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The Honolulu Advertiser

Posted on: Tuesday, March 19, 2002

Taxpayers must not pay for merger collapse

With the collapse of the deal to merge Hawaiian and Aloha airlines, state policy-makers will have to quickly decide if they have a role to play as the future of interisland air transportation unfolds.

One approach, obviously, would be to step back and let the market do its work.

If the economic fortunes of the two airlines are as bleak as they were described by proponents of the merger, it won't be long before we have a single local airline serving the interisland market.

And if that airline seeks to take advantage of its market dominance by raising fares excessively or cutting service to less profitable routes, you can bet that someone else will step in and seek to fill the void.

But maybe the economic fortunes aren't quite as bleak as they were portrayed. It might turn out that a more sensible and realistic level of competition might allow both Aloha and Hawaiian to continue, each serving its particular niche.

Greg Brenneman, the Texas-based turnaround specialist who was slated to head the merged airline, said the two carriers were engaged in ruinous and pointless competition in the face of the post- Sept. 11 economic collapse. He talked about flights taking off for the Neighbor Islands at almost precisely the same time, "wingtip to wingtip," each with less than half a full passenger load.

Emergency legislation passed in the wake of Sept. 11 would allow the two airlines to rationalize their routing and flight schedules without running afoul of antitrust laws, if they so choose. That would give Hawai'i — and the airlines — time to test whether this limited form of cooperation can work to preserve both businesses and at the same time properly serve local interisland customers.

Experience may show that a more permanent version of that idea, combined with matching local legislation, may be enough to keep this longstanding competition going.

In the short term, lawmakers should be extremely wary of going for any form of direct financial subsidy for the airlines, such as loan guarantees, outright grants or even long-term waivers of landing fees.

If the interisland market is indeed too weak to support two airlines, there is little sense in pouring taxpayer dollars into that particular black hole.

Obviously, the needs of the traveling public and of businesses that depend on interisland air shipping would be better served by two healthy, competing airlines.

We were told that in today's economy, that is impossible to achieve. But apparently no more impossible than a merger that would satisfy both sides.