COURTESY OF MESA AIR GROUP

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Mesa Air
to fly isle skies

The company's chief executive
hints at lower interisland fares
and hirings in the hundreds

Undeterred by the bankruptcies of Hawaii's two largest airlines, a Phoenix-based regional carrier is planning to crowd into Hawaii's interisland market in the first quarter of next year by offering low-cost, high-frequency service to all the major islands.

Mesa Air Group Headquarters: Phoenix Aircraft: 182 Destinations: 165 cities, 44 states, District of Columbia, Canada and Mexico Affiliations: Operates as America West Express, US Airways Express and United Express, and independently as Mesa Airlines Employees: 5,000 Founded: 1982 Hawaii service: First quarter 2006 Routes: Oahu, Big Island, Maui, Kauai Type of Hawaii planes: Canadair Regional Jets, seating 50, 70 or 86 passengers

Mesa Air Group Inc., which has been eyeing the Hawaii market for more than a decade, was expected to announce this morning it will establish an independent airline that will go head to head with Hawaiian and Aloha airlines along with smaller carriers Island Air and startup FlyHawaii Airlines, which plans to begin service next year.

Jonathan Ornstein, chairman and chief executive of Mesa, said yesterday that the carrier likely will start operating with six aircraft and eventually end up with 12 to 15 as the market grows. He said the new airline, whose name will be disclosed at a later date, initially will use Canadair Regional Jet 200s, which seat 50 passengers. He said the airline eventually could use CRJ 700s and 900s, which seat 70 and 86 passengers, respectively. Ornstein said the aircraft are new to Mesa's 182-plane fleet.

"The airline industry is going through restructuring and I think we're about to see a huge turn," Ornstein said. "One of the reasons we're doing this is because now is the time to take advantage of opportunities because I think a turn is coming."

Ornstein said he wasn't sure if Mesa's arrival in the islands would spark a fare war, but he emphasized that "we are not going to be underpriced."

"Prices are always the intersection of supply and demand," he said. "There will be a little more supply so that probably will tell you what will happen to air fares."

FlyHawaii, which in March announced its intention to debut early next year with low fares, still is finalizing its financing, according to Chris Parsons, vice president for administration.

"We're still pursuing a major long-term investment and we feel we're very close," Parsons said. "Once we lock that down, we'll be revising our startup schedule."

Parsons said FlyHawaii, which plans to begin with service to Maui, said the airline still plans to get off the ground in 2006 but that its starting date likely will be pushed back.

"We think there's tremendous growth potential in the interisland market contrary to what some of the other (local) airline executives have said recently," Parsons said. "We think people aren't flying interisland because prices are too high, and when prices come down, people will flock back to interisland travel."

Jonathan Ornstein: The Mesa Air chairman expects a huge turn in the airline industry

Ornstein, who has been interested in the Hawaii market since 1990 when he looked at now-defunct Discovery Airways, said he believes Mesa will be profitable here.

"One, we think that the interisland market works," he said. "We're not going to try to fly trans-Pacific, which doesn't work. Also, Mesa Airlines has the lowest cost of any regional airline in the United States and we can take those costs and bring them to Hawaii and operate in what is clearly a competitive environment."

Due to the competitive nature of the business, Ornstein said he's not ready yet to disclose additional details on routes other than to say that the airline will serve Honolulu; Hilo and Kona on the Big Island; Kahului, Maui; and Lihue, Kauai. He said the airline will begin talking to prospective employees in Hawaii in the next 30 to 45 days.

"We're going to start the service out conservatively," he said. "We've been in the airline business for awhile and you always want to do things step by step. But ultimately, the number of people we'd be looking at hiring there would be in the hundreds."

Mesa, founded in 1982 in New Mexico by Larry and Janie Risley, operates 1,100 daily departures to more than 165 cities, 44 states, the District of Columbia, Canada and Mexico.

The airline, which has been profitable for 27 of the last 28 quarters, expects to have revenue of $1.2 billion to $1.3 billion this year with a profit in excess of $100 million, Ornstein said. Last quarter, Mesa earned a pretax $30 million, its best three-month period in company history. The company also has $275 million in cash.

"We think that for our cost and the type of aircraft we operate, it will be profitable for us," Ornstein said. "A lot is how you allocate costs."

Mesa has about 5,000 employees, with roughly half unionized as members of the Air Line Pilots Association and the Association of Flight Attendants.

"On the regional side, our people are very well compensated," Ornstein said.

Ornstein, who had looked at investing in Hawaiian Airlines when that carrier was in bankruptcy, similarly considered Aloha Airlines, which is still in reorganization.

Ultimately, though, he said it was better for Mesa to come to Hawaii independently rather than entering the islands through acquisition.

"After doing our own analysis, we felt we could better serve the public and shareholders and Hawaii by doing it on our own," he said.