POSTED: 14 APRIL 2008 - 9:30am HST

Mesa and Go! down for the count

image above: go! plain loading on the tarmac in Hawaii

by Brad Parsons on 12 April 2008

I think it can be said that the markets are expecting Mesa's and Go's failure. The stock price is pretty low right now, maybe too low. I think this all depends if Mesa can convince current shareholders and current and new investors of the efficacy of a new stock issue for $38 million. Without that, I think they do fail...along with Go!

After a few more airlines fail and this settling out happens, all surviving airlines, except maybe Southwest Air [due to its fuel financial futures options], are going to have to substantially raise their airfares to cover costs and realistic margins. All interisland passenger transport companies will have to do the same, including HSF, if it is still around. In the future, long distance airfares will become quite a bit more expensive, esp. to places like Hawaii. This will substantially change the type and numbers of clientele that will be able to afford to visit Hawaii.

In continuation of the information presented regarding Mesa and Go! in:

There were a number of good articles recently on this matter.

Feds brushed off complains over Go! in The Maui News:
Small clip from today's (Sat. Apr. 12th) Maui News:

'HONOLULU (AP) - Shares of the parent company of go! airlines has tumbled to close at a 52-week low. The fall came after Calyon Securities analyst Ray Neidl said he was dropping coverage of the Phoenix-based Mesa Air Group Inc. because of its small market value.

Neidl said recovery chances are limited due to industry turmoil, potential lawsuits and competition for contracts. Mesa shares dropped more than 13 cents, or nearly 17 percent, to 67 cents Friday before gaining a couple cents in afterhours trading. Last week, Mesa said Delta Air Lines Inc. planned to end a major contract-flying agreement and Mesa sued to keep the deal intact. Mesa has declined to comment on whether it faces bankruptcy.'

Economy, Federal Govt. and Aloha Airlines/Mesa/Go! in The Maui News

Just to point out a few good quotes:

'Aloha CEO: Feds brushed off complaints over go!: Panel told Department of Transportation was interested only in low fares'

'...Charles Willis, owner and chairman of Island Air, also said it was obvious that go!’s price wars, when prices stepped down from the introductory $39 to $29, $19, $9 and, briefly, $1, were a predatory maneuver...

...By his [Banmiller's] estimation, Aloha had made itself into the most efficient airline in the business, measured in cost to deliver a seat between island airports. According to a consultant’s study, Aloha’s cost was $50, Hawaiian’s was $55 and go!’s was $67. In theory, the most efficient carrier is supposed to prevail in an unregulated market...

...Banmiller said he searched hard for an investor, but fuel costs changed the picture so much that no outside money could be found. The upset state of credit markets has dried up outside money for all airlines, according to James May, chief executive of the Air Transport Association. So Banmiller sought a rescue from another, bigger airline. All were so preoccupied with their own fuel-driven alarms that they were not interested, he said...'

Bad news piles up for Mesa Air Group in The Maui New
Just to point out a few good quotes:

'WASHINGTON — The stock of Mesa Air Group dropped another 15 percent Thursday, closing at 81 cents. Industry observers had Mesa at or near the top of their lists of the next airline that might [fail], and in testimony before a Senate committee the owner of Island Air said both Mesa’s go! and his airline might not survive if government action does not come soon. The bad news kept piling up for Mesa. MAIR Holdings Inc. said its Big Sky subsidiary had received a notice of default and demand for payment of $4.8 million from Mesa Airlines Inc...

...Mesa is short of cash and it acted to draw on a $1.9 million letter of credit that MAIR established with Mesa in 2005...

...There are more than 26 million shares outstanding [of Mesa stock]. At 81 cents, the company is valued at less than $22 million — about what it has spent trying to get go! going. Next month, it will seek shareholder approval to raise more than $38 million in new capital through a stock sale...

...David Banmiller, president of Aloha Airlines, held up four fingers. He told Inouye that go! had lost around $20 million in 16 months with go! flying CJRs. “That’s with four planes,” he said. Go! is now using seven RJs, having expanded its interisland service when Aloha shut down. Before Aloha shut down, it reported a load factor of just under 68 percent...'

