ATA Files For Bankruptcy, Shuts Down

ATA, which has in recent years downsized its scheduled service operations to focus more on its charter business, filed for bankruptcy and ended scheduled service flights today. ATA had in recent weeks announced the closing of its Chicago-based scheduled flights, mainly because high fuel prices were making them unprofitable. However, what did ATA in was the loss of a very significant military charter contract, without which, the company was unable to survive. ATA, once the 10th largest airline in the US, was a much smaller player immediately before its demise, and so its loss isn't tremendously significant to the overall market. However, given that the carrier served a number of routes to/from Hawaii, it will deliver another blow to that state, which has been reeling from the loss of Aloha. Fortunately, other carriers will likely fill in the gaps left by ATA, though passengers from Oakland may be forced to trek across the bridge and fly from SFO in order to get to Hawaii. Passengers on Hawaii routes could also wind up paying higher fares, though competition is still plentiful on these routes, and fares won't increase dramatically.

Perhaps the biggest victim of this collapse is Southwest Airlines. Southwest, which had a codeshare agreement with ATA, will be unable to immediately fill many of the gaps that the agreement brought. Southwest funneled passengers from its flights onto ATA flights to Hawaii or Mexico. Since Southwest averages lower load factors than most other US carriers, the codeshare agreement helped the company fill seats on flights that otherwise would not be full, generating critical revenue at a time when the airline was facing higher costs. Southwest is looking to start flights to Mexico with its own aircraft and ATA could have provided additional capacity and travel options for Southwest customers traveling from Mexico or other international destinations. Moreover, at these international destinations, ATA and Southwest could have shared ground crews and gates, reducing costs and making their service more competitive.

With two small LCCs collapsing in the past week, will we see more? Probably not, at least not in the near-term. That being said, there are a couple smaller carriers that are vulnerable. USA3000 may be in trouble, as that carrier is in a similar position as Aloha, facing heavy competition on its routes with low yields. While it still operates a strong charter and vacation package business, that could be threatened due to a potential decrease in consumer spending on air travel, especially leisure travel, as a result of the impending economic slowdown. Sun Country is also trying to figure out a solid business model in this climate, and that carrier may reduce some of its scheduled service operations and focus more on its charter business. However, larger LCCs are unlikely to fail anytime soon, because they have much more substantial cash positions. That being said, in this environment, successful airlines will need to be able to have more control over their capacity, and legacy carriers, with larger fleets and a higher percentage of owned versus leased aircraft than some LCCs, will be better able to make adjustments. The carriers who could be vulnerable are those that don't have many aircraft that can easily be parked (due to high lease costs), and which are facing heavy competition and low yields. Frontier is in this category, and it has the added disadvantage of having a weaker cash position than many of its larger rivals, making it more vulnerable in a time of uncertainty. While the airline is making the smart decision to diversify its operations through regional service, it may not be enough to offset increasing competition on its mainline Denver routes. Unless Frontier finds some way of redeploying its capacity, that company could face trouble, as neither Southwest nor United are going away anytime soon in Denver.

If fuel costs continue to rise, there could be other carrier fatalities, as well as increased capacity reduction in some markets. Airlines will have to pass higher fuel costs on to customers, and not everyone can pay them. Therefore, demand on many routes, especially leisure-oriented routes, could decrease, potentially delivering another blow to LCCs, which tend to have more leisure-centered networks. In the immediate future, the little cuts that most airlines will need to make will add up, though they may not attract the media attention that ATA's collapse did, and customers will begin to notice just how problematic high fuel costs are to our air transportation system.

