Stealth Fare Sale?
If you check the website of Hawaii's interisland airlines, you'll see little mention of a $29 fare sale, yet there's one presently underway. Visit the websites of Aloha, go!, and Hawaiian, and you'll discover that most interisland tickets are priced at $29.
So what's going on? This is probably a case of one carrier (take a guess!) trying to slip under the radar screen with lower prices. The other airlines aren't asleep at the switch, though, and they've matched prices.
The significance here is that ticket prices are now routinely going for less than half the cost of providing the service. Mesa Airlines surely does not expect Aloha or Hawaiian to allow go! to gain a price advantage. Allowing go! to sell cheaper tickets would be suicidal for both of Hawaii's traditional interisland airlines. What we're seeing is a continued cash bleedfest in this market as Mesa tries to force Aloha closer to a cash crisis, and to inspire the traditional interisland airlines into settling their legal actions with Mesa. Ironically, the harder Mesa pushes, the larger the company's potential legal liabilities become, and the more likely it is that Mesa will be found guilty of illegal behavior.
There are times when offering tickets at below cost makes economic sense for airlines. Unfortunately, such a blatant and consistent dumping of seats onto a market at far below cost might inspire laws which could clip the wings of legitimate fare sales. Go!'s behavior here is not in the long-term best interests of consumers.
Note: By Wednesday, Nov. 29, the $29 fares had disappeared again. Who knows when the stealth fare war will strike again?
pf
posted by Peter Forman | 10:28 PM
6 Comments:
With this bleeding of cash, I like to ask your opinion on why AQ or HA are not doing more to strengthen their operations? No one expects fares of $39 or less to be sustainable but I don't hear AQ or HA doing anything dramatic to streamline their operations. Sure I hear some furloughs, write off of debts and pensions in the bankruptcies, maybe some outsourcing. But all of this is so reactive instead of proactive. Take for instance with AQ, why do they still insist on the 737-200? I know leases on them is probably cheaper since they are not in demand but what about the fuel efficiency? The interisland market should just switch back to modern, efficient turboprops. I bet you can save a lot flying turboprops, making fares reasonable to the flying public.
Joshua,
You raise some interesting points here. In terms of strengthening their operations, AQ and HA have already done quite a bit. Both trimmed costs during bankruptcy, with AQ employees taking the largest pay hits. Island Air can save money during these times of irrational fares by reducing the size of their operation, and go! is not likely to invade their former markets. Hawaiian and Aloha choose not to scale back themselves, because such a move would encourage go! to expand and would ultimately lead to even larger losses.
A great exercise is to go to a travel website such as orbitz.com or travelocity.com and pull up sample fares on the mainland in the 90 mile to 200 mile distance ranges (similar to HNL-OGG, HNL-ITO, etc.). You'll discover that mainland fares are typically higher than pre-go! interisland fares here in Hawaii.
As for the 737-200, you are correct that it is not a fuel-efficient aircraft. The advantage, of course, is that the lease rates are so low, primarily because Alaska and Hawaii are the only two states in the U.S. where these jets can fly because of noise regulations. The package deal of fuel costs, lease fees, etc. is low enough so that AQ does not wish to change aircraft types right now. Also, the more efficient 737 models, such as the 737-700 have engines which generate various uneconomical costs when used on high-cycle, short flights such as interisland hops. They burn less fuel but they cost substantially more in other costs.
Turboprops such as the Q400 models recently given up by Island Air hold the potential for transporting passengers more efficiently between islands, but as we've learned from Mid-Pacific and Mahalo Airlines, the passengers will choose a jet over a turboprop if given the choice at the same price point. The jet airlines cannot afford to have a turboprop airline underprice them, and so they will match prices. Thus, the combination of inevitable price-matching and customer preference keeps turboprops from re-entering the interisland market in a big way.
pf
Hi Peter,
Thanks for the feedback. A lot of what you say makes sense but I still think the two major incumbents can do a lot more.
I've done the exercise of shopping for similar length flights on the mainland but this comparison does have a flaw. Unlike the mainland flights, you don't have the option to travel by car, bus, or train to another island. This puts a different type of pressure on interisland fares. In addition, a similar length flight doesn't mean you have the same type of pax. People traveling for business are more willing to pay a premium vs leisure travel pax. And with Hawaii, the bulk of travelers are the leisure type.
The 737-200 is the reason why I rather not travel with AQ. I don't want to be on a plane that's 18 years old at its best. Even Alaska Airlines have gotten rid of their 737-200s.
You are right, there is a stigma with flying turboprops. But the Q400 is not the same as the props Mid-Pac and Mahalo used. It will take marketing to win people over so I guess it depends how really committed AQ or HA are in making their company profitable. Either company can easily short lease a Q400, use it on their busiest routes and gather customer feedback, not to mention impressing the customer on how much progress a turboprop has made.
At the moment, I see nothing new being done by AQ and HA. File for bankruptcy every few years and then look for a new investor willing to bleed cash? I rather see them go under if that's the case. HERO actually just makes me cheer for go! more because with the vigor and tenacity HERO has, I have to wonder what they could have done for the incumbents if they were that vigilant about bringing their companies back into profitability and providing reasonable fares to Hawaii's public.
Joshua,
I'm curious what your idea of "fair" prices is. At 65% load factors, go! needs about $61/seat to break even. Go! says Aloha's prices are about $4 a seat more expensive, so there's $65 a seat. Hawaiian's costs are noticeably higher, but so are their load factors. As you can imagine, the investors in the airlines want some return on their investment, so toss in $5 a ticket for profit. Now add the taxes and fees, and you're not too far from what these airlines were charging before go! came along.
Personally, I'd like to see a wider range of fares offered by the interisland carriers compared to what we had before the arrival of go!. We see $150, below-cost tickets offered on flights to California, and the occasional below-cost special fare on off-hour interisland flights would be a good thing, I believe. Average prices must go up no matter who survives this battle, though.
Hi Peter,
My notion of a fair price would be around $60 to $70. And that's without the taxes and fees. As you pointed out, I like to see more competition in the interisland market just like the Hawaii-mainland market.
It is the very reason that AQ's and HA's investors expect a profit that I find AQ & HA sorely lacking in the willpower and creativeness to do things different where they can stimulate and satisfy the Hawaii flying public while becoming profitable. They need to operate this market as a low cost carrier. I may not have access to their books but common sense already tells me of so many ways they can further reduce operational costs. With the flights being so short, you can remove all the fold-away tables and just have cup holders. Forgo the snacks. It might seem trivial but every little weight reduction shaves off fuel cost. Offer special fare tickets where maybe the pax is not allowed any check-in baggage. I be willing to bet there will be people still willing to buy those tix.
Between the demise of Mahalo and the entry of go!, AQ & HA had the market to themselves. Even with the justification of increasing costs and raising interisland ticket prices, they both still fell into bankruptcy. That speaks volumes about how sloppy they were at running their business. My fear is that neither have learned anything. When the go! debacle goes away, I seriously wonder if anything will be different, we'll probably see the high prices of yesteryear again and just wait till the next time they file bankruptcy. I know AQ & HA support a lot of local families but this is almost like a miniature version of social welfare. The bankruptcies do hurt the public because it's the taxpayer's money that is used to bail out failed pensions.
The reason why Aloha uses the 737-200 is that the engine can handle the short flights. Aloha had newer 300's and the CFM56 were dying because they couldn't handle the frequent interisland flights. Well thats one of the reasons.
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