Island Air Liquidates, Leaves Hawaiian Without Competition

Filed Under: Other Airlines

The Hawaiian inter-island market just got a whole lot less competitive. Tomorrow Island Air, which is the only airline that really competes with Hawaiian Airlines, is ceasing operations.

Up until now Hawaii has had three passenger airlines:

  • Hawaiian Airlines is by far the largest, and operates both regionally and globally
  • Island Air has a fleet of ATR-72s and Q400s, and exclusively operates inter-island flights
  • Mokulele Airlines has a fleet of Cessna 208 Caravans, and primarily operates inter-island flights (they also have some other random routes, like LAX to El Centro-Imperial)

While Island Air and Mokulele both primarily operate inter-island flights, they have very different business models.

Island Air’s routes fully overlap with Hawaiian Airlines’ routes, as they exclusively fly between Honolulu, Kahului, Lihue, and Kona. Meanwhile Mokulele operates flights to smaller airports, given that they fly single engine planes with just nine seats.

Island Air has been losing money for years, and a couple of weeks back they filed for Chapter 11 bankruptcy protection. Apparently the airline was millions of dollars behind on lease payments for their planes.

Island Air is liquidating

Well, after flying for 37 years, Island Air is ceasing operations as of tomorrow, Saturday, November 11, 2017. They simply see no way out of their current situation. Island Air’s website has been taken down, other than the following message:

Thank you for your support

We are no longer accepting new reservations at Island Air and will cease operations at end of day on November 10, 2017.

For inquiries on refunds, please contact your credit card company.

We apologize for any inconvience this may have caused.

For any questions or concerns, please call 1 (800) 652-6541.

It’s unfortunate to see this, because with Island Air going out of business, Hawaiian Airlines has no competition in their biggest inter-island markets. Unfortunately Island Air couldn’t really compete with Hawaiian Airlines, as they have more frequencies, bigger planes, and the benefit of having tons of partner airlines. Island Air wasn’t able to command a price premium and had lower average load factors than Hawaiian, so they just didn’t have a path to profitability.

Hawaiian is honoring Island Air tickets (sort of)

Hawaiian Airlines is stepping in to help those who were booked on Island Air. Specifically, Island Air passengers traveling between November 11 and 17, 2017, can standby for Hawaiian Airlines flights at no cost. Meanwhile for those looking for a confirmed ticket, Hawaiian is selling $71 one-way tickets including all fees to Hawaiian passengers over the same period.

Could a major US airline start inter-island flights?

At this point Hawaiian Airlines basically has a monopoly on inter-island flying. Aloha went out of business years ago, and now Island Air is going out of business as well. There’s nothing stopping another major US airline from adding inter-island flights.

The challenge any new entrant in the market is going to face is the same challenge Island Air faced. It’s really tough to compete with an airline that has an incredible number of frequencies and that already has the benefit of a lot of pre-existing partnerships. On top of that, an airline named after the state is going to have some hometown advantage over an “outsider” airline in terms of getting business from locals, since people want to support “their” airline.

Southwest will soon start flying to Hawaii, so one has to wonder if they might introduce a few inter-island flights. Alaska seems like another contender, given the number of routes they have to Hawaii.

The issue is that their own passengers likely won’t need the inter-island flights much, since Alaska flies to all the major islands, and presumably Southwest will as well. Furthermore, adding one or two daily frequencies in a market isn’t going to do much to compete with Hawaiian Airlines, as they offer multiple flights per hour during peak periods.

Bottom line

I feel bad for Island Air’s ~400 employees who are now out of work. Beyond that, it’s unfortunate that Hawaiian Airlines now basically has a monopoly on many routes. We’ll have to wait and see if any other airlines try to take advantage of this opportunity and jump into the inter-island market.

Could you see another major US airline adding inter-island flights?

Comments
  1. Had to rebook 2 Island Air $166 r/t HNL-KOA on Hawaiian for $475 each.

    They need some kind of competition to keep fares in check.

    Southwest has a former Hawaiian Airlines exec and I wonder if he’s saying “here are their weaknesses, let’s go after them” or “they would crush us, let’s just fly routes to the mainland.”

