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The Honolulu Advertiser
Posted on: Sunday, September 8, 2002

ONE YEAR, ONE NATION
Islands' airlines still struggling after 9/11 attacks

 •  Chart: Air capacity to Hawai'i

By Frank Cho
Advertiser Staff Writer

It's been a year since the Sept. 11 attacks, and Hawai'i's airline industry still is struggling to find profitability amid a changed travel market.

But the most significant, long-lasting changes may lie ahead as Aloha and Hawaiian airlines wait to see whether they will be allowed to operate under a federal antitrust exemption that would allow them to coordinate capacity on certain interisland routes and reduce some of their costs.

The carriers' request for the exemption — which was approved by Congress soon after last September's turmoil hit the airline industry hard — has been greeted by some criticism that Aloha and Hawaiian already control more than 90 percent of the interisland market and such a deal would hurt consumers.

Experts say that regardless of whether regulators approve the exemption, the pressure faced by the carriers is so great that interisland passengers can expect to see fewer flights and fewer empty seats on carriers in the months ahead.

"With or without the antitrust exemption, the carriers will have to rationalize their schedules one way or another. So, it is likely that consumers will see fewer flights and higher fares no matter what the Department of Transportation does," said Bill Oliver, vice president with The Boyd Group, an aviation consulting and research firm based in Evergreen, Colo.

Fewer tourists overall

Increased nonstop flights to the Neighbor Islands and fewer tourists overall have continued to dampen demand for interisland service.

"What the local carriers are experiencing now is very consistent with the rest of the industry, which is travel demand is still showing lingering effects of 9/11," said Keoni Wagner, a spokesman for Hawaiian Airlines.

Visitors arriving from U.S. cities this year are down nearly 2 percent through July compared to the same period a year ago, according to figures released last month by the state Department of Business, Economic Development and Tourism. International arrivals are down nearly 20 percent during the same period.

And the continued overall weakness in visitor arrivals is reflected in the available flights and airplane seats to Hawai'i.

For the first seven months of the year, total air capacity to the Islands is down 9.2 percent from the same time last year. Air capacity from international destinations is down 19.5 percent.

With demand soft in all markets — including interisland — both Hawaiian and Aloha have been actively pursuing new routes since their planned merger failed in March.

Hawaiian has added daily flights to Hawai'i from Seattle, Sacramento, Ontario, Calif., San Francisco, Los Angeles and Phoenix. Aloha has added three daily flights to Maui from Burbank, Calif., Phoenix, and Vancouver, British Columbia.

"Passenger traffic has been stimulated by very aggressive marketing on the part of all airlines," Wagner said.

Expansion ahead

If there is a silver lining in the outlook for both carriers, it is that expansion by both carriers to so-called "second-tier" West Coast cities will more than offset the gradual downturn in international travel to Hawai'i, said Paul Brewbaker, chief economist with Bank of Hawaii.

Brewbaker said that because of the Sept. 11 attacks, Hawai'i is viewed as a safe-haven destination — especially for the Western states — and that is where the airlines will see growth over the next couple of years.

"Hawaiian and Aloha airlines need to actually become successful regional carriers to offset the erosion in their home markets," Brewbaker said.

But the aggressiveness of that expansion also has had a downside.

"The aggressiveness translates ultimately into lower yields than the carriers had planned for. So what the industry is experiencing is a soft revenue environment," Wagner said.

Projections have international arrivals recovering in the fourth quarter and ending the year up 3 percent compared to 2001, and domestic arrivals up 3.7 percent, said Eugene Tian, chief of the tourism research branch with the state's Department of Business, Economic Development and Tourism.

"This is nothing exciting. We don't see a very bright future for the visitor industry at least until sometime next year," Tian said. "We are still suffering but domestic arrivals have remained relatively strong, especially from the U.S. West Coast."

But Wagner also noted that economists had projected passenger traffic would recover to pre-Sept. 11 levels by this summer — which didn't happen.

"One thing that I think we are seeing in the airline industry at this point in time is the recognition that the effects of 9/11 are deeper and longer-lasting than predicted," Wagner said.

A decision on the carriers' request for an antitrust exemption is expected by Oct. 1.

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