Tuesday, March 15, 2005

Hawaii may
get another
interisland airline

But FlyHawaii Airlines
must first get federal
certification to start flying

Hawaii's interisland aviation market soon may get a little more crowded.

Start-up company FlyHawaii Airlines, which describes itself as a low-cost carrier, has called a press conference tomorrow to officially announce its arrival. The airline, however, does not yet have the required federal certification to begin operating, according to a federal Web site and a state spokesman.

If everything falls into place, then the company, which is headed by Lion Coffee founder James Delano, hopes to begin flying by the end of this year or sometime next year, according to Chris Parsons, vice president of administration for FlyHawaii.

Parsons confirmed that the airline will use turboprop aircraft, the ATR-72, for its interisland routes. Those planes, according to New York-based airline analyst Robert Mann, can seat 66 or 68 people. Parsons deferred answering any other questions until the press conference.

If FlyHawaii gets off the ground, it will be attempting to succeed where others have failed. Discovery Airways flew interisland jets in 1990-1991 until it was forced out over questions of foreign ownership. Mahalo Airlines flew from September 1993 until October 1997 but went broke and closed. Both had competed with longtime players Hawaiian and Aloha airlines on the most-traveled interisland routes. Island Air, sold by Aloha Airlines' parent last year, also serves the interisland market.

Island Air flies 37-seat de Havilland Dash-8 aircraft to all islands. Aloha and Hawaiian do not fly to Molokai or Lanai, though Hawaiian has said it is looking to acquire aircraft to increase its interisland service.

Also, commuter carrier Pacific Wings serves a niche segment with its nine-seat Cessna 208 Caravans that fly to all the islands except Molokai and Kauai.

Rob Mauracher, who was named chief executive of Island Air last month, said he's concerned that FlyHawaii could damage the marketplace.

"It's a very fragile market with Aloha and Hawaiian in bankruptcy right now," Mauracher said. "We also have a lot of work to do ourselves."

Island Air, which at one time had expanded to 11 aircraft, has returned two of its planes to its aircraft lessors and is returning one more to streamline operations and cut fuel costs, Mauracher said. The carrier also has reduced some of its flight frequencies, which already are reflected in the company's schedule.

"It may be good for the consumer in the short run, but in the long run it may be detrimental to the infrastructure of aviation in the state of Hawaii," Mauracher said. "Take Mahalo Airlines in the past. It came in and dropped prices and did a lot of damage financially to airlines and walked away with a lot of people holding tickets for flights that weren't available. I'm concerned they may come in here, make a burp in the market and damage all three of us."

Hawaiian and Aloha officials declined to comment about FlyHawaii. Pacific Wings President Greg Kahlstorf said FlyHawaii wouldn't compete with his airline. To the contrary, Kahlstorf suggested that FlyHawaii could align itself with Pacific Wings, which already has certification, to enter the market faster.

"It's always good to see new players in the marketplace," Kahlstorf said. "Sometimes working with an existing airline is a lot easier than doing it alone."

FlyHawaii, which has job openings posted on its Web site, www.flyhi.com, already has assembled a management team that includes Delano as CEO; Bob Brayton, vice president, operations; Carl Christoffersen, vice president and chief financial officer; Lori McCarney, vice president, marketing; Marinus van Eenennaam, vice president, planning; and Parsons. Bob Fishman, a former Hawaiian Airlines executive who was to be chief operating officer of FlyHawaii, will serve as a consultant.

FlyHawaii has not yet received Federal Aviation Administration certification, according to state Department of Transportation spokesman Derek Inoshita. Also, no application has been filed with the U.S. Department of Transportation, according to a search of its Web site.

Typically, an airline will first file an application with the U.S. DOT so the agency can review the airline's economic and regulatory fitness. An airline must carry the cash equivalent to three months of operating expenses.

The FAA would review safety considerations, the type of aircraft, routes planned and maintenance plans.

Airline analyst Robert Mann, president of New York-based R.W. Mann & Co., said FlyHawaii's success may depend on how Hawaiian and Aloha airlines choose to respond to the competition.

"Historically, both carriers over a long period of time have lost a lot of money in the interisland marketplace," Mann said. "It has inevitably resulted in substantial fare wars and discounting, the old coupon business and all the problems that created. The times are a little different now, but you can't assume that a market-share battle will always be part of the equation."

Mann said the positive feature of turboprops is that they are more efficient and could produce lower costs than the 717 that Hawaiian uses or the 737-200 that Aloha uses.

"So, if what people are looking for is the lowest possible prices, then in theory a turboprop would be the way of providing that," Mann said. "An ATR is a nice machine. It's a good solid airplane. The downside, however, is in the last 10 years or so the marketplace has kind of looked down at the idea of airplanes with propellers. So the marketplace would have to ultimately decide whether it wanted lowest prices or whether it wanted shiny, new jets at higher prices."

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