Airlines plan for sharp drop in bookings
By Kelly Yamanouchi
Advertiser Staff Writer
Airline officials are rushing to cut costs in anticipation of a sharp drop in travel that could further damage the aviation industry.
Many cost-cutting efforts were initiated after the Sept. 11 terrorist attacks when travelers stayed home and airlines slid into a financial crisis that forced some into bankruptcy or to teeter on the brink.
Now, with the threat of another Gulf War growing by the day, the carriers have stepped up efforts to reduce operational costs and brace for yet another economic recoil. Their plans include seeking labor concessions as well as waivers of fees paid to the state and federal government.
Several airlines, most notably United, are restructuring under bankruptcy protection and hope to survive with discount operations and downsized service. United announced it is transferring pilots who fly the larger 747s out of Hawai'i and replacing them with pilots who fly smaller aircraft.
Others, including Hawaiian Airlines, have moved to cut millions in labor expenses and contract commit-ments. If the savings do not materialize, Hawaiian has said that bankruptcy may be an option.
For travelers, there is little certainty that flights today will still be available in coming weeks or months. The possibility of major cutbacks to flights in, out and among the Islands is especially alarming; the airlines are critical to the state's tourism industry and provide essential interstate transportation for residents.
The threat of war comes just as the airlines were seeing some recovery.
Now the mood among Hawaiian and Aloha airlines employees can best be described as somber as
the hoped-for recovery fades and war clouds gather.
Last month, Hawaiian began moving forward with plans to cut $30 million from its operations, including $15 million in labor costs and $15 million in lease agreements with The Boeing Co. and other business expenses.
The airline is attempting to restructure because, even absent another war, there are no clear signs that the airline industry can recoup the losses it has sustained.
"It is much more than just a temporary financial setback," said John Adams, Hawaiian's chief executive and chairman. "The process that airlines are using to deal with the financial crisis is going to, in the end, make them more competitive ... whether they are in bankruptcy or they are receiving government-backed loans or they are restructuring outside of bankruptcy."
But the predicament for airlines is worsened by the threat of military conflict, which historically leads passengers to reduce travel. It is no different this time.
Flight reservations have slowed, and travelers facing geopolitical uncertainty are waiting until the last minute before they make their reservations, making it difficult for airlines to gauge how business will fare.
Hawaiian Airlines in recent weeks has had a double-digit drop in bookings compared with last year, said spokesman Keoni Wagner. "Year over year we are seeing fewer bookings and the ones that are coming in are coming in later and later," Wagner said.
"We have studied the various scenarios which could arise from war and our general belief is there will be a war and it will be relatively short in length and we need to be able to react," Adams said.
Labor groups have reacted coldly to Hawaiian's request for concessions in pay and benefits, arguing that Hawaiian placed its priority on ensuring shareholders get a return on their investments while workers are asked for givebacks.
Hawaiian and other airlines are also seeking relief from state landing fees and other government charges. They have told state officials that the industry's situation is so dire, a war-related drop in demand for flights could lead to a reduction in flight service to Hawai'i.
"We all know that if operating in one market becomes too costly, carriers will simply take their aircraft to a different market," said Stephanie Ackerman, president of the Airlines Committee of Hawai'i and an Aloha Airlines executive.
Some industry representatives hope Hawai'i will be seen as a safe destination for a vacation during a war. Travel agents are promoting locations "where they know the customers will feel safe. Hawai'i is a real positive," said Danny Casey, president of the Hawai'i chapter of the American Society of Travel Agents.
Meanwhile, the state is hoping to head off any steps by airlines to cut Hawai'i flights.
"The skies are Hawai'i's highways ... so you gotta look to the airlines," said Brian Yamane, committee clerk for state Rep. Joe Souki, D-8th (Waiehu, Wailuku).
One legislative proposal calls for landing fee waivers tied to increasing the number of interisland flights. Another would give selected airlines with Honolulu-based fleets a tax credit for landing fees.
Though individual carriers support the measures, the Airlines Committee of Hawai'i, representing 19 carriers, has asked for a broad landing fee waiver or tax credit for all airlines.
"Almost all the airlines are suffering major losses," said John Thatcher, executive director of the airlines committee.
Gov. Linda Lingle's administration, while saying the airlines need support, has not endorsed the landing fee waivers, the cost of which could reach tens of millions depending on their duration. That is money that the state cannot easily give up given its bleak budget picture.
A major concern remains the precarious situation of United Airlines, which filed for bankruptcy protection last December. The airline is trying to cut $2.4 billion in annual labor costs by eliminating jobs, cutting pay and trimming benefits.
The airline has notified the state of possible layoffs, although United spokesman Joe Hopkins said there are no firm plans for job cuts in Hawai'i.
Many carriers, including Hawaiian, also are part of the federal civil reserve air fleet, a network of commercial passenger and cargo planes that move people and equipment in emergencies.
Hawaiian is mobilizing for the war buildup and Thursday flew the first of its missions under its agreement with the government. The airlines undertook some 350 government missions during the Persian Gulf War a decade ago.
Flying military missions has the potential to help airlines make money, but Hawaiian spokesman Wagner said although the pay for supplying planes to the federal government is low, it could still be higher than revenues from regular flights if domestic travel plummets.
But the airline's obligations to the military also could reduce flight schedules. It is too soon to tell if such will be the case in this war.
Aloha has said it is not participating in the reserve fleet because it cannot spare its aircraft.
Hawaiian and Aloha also re-instated fuel surcharges this month because of rising costs. According to Hawaiian, fuel costs are 50 percent to 60 percent higher than the same period last year.
Reach Kelly Yamanouchi at 535-2470, or at email@example.com.