Hawaiian Airlines and Aloha Airlines are seeking state excise tax breaks that could total $12.8 million a year.

The state Senate Committee on Transportation and International Affairs yesterday advanced a bill that would exempt aviation fuel sold on O'ahu for interisland travel from state general excise and use taxes. The airlines contend Senate Bill 1034 will level the playing field between interisland carriers and carriers that fly from O'ahu to the Mainland and international destinations.

The tax break would cost $12.8 million, according to the state Department of Taxation. Airline officials yesterday estimated the cost would be $5 million to $6 million a year.

Currently, flights that purchase fuel in Honolulu International Airport's foreign trade zone aren't subject to state taxes, if they fly out of the state. Interisland carriers Aloha and Hawaiian want the same tax break. The biggest beneficiary of the tax break would be Aloha Airlines, which today said it would save $2.1 million a year.

It was unclear yesterday whether any tax savings would be passed on to consumers. Interisland airfares already are at relatively low levels following a fierce fare war ignited by last year's entry of Mesa Air Group. Mesa, which did not testify at yesterday's hearing, is the parent company of carrier go!.

"Pricing is dictated by the marketplace, and we don't have a lot of control over that," said Hawaiian Airlines spokesman Keoni Wagner.

Said Aloha spokesman Stu Glauberman: "Ticket prices are already below cost. We're seeking this exemption to help us cover our costs."

Hawai'i's airline industry already receives a general excise tax exemption for construction of aircraft maintenance facilities and for revenues derived from aircraft service and maintenance. That open-ended tax break was created in 1997 to encourage Continental Airlines to build a $24 million maintenance facility at Honolulu International Airport. At that time the tax break was estimated to cost $1.2 million.

Senate Bill 1034 now goes to the Economic Development and Taxation Committee, which has not yet scheduled a hearing on the measure.

Reach Sean Hao at shao@honoluluadvertiser.com.