Aloha selling Island Air to San Francisco investors

By Kelly Yamanouchi
Advertiser Staff Writer

Aloha Airlines' parent, Aloha Airgroup Inc., is selling its commuter airline subsidiary Island Air.

While Aloha and Hawaiian airlines are focusing on growth in trans Pacific flights, Island Air will maintain focus on the interisland market through new planes and routes, and more employees and flights. Eugene Tanner • The Honolulu Advertiser

Aloha Airlines is selling 100 percent of the stock to Gavarnie Holding. Both are private companies.

No sales price was disclosed.

Island Air operates 46 flights a day from Honolulu to Kahului and Kapalua on Maui and to Moloka'i and Lana'i.

Island Air officials said the sale will convert the carrier into Hawai'i's third independent airline along with Hawaiian and Aloha, and the company plans to add new interisland routes for commuters.

But even after expansion, Island Air will likely make up only 10 percent to 15 percent of the market by the end of next year, according to Gavarnie Holding.

If Island Air is successful, competition from a larger Island Air as an independent carrier in the market could benefit consumers, providing a broader selection of flights and possibly lower prices.

Island Air did not disclose how much its fares will be, but said it would be "competitive" in pricing.

Gavarnie Holding's principals are investor Charles Willis of San Francisco and his son, Austin Willis, who will move to Honolulu. Aloha's stockholders include members of the families of the late Hung Wo Ching and businessman Sheridan Ing.

Neil Takekawa will remain president of Island Air while Charles Willis will serve as chairman and Austin Willis as vice president of strategic and business development.

The sale of Island Air is subject to approval of the federal Air Transportation Stabilization Board, which granted Aloha Airlines a $40.5 million loan guarantee last year. It would need to agree that the decision to sell makes financial sense for Aloha, said airline spokesman Stu Glauberman.

Aloha Airgroup President Glenn Zander said the company wanted to expand Island Air, but decided selling the airline could "position Island Air for growth in markets that can be better served by its fleet."

Aloha Airgroup did not comment on why it could not expand Island Air itself or how it plans to use revenue from the sale.

Aloha Airgroup purchased Princeville Airways in May 1987 and renamed it Aloha IslandAir.

Island Air plans to add five 37-seat Haviland DASH-8 aircraft to its fleet of four through a combination of buying and leasing.

Willis said the company is in discussions with Bombardier to secure two new aircraft by March and more in the following months.

The company's plans include hiring 120 more employees starting next year and adding new routes — Maui-Kona, Maui-Lihu'e, Maui-Hilo, Honolulu-Kona and Honolulu-Lihu'e.

By the end of 2004, officials expect to more than double the number of flights Island Air operates by adding 50 daily flights. The first new flights from Kahului to Hilo and Kona will be added March 1 and others will be added later. Those routes are now underserved, Takekawa said.

"I think all who live in Hawai'i have been hearing the hue and cry" about the lack of adequate airline seats on interisland flights, he said.

Company officials also plan to open offices in Hilo and Kona and hire more employees on Maui and O'ahu.

According to Aloha, the sale will not affect current reservations or operations. Island Air passengers will continue to receive AlohaPass frequent flier credits.

Island Air has a code-share partnership with Aloha Airlines that allows them to share frequent flier miles, and officials said they also hope to establish a code-share partnership with Hawaiian.

Hawaiian spokesman Keoni Wagner said, "If partnering with Island Air would benefit our consumers, we would be inclined to pursue it."

Charles Willis said Island Air has a different business plan than Aloha and Hawaiian, which are focusing on growth in trans-Pacific flights.

"We have no interest in going outside the Islands," Willis said.

Joseph Patoskie, an associate professor at Hawai'i Pacific University who teaches air transportation management among other courses, said a third carrier "usually provides a level of competition that can bring rates down, whereas with the two-carrier market that doesn't always happen."

Rising interisland fares likely contributed to the opportunity Gavarnie saw.

"They see a potential opportunity to fly in a market where there's some pricing opportunities to still make a profit," Patoskie said.

Island Air is not the first to compete against Aloha and Hawaiian in the interisland market.

Pacific Wings operates interisland commuter flights on small planes. Other interisland carriers have failed, including Mahalo Air in 1997, Discovery Air in 1990 and Mid Pacific Airlines in 1988.

"We think competition's good. We think the more choices Hawai'i consumers have, the better it will be for the traveling public," said Greg Kahlstorf, president of Pacific Wings.

Reach Kelly Yamanouchi at 535-2470, or kyamanouchi@honoluluadvertiser.com.