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Aloha Airlines Bids "Aloha" After 60+ Years

Aloha Airlines will suspend its passenger operations tomorrow after 60+ years of service to Hawaii. The airline has been hemorrhaging cash, and declared bankruptcy a week or so ago. Sadly, Aloha failed to find a buyer for its passenger operations, and as a result, that part of the business will likely be liquidated. The reason for Aloha's demise has been the disgusting predatory practices of Mesa's go! carrier, a new airline set up in 2006 to compete in the Hawaiian interisland market. Mesa Air Group, a regional jet contractor that provides jets for several large legacy carriers, was a potential investor in Hawaiian Airlines when that company went bankrupt a few years ago. Hawaiian accused Mesa of using documents they were provided as potential investors to gain data about the Hawaiian interisland market that Mesa used in starting go!. Hawaiian filed an $80 million lawsuit against Mesa, which they won, but Mesa appealed soon after, creating an unresolved legal saga.

Aloha, more reliant on interisland traffic than Hawaiian Airlines (which offers more extensive mainland and international service), could simply not compete when go! undercut fares on interisland routes and forced Aloha and Hawaiian to match them. It has been estimated that Hawaiian and Aloha lost $65 million between them due to these practices, while go! has lost at least $20 million thus far. The end of Aloha will only mean higher prices for Hawaiian consumers in the long run, as well as fewer connections to key mainland airports that relied on Aloha's flights for connections to Hawaii. These airports, such as Orange County and Sacramento, will be left without connections to the islands. Aloha filled a niche that is unlikely to be filled by other carriers anytime soon, because few other carriers operate point-to-point service between the US and Hawaii, and legacy carriers that funnel Hawaii traffic through hubs could have reluctance to divert some of that traffic though secondary locations, as it would be less efficient than the current setup. Moreover, given that Hawaii flights are long with relatively low yields, in an era of high fuel costs, airlines aren't eager to add new Hawaii service these days. While it's the inevitable nature of any business, especially the airline business, to see companies die out, it's tragic when they fail because of the unsustainable, anticompetitive practices of competitors. Farewell Aloha!

How Low-Cost Carriers Should Approach the Impending Consolidation

While much of the attention surrounding the merger frenzy in the industry right now has centered on legacy carriers and their many possible combinations, low-cost carriers are also very much in the fray, and could be important instigators of consolidation. There are several reasons for this. The first is that many LCCs are seeing their costs rise after years of solid cost containment. Older aircraft, more senior employees, as well as rapidly rising fuel costs are challenging LCCs. At the same time, many of these carriers recognize that there is relatively little "fat" to trim. These carriers have minimized staffing, fuel, airport, and other costs, and unfortunately, unless they were to convert to a Skybus-style business model (which, even then, doesn't yield tremendous cost savings), can't pare their costs much more.

Second, many of these carriers are smaller than the legacy carriers they compete with (with the notable exception of Southwest). Smaller carriers often lack the economies of scale that larger carriers have, and the even larger legacy carriers that could be created after a merger frenzy will have economies of scale that LCCs will simply be unable to match.

Third, many of these LCCs recognize that their business model has limited growth opportunities. Point-to-point domestic routes simply don't cut it anymore. To attract travelers and keep expanding, airlines need to offer connectivity with smaller aircraft (such as with Frontier's Lynx operation, or Alaska's longstanding partner Horizon Air), or they need to offer additional international service (as JetBlue and Spirit are doing in the Caribbean). Legacy carriers will continue to expand the diversity of their networks, and low-cost carriers, with their obvious fleet and cost constraints, will struggle to match them.

At a time when international growth, not domestic growth, will lead to higher profits, many low-cost carriers need to seriously think about how to offer more service options to customers. Spirit and JetBlue are looking towards Central and South America, Frontier towards Canada and Mexico, and Southwest towards unnamed international destinations. But even with this expansion, it misses the big prizes of Europe and Asia, which LCCs, in their current form, will be unable to serve.

The question is, though, whether a low-cost carrier would merely get bought out by a legacy carrier, as is quite possible, given that certain legacy carriers could otherwise get left out of the consolidation frenzy (like American and US Airways), or whether two low-cost carriers would merge together. I would suggest that the latter option is less likely, but possible. Since many LCCs have distinctive cultures and brands that they want to maintain, as well as a low cost base, it would be challenging to find a pairing of low-cost carriers that fit together very nicely. While there are certain scenarios that would be possible in this regard, they are limited in scope.

