We Wouldn't Tolerate This Behavior with our Gas Stations

Imagine the following scenario. A big mainland oil company has just lowered its gas prices in Hawaii to $2.00 a gallon, even though a selling price of at least $3.20 a gallon is needed to break even. The oil company has kept its mainland prices well above $3.00 a gallon and Aloha Gas station owners in Hawaii are screaming “foul!” At times the big oil company offers a “special” on gas and charges as little as 5 cents a gallon. Aloha Gas is in trouble and losing money fast. The big oil company’s CEO is quoted as saying “Aloha Gas need not match our prices. Their demise is their own doing.”

Shortly thereafter, Hawaii newspapers publish an article about emails intercepted between a top executive with the big oil company and a Hawaii advisor in which the two discussed “Giving Aloha Gas the final push” and then raising gas prices statewide once the competitor is knocked out of business.

Now, substitute “Mesa Air Group” for “big oil company” and “Aloha Airlines for “Aloha Gas” and the story is, for all practical purposes, the same. The primary difference is that in the gasoline price example, government officials would cry “Anti-trust violations” and remedy the situation immediately. Not so in the airline scenario, however.

Why the difference in the public’s and the government’s attitudes? For one, the public has become accustomed to long-distance flying at remarkably low prices. It cannot fathom that short range flying in recent years has not realized the same efficiencies as long-distance flights, but that’s indeed the case. As for the government’s response, wording in the airline deregulation act provides some immunity from prosecution for airlines which sell tickets at below cost prices. Surely the architects of that law never envisioned this wording being abused in the manner that Mesa Airlines is currently employing, but so it goes.

Thus, the fare war we’re seeing here in Hawaii is actually a classic case of anti-competitive behavior which is only tolerated by the government because of flawed language in the airline deregulation act. Should that wording be corrected to allow legitimate uses of below-cost ticket sales but prohibit the type of sustained anti-competitive behaviors exhibited by Mesa Air Group, the survival prospects of Aloha Airlines would improve dramatically.