  2. Hawaii is a pretty unique market. Aloha failed, I think, because they over expanded on service to/from Hawaii at a time when the market was contracting, rather than a dearth of opportunity flying inter island services.

    On the other hand, Mesa tried to compete and ran home with their tail between their legs. To succeed in Hawaii, an airline would need to bring the right plane at the right frequencies, with the right prices. Southwest’s commitment to 737s wouldn’t serve them well in Hawaii, I think. To get the frequencies right, they’re gonna need a smaller plane. I think the Embraer 170 and 190 might be a good choice for whoever tries to go in there.

  3. why on earth would any other US carrier even think of entering the intra Hawaii market? To be even remotely competitive they’d have to add a decent amount of frequencies. That means they’d have to send a lot of planes to Hawaii. They do that either through buying new ones or diverting them from existing operations. Most US carriers don’t have a lot of slack in their fleets – they’d have to weaken their existing hubs to fund a highly speculative venture in Hawaii. Or they’d have to commit to a huge capital expenditure to buy lots of new planes. And hire lots of new people. Just don’t see it being remotely worthwhile and I think it is highly improbable we’d see any massive intra-Hawaii build up by any US carrier, including Southwest.

  4. Delta C Series could work if it wasnt so delayed. Really the only logical choice would be Alaska on their Embraers. I dont think too many legacies or otherwise are chomping at the bit for this market though

  5. It is such a pity. They have by far the best price and give pretty decent discount for kids and senior, which is rare for US based airlines. They do however pretty strict on carry on luggage so to collect more fees to make it up.

  6. Southwest’s 737s are a bit too big for the Hawaii market, if they’re looking for the same load factors as they normally get elsewhere. Especially once frequency is taken into account. Delta’s new Bombardier CS100s would be the right size for the market but I doubt Delta is interested in relegating a large fraction of its newest planes to the Hawaii market, nor in competing with Star Alliance’s strength in the Hawaii market.

    The other problem is that entering the Hawaii market is a bit of a political minefield. Mesa Air Group learned this the hard way as Go! was never really able to get past the local perception that they were just a mainland interloper looking for a fast buck who cared little about Hawaii itself or Hawaiian culture. They were still able to gin up consistent business by offering extremely cheap fares, but this forced them into an unsustainable business model because given the choice at the same price point, locals would have preferred Hawaiian or Aloha over Go!. And then they poisoned the well further by trying to adopt the Aloha brand after Aloha went bankrupt, an event many blamed (fairly or unfairly) on Go! itself.

    Alaska might be able to thread the PR needle, but I imagine they’re more interested in finishing up their merger with Virgin and fending off Delta’s encroachment in their home Northwest turf.

  7. I wonder if Cape Air would be interested. It would be more of a competitor to Mokulele, I guess.

    (Cape flies small Cessnas to various destinations in the Northeast and I think the Carribean.)

  8. None of the majors are going to step into Hawaii. They’d have to commit a ton of planes, be willing to subject them to a ton of cycles and wear/tear, build instant point-of-sale presence and compete with a very established carrier.

    The 737NG and A321 have opened up so many direct routes to the neighbor islands in the past decade that there simply isn’t a need for two large interisland carriers anymore.

  9. Who cares if Hawaiian has a monopoly? If they went crazy and jacked up the price, they’ll soon have competitors looking to get some pieces of the pie.

    What’s really bad is when Hawaiian gets into the back pocket of the local government to prevent competition from happening…or is that already happening…? Don’t answer. That was a rhetorical question.

  10. Unless your mother/father/brother/sister etc. works for Island Air (or whatever other option there is/will be) and you a free seat, the locals are going to fly Hawaiian.

    Having grown up in Hawai’i, locals are very supportive of their hometown airline. They might try Southwest or whoever to tell their friends, or use their once-a-year Alaska companion pass because it’s cheap, but at the end of the day they are going to funnel their money back to Hawaiian.

