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The Honolulu Advertiser
Posted on: Thursday, December 21, 2006

Below-cost fares puzzle Aloha Airlines CEO

Aloha Airlines CEO David Banmiller and C. Thomas Nulty, senior vice president for marketing and sales, explain that their airline must
charge $50 per seat to break even when planes are 62 percent full

By Rick Daysog
Advertiser Staff Writer

David Banmiller

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Jonathan Ornstein

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Hawaiian Airlines, Aloha Airlines and go! are each losing money when they sell interisland tickets below $50, according to a study commissioned by Aloha Airlines.

The study conducted by Texas-based Sabre Airline Solutions shows the recent fare war has pushed prices to a level that cannot be sustained, said Aloha's Chief Executive Officer David Banmiller.

"Why would somebody come in and charge $19, and $29 and $39 when their cost was substantially higher? Why would somebody do it?" said Banmiller.

Aloha has sued go!'s parent, Phoenix-based Mesa Air Group, claiming in part that the company wants to drive Aloha out of business.

On Monday, Aloha posted a $10.6 million operating loss during its third quarter due in large part to lower interisland fares. The loss reversed a $5.7 million operating profit by the airline in the year-earlier quarter.

The Sabre study showed that when planes are 62 percent full, Aloha's costs are $50 per seat, Hawaiian's are $55 and go!'s are $67.

go! started the fare war in June, selling interisland tickets for as low as $19. Aloha and Hawaiian have matched go!'s prices.

Banmiller said while the lower fares are welcomed by consumers, they should consider the long-term effect of below-cost pricing.

ESTIMATES DISPUTED

Jonathan Ornstein, Mesa's chief executive officer, said yesterday that Aloha's cost estimates are way off when it comes to his airline. He said go!'s expenses per passenger are about $40 when the planes are 80 percent full.

Aloha said the Sabre study showed go!'s cost to be higher than Aloha and Hawaiian in part because go! uses smaller, less efficient jets.

Ornstein, reached in China where he is on a business trip, said go!'s existing aircraft 50-seat Bombardier CRJ 200 are meant as "pathfinder" aircraft and that the airline's costs will drop once it gets larger, more efficient planes.

"We appreciate their concern about our profitability," Ornstein added. But "they should focus on their profitability or lack thereof."

Hawaiian officials declined to comment.

Aloha's lawsuit against go! filed in October alleges that Mesa misused confidential information in an attempt to drive Aloha out of business. go! denied the charge.

When the planes are flying 100 percent full, Aloha's costs drop to about $26 per passenger while Hawaiian's falls to about $29 per passenger, the Sabre report said. go!'s costs are about $37 per passenger on planes flying full, according to the study.

'RUNNING VERY WELL'

Banmiller said Aloha's low costs were achieved after employees made significant concessions during the airline's recent bankruptcy.

Aloha emerged from Chapter 11 reorganization in February under new ownership led by California billionaire Ron Burkle's Yucaipa Co. According to Banmiller, Aloha eliminated about $90 million in annual costs during the bankruptcy proceedings.

"This airline is running as well as it has run in a very long time. On-time performance is up. There are very few cancellations of flights. For months, we didn't have a single passenger complaint," Banmiller said. "The airline itself is running very well."

Analysts have questioned whether the interisland market in Hawai'i can support three airlines and agree that a fare war hurts the profitability of all operators.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.