Alaska Air was ready to grow. Hawaiian hit hard times. An airline match is made.

SEATTLE — Analysts digesting Alaska Air’s proposed acquisition of Hawaiian Airlines on Monday pointed to the hard times at Hawaiian as a reason for it agreeing to be bought and Alaska’s appetite for growth as the reason for buying.

Hawaiian had a precipitous drop in travel during the COVID-19 pandemic and still hasn’t recovered. This year it was hit hard by the impact on tourist travel of the devastating Maui fire and the repairs needed to the Pratt & Whitney engines on its fleet of Airbus A321neo jets.

The airline lost $240 million last year and, according to S&P Global Market Intelligence, is on track to lose more than $300 million this year.

In a conference call with Wall Street analysts late Sunday, Alaska CEO Ben Minicucci noted that Hawaiian’s travails are temporary setbacks for a market that previously was lucrative and outlined the promised upside.

Hawaii, he said, is “an $8 billion market, in which we’re going to be the clear market leader with over $4 billion of revenue. It becomes our second-largest hub.”

Seattle, Alaska’s top hub, is also about an $8 billion revenue market, with Alaska taking about a $6 billion share.

Alaska’s Chief Financial Officer Shane Tackett on the same call said Honolulu “has the potential over time to approach Seattle in terms of revenue.”

Alaska’s leaders said they’d handle the complexities of executing the merger by keeping the airline brands separate while integrating “behind the curtain.”

[Proposed merger of Alaska and Hawaiian airlines a promising fit, observers say]

Alaska would operate the combined jet fleet as one and negotiate a single contract with each of the unions representing pilots, flight attendants, mechanics, reservations staff and others.

Among the perks Alaska will get if the merger goes through is Hawaiian’s deal to fly packages for Amazon on 10 leased Airbus A330 freighters out of Amazon’s main cargo hub in Cincinnati.

The first of those A330 passenger-to-freighter converted jets is already in the fleet with nine more coming in the months ahead.

Alaska would also inherit a dozen Boeing 787 long-range widebody jets Hawaiian has on order, the first of which is expected in April.

Although that will increase the complexity by adding one more aircraft type to the fleet mix, Alaska may welcome the chance to deploy those either in Hawaii or in the contiguous 48 states.

Although adding Hawaiian’s long-haul international flying in widebody jets is a big step up for Alaska, J.P. Morgan analyst Jamie Baker in a note to investors suggested that “the fleet complexity on paper may somewhat exceed the reality” because the wide geographical spread of the operations may encourage crews to stay where they are without much change to who flies what.

The widebody pilots may prefer to remain based in Hawaii, he wrote, while 737 pilots would stay on the continental U.S.

Airline consultant Michael Boyd said the small overlap in the flight routes of the two airlines means the deal is likely to be approved by regulators because there’s only a small reduction in competition that might raise fares for travelers.

“There’s no downside for the consumer,” Boyd said, noting the increased network connections available to travelers and the merging of the two frequent flyer loyalty programs.

[Alaska to buy Hawaiian: Here’s what we know about miles and perks]

However, the overlap that exists — on just six routes from Honolulu to Seattle, San Francisco, Los Angeles, San Diego, Portland and San Jose, Calif. — could raise fares on those routes, said Rich Gritta, a retired professor of finance at the University of Portland and expert on the airline industry.

Hard times at Hawaiian

For Hawaiian, after 10 years of solid profits between 2010 and 2019, the deal looks like a way out of trouble and losses that have dogged the airline for the nearly four years since COVID hit.

Helane Becker, an analyst with Cowen and Co., said because Hawaii restricted visitors during the early pandemic “many pivoted to travel elsewhere.”

" Japan was one of the last markets to reopen, and there is a large Japanese expat community in Hawaii, but the Japanese government encouraged its citizens to travel domestically,” she added in an email.

The Japanese yen is currently very low against the dollar, and travel from Japan to Hawaii has come back to only about 40% of pre-pandemic levels.

“Hawaiian hasn’t really recovered from the pandemic lows,” Becker wrote.

Christopher Raite an aerospace specialist with Third Bridge, a firm that provides research to private equity firms, credit investors and hedge funds, said, despite the end of the pandemic, 2023 has proved another “tough year for Hawaiian.”

Due to a manufacturing flaw that has hit Airbus operators worldwide, the Pratt & Whitney geared turbofan engines on Hawaiian’s fleet of Airbus A321neos have to be repaired, with each repair taking about 45 days.

Hawaiian is working through the fleet to get the repairs done with a few airplanes grounded in the shop at any one time.

Another factor has been aggressive competition from Southwest, which has started flying the inter-island routes that are the bread-and-butter business for Hawaiian.

In October, Hawaiian CEO Peter Ingram noted that Southwest was flying planes just 47% full on routes where Hawaiian was 75% full.

“It shows how aggressive Southwest is if they’re willing to fly the plane with only half the aircraft full,” Raite said.

Add to that the downturn to Maui travel from the wildfires.

Bloomberg Intelligence analyst George Ferguson said investors had begun to grow concerned about $1.2 billion in debt that is set to mature in early 2026. Hawaiian would have needed to look to refinance that next year. With all the losses, that might not have been easy.

If the merger closes, Alaska’s strong credit will swoop in to make refinancing that debt no longer an issue.

J.P. Morgan’s Baker sees an 80% chance that regulators will approve the deal.

He views it positively, providing more passenger loyalty because of the bigger network and more revenue from the premium Hawaiian routes.

The risk attached to the deal for Alaska is the added debt plus the cost of executing the complex integration of the two airlines, which will depress profits for at least two years even if all goes smoothly.

That “may inadvertently drive Alaska shareholders elsewhere,” wrote Baker.

Those near-term costs and complexity led Savanthi Syth, an analyst with the Raymond James investment bank, to downgrade Alaska stock Monday.

Alaska’s stock fell more than 14% Monday, dropping $5.65 to close at $34.08.

In contrast, Hawaiian shareholders were buoyed by Alaska’s offer of $18 per share. As a result Hawaiian’s stock nearly tripled in price Monday, rising $9.36 to close at $14.22.