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In an environment like Hawaii, there’s a delicate balance between offering some new competition and wiping out the smaller players.
The state’s dominant airline is about to grab an even larger piece of the pie.
Hawaiian Airlines, which already commands more than 85 percent of the interisland market, will fill the only void left in its statewide network when it launches its new turboprop operation Tuesday.
‘Ohana by Hawaiian will make its long-delayed debut with service from Honolulu to Molokai that will mark the parent company’s first return to that island in about 10 years. ‘Ohana will follow up with service to Lanai starting March 18, the first for Hawaiian in a decade.
It’s been a long time coming, but Hawaiian Airlines President and Chief Executive Officer Mark Dunkerley said the time is right.
“Frankly, we are in a situation where we believe that the existing operators don’t deliver an adequate level of service. … This is going to be a very small operation but nonetheless one which we think … allows us to fill a puka in our network,” Dunkerley said shortly after announcing the service two years ago.
Hawaiian has been flexing its muscles ever since Aloha Airlines ceased operations March 31, 2008. At the end of 2007, Hawaiian had 47.9 percent of the interisland market, and Aloha was close behind at 36.7 percent.
Today, Hawaiian is an ocean in front of its nearest competitor when it comes to market share. Hawaiian has 85.2 percent of the interisland market, according to the most recent airline data compiled by the state Airports Division.
Mesa Air Group’s go! is a distant second at 6.8 percent, followed by Island Air at 4.6 percent and Mokulele Airlines at 2.9 percent. The remaining carriers comprise less than 1 percent.
The data are through the first 11 months of 2013.
Although Hawaiian has aggressively expanded internationally since November 2010, its neighbor island operations still made up 23 percent of its $478.1 million in fourth-quarter passenger revenue in 2013, the company said. North American flights represented 47 percent of passenger revenue, and international service the remaining 30 percent.
Hawaiian’s entry into the Molokai and Lanai markets likely will steal passengers from three of its smaller competitors: Island Air, Mokulele Airlines and Makani Kai Air. Island Air announced last month it would discontinue service to Molokai with its last flight on April 1.
Mokulele and Island Air have been neck and neck on Molokai market share, with Mokulele at 47.6 percent and Island Air at 46.5 percent, according to the latest data from the state Airports Division.
“The increased competition did not play a role in the decision,” Island Air CEO Paul Casey said in a statement last month. “Based on Ohana’s seat capacity to Molokai, we feel that the island will have adequate air service to meet its needs.”
Island Air is unquestionably the leading carrier for Lanai with a 90.3 percent market share, according to state airport data. That’s no surprise since Lanai also happens to be 98 percent owned by billionaire Larry Ellison, who bought Island Air in February 2013.
Casey said this past week he won’t comment further on ‘Ohana’s entry into the market.
Local aviation historian Peter Forman said Hawaiian’s expansion into Molokai and Lanai should put pressure on its rivals to improve performance since the larger airline has led the nation in punctuality for the last 10 years in a row.
“If ‘Ohana by Hawaiian follows Hawaiian Airlines’ tradition of reliability and on-time service, it will raise the bar for competitors in these less populated markets,” Forman said. “What I foresee is a significant improvement at Island Air in coming years, so overall the level of service by both carriers will benefit the people of the neighbor islands.”
‘Ohana, operated by Idaho-based Empire Airlines under a contract with Hawaiian, will fly 48-seat ATR 42 aircraft. Island Air, which also flies to Maui and Kauai, uses 64-seat ATR 72 aircraft. Both ATRs are twin-engine turboprops.
‘Ohana’s one-way fare to Molokai and Lanai from Honolulu starts as low as $65, following a $59 promotional offer that has expired. ‘Ohana will offer three daily flights to Molokai and two flights a day to Lanai. The planes’ exterior features a design by Hilo-based artist Sig Zane and his son Kuha’o.
Makani Kai charges $50 one way between Molokai and Honolulu, while Island Air’s lowest fare from Honolulu is $72 to both Molokai and Lanai. Mokulele charges $49 one way between Honolulu and Molokai. Neither Mokulele nor Makani Kai flies directly to Lanai from Honolulu.
Ron Hansen, CEO of Mokulele, said he hopes that ‘Ohana doesn’t affect operations.
“We have our loyal customers and they like what we do,” Hansen said. “I hope we can maintain our current loyal customer base.
“I’ve seen their (Hawaiian’s) aircraft. It’s beautiful, and I’m sure the interior is beautiful and very comfortable. I’m just optimistic that we have our loyal customers and they’ll stay with us.”
Go!, which has the second-largest market share, flies 50-seat jets — CRJ 200s. But go! doesn’t fly to Molokai and Lanai, although it does have a code-share agreement with Mokulele that enables it to connect passengers — sometimes with a stopover — to those islands on Mokulele.
“I am sure (‘Ohana) will do very well,” said Jonathan Ornstein, chairman and CEO of go! parent Mesa.
Hawaiian blamed its delayed ‘Ohana launch on the Federal Aviation Administration. Hawaiian first announced plans in July 2012 to offer a turboprop operation and in February 2013 said it would begin service later that summer. But the service was delayed after the FAA said it didn’t have the resources to process Hawaiian’s request. ___