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Talk Story

BY JOHN FLANAGAN

Tuesday, January 8, 2002


Candid words from
the man who made
Hawaiian Airlines
a winner


PAUL Casey was excited about the future of Hawaiian Airlines. We were at Hickam Field two years ago, waiting for a U.S. Navy plane to take local business and media folks out to the carrier USS Constellation. It was a V.I.P. tour, like the one on the submarine Greenville that came to grief.

Casey had recently returned from the Paris Air Show, where he assessed the latest in short-haul airliners. Hawaiian management was torn between buying the Boeing 717-200 and the competing Airbus model and its CEO was clearly enjoying the bidding war between the two manufacturers and looking to get the best deal on a new interisland fleet.

I talked again with Casey about a year later, in November 2000. The deal with Boeing was signed and 13 new planes were to begin arriving in a few months.

He watched a Hawaiian DC-10 take off through the window of the conference room in the company's austere offices at Honolulu International and checked his watch. The departing flight was 90 minutes late, but that didn't stop Paul Casey from being upbeat about where his airline was and where it was headed.

He had good reason to be.

If Boeing 717-200s look like shiny, new DC-9s, they should. They are descended from the old Douglas model, which Boeing inherited when it acquired McDonnell Douglas. However, the economics of the new planes were radically different. To begin with, they used as much as 30 percent less fuel, which is arguably an airline's biggest operating expense.

Casey described how airlines trade home heating oil futures to try to minimize the cost of fuel, maintain a supply in times of shortage and average out fuel costs despite the jet-fuel market's peaks and valleys.

Aviation fuel prices are pegged to home heating oil and managing a hedge fund is a key role at a modern airline. Delta is reported to have saved $400 million by hedging, but you need to be an expert, Casey said. "You need to know when to bail. It's a crap shoot."

Keeping the old DC-9-50s flying was another headache Casey was excited about shedding. The new 717s would come with multi-year maintenance contracts that would reduce Hawaiian's exposure to big repair bills.

While Hawaiian still had to bear the expense of maintaining the fleet of venerable, three-engine DC-10 wide-body planes it leased from Northwest, Casey planned to replace them in 2003 when the lease expires -- probably with two-engine planes like Boeing 757s.

The new planes will have smaller crews, better fuel economy, faster turn-arounds and open up smaller, "thinner" markets since they carry 20 to 60 fewer passengers.

In the meantime, the savings on fuel and repairs for the interisland 717s would drop straight to Hawaiian's bottom line.

In Hawaii, we're mostly aware of Hawaiian's longtime head-to-head competition with Aloha Airlines. "We're like two cats in a gunny sack," Casey said. "We fight like hell."

That catfight was to keep a profitable share of a shrinking market. Mainland carriers such as United were adding more and more direct flights to the neighbor islands, bypassing Honolulu and reducing the number of passengers transferring to the local airlines.

Casey felt Hawaiian was holding its own while Aloha bore the brunt of this new mainland competition.

Compared to normal airline business, Casey said, the way interisland flights are priced in Hawaii is "screwed up." The coupon system puts the same price on every seat on every flight regardless of the destination, the season or the hour, whether peak or off peak.

Far more profitable are Hawaiian's mainland, Pacific and charter businesses.

Hawaiian trails only United in the number of flights it operates between Hawaii and the mainland. "We're a solid number two," Casey said.

While Aloha struggled to fill seats on its 737 hops between West Coast destinations and Las Vegas, Hawaiian's daily scheduled and charter flights into that city made it the leading Honolulu-Las Vegas carrier.

The yield on Hawaiian's Samoa and Tahiti flights, which face no competition, is confidential but "very good," and its off-schedule charter flights to destinations such as Saipan and Seattle have built-in profit margins.

"I could care less about market share. I want profitability," Casey said, adding that a company can go out of business very quickly as the market-share leader.

"Our business is transporting people, cargo, mail and freight anywhere we can make money at it," Casey said. With that clear focus, Hawaiian came out of the catfight on top and Aloha has folded its tent, agreeing to merge.

Although Casey will not remain at bat after the merger is finalized, Hawaii's new airline will be built on sturdy foundations he put in place.





John Flanagan is the Star-Bulletin's contributing editor.
He can be reached at: jflanagan@starbulletin.com
.



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