For the year 2023, Hawaiian Airlines lost $261 million, and by the fourth quarter, the losses rose to more than $1 million a day. Subsequently, neither the Department of Justice (DOJ) nor the Department of Transportation (DOT) took action to stop a proposed merger between Hawaiian and Alaska Airlines, a merger that will, when completed, leave the already highly concentrated airline sector even more consolidated. News stories suggested if the merger was blocked by either agency, Hawaiian might face a bankruptcy reorganization. As The Wall Street Journal reported, “Analysts have said the merger with Alaska could be a much-needed lifeline for Hawaiian, which has faced a number of challenges and is losing money.”

Less than five years ago, Hawaiian could be described as a reasonably profitable regional airline serving the main five islands of the 50^th state, netting $233 billion in 2018. Then, in early 2019, Southwest Airlines entered the market, flying many of the same routes as Hawaiian but apparently charging consumers below cost, launching a fare war. In this brief, we present evidence showing that Southwest systematically and intentionally lost money to gain market power at the expense of its smaller rival, Hawaiian Airlines.

Charging below cost to monopolize a market is an illegal tactic known as “predatory pricing.” On first glance, it often seems like a good thing. In the short term, prices for consumers are low, but in the medium to long term, markets end up dominated by a few large and unaccountable players who can charge higher prices with less competition. In a worst-case scenario, goods and services stop being provided entirely.

And while Hawaiian’s sudden financial precarity has several causes, predatory pricing almost certainly played a key role. Yet the federal government has all but ceased enforcing predatory pricing laws, with disastrous results, including the death of small, innovative airlines, and the consolidated system of air travel we have today. Hawaiian is not alone; smaller or ultra-low-cost airlines like Spirit Air are financially precarious right now, and predatory pricing could be a contributing factor.

The situation with Hawaiian and Southwest is a textbook case. Hawaiian Airlines faced bankruptcy and ultimately gave up its independence to a larger airline, Alaska. But Southwest hardly emerged unscathed from the financially ruinous fare war it started. Beset with losses nationwide, Southwest is now slashing service and making fundamental changes to its brand and business model under pressure from shareholder Elliott Management, an activist hedge fund. Its pricing battle with Hawaiian contributed to those financial woes.

This brief explains how Southwest’s seemingly predatory actions ultimately led the federal government to sign off on Hawaiian’s merger with Alaska Airlines. It also shows how this pattern of behavior is systemic among the major carriers and explains why we need to reinvigorate the enforcement of predatory pricing law to prohibit it.