Airlines continue belt-tightening with few bright spots for Hawai'i

By Kelly Yamanouchi
Advertiser Staff Writer

There are few solid answers to how airlines — one of the most critical links for Hawai'i's economy and tourism industry — will fare in the year ahead.

Aloha Airlines employees agreed to 10 percent pay cuts as part of a plan to save the airline $37 million over the next three years. Advertiser library photo • March 18, 2002

Mainland airlines that fly into the state, as well as Hawai'i's two major interisland carriers, will aim to cut costs next year to ensure their long-term viability.

Among the biggest questions will be how United Airlines emerges from bankruptcy protection, the largest Chapter 11 filing in the airline industry's history. United already has said that it needs to cut further on its work force and routes; United's flight attendants union has told its members the carrier is seeking to cut labor costs by $2.4 billion annually within the next two months. What the future holds for the carrier is crucial for Hawai'i, which depends on the airline for most flights that link Islanders to the rest of the world and bring in visitors to fuel the state's biggest industry.

As the Islands' largest U.S. carrier, with about 20 percent of the market and more than 1,000 employees in the state, any cuts could shake the state's sluggish economy and $10 billion tourism sector. So far, United has not detailed how its Hawai'i market might be affected.

"We'll continue to service our customers and hopefully provide them with the best service and become the largest carrier in the state," said Mike Navares, general manager for United in Hawai'i. He said plans are on track to increase nonstop flights from Denver to Honolulu to daily flights instead of only weekend flights starting Feb. 14.

But many in tourism note that United is not the only carrier still struggling to cut costs, and note that Delta, Northwest, Continental, American and others that also serve the Islands continue to pare routes and work forces.

"It seems to me the airline industry has not been profitable for two years, and that's a problem for us," said David Carey, chief executive of hotelier Outrigger Enterprises Inc.

In a worst-case scenario, the carriers' changes could make travel difficult for residents and have the potential to cripple tourism.

"There's nothing we can do about it," said Starwood Hawai'i senior vice president Keith Vieira. "What we can do is try to market and drive demand."

Upcoming changes

Market demand will be a large factor in the year ahead for both Hawaiian and Aloha airlines, which start off the new year with major changes.

Aloha Airlines will begin 2003 with the help of a $45 million loan backed by a $40.5 million federal guarantee that will help it try to regain losses resulting from the 9/11 attacks and restructure. But the effects of Aloha's difficulties have funneled down to its employees, who agreed as part of the plan to 10 percent pay cuts to save the airline $37 million during the next three years.

Aloha Airlines president and chief executive Glenn Zander said the loan will allow the airline to continue with its plans for the future, including increased service to the Mainland and other Pacific islands.

Hawaiian Airlines will start off the year with a new leader after losing its chief operating officer, then its chief executive and president after an attempted merger with Aloha unraveled early last year. Some have high hopes that Mark Dunkerley, who starts as president and chief operating officer on Wednesday, will bring needed expertise to the airline's restructuring. Dunkerley is a former executive of British Airways and Belgian carrier Sabena.

For much of next year, the two local airlines will continue coordinating seat capacity on certain interisland flights under a federal antitrust exemption that expires next Oct. 1 and is aimed at helping both airlines cut losses from unprofitable routes.

The changes the carriers have made on some routes have prompted calls from residents as well as the governor that the cuts may have been too severe and could affect Neighbor Island economies and businesses as flights become scarce, making travel between Islands more difficult.

"What we're trying to accomplish is to make the interisland transportation system economically viable," said Hawaiian Airlines spokesman Keoni Wagner. "It will take a lot of work and adjusting ... I would expect that it will be the better part of the year until we have a clear view of how successful it's been."

Wagner said the airline will continue to work on cutting its costs. It is in the process of cutting its work force by 150 employees and cutting back on work schedules for others. "Nothing is being ruled out" in the airline's future cost-cutting, he added.

"The concern is for a continuation of what we have seen in 2002, which is continued softness in market demand and all its effects," he said.

Bright spots

Still, there are a few bright spots in Hawai'i's air market. Some carriers have taken steps to shore up service to Hawai'i. Starting March 30 next year, United and All Nippon Airways will jointly start flights between Osaka and Honolulu through a code-sharing agreement.

Gilbert Kimura, sales director for Japan Airlines in Honolulu, said he hopes to start direct flights into Maui. The airline flies direct to Honolulu and Kona.

Others are working on starting direct flights from China on China Eastern Airlines.

Tony Vericella, president of the Hawai'i Visitors & Convention Bureau, has been in discussions with the airline to start the flights as early as Chinese New Year in February. The decision depends in part on visa restrictions for Chinese nationals traveling to the United States.

Some in the industry also say lagging demand has caused United to lower some of its leisure fares for the winter season, which could be help spur travel to Hawai'i.

If travelers continue to move away from United out of fear or concern, it could prompt more fare cuts or other incentives, said Danny Casey, president of the Hawai'i chapter of the American Society of Travel Agents.

Advertiser news services contributed to this report.