Catching some (Island) Air

Even as a fourth airline prepares to go interisland, a confident Island Air is rapidly expanding its flights

ISLAND AIR'S chief executive says market observers have it all wrong when talking about Hawaii's most-active interisland carrier.

Even though the leaders of Hawaiian Airlines, Aloha Airlines and Mesa Air Group startup go! all have predicted that one carrier won't survive the intensified competition when go! starts flying interisland next month, Island Air CEO Rob Mauracher said this week that Island Air is very much alive and growing, with a different mission than its airline brethren.

"We're not looking to be in competition with them; we're offering something very different, and our business plan is very different from them," Mauracher said. "We'll continue to grow in that environment."

After losing money in 2004, Island Air, a one-time sister carrier of Aloha, has been spreading its wings since being acquired by San Francisco-based Gavarnie Holding LLC in May of that year.

It has added flights, aircraft, employees and technology, as well as unveiling a new look for its planes, introducing a television advertising campaign and offering jet charter service.

It already has brought in the first of three 78-seat Bombardier Q400 turboprops to complement its existing fleet of 11 37-seat Bombardier Q100 and Q200 aircraft -- often known by their former name, the Dash 8. By year-end, Island Air will have three Q400s -- the second one arrives next week -- and will have reduced its Dash 8 fleet to eight.

Mauracher said in contrast to the other primary interisland carriers, Island Air's distinguishing characteristic is its point-to-point service that allows a passenger to fly directly, for example, from Kona to Maui instead of having to go first through Honolulu in what some refer to as a hub-and-spoke operation. Smaller airlines, such as Pacific Wings, offer similar direct service as Island Air but use smaller aircraft.

"The whole idea is we're trying to bring awareness to something different," Mauracher said. "It's not fare-based, it's not 'we are Hawaii.' It's based on something different in the marketplace. We're offering something as an alternative that's safe, reliable and fairly priced."

In the last year, both Hawaiian and Aloha have emerged from bankruptcy with stronger financial operations while Mesa has sparked an interisland fare war with $39 one-way tickets ahead of go!'s scheduled June 9 debut.

Mauracher said Island Air actually offers one-way tickets that are 10 percent lower than that promotional fare when people book on Island Air's Web site.

"We don't advertise that because we don't believe it's really effective for us to go out there and start a fare war," he said.

"If you want to get the best fare, you're going to go to the Web site and you're going to find it."

He said the $39 fares offered by the other airlines actually amount to about $44 when adding the applicable fees and fuel surcharges and that Island Air's comparable fare when booking online is about $40.

"I don't think Mesa is going to have that much of an impact on us," said Mauracher, noting that Mesa, Hawaiian and Aloha will overlap about a quarter of Island Air's market.

But like the other airlines' CEOs, he said the interisland market may have one less carrier after the carriers beat up on each other.

"I don't know the cash position of Aloha, and Hawaiian had a tough beginning for this (last) quarter, but I think the market probably cannot sustain three major carriers flying point to point on the same route, especially with the fare levels they're putting out today," he said. "We are not concerned about Mesa's entry into the marketplace. We have certain routes that are exclusive, like Lanai, Molokai and Kapalua (in West Maui) which we only serve ourselves as a scheduled carrier."

In fact, the three-headed monster hardly has been a deterrent to Island Air and its expansion plans. Even as Hawaiian and Aloha are expanding and Mesa is making inroads in the state, Island Air is going full throttle with its own aggressive growth plans. On June 1, Island Air will be offering 103 flights a day, up from 92.

Although Island Air is privately held and doesn't release financial figures, Mauracher said the carrier's revenue more than doubled to $44 million in 2005 from $18 million the year before and is expected to exceed $55 million this year. He acknowledged that Island Air lost money in 2004, but said it returned to profitability in 2005 by earning net income of between 4 percent and 12 percent on its investment. He declined to disclose the exact figure.

Passenger traffic, which was about 300,000 in 2004, is expected to be about 800,000 this year, Mauracher said.

"Our business plan is not predicated on a 100 percent load factor," he said. "Our business plan is predicated on a 49 percent load factor, so that's half of the 37 seats or half of the 78 seats (being filled.) We're looking at a collective load factor, not a flight load factor. We have days that are 100 percent, we may run 80 percent during the summer and the rest of the year will be 40 to 50."

He said the number of employees has increased from 194 in 2004 to 416 today. Island Air now has 40 job openings, and by the end of this year will have 450 employees.

Island Air can generate additional revenue through code-share agreements with Hawaiian, Aloha, United and Continental that allow passengers booking on those airlines to continue their interisland travel on Island Air. Mauracher said he's had preliminary code-share discussions with Mesa and on May 26 plans to announce a frequent-flier program.

"Our goal is to offer all point-to-point services that are possible in this state in the next 12 months, allowing anybody to go from Lihue to Kona or Kapalua to Molokai, if you like, on a daily basis and a high-frequency basis," he said.

Mauracher said he laughs when he hears people talking about the interisland market and only mentioning Mesa, Hawaiian and Aloha.

"You don't hear much about Island Air," he said. "We try to stay under the radar, offer a different service and be different to the community."