Heading for the Fare War Doldrums

Spring is in the air and load factors are on the rebound. Hawaiian Airlines filled 91% of it seats in March, the highest load factor in the nation. Interisland competitor go! Airlines filled 64% of its seats, up from a dismal 58% the month before. What does it all mean? As with anything, the devil is in the details.

Hawaiian’s 91% represents both a positive endorsement by the traveling public and an aggressive effort by the airline to protect its routes from new competitors (the airline does not break down its load factors between long-haul and inter-island). Hawaiian’s routes to the mainland have come under increased competition lately, and Hawaiian has been willing to price aggressively in order to retain its customers. We have recently seen low-cost Canadian carrier Harmony call it quits in the scheduled Hawaii market, and others could follow. Hawaiian is following a similar strategy in its inter-island flying by matching the far-below-cost fares offered by Mesa (Nasdaq:MESA). Given go!’s poor load factors and increasing pressure on the parent company’s bottom line, a departure of go! Airlines from the market is a reasonable assumption by Hawaiian Airlines. The big question is when. The 91% load factors also validates Hawaiian’s decision to add interisland capacity prior to the arrival of go!

Go!’s 64% load factor came during a month with spring break traffic, $19 fares, and many, many, full-page newspaper ads. No doubt executives at Mesa are wondering why the loads weren’t higher, but I stick with my reasoning from early during go!’s arrival. Quite simply, Hawaii’s travelers haven’t bought the storyline which go! is trying to sell to them. Hawaii residents are a more fair-minded group than the mainland population. They don’t like the fact that good jobs will be replaced by marginal jobs should go! displace one of the existing carriers, and they don’t like the questionable ethics of Mesa’s management. News stories also announced that Mesa’s go! airlines may actually have a higher cost of providing interisland flights than the current carriers. The most damning of all revelations was the email exchange between a Mesa executive and a consultant that revealed a plan to put competitor Aloha Airlines out of business, to give them “the final push”, and then to raise fares. This revelation was in stark contrast to Mesa claims that go! was offering low fares because the airline just loves to see Hawaii families get together more easily. Mesa has underestimated the intelligence of Hawaii residents, and the airline is now paying a price for such myopic tactics. From Waianae to Waikiki I hear the same reactions.

Mesa’s lawsuit against Aloha Airlines pilot Mike Uslan is one of the few lively events in the fare war, at present. Uslan has been active in an organization of airline employees known as HERO, and he has been subjected to two lawsuits aimed at punishing him and forcing the website www.dontflygo.com to cease and desist. So far, neither the Honolulu Advertiser nor the Honolulu Star-Bulletin has published this story, presumably because both newspapers are vying for the ad dollars which Mesa has so lavishly been spending lately. Should the lawsuit actually go to trial, the media will need to cover the event and Mesa’s go! Airlines will feel an additional backlash by Hawaii consumers.

As for the fare war itself, Hawaii’s residents have mostly lost interest. Fares are already low and have been low for nearly a year. Airfares are such a small percentage of the total cost to visit another island that fare reductions are no longer exciting. The big story right now is the upcoming arrival of the interisland ferry service. Residents are enthused about new interisland adventure possibilities (we bring the SUV, kayaks, surfboards, camping equipment, etc.). If go! is looking for a sizeable rebound, this summer will be an especially-difficult time to do it.

The real juice in this competition between Mesa and Hawaii’s existing carriers is the legal action we’ll see this fall. Hawaiian Airlines has a strong case against Mesa, and the consequences to Mesa could be enormous. The fare war may be dull right now, no matter the price of a ticket, but don’t miss the action come September. It’ll likely be a zinger.