One brief example: I think Aloha Airlines is good takeover bait for Southwest or even Alaska, since both Southwest and Alaska are interested in Hawaii expansion, all three carriers operate 737-700s, and both Southwest and Alaska offer considerable service to the continental US from the smaller West Coast airports that Aloha serves, such as Sacramento, Oakland, and Orange County. However, Aloha is a relatively small carrier, and the acquisition of it by Southwest or Alaska would do very little to reduce either company's costs and instead be more centered about expansion.

A buyout of a low-cost carrier by a legacy carrier, would, however, be a way to add capacity to the network of a legacy carrier, even though it could destroy the brand of the bought carrier. This scenario is imperfect as well, since legacy carriers are focused mainly on improving efficiencies and yields on international routes, not the domestic ones where LCCs chiefly fly. The acquisition of a low-cost carrier would be to a legacy carriers' minimal advantage, unless that low-cost carrier had a certain degree of market share or pricing power in a key market.

For instance, while neither of these scenarios are in any way likely, a buyout of Frontier by United would give United an even greater degree of pricing power in Denver. The same would be true with a Delta buyout of AirTran, again, an unlikely possibility. Moreover, both these scenarios raise certain regulatory issues, since the Department of Justice is active in trying to prevent significant market power by one airline in any given market. However, I would argue that certain markets are large enough such that this wouldn't be a significant issue. Moreover, the unification of both carriers could create benefits for the customers of both companies by expanding route networks and flight schedules.

But if legacy carriers are focused on international growth, why would they want to expand their domestic networks, which would be inevitable with the takeover of an LCC? The main reason is to increase market share, particularly in critical markets of strategic importance to the company, where there are large concentrations of higher-yield travelers. Is there a merger that would do these things? I know of at least one, between United and JetBlue, which is detailed in this post. This is not to suggest that other merger scenarios are unthinkable, for all low-cost carriers are quietly discussing various merger scenarios and how they want to play a role in the upcoming consolidation, but I would suggest that the most attractive merger scenario involving a low-cost carrier is between United and JetBlue.

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Alaska to Hawaii, Is It the Right Market for the Company?

Alaska Airlines recently announced its Hawaii schedule, and it looks like the airline is headed into a competitive battle. Alaska will fly Seattle to Honolulu, a route dominated by Northwest and Hawaiian Airlines, and Seattle to Lihue, a route which currently has no nonstop service, but does have convenient connecting service from Hawaiian and United. Alaska will also fly Anchorage to Honolulu seasonally, a route once flown by Northwest. I think Alaska may do well on the Lihue and Anchorage to Honolulu routes. The Anchorage route, especially, could command very high premiums, as travelers desperate for some sun want to avoid lengthy connections to the Lower 48. However, I'm concerned about Seattle to Honolulu. The market is already very crowded, with Northwest operating the route on larger 757 planes as well as Hawaiian operating the route with 767 twin-aisle planes. It will be difficult for Alaska to compete with those two carriers, who are both very aggressive in their pricing, and can be because they have the capacity that helps reduce available seat mile costs. Alaska will operate the route with 737-800 aircraft, which are efficient, but which have higher seat mile costs than the larger planes used by Alaska's competitors.

Hawaii is a tough market to make money in, because yields are very low, especially from cities on the West Coast. Specifically, Honolulu and Kahului are the toughest markets because they are the largest, and have the most low-fare competition. Smaller niche markets like Kona or Lihue attract fewer passengers, but higher yields, because there is less low-cost competition, and passengers on the mainland are typically willing to pay more for a nonstop flight to one of these smaller markets than for a flight connecting in Honolulu. Two airlines dedicated to Hawaii service, Hawaiian and Aloha Airlines, were both in financial trouble recently, and these airlines have had to streamline their operations in order to achieve profitability in part because yields are so low. United and Northwest are also major players in the Hawaii market. Alaska will have to compete with several large, established players on routes between Seattle and Hawaii, and I'm unsure whether the airline will really be able to survive on these routes.

