Hawaii must compete for air capacity
The state should focus on visitors who can afford higher prices, a consultant says
Hawaii faces global competition with other destinations when it comes to courting additional airline capacity.
That means providing incentives, such as minimum revenue guarantees, reduced airport fees, passenger handling fees, and rent -- and establishing a good rapport with airline executives that make these decisions.
Few airlines do their own destination marketing any more, as the destinations now do it for them.
But mostly, it's about the bottom line, according to Brad DiFiore, director of airport consulting services at Sabre Airline Solutions.
"Airlines are not a public service," said DiFiore, who presented a state market analysis at the Hawaii Tourism Conference yesterday afternoon. "Airlines are there to provide returns to their shareholders."
The reality is that U.S. airlines are losing billions of dollars, and are poised to lose up to $13 billion in 2008 alone.
Airline revenue did not keep up with inflation, and with the multiplying costs of fuel, most air carriers are now responding by cutting capacity and, yes, charging extra fees for luggage, meals and pillows.
The estimated portion of a ticket price needed to cover fuel costs alone is now at 40 percent, said DiFiore. Compare this to eight years ago, when it was less than 15 percent of the ticket price.
So U.S. air carriers are responding by reducing their capacity to improve their profit performance.
Fares in Hawaii went up and will continue to go up, given that carriers have little economic incentive for expanding interisland services to previous levels, DiFiore said.
That will impact the visitor market, which already has seen its numbers drop in correlation to airline capacity.
Aloha Airlines and ATA Airlines accounted for 13.5 percent of the mainland capacity, which translates into more than 1.72 million passengers over a one-year period, DiFiore said.
Without Aloha and ATA, visitors from the major California markets have dropped significantly, with Kona taking the biggest hit.
With the departure of Aloha, Hawaii also has a significant gap in interisland air capacity, which isn't expected to get any better.
Between the nine-month period of August to April this year and next, the number of interisland flights in Hawaii is expected to drop 36 percent, according to data from Sabre.
DiFiore also said the era of the low-fare passenger is pretty much over due to the demise of low-airfare carriers which are disadvantaged in this current environment.
He recommended focusing on visitors who can afford the new market dynamic.
At the same time, what Hawaii can do is position itself competitively with other resort destinations in courting new carriers.
These incentives are generally short term, said DiFiore, mainly to help airline companies feel more comfortable about the initial risks of entering a new market.
Sabre, which offers airline products, software solutions and consulting services, is a division of Sabre Holdings, based in Southlake, Texas, which also operates Travelocity and Sabre Travel Network.