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Location: Kailua, Hawaii, United States

Peter Forman is the author of Wings of Paradise, Hawaii's Incomparable Airlines, a 400 page hardcover available online at www.airlinesofhawaii.com .

Monday, April 07, 2008





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.

8 Comments:

Blogger Galmaran said...

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1:22 AM  
Blogger Stan said...

Hey Peter:

I just spoke to some ex-execs from Aloha. They had some interesting things to say about the whole issue of O'Gorman and the airplanes he brought back. It would seem that O'Gorman brought back N73711 over the objections of certain executive officers of the airline. They knew what they were getting themselves into by taking the airplane(s) back, especially when AirCal, which had leased the airplanes, decided to park them at the oceanfront in Oakland and not fly them. Again, short-sighted profit trumped engineering logic. The bean counters won, and we know what happened in 1988.

The point would seem to be repeated again and again through your analysis of the airline post O'Gorman. Short-term profits trump business logic, especially when it came to flight equipment. That is one of the items that have come up again and again as to the demise of Aloha in both the press and in the aviation blogs that address this issue. It is sad because you'd think that saving money would help the airline more than dumping in more money into new equipment.

Unfortunately, that did not happen, and the gamble did not pay off. Was Aloha wrong? Well, hindsight is 20/10 on this, but one tack that I was given as to how Aloha could have righted itself was to basically give up on interisland, or make it a very small portion of it's operation, and basically invest heavily into long-distance flights, with the proper equipment.

Being that they decided to go head-to-head with a very strong Hawaiian and a upstart with deep pockets on equipment that drained cash at the rate of 1.1 million a week, and the dry up of the credit markets so that no one could get ready cash to be the saviour, the airline went down fighting all the way.

A silver lining in a very dark cloud over Hawaii.

1:47 PM  
Blogger Kazilar said...

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7:52 PM  
Blogger JoJosho said...

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4:10 PM  
Blogger Peter Forman said...

Stan,
Thanks once again for your comments. A forum such as this is a great way to get the word out concerning the inner workings of Hawaii's airlines.

12:20 AM  
Blogger Peter Forman said...

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12:23 AM  
Anonymous Anonymous said...

Aloha Peter
Appreciate your website. I was there and can tell you that OGorman's intent was to keep those dogs for two, possibly three years. The game plan was to reduce operating expense while raising revenue by leasing out the newer B737-200s. I believe we shrunk our fleet from 11 to 7. Yes, we had concerns and Joe listened to all of them. He explained to the core group of managers that he had no choice but to make that tough decision. He challenged (more like threatened) us to maintain a 99.7% schedule completion factor while achieving performance goals of 85% on-time to the minute and 65% on-time to 5 minutes. Joe told us that once we achieved those goals, Maury's job was to create value so Aloha could charge more than our competition. He disregarded market share and focused on yield. Maury has got to be the best marketing person in the world with the quiet guy Sakamoto controlling yield. We had a great team and when I say great, it was from top to bottom. It was tough with the lay offs and pay cuts but somehow we all believed and got it done. Got it done...what memories....that's what Joe always said to me...GET IT DONE!. I remember the internal battles with OGorman, Meyers, Erickson, Rogers, Williamson, Kagoshima, Arii, Yamashiro, Sakamoto, King, Best, Takahashi, Playdon, Montes, Greer, Duncan, Gleason, Takesue, Spencer, etc. That was fun because everyone was there for the company and our fellow employees. I still think about them. Anyway, I can't say why we kept those ole dawgs that long but Joe and the VP of Ops Erickson left years before the accident.
Peter, thank you again for hosting this forum and remembering Aloha.
Signed - "the guy responsible for system goals but didn't own a watch."

2:41 AM  
Anonymous Anonymous said...

Hi Peter,

Now that the dust has settled, isn't it time to wrap up the blog? A final dissertation on the latest round of the Hawaiian air carrier wars would be greatly appreciated.

I printed all of your blog entries and made them an addendum to your wonderful book. In the future, someone may find them an interesting bit of history.

In any case, thanks for your extraordinary insight into a difficult industry.

A former Kamaaina

3:39 PM  

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