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Rivals fight to fill Aloha void


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POSTED: Tuesday, March 31, 2009

It was late February in 2008 and Aloha Airlines' top executives were gathered in a company boardroom where Chief Executive David Banmiller was outlining scenarios on a whiteboard that would save the company from bankruptcy or a possible shutdown.

Banmiller assigned a percentage to the likelihood of each scenario occurring and only one — a United Airlines takeover of Aloha — received 100 percent.

But, as 3,500 former Aloha employees painfully know now, it wasn't a sure deal after all. And one year ago today, the storied 61-year-old airline taxied to the gate for the final time.

Although history will show that Aloha filed for bankruptcy on March 20, 2008, and ceased passenger operations 11 days later, Thom Nulty, the senior vice president of marketing and sales for Aloha, said the end actually came on March 13 when United informed Aloha it was pulling out of the deal because fuel had gone up to $111 a barrel on that day.

“;Yucaipa (Aloha's majority shareholder) called us a few minutes later and told us they weren't going to fund us any longer and basically that was the end of the world,”; said Nulty, who now is vice president for Preferred Hotel Group in Newport Beach, Calif. “;They were going to operate us as a separate company and were going to take over our funding, and our pilots union actually had agreed with their pilots union on an arrangement. After United pulled out, we scrambled for investors for a couple of weeks and we worked with the bank, but that was the day it came apart.”;

A year later, the Hawaii interisland market is still just as convoluted with three carriers in direct competition with each other.

Hawaiian Airlines is still the dominant carrier. Mesa Air Group's go!, which many people at Aloha blame for the airline's demise for initiating a below-cost fare war, is now nearing its 3-year anniversary and coming off its first quarterly profit. And Mokulele Airlines, which had aligned itself as a code-share partner with go!, is now the one struggling the most after switching allegiances to team up with Indianapolis-based Republic Airways to try to pick up some of the void left by Aloha.

Although airfares inched up following Aloha's demise, the price of interisland tickets came right back down after Mokulele, which began jet service in November, bled money at an unsustainable rate and started a fare war of its own. Republic, which had funded Mokulele, has since moved in to become a 50 percent shareholder and removed Bill Boyer as Mokulele's CEO. And Island Air, which flies to smaller interisland airports, earlier this month took Mokulele's place as go!'s code-share partner.

“;We now have fare wars of almost the ferocity that we had with Aloha, so the consumers have had an opportunity for several years now to travel interisland at ticket prices below the cost of providing the service,”; local aviation historian Peter Forman said. “;But inevitably this must change, and the big question is the battle between Mokulele and go!. Who is going to outlast the other?”;

Hawaiian CEO Mark Dunkerley said the interisland marketplace still suffers from excess capacity, although not to the extent it did when Aloha was alive.

“;There were more seats out there then there was demand and that drove prices down to the point where companies were losing money,”; Dunkerley said.

Through it all, Hawaiian has emerged as the main beneficiary of the market turmoil.

“;We're pretty satisfied with our footprint in the marketplace,”; Dunkerley said.

Still, Dunkerley acknowledges that interisland fares eventually will need to rise.

“;If you look at fares on the mainland for similar sorts of flights, you'll see fares more often than not exceed $100 a flight,”; he said. “;At a time where fares interisland are more than half that amount, one reasonably could conclude that fares are not only low and a good deal for consumers, but unsustainably low.”;

Jonathan Ornstein, chairman and CEO of Mesa, said go! deserves credit for bringing low fares to Hawaii.

“;I think it's very fair to say that if go! was not in the marketplace that fares would be much, much higher,”; he said. “;We changed the market, in my opinion, forever; we gave value; and we were accepted by the local traveler.”;

But many former Aloha employees, such as Nulty, are not singing go!'s praises after losing their jobs or being forced to accept other lower-paying positions.

Nulty, for one, says go! was “;100 percent responsible.”;

“;It was interisland prices that did us in because we had to be price competitive,”; he said. “;They knew we had little or no money and they were trying to wear out our investors, which they eventually did.”;

Former Aloha Capt. John Riddel, who also was a union leader for the Air Line Pilots Association, said he has not heard many success stories from his co-workers in the aftermath of the shutdown.

“;There were 3,500 people put out of work, and their families have been affected,”; said Riddel, who now does union work for the United Public Workers. “;It was the beginning of what we're experiencing now. The state has the highest unemployment rate (in 30 years) and I think the Aloha shutdown was significant.”;