Island Air, which was given new life a little more than two years ago when it was purchased by billionaire Larry Ellison, appears to be switching to survival mode again and cutting much of its operation.
The state’s second-largest airline is eliminating Honolulu service to Kauai beginning June 1 and reducing daily frequency by more than half on its Lanai route starting on that date, according to the new schedule posted on the airline’s website this week. Furthermore, the Honolulu-Lanai route, which is typically a half-hour in length, now will include an additional 25-minute layover on Maui.
A year ago Island Air dropped service to Molokai in search of better opportunities.
Island Air declined Tuesday to offer a reason for the most recent changes and would not say whether it would reaccommodate customers or whether there would be layoffs due to the reduction in service.
"We don’t have any updates," Island Air spokeswoman Andrea Oka said.
The company, which had 245 employees when Ellison bought the airline in February 2013, also declined to say how many employees it has now.
Island Air’s changes mean that beginning June 1 the airline will fly only a Honolulu-Maui-Lanai route. Island Air will fly just two round trips a day to Lanai — via Maui — compared with five daily round trips now. ‘Ohana by Hawaiian, the turboprop service of Hawaiian Airlines, is the only other carrier serving Lanai and does so with nonstop service. Hawaiian Airlines also will be the only airline serving Kauai beginning June 1 after Island Air drops its six daily round trips to that island.
The cutbacks to Lanai are surprising given that the former Pineapple Island is 98 percent owned by Ellison, the fifth-richest person in the world with a net worth of $54.6 billion, according to Forbes.
Ellison has been seeking to turn Lanai into a more exclusive destination by adding the Four Seasons Resorts Lanai’s first lounge at Honolulu Airport and sinking millions of dollars into the 217-room Four Seasons Resort Lanai at Manele Bay, which will close entirely in June for ongoing renovations. The island’s other main property, the 102-room Four Seasons Resort Lanai, The Lodge, is closed this year while it houses construction workers.
Hawaii Kai resident Franco Mancassola, the founder of short-lived interisland carrier Discovery Airways (1989-90), said Island Air has set itself up for failure with its indecisiveness.
"I believed from Day One when Larry Ellison bought this airline that they will end up being the taxi service to Lanai," said Mancassola, who also founded European carrier Debonair Airways and held vice presidential posts at Continental Airlines and World Airways. "The airline industry is a fast-moving industry, so if you want to establish yourself into the market, you’ve got to move fast with a well-planned expansion and good balance between seat availability and yield.
"Island Air has been bubbling around, varying the sizes of its aircraft and being very uncertain, and you can’t do this with an airline. Either you want to be an airline and provide sufficient seat availability, frequency and capacity to attract the market, or you want to be just a taxi service and just turn a daily or two daily flights. It’s my suspicion that they don’t want to be an interisland airline, but I could be wrong."
Island Air, the top alternative to Hawaiian Airlines for interisland travel, hasn’t earned a profit in any full quarter since Ellison bought it. Island Air lost $18.1 million through its first six quarters under Ellison through Sept. 30 of last year. Island Air’s fourth-quarter financial results are scheduled to be released next week by the U.S. Department of Transportation.
The struggling airline, which was down to just two aircraft shortly before Ellison bought the carrier, still has not announced a replacement aircraft for its fleet of five 64-seat ATR 72 turboprops, whose average age is more than 20 years, according to the Federal Aviation Administration website. The airline bought two Bombardier Q400 NextGen turboprop aircraft valued at $60.9 million more than a year ago but has left those planes sitting in a Tucson, Ariz., storage field. Former Silver Airways CEO Dave Pflieger, who took over for Paul Casey as chief of Island Air on Oct. 1, has continued to postpone making a decision on a replacement fleet.
"Island Air has a difficulty that mainly stems from its aircraft choice," Hawaii aviation historian Peter Forman said. "The ATR 72s are not fast and nice enough to compete with Hawaiian Airlines on the more heavily traveled routes, and they’re too big for the smaller routes like Molokai and Lanai. Former CEO Paul Casey’s plan to use the Q400 would have worked given the opportunity, but would have been an expensive transition. Basically, the company still needs to rationalize aircraft type to be successful."
Island Air, which had 7.5 percent of the interisland market according to the latest data from the state Department of Transportation Airports Division, is a distant second to Hawaiian Airlines, which has 88.4 percent. Mokulele Airlines, the No. 3 carrier, has 3.4 percent.
Ironically, when Ellison bought the airline in 2013, his representative boasted about expanding overall service.
"Make no mistake about it, the airline will be increasing service to all the islands, not just Lanai," said Paul Marinelli, vice president of Lawrence Investments LLC, who was introduced as Ellison’s representative at an airport news conference to announce the sale.
"It goes without saying that Island Air is critical to the island of Lanai, and that certainly was the impetus for beginning discussion. But as we got into it, what we realized is there’s an incredible market opportunity here for all the islands, and we fully intend to engage that opportunity."
The shrinking of Island Air will give more opportunity for Hawaiian to strengthen its grip on the market as well as provide more inroads for expanding Mokulele Airlines.
"Island Air could have been a serious No. 2 interisland airline if Paul Casey’s vision had progressed," Forman said. "This retreat will likely help Hawaiian on the more traveled routes and competitors such as Mokulele on the smaller neighbor islands."
