Editorial
State must oversee Hawaiian-Aloha merger
The announced merger between Hawai'i's principle interisland air carriers, Aloha and Hawaiian airlines, offers considerable hope for a state so dependent on air travel.
The efficiencies achievable through rationalization of overlapping flights and other functions promises to make the new, single airline stronger and more reliable.
And the appointment to lead the new airline of Greg Brenneman, who engineered what many observers consider a spectacular turnaround at Continental Airlines, should build confidence.
At the same time, however, there's undeniable sadness as we watch the passing, in a sense, of these two kama'aina carriers, which have been with us since before statehood — Hawaiian since 1929 and Aloha, formerly Trans-Pacific Airlines, since 1946.
We shouldn't, however, be terribly surprised by this news. Rumors of merger talks have surfaced periodically, and industry analysts have wondered for years how long the market would support two airlines.
Indeed, talks leading to this merger began this summer, before the catastrophic events of Sept. 11 dramatically ramped up their urgency. But even before then, the Japanese recession and the continuing trend toward more direct flights from the Mainland U.S. to Hawai'i's Neighbor Island were making overlapping operations uneconomical.
Brenneman says the two airlines, each roughly breaking even before Sept. 11, were hemorrhaging red ink after that date. But he predicted a $90 million savings by combining operations will make the new airline profitable.
Islanders understand that, as Brenneman put it in announcing the merger yesterday, "This state is dependent, like no other place in our country, on frequent, affordable, reliable local air service."
It is this truth that demands the most careful oversight possible by the state attorney general. Although this merger will need the imprimatur of the the U.S. Justice Department regarding antitrust issues, there are few if any interstate transportation issues. There is great urgency, however, in protecting the vital interests of those who travel and ship goods within the state.
"The merger," said Brenneman, will create a flagship carrier for Hawai'i that will not only allow the continuation of interisland service that Hawai'i depends on, but will also provide the financial muscle and staying power needed to allow us to bring more visitors to Hawai'i by growing in new markets, on the Mainland and in the Pacific."
This statement requires close examination. We're excited about the possibilities of a flagship carrier, promoting the state and its interests worldwide. What we're a bit leery of is Brenneman's focus on growth.
Corporate executives and those who invest in companies are, of course, fascinated by the concept of growth. It's how wealth is created. But Attorney Gen. Earl Anzai should pay attention to the fact that every time Hawaiian and Aloha have gotten into financial trouble, it was because they tried to grow by paying less attention to the business they know best: interisland travel.
Under today's conditions, interisland air travel is relatively static. So that rewarding growth that Brenneman speaks about will come from expanding business outside our borders.
Over the years officials from both airlines have made compelling arguments about the importance of competition. Competition holds down fares, demands quality service and offers choice to consumers. At one time, the state was even asked to subsidize an airline in the interests of maintaining competition.
Those arguments have been dealt a death blow by economic realities. Now there is just one. What forces, market or governmental, will now create the pressure to hold down fares and keep up levels of service? The airline says the mere possibility of new competitors arising will be enough to do the job.
But can we afford that bet? Inevitably, the state will have to deal with the question of whether it should impose some kind of regulation on this remaining air transportation link, treating it as a quasi public utility.
It might become necessary for the new company, Aloha Holdings Inc., to run two separate air carriers: one, a growth- and profit-oriented airline flying between Hawai'i and other destinations; and another, regulated entity whose reasonable return on investment is ensured by the state in return for reliable interisland service, including delivery of freight and passengers to points like Hana and Moloka'i that might not be profitable.
There is no reason that this merger should be a threat to Hawai'i's vital interisland air service — if we're careful.
