Republic sees Mokulele gaining traction in interisland Hawaii

Washington DC
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After recently investing an additional $7.5 million in Hawaiian interisland carrier Mokulele Airlines, Republic Airways Holdings believes Mokulele is gaining traction in its markets.

The latest cash infusion increases Republic's equity stake in Mokulele from 55% to 89%.

Republic in October 2008 negotiated a deal with Mokulele for its Shuttle America subsidiary to operate four Embraer E-170s on inter-island routes, and also loaned the Hawaiian carrier $8 million. In March that loan was converted into a stake in the carrier.

Currently Republic's total investment in Mokulele is just under $20 million.

Today during an earnings call Republic CEO Bryan Bedford explained that when the company forged its relationship with Mokulele last year "it wasn't to become the startup operator of an interisland Hawaii-based airline, and arguably in hindsight it probably wasn't the best time in the economic cycle to participate in an interisland franchise startup. But we are where we are".

But Bedford stresses Mokulele continues to gain momentum in the market. "We've seen double-digit increases month over month over month on fares and loads," he explains. Mokulele's July load factor is roughly 50%, up from 40% in June and 30% in May, according to Bedford. In a separate release today Mokulele says it carried 45,000 passengers in May, and is currently on track to transport 50,000 customers in July.

"We're certainly seeing traction there," says Bedford, but he acknowledges distribution remains a problem. Kayak was Mokulele's sole distribution channel until late May when Expedia became its second distribution partner. "We turned Travelocity on last week and we still have Orbtiz to deal with," Bedford adds. He says it is possible Mokulele's relationships with its other airline partners might help accelerate the resolution of the distribution challenges. Mokulele now has a fully-integrated codeshare deal with Alaska Airlines and has interline agreements in place with United, Continental and Qantas.

Despite the momentum Bedford offers a realistic view as he explains Mokulele is likely to lose money for the next three quarters "albeit at substantially lower levels than what we saw in the second quarter".

Offering his assessment of Hawaiian interisland operations Bedford says it is marketplace that's "going to have to rationalise".

He explains Hawaiian's dominance as a local competitor is unlikely to change, and with three other smaller carriers "nibbling at each other, that's a marketplace that probably needs to have some rationalisation, because it is market where quite frankly there can be a profitable duopoly the way it was back in the days of Hawaiian and Aloha when the market was rational".

Mesa just marked the three-year anniversary of its Hawaiian interisland subsidiary go! that operates 50-seat CRJ200s. Aloha cited a fare war ignited by go! as a major driver in its shutdown in 2008.