Island air hopes for profit next year after costly upgrades

Island Air is hopeful its short-term pain will turn into a long-term gain starting in the second half of next year.

The state’s second-largest carrier saw both its net loss and operating expenses swell in the second quarter by the largest amount in 2-1/2 years as it phased in 78-seat Bombardier Q400 aircraft to replace its aging 64-seat ATR-72 turboprops. The new turboprops are larger, faster and more fuel efficient than the outgoing planes.

Island Air’s 17th straight quarterly loss widened to $8.2 million from a $5.1 million loss in the year-earlier quarter while expenses rose nearly 60 percent to $20.6 million from $12.9 million, according to data released Wednesday by the U.S. Department of Transportation and the airline. Island Air said last quarter’s expenses included a $3.2 million early lease termination charge in May related to the phasing out of its ATR-72s.

The airline hasn’t endured such a large loss since the fourth quarter of 2014, when it dropped $10.4 million and had $19 million in expenses.

“Everything we have been doing for the past year and a half has been focused on improving operations, increasing efficiencies and elevating the level of service for our customers,” Island Air CEO David Uchiyama said in an email. “This has included strategic investments in our equipment and supplies, as well as increasing training and other resources for our expanding employee base.

“The new aircraft have enabled Island Air to expand our service, nearly doubled our workforce and have made traveling interisland more enjoyable.”

Island Air retired the last of its ATR-72s on Sept. 4 and now has a fleet of five Q400 turbo­props.

Uchiyama said the airline also is making a significant investment to modernize its information technology system that when fully implemented later this year will enhance its online reservation and booking system, provide more opportunities to expand its digital serv­ices, increase its ability to interface with airline partners, and offer customers more personalized service.

He expects Island Air to turn a profit toward the end of next year.

“Delays in the arrivals of the Q400s have pushed our transition plan back,” Uchiyama said. “However, with the successful aircraft fleet conversion as well as upgrades to our operating system, we are projecting that our numbers will right themselves in the second half of 2018.”

Revenue climbed last quarter because of the larger aircraft, additional island service that was added and the new Honolulu-Kona route that was implemented in June 2016. The company’s $12.5 million in revenue was up 57.3 percent from $7.9 million in the year-earlier period. It was the airline’s highest quarterly revenue since at least before 2007, according to Island Air’s records.

Island Air may add more planes. “Discussions on the acquisition of additional Q400s are still in the works,” Uchiyama said.

The airline has been transforming itself since a majority stake in the company was acquired by Hono­lulu venture capitalist Jeffrey Au and other investors in February 2016 from billionaire Larry Ellison, who remains a minority investor in the airline. Ellison also owns 98 percent of the island of Lanai.

Since the ownership change, Island Air has increased its workforce to 453 from 256, restored service to Kauai and Kona, and plans to begin service later this year to Hilo.

The airline offers 238 flights a week between Honolulu, Kona, Kahului and Lihue. In the second quarter, the airline flew 181,903 passengers versus 107,751 in the year-earlier quarter.