What Alaska is counting on is connecting traffic, especially for its Seattle services. Alaska's sister carrier, Horizon Air, offers a wide array of routes which can facilitate passengers who want to connect to Hawaii flights. This presents a challenge for Alaska. On one hand, Alaska will be able to charge higher prices for its services, since connecting flights, particularly from the small markets where Horizon flies, can generate higher fares. But on the other hand, it's a risky strategy for the airline because passengers may avoid connections altogether. Alaska will not only have to attract passengers from the Seattle area, but also in many of the smaller markets it flies to, and so the route will need to be marketed well in these areas. Moreover, the connections must be convenient for passengers. Many of Alaska's smaller markets are serviced by other carriers which also offer connections to Hawaii flights (such as United or Delta), and other large markets have nonstop service to Hawaii only a two to three hour drive away. Given the high price of flying and driving, would customers rather drive three hours to a larger airport (such as Seattle, Portland, or Vancouver) to get a cheaper nonstop flight, instead of driving to their local airport to take a more expensive connecting flight? If customers were to avoid connections, it wouldn't only be about price. Connections, especially with all the hassles of air travel today, present a risk for customers. Alaska only has one flight a day on its Hawaii routes, and if a customer misses his or her connection (or his or her baggage does), then that could cost that customer hundreds or thousands of dollars, plus a day of that person's time. That's something many passengers don't want to risk with their hard-earned vacations. Alaska has been planning Hawaii flights for several years, and so they're ready to do battle with their competitors, but the airline will certainly have a tough fight ahead.

Will Allegiant's IPO Change its Business Model?

Yesterday, Allegiant Travel Company, the parent of Allegiant Air, filed the necessary documents to offer at least five million shares of stock at between $15 and $17 a share. The company plans to list on the NASDAQ under the symbol ALGT. While it's been no secret that Allegiant has planned to file an IPO, it will be interesting to see how Allegiant's IPO goes over with potential shareholders. One of the most recent airline IPOs was JetBlue, which was a tremendous success at first, but then fell like a rock and the stock still hasn't fully recovered from its losses. It's not clear how well investors will react to Allegiant's IPO, but it probably won't be as well received as JetBlue's. Investors like that Allegiant makes money, they made over $10 million on $180 million in revenue for the first nine months of this year, and that Allegiant has an innovative yet successful business model by flying mainline aircraft into small airports several times a week. But, investors may have a couple of concerns. First, Allegiant's business could suffer tremendously if there is another recession. After all, Allegiant is a leisure airline, and if people don't have discretionary income to spend on vacations, Allegiant could lose most of its business. But with the relatively stable economy, what some investors may be more concerned about is Allegiant's long term growth prospects. In the next two to three years, Allegiant should grow at a reasonable rate; Allegiant plans to more than double the number of cities it serves. Allegiant has identified about 70 additional markets that would be feasible in the next few years, and many of them are located in geographic areas that allow Allegiant to add flights to both Las Vegas and Orlando. But after that, Allegiant may have trouble growing. Allegiant will likely expand its operation in Tampa/St. Petersburg as well as their minor focus city in Palm Springs, but investors will want to see additional expansion, and this company likely won't be able to deliver unless they change their business model somewhat and stimulate revenue growth 3-5 years from now.

