Talk Story
Flight coupons
might be popular,
but at what price?IT'S NOT a merger. What local airlines want is an exemption from federal Department of Transportation regulations, allowing Aloha and Hawaiian to sit down and negotiate reductions in capacity. The goal is profitable interisland air service.
The problem is that interisland air travel was profitable only at the best of times, and the best of times are over.
From the airlines' perspective, the interisland market is shrinking. They and their out-of-state competitors have added direct flights to Maui, the Big Island and Kauai, bypassing Honolulu and interisland connections.
Aloha and Hawaiian are competing for larger slices of a smaller pie. "We're like two cats in a gunny sack," an airline executive once told me. "We fight like hell."
Hawaiian, the No. 2 carrier between Hawaii and the mainland, is well positioned to survive despite an economic slump and diminished post-Sept. 11 traveler demand. Besides its profitable exclusive routes to Samoa and Tahiti and Las Vegas charters, it enjoys a new, fuel-efficient interisland fleet of Boeing 717s.
It's now replacing obsolete DC-10s with smaller Boeing 767s, not only saving fuel and maintenance costs, but also allowing Hawaiian to go into thinner markets. Routes can now be profitable to cities that can't fill 304 DC-10 seats but can regularly top off a 262-seat 767.
In fact, President and CEO John Adams claims Hawaiian's balance sheet is stronger now than it would have been if last year's proposed merger had gone through. Hawaiian's $50 million loss for the first half of 2002 could have been even worse if merger expenses had been piled on.
In recent years the airline made many moves to improve profitability, from adding online ticket sales and so-called "e-tickets," eliminating block seat sales through tour operators, adding new routes and cutting off travel agent commissions, to selling interisland flight coupons in ATMs.
Last week, Hawaiian shareholders approved a new parent company, called Hawaiian Holdings Inc., which will be incorporated in Delaware instead of Hawaii. This could result in substantial state tax savings. Despite all that, Adams says, Hawaiian might have to reduce its work force in response to cutbacks in mainland flights this fall.
From the airlines' point of view, however, the chronic problem with the interisland business is the coupon.
AIRLINE FARES in the rest of the world rise and fall with demand and competition. According one airline executive, the global fare system has "a million moving parts, and 50 percent of them move every day."
Using high-tech computer systems and just-in-time pricing, competing airlines respond to changes immediately, matching an increase when demand surges, undercutting a fare reduction when demand falters.
But not in Hawaii. Here, passengers pay the same for every interisland flight, regardless of the hour, demand or distance. We pay the same for the last flight of the day from Lihue to Kona on the Wednesday before Thanksgiving as from Honolulu to Molokai at 4 p.m. on any Tuesday in March.
While Hawaiian's Web site yesterday advertised limited-time mainland special fares ranging from $389 to $469 (throw in another $110 for a round-trip ticket), interisland prices are the same, day and night, peak and off-peak, week in and week out.
By continuing the convenient but low-tech coupon system, both airlines have already agreed to limit both competition and profitability. This benefits passengers, but only if both airlines keep flying, providing adequate service at a competitive price.
Adams says, "I think that the only way that both of us can reduce our capacity significantly enough to get to be a profitable operation interisland and to have the confidence that the other person will is to have an exemption so we can sit and agree prospectively how many seats we'll fly."
Eliminating coupons could do the job, too, but at what risk?
John Flanagan is the Star-Bulletin's contributing editor.
He can be reached at: jflanagan@starbulletin.com.