Senate.

Time will tell but make no mistake, on March 4th, during a floor session, the Senate President and his leadership just experienced its first test this year. And while it passed, it didn’t pass with flying colors.

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