RAA Convention 2006: Island Air ducks under the radar while heavyweights fight fare war

 - September 19, 2006, 11:24 AM

As Aloha and Hawaiian Airlines drew the battle lines in preparation for Mesa Air Group’s planned June 9 incursion on their jealously guarded pieces of island turf, Hawaii’s most prominent RAA member, Honolulu-based Island Air, quietly hunkered down for the coming storm. Happily for CEO Mark Mauracher, the little but growing Bombardier turboprop operator can afford to assume the role of spectator.

“I don’t want to put us in the limelight because we’ve really been under the radar scope and I’d like to keep it that way,” said Mauracher. “We’re going to stay out of the way and let the big guys go at it [because] we don’t have pockets deep enough to be in this war.”

As anyone remotely familiar with Hawaii’s air transport business knows, the inter-island market has long struggled to support its two main players, both of which not long ago emerged from Chapter 11 bankruptcy protection. As a wholly owned subsidiary of Aloha Air Group until May 2004, Island Air played no more than a supporting role with its four Bombardier Dash 8s, feeding Honolulu for Aloha Airlines and flying a few point-to-point routes between the system’s smallest markets. Never could it harbor grander aspirations–the scope clause in Aloha Airlines’ pilot union contract saw to that–until it struck out on its own.

Completely independent since new owner Gavarnie Holding paid Aloha in full for the assets in December, the airline had nearly tripled the size of its fleet to 11 Dash 8-100/200s by the time it took delivery of its first 78-seat Bombardier Q400 in March. Although aggressive, the growth in no way signals an intention to challenge its former owner, or anyone flying regularly between the islands’ six most commonly traveled points, according to Mauracher.

“We’re in a different business from Mesa, Hawaiian and Aloha,” he said. “They operate in the Honolulu-Maui, what we call the main common markets. We operate around those; we fly off-peak times; we offer point-to-point services so people have the opportunity to go direct without flying through the major centers.”

At the time of AIN’s interview with Mauracher early last month, Island Air flew 12 of a possible 28 routes between the various islands and planned to increase that number to 19 by the summer. By July, he said, the airline will have increased its number of daily departures to 103 from 92.

Although it maintains code-share agreements with both Hawaiian and Aloha, as well as United and Continental Airlines, Island Air fed its partners only about 30 percent of the 600,000 passengers it carried last year. By living primarily off city pairs not served by any other airline, it hopes to escape much of the negative yield pressure Mesa will undoubtedly place on Aloha and Hawaiian. Still, Island Air does derive some, albeit a small part, of its revenue from the routes Mesa plans to contest; and because Island Air’s code-share deals involve pro-rate revenue-sharing arrangements, lower prices charged by its partners translate into lower yields for it as well.

Nevertheless, said Mauracher, Mesa will probably stimulate traffic growth, pushing up load factors for Island Air and hopefully compensating for the drop in yields. In fact, Island Air has begun talking with Mesa about a possible partnership. “As far as we’re concerned, they’re not a direct competitor, so we’d actually like to sit down and offer a code share if they’re interested,” said Mauracher.

For now, Island Air has plenty else to do to keep it occupied through the end of the year, including placing into service two more Q400s to support an expected increase in passenger boardings to 800,000. Its first machine, a demonstrator subleased to Island Air by Bombardier for owner CIT Group, arrived in Honolulu some four months late because of a seal problem in its PW150 turboprops that led to oil fumes in the cockpit. Mauracher expected the second airplane, another spare held by Bombardier, to arrive this month, followed by a former Hydro-Quebec machine in November.

Notwithstanding the delivery delay, Mauracher spoke glowingly of the Q400’s performance so far. “The engines we are getting are being brought up to status now; so as far as we’re concerned the engines are coming clean without any concerns,” he said. “We wanted to make sure when we launched the aircraft we had no hiccups because it’s such a closed market here, you have to be very, very careful bringing a new type in.”

Meanwhile, Island Air planned to ground one of its costly Dash 8-100s last month and return a -100 and its only Dash 8-200 to their lessors by year-end, leaving it with eight Dash 8-100s and the three Q400s. It placed the first Q400 on routes between Honolulu, Maui and Kona, where peak-season oversales had forced it to run extra flights with the 37-seat Dash 8s, essentially doubling its costs.

A Busy Schedule

Even with the addition of the Q400s, Island Air counts on flying each of its airplanes 4,000 cycles each year on average, a workload that places strain on both man and machine. Now flying its first Q400 between 16 and 19 times per day, the airline had to assign two separate crews to the aircraft to satisfy FAA flight-time limits and crew-rest requirements.

Of course, such a busy schedule places an extreme level of pressure on maintenance, ground crews and dispatch to maintain reliability numbers. Because its average segment lasts only 22 minutes, the airline considers a flight on time if it arrives within five minutes of schedule, rather than the more typical 15 minutes. Even so, it registered an on-time rate of 85.3 percent over the 11 months leading to March, and a 99.1-percent completion rate over the last corresponding seven months.

Mauracher attributes much of that performance to Island Air’s practice of sending all 11 of its airplanes back to the Honolulu base each night–an anomaly in the business but one he has found to make a lot of sense.

“In all my airline experience in the last 25 years I’ve never seen all the airplanes come home to one location at night,” he said. “It kind of blew me away. So one of the first things we did is evaluate it. If you look at the cost of having people stationed [at multiple] crew bases, additional parts and storage for maintenance and the amount of revenue you’re going to make, it really becomes a wash. This way it allows us to keep our inventory levels low, focus resources and have some aircraft available for morning departures.”

A single base in Hawaii’s largest population center also helps maintain employee stability in an environment where geography and the cost of living make recruiting pilots, mechanics and every other kind of worker more difficult than one might expect. In an effort to ameliorate 25-percent turnover rates, Mauracher gave mechanics and customer service reps a 30-percent raise last May. So far it seems to have worked: attrition has dropped to 4 percent over the past year.

Although at the time Mauracher spoke with AIN Island Air had managed to fill only 14 of the 16 spots open for its next pilot class, mechanics remained most in demand. “The National Guard put a C-17 base here, and they actually do come into the private sector and steal our workers,” said Mauracher. Overall, of the 456 positions Island Air planned to have on its payroll by the end of the year, it had filled close to 400–more than double the number it employed at the start of last year.

Now in the midst of launching a System Operation Control (SOC) flight data management center, Mauracher has already instituted Sabre Solutions flight ops and crew management, Avexus maintenance engineering and asset management, EDS revenue accounting software, Kinetics self-service kiosks and a new company Web site with a booking engine. If his record for executing bold plans holds to form, expect to see Island Air turboprops flying over the mainland within the next couple of years.

“If the Q400 is almost an aircraft of choice for some of the major carriers, a fee-per-departure would not be out of our realm at all,” said Mauracher. “Once we have our infrastructure in place, it would be easy to add incremental aircraft.”

Mauracher wouldn’t identify the markets under evaluation, but he left little doubt about his level of motivation. “We have a high-frequency operation here, and if I can get into the mainland I might be able to change the equation around and get more longevity out of the aircraft,” he said. “You won’t see many operations doing [22-minute sectors] on the mainland. If we can get anywhere close to one to one [one hour per flight] it makes the aircraft much more attractive to operate.”