Airline's comeback a long shot  in The Honolulu Adveriser
Just to point out a few good quotes:

'...The state's No. 2 carrier shuttered its passenger service and laid off 1,900 workers on March 31. The closure, representing the largest layoff the state has ever seen, came after the airline lost more than $120 million in the past two years. Aloha puts much of the blame for its failure on Mesa Air Group, owner of discount carrier go!, which is itself in financial difficulty...

...Mesa's stock dropped from nearly $8 to less than $1 per share in the past year. It traded at a 19-year low yesterday, falling 15 cents to close at 81 cents on the Nasdaq market...

...On Monday, Mesa warned investors that it could default on its bonds after the airline lost a $20 million-a-month contract with Delta Air Lines. Mesa is suing Delta to enforce the contract, which generates more than 70 percent of Mesa's annual operating revenues of $327.8 million...

...Many airlines are struggling with the high price of jet fuel, which has skyrocketed since January. Aloha officials have said fuel costs combined with competition from go! pushed it into bankruptcy...'

Airlines' shutdown could discourage future visitors in The Honolulu Adveriser
Just to point out a few good quotes:

'Saying the state's visitor industry faces the biggest potential tourism crisis since Sept. 11, the Hawai'i Tourism Authority yesterday pushed forward with plans to try to boost visitor demand in the islands in the aftermath of two major airline shutdowns last week...

...But various board members and industry officials warned that the industry must continue to respond quickly or face a growing problem. Johnson agreed that the situation is serious. 'We have essentially lost about a million North American seats' or roughly 15 percent of the airline seats that were available to the West Coast...

...Cheryl Willliams, regional director of sales and marketing for Starwood Hotels & Resorts Hawai'i, said...she's concerned about a slowdown in the pace of people booking for the months ahead including the summer. She said travelers are potentially spooked by the prospect of paying double or triple the airfare they had earlier anticipated. 'I think it will be more of a long-term effect.'...

...Monahan, of the Hawai'i Visitors and Convention Bureau, said the industry needs to quickly address the issues, with marketing and a plan: 'It's something we've got to respond to quickly.''

State Government and Aloha Airlines

This post is about state government and Aloha Airlines. The next one will be about federal government and Aloha Airlines.

From the following excellent editorial:
Administration Caught Asleep at Wheel by Aloha Shutdown in The Maui News
Just to point out a few good quotes:

'...the lack of attentiveness of state officials to the plight of Aloha Airlines...
The media reported that despite Aloha keeping state administration officials and lawmakers posted on its finances, it received minimal support from either branch of government during the past year....The company said the governor's comments were misinformed.

At the time Aloha shut down its passenger service, it had gone from $3.8 million in unrestricted cash to just over $900,000 in about a week and a half. How could the airline keep flying with such little cash? Asking the bankruptcy judge to stop the airline from shutting down is absurd. Did they expect the airline to fly on fumes?

...the Legislature...has provided all sorts of backdoor subsidies called tax credits to private companies...It seems unfathomable that lawmakers are willing to provide such subsidies to companies who have such a marginal impact on the state's economy while ignoring one of the few ways residents and visitors alike use to get from one point in this state to another. this credits for high technology, digital media productions or the promised ethanol plant?

It seems that our elected officials should have been paying more attention to some of the basic services taxpayers need rather than being mesmerized by the latest economic development pitch of a sideshow hawker.

...Both major interisland air carriers have been asking for relief from the general excise tax that they pay on the fuel they purchase. The measure has been around a couple of years and has yet to be successful.

...What is ironic is that the airline tax exemption measure failed to pass last year because lawmakers couldn't agree on how much it would cost. In retrospect, that move is disingenuous given the revenue impact that the Aloha shutdown will have on the state. From lost wages to lost sales, the impact will be huge. Our elected officials are something like Nero fiddling while Rome burns or perhaps they are simply asleep at the wheel.'



POSTED: 5 APRIL 2008 - 3:30am HST

It's all about the fuel, guys

image above: Gounded Aloha Airlines jet on Maui. Photo by Amanda Cowan

by Brad Parsons on 5 April 2008

There have been at least a couple of interesting articles in the past few days that consulted intellectuals regarding HSF and Aloha Airlines. First, to the most recent one in The Star Bulletin titled "Aloha’s downfall may help Superferry survive"

'This whole article contains a number of unrealistic assumptions by people who should know better. This will become apparent if not by this summer, then by next fall, no later then when the next winters swells roll in. Here are some comments on the article.

