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!

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.