Experts see higher Isle airfares ahead
BY Rick Daysog
Advertiser Staff Writer
Mesa Air Group's bankruptcy will increase pressures on local interisland carriers to raise fares, airline experts said.
Phoenix-based Mesa, the majority owner of go! Mokulele airlines, filed for Chapter 11 reorganization in New York yesterday in an effort to downsize its Mainland jet fleet.
Mesa said the bankruptcy proceeding does not include go! Mokulele, which will continue to fly its full flight schedule.
But local aviation industry historian Peter Forman said the interisland carrier has consistently lost money since its 2006 launch.
Mesa may find it difficult to subsidize future losses while under bankruptcy protection, forcing go! Moku-lele to raise ticket prices, Forman said.
"There may be additional incentive for go! Mokulele to find profitability quickly through higher fares," said Forman, author of the 2005 book "Wings of Paradise: Hawai'i's Incomparable Airlines."
In recent months, interisland fares have been inching upward in the wake of rising fuel prices, declining capacity and the October merger between Mesa's go! airline and Mokulele Airlines.
Since the merger, which gave Mesa a 75 percent stake and Indianapolis-based Republic Airways a 25 percent share in the local airline, the lowest published one-way interisland fare has risen by $9 to $58.
Current fares are about double the $29 introductory prices of three years ago when Mesa launched go!
Bob McAdoo, airline analyst with Nashville, Tenn.-based Avondale Partners LLC, said he wouldn't be surprised if interisland fares go up another $5 in the near term.
But McAdoo said he doesn't see fares going up much more on account of competition from dominant carrier Hawaiian Airlines.
He noted that the merger between go! and Mokulele brought some rationality to the interisland market.
"Consumers would love to pay $39 and $29 fares but $39 fares are not reasonable," McAdoo said.
"When you have $39 fares somebody is going to go out of business."
Mesa said its bankruptcy filing is motivated by a glut of aircraft in its Mainland fleet.
Mesa — which listed assets of $975 million and liabilities of $869 million in its bankruptcy filing — said it owns or leases 178 aircraft, which are used to provide regional air services for partners such as United Airlines, Delta Air Lines Inc. and US Airways Group Inc.
Among creditors is Bank of Hawaii, which is owed $11 million on an aircraft lease.
Mesa said it has taken 52 of its aircraft out of service in recent years as the major legacy carriers have cut back their regional air service.
Mesa said it plans to park another 25 jets by May.
"This process will allow us to eliminate excess aircraft to better match our needs and give us the flexibility to align our business to the changing regional airline marketplace," Mesa CEO Jonathan Ornstein said in a news release.
"After careful consideration, the company determined that a Chapter 11 filing provides the most effective and efficient means to restructure with minimal impact on the business and our customers."
Scott Hamilton, a Washington state-based aviation industry consultant, believes that Mesa's bankruptcy creates challenges for go! Mokulele.
Although go! Mokulele is legally separate from Mesa, Hamilton noted that Mesa still finances the local carrier's operations given that go! Mokulele is not profitable.
In its filing, Mesa said it expects to break even for the first half of this year.
Hamilton added that Mesa has limited cash holdings for a company that generates nearly $1 billion in revenues each year.
Bankruptcy Court filings show that Mesa has $31.3 million in cash and cash equivalents as of Sept. 30, which is down from the year-earlier's $50.8 million.
"I don't see how (go! Mokulele) can avoid being impacted by the bankruptcy of the parent in some fashion," Hamilton said.