EDITORIAL
Airline merger: case for regulation by state

As both Hawaiian and Aloha airlines have been reminding us for years, frequent, reliable and affordable air transportation between our islands is utterly essential.

It is the clear duty of government to ensure these lifelines continue uninterrupted. This is true at all times, but more so now, in light of the proposed merger of the two airlines.

The guiding hand of market forces is of course the preferred means of ensuring the performance of any business in the public interest, but the merger coupled with a scant chance of new competition means that officials must face up to the prospect of public-interest-averse aspects of monopoly.

It is the federal government that most visibly oversees mergers. But antitrust experts have said the merger has a good chance of winning approval at the federal level.

Moreover, Greg Brenneman, the executive leading the merger, has said the merger raises few interstate issues, the federal kuleana.

The potential dangers posed by the merger are limited to transportation within the state, and these issues must be examined by state officials with great seriousness.

Ultimately, they must look at regulation or other forms of compulsion in the public interest. True, the state has tried hard to combat its image of overregulation of business in recent years, but leaving a for-profit monopoly to regulate itself is another story entirely.

Brenneman has made no secret of his desire to cut interisland service by 10 to 12 percent as soon as the airlines merge, while seeking to double service on long-haul routes.

The interisland cuts may well be justifiable, at least temporarily, in the post-9/11 malaise. Indeed, it makes no sense to continue two flights to Maui, both departing at 8 a.m., each with eight passengers aboard. But Brenneman contemplates other changes, including frequency of flights and fare structure, which simply beg for oversight.

It is natural and proper for a stockholder-owned company, led by ambitious business people, to recognize that Neighbor Island service is a no-growth proposition in the foreseeable future. Profit growth, they believe, must come from headier but riskier competition with bigger airlines for bigger bucks in Mainland, Asia and Pacific markets. And indeed, it's possible such growth could subsidize interisland service.

However, Brenneman is discussing diversion of resources from static interisland service to long-haul enterprises. While it's clear how that can benefit the merged airline's stockholders and its economic health, it is less clear how it benefits Hawai'i's public. Greater choice of overseas destinations, such as Fresno or Sendai, is a frill compared to reliable, affordable interisland service.

The no-growth nature of Neighbor Island transportation makes it resemble nothing so much as a regulated utility, like basic electricity and telephone service. The state should consider treating interisland air service as a utility, with oversight over rates, routes and reliability, while requiring a corporate firewall between long-haul service and interisland air service, to insulate the latter from possible losses in the riskier overseas markets.

The state does not, of course, now have clear statutorial authority to so regulate an airline. But it surely has the power to compel compliance from two airlines eager to secure state approval of their merger, and surely the airlines would see it in their best interest to cooperate.

This approach must be explored with great seriousness.