The weird new realities of interisland travel

According the infamous emailed game plan by the chief financial officer of Mesa Air Group, the plan was to drive Aloha Airlines out of business by waging a fare war, selling tickets below cost, until Aloha ran out of cash. Mission accomplished. Now what? Now the surviving airlines are charging more, but not enough more to cover costs. They're still losing money. Why? Apparently because Mesa's go! did such a good job of convincing people that $49 a ticket was a rational fare that it is now a victim of its own campaign. Customers who forsook Aloha for go! will -- due to gullibility and/or poor math skills -- feel they are gouged if prices go too high too fast. Hawaiian, too, can't raise prices too much, or everyone will get an altogether unjustified feeling of being crispy gougee. Hawaiian and Aloha tried telling us for nearly two years that they and go! all needed $60 or $70 a ticket to make a profit. Aloha hired an analyst to estimate the costs of all three, and discovered that it actually had the lowest cost structure despite flying aging gas guzzlers. Hawaiian had higher labor costs and go! had far fewer tickets it could sell due to its smaller planes -- flying a van instead of a bus, in the inspired metaphor of Hawaiian CEO Mark Dunkerley. Analysts don't think Mesa cared particularly whether it muscled Hawaiian or Aloha to the sidelines as long as the result was a two-carrier market. But, having seen the books as a prospective buyer of both legacy carriers during their respective bankruptcies, it knew how much cash it had, and it knew that in a protected fare war Aloha would run out of money first. CEO Jon Ornstein said Mesa then decided there was room for three carriers after all. Analysts said only irrational numbers could produce such a belief after years of interisland transfer traffic shifting to direct neighbor island flights from LAX. For more than a year Mesa acted like its low fares were perfectly normal and ads for "Hawaii's low cost airline" resonated with people who thought Hawaiian and Aloha had gouged them for years. I personally spoke with people who firmly believed that since go! was sometimes charging $19 a ticket there must be a way to make money like that. This sounds distressingly familiar to the local credit counselor who told me that she spoke to someone whose subprime mortgage payment reset to a greater amount than the entire household income, who said, "Well, I thought it I couldn't afford it, they wouldn't have given me the loan." These are the same folks who think the ladies walking Kuhio Ave. late at night are just tacky dressers. Meanwhile, jet fuel prices have more than doubled since go! launched -- and fuel is a bigger cost for airlines than payroll -- so the true breakeven point for interisland flights at normal load factors might be approaching $110 now. (Planes use many times more fuel taking off than they do cruising, so interisland flights use a greater percentage than you might think of the fuel that a trans-Pacific flight does.) In other arenas of life, $110 today is the same as $40 in the 1970s, so why does this surprise you? How many years did it take for home prices to double? For the price of a car? A movie ticket? A Big Mac? Yet go! and Hawaiian clearly feel they can only raise ticket prices so much at the moment without triggering the inaccurate belief of the baboozery that gouging is occurring. For Mesa, it may be a case of its own strategic plan coming back to kick it in the okole. For Hawaiian, it is arguably an example of how it, too, has been hurt by what put Aloha out of business. And what about the other players? Island Air mostly flies routes not served by Hawaiian and go! but it can only raise prices so much if its larger brethren are still flying at a loss. Similar factors may be in play for Pacific Wings and Mokulele (aka go!Express). Let's not forget that the fare war didn't just put thousands of Aloha Airlines employees out of work, it also drove Island Air to furlough half its work force, cutting a few hundred other jobs out of the local economy. So far as I know, nobody is deliberately trying to put Island Air out of business, but the vagaries of our weird marketplace are still hurting that carrier. Now then. What about you? Did it sting when I said "baboozerie" because you made a gouging crack once? I forgive you. The thousands of families of Aloha Airlines employees thrown out of work may not forgive you but I do. We all make mistakes. But it would be a mistake to continue to forsake local businesses every time a deep-pocket mainland company comes in with loss-leader offers and a pretense that your local vendors were somehow ripping you off. You need to be a smarter shopper than that.  

Comments

[Rick Kloek]

Aloha Howard : Is the Superferry going to be sailing to Kauai in the future? Nothing bad has happened on it's trips from Honolulu to Maui. I think what residents of Kauai fear the most is change. I watch KGMB9 for your business reports. Mahalo Howard. Aloha.