Aloha CEO prepares for major challenges
| • | Hawai'i's local airlines could soar — or stumble |
| • | Aloha may seek $4 million from Hawaiian |
| • | Chart: What's next for Hawai'i's local airlines |
By Susan Hooper
Advertiser Staff Writer
As president and chief executive of Aloha Airlines, Glenn Zander faces a significant challenge in turning around a company that was headed for a controversial merger with its longtime rival, Hawaiian Airlines, and gearing up employees for an old-fashioned dogfight instead.
The merger, announced in December, fell apart last weekend. Each airline gave different reasons for the deal's demise.
But since both carriers had said they needed to merge to survive in the difficult post-Sept. 11 climate, observers from airline analysts to customers are wondering how each will succeed on its own.
Hawaiian last week announced two new routes to California cities, and the recall of 132 furloughed flight attendants, but otherwise remained silent about its plans.
On Friday, as each company prepared to regroup and move forward, Zander spoke with The Advertiser. Following are excerpts from a wide-ranging interview.
Q. What are your plans for new long-haul routes?
A. I will talk in general terms. We actually have two additional 737-700s in the fleet. We took delivery of one, I think, in February and one just in March, so they're brand-new. So we have a list of markets in which we think they can be profitably deployed. We will probably make an announcement in the next couple of weeks as to where they'll be deployed (for) additional growth in the trans-Pacific markets.
Q. What about the interisland market?
A. We have a new schedule that goes into effect on April 1 which does a couple of things. One, we had suspended flying between Maui (Kahului) and Kona and Maui (Kahului) and Hilo. We have now reinstated those markets in the April schedule. (They were cut after Sept. 11, in the Oct. 1 reduction.) It's one a day to Kona and two a day to Hilo from Maui.
Those are being restored. We are currently working on our schedule for the summer, which will go into effect in June. We're still evaluating how much capacity we'll be operating in the summer. It will be something less than last summer, but more than we're currently operating.
And beyond that I don't really have any crystal ball. What I can say, just to supplement, is the numbers in terms of passengers flying in the interisland market have been recovering. Immediately following the Sept. 11 attacks, our year-over-year numbers in terms of inter-island passengers had dropped about 25 percent. That was not true of our trans-Pacific services, which held up quite well.
For interisland service ... in March, the reduction in the number of passengers will be around 10 percent year over year. While we're not fully recovered, we're seeing much closer to a full recovery.
(Zander added that Aloha has no plans to cut any interisland routes, but does not expect to add any interisland destinations. "We already blanket the state," he said.)
Q. What will you do about interisland coupons?
A. Here's the problem. When you have one low price that prevails in the market, everyone wants to travel at peak times. So if you want to help balance your loads, to spread demand to off-peak periods, the only way to effectively do that is with peak pricing.
So what is likely to occur is you're going to see develop here a system where if you want an unrestricted document, whether paper or electronic, to travel anytime you want, then the price will be somewhat higher. But that will be offset by some off-peak pricing to spread the demand over lower periods.
...Coupons in and of themselves are not the problem. The price of the unrestricted coupon is the problem. You need to have a little more structure — i.e., an unrestricted coupon needs to cost more than it does today. And a coupon good for off-peak travel needs to cost less than it does today, so you need to have some differentiation. The people who are more price-sensitive will get a better deal if they're willing to travel at off-peak times.
It helps us because it fills up the off-peak flights. It helps them (passengers) because the prices are lower.
We're looking at how we can structure in a way that works in this interisland market. This market doesn't need sophisticated capacity management as you would find on the Mainland. ... We need something less sophisticated because of our very high frequency (of flights). ... perhaps a peak fare and an off-peak fare, maybe weekends a little more expensive than midweek.
We're looking at it; we will try to roll something out in the next month or two that makes sense.
People with flexibility will end up with a better deal. All this has to be tailored to the needs and demands of this market.
Q. Is there any way to have a rapprochement with Hawaiian?
A. I would characterize this as not having been our happiest experience, in the last couple of weeks. We're old-fashioned and we actually live up to what we sign, and we would prefer to do business only with people who (live up to what they sign).
Q. Could you ever envision getting back with Hawaiian to do another merger deal?
A. I'm trying to think how I want to answer that. I suppose in life you never say never, but I would find that to be hard to imagine.
Q. Do you expect to pursue the application under the antitrust exemption Congress granted last fall that allows you to cooperate with Hawaiian on certain aspects of your operations?
A. Where it stands at the moment is that there were several aspects to the legislation. It required, in the first instance, the governor to make a declaration. Following that, it required the carriers to make a petition to the (federal) secretary of transportation requesting the exemption, and they would then decide to grant or not grant the petition.
Assuming that they did say yes, you may talk to each other, and you may do things involving the coordination of schedules, then we would actually have to sit down and create the joint schedule and decide how we were going to proceed. ... The ability to do it expires in October.
Q. But there is the possibility of a one-year extension.
A. You'd have to go back and ask for a one-year extension. We are currently looking at and evaluating the situation, but when we look at the elapsed time necessary to get there, it looks to me to be fairly remote. ... I'm not ruling it out, but it doesn't appear to be practical.
Q. Are you considering applying for some of the $10 billion in aviation loan guarantees that Congress passed as part of its assistance to the industry after the Sept. 11 attacks?
