Island Air has a new buyer that hopefully will bring fresh vision and new capital infusion. Good news. It will strengthen Island Air and maintain competition in the interisland air market.
Some people say we do not need more competition in Hawaii; I disagree. Every market, small or big, needs competition. Competition is good for the consumer.
However, I have mixed feelings. The part of me that believes in competition and consumer choices hopes for Island Air to expand and prosper. But the other part believes the odds are against one of the weaker competitors and, as a result, one of them could fail.
In order to be profitable, airlines need to achieve a balance between yield and load factor, and they also must be able to contain costs that are within their control. Excess personnel may be one of them; low productivity also causes costs to go over the ceiling of the revenue. Excess personnel and low productivity are often closely associated — but merely laying off workers, if it compromises efficiency and the ability to properly serve market needs, could backfire, precluding expansion and would lead the airline down the road to nowhere.
The airline’s main tool for competing is frequency and capacity. Island Air, with its small aircraft fleet, is unable to offer either. Hawaiian Airlines has the lion’s share of the trans-Pacific traffic that is fed directly into its interisland service. Island Air is largely dependent on a small section of the point-to-point local interisland market.
As a result, Island Air is faced with the classic dilemma: Stay as it is — a no-win option — or increase capacity and frequency and offer better amenities, with the goal of stimulating traffic and capturing customers from its competitors. With a sluggish economy and costs rising, the odds are stacked against it. And reducing its workforce, unless it is excessive and unproductive, is a bad way to start.
These are the realities of today’s interisland air market, but let’s hope that air competition will be kept alive and consumers will continue to have choices.
Consumers, however, cannot be expected to pay for the airlines’ extravagances. An indiscriminate fare increase would improve the yield, but could drive consumers away, resulting eventually in a loss.
We have three competitors jostling for a piece of Hawaii’s air market that has shrunk considerably. Hawaiian Air is the dominant carrier, with huge capacity and frequency advantages that give it the ability to match any low fares that competitors would offer and still leave it enough seats to sell at a higher price. Its costs are spread among a bigger fleet, the revenue stream is not solely dependent on interisland traffic, and it offers a variety of services and amenities that smaller competitors cannot offer.
We also have Mesa Air’s Go!, which seems to be at a standstill. And we have Island Air, a small airline operating turboprop aircraft. Because its operating costs are much lower than the jet operators’, it should be able to get by if it keeps its niche and flies below the competition radar. Or, it could make a bold move, increase its fleet and offer additional frequencies and destinations. But expansion requires capital, capable staff and a bold vision.
In today’s environment, consumers are making their choices with their wallets. For a 20-minute flight, on-board service and food count for absolutely zip. Price, together with frequency and punctuality, are the absolute deciding factors. Frequent-flyer programs are also a plus. These are the realities of today’s interisland air market.
