Alaska Air Group has announced its acquisition of the parent company of Hawaiian Airlines for a staggering $1.9 billion. This deal has had an interesting impact on the stock market, causing the stocks of the two airlines to move in polar opposite directions.

Immediately following the news, Hawaiian Holdings experienced a massive surge of 184% in premarket trading, with shares reaching $13.82. Conversely, Alaska Air Group's stocks dropped over 10% during the same period. The reason behind Hawaiian Holdings' significant jump can be attributed to the fact that Alaska Air Group is paying a substantial 270% premium based on Friday's closing price. However, it is important to note that the shares are currently trading below the deal price of $18. This could possibly reflect concerns about potential antitrust scrutiny from the Biden administration regarding the merger.

It is worth mentioning that Hawaiian Holdings' shares have not traded at the $18 mark since May 2022. The stock has endured considerable challenges throughout the year, including a decline of 53% since January due to earnings setbacks caused by the Maui wildfires and engine problems.

Investors who may be tempted to capitalize on the upside potential of Hawaiian Holdings, even at Monday's levels, should be cautious about the Justice Department's stance on addressing what it perceives as a lack of competition within the airline industry. The Justice Department is currently fighting against the proposed $3.8 billion merger of JetBlue Airways and Spirit Airlines, successfully forcing JetBlue to abandon its alliance with American Airlines in the Northeast.

The outcome of the JetBlue-Spirit case could set a crucial precedent for the Alaska-Hawaiian merger. If approved, the Alaska-Hawaiian deal would give the newly formed entity over a 50% market share in the Hawaiian air market.

However, Alaska CEO Ben Minicucci has stated that out of the combined 14,000 flights operated by both airlines, only 12 of them overlap. Additionally, airline officials have yet to engage in any discussions with the government regarding the proposed merger.

According to TD Cowen analyst Helane Becker, the deal itself "makes good common sense" for both airlines. Becker emphasized that it would enable Alaska Air Group to expand its international reach in the Asia Pacific region, which is one of the fastest-growing markets in the world. Additionally, it would provide Hawaiian Airlines' passengers with more convenient non-stop or one-stop flights to various destinations on the U.S. mainland, eliminating the need for multiple stops.

While regulatory approval for the merger is not certain, especially given the ongoing legal battle over the JetBlue-Spirit merger, industry analysts remain optimistic about its potential benefits for both Alaska Air Group and Hawaiian Airlines.

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