One way Allegiant could appease investors is by increasing ancillary revenues. Allegiant's use of ancillary revenues was talked about in a recent post and helps explain much of Allegiant's success. Allegiant could increase ancillary revenues through new partnerships such as a frequent flyer program. Most frequent flyer programs generate revenue from third-parties who buy miles from the airline and use them as an incentive for consumers to buy their product. Many companies do this with major frequent flyer programs today; hotels, car rental firms, telecom providers and many more all purchase frequent flyer miles from airlines and award them to consumers who buy their product. But a frequent flyer program brings its own challenges. For one, most Allegiant customers don't fly the airline frequently, most customers fly perhaps once or twice a year for vacations. Most airlines use frequent flyer programs as an incentive for customers to fly more often, but that couldn't happen at Allegiant due to the nature of their business model. Because of that, if Allegiant had a one-year expiration date for miles like other low-cost carriers including Southwest, JetBlue, and AirTran, it's unlikely that many customers would be able to redeem miles or credits for a free flight. That may appear beneficial for Allegiant, but most customers wouldn't bother to earn miles if they realize that they wouldn't be able to earn a free flight. Even if Allegiant had no expiration date on its miles or credits, it would be difficult to see many customers redeeming miles or credits for a free flight unless the redemption level was low, perhaps four round-trip flights for a free one. Allegiant could also increase ancillary revenues through fees for checked baggage or a paid online check-in service similar to Ryanair's, except those who pay to check-in online could receive assigned seating but that wouldn't be as popular with passengers and wouldn't generate the level of revenue many investors demand.

But if Allegiant really wants to grow in the long-term, they may need to make acquisitions of another carrier such as ATA or Aloha. Hawaii is the next logical step for Allegiant Travel to expand to, and if the airline purchased a small airline that offers Hawaiian service like ATA or Aloha, that might allow the airline to increase its reach, although Allegiant would likely have to add a new aircraft type into is fleet. If Allegiant were to acquire ATA, for example, Allegiant could use ATA's 757-300 aircraft, which it could get at a relatively low cost. The 757-300 is an unwanted aircraft like the MD-80 because so few were made that spare parts and maintenance can be expensive. But ATA has a relatively large fleet of 757-300s and those costs could be minimized if Allegiant purchased that fleet. Allegiant could start Hawaii service from current origin cities on the West Coast including Bellingham, Stockton, Fresno, and Santa Maria. And Allegiant could charge a small premium on the flights since they are from a smaller airport that's more convenient to its customers. Instead of driving to Vancouver, San Francisco, or Los Angeles, customers could fly from their hometown airport and save on travel costs to a larger airport. But an acquisition of ATA isn't likely anytime soon. ATA has found its niche, and with the help of codeshare partner Southwest Airlines, ATA is expanding service to Hawaii, not decreasing it. ATA also has other aircraft including L-1011s, 757-200s, and 737-800s that would need to be dealt with. Moreover, ATA still operates some domestic service, such as from Houston Hobby to New York LaGuardia. Also, Allegiant might have trouble filling a 757-300 for Hawaii flights, a 737-800 might work better on some routes, but it would be more expensive to operate per passenger than a 757-300. That is one of the main reasons why a takeover of Aloha wouldn't work as well, since they operate a similar aircraft, the 737-700, which is expensive to operate on a per passenger basis between the Mainland and Hawaii. Also, Aloha conducts intra-Hawaii flying which doesn't fit within Allegiant's business model whatsoever. Like most airline acquisitions, Allegiant's purchase of ATA or Aloha probably wouldn't deliver the synergies promised, but it does look good on paper. But, in two to three years if Allegiant bought only some of ATA's assets, such as their 757-300s it might allow Allegiant to expand to Hawaii without taking over ATA which would likely add considerable cost to Allegiant's bottom line.

In the interim, Allegiant will continue to grow quickly. Allegiant has just made an unannounced deal with Alaska Airlines to purchase 16 MD-83 aircraft to add to Allegiant's fleet. These new aircraft aren't too old, only 9-12 years old on average, although given Alaska's poor maintenance record, their condition is suspect. But, since Alaska is desperate to get rid of these planes in order to transition to an all-737 fleet, the price was probably too good for Allegiant to pass up. These 16 planes will nearly double Allegiant's fleet and allow Allegiant to expand to dozens more cities in the near future. That growth will probably make the stock look good for potential IPO investors, but if Allegiant doesn't adjust their business model, that growth could disappear 3-5 years down the line.

How Can Leisure Airlines Cope With Fuel?

With fuel prices so high and Americans across the country struggling just to fill up at the gas pump, how will price-sensitive leisure traffic be affected by this? Obviously not well, but even though traffic may take a dive, it won't be as significant as some may predict, since a fair amount of capacity is being removed right now by certain carriers and the net capacity being added is less than projected traffic increases. Load factors this summer will be very high, in some cases at record levels, but unfortunately that doesn't answer the revenue side of the picture.

While airlines have been able to raise fares somewhat, they haven't been able to get the increases necessary for sustained profitability, and furthermore airfares at low-fare airlines such as AirTran haven't risen as much. In fact, AirTran stock has been hammered because revenue per available seat mile was only up 12-14%, which hurt the carrier's chances at profitability. But AirTran has skilled management and very low non-fuel ASM costs so it won't be hurt as much, but airlines such as Spirit, Aloha, Hawaiian, and Allegiant may all have a tougher time. All these carriers rely primarily on leisure traffic, Spirit to the Caribbean, Aloha and Hawaiian to Hawaii, and Allegiant to Las Vegas and Orlando. All these carriers have smart management and relatively low costs, but unfortunately they serve price-sensitive markets. Traffic to destinations such as Las Vegas, Orlando, Hawaii, and elsewhere should be up, but as families plan their vacations, fuel may become too much of an issue at home, preventing vacations that are too far away. So, what can any of these carriers do to prevent traffic shortfalls?

All need to realign capacity, and that may mean cutting back capacity more than usual after this summer, depending on how fuel prices fare. But all need to further cut costs, and in fact any of these carriers could become innovators in cutting costs further. Three ways to increase revenues these carriers should consider are charging for checked baggage, airport check-in, and seat assignments. Now if you're Spirit, charging for seat assignments when your competing with JetBlue isn't so smart, but if you're flying from San Francisco to Maui, many passengers would gladly pay $5 or $10 to be in an exit row seat, or to be in another preferred seating location. Charging for check-in may be a hard sell, but if passengers can use online check-in and kiosks at the airport instead, even if they are checking bags, most passengers should have no problem with this. At the same time, most vacationers bring a fair amount of baggage. Attitudes about free baggage allowance need to change, because 50lbs of extra weight per passenger without extra compensation is simply too much for many airlines these days. Airlines will be able to charge reasonable fees for checked baggage if they clearly spell out that checked luggage is very expensive for the airline to carry, and that aircraft have plenty of overhead bins that can be used at no charge. Leisure airlines need to consider these concepts now, because if they don't , Skybus could introduce them next year, and if fuel stays where it's at, these extra charges may be necessary. These airlines can begin to educate passengers now about the costs of providing free airport check-in and checked baggage. Passengers may complain about the seats, but if most airlines follow suit, passengers may just have to put up with it. Airlines need to implement these charges after the peak summer travel season and see how they fare during the fall before the winter rush. Leisure airlines have costs low enough, but can't get the revenue, so these extra charges are essential for their survival.

Aloha Exits Bankruptcy, But Can They Survive?

As this blog noted a few weeks ago, competition on mainland U.S. to Hawaii is fierce and new ATA service is only bound to make things worse for the little guy. Airlines such as Northwest, Hawaiian, and United are selling thousands of seats on larger, more cost-effective aircraft than those of ATA and Aloha which makes their operations cheaper. However, the core of Aloha's business is inter-island service, where the airline has dozens of inter-island flights each day.