The article suggests the Superferry 'Break Even Point' to cover all costs is 400 passengers per ride. This estimate was made when crude oil was $55 dollars a barrel a year ago, not over $100 like it is today. Today "break even" is more like 644 passengers per ride at $39 per person and 218 vehicles at $65 per vehicle assuming a $17 fuel surcharge on each vehicle = $82 per vehicle.

See more

I think the Aloha Airlines CEO had it right, their business model is broken too.
It's about the cost of fuel guys. HSF burns fuel per person even faster than Aloha did.

And then there was also anoutstanding article titled "Aloha’s departure leaves interisland market muddled" from Harry Eager of the Maui News quoting Bank of Hawaii Chief Economist Paul Brewbaker extensively. This is some good stuff. See below.


by Harry Eager on 3 April 2008 in The Maui News

'The islands continued adjusting furiously Wednesday to the failure of Aloha Airlines....

For the longer term, Bank of Hawaii Chief Economist Paul Brewbaker said the new interisland air traffic regime could come to a new equilibrium at any one of several levels...

In comments Brewbaker sent to The Maui News, he said the departure of Aloha presents a different set of alternatives for economists to analyze than in earlier events when Mahalo or Discovery airlines failed...

But after Sept. 11, 2001, Sen. Dan Inouye arranged an antitrust exemption for Aloha and Hawaiian, and that allowed them to reach a new equilibrium, because it made it less likely that a new third, outside threat would arise. The new equilibrium settled at $90 a trip. Mesa Air Group’s Chairman Jonathan Ornstein decided he saw an opportunity...

Leroy Laney, professor of business and finance at Hawaii Pacific University, said Tuesday...The market is so small (and has been shrinking) that fixed overhead costs made it difficult for either of two airlines to get enough business to get into profitable territory...

Ornstein upset the apple cart, or what Brewbaker calls the Cournot-Nash equilibrium. The Cournot-Nash equilibrium is now dead, and the interisland airline business has become what economists call a Stackelberg game. Instead of two equally matched contenders warily circling each other, the remaining unevenly matched contenders will try to exploit their differences. In this Stackelberg game, Hawaiian enjoys some market power — it’s bigger and neither Go! nor Island Air can exactly duplicate the vanished service...

The exit of Aloha “removes the principal source of rivalry that disciplined Hawaiian by undermining the market power it otherwise has from product differentiation,” said Brewbaker. “The game is afoot, literally, and we should not be surprised by outcomes perverse and otherwise.” Economic theory allows for a number of balancing points, which include:

• Higher fares and fewer seats.
• Similar or somewhat higher fares, with the entry of a major carrier in the Hawaii interisland market...

Guarantees (loan or debt) might have been required, but the state Legislature finally accepted the idea of loan guarantees, although a day late and about $120 million short. Meanwhile, Hawaiian pulled a backup Boeing 767 into line to provide hundreds of seats on six daily Oahu-Maui trips, Island Air added flights between Maui and Hilo and go! nearly doubled its daily legs.'


Since this article ATA has failed too, adding more to the change in equilibrium. I heard a figure that ATA alone accounts for 1 million visitors to/from Hawaii a year. As I recall Hawaii receives 7 to 8 million visitors a year. With ATA and Aloha combined that is at least 12 to 20% of the air capacity to and from Hawaii disrupted. That is shocking.

As an aside, a long-time close friend of mine is a former high level hotel manager for the Sheraton chain. He maintains contact with many of their hotel general managers. He was speaking last week with one of those general managers in Ka'anapali and that person mentioned that one of the hotels in Ka'anapali had over a 1000 cancellations after the Aloha failure alone. Think about that, that is just one example. HSF won't matter worth a squat in this big picture.



