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The Honolulu Advertiser
Posted on: Wednesday, September 4, 2002

Airlines' request opposed

By Frank Cho
Advertiser Staff Writer

American Airlines and interisland carrier Pacific Wings yesterday filed protests over the request by Aloha and Hawaiian airlines to be allowed to coordinate some interisland flights, becoming the latest to raise concerns over the carriers' requested antitrust exemption.

The filings with the Department of Transportation join a strongly worded objection by the Justice Department's antitrust division that some industry analysts and airline observers said yesterday could be a significant factor in whether the carriers' request is approved.

Hawaiian and Aloha are seeking a limited exemption from antitrust laws to coordinate capacity on several interisland routes in the wake of Sept. 11. Yesterday was the deadline for public comment on the request and a decision by the Transportation Department is expected by the end of the month.

Hawaiian and Aloha airlines have said such cooperation is necessary to ensure that both survive in the interisland market, which has seen declining air travel for several years.

Yesterday, some experts said that strong opposition from Justice Department lawyers and at least one local competitor has made the Transportation Department's decision too close to call.

"Without the influence of Sen. (Dan) Inouye, we would say this would be a dead issue already," said Bill Oliver, vice president of The Boyd Group, an Evergreen, Colo., aviation consulting and research firm. "When Justice comes out opposed to an airline merger, or any other merger, it seems to have a difficult chance of approval. We would think that this would be difficult to succeed, however, you have a very influential senator in Hawai'i."

Inouye was instrumental in getting legislation through Congress that would allow Hawaiian and Aloha to apply for such an antitrust exemption.

Bill Cheek, a lawyer-turned-airline chief executive, said yesterday that the Justice Department opposition may make it difficult for Hawaiian and Aloha to get the exemption even though the poor shape of the entire airline industry is working in their favor.

"You have to really look at the economics of the two carriers. Both of them were hanging on the edge," said Cheek, who now teaches aviation business at Embry-Riddle Areonautical University in Prescott, Ariz.

Still, Cheek said that because the airlines have already received millions of dollars in federal financial assistance since Sept. 11, it should be easier for them to convince regulators that there is a financial need for the antitrust exemption.

In the filings yesterday with federal regulators, Maui's Pacific Wings airline asked federal officials to deny Aloha and Hawaiian airlines' application for an antitrust exemption, and American Airlines said it wants federal regulators to prevent the two carriers from reducing airline seats and coordinating prices on key interisland routes.

The filings came a day after the Justice Department filed its objection to the exemption, saying allowing the two carriers to coordinate capacity would do "serious harm" to consumers in Hawai'i. In its filing Friday, justice officials said that neither airline is in imminent danger of failing and that the anti-competitive effects of an exemption could last well beyond the limited life of the agreement.

Pacific Wings, which operates scheduled air service between smaller airports around the state, said in its 12-page filing yesterday that Aloha and Hawaiian fear competition and have largely themselves to blame for their poor financial condition.

"The proposed Inter-Island Cooperation Agreement submitted by Aloha and Hawaiian creates no incentives for the carriers to make fundamental business or management changes necessary to rationalize capacity and remain competitive," Pacific Wings wrote in its filing.

American Airlines asked regulators to ensure that Hawaiian and Aloha, if granted the exemption, do not reduce seat capacity on popular interisland routes or coordinate pricing on interisland routes. American has a code-share arrangement with both Aloha and Hawaiian airlines that allows the airlines to ticket passengers from the Mainland to O'ahu and then to a Neighbor Island destination on the two carriers.

"American is concerned that without appropriate safeguards to ensure that sufficient capacity is maintained on the intra-Hawai'i routes, passengers traveling on American beyond Hawai'i gateway cities may find it more difficult or perhaps impossible to obtain seats ... " according to the filing by Carl Nelson, a lawyer for the airline.

American also asked for an extension of yesterday's deadline to review the Justice Department's comments.

A spokesman for Hawaiian declined to comment on yesterday's filings. Aloha officials could not be reached for comment.

Bill Adams, a spokesman for the Transportation Department, said the agency is reviewing American's request for extra time to review the Justice Department's objections.

Reach Frank Cho at 525-8088 or fcho@honoluluadvertiser.com.