The Demise of Aloha Airlines- Part I

For all practical purposes, Hawaii’s second-largest interisland airline is dead. Rows of quiet 737 jets line the taxiway below the control tower at Honolulu International Airport, and the televised tears of once joyful employees tell the rest of the story.

Just how did such a tragic end come about? It began decades ago as Aloha Airlines lost its competitive edge over rival Hawaiian Air. Aloha President Joseph O’Gorman engineered Aloha’s most recent advantage in the marketplace by emphasizing no flight cancellations and great on-time performance. The addition of a first-class section on inter-island planes cemented Aloha’s lead. O'Gorman made a mistake, though. He brought old 737s back into the fleet and leased out the newer specimens, in an effort to combat Mid-Pacific’s low costs. One of these old jets was number 711, which lost the top of its forward fuselage in 1988 and resulted in the death of flight attendant C.B. Lansing. Aloha quickly recovered from the mishaps but carried a black eye that never completely faded.

O’Gorman’s replacement, Maury Myers, built upon O’Gorman’s tradition of quality and dependability. From the mid 1980s through the early 1990s, Aloha made more profits in the inter-island market than rival Hawaiian Air, and it often carried more passengers as well. The Myers years were good years indeed for Aloha and its employees.

Glenn Zander’s rein marked a turning point. Zander failed to recognize the importance of Aloha’s lead as the top-quality and dependable inter-island carrier. Hawaiian Airlines slowly took back the lead. Then came the turning point, Hawaiian’s introduction of new Boeing 717 jets into the inter-island market. Aloha needed to respond with a new jet as well, but it didn’t. Thus, Hawaiian gained a real advantage over rival Aloha, not from a cost standpoint, but from a revenue standpoint. Hawaiian’s plane flew with more of their seats full from this event forward.

Zander made a second mistake as well. Under his watch, Aloha was late joining the party of mainland to Hawaii flying. As other airlines started to fly directly to neighbor-island airports from the mainland, Aloha hesitated. Too soon it became clear that inter-island flying was decreasing and would continue to decrease. If Aloha wished to maintain a thriving business it needed to join the long-distance flying club. Here Zander made yet another mistake. He focused on modeling Aloha on the success of Southwest Airlines, and this model included using only one type of jet, the Boeing 737. Aloha leased 737-700 jets, which were just the right machine to fly between Orange County and Hawaii destinations, but came up short competitively on most other routes. The 737-700 only had two navigation sources for long-distance flying while the competition’s planes had three. If one navigation source became inoperative on the 737s, the airplane could not take off until it was fixed. The 737-700s were not really designed for such long flights over water, and their third source of electrical power, the APU, had to run all the time during flight, burning fuel but producing no thrust. For these reasons and because of greater size, operators with Boeing 757 or 767 aircraft enjoyed a cost and reliability advantage over 737-700 operators such as Aloha.

So, when the airline industry went into a tailspin after 911, Aloha lost money and headed for bankruptcy with everybody else, but did so with the wrong airplanes in the fleet.

David Banmiller came aboard as CEO and was soon tasked with saving Aloha from a dicey bankruptcy with only a few days of money in the bank. He pulled it off and should be congratulated for that effort. Something was wrong, though. Labor and Banmiller never grew to trust each other, largely because of labor’s impression that Banmiller was watching out for the “big money’s” concerns, not the long-range needs of the airline and employees. Such an impression hurt Banmiller’s effectiveness. Nonetheless, from the various bidders for Aloha one offer stood out, and that was an offer from Yucaipa, headed by Billionaire Ron Burkle. In September of 2005 Yucaipa was selected as the principle new owner. On the very day this announcement took place, an announcement by another bidder for Aloha raised eyebrows in Hawaii. This unsuccessful bidder would take it upon himself to ensure that the successful bidder found anything but success with Aloha in the years ahead.

To Be Continued.