Island Air is in expansion mode.
The 32-year-old carrier plans to bring in a new type of turboprop aircraft, add more seats and hire additional employees over the next two years.
But owner Charlie Willis said that doesn’t mean Island Air is looking to start a fight in the interisland market.
"We are not in the market to be confrontational," Willis said by phone from Dallas last week. "We have never confronted Aloha, Hawaiian or go!. We’ve always been very complementary to the jet operators, and I think you’ll see us continue with that approach."
In an interisland market that has seen airlines like Aloha, Discovery, Mid-Pacific and Mahalo all go out of business, Willis has learned to pick his spots.
Island Air averages 48 flights a day primarily to smaller airports, including Molokai, Lanai and Kapalua in West Maui. Over the next year, the carrier plans to increase its workforce to about 350 employees from 270 now. By the end of 2013, it will have replaced its current fleet of five aircraft with six larger planes from the French-Italian turboprop maker ATR. The new aircraft will increase the total seats available on Island Air to as many as 408 from 181 now.
"It’s not massive growth," Willis said. "It’s more fleet renewal with just a little bit of growth. We’d like to have a little more capacity and a few more airplanes."
Willis’ family-owned company, Gavarnie Holding LLC, based in Novato, Calif., bought Island Air from Aloha Airgroup in 2004. He said it’s been an uphill battle since then, especially when Mesa Air Group’s go! entered the market in June 2006 and sparked a fare war, cutting interisland tickets to as low as $1 one way and typically pricing them from $19 to $39.
"We’ve climbed back but it’s been unbelievably difficult," he said. "We’ve still got a great team at Island Air, and we’ve persevered and things have gone very well. Hopefully, things go well in the future. We just want a peaceful coexistence, and no one needs to kick anybody out of business."
Willis said Island Air was "marginally profitable" last year and has shown small profits for three or four of the seven full years he has owned the company.
"This is not a business that you get rich in," Willis said. "It is a business where you can lose a fair amount of money. I think go! and Aloha are good reflections of that. Let’s put it this way: We’ve lost more money than we’ve made."
Willis said Island Air needs the support of the state government to prosper.
"I hope the governor realizes how important it is to support small local carriers like Island Air," he said. "In the past, Island Air has had almost no support from the government with (Linda) Lingle as governor."
Willis said that during the height of the fare war between go!, Hawaiian and Aloha airlines, he unsuccessfully asked the Lingle administration for relief on the excise tax on aviation fuel and for financial assistance to help Island Air continue to serve smaller communities. He said he was losing millions of dollars and had to reduce the company’s aircraft to four from 10, lay off half of Island Air’s employees and pull out of 50 percent of the routes the company used to serve.
However, the Lingle administration wasn’t legally able to provide that assistance, according to Barry Fukunaga, Lingle’s former chief of staff and a former director of the state Department of Transportation.
"Island Air and Mr. Willis sought financial relief over and above that which is provided to operators in their category — a request that the state could not legally provide to either Island Air or any other single operator," Fukunaga said.
Nevertheless, Willis said Island Air needs whatever help the state can provide.
State airline fees assessed for landing and airport use such as counter space have almost doubled this year from last year, Willis said.
"These are fees that are in the millions of dollars," Willis said. "It’s just not us but it affects everybody. We try not to pass the fees on to the customer, but it’s almost impossible not to. Everybody likes low fares, but at the same time, not everybody realizes the state is doubling our fees and fuel has gone up about 30 percent over the last two quarters. The state should recognize that we’ve been here for 30 years. Island Air has not received the support it needs from the state in order to flourish and serve its citizens better."
Willis, who has not met with Gov. Neil Abercrombie, said the current administration needs to take steps to ensure that Hawaii can have a healthy aviation industry.
"We hope that Abercrombie will recognize the benefit and support Island Air has given to the local communities over the last 30 years and make state fees more reasonable for smaller carriers," said Willis, adding that he would welcome a meeting with the governor.
Abercrombie spokeswoman Donalyn Dela Cruz said the governor is willing to meet with Willis. She added it’s too soon to say what can be done to help until the administration looks into what its limitations are regarding what it can do.
House Bill 2800 could provide some relief. The bill would prohibit the state Department of Transportation from assessing landing fees for flights landing at Molokai, Lanai, Kapalua, Hana Airport, Kalaupapa Airport and Waimea-Kohala Airport. A report by a Senate committee said "these airports typically service smaller aircraft that are in grave financial straits due to the state of the economy" and that the bill’s intent is for the savings in landing fees to be passed on to customers who reside in rural Hawaii and are suffering economically.
Willis said he’s also hoping that the Abercrombie administration can encourage Hawaiian to give Island Air some breathing room on some of the routes between neighbor islands. Hawaiian recently announced expanded service between neighbor islands.
"It’s important that they impress upon the larger carrier, Hawaiian Airlines, the need to allow smaller carriers like ourselves to prosper instead of being held in check all the time" by Hawaiian moving into smaller markets served by Island Air, Willis said. "If you have 85 percent of the market, you can do whatever you want, and Hawaiian basically has its way in the marketplace."
Island Air plans to phase in its new ATR aircraft, which will replace four 37-seat Bombardier de Havilland Dash 8 aircraft currently in Island Air’s fleet, along with the one 33-seat Saab 340B plane that Island Air is leasing this year. Willis said the Dash 8s are expensive and hard to acquire, while the 68-seat ATRs are more fuel-efficient and carry more passengers than do the Dash 8s.
Island Air CEO Lesley Kaneshiro said the additional aircraft will allow the carrier to return service to Hilo that was previously dropped.
"We see the opportunity for growth in destinations we may have reduced service to in the past," she said. "We’ll be looking to reinstate this as we grow the company."
Besides returning to Hilo, she said, Island Air will add frequency to some other routes where service was reduced several years ago.
Peter Forman, a Hawaii aviation historian, said Island Air’s costs are significantly lower than go!’s or Hawaiian’s and that it can take advantage of those lower costs to offer slightly lower fares and be an alternative for the most cost-conscious travelers.
"Most travelers prefer to fly on jets if given the choice, and for this reason a turboprop operator such as Island Air needs to differentiate its product," Forman said. "Turboprops have much lower operating costs than jets, allowing profits at lower ticket prices. They can fly into airports with short runways such as West Maui, and they’re typically smaller in size, so they can profitably serve the less populated islands. What a turboprop operator needs to avoid is an all-out fare war with the jet operators, such as the battles that eventually claimed Mid-Pacific and Mahalo airlines — both turboprop operators."
Willis vowed to avoid a fare war similar to the one go! initiated in 2006, which dramatically lowered the fares in the Hawaii market to unsustainable levels for several years.
"I don’t believe in getting into fare wars and won’t do that," he said.
