Trial reveals Mesa plot for fares

A memo models the demise of Aloha and increased ticket prices

An aviation consultant hired by Hawaiian Airlines testified yesterday that Mesa Air Group has had plans to raise interisland airfare prices higher than they were before its carrier go! began operations in June 2006, after driving Aloha Airlines out of business.

Samuel Engel of Simat, Helliesen & Eichner Inc., Hawaiian's expert witness, said a Mesa planning document showed that it needs to "unseat Aloha" within two years and then raise fares by 5 percent above pre-entry levels in order for its operations to be economically feasible.

Mesa attorney Maxwell Blecher said that the document Engel cited was one of many internal memos modeling different scenarios that could occur -- and said other scenarios envisioned that Aloha would continue its operations indefinitely.

Blecher contends that Hawaiian, which itself was in discussions to acquire Aloha at one point when it was in bankruptcy, is trying to drive Mesa out of Hawaii as part of a plan to monopolize the market.

If Mesa were to leave, Hawaiian would likely make a deal with Aloha, Blecher said.

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A consultant to Hawaiian Airlines testified yesterday that Mesa Air Group documents anticipated driving Aloha Airlines out of business within two years and subsequently raising air fares higher than they were before the Phoenix-based carrier entered Hawaii in June 2006.

Aviation consultant Samuel Engel of Simat, Helliesen & Eichner Inc. said Mesa's documents showed that it wasn't economically rational for the company to enter the market as a third player unless it could "unseat Aloha" and then raise fares to 5 percent higher than pre-entry levels.

"It appears to me that what they had in mind was to knock out Aloha," he told the U.S. Bankruptcy Court. "Mesa's business model showed them losing money substantially until Aloha left the market. Mesa's venture was predicated on Aloha's exit."

Mark Dunkerley, Hawaiian's president and chief executive officer, said that Mesa's objective to push Aloha out of business and raise interisland fares is telling.

"Mesa's true colors have shown through today," he said. "The notion that they're out here to bring cheap interisland travel to the community is untrue."

However, Mesa attorney Maxwell Blecher said that the document to which Engel referred was one of many internal memos modeling different scenarios that could occur -- including a scenario that Aloha would continue its operations indefinitely.

"There is no basis to say our entry into the market depended on Aloha going out of business," Blecher said. "We looked at two different options. It's perfectly appropriate to look at that in November 2005 because (Aloha) hadn't come out of bankruptcy."

Hawaiian is suing Mesa for misusing information Mesa obtained as a potential investor while Hawaiian was in bankruptcy.

Hawaiian is seeking a one-year injunction to prevent go! from selling tickets in Hawaii, in addition to $173 million in damages, plus interest and attorney's fees.

Bankruptcy Judge Robert Faris ruled last week that Mesa misused Hawaiian's information when it decided to enter the Hawaii market and that the data was a substantial factor in Mesa's decision to come here. However, he didn't rule on the damages caused to Hawaiian.

The $173 million in damages Engel is projecting is based on Hawaiian's reduction in revenue during the price war that has driven interisland airfare to as low as $1, and the additional costs for extra flights Hawaiian has added to match go!'s schedule in order to retain its market share.

Engel has projected that Mesa would shut down the Hawaii operations of its interisland carrier go! by September 2009 if Hawaiian and Aloha were to remain in business.

"It's unlikely each of the players would continue to lose money year after year," he said.

He estimates that Hawaiian's actual financial damage through August is roughly $71 million, but that estimated future damages until Mesa's expected departure in 2009 would amount to approximately $102 million, resulting in a total loss of $173 million.

However, Blecher contends that the ultimate purpose of the lawsuit is to drive Mesa out of Hawaii as part of Hawaiian's plan to monopolize the market.

"He wanted to get rid of Aloha and have a monopoly," Blecher said. "Because (then) Hawaiian would charge the highest price the market would bear and there would be nobody to drive the prices down."

Dunkerley told the court that Hawaiian had discussed acquiring Aloha while it was in bankruptcy, but that both parties later agreed that it wasn't in the best interest of the companies.

Hawaiian and Aloha had plans to merge in 2001, before either filed for bankruptcy, but the negotiations fell apart the following year.