Looking beyond Island Air’s last day: What happens next?

Looking beyond Island Air’s last day: what happens next?
Published: Nov. 10, 2017 at 9:16 AM HST|Updated: Nov. 10, 2017 at 11:08 AM HST
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HONOLULU (HawaiiNewsNow) - Hundreds of employees and thousands of customers will be affected by the shutdown of Island Air Friday, but the move will also set off new circumstances for airlines that serve Hawaii or intend to.

Makani Kai and Mokulele Airlines will pick up some business from passengers with Island Air tickets this weekend and beyond, and Hawaiian Airlines intends to accommodate as it can. In the longer term, all the current players will watch to see if the Island Air vacuum draws in a new player.

Southwest Airlines, which after years of talking about it has finally committed to launching West Coast flights to Hawaii in 2018, has also said it was "considering" the possibility of running its own interisland flights. Southwest has declined to say how serious this option was or what would cause the discount carrier to undertake such a move. Southwest executives have, however, said they were in no hurry to do it.

The prospect of a mainland carrier operating a Hawaii interisland service is not without precedent.

In the final months of Aloha Airlines, its management engaged in secret talks with United Airlines to acquire an interest in the company. Aloha wanted the use of United's spare jets. The attraction for United was having more options for getting passengers to neighbor islands. United ultimately decided it had its own problems with soaring jet fuel prices. Its decision to back out was, according to Aloha executives, what led the company's financier to cut off the money spigot, triggering Aloha's sudden and permanent shutdown.

For Hawaiian Airlines, having Island Air as its chief interisland competitor was an optimal circumstance, a small operation occupying a space that might otherwise lure a larger company with deeper pockets.

Hawaiian Airlines has been rapidly and profitably expanding for years, and now has 5,000 full-time and 1,000 part-time employees. It has been actively hiring more pilots, flight attendants and mechanics, and in the past couples has been looking for ground service workers at Kahului International Airport, where Hawaiian performs work for rival airlines under contract.

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This means the 400 people who have worked for Island Air may be able to find ready employment with Hawaiian, possibly for higher wages.

Even now, Island Air might be resurrected. Its cash flow was positive, its business lately had expanded, and it had funds for normal operations. What it didn't have was money to put lawyers in every courtroom where Wells Fargo was working to recover its three aircraft, leased to Island Air. The airline owes more than $4 million on those leases, roughly what it made in a month.

The next bankruptcy court hearing was, and at this writing still is, scheduled for Wednesday of next week. It is telling that Island Air management chose not to fly five more days until that hearing.

Who might launch interisland flights?

Mokulele Airlines and Makani Kai are not thought to have the financial resources to expand.

Mesa Air lost money on its seven-year go! venture. It's not likely to try again.

Qantas, which owns Jetstar, could use interisland flights to ferry its fliers to neighbor islands. But Australian traffic may not be robust enough to cover the start-up costs.

Local hotel owners could funnel traffic to their own airline. But its been decades since any airline or any hotel showed interest in that synergy, though United Airlines did own hotels a long time ago.

Those far-fetched possibilities yield to the one remaining option, the only one warmly discussed in public. Southwest Airlines says it has been considering running its own interisland flights.

Southwest revenue management executive Andrew Watterman used to work for Hawaiian Airlines and knows the market, and Southwest has a track record of making money on short flights on the mainland.

Hawaiian Airlines makes a quarter of its revenue on interisland flights, though that level of profitability could diminish with the presence of a more robust rival than Island Air was.

Hawaiian carries 1 million passengers a year just between Honolulu and Kahului.

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