Peter Tchir wants to be underweight Treasuries. George Saravelos says the ECB should cut rates. Ajay Banga discusses climate finance and the role of the private sector. David Turk talks about the negative effects of new bank capital rules. Helane Becker weighs in on the Alaskan Airlines and Hawaiian Airlines merger. Investment ideas for 2023 and 2024 focus on Delta Airlines.
The merger between Alaska Airlines and Hawaiian Airlines aims to strengthen their positions in the airline industry by providing financial stability and cross-geographic operations, allowing them to weather the challenges faced during the pandemic.
The consolidation in the airline industry, including the Alaska-Hawaiian merger and the ongoing evaluation of the JetBlue-Spirit merger, highlights the trend of airlines seeking to create complementary businesses with moderate market shares, ultimately benefiting their operational efficiency and future growth in the competitive landscape.
Deep dives
Consolidation of Alaska and Hawaiian Airlines
Alaska Airlines and Hawaiian Airlines announced a merger that aims to strengthen their positions in the airline industry. The consolidation is expected to benefit both airlines, particularly in terms of cross-geographic operations, such as flights between mainland US and Hawaii. The merger will also provide financial stability to the airlines, allowing them to weather the challenges faced during the pandemic. With only 12 overlapping routes, the consolidation is not expected to significantly affect competition. The combined airline will have over 300 aircraft and generate around $13-14 billion in revenue.
Prospects for JetBlue and Spirit Merger
The merger between JetBlue and Spirit Airlines is currently being evaluated by the court, with closing arguments scheduled for the following days. If approved, the consolidation is expected to create a complementary business with a small market share. The prior approval of the Alaska-Hawaiian merger highlights the likelihood of approval for the JetBlue-Spirit merger. The consolidation will result in JetBlue and Spirit becoming the fifth largest airline, with a combined market share of around 9%. The successful outcome of the merger would allow both airlines to focus on other priorities and future growth.
Consolidation and Anti-competitive Concerns
The consolidation in the airline industry raises concerns of anti-competitive practices. However, the Alaska-Hawaiian merger has been deemed as a reasonable and complementary transaction that will not significantly impact competition. It is expected that the Department of Justice, which tends to scrutinize large companies, will review the merger with a more neutral approach, considering the moderate impact it is likely to have. The consolidation will allow the airlines to benefit from operational efficiencies and financial stability, which is essential for their survival and growth in the current competitive landscape.
Outlook for the Airline Industry
The airline industry has experienced a rebound in recent months, although it is still below the pre-pandemic levels. While smaller airlines, including Alaska, Hawaiian, JetBlue, and Spirit, have faced challenges during the pandemic, they have managed to survive due to strong brand loyalty and a dedicated customer base. The consolidation among these airlines is expected to help them overcome the difficulties faced during the pandemic and navigate the ongoing uncertainties in the industry. The industry as a whole is likely to benefit from increased travel demand, with record-breaking passenger numbers recently. However, concerns about economic recession and the potential impact on consumer spending continue to influence the outlook for the industry.
Peter Tchir, Head of Macro Strategy at Academy Securities says he wants to be underweight Treasuries right now.George Saravelos, Global Head of FX Research at Deutsche Bank, says the ECB should cut rates when it meets next week. Ajay Banga, President of The World Bank joins from COP 28. David Turk, US Department of Energy Deputy Secretary joins from COP 28 where he says now is the time to refill the Strategic Petroleum Reserve. Helane Becker, Senior Research Analyst at TD Cowen weighs in on Alaska Air's plans to buy rival, Hawaiian.Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance