Any high frequency, short haul market of 9.2 million passengers a year is bound to attract attention, especially when only two airlines consistently serve it. But in the Hawaiian inter-island market challengers have tried before and failed. Now Mahalo Air is trying again, and the question is whether it has learned enough from the failures of others to avoid becoming yet another casualty.
Hawaii's inter-island market is surprisingly busy. Honolulu-Maui is the third busiest route in the US. Honolulu-Kauai carries as many passengers as Tokyo-Hong Kong. Four of the 25 busiest US routes are within the Hawaiian islands.
Aloha and Hawaiian have served these routes since World War 2. Mid-Pacific Air flew inter-island turboprops through most of the 1980s, reached a peak market share of 20 per cent, and then collapsed. Discovery Airlines made a brief debut in 1990, but could not overcome problems about its foreign ownership. Two years later United Airlines caused angst at Aloha and Hawaiian when it threatened to launch its own inter-island flights. That prompted Hawaii's government to propose regulating inter-island air service, which helped convince United to codeshare with Aloha instead of going it alone.
Mahalo entered the scene in late 1993, but not in its own right. Two local tour operators convinced Empire Airlines, which was winding up regional operations in Idaho, to let them piggyback on its operating certificate in Hawaii. Empire operated the flights with its own Fokker F27s, but made all its seats available to the paper airline called Mahalo, meaning 'thank you' in Hawaiian.
This arrangement lasted a year while Mahalo sought its own operating certificate. A storm of objections from United grounded Mahalo Air for five months between the end of its Empire contract and October 1994, when it received its licence and began flying in its own right with seven ATR42s.
The first months were fairly bloody. Mahalo's entry sparked a full-scale fare war. Aloha launched its own turboprop unit, Island Air, so it could compete at some of the outer island airports which were too small for jets. Hawaiian now codeshares with Mahalo on some of those routes.
But Mahalo also flies to the popular destinations, boasting that its ATRs take only five minutes longer than jets. Its fares are about $5 per sector lower, and Douglas Caldwell, Mahalo's vice president sales and marketing, believes that difference compensates for Mahalo's lack of frequent flyer benefits and 'the perceived inferiority of a turboprop.'
Aloha flies about 54 per cent of inter-island passengers, Hawaiian 39 per cent, Mahalo 6 per cent, and Aloha's Island Air about 1 per cent. Each claims its own numbers are higher. Aloha and Mahalo both say local residents prefer them - Aloha because of service and Mahalo because of price.
Aloha and Hawaiian focus on feed from mainland carriers and, in the case of Hawaiian, from its own mainland flights. All carriers recognise the importance of frequencies in such a busy, short-haul market. Aloha touts its drive-through check in at Honolulu and low passenger complaints. The carrier also won the bid to carry state government employees throughout the islands.
Hawaiian promotes its inter-island 'shuttles,' long-standing relations with Japanese tour operators, and improved service. It has the contract to carry university staff between the islands.
Mahalo touts the comfort of its ATRs, but mainly stresses low fares. It does a brisk business in coupon books sold in local supermarkets and in ticket-counter sales. The tour operators who own Mahalo generate 5-7 per cent of its passengers.
Glenn Zander, Aloha's president and CEO, doubts the inter-island market will support three carriers. Since Mahalo started in its own right, he claims ASMs have grown 40 per cent due both to Mahalo's entry and to Hawaiian's addition of four DC-9s. 'We've seen a significant increase in capacity with no commensurate increase in the market,' Zander complains. Aloha's loads have slipped, but at 64.4 per cent for 1996 are still well above breakeven.
Mahalo claims that its low fares have stimulated the market, but Aloha says they have had little or no effect on volumes. Hawaiian demurs. 'The third carrier sort of comes and goes,' Zander notes. 'I'm very doubtful that the market can support three carriers.' Yet Mahalo's Caldwell predicts his airline will make its first operating profit this year.
Caldwell says Mahalo has evolved a different philosophy from the growth-oriented view that killed other third carriers. 'The size of this market clearly argues in favour of two jet operators and a turboprop carrier,' Caldwell says. 'We don't care about how many markets we serve, how many airplanes we have, or how many passengers we carry. Market share in its own right is meaningless. All we care about is making some money.'
Source: Airline Business