Hawaiian, Aloha hope to stem losses together

By Susan Hooper
Advertiser Staff Writer

Interisland airline passengers likely will see fewer flights and fewer empty seats if the federal government approves a proposed agreement between Hawaiian and Aloha airlines intended to stem a history of financial losses in the Hawai'i market.

The two airlines filed an application yesterday with the federal Department of Transportation for an antitrust exemption that would allow them, for a limited time, to look at how full each other's planes are on interisland routes and determine how many flights can be cut.

The airlines plan to evenly split the remaining seats and monitor sales to make sure one airline does not end up with more profits than the other.

The airlines say such cooperation is necessary to ensure that both survive in the interisland market.

Federal antitrust laws normally would prohibit the competitors from cooperating. But, as part of an aviation security measure passed after the Sept. 11 attacks, Congress created a limited antitrust exemption that applies to airlines with intrastate operations affecting travel and commerce. Mainland flights would not be affected.

Hawaiian and Aloha worked intensely from December to mid-March on a planned merger that eventually fell apart. When the deal was announced, the two sides said they needed to merge to survive, in part because of the drastic drop in business they suffered after the September attacks.

In the application filed yesterday, the airlines say they needed to cooperate to preserve "two-carrier interisland service."

"The unprecedented challenges facing the local interisland operations of both Aloha and Hawaiian, combined with the decision not to proceed with their planned merger, have compelled the filing of this application ... " the airlines said.

"Interisland services have been unprofitable for each of Hawaiian and Aloha for a period of several years, well before the tragic events of Sept. 11, 2001. Since Sept. 11, however, traffic levels have dramatically declined and even with the carriers' implementation of unilateral capacity reductions, interisland financial losses have continued."

The application states that neither Aloha nor Hawaiian earned a net profit on interisland operations in 1999, 2000, 2001 or the first quarter of this year.

If the request is approved, the airlines could cooperate until Oct. 1, 2003.

The airlines say that their coordination of capacity will not eliminate any airports served by the carriers, which include Honolulu; Kahului, Maui; Lihu'e, Kaua'i; and Hilo and Kona on the Big Island. Aloha's sister airline, Island Air, is not part of the request.

On many flights between those airports, planes regularly fly less than full. For example, "the Honolulu-Kahului route overall operates with about one-third of the seats unoccupied," the application states.

Until now, each airline has been unable to match capacity with demand for fear of having a gap in its schedule and losing passengers to its competitor, the application says.

If the airlines are allowed to address the capacity problem cooperatively, they could realize "substantial" savings, primarily in the areas of fuel costs, landing fees and some maintenance costs, the application says.

The airlines are not asking to coordinate on interisland fares or flight schedules.

The airlines say that consumers will "substantially benefit" from a reversal of the pattern of financial losses in the interisland market and establishment of a "stable base for continued interisland service."

In addition, the application states, "Aloha and Hawaiian are willing to assure that the resulting level of service will meet consumer requirements." A periodic joint review of capacity will allow them to adjust to market demands, the airlines say.

Another safeguard for consumers rests with the Hawai'i government. Last week Gov. Ben Cayetano approved the limited cooperation agreement, but with the condition that the airlines keep state officials informed monthly of their capacity and their schedules.

If state officials determine the cooperative agreement unduly restricts air travel in the state or is in any other way not in the "best interest" of Hawai'i consumers, the governor's approval can be withdrawn.

Aloha Airlines spokesman Stu Glauberman said yesterday that only Aloha president and chief executive Glenn Zander could comment on the application and he was not available. Hawaiian Airlines spokesman Keoni Wagner said Hawaiian officials feel it would be inappropriate to comment on the application until the DOT has conducted its review.

Several officials involved with the application said they could not estimate how long it will take the Transportation Department to review the document, because it is the first of its kind. Secretary of Transportation Norman Mineta has the final say on its approval.

"I think it's fair to say we're not sure what the DOT's timetable will be on a decision," Wagner said.

Reach Susan Hooper at 525-8064 or shooper@honoluluadvertiser.com.