How times have changed
by San Fichtman, Politics Hawaii
As this humble blogger spoke to a Church Elder on Sunday, the 3rd of December, my phone started going off something terrible.
“What was it?” I thought as I ended the conversation with the Elder… earthquake? Did something happen at home? The Christmas brunch I was about to host a table for had a problem?
No, it turned out that it was the announcement, and subsequent texts by friends telling me, that Hawaiian Airlines had agreed to be purchased by Alaska Airlines for $1.9 billion and absorption of the $900 million debt Hawaiian had on the books.
Of course, the variety of questions that everyone asked me, later on, came to mind. Everything from what the name of the new entity would be to what would happen to the Hawaiian or Alaska points that people had on their accounts.
But it turned out that, in the quiet of me eating my chicken katsu and rice brunch before the Christmas program started, was reflecting on how times had changed when it came to who owned what airline, and what airline served the interisland market in Hawai‘i.
Indeed, if you go back in the history of Hawai‘i aviation and the issues of ownership and who operated, the mere fact that an airline that was not “Hawai‘i based” came in to buy a “Hawai‘i based airline” that didn’t elicit an immediate hearing in the State Capitol on the merits of it told me that, indeed, the relationship between the people of Hawai‘i, its government officials, and its aviation options, has very much changed.
It’s at this premise that Politics Hawai‘i will start a series, looking at the facets of this announced buyout (or merger, depending on who you are talking to) of Hawai‘i’s “last airline” by a mainland carrier.
We will start, naturally as this is a political blog, on the political aspect, and how over the years Hawai‘i has gone from being protectionist of the local interisland carriers to yielding to market and people forces to allow other carriers to come in, service the interisland market, to now have a “local company” bought part and parcel by another airline.
This blog will examine this aspect from the standpoint of its author and his experience in this. Having been raised in a household where the main source of income came from my father’s job as Vice President of Aloha Airlines, the family would hear many a story about potential changes to the company over the years. Later on, in years after my father retired, we’d all track the happenings of the industry, perking our ears up every time the name of a Hawai‘i airline (even go! was part of that) came on the news.
This also will come from first-hand experience in seeing what happened when Hawaiian and Aloha tried to merge (for the last time it turned out) when Greg Brenneman came into town with his TurnWorks entity and tried to see if a marriage could happen, and the quarrel that came from that proposal.
HAWAIIAN, AND THEN ALOHA was formed in the first part of the 20th century when the novel art of aviation was making big strides in connecting vast parts of earth. In Hawai‘i, aviation allowed for the movement of people between islands where, before then, steamers would ply the islands, taking days instead of hours, or now even minutes to get from one island to another.
Hawaiian, formed in 1929, and Aloha (known then as Trans Pacific Airlines), formed in 1946, became the dominant interisland air carriers overtaking and then eliminating sailing as the means of interisland transport. Along the way, both airline mavens – Stanley Kennedy for Hawaiian and Hung Wo Ching for Aloha – became more intertwined in the overall fabric that was Hawai’i, its social and political aspects.
Hung Wo of Aloha would be appointed as a Trustee for the Bishop Estate in 1969, something a person does not achieve without some political pull even back in the 1970s. Kennedy ran the Coca-Cola Bottling Co. of Hawai‘i and was the president of the Chamber of Commerce of Hawai‘i. Again, positions of power in the islands are not to sneeze at.
But more important than being noted as an important person enough to be appointed was the protections that the airlines were afforded by powerful political players in Hawai‘i. Most notably, the Senior Senator, Daniel Inouye, his actions would turn out to be key to preserving Aloha and Hawaiian as long as they did, in the services that they provided.
These protections were done pretty much up to the end of Inouye’s life. There are bound to be more examples provided by readers of this blog, but a few of these moves that come to mind are,
Even in the 1990s when Hawaiian went through bankruptcy, there was a lot of government involvement, including the state’s guaranteeing the debt of Hawaiian Airlines to prevent it from being swallowed up by its creditors.
