Republic Air increases its stake in Mokulele


POSTED: Friday, July 31, 2009

Republic Airways, immersing itself even further into the Hawaii market, has pumped an additional $7.5 million into interisland carrier Mokulele Airlines and now owns 89 percent of the company.

The Indianapolis-based airline, which is in the process of purchasing Frontier Airlines out of bankruptcy, as well as buying Midwest Airlines, now has just under $20 million invested in Mokulele, said Bryan Bedford, chairman, president and chief executive officer of Republic, on an earnings conference call yesterday.

Republic's second-quarter earnings fell 50.3 percent to $14.1 million, or 41 cents a share, from $28.4 million, or 81 cents a share, a year ago. Revenue decreased18.2 percent to $320 million from $391.4 million.

Mokulele's quarterly loss was not disclosed.

“;I still think we're going to see Mokulele lose money for the third quarter, albeit at subsequently lower levels than what we saw in the second quarter,”; Bedford said.

Republic, which supplies the 70-seat Embraer 170 jets and crew to Mokulele as part of its business partnership with the Hawaii carrier, took a 50 percent stake in Mokulele in March after Mokulele overdrew its $8 million line of credit with Republic. That ownership stake has risen as Republic has bankrolled the operation while Mokulele has burned through available cash.

“;Our intention back in (October) when we announced the relationship with Mokulele wasn't to become the startup operators in an interisland Hawaii-based airline,”; Bedford said. “;(It) probably wasn't the best time of the economic cycle to participate in an interisland franchise startup. But we are where we are.”;

Despite Republic's initial intentions, Bedford said Mokulele continues to gain momentum in the market.

“;We're just about 50 percent load factor (half-full planes) for the month of July, up from 40 percent in the month of June or from 30 percent in the month of May,”; he said. “;So we're certainly building attraction there.”;

Mokulele CEO Scott Durgin said the airline's revenue has doubled since January and that the carrier is on track to fly a record 50,000 passengers in July. He said Mokulele also has increased its reach by establishing a partnership with Travelocity and signing a code-share agreement with Alaska Airlines.

In addition, Mokulele recently signed a ticketing and baggage agreement with United Airlines, an interline ticketing agreement with Australian carrier Qantas and partnerships with online travel sites Kayak and Expedia.

Bedford acknowledged that Mokulele does have some distribution challenges in making its fares available on multiple travel sites.

Still, he said “;it's possible our relationships with our airline partners might be able to fix that quicker.”;

Bedford said “;rationalization”; needs to return to the Hawaii market where one-way interisland fares have dropped to as low as $43, with Hawaiian dominating the market and Mokulele, go! and Island Air all nibbling at each other.

“;There can be a profitable duopoly the way it was back in the days with Hawaiian and Aloha when the market was rational,”; Bedford said. “;How we get there from here I'm not sure, but that's probably the direction that we need to go.”;