Aloha Airlines reported a $10.6 million operating loss during the third quarter as the interisland fare war took its toll on the state's No. 2 carrier.

The loss reverses a $5.7 million operating profit that the airline earned during third quarter 2005.

Aloha, which filed its third-quarter financial statement with the U.S. Department of Transportation yesterday, blamed the loss on below-cost competition from startup carrier go!

"During the third quarter, Aloha faced a new interisland competitor who priced its product below its operating cost," said David Banmiller, Aloha's chief executive officer.

"Even though we have a lower operating cost per seat than the competition, our earnings were negatively impacted as we remained price-competitive while operating one of the best on-time airlines in the nation."

Aloha sued go! and its Phoenix-based parent Mesa Air Group in October, alleging that Mesa misused confidential information in an attempt to drive Aloha out of business. Go! has denied the charge.

Go! touched off a price war when it opened for business in Hawai'i on June 9 with $39 one-way interisland tickets. The startup airline also has offered one-way fares at various times for $29 and $19. Aloha and Hawaiian have matched go!'s fares each time it has announced a discount.

The impact of the deep discounts are being reflecting in Aloha's business. According to the DOT figures, Aloha's operating revenues dropped 12.9 percent to $99.8 million from the year-earlier's $114.7 million.

Expenses, meanwhile, increased 2.8 percent to $110.4 million from third quarter 2005's $107.3 million.

The company said high fuel prices were a factor. Aloha said it spent $28.5 million on fuel during the latest quarter.

Founded in 1946, Aloha is the state's second-largest airline, with about 3,400 employees. The company emerged from bankruptcy protection in February under new ownership led by California billionaire Ron Burkle's Yucaipa Cos. LLC.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.