2008/04/08

Aloha to Aloha


Aloha Airlines, which has served Hawaii since 1946, has called it quits as of March 31st, leaving some passengers stranded. They blame recent competition from new rival GO! Airlines for their demise and also site high fuel costs, but Aloha was in financial trouble long before Go! entered the market. In fact the parent company of Go!, Mesa Airlines, considered buying either the bankrupt Aloha Airlines or it's major competitor, the also bankrupt Hawaiian Airlines, before ultimately deciding to start their own service.

Ultimately, the rising cost of fuel is at the root of airline problems today. ATA and Skybus also threw in the towel last week. It won't get any better folks, as rising world demand and flat oil production will continue to drive fuel prices up. No, the mythical "hydrogen economy" and corn or switchgrass ethanol aren't going to allow the fossil fuel party to go on either, no matter what soothing words or subsidies to big business (pork) the politicians may offer. If you aren't hip to that fact yet, please visit one my "Get Real" links such as The Oil Drum, and get up to speed.


Anyway, Aloha to Aloha Airlines. I hope Hawaiian and Go! can take up the slack for now so that Hawaii residents and the tourists who their economy depends on can continue to travel at least a while longer.

7 comments:

Geo said...

My sister and her hubby flew to Maui April 1st for a week. Well, the joke was on her as she flew there via ATA. Plus they are staying at the place I worked, thinking I was there. It'll be an interesting story to hear how they get back.

Don Snabulus said...

That is unfortunate for the folks working there. When an airline has less than a million in the bank, that is bad news.

I think you are right about this continuing to be an issue. It was hard for many carriers when oil was a fraction of the price.

khengsiong said...

Airlines can transfer the cost due to rising fuel price to the passengers. Many airlines now levy 'fuel surcharge' on their passengers.

In economics, there is a concept called 'demand elasticity'. Given its remote location, demand for air travel in and out of Hawaii is pretty 'inelastic'. If someone were to travel from Honolulu to LA, basically air travel is the only option.

I can't comment on the inter-island flights, though. Perhaps more Hawaiians have opted for ferry service. I do believe that business travelers who are short of time will continue to fly.

khengsiong said...

Addendum to my earlier comment:

As I googled for 'Hawaii ferry service', I understand that Hawaii Superferry suspended its service in August last year. Some people were against ferry service, citing threat to whales.

So it looks like air travel within Hawaii remains unavoidable.

Pandabonium said...

geo - that will teach your sister for trying to sneak up on you!

snabby - airline employees across the board are risk, as layoffs over the last many years show. It's getting even tougher now.

khengsiong - airlines can shift some of the cost to passengers but at some point price impacts sales.

Fuel is about 5% or so of an airline's costs. Profit is less than that, so when the price of fuel doubles, profits are wiped out. That is why airlines have also tried to mitigate the problem by buying fuel futures contracts.

Air travel is the only way to go to Hawaii, but only a small number of people HAVE to go there. Most are tourists and THAT industry is highly elastic. When prices go up, vacationers typically will find other, closer / cheaper places to go on vacation, or just stay home.

I lived in Hawaii for 28 years. Often the cost of inter-island travel was just too high for our budget, and we stayed on our island rather than travel. (for a time were lucky enough to own a small plane and that was 1/4 the cost of the airlines) Even businesses will cut back if prices get too high.

Here's a quote from a recent article in the International Business Times:

"The International Air Transport Association on Tuesday said it expects profits for domestic and foreign carriers to fall to $4.5 billion this year from $5.6 billion in 2007. IATA in December lowered its forecast to $5 billion from a previous estimate of $7.8 billion, due to higher oil prices and credit-market turmoil.

U.S. airlines' profits are expected to fall to $1.8 billion from an estimated $2.8 billion last year. "This could easily turn into a net loss should the current economic environment deteriorate further," according to IATA."

Derek said...

Panda,

Wasn't Aloha the airline of the famous "instant convertable" incident where about 20 feet of the top came off of a plane in flight? That sucessful landing was one of the most amazing feats of all time.

Is it true that the ferry service died in childbirth? Maybe the time will come when it will be wished for.

Soon there will be call for even a slow overnight ferry. Which is what was really needed and what would have made sense.

d

Pandabonium said...

Derek - Yes, Aloha Flight 243 suffered explosive decompression and lost part of its upper fuselage and one flight attendant (who was never found) on April 28, 1988 but managed to land at Kahului airport on Maui. I wasn't at the airport that day, but saw the plane from my hangar across the runway on subsequent days. It was the only fatal accident that Aloha had. I later met the co-pilot, Madeline "Mimi" Tompkins, at an FAA safety seminar (she was teaching).

The super ferry was a boondoggle from the beginning. It involved Hawaii's Republican Governor Linda Lingle spending lots of tax dollars to buy ferries built by a military contractor. Not for practical reasons, just military industrial politics.

One rare on-the-ball journalist asked, "Why was J.F. Lehman & Co., the private equity firm of a man who was formerly Secretary of the Navy and a member of the 9/11 Commission, a firm that invests almost solely in defense related industries, putting $58 million into a passenger ferry service?"

Ferry service for Hawaii will always be problematical due to the rough seas in the channels between islands. For shipping goods, the old tug and barge system is best suited for the job. IMO there is no earthly reason to transport cars between islands other that for delivery to dealers, which is done by barge.

As the constraints on fossil fuels tighten, people will simply have to travel less. No one wants to hear that, but as you and I know, reality isn't going to compromise just because humans wish something to be so.