Addressing rising airfares, Aloha's closure
By Mark Dunkerley, president and CEO of Hawaiian Airlines
Each week Editorial and Opinion Editor Jeanne Mariani-Belding hosts The Hot Seat, our opinion-page blog that brings in elected leaders and people in the news and lets you ask the questions during a live online chat.
On The Hot Seat last week was Mark Dunkerley, president and CEO of Hawaiian Airlines.
Here is an excerpt from that Hot Seat session.
Jason: What's your take on the airline industry in terms of the next year or so, can we expect to see ticket prices continue to rise? Will there be more reductions in routes going to Hawai'i?
Mark Dunkerley: The key question is where will the price of fuel go? We've seen it almost double in the last year, and it's clear that industrywide, not just here in Hawai'i, fares will have to rise to cover the cost of fuel. All of this suggests that if the current trend in fuel prices continues, fares will likely continue to rise, and if that causes fewer people to travel, flight schedules will continue to be reduced.
Tina: I think it's wonderful that Hawaiian Air was able to hire many of the employees from Aloha Air. Do you think Hawai'i will ever be able to maintain three local airlines? Or is there just room for two?
Dunkerley: The key issue is not the number of airlines, but actually the number of seats in the market. When Mesa entered the market, the problem was too many seats. So, the question of how many airlines can be maintained in Hawai'i is a function of how many seats each one flies.
Prescott: Has Hawaiian Airlines learned from the mistakes of Aloha Airlines and ATA so that it doesn't end up in the same situation and disrupting the lives of a lot of folks?
Dunkerley: The airline business is a desperately competitive business and we work very hard to make sure that we walk the thin line between growing our business, which is required for long-term success, while not exposing ourselves to too much risk in the short term. I'm confident that Hawaiian's board and management team, backed by the industry's best employees, are equal to this task.
Julie A.: Why did Aloha go under so quickly? Did Hawaiian get an unfair advantage because the state stepped in to help when it was struggling, and should the same have been done for Aloha?
Dunkerley: As is the case with many failures, there were multiple reasons for why Aloha failed, some recent and some stretching back for many years. I can't speak to Hawaiian's situation 15 years ago, long before I joined Hawaiian, but it is my understanding that Hawaiian never used the loan guarantee. But I can say that the only safeguard against bankruptcy and failure is to consistently take in more revenue than you pay out in expenses. Short-term help from any source doesn't change this fundamental truth.
Luis Diego: Can you give us a breakdown of the increase in jet fuel over the past six months or any figure which could illustrate the severity of the impact of the price of oil on the operation of an airline?
Dunkerley: The increase in the price of jet fuel has been devastating. In the course of the last six months, Hawaiian's annual fuel bill, at today's prices, has increased more than $200 million. To put this in context, Hawaiian's second-largest cost are the salaries and wages of all of its employees. The increase in the cost of fuel over the last six months is greater than all of the pay and salaries of all Hawaiian's employees. You may have followed all of the cost savings that Hawaiian made last year through many measures, including some difficult decisions involving outsourcing. The sum total of all of the savings we made amounts to just 10 percent of the increase in our projected fuel costs so far in 2008.
Lisa: What's your take on the economy? Do you think it will get better anytime soon?
Dunkerley: My take on the economy is that this economic downturn is likely to be shallower but longer in duration than previous downturns. This is because the usual tool used for economic recovery, which is easing of credit, doesn't have the same effectiveness this time around since it was profligate lending that precipitated our current economic woes. All of that said, I think we should recognize that Hawai'i, led by its visitor industry, is in a better place to weather this economic storm than other communities.
Brian: Considering the hard times that all airlines are facing, where do you think Hawaiian will be in the next five years or so? Also, with all of this hiring going on to accommodate the market, do you think that layoffs (like all the other airlines) will occur?
Dunkerley: We intend to grow our business, serve more destinations and become an even bigger contributor to the economy here in Hawai'i. Layoffs happen when airlines have to shrink because there are too many seats in the market. So, the reason we have not had to lay off anyone ourselves (and so long as the economic environment doesn't worsen, we don't expect to have to lay off employees) is because the collapse of Aloha and ATA removed enough seats in our markets to make it unnecessary for us to shrink.
Trader Cal: Frankly, it is hard to see how fuel costs alone can cause an air ticket to triple in price overnight. How is this so? With all due respect, it feels like we're being gouged.
Dunkerley: If customers were being overcharged, you'd expect to see two things: massive profits, and competitors entering the market. As the entry of Mesa in the interisland market has shown, there are no barriers to other airlines coming in, and as the the bankruptcy of Aloha and ATA demonstrated, as well as the fact that most airline stock prices are down in the area of 90 percent over a couple of years, we are a long way from overcharging for airfares.
And I should correct the record by saying that Hawaiian's prices have not tripled.
Ethan: What are your thoughts on the air cargo business, specifically in the interisland, but also in the domestic and international markets? How has the collapse of ATA and Aloha affected business? Finally, what is the future of Hawaiian Airlines' air cargo going to look like come 2009-2010?
Dunkerley: Hawaiian Airlines is committed to the cargo business, both interisland and transpacific, though the rising cost of fuel and the increasing burden of regulation on the carriage of cargo continually challenges this commitment. We are extremely excited about the coming of our new fleet of A330s and the A350s, because as larger airplanes, they will allow us to carry considerably more cargo than we have been able to up to now.