    Hawaiian has Hawaii-based flight attendants on their routes so there’s an expectation of warm, local service (at least for those from Hawai’i) and, perhaps most importantly, they reliably stock POG. If my kids are given a choice between flying UA or DL F and HA Y, they will always choose HA because there’s endless POG.

  11. I would not be surprised at all if WN runs a small scissor hub style operation, probably via KOA or even Hilo. Utilization on their Hawaiian runs will be way below what they’re used to and sneaking in an extra turn where they can aggregate passenger flow will let them perhaps make it work.

  12. @Air Mika… the State government seems to work at every opportunity AGAINST Hawaiian Airlines. There is zero hometown favoritism apparent, nor is it potentially desired. But a State that actually would work well with Hawaiian would be so beneficial. This, despite the vast majority of its employees are resident tax paying constituents too. Typical Hawaii politics don’t allow for the big picture to be seen. A strong Hawaiian means a strong Hawaii. On the topic of Island Air… I wish all the employees the best and hope that if they want to continue in the industry, they get hired at HAL.

  13. With the failed ferry service and all the other airlines going away, its kind of scary that one company is almost the only way to get around the state.

    I spend a good bit of time there (partner and I have a business in Kona), and I was surprised to discover how infrequently the local people travel from island to island. I’ve known several people in Kona who haven’t been to Honolulu in a decade or two. If prices were lower (due to competition) it seems like there might be an untapped market for the right model.

    I remember in the 90’s flying Delta on an L-1011 from the mainland to HNL and then taking the same mammoth plane over to OGG (Maui). It was odd flying a wide body for such a short distance.

    @ben please let us know when y’all come back to Hawaii and this time u gotta come to the Big Island so we can have a OMAAT meetup!

  14. @Phil: It isn’t really a matter of flight prices, which would be a small part of the cost of visiting and staying on another island.

    It’s mostly a matter of how locals are relatively insular and don’t see much of a reason to go anywhere else. For people on the neighbor islands, the only place in Hawaii that’s noticeably different from what they already have is Honolulu because it’s a city, but lots of locals don’t like big cities to begin with so that’s not a reason to visit, leaving aside the cost of hotels, car rental, food, etc.

    They’ll put up with tourists and visitors as long as they keep the local economy going but are deathly afraid of losing their small town feel, which is why the ferries failed.

  15. Doesn’t Alaska/Horizon fly a lot of smaller planes in Alaska? Why not shift a lot of that capacity to Hawaii in the winter and run an Alaska-heavy operation in the summer, Hawaii heavy in the winter? Or are all of those planes non-ETOPS, which would make it impossible to fly between Hawaii and the mainland?

  16. I flew them on m my honeymoon to st Regis Kauai. Thought it was perfectly fine. Slower than Hawaiian but still was fine and cheaper.

  17. No more nostalgic, propellor aircrafts and landing in peaceful, old-fashioned part of Oahu airport. I and many other soulful beings who appreciated Island Air for these precious qualities will definitely miss this and its personal touch (rare these days).

    If this would, could ever be repeated, I wonder… Thank you for having served us all these years.

  18. Chris. If you look back at Mesa Air’s GO! airline. the reason they failed comes down to the lawsuits from both Hawaiian and Aloha they were fighting. They received inside data when they tried to buy both airlines on pricing, seats, route structure & how they operate crews. Then told both Hawaiian & Aloha no deal and used that info to start go and compete. Problem is doing that is illegal and as a result they were sued. Aloha went under before the suit was finished. However Hawaiian one a settlement and Go! stopped operations really fast after paying out probably 10 years or more of profit in damages.

    The ferry failed due to the fact that waters are so rough between HNL-LIH that people complained to much on the few test runs that they were getting sea sick & a fight over environmental impacts. Mostly centered on the chance of easier transport of one species of animal from one island to another that does not have that species. Locals did not like the chances. A combination of those two problems killed the ferry, not lack of locals traveling.

  19. I just returned from Kona via HNL and the Hawaiian terminal at KOA was absolutely packed! Not sure if it was Thanksgiving holiday travellers, or the extra Island Air pax but it was insane Saturday morning.

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