Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Saturday, October 14, 2006

Aloha Airlines lawsuit calls go! 'unfair'

By Rick Daysog
Advertiser Staff Writer

David Banmiller

spacer spacer

Aloha Airlines sued Mesa Air Group alleging the Phoenix-based parent of the new interisland carrier go! misused confidential information in an attempt to drive Aloha out of business.

In an 18-page complaint filed in state Circuit Court yesterday, Aloha said Mesa received proprietary information when Aloha was in bankruptcy and improperly used the information to launch go!.

The charges, which echo a lawsuit earlier this year against Mesa by Hawaiian Airlines, also alleged that Mesa is selling tickets below cost to hurt Aloha.

"Mesa came to Hawai'i under false pretenses, making false promises," said Aloha Chief Executive Officer David Banmiller. "Aloha is not opposed to competition, we're opposed to to unfair competition, and a competitor whose objective appears to be the demise of Aloha Airlines, ultimately to the detriment of Hawai'i consumers."

Mesa spokesman Paul Skellon called Aloha's lawsuit a "desperate act by a desperate carrier." Skellon said the e-mails cited by Aloha were taken out of context and that Mesa did not use information gained during Aloha's bankruptcy to help them compete against Aloha.

"I can understand the desperation when a low-cost, efficient carrier enters the market and charges air fares like $39," said Skellon. "It must be hurting them."

go! triggered a fare war when it opened for business on June 9 with $39 one-way interisland tickets. Since then, Mesa lowered one-way fares to $29 on several occasions and then dropped them to $19 in September. Each of the discounts was matched by Aloha and Hawaiian.

In its suit, Aloha said that Mesa was given access to Aloha's confidential financial information in January 2005 and January 2006 when Mesa was considering investing in Aloha after Aloha filed for Chapter 11 bankruptcy protection in December 2004.

The information was subject to a confidentiality agreement but Aloha alleged that Mesa used the data to launch go!

According to Aloha, Mesa's Chief Executive Officer Jonathan Ornstein told investors in a 2006 teleconference that he felt strongly that the company's interisland carrier would be profitable because he had the "benefit of looking at Aloha and Hawaiian during their respective bankruptcies."

The Aloha lawsuit also cited a September e-mail in which Mesa's Chief Financial Officer George Murnane stated: "We definitely don't want to wait for them (Aloha) to die; rather we should be the ones to give them the last push."

Aloha, the state's second largest airline, emerged from bankruptcy in February under new ownership led by California billionaire Ron Burkle,

Experts say the lawsuit could lead to higher interisland fares if Aloha prevails.

Aloha's suit asked for a preliminary injunction and a permanent injunction barring Mesa and go! from selling tickets below cost.

Scott Hamilton, a Washington state-based aviation industry consultant, estimated that go! would have to charge about $69 for each one-way interisland trip to break even. That's about 77 percent more than the $39 one-way fares currently charged by go! and more than three times the $19 lowest-ever fare offered by the airline.

"Unless Mesa sells seats at $69, everything is below cost," he said.

Hamilton added that Mesa faces major financial exposure if Aloha prevails in the suit.

Aloha's suit did not specify the amount of monetary damages suffered by Aloha, but it did ask that it be awarded triple the amount should it prevail.

Hamilton cited a ruling by U.S. Bankruptcy Judge Robert Faris earlier this month in Hawaiian's suit against Mesa. Faris denied Hawaiian's request for a preliminary injunction barring go! from operating interisland flights for a year, but Hawaiian is still seeking damages from Mesa. The judge also said "the evidence (in the Hawaiian case) raises real doubts about the propriety of Mesa's conduct" and that "at one time, Mesa hoped to drive Aloha out of business."

Based on that ruling, Hamilton believes that Aloha could easily claim that it suffered $100 million in damages as a result of Mesa's actions. That means that Mesa could be on the hook for as much as $300 million should a judge rule in Aloha's favor and award treble damages, he said.

"That wipes out much of the cash reserves of Mesa. ... In theory, this could put Mesa out of business," Hamilton said. "Based on what happened in the bankruptcy court ruling with Hawaiian Airlines, Ornstein should be on Banmiller's doorstep with a check asking what it would cost to make this go away."

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.