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 .

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.


Blogger Jeff's Page said...

hey, love your blog!!

11:50 AM  
Blogger no more lies said...

Another excellent article Peter! Keep em coming! Aloha's employees will not lay down just because Bethune is here.

This isn't over until the go! jets are painted white and ferry tanked back to Phoenix.


8:38 PM  
Blogger SJF Hawaii said...

Aloha Peter:

I wanted to give some insight into Aloha's hiring of Mr. Gordon Bethune as their new CEO.

As you know, Mr. Bethune was the former head of Continental Airlines soon after it emerged from it's second bankrupcy in 1994. According to the records of the time, the airline had one of the worst on-time records in the industry, surly employees and rather irate passengers. From all that I have gathered about Mr. Bethune, who was the protege of turn around expert Mr. Greg Brennemann, he had his work cut out for him.

As the record showed for his four years at the helm of the airline, he turned the operation around using some common-sence procedures as well as some out of the box ideas to get the airline operation more efficient.

Now is Mr. Bethune a saint that everyone is going to love at Aloha? Well, it really depends on who is listening to his message. Is he plain spoken? Well, yes, and that can be quite jarring to those whom might not be used to telling you something "as it is." But I have also come to find out that if you tell employees of an airline the truth and be known to be unbiased, eventually everyone might turn around and realize that both managmeent and employees are on the same team. I know, pipe dream at best, but we must always have hope.

In this case, Mr. Bethune has his work cut out for him. For many, many years Aloha management has been publically saying one thing - the airline is strong and it will continue to fly; while telling labor that the airline is broke and needs upteen millions of dollars in concessions just to survive the next month. What was the real truth? Well, back in 2001, the financials that Aloha provided to the DOT showed that the airline was running into trouble already, which seemed to just get worse in the next two years ending in Bankrupcy in 2004.

In closing, it will be interesting to see how Mr. Bethune decides to approach the situation to keep Aloha flying. Unfortunately, I am afraid that if Mr. Bethune is looking to earn the respect Dr. Ching had with employees, than I think he had better be ready for a shock.

1:30 PM  
Blogger Peter Forman said...

Aloha SJF Hawaii,
Thanks for adding insight to this post. We welcome your comments, and I agree that the truth can indeed be painful. In the next few weeks we'll pick up hints as to Aloha's strategy for dealing with challenger go!. So much of the battle involves pacing. Do Aloha and Hawaiian try to stop go! before it brings larger jets onto the property, or do they pace themselves for a much longer conflict?
Peter Forman

11:33 PM  
Blogger Delta1162 said...

Great piece, Mr. Forman. I would have to lean further towards Aloha Air having a stronger defense that at first glance. Additionally I looked at that h/l to Daysogs article and was wondering why in the world were those numbers off from the article writen by the Starbulletin, if you could shed some light on this it would be great.


3:03 PM  
Blogger Peter Forman said...

The main reason for the difference in slant between the Advertiser article and the Star-Bulletin article is that the S-B article looks at net losses for the two quarters and the Adv. article looks at operating losses.

Each approach tells a different story. Operating losses are the most basic ingredients of operating an airline: wages, aircraft costs, fuel, etc. The Advertiser article points out that by this measure, Aloha didn't do as well as a year ago.

Net loss figures are a different story. They include items such as bankruptcy costs and interest expenses. Aloha not only has shed bankruptcy costs but also interest expenses compared to a year ago. Therefore, Aloha's net loss is noticeably slimmer than the same quarter of last year.

The two articles also disagree on some important numbers, such as operating profit or loss in Q2 of 2005. If I can sort out who has the right numbers I'll make another post.

1:43 AM  
Blogger TooMuchOrnsteinEnvyOverHere said...

I beg to differ as to "WHO" turned Continental (CAL:NYSE) around. It was not that big blowhard, Gordon Bethune, ladies and gentlemen. It was Jonathan G. Ornstein:

For all of you Bethune fans out there, perhaps you should be a little concerned about his lack of good judgment with respect to accepting an outside BOD seat on the board of Prudential Financial (PRU:NYSE). The SEC and Justice Department spanked PRU very hard a few months ago and PRU better be on its best behavior going forward as there's no 2nd chance for a quite a while.

11:04 AM  
Blogger no more lies said...

Peter Forman knows a rat when sees one. Carl Icahn, Frank Lorenzo, real trouble...

Jonathan Ornstein, wanna be.

Mesa sucks, and cant even get the hostile takeover right!


12:01 PM  

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