Airlines of Hawaii

Location: Kailua, Hawaii, United States

Peter Forman is the author of Wings of Paradise, Hawaii's Incomparable Airlines, a 400 page hardcover available online at .

Monday, September 25, 2006

The Dogfight Rages

The interisland air battle between Mesa’s go! Airlines and Hawaii’s longstanding air carriers heated up considerably during the past week. In court, Hawaiian’s attorney quoted emails between Mesa officials which revealed a plan to topple Aloha Airlines then raise fares afterwards. Shortly thereafter, an organization known at H.E.R.O. (Hawaii’s airline Employees Repelling Ornstein) announced its existence. HERO is a collection of Hawaiian, Aloha, and Island Air employees who wish to see go! Airlines pack up and leave the 50th State. To further this goal, HERO announced plans to offer public rebuttals to statements made by go!’s CEO Jonathan Ornstein. For the most part, the media has not challenged the most misleading of Ornstein’s quotes, and the group wants to level the playing field. Most recently, go! announced $19 interisland fares which were quickly matched by competitors. Study the contrails in the sky as each contender maneuvers for best position, and you will discover the pattern of how all these actions are related.

First, consider the court hearing. Mesa Air Group signed a confidentiality agreement with Hawaiian Airlines after reviewing sensitive information during a time when Mesa claimed interest in purchasing that airline. Mesa then went into business against Hawaiian before the release date from the agreement. Additionally, Mesa claimed to have destroyed the documents in question, but the air group somehow managed to use wording from one of those documents at a later date. Hawaiian’s attorneys feel they have a strong case against Mesa and will seek significant damages during the upcoming April 2007 trial.

The purpose of last week’s hearing was to request a court action to prevent go! from selling tickets between now and the April court date. This is a tough challenge, because Hawaiian must show that irrecoverable harm may result if Mesa’s go! continues selling tickets. Perhaps the strongest scenario favoring an injunction against Mesa would be the potential demise of Aloha Airlines. Should go! muscle out Aloha prior to the court date, then the competitive tapestry of interisland travel would be forever changed. Mesa would then argue that to maintain competition it should not be expelled from the market, using a logic similar to the young man who murders both his parents and then asks the judge for leniency because he is an orphan.

As this piece is being written, Judge Faris is deciding which way to rule. Mesa’s chairman Jonathan Ornstein did his cause no favor by announcing the $19 fares during this critical period. The newest fare war only supports the contention of Hawaiian’s attorney that go! needs to be stopped before irrecoverable damage is done.

As for the $19 fares, how close to break even are they? Go! would need a load factor of about 205% to pay the most basic bills with these fares. To picture such a load, imagine one of go!’s 50 passenger jets with every seat full. There’d be an additional 20 passengers on the left wing, 20 passengers on the right wing, and about 11 passengers on top of the fuselage and tail in order to generate break even revenue on a typical interisland flight (using the $2000/flight cost claimed by go!). Nonetheless, Mesa’s Ornstein continues to push the argument that Hawaiian and Aloha were overcharging interisland customers and go! is here to bring fair ticket prices back. Go! named the new fares HERO fares as a slap at the employee coalition.

How are we likely to see this dogfight concluded? Quite likely legal action may be the deciding factor. Mesa’s Ornstein is crafty in working the media to best advantage, but the legal process of discovery and testimony do not allow such freewheeling tactics.

Should market forces rule this dogfight, the established airlines retain an altitude advantage associated with aircraft comfort, flight crew experience, and established records of reliability. The battle will also involve two opposing philosophies. Mesa’s Ornstein is betting that Hawaii air travelers will buy go! tickets to extend the fare war as long as possible and that the average traveler will remain unconcerned with the full scope of this conflict. Ticket prices rule. The opposing camp represented by HERO and the established airlines will benefit if Hawaii’s air travelers react negatively to predatory practices and misinformation. They gain if the consumer still has a conscience. This is a losing proposition in many parts of the country, but maybe not in Hawaii. There’s still an aloha spirit here, and you only need to look at the campaign strategies of Hawaii’s politicians compared to their mainland counterparts to realize how different Hawaii really is from the mainland culture.

Ornstein’s Mesa Air Group blasted out of the blocks in June with a rather spectacular 82% load factor. Those numbers decreased to 64.5% in August, signaling that go! was already losing some of its steam. Right now, the average Hawaii resident is not aware of the extent of go!’s predatory practices, but HERO and the established airlines are beginning to make inroads. The September 23 Star-Bulletin article by Dave Segal was a milestone of sorts in that it allowed go!’s opponents such a rich opportunity to express their concerns about the new carrier.

Who will win this contest of wills? It’s one of the most intriguing business stories of recent years. The action will likely make the aerial scenes from FLYBOYS appear tame. Stay tuned.

Friday, September 08, 2006

The Chess Match

The analogy of a chess game works well to explain the current battle for survival in Hawaii’s interisland market. On one side of the board is Jonathan Ornstein, who’s go! airline is a subsidiary of mainland-based Mesa Air Group. On the other side are the investors and managers of Aloha Airlines and Hawaiian Air. This is a fight to the finish, a game where checkmate is the objective. If Ornstein loses, his go! airline leaves the Hawaii market. A loss for either Aloha or Hawaiian Airlines likely means the end of that company’s existence. The surviving legacy carrier then gains a strengthened go! as a long-term competitor, not a desirable outcome either.

In this conflict there’s hand-to-hand combat amongst the pawns in the front lines, but the real game takes place in the backfield as the major players maneuver for advantage. The match may appear dull to a spectator unfamiliar with the subtleties of the game, and yet a master will practically hold his breath as he watches the pieces align and the lines of power develop.

The fare skirmishes, the addition or deletion of a plane or two, and the PR successes are each relatively minor moves in this game. In order for Ornstein’s go! to claim a checkmate, he must bring one of his competitors to its financial knees. If that airline enters bankruptcy, cannot find funding, and goes out of business, Ornstein will have succeeded in making room in the market for go!. Without the departure of a competitor, go! is unlikely to find profits. For Hawaii’s traditional interisland airlines to win, they must convince the directors of Mesa to override Ornstein’s enthusiasm for this venture into Hawaii and cut their losses through retreat.

Sometimes a competitor will perceive a weakness on the left or right side of the board and concentrate his attack there. Ornstein likely felt that Aloha’s corner provided the best opportunity for a victory, because he announced Mesa’s venture into Hawaii on the same day that Aloha publicized the names of its chosen investors for bringing the airline out of bankruptcy. For this reason, developments in the Aloha corner of the board will have a particularly strong impact on the outcome of this game. If Ornstein’s opponents announced that a grandmaster of Bobby Fischer’s caliber had joined forces with their team, then this would be a significant development indeed.

Aloha recently announced the appointment of airline heavyweight Gordon Bethune as Chairman of the Board. Bethune is primarily responsible for Continental’s stunning turn-around, and many consider him the most capable airline executive available today. Surely his experience will aid Aloha’s cause. There’s a much bigger implication here, though. By bringing Bethune onboard, we learn much about the positioning of Aloha’s major pieces. No airline executive wants to have a company go belly up during his watch, especially one with 60 years of proud history. No doubt Bethune and billionaire shareholder Ron Burkle discussed Aloha’s prospects prior to Bethune’s decision to come aboard. If Bethune believes there’s good reason Aloha will succeed in repelling Mesa’s invasion, then we can expect that Aloha’s major pieces are positioned better than meets the eye of the casual observer.

So, grab a chair and make yourself comfortable. The game is livening up.