The Other Interisland Fare War

Lately, go!, Aloha, and Hawaiian Airlines have been stealing the headlines with their fare war on the busiest interisland routes. There’s a spirited shootout shaping up at some of Hawaii’s less-traveled air destinations, though. Island Air has just announced $19 fares between Honolulu and Lanai, Molokai, Kapalua, Kahului and Hilo, plus some additional routings.

What’s interesting about this shootout is that the incumbent carriers have shown that they can be every bit as clever as the startup competition. Island Air has begun offering their $19 fares nearly a month before Mokulele enters the market. There’s always a bubble of pent-up demand to be harvested when introducing a new, significantly-lower fare, and Island Air has timed its fare offering so that most of that pent-up demand will be absorbed before Mokulele even enters the market. Moreover, Island Air deprives Mokulele of publicity, since $19 fares will be old news by the time Mokulele actually enters the market. Island Air also emphasizes that their planes are twin-engined, pressurized, have lavatories on board, and feature inflight service- features not available on the competition’s planes to smaller island destinations.

Actually, Island Air’s “Fares Gone Wild” campaign is the second salvo in the fight by incumbent carriers to resist market penetration by Mokulele’s go! express. In January, Pacific Wings introduced $29 fares to smaller island destinations. Moreover, Pacific Wings successfully went on the offensive, starting a new front to the war in Mesa’s backyard of New Mexico. With Hawaii routes likely to be unprofitable for some time to come, Pacific Wings reassigned some of its aircraft to newly-captured essential air service in Hobbs and Carlsbad, New Mexico, routes that were previously served by larger Mesa Airlines planes. Government officials in both communities voted unanimously for the routes to be moved from Mesa to Pacific Wings.

As for competition at smaller Hawaii destinations, two questions remain to be answered: How long will the fare wars continue in these markets, and how much expansion will we see in the markets due to lower prices? Dramatic price cuts to more populated islands have yielded minor 3-8% increases in overall traffic. Low fares to destinations such as Molokai and Lanai may prove to stimulate traffic considerably more, however, since these smaller islands lack the healthcare and shopping opportunities found on the larger islands. If the fare war to smaller islands proves to be a long one, the traffic increase will be an important factor in the survival of competitors. Mokulele does not have the deep pockets of Mesa Airlines, so the dynamics of this secondary air war may be quite different than what we're seeing in the larger markets.