POSTED: 1 APRIL 2008 - 8:00am HST

Letter to HI Legislature on Aloha Airlines

image above: Last day of flight for Aloha Airlines. Photo by Gregg Yamamoto (Honolulu Advertiser)

by Elaine Dunbar on 31 March 2008

With all the illegal funding given to an illegal business through an illegal Special Session to the Hawaii Superferry, none of you are outraged that an established and necessary mode of travel for the Hawaiian Islands has been abandoned?

You should, at the very least, be embarrassed; it‘s an appalling failure of state.
There is something wrong with the thinking or lack of, that allowed this to go so far. Be mindful of the ramifications this can create.

Immediate emergency BAILOUT needs to start today for Aloha Airlines. Retrieve the misappropriated tax dollars from the Superferry and Harbors fund and get Aloha Airlines operational. After all, it is in the ‘PUBLIC INTEREST‘. A compelling one. Apply the ‘expeditiously‘ part that motivated you for Superferry. These are real jobs at Aloha, not on-the-spot employment as was fabricated for Superferry.

By not saving Aloha, you eliminate the PUBLIC INTEREST criterion for Superferry validation, because alternate and necessary are two very different things: Aloha is necessary and proven. An investigation into the administration should take on a new aspect if Lingle turns her back on Aloha.




POSTED: 1 APRIL 2008 - 8:00am HST

Sad farewell to Aloha Airlines

image above:Final line for tickets. Photo by Gregg Yamamoto (Honolulu Advertiser)

Editorial on 1 April 2008 in The Honolulu Star Bulletin

After 61 years, Aloha Airlines has terminated its passenger service. Aloha Airlines' announcement that it was going out of business should have come as a surprise to no one. The airline had been flying in the red while engaged in a fierce fare war for more than two years, and a surge in fuel prices forced it to land in bankruptcy, with no buyers emerging. Interisland travelers will miss Aloha's 61-year presence.

"Unfortunately, unfair competition has succeeded in driving us out of business," said David Banmiller, Aloha's president and chief executive. The remark was aimed at Mesa Air Group's go!, which arrived in Hawaii in June 2006 and began offering $19 interisland one-way fares and promotional fares that dipped as low as $1 last year.

However, Aloha had experienced financial problems before Mesa's arrival, having filed for bankruptcy in 2004, following the path of Hawaiian Airlines. Both carriers emerged from bankruptcy before go! entered the island skies. Having lost $41.2 million in 2005, Aloha proceeded to report losses of $46 million in 2006 and $81 million last year. It lost $11 million this January alone.

Fuel prices rose in recent months as the dollar weakened, damaging airlines trying to cope with an economy that increasingly is being recognized as a recession. Rep. Neil Abercrombie has called for the release of fuel from the petroleum reserve in response to what he regards as a national emergency.

The closure will result in the layoff of 1,900 Aloha employees, although 1,600 may keep their air cargo jobs. Saltchuk Resources Inc., the Seattle-based parent of Young Bros. Ltd., offered to buy the air cargo operation last week for $13 million. United Airlines, Aloha's marketing partner, may have backed away from a proposal involving ATA and Mesa to save the airline's passenger service.

Several industry experts anticipated Aloha's announcement. "It will be very difficult to maintain three interisland carriers," aviation industry consultant George Hamlin told the Star-Bulletin's Jennifer Sudick after Aloha's latest bankruptcy filing on March 20. "You can either have two fat cows or three skinny ones."

Mesa appears determined to keep go! flying in Hawaii, although a federal judge ordered it to pay more than $80 million for using confidential information obtained during Hawaiian's bankruptcy. Mesa has posted a $90 million bond to appeal the ruling.

Hawaiian has been able to cope with the price war, posting a $7.1 million profit last year. Competition between Hawaiian and go! should continue, but not at a level that could put either airline out of business. The worst scenario would leave the state with only one interisland airline.



POSTED: 1 APRIL 2008 - 8:00am HST

Aloha's final flight 261

image above: Last hug for Aloha passenger. Photo by Andrew Shimabuku (Honolulu Advertiser)

by Christie Wilson on 1 April 2008 in The Honolulu Advertiser

A rowdy crowd of several hundred Aloha Airlines employees, airport workers, family members, friends and supporters greeted passengers and crew from Aloha Flight 261 after it touched down at Honolulu International Airport at 10:32 p.m. yesterday, the final regularly scheduled passenger flight for the "people's airline" that served Hawai'i for 61 years.