A. Yes, we are considering that. It's our plan to apply, but we haven't decided at this stage the amount we would apply for and the various criteria that we would want to apply with it. ... There are many elements to it: You have to decide what lending institution will actually loan the money, the amount, some criteria in terms of the interest rate — all that we're taking a look at and at the appropriate time we'll initiate the application.
Q. Do you have any plans to reorganize under Chapter 11 bankruptcy protection?
A. That is an unequivocal no. We have no need to reorganize under Chapter 11. Period. Aloha has sufficient cash for its current operations on a going-forward basis. The federal loan guarantee application is really one to provide additional liquidity that is connected to our growth plans, which are quite aggressive and substantial.
Q. What will you be asking of your labor unions as you move forward without the merger?
A. I've had meetings with the union leaders. ... I laid out for them what our plans were and indicated to them that there would be no layoffs of people, no requests for concessions regarding pay or benefits, and we did talk about some things that we might do together — with the unions and the company working together to help accelerate some of our expansion plans.
That would require some temporary easing of some work rules. ... we're going to work together to figure that out. ... They're 100 percent supportive.
I've also been meeting with groups of employees — and they're really energized. I think everyone had accepted the fact that there was going to be a merger. They accepted the fact that from a business perspective it was the right answer, but deep down they really wanted to continue being employees of Aloha. They were excited, to some extent, about the growth possibilities — it depends on the group — but these people are energized.
... We're not shrinking: We're not contracting physically as a company, withdrawing from routes, cutting back or laying off staff.
Q. Do you have plans to bring back employees furloughed after the Sept. 11 attacks?
A. As the expansion goes forward, absolutely. As soon as the expansion starts — maybe in the summer — you'll see an announcement.
Q. What are your own plans regarding Aloha?
A. ... We had come to the conclusion that you needed a third party to run the merger. It couldn't have been me or (Hawaiian Airlines vice chairman) Paul Casey running it because either one of us would be seen to be biased. In both our cases, he would exit Hawaiian (after the merger), and I would exit Aloha.
Now that the merger is off, I'm back. ... As I told my employees, "I'm suited up and back on the field."
Q. What is in store for consumers now?
A. ... When I was asked about the merger at the Legislature, I said the one option not available to us was the status quo. That implies many things — it implies levels of service, frequency, levels of price.
Something has to give in this market. You're not going to have two companies continue to lose money flying people around the interisland market. So quite how the status quo will change remains to be seen, (but it has to change).
Q. If you had it to do all over again, would you have gone ahead with the merger agreement?
A. Oh, yeah. The merger agreement made abundant sense. Having TurnWorks involved, having Greg Brenneman involved as a world-class airline executive, bringing the two carriers together to create a flagship carrier that would have been able to do things that I don't think either could do individually — it makes as much sense now as it did on Dec. 19 (when the merger was announced).
But we were not prepared to sign up for the agreement that apparently they (Hawaiian) would like to have entered into.
Q. You have said Hawaiian wanted to change the terms of the merger agreement. Why do you think they wanted to do that?
A. I cannot speculate. I have no idea. I can say I wish they had brought it up on Dec. 18. We'd all be a lot better off if they'd figured it out on Dec. 18.
Q. What were Aloha's merger expenses?
A. We haven't added it all up yet. A lot depends on whether Hawaiian pays the breakup fee to which we believe we are entitled — $4 million. That's it.
There are a number of issues in the agreement that we believe would cause them to be required to pay us the breakup fee. I believe they take the opposite view.
... Attorneys are looking at this to determine whether there may be other damages.
... Let's just say that the total costs are several million dollars on both sides. What we each have paid out in fees from the beginning to the end will total several million dollars each.
Q. One analyst has suggested (Aloha and Hawaiian) will succeed by pursuing niche marketing. Can you speak to that?
A. There is a certain difference, I would say, between Hawaiian and Aloha in the long-haul markets.They tend to fly big airplanes into big cities; we tend to fly smaller aircraft into smaller cities. Presumably there are some mid-sized cities where there is some overlap, but generally that is the difference.
In the interisland market, presumably we will continue pretty much as we always have... (and) we'll continue our cargo operations.
Q. Are you planning more modernization of your fleet?
A. At the appropriate time. The 737-700s (used in the trans-Pacific market) are basically brand-new airplanes. Currently we have seven and that number will continue to grow. It will become an ever larger percentage of our fleet as we grow.
The 737-200s that we fly interisland, they have a lot of life left in them. ... We tend to look at cycles more than years; that's more important in this operation. Most of the airplanes we fly have many years left of great operation. We're not planning to replace that fleet anytime soon.
Q. I asked you whether you might file for Chapter 11 bankruptcy reorganization, but I didn't ask if you may file for Chapter 7 (bankruptcy liquidation).
A. That would be an even more definitive no.
Here's what happened. Throughout these many months since the announcement of the merger, a number of people chose to try to characterize Aloha as a business in serious trouble. And Aloha is not a business in serious trouble.
We took our lumps like every other airline in the world after Sept. 11, but they were not lethal or terminal.
Aloha's business is recovering, Aloha has plenty of cash for its operations, Aloha will continue its interisland and freight businesses and continue operations to the West Coast. And it's expanding.
It will take us a while to get the message across because of all the nasty things that were said about us. But someone saying them doesn't make them true.
Q. How do you feel?
A. Like our employees, I'm also energized. ... I've been working for months on backup plans, and now I get to implement them.
Reach Susan Hooper at 525-8064 or shooper@honoluluadvertiser.com.