This would all start to change, though, starting in the 2000’s.
Aloha (forefront) and Hawaiian (back) were the two main interisland airlines that benefitted from Hawaii government protectionism against mainland operators coming to Hawaii and competing in the interisland market. This opposition may end with the closing of the Alaska Airlines purchase of Hawaiian.
ALTHOUGH THE MARKET EBBED AND FLOWED throughout the 1990s and even the early 2000s, it wouldn’t be until 2008 that the people of Hawai‘i would see a shift in how the government oversaw the interisland airline market. It all started with the second bankruptcy of Aloha Airlines in early March 2008.
At the time Aloha had already been owned by a California entity, with its local ownership roots being bought out during the airline’s first bankruptcy in 2004. That entity, not as concerned about political whims, finally decided in March 2008 to stop bankrolling a financially losing operation.
In the short time between the announcement of the bankruptcy, and the actual shutdown at the end of March 2008, there were a lot of people who were asking if the state government was going to jump in and save Aloha. It was then you got the sense that even the government officials, knowing the real score of the matter, decided that it wasn’t worth the work to try and save, in total, the company.
So on March 30, 2008, the airline shut down.
At that time the Senior Senator went to work not to try and save it all, but to at least get healthy parts, sold. The office worked hard for Aloha Air Cargo to be sold off to Saltchuk companies, and got them to immediately put in money to the operation to keep it going when the banks refused to bankroll any more of its operations. This, along with not strongly going after the airline that caused the shutdown – Mesa’s “go!” – by government officials signaled that strong protectionist practices that may have been imposed in the past by state government officials were not going to be imposed this time.
Or, for that matter, any more it seems.
THE GOVERNMENT REDUCED its influence on the industry throughout “late aughts” and 2010s. By this time Hawaiian had over 70% of the market, other airlines such as Mokulele, in partnership with Republic Airways, tried to start a 2nd jet passenger airline only for it to fold. Island Air also tried to build its market share using French and Canadian-made jet prop airplanes and struggled along with that too.
Both airlines eventually reduced in size or went bankrupt. Throughout this time there would be some news coverage of it, always noting that Hawaiian came in to provide additional lift for stranded passengers, and keeping its dominant hand on the interisland market.
But if you think that interaction between the government and the interisland airline industry was also reduced, think again. Hawaiian, now the dominant carrier in the market, enhanced its presence in ways that felt like the shoe was on the other foot. Now, not courting the government, the airline would come in and help the government by finishing up the high-tech hangar for Hawaiians in Honolulu. In turn, the airline would get an expanded terminal space with the build-out of the Mauka Concourse Extension from the interisland terminal.
So there was more of a “mutual respect” relationship going on, instead of a parent protecting its kid type of interaction. The interisland airline would do what it needed to do, make sure that it could cover its costs and provide necessary service, and the government would not continually enforce its presence on the industry, letting it fly on its merry way.
But there had been, lurking, a new entrant into the interisland market that the people wanted, and the government was not going to get in the way of, this time.
ON OCTOBER 11, 2017, the long-held policy of protectionism over the interisland airline market went into hospice.
And it was announced, with fanfare, at a press conference.
On that day, Southwest Airlines announced that it would start the process of getting overwater authority (called ETOPS) to fly from the continent to Hawai‘i using its 737. That in itself wouldn’t have declared protectionism dead as it only announced the start of west coast-Hawai‘i flights.
But it was the fact that a mainland carrier, coming to Hawai‘i and competing with Hawaiian, and the fact that when that announcement happened, the Governor of Hawai‘i, David Ige, was standing next to the president of Southwest, and agreeing, was the loudest sign that the protectionist era over the interisland airline market, was going to be pau (finished).
