As workers get layoff notices, Island Air CEO blames unions

Island Air, seeking to rein in skyrocketing expenses, has begun sending out layoff notices as it tries to stem the flow of red ink since being acquired by billionaire Larry Ellison.

The state’s second-largest carrier, which last week announced it was slashing routes and cutting 20 percent of its 341 employees, lost $11.8 million in the fourth quarter as expenses jumped 71.9 percent from the year-earlier period, according to data released Monday by the U.S. Transportation Department.

It was the seventh consecutive quarterly loss since Ellison bought the struggling carrier in February 2013. The fourth-quarter decline represented more than half of Island Air’s 2014 loss of $21.8 million. The company is now in the red by $30.4 million since being purchased by Ellison, whom Forbes lists as the fifth-richest person in the world with a net worth of $54.3 billion.

Island Air CEO Dave Pflie­ger said in a letter to employees last week that the company hopes to manage some of the workforce reductions through attrition and canceling current vacancies. He blamed the cuts primarily on a lack of cooperation from the unions representing Island Air employees. The unions rejected the charge.

Pflieger didn’t specify how many employees would be let go, but the total is expected to be about 68 based on the percent of workforce that is being reduced.

Island Air’s cutbacks, which go into effect June 1, include eliminating flights to Kauai, cutting service to Lanai to twice daily from five times a day and adding a 25-minute layover on Maui to the Hono­lulu-Lanai route. Island Air also pared one daily round trip out of its weekday Hono­lulu-Maui service. Island Air now will only fly between Hono­lulu and Maui and between Maui and Lanai.

"That’s tough," Colo­rado-based aviation consultant Mike Boyd said about Island Air’s employee and service cutbacks. "I just wonder when Mr. Ellison bought the airline whether he was aware of all of the aspects he’d be facing. It’s going to be hard to keep enough revenue going with just two routes."

Pflieger declined to comment Monday. He said in an email, "Island Air is a privately held company, and it does not comment on its financials. In addition, like most companies, we also do not comment on internal company matters."

Pflieger said last week in his letter to employees that it was imperative that the airline change course.

"Unfortunately, record financial losses of more than $21 million last year alone, coupled with our inability to achieve the productivity and cost certainty we needed from our unions, demand that in the short term we pursue an alternate course of action," Pflie­ger wrote in the letter.

The Air Line Pilots Union criticized Pflie­ger’s assertion that the unions were not willing to bend on negotiations.

"We take great issue with management’s characterizations of their recent ‘negotiations’ with the labor unions," according to a two-page letter issued to pilots by Island Air’s Master Executive Council of the Air Line Pilots Association. "While we cannot speak for the other employee groups, we can assure you that the company’s ultimatum to ALPA was by no means minor. Without getting into details, we can assure you that had we accepted management’s demands, pilots would have had to endure dramatic net pay reductions and a significant erosion of our quality of life."

Despite the losses for the fourth quarter and the year, Island Air boosted revenue for both periods. The airline’s revenue rose 16.6 percent in the quarter to $7.9 million from $6.8 million in the year-earlier period when the airline lost $4.9 million. For the year, its revenue increased 29.4 percent to $34.9 million from $26.9 million.

However, operating expenses rose in the fourth quarter to $16.1 million from $9.4 million in the year-earlier quarter and rose 53.8 percent in 2014 to $53 million from $34.5 million in 2013. The airline incurred significant expenses training some of its pilots to fly the Q400, an aircraft that Island Air purchased but then decided not to have delivered. Island Air now, due to federal regulations, has to retrain the Q400 pilots to fly the company’s ATR 72 turboprops, even pilots who previously flew ATRs.

As the state’s second-largest interisland carrier, Island Air had a 7 percent market share as of August, according to the latest data from the state Department of Transportation Airports Division.

Hawaiian Airlines has a commanding 89 percent share while Moku­lele Airlines is third with 3 percent.

In 2014 Island Air flew 448,404 passengers, up 54.6 percent from 289,998, according to U.S. Department of Transportation data. During the fourth quarter the airline transported 111,544 passengers, up 33.6 percent from 86,474 over the same period a year earlier.