STAR-BULLETIN As long as fuel costs keep rising, ticket prices will need to go higher, said Mark Dunkerley, Hawaiian Air CEO.

Hawaiian airfares need to increase, CEO says

Hawaiian Airlines Chief Executive Mark Dunkerley said increased airfares and surcharges are not covering the company's expenses and that ticket prices will need to go higher as long as fuel costs keep rising.

At current fuel prices, Dunkerley said Hawaiian will spend $204 million more in 2008 on fuel than it did in 2007.

"We have to take care of our financial strength and be diligent in the way we spend money, and we've got to make sure that we are operating more efficiently in the future than our competitors," he said.

Dunkerley also said that Hawaiian and Mesa Air Group's go!, which triggered an interisland airfare war, need to become more efficient and raise fares.

Since go! entered the market in June 2006, it has offered one-way fares as low as $1.

So can go! make money in this market that is now dominated by Hawaiian.

"That's hard for me to answer," Dunkerley said, "because it sort of presupposes that's what they want to do."

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Hawaiian Airlines' top executive said increased airfares and surcharges are not covering the company's expenses and that ticket prices will need to go higher as long as fuel costs keep rising.

President and Chief Executive Mark Dunkerley, speaking at a recent Star-Bulletin editorial board meeting, said Hawaiian's fuel costs have doubled over the past year and, noting the demise of longtime rival Aloha Airlines, said it's imperative that Hawaiian take care of its financial strength.

"If everything else stayed the same and we were trying to recapture the price of fuel with more customers, we'd need load factors well over 100 percent, probably around 120 percent," Dunkerley said. "If everything else stayed the same, we'd have to have seats on the wing to get that."

With nearly all airlines around the country cutting capacity and laying off workers, Hawaiian is an anomaly in that it actually is adding to its fleet and hiring employees. But Dunkerley said that would not be the case if Aloha were still in existence.

"I think if Aloha were still in business, the market as a whole would have to be getting smaller, just like it has to get smaller on the mainland," Dunkerley said. "Exactly the mechanics of who goes first and how it actually takes place, I don't know. That's kind of a hypothetical. But I can tell you that you couldn't continue to operate the way we were in March today with the price of fuel where it is."

Dunkerley said his forecast for fuel over the next year is for $100 to $200 a barrel -- an intentionally wide range because he says "the experts have been wrong for the last two-plus years." At current fuel prices, Dunkerley said Hawaiian will spend $204 million more in 2008 on fuel than it did in 2007.

He calls Hawaiian's approach to the future "a double-barrel strategy."

"We have to take care of our financial strength and be diligent in the way we spend money, and we've got to make sure that we are operating more efficiently in the future than our competitors," he said. "We have raised fares. That is something we feel we have to do. Like everybody who consumes fuel in the economy, not just in the airline industry but across the economy, we are raising fares."

Hawaiian, with its greater financial strength, also has been able to invest significantly in its future.

In February, Hawaiian signed a definitive purchase agreement with Airbus to acquire 12 new long-range, wide-body aircraft and secure purchase rights for an additional 12 aircraft that would have a total list-price value of $4.4 billion. Then in June, Hawaiian announced it would be acquiring four Boeing 717s -- used for interisland -- in each of the last four months of this year.

Since Aloha shut down on March 31, Hawaiian has added an additional 4,500 seats -- after initially increasing that total to 6,000 -- and on May 1 began daily service to Oakland, Calif., to fill to the void left by Aloha and ATA Airlines, which shut down three days after Aloha. On April 14, Hawaiian launched its first-ever nonstop route to Asia with four-days-a-week service to Manila.

Dunkerley said Hawaiian has hired about 250 people since Aloha's shutdown, most of them from the bankrupt airline, and plans to hire another 250 within the next few months.

Throughout it all, Hawaiian's stock has remained strong even though higher fuel prices have dragged down the shares of other airlines.

Hawaiian's shares closed at $7.05 on Thursday -- the final day of trading this week -- and are up 38.2 percent for the year and 101.4 percent over the past 52 weeks. By comparison, the AMEX Airline Index, which includes the most highly capitalized companies in the airline industry, is down 57.7 percent for the year and 71.8 percent over the past 52 weeks.

Dunkerley said he's not sure there's a single tipping point where people stop flying, but acknowledged that Hawaiian and other carriers gradually will lose some passengers as the cost to fly get more expensive.

Mesa Air Group Inc.'s go! which triggered a price war when it entered the market in June 2006 and later settled with Hawaiian for $52.5 million for misusing confidential information from Hawaiian, has lost $34.7 million since its debut.

"I think the question about go's future viability at the moment is more closely linked to their parent's viability in the larger sense than it is about Hawaii per se," Dunkerley said. "But I think what we have to do, what both airlines have to do here, is find a way of being as efficient as they possibly can. And fares have to go up."

And can go! make money in this market that is now dominated by Hawaiian.

"That's hard for me to answer," Dunkerley said, "because it sort of presupposes that's what they want to do."