Hawaii’s airline landscape could soon change again if go! parent Mesa Air Group and Island Air can work out the final details of a deal that will form a partnership between the second- and third-largest carriers in the interisland market.
The alliance promises to present the biggest interisland threat to Hawaiian Airlines since the demise of Aloha Airlines more than five years ago. And while Hawaiian still is the market’s 800-pound gorilla with an 85 percent market share, the revamped entity that would operate under the Island Air name would create a more formidable No. 2 carrier with at least 12 percent of the market.
Even with the name "go!" disappearing, Mesa still would have a presence here in providing some of the crew and aircraft, while Island Air would coordinate the routes and the fare structure, according to a person familiar with the situation who requested anonymity.
Island Air operates four 64-seat ATR 72 turboprop aircraft and offers 210 flights a week. Go! has five 50-seat CRJ 200 jets and provides about 280 flights a week which will increase in September to about 350 flights a week.
Duplicate routes undoubtedly would be consolidated if the deal is finalized, but each airline would maintain its own crew and keep its own set of mechanics, the source said. The two airlines have about 400 combined employees in Hawaii, and no layoffs are expected, the source said.
Initial reports in June of the pending deal said Larry Ellison, the new billionaire owner of Island Air, was buying go! But the arrangement most likely will be more like the one that Mesa has with United Airlines and US Airways, in which Mesa operates regional jets for those carriers under the names United Express and US Airways Express, the source said. In those two cases, Mesa either owns or leases the aircraft and provides the crew, but United and US Airways determine fares and routes and pay all of Mesa’s operating costs, plus a margin. In the Island Air-Mesa deal, Mesa might be willing to accept some risk in return for some upside because of the potential for a greater financial return, the source said.
An Island Air-Mesa partnership would give the combined entity more credibility, allow it to gain better leverage with vendors and provide savings on airport facilities. The facilities consolidation could represent savings of nearly a half-million dollars alone, the source said.
Island Air and Mesa also would be able to consolidate reservations and ground-handling services, and would be able to share spare aircraft and avoid cancellations that had sometimes plagued operations due to the small size of their respective fleets.
Airline and tourism veteran Paul Casey, a former CEO with both Hawaiian Airlines and the Hawaii Visitors and Convention Bureau, took over as Island Air’s CEO on May 1 but repeatedly has declined to comment on the carrier’s future plans.
Last month, though, he did acknowledge that Island Air was in talks with Mesa but did not disclose the nature of the discussions.
"We are committed to building a strong regional airline, and part of that process is exploring all options, including discussions with Mesa Air," Casey said at the time.
On Wednesday, when asked to update the status of those discussions, Casey responded via email with a "no comment."
Jonathan Ornstein, president and CEO of Mesa, likewise has been uncharacteristically quiet.
"There are often good reasons why airlines merge or combine operations," Ornstein said Thursday. "Some people may recall that we had hoped to do a transaction with Aloha (Airlines) when we first entered the market. Given all the potential benefits, a deal with Island Air is certainly something we would take a careful look at."
Ornstein said it has been "a tough road" since go! entered the Hawaii market in June 2006, but added that go! "is nicely profitable now."
Mesa suffered its share of missteps during go!’s first seven years in Hawaii. Most notable was the $52.5 million it paid Hawaiian Airlines in a lawsuit settlement for breaching a confidentiality agreement and using proprietary information gained as a prospective investor during Hawaiian’s bankruptcy to prepare for entry into the Hawaii market. Mesa also incurred public backlash after the fare war it started partly contributed to Aloha ceasing service in the islands after nearly 62 years and costing more than 2,000 people their jobs. And its unsuccessful attempt to re-brand go! as Aloha after the incumbent carrier went out of business rubbed former Aloha employees the wrong way.
But Mesa has had its positive moments as well, such as lowering go! fares to rock-bottom levels — typically $19 to $39 — to make interisland traveling more affordable and saving passengers millions of dollars. Higher fuel prices and other operating costs, however, made those fares unsustainable and subsequently forced all carriers to raise fares.
Island Air, founded in 1980 as Princeville Airways, tried to stay out of the fare war by sticking to smaller niche markets. But it bounced between profits and losses after go! began service, and was operating on a shoestring when Ellison purchased it in February.
Now Island Air has found new life with Ellison, who Forbes magazine lists as the fifth-richest person in the world. And Ellison, who purchased 97 percent of the island of Lanai last year, has found a way to ensure that service will continue to his newly acquired paradise.
With a net worth of $43 billion, Ellison is worth more than the $60 million in combined revenue of the two airlines, the source said.
And with go! under his wing, Ellison could play a larger role in changing the dynamics of interisland flying in Hawaii.
