The shutdown of Island Air on 11 November provides Hawaiian Airlines with a near monopoly on intra-Hawaii routes, leaving tiny Mokulele Airlines as a lone competitor.

But although Island Air's demise bodes well for Hawaiian, the competitive picture among the islands remains uncertain amid speculation that Southwest Airlines could eventually start inter-island flying.

On 9 November, the day Island Air announced its imminent shutdown, Hawaiian's stock jumped by 10% to about $36 per share.

Hawaiian responded to the news with a goodwill offer to provide stand-by travel to Island Air ticket holders. The carrier also plans next week to hold a recruitment fair intended to target Island Air employees, Hawaiian tells FlightGlobal.

Island Air's shutdown comes nearly a month after the Honolulu-based turboprop operator, which has long struggled financially, filed for bankruptcy court protection amid a legal dispute with aircraft lessors.

In a media release announcing it would stop flying, Island Air attributed its shutdown partly to "aggressive legal tactics" taken by leasing companies Wells Fargo Bank Northwest and Elix 8.

Island Air and those lessors had reached an agreement on 15 September to defer lease payments on three Bombardier Q400s, according to bankruptcy court papers.

But Island Air failed to meet conditions in the new agreement, nullifying the deferments, the lessors argued in court filings.

On 12 October, Wells Fargo notified Island Air it was terminating the aircraft leases and demanded the carrier surrender the aircraft, court papers say.

The lessors said Island Air had not made lease payments on three Bombardier Q400s since June. Those payments totalled $204,000 a month per aircraft, or $612,000 monthly total, papers show. In addition, the lessors said Island Air owed $2.5 million in maintenance reserve payments.

Despite operating under court protection, "lessors continued to engage in multi-directional legal attacks which Island Air could no longer combat without additional financing", says Island Air's 9 November release. "Island Air was unable to locate a new investor or lender to provide funding to support airline flight operations and a successful reorganisation."


For several years, Island Air reported financial losses amid changes in ownership and a fleet transition.

Oracle founder Larry Ellison bought the carrier in 2013, but Island Air lost $21 million the following year, prompting route and staff cuts in 2015, according to reports.

In January 2016, Island Air parent Ohana Airline Holdings, a unit of Oracle, sold two-thirds of Island Air – one-third each to Hawaiian investment companies PaCap Aviation Finance and Malama Investments, court papers show.

The new owner hired David Uchiyama as chief executive, and Uchiyama moved forward with a broad plan to turn the company around.

As part of that plan, Island Air replaced five ATR 72-600s with five Q400s, a transition the company declared complete on 5 September.

But in the second quarter of 2017, the most recent month of available government data, Island Air lost $8.2 million and ended the period with a negative cash balance of $147,000, data shows.

Island Air had not posted a quarterly profit since the second quarter of 2013, according to the data.

The carrier's demise leaves Hawaiian Airlines with nearly all of the intra-Hawaii market share, FlightGlobal Diio data shows.

In the first six months of 2017, Island Air carried 614,000 seats, or 13% of all intrastate capacity, according to data. The carrier's primary routes included Honolulu-Maui, Honolulu-Kona and Honolulu-Lihue, data shows.

Hawaiian Airlines, which operates an inter-island fleet of 20 Boeing 717s and several ATR turboprops, accounted for 81% of seats in the period, while a third player, Mokulele, carried 3%, according to Diio.

Mokulele operates a dozen Cessna 208B Grand Caravans. Its network overlaps somewhat with Hawaiian Airlines, but Mokulele also serves secondary destinations in the islands not served by Hawaiian, data shows.

With Island Air's shutdown, Hawaiian's share of the market leaps to 94%, data shows.

But Hawaiian might have other competitive concerns.

In late October, Southwest Airlines chief executive Gary Kelly said Southwest was "intrigued' by the idea of launching flights among Hawaii's islands.

"Even if we don't do that [inter-island service] initially, it's something we will continue to consider over time," he said.

The comments came the same month Southwest announced plans to begin Boeing 737 flights from California to Hawaii, with sales to begin in 2018.

Hawaiian chief executive Mark Dunkerley insists, however, that his carrier has the strength needed to compete against anyone on inter-island routes.

"The bigger question is: could they compete against us?" he said of Southwest in late October. "We understand this market better than anybody else…. We wouldn't trade places with any of our competitors."

Source: Cirium Dashboard