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The Honolulu Advertiser

Posted on: Sunday, March 10, 2002

Airlines still struggling to regain business

 •  Chart: Hawai'i airlines operations

By Susan Hooper
Advertiser Staff Writer

The Sept. 11 attacks wreaked havoc with the country's airline industry, leading to a record $7 billion loss last year.

Aloha and Hawaiian airlines say they are pressing ahead on coordinating flights under a special anti-trust exemption. The carriers still haven't recovered from a dropoff in interisland passengers.

Bruce Asato • The Honolulu Advertiser

Most of the major airlines flying to Hawai'i say they are still suffering the effects of the attacks, in the form of empty seats, sharp discounts to attract customers and lost profits. Analysts say 2002 is likely to be another money-losing year for airlines, with any financial recovery not expected until 2003 at the earliest.

But in spite of the gloomy outlook for their industry as a whole, a number of carriers have not only restored Hawai'i flights cut after the attacks, but also are adding flights to the Islands. And several say Hawai'i is among their strongest destinations.

"After Sept. 11, Air Canada, like most carriers, cut service by about 20 percent because traffic really fell off," said Dick Griffith, a spokesman for the airline. "In our case, it was not across the board but very selective, where the markets were primarily business travel or weak to start with. But Hawai'i has always ben one of Air Canada's best-performing routes ... , and the advance bookings looked very, very good and didn't show any signs of tailing off.

"So we maintained the service we had prior to Sept. 11 and then on Oct. 28 we increased our service. We traditionally have increased service in the winter, but this year we substantially increased our service."

Neighbor Island routes

Many of the new flights to Hawai'i are nonstop routes from the West Coast to the Neighbor Islands, a response to growing demand by travelers for flights that bypass Honolulu. Just under 40 percent of Hawai'i's visitors in 2001 came from the U.S. West, according to the state Department of Business, Economic Development & Tourism. This market was the first to recover from the drop in service after the attacks, industry observers say, and it continues to fuel Hawai'i's tourism recovery.

"What we have seen generally is a gradual rebuilding of demand, and in particular in the trans-Pacific market — the business between the West Coast and here," said Keoni Wagner, a spokesman for Hawaiian Airlines.

Hawaiian cut a Los Angeles-Maui flight after the attacks, but plans to restore it in June, Wagner said. It also will be expanding its West Coast service with a new flight between Seattle and Maui beginning March 15, and a San Francisco-Maui flight beginning in June.

United and American Airlines also are adding new West Coast-Neighbor Island flights to their Hawai'i schedules in the next few months.

But even with West Coast service picking up, airlines that operate in other Hawai'i markets are coping with continued weakness in those areas. The interisland market remains problematic for Hawaiian and Aloha airlines, and the majority of the interisland flights cut after the attacks have not been restored.

Competition from direct West Coast flights is one reason for weakness in the interisland market. Other reasons more directly related to the attacks include Hawai'i's uncertain economy, which has caused residents to cut down on travel; the drop in Japanese visitors, many of whom prefer to travel to the Neighbor Islands from O'ahu rather than fly direct; and the dramatically increased amount of time passengers spend waiting for security checks for their short interisland hops.

"It's awfully hard to quantify, but yes, we hear from some people who say that," said Wagner of the security lines. "They say, 'I'm not flying (interisland) as much as I used to. It takes so much time. I'm finding different ways to conduct my business.' "

Of Hawaiian's interisland business in general, Wagner said, "There's been some improvement, but the market in general is still behind year-ago levels."

Japan flights losing money

Just under 25 percent of Hawai'i's visitors came from Japan in 2001, according to state statistics. Japan has been slower than the West Coast market to recover from the attacks, but executives with airlines that serve Japan say the picture has begun to change recently.

United Airlines' recent flights from Japan to Hawai'i have been running about 90 percent full, according to Tom Renville, managing director, United Airlines-Hawai'i. But discounted fares are hurting the airline's profitability in that market.

"It's great except that we don't charge enough money for people to fly," Renville said of the volume of passengers on the planes. "I haven't gotten profitability reports (for January and February), but my guess is we're still losing money in that market. I think most airlines are so intent on getting people back into the air and maintaining market share that it's a great time for consumers. But we're still struggling along."

Gilbert Kimura, Hawai'i regional sales manager with Japan Airlines, said the carrier's Japan-Hawai'i passenger volumes dropped more than 50 percent after the attacks. But once-wary travelers are returning to the skies, he said, and Japan Airlines' flights are about 70 percent full now. Before the attacks, flights were between 70 and 80 percent full, he said.

Japan Airlines cut 26 of its 54 weekly flights between Japan and Hawai'i after the attacks, but expects to have all of its Hawai'i service restored by May 1, Kimura said.

"The head office feels there is a lot of business coming back to Hawai'i," said Kimura, whose airline has 38 percent of the international business to Hawai'i, according to the Hawai'i Visitors and Convention Bureau.

Kimura acknowledged discounts on tickets have helped restore the airline's Hawai'i business, but he sees that as a good strategy.

"Number One is to bring back the passengers," he said. "Word of mouth is so important. People come to Hawai'i, they enjoy themselves, they go back and say everything's OK. And that will bring more people back.

"In a sense, it's an investment," he said of the discounts.

All Nippon adding flights

All Nippon Airways is also betting on improvement in its Japan-Hawai'i business. The airline will be adding three weekly flights to its Hawai'i schedule of 11 weekly flights when a second runway opens at Tokyo's Narita airport in April, according to Thomas Fredo, the airline's director of public relations-North America. All Nippon announced the new flights in August, he said.

"It's in the process of recovering," Fredo said of the airline's Japan-Hawai'i business. "It's not where it was a year ago, but it's also not where it was in October."

Even as they speak of returning to normal, however, airline officials point out that the airline industry has undergone fundamental changes since the attacks, and is largely operating in completely new territory with respect to everything from security issues to consumer patterns.

Renville, of United Airlines, said the airline's Hawai'i division had a busy February, with passenger volumes close to where they were a year ago. But he said he has noticed a key difference in domestic customer behavior that affects bookings for United, which has nearly 30 percent of Hawai'i's domestic market.

"People are very much waiting to the end to book (flights)," he said. "They're making sure everything is OK with their job and the economy, and to see what kind of good deals are out there. ... Flights fill up, but not as soon as they used to."

The return of passengers to the air bodes well for Hawai'i's tourism industry, but airline analysts caution that putting more passengers in seats is only half of the story for them.

"Even if we fill the planes, the yields are so low that it's hard to come out with a small margin of profit at the end," Renville said. "Nobody's making any money."