It was a flight like no other, and more than half of the 80 people aboard were Aloha employees who cheered, clapped, wept, sang and offered testimonials over the public address system during the 22-minute flight from Kahului. Most had boarded in Honolulu for a quick roundtrip to Maui.

Captain Mike Uslan, one of several Aloha pilots who accompanied family members on the flight, offered a toast of Pass-o-Guava juice in small plastic cups with the foil covers: "To Aloha — the last of the good airlines."

Uslan also offered a parting shot to rival go! airlines, which has been blamed for igniting an airfare war that contributed to Aloha's demise:

"For all your travel needs in the Hawaiian Islands, please fly Hawaiian! Don't fly go!"

Captain Mike Moore offered a toast "to friends, family and fond memories with Aloha."

Moore was to have piloted the last flight but relinquished the cockpit at the last minute to Darryll Wong, Aloha's most senior pilot, who joined the company in 1976.

Other crew members on Flight 261 were first officer Tasha Kobashigawa and flight attendants Renee Jewell, Steve Oshiro and Tori Swoish, who told passengers at the trip's conclusion, "It's the end of an era but I don't think anyone is going to forget us soon."

The airline's last paying passengers included Erika Pang Harrison and Sherry Saito of Pearl City, who said they decided on the spur of the moment to fly to Maui yesterday afternoon specifically to catch the last flight "and participate in history."

The two physicians said they couldn't get through to Aloha's reservation line, so they just showed up at Honolulu International Airport hoping to get seats.
Pang Harrison's husband, Bill, worked as an Aloha flight attendant while in college, and her sister, Monika Pang, is a 31-year flight attendant for the airline.
Saito also has strong ties to the airline. "Whenever it was family vacation, we all flew Aloha. It was always Aloha," she said.

Saito said she wanted to be on the last flight "for closure, to say goodbye to people and to thank them."

The two friends, who picked up Krispy Kreme doughnuts on Maui to bring back to Honolulu, took photos with Aloha flight crews and other employees they encountered throughout the day, and collected souvenirs such as ticket stubs and a plastic cup emblazoned with the Aloha logo.

"I feel sad but kind of excited to be participating. It's kind of like a piece of history," Pang Harrison said.

Another Flight 261 passenger, Rudy Savio, 24, of Honolulu, estimated he had flown on the airline 270 times and had kept a diary of all his plane travels since childhood.

Savio also owns an extensive collection of airline memorabilia, including old flight timetables, ticket jackets and 25 Aloha Airlines T-shirts.

"I've always loved flying every since I was a kid, and we've always flown Aloha so I've gotten attached to it," he said. "It's like the end of an era. It's important for me to be here. Aloha has been a big part of my life and I've become friends with a lot of the employees and I wanted to show my support on the last flight."

James Guzzo of Kailua, O'ahu, said he flew Aloha 400 times a year for his Endless Pools business. He flew in from Kona to board Flight 261.
"There's no way I was going to miss this," he said.

Those arriving at Honolulu Airport on the final flight were treated as returning heroes, as dozens of ramp workers waved and cheered when the Boeing 737-200 pulled up to the gate and all aboard received hugs and high-fives from the waiting crowd.

After an emotional rendition of "Hawai'i Aloha," the crowd had yet to disperse by 11:30 p.m., no doubt reluctant to bid aloha to co-workers and their careers.



POSTED: 1 APRIL 2008 - 8:00am HST

The Airlines are dying!

by James Kunstler on 31 March 2008 in

It was not a good week to be at the mercy of America's floundering air travel program. The price of aviation fuel is killing them. They can't fire any more employees or shed anymore pension obligations. There is no elasticity left in the system.

Coming back from Denver yesterday, the chaos at the concourse gates was impressive. Nobody knew when or if a given flight would board, and they certainly didn't post any realistic information on the high-def screens at every gate. When asked for updates, the harried gate agents could offer none.

So much for computer wizardry. It is interesting to see how passively the public accepts this. For now, they slump like war refugees in the blow-molded plastic seats, numb with fatigue, anxiety, and disappointment. But I wonder if there will be riots in the concourses sometime later this year.