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) www.dontflygo.com 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 50^th 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.