Tuesday, August 17, 1999

Honolulu air
fares a bargain

An Aviation Week survey says
travelers are reaping the benefits of
the isles' stiff price competition

By Heather Tang


Not everything in Hawaii is pricey.

Honolulu air fares may be the lowest in the country among major U.S. hubs, according to a recent Aviation Week survey.

Consumers can enjoy the benefits of stiff price competition but for airlines serving the state, it's a game of catch-up as they struggle to turn profits in Hawaii's traditionally low-yield market.

"Historically, prices have and will continue to be low. Hawaii is a great bargain," said Michael Miller, editor of Aviation Week.

Miller said survey figures are derived from the U.S. Department of Transportation Origin & Destination survey for 1998, a report based on 10 percent of all airline ticket fares.

"Hawaii is wonderfully cheap. Short trips from there are much cheaper than in other parts of the U.S," he said.

Fares from Honolulu will always be relatively low because travel demand is dominated by leisure trips instead of the more pricey business travel, said Miller.

"This is good news for consumers but it places extra pressure on airlines with respect to their overall revenue and profitability," said Tony Vericella, Hawaii Visitors & Convention Bureau president and chief executive.


According to the survey, one-way air fares from Honolulu last year averaged $37 for distances less than 249 miles -- in other words, interisland flights. The next lowest average fare at that distance was for flights out of Las Vegas at $56, or 51 percent higher than Honolulu's average fare.

Advanced-fare purchases, package deals and frequent flier redemptions may have skewed the survey prices lower, Aviation Week acknowledged. Current one-way kamaaina fares are in the $49 to $55 range. Nonkamaaina fares are higher.

For a distance of 2,000 to 2,499 miles, Honolulu tied for least expensive with Las Vegas with a one-way fare of $159.

By comparison, shuttle flights serving predominantly business travelers out of Boston, Newark, and Washington, average about $124 one-way, the survey said.

"Business travelers usually have to be in a certain destination by a certain time so their willingness to pay is much higher than would be the case for a leisure traveler who can easily juggle flight schedules," said Paul Brewbaker, chief economist at Bank of Hawaii.

The survey results are no surprise for local airline executives.

"Doing business in Hawaii as an interisland carrier is a challenge. We're very attentive to our costs," said Glenn Zander, president and chief executive officer of Aloha Airlines Inc.

Zander said diversifying, such as with its overnight freight services, has helped company profits.

Interisland competitor Hawaiian Airlines Inc. also has taken cost-cutting steps and expanded its mainland service.

"Be it materials, labor, equipment, everything -- every company these days is looking for ways to be more competitive and hold cost structure down as much as possible to survive," said spokesman Keoni Wagner.

Profit yields from flights in and out of Hawaii tend to be about half of similar-range mainland flights, which typically operate with a profit margin of 10 percent or greater, said Zander.

Airline marketing devices such as frequent flier programs may also complicate price yields.

"People are more likely to redeem frequent flier miles on leisure destinations such as Hawaii rather than when they are traveling on business," said Brewbaker.

He said there is a disproportionately high rate of frequent flier redemption on Hawaii flights, a factor that further dwindles airline profit.

"You can make money but it's a very thin margin compared to destinations serving business markets," said Norman Reeder, United Airlines' Hawaii managing director. "Historically, airlines have not made money in Hawaii. Because unit revenues are lower, you need higher load factors."

Today, mainland flights to Hawaii fly with an occupancy of about 90 percent compared with about 70-to-75 percent occupancy 10 years ago, said Brewbaker.

"This occupancy is pretty darn high. It's a measure of success to be more efficient. Airlines have to use optimal pricing techniques to leverage as much money out of the traveler as they are willing to pay," he said.

Unlike most other airline destinations, leisure destinations are less reliant on business travelers than traditional destinations.

Hawaii's travel market also tends to be price sensitive.

"People don't have to fly to Hawaii, it's a pure preference-type destination," said consultant Aaron Taylor, of GKMG Consulting Services Inc., which prepared the Aviation Week report.

Added Hawaiian Air's Wagner: "The marketplace sets prices where the market will bear them. That's the bottom line. Airlines price their product where they feel they need to turn a profitable operation and where the market will respond."

"It's a balancing act," he said.

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