Updated at 1:41 p.m., Wednesday, December 19, 2001
Hawaiian, Aloha to merge with staff layoffs likely
Advertiser Staff
Hawai'i's two major interisland air carriers announced plans to merge today in a move that would rank it as the 10th largest in the nation and will significantly restructure and reshape the local airline industry.
A new holding company, Aloha Holdings Inc., will be created in the merger and will be headed by Greg Brenneman, the former president and chief operating officer of Continental Airlines.
Brenneman, whose investment company Turnworks will hold a 20 percent stake in the new combined company, will serve as chairman and chief executive of Aloha Holdings. The new company is expected to have annual revenue of about $1 billion.
"Both Aloha and Hawaiian have been adversely impacted by the global economic slowdown and the dramatic reduction in Hawaii visitors since the tragic events of Sept. 11," the companies said in a statement this morning. "These and other financial factors, such as the continuing trend toward more direct flights from the mainland U.S. to Hawaii's Neighbor Islands, have made it uneconomical to maintain dual interisland operations."
The companies said in the statement that the combined carrier is "committed to hold unrestricted interisland airfares for two years," and for an additional three years to link increases in those fares to inflation and other adjustments that affect airlines such as increased insurance and security rates.
The company said it also will work with the state attorney general on pricing.
"This merger is the best thing these two great airlines could do for the people and economy of Hawaii," said Brenneman. "This state is dependent, like no other place in our country, on frequent, affordable, reliable local air service.
"The merger will create a flagship carrier for Hawaii that will not only allow the continuation of interisland service that Hawaii depends on, but will also provide the financial muscle and staying power needed to allow us to bring more visitors to Hawaii by growing in new markets, on the Mainland and in the Pacific."
Layoffs likely Gov. Ben Cayetano said today that he had been briefed on the merger by attorneys for the airlines and that the state would support the deal.
"Everyone has concerns about ticket prices going up," Cayetano said. "But the reality is one airline will go under, so we would be left with one, anyway."
He said there would likely be layoffs, which normally occur during a merger to save costs, but he did not have specifics.
"I don't think there is any question that that's going to be a concern," Cayetano said about layoffs. "But that has been part of their discussions on how they would handle it."
The company did not disclose how many employees might be affected in the merger, which it said is expected to generate approximately $90 million in savings from the "consolidation of operations, elimination of excess aircraft and the coordination of flight schedules, ticket distribution and other functions."
Details were not available early today on how flights or aircraft might be affected.
The companies said in a statement that the airline will continue to operate the interisland, Mainland and Pacific routes currently served by Aloha and Hawaiian, including the operations of Aloha's sister carrier, Island Air. It also will continue to provide interisland freight and cargo service.
Aloha Airgroup's president and chief executive officer, Glenn Zander, and Hawaiian Airlines' vice chairman and chief executive officer Paul Casey plan to retire when the transaction closes.
Legal hurdles ahead The closing is subject to certain federal and state antitrust and other regulatory approvals, which are expected to be obtained in the first half of next year.
Experts said yesterday that federal Department of Justice officials likely would reject a merger if they found it would reduce competition unacceptably. But a merger might be allowed if it was determined that one or both of the companies would fail without it and the service they provided was essential to the market.
Since the Sept. 11 terrorist attacks, both Hawaiian and Aloha have struggled. Both carriers have each cut 20 percent of their routes and have laid off hundreds of workers. They also have received emergency federal funding designed to help the ailing airline industry cope with the downturn in travel.
In November, the two carriers also received a federal antitrust exemption that allows them to collaborate on schedules and prices and share revenues to cope with the tourism downturn.
Aloha reported a $1.25 million loss at the end of the third quarter Sept. 30. Hawaiian reported a $29 million profit.
While Hawaiian is a publicly held company, Aloha and its sister company, Island Air, are privately owned. Stockholders include members of the families of the late Hung Wo Ching and Sheridan Ing.
Higher ticket prices possible Analysts and others said yesterday that if only one airline emerges to operate all interisland flights, consumers are unlikely to benefit.
"It's going to be exceedingly bad news for the Neighbor Islands," said Bob Hall, a former Hawaiian Airlines pilot, former president and founder of Hawaii Air Cargo Shippers Association Inc. and former president and owner of Island Airlines Hawaii Inc.
Richard Dole, chief executive officer of Dole Capital LLC, agreed.
"For investors it would be positive because there would be one carrier, and no competition in rates, and they would be able to raise rates to what the market would bear," allowing the airlines to improve their profit margins, Dole said.
Both carriers also have struggled in the past five years, as nonstop flights from the Mainland to the Neighbor Islands have nearly tripled, making an already shallow interisland market even weaker.
Hawai'i's local airlines have sought bluer financial skies on the Mainland, with Hawaiian Airlines expanding its flights there and Aloha launching its first Mainland service. Meanwhile, Aloha has cut some interisland flights, and Hawaiian has brought in a new fleet of interisland planes that are smaller than the ones being replaced.
Fewer Japanese visitors, once liberal with Neighbor Island day trips, and an increase in the number of people who visit only one island, have left an interisland market that the airlines say shows only meager growth in its best years.
Analysts have said that as nonstop Neighbor Island flights continue to increase, and Japanese and Mainland travelers grapple with anticipated economic turmoil, demand could shrink even further in the interisland market, pushing the airlines toward fewer flights or smaller planes, and, analysts say, inevitably higher fares.