Two years later, Southwest arrived, and even though COVID and the 737-8MAX grounding would throw big wrenches into its Hawai‘i operations, interisland service did commence, and continues to this day, without as much as a peep from elected officials, one way or the other. It turned out that political candidates would fly on Southwest, interisland, in the years to come The most recent being in 2022, when then-gubernatorial candidate Josh Green was spotted by this humble blogger, flying from Honolulu to Maui on an early morning Southwest flight.
And then came another announcement on a holiday-event-filled Sunday in December.
THE NEWS THAT ALASKA AIRLINES was purchasing, part and parcel, Hawaiian Airlines should have, in the past, elicited a bunch of noise from elected government officials saying all kinds of things in trying to dissuade the deal from going down. If we were back in the 1980s or even 1990s, one could have scripted that statement and timed their reaction to the announcement with an egg timer.
That is on top of the union announcements of their concerns and residents of Hawai‘i bemoaning the loss of a beloved business icon of Hawai‘i to mainland interests.
But alas, the prognostications from the political class in Hawai‘i was, at best, muted, and in comparison to what it was in the past, feeble. Governor Green came out and made some mention of the Attorney General looking at the deal and making sure all was pono (right). Congressman Ed Case started his announcement by recalling the days he flew on Hawaiian as a kid but making no strong statement for or against the merger.
The most “old gangster” announcement that was heard came from Hawai‘i Congresswoman Jill Tokuda. She said, paraphrasing, that she is concerned about jobs being protected and that service to secondary airports like Moloka‘i and Lāna‘i should be a focus.
Back in the past that would have been the foundations of what would be governmental hearings, like the ones that TurnWorks had to go through when they tried to merge Aloha and Hawaiian, (go to page 96 in the link to read about that) and then be sure that the room was filled with people who would disagree with the transaction, creating a lot of negative news right when the deal was about to go into federal review.
But this time Tokuda, so far, has provided the strongest statement on the buyout. It’s not anticipated any stronger ones are coming.
THE FACT THAT POLITICAL FIGURES in the past, like Inouye, most of the Hawai‘i governors up to Linda Lingle and a parade of legislators/other congressional people would put real effort into protecting the local interisland airlines in the past was not all for nefarious reasons. Their focus on making sure the market was secure for residents to fly between the islands is one of those “core jobs” that politicians are asked to do when elected – make sure there is free-flowing transit and be sure that nothing threatens that.
And for good reason, considering that air travel had taken over from ferries between the islands and that it was the only proven way to get people from one island to another, quickly and safely. To have mainland interests, with mainland focuses coming into the market and dictating terms to the residents traveling was not palatable, considering that their link to the islands was perceived as a direct result of the money they could earn here. Once that didn’t happen, they could be gone in a day, leaving the residents without dependable interisland transportation.
But protectionism came with a cost. The airlines having to make sure the fares were affordable enough, had to make money in other ways. For Aloha, it was the leasing of planes and being sure that it marketed itself enough to the mainland and Asian tourists to fly on it. Hawaiian did the same thing but it also decided that it needed to expand to fly to those destinations on the continent and Asia, working to dominate both markets and make money in the process.
Eventually, Hawaiian as the stand-alone interisland airline after Aloha shut down, finally had to raise fairs to a point where they could make money on it. It was well known in business circles that low fares on interisland flights never covered the total cost of transporting 120 people on a jet plane for 150 miles.
Even Southwest figured that out, and that is why you see fares going up again for interisland service.
And is most likely this reality, that while Hawaiian could make a go at 1/3 the size of Alaska Airlines, there was only so much one could do before Hawaiian became attractive enough to be bought out by Alaska Airlines. Provided Alaska is going to keep the Hawaiian brand alive, and try to make a go of operating a two-branded company, like CVS does with Longs.
But it won’t be told how to do that, or what to do about that, by government officials who protected the local interisland airlines for decades before. That protectionism was on its last legs for the last couple of decades and expired, it seems on December 3, 2023, at about 10 a.m. Hawai‘i time, while I was enjoying the chicken katsu and rice brunch, waiting for the Christmas program to start.