The Sad Demise of a Hawaiian Institution

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As we head into yet another critical election coming up in November, I hope every voting capitalist Another American institution has died at the slippery hands of foreign oil prices and cut-throat competition here at home. Hawaii-based Aloha Airlines filed for bankruptcy protection on March 20, for the second time since 2005. But this time, with no investors willing to fly into such stiff headwinds, the airline with such a rich history simply ran out of cash, and shut down its passenger service Monday.

I had the unique opportunity to witness firsthand the slow choking death of this once proud sixty-one year old company, strangled by forces beyond its control. Its death toll includes: 1900 dedicated employees; some 10,000 daily passengers’ left without lift at competitive prices, decimation of a state tourism business, and total disruption of mail and cargo operations throughout the state of Hawaii. The immediate impact to the state economy is estimated at $100 million dollars.

There is a disclaimer needed here. My twin brother Dave Banmiller is President and CEO of Aloha, in charge of trying to save the company, and the one forced by fiduciary responsibility to pull the trigger. That has given me unique access as a journalist to witness the demise of a truly home-grown institution. But rest assured I am not simply “carrying his water”. And he did not approve this article or help me write it.

Rather, I’m writing this because what I have seen in this industry as a private pilot, passenger and business journalist demands I send a signal to politicians, business leaders and consumers alike that our U-S airline industry is indeed in terrible trouble. And no one seems concerned enough to offer more than platitudes.

When the Governor of Hawaii was informed of the pending bankruptcy, she expressed concern but offered no real help. No surprise there. She was on record as supporting “free competition” What that means is she supported the 2006 entrance of a third inter-island carrier into Hawaii, GO airlines, owned by Phoenix based Mesa Airlines. That despite industry analysts who said Hawaii could only support two local carriers, Aloha and Hawaiian. So Mesa started a fare war, and declared below cost fares as low as $19 in an open attempt to put Aloha out of business. Mesa won the war. Aloha and its 1900 employees have lost.

Consumers will not win either. With Aloha out of business, Mesa will no doubt raise GO airfares to recoup the millions of dollars it lost with its below market pricing.

Some background here. In one of more than sixty attempts to reach out to potential investors over the past three years to keep Aloha afloat, Dave Banmiller  reached out to Mesa as a prospective investor. Instead, according to a lawsuit filed by Aloha, Mesa CEO Jonathan Ornstein used proprietary financial information provided by Aloha to enter the market with the express intent of putting Aloha out of business. (Aloha claims in its lawsuit it has e-mails to prove its contention.) Hawaiian Airlines has already won a similar lawsuit against Mesa for $86.9 million dollars. (Ornstein has refused comment on Aloha’s demise, citing pending litigation.)

But the federal government did nothing about the alleged “predatory pricing”. Aloha executives met with politicians and government officials; including senior Department of Transportation officials last year asking if the government could intervene in what Aloha felt was predatory pricing by Mesa in an overt attempt to put Aloha out of business. While sympathetic, very senior government officials said there was little they could do. Naively perhaps, I once thought the federal government could intervene to protect jobs in such instances. But apparently, free market forces trump legitimate government oversight in an industry long deemed vital to the nation’s interest.

But perhaps even more frustrating is the federal governments’ total inability to deal with the devastating effects of sky-high oil prices that are helping destroy the U-S airline industry. Delta just announced it would offer buyouts to 2,000 employees. Other carriers are cutting back capacity leading into the busy summer travel season. Rumors are flying that ATA will soon declare bankruptcy. Yet the Bush Administration sits idly by offering nothing but platitudes about energy conservation and a lack of production capacity worldwide, while oil prices have risen 75% in the past year.

On a trip to the Middle East earlier last month, U-S Vice President Dick Cheney said crude oil prices in excess of $100 (U.S.) a barrel reflect a reality in the marketplace, because “there is not a lot of excess capacity worldwide”. Yet his boss, President Bush, in January called on OPEC to increase production. Does Mr. Bush know something the Vice President does not?

Mr. Cheney cited the dramatic increase in demand from countries such as China and India, as well as oil exporting countries in the Middle East that are consuming a larger part of their own production to fuel economic development at home. Add in the declining value of the dollar, and Mr. Cheney says the high price of oil “reflects primarily the realities of the marketplace”.

I agree. But where is the leadership in Congress and the Bush Administration to deal with that reality by developing a solid domestic energy policy before those market forces destroy American business and the U-S economy. My brother has made countless trips to Washington as a Board member of the American Transportation Association (ATA), the trade association that represents the U-S airline industry. Despite airline pleas for help in polite meetings with politicians and bureaucrats, little gets accomplished.

In just the past year, Aloha added an additional $71 million in fuel expenses it could not pass on to consumers. The privately owned airline lost $81 million in 2007 and $11 million this past January. All other U-S carriers can tell similar stories. Such numbers surely scare away potential Wall Street investors. An investor may buy Aloha’s air cargo and services business, but nothing else.

What can we do? Business leaders and consumers need to ask, indeed demand, of those running for political office this fall that they put our energy crisis on their front burners before they can no longer afford to fuel them. Unfortunately for those 1,900 Aloha Airlines workers, their burners have already run out of fuel.

Brian Banmiller is a national business reporter for CBS News Radio, and former Business Editor for KTVU Channel 2 News (the Fox affiliate) in San Francisco.  He can be reached at brian@brianbanmiller.com .


This article originally published on October 17, 2008.

Brian Banmiller

About Brian

CBS News Radio national business journalist Brian Banmiller has spent more than 40 years in the news industry, covering business, politics and the economy on television, radio and in print. Currently, his “Banmiller on Business” reports are delivered to an audience of millions nationwide.

 
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