Unfortunately for Aloha, the inter-island business is very competitive, and there is considerable pricing pressure on these routes. The yields on these routes are similar to NYC-Florida, aka weak. Even though many travelers buy tickets at the last minute, which would improve yields, these routes are full of overcapacity and overcompetition. To make matters worse, the Superferry will likely come online in early 2007, and will save the vast majority of customers money over flying with the convenience of being able to bring your car. The ferry will serve Kaua'i and Maui from Honolulu in 2007, and the Big Island in 2009. Mesa is also planning their inter-island service, but with smaller and less cost-effective aircraft. FlyHawaii, the airline on paper which planned to operate service with ATR aircraft went belly-up months ago so they are out of the picture. But Aloha will have continued difficulties. Hawaii is doing quite well economically right now, with very low unemployment and high hotel occupancy rates. Yet this prosperity isn't guaranteed forever, and Aloha, which attracts a different clientele than some of the other airlines since they offer lower fares on average to Hawaii from the mainland. If there is a downturn in the economy, then Aloha may be the first to suffer since United will still be able to sell luxury business class seats to those with disposable income. Hawaiian and Northwest also have actual business classes (Aloha's "First Class" is simply domestic first, while airlines with bigger aircraft offer a better product). Aloha can survive with lower-fare passengers, but like all low-cost airlines, they will need to run an efficient operation if they want to make money.

ATA Plans to Emerge From Ch. 11-But Are Fare Wars to Hawaii the Answer?

As ATA plans to emerge from bankruptcy protection in the near future, the airline has laid out its plans for the future. What's to come? A renewed emphasis on leisure service, and a continuation of the success of its charter business. ATA announced new service last week, and is getting back to what the airline has done best for so many years, leisure service. Excluding the LaGuardia-Houston Hobby service, which was purely in the interest of the Southwest codeshare, ATA will be flying from Ontario and Oakland to Hawaii, replacing ATA's current San Francisco service, allowing travelers expanded access to the Southwest codeshare. The Ontario service will be once daily to Honolulu, while new Oakland service will be 2x daily to Honolulu, as well as 1x daily to Hilo and Maui.

In Oakland, ATA will be battling against another airline in bankruptcy protection, Aloha, which is also in the process of exiting, but not nearly as quickly as ATA. ATA will have the CASM advantage on the route, as ATA uses 737-800 aircraft, versus Aloha's 737-700s. Aloha is already fighting tooth and nail against Hawaiian in inter-island price wars where fares have been as low as $35 each way. Aloha needs the mainland routes to help feed inter-island service. Aloha may not have a place in Hawaii if it can't find its niche. ATA just exposed Aloha's niche in the San Francisco Bay Area, and perhaps in Los Angeles, though ATA decided against serving Orange County, where Aloha's Los Angeles Basin operations are located. Both airlines are restructuring, but one may get squeezed. ATA has the advantage of having an expansive Southwest network to connect to, which could drive traffic ATA's way, but at the other end, Aloha has extensive inter-island service, and can tap into a customer base in any of Hawaii's major islands.

The real problem is cost per available seat mile. There is plenty of capacity to Hawaii, but which is cheaper, jamming passengers into the back of a United 767 or jamming people into an ATA/Aloha 737, which is barely able to fly the distance anyway?  United will leave bankruptcy soon with slashed costs and is capable of filling a 767, especially with the Pleasant Hawaiian Holidays contract that formerly belonged to ATA. Aloha flies to smaller airports with lower costs and ATA will be doing the same soon, but airport costs alone aren't enough to differentiate Aloha from United, Northwest, or Hawaiian. Aloha nor ATA has the right product to command a premium, and Hawaii is a very price-sensitive market, so it's hard to command a premium anyway. Even with higher fares, United can still beat ATA/Aloha hands down in terms of amenities or frequent flyer program. Plus, United has terrific premium class service perfect for business travelers who have been loyal to United on trips to NYC and want an upgrade or for honeymooners on a week-long getaway. Hawaiian and Northwest are also attractive for travelers traveling from the West Coast. In the near future, as both ATA and Aloha emerge from Chapter 11, these two airlines must find a way to make Hawaii work. Both have done it before, but with restructured competitors, fares which are still too low, and that darn oil above $68, they will need to dig deep to find success. Otherwise, Hawaii may be left to the big guys.

Aloha Air-Into Chapter 11

Late today Aloha Airlines- the #2 Hawaiian airline, filed for chapter 11 bankruptcy protection today, as both Aloha and its counterpart Hawiian Airlines have struggled due to plumetting airfares and rising fuel costs.