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Tuesday, January 22, 2002



THE ONLY WAY TO FLY
MERGER OF ALOHA AND HAWAIIAN



Flexible interisle
travelers to benefit

The merged airline will offer $39
seats, the carrier's chief says


By Russ Lynch
rlynch@starbulletin.com

A merger of Hawaiian Airlines and Aloha Airlines would not create unreasonably high interisland fares for Hawaii residents, the former Continental Airlines executive putting together the merger said yesterday.

In fact, there could be an increase in lower fares, but only if travelers can be loose about when they fly.

"You will see $39 seats out there," Greg Brenneman, chairman and chief executive of TurnWorks Inc., told Star-Bulletin editors and reporters in a meeting yesterday.

But to get the low prices, travelers will have to be flexible and travel at times when demand is low, said Brenneman, 40, who was president of Continental for seven years until last May.

"In fact, you will probably see lower prices with flexibility," he said. "If you have a little bit of flexibility, you'll see a lot of change."

For now, "this is the only market where all seats are priced exactly the same," said Brenneman, whose deal to run the merged airline will pay him $400,000 a year, about one-tenth his salary at Continental. He will not be eligible for bonuses.

It is about $50,000 a year more than Paul Casey gets as vice chairman and chief executive of Hawaiian, but Casey also gets bonuses.

Casey stands under past arrangements to get at least $350,000 a year for three years after a change of control of Hawaiian.

Both Casey and Glenn Zander, chief executive of Aloha, will retire when Brenneman takes over.

Brenneman said salary is not as important to him as the fact that he will end up with a 20 percent ownership of the new company, which he expects to grow in value.

A new fare structure is one of the changes Hawaii can expect, and the changes will be good for residents, tourists and employees, Brenneman said.

For example, the "wingtip to wingtip" takeoffs now operated by Hawaiian and Aloha at some times of the day, with few passengers on either flight leaving at the same time, will be eliminated, he said.

That will mean cuts in staff and about a 10 percent cut in the total number of interisland flights.

But along with that will come real growth from a shift in emphasis from head-to-head interisland competition, plus some routes to the mainland, to a new airline that is Hawaii's primary carrier to the mainland while still having a major interisland role.

Hawaiian has been flying to the mainland since 1984 and Aloha since 1999, but they do not compete head to head on the same routes. Brenneman said a combined airline can expand Hawaii-to-mainland business.

"I don't think, personally, the interisland market is going to be the growth market," he said. The new airline, yet to be named, has unique opportunities to offer new Hawaii-mainland routes.

It is a great opportunity to take Hawaii residents to their favorite mainland destinations and make money doing it, he said. The airline could consider expanding to markets such as Phoenix, Sacramento and Fresno, Calif., as well as add flights directly from the mainland to neighbor islands.

The existing airlines have not had the capital to take advantage of the opportunities, Brenneman said.

"Here, because these carriers have been so weak, they haven't been able to tap these markets because they haven't had the cash to grow," he said.

The new airline will continue to fly routes already established by the two carriers, including South Pacific flights by Hawaiian and Micronesian flights by Aloha, he said.

Those routes will need some profitability studies, he said, but there are no cuts planned. He said almost none of the existing routes have current profitability studies.

He also believes Hawaiian's decision to re-equip its interisland fleet with Boeing 717-200s was the right one, and they are likely to be the interisland aircraft of choice for the new airline.

The lease-purchase deals for the planes will be rewritten at a much lower cost once there is one airline, he said after meeting last week with Boeing officials.

Aside from regulatory approvals, some shareholder approvals are needed. The owners of privately held Aloha Airlines have already agreed to the merger.

So has Airline Investor Partners, the New York investment group headed by Hawaiian Air Chairman John Adams, which owns about 54 percent of Hawaiian. The group stands to receive $5 million in cash and a 28 percent stake in the new airline.

In what Brenneman called an unusual step, the minority shareholders of Hawaiian will have their own vote. Under the merger agreement, they will get a 24 percent stake in the new company in the form of new shares and notes promising to pay them $2 cash for each of their current shares by six years from now, but no cash up front. Brenneman expects they will approve.

He also said he will push for changes in the technology both airlines use for reservations.

Often, the wait for a reservation agent to process a passenger seems like the luggage should be on its way to Guam, Brenneman said. The blame belongs with outmoded technology, he said, and the processing can be done in 20 percent of the current time.

"The interisland terminal, quite frankly, is a train wreck," he said.



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