Island Air has announced a significant reduction in service — cutting routes, postponing the expansion of its fleet, reducing personnel and implementing other drastic measures.
The airline has endured its seventh consecutive quarterly loss, and, on the surface, these losses could be quite alarming.
Having worked in the airline industry all my business life and understanding how accounting is done, I wonder what the losses really are.
In the words of Paul Casey, its former CEO, Island Air could be viewed almost as a start-up because the airline needed to be rebuilt almost from zero. But even as a start-up, it needs to move rapidly, reach a "critical mass" of aircraft fleet, route development, workforce buildup and other necessary structures before it can be financially profitable.
The airline business is a dynamic one, and so far, Island Air has been slow off the mark. Lots of capital is spent if management doesn’t implement a rapid but well-planned expansion.
It’s been two years since Island Air was acquired by billionaire Larry Ellison, but the airline seems to be just plodding along, seemingly lacking vision, a sense of direction and with a timid approach to the market. The airline industry is a fast-moving industry and it needs a fast-thinking management; otherwise, an airline risks becoming a nonstarter.
In order to be profitable, airlines need to achieve a balance between yield and load factor. 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 revenue ceiling. Excess personnel and low productivity are often closely associated. But by laying off workers, if it compromises efficiency and the ability to properly serve the needs of the market, that could backfire, precluding expansion and leading the airline down a road to nowhere.
Running an airline requires dedication, discipline, a clear understanding of the market and attention to consumers’ needs. The right mix of frequencies and capacity is the key to success. Most of all, it requires capital. No business can ever shrink into prosperity.
All this is surely known to Island Air’s management, and its financial base is supposed to be solid. But the expertise of its new management needs to be proven.
From what I know, the dedication and commitment of its employees are unquestionable. The recipe and the ingredients for success should be there. But to become a relevant force in the interisland air market and bring meaningful competition, it needs to expand quickly, build up its fleet rapidly and offer what air passengers are looking for: variety of destinations, punctuality, reliability, frequencies, friendly efficient staff and affordable fares.
However, the lack of decisiveness by Island Air management is remarkable. If it takes too long to make a decision, it will find that one’s already been made.
Hawaii needs an alternative to Hawaiian Air, that’s for sure. But Island Air management now seems to have entered into a "paralysis by analysis" mode, giving Hawaiian Air plenty of time to react and form another airline, Ohana Air. Goodbye, competition.
Maybe becoming an "air taxi" to Lanai is now what Island Air is aiming for.
Hawaii Kai resident Franco Mancassola founded Discovery Airways then Debonair Airways in the 1990s; he also was vice president of international operations for Continental Airlines and World Airways.
