With the purchase of troubled Hawaiian Airlines, former baseball commissioner Peter V. Ueberroth and Newport Beach businessman J. Thomas Talbot are trying their luck in one of the nation's toughest airline markets.
Led by Honolulu-based Hawaiian Airlines, U.S. airlines have often lowered fares to attract passengers at the risk of reduced profits. "It's a very competitive market," said Thomas Wogan, marketing manager for Delta Air Lines in Honolulu. "It's a real challenge to make a profit."
On Sunday, a group that includes Ueberroth and Talbot made a bid for the carrier, which has lost money for the last two years because of costly repairs to its aging fleet and destructive fare wars. At their $22-a-share price, it would cost the group nearly $22 million to gain 51% interest and nearly $43 million to buy all of the shares.
Inter-Island Travel Up
Most major U.S. airlines fly to Hawaii. They are led by United, the largest U.S. carrier in the market with 14% of the passengers, according to airline industry analysts. Delta ranks second. In November, Phoenix-based America West is scheduled to begin daily flights to Honolulu, which will intensify the competition.
The battle for passengers isn't confined to trips from the mainland to Hawaii. Hawaiian Airlines and its island competitor, Aloha Airlines, have flown passengers between the five Hawaiian islands for years.
But recently, United Airlines entered the inter-island market, flying passengers from Honolulu to Maui, Kona and Kauai. And in December, a new airline, Discovery Airways, is expected to start flying between the Hawaiian islands.
The airlines are attracted to Hawaii by statistics that show the market is healthy and growing. According to the Hawaiian Department of Transportation, 9 million people flew between the Hawaiian islands last year, up from 7 million in 1983.
The Transportation Department in Hawaii says 8 million people visited the state from overseas destinations last year, compared to 5 million in 1983.
Popular Honeymoon Spot
Spurred in part by increased advertising by the state and bad weather in Mexico, tourism in Hawaii swelled this year. According to the Hawaiian Visitors Bureau, travel from the mainland is up 10% this year. The bureau had anticipated just 3% increase.
Besides vacationers, Hawaii has long been a popular honeymoon spot for West Coast newlyweds, and according to United Airlines spokeswoman Sara Dornacker, the state is one of the airline's most popular destinations for free trips under its frequent-flier program.
But despite its popularity with travelers, Hawaii isn't an easy place for airlines to make money. Delta's Wogan says that, because of intense fare competition, Delta takes in between 5 and 7 cents a mile for each passenger it flies to and from Hawaii. On the mainland, Delta takes in 12.5 cents a mile for every passenger.
"You can see what that implies for profits," said Wogan.
To attract customers, most airlines, including Hawaiian Airlines, have tie-ins with big tour operators, an arrangement considered crucial to fill planes. Airlