Change in Flight Plan

Have you noticed a lack of verbal dogfights in the interisland air war lately? No truce is in order; instead we’re witnessing the next stage of this battle.

The cause for this change? Looming legal battles that lay ahead. Although Hawaiian Airlines fell short of grounding go! with an injunction, evidence revealed in the courtroom indicates that go! may well be found in violation of the law and face significant damage payments ahead. More recently, Aloha has filed suit after learning that emails between a Mesa adviser and a top official revealed a plan to force Aloha out of business. The parent company of go!, Mesa Air Group, has become more aware of its potential liability. What we are seeing right now are changes in market strategies which are byproducts of upcoming legal strategies.

In a recent Wall Street Journal article, “Mesa says that the email reflected a plan to go into the island markets with 10 airplanes; it decided that wouldn't work and instead launched in June with only five planes -- a plan it thought would work without killing Aloha.” Unfortunately for Mesa, their go! subsidiary has made multiple announcements of a planned expansion of 8-10 larger jets after the beginning of service, and the process of reselling itself as a non-predatory airline will be difficult if not impossible to pull off. There also remains the rather sticky point about go! being unable to turn a profit as long as Hawaiian and Aloha remain in the market. If the legal challenges of Hawaiian and Aloha have at least temporarily scuttled go!’s expansion plans, this is good news for the two long-time interisland airlines.

The Wall Street Journal article also mentioned negotiations between Mesa and Aloha in which Mesa would provide some interisland service for Aloha with its smaller jets. In other words, Mesa offered Aloha a chance to buy services from Mesa or face a bloodbath of losses as Mesa aggressively competes against Aloha. What’s particularly interesting about this revelation is that Mesa was originally looking to introduce their usual business model into Hawaii: providing aircraft and crews to an established airline. Only when this option failed did Mesa press ahead with plans to create a competing airline. The significance here is that Mesa likely remains keen on the idea of following the business model which presently accounts for over 90% of its operations. Should go! succeed in replacing one of Hawaii’s present carriers and profitably establish itself in the market, we should not rule out the possibility that Mesa may offer the go! operation to a larger airline. You would then see the surviving legacy interisland carrier competing against a United Express, Delta Express, or airline with a similar flavor. Such an arrangement would require a significant rise in airfares to support it.

Hawaii’s interisland market has now entered its fall doldrums when empty seats are plentiful. If you visit the websites of Hawaiian, Aloha, and go!, you’ll find $39 fares available on most flights. Visit national travel sites such as Orbitz.com or Travelocity.com and the $39 fares are nowhere to be seen. Instead, you find prices ranging from $72 to nearly $100. This is a significant strategy change from a few months ago.

In terms of potential legal settlements, Mesa must keep its go! unit operating in Hawaii so that it retains a bargaining chip. Hawaiian and Aloha meanwhile are unlikely to significantly draw down their schedules during these doldrums because to do so would improve Mesa’s argument that it can achieve a profit without putting either of the competitors out of business. Expect legal strategies to continue to heavily influence market strategies of all three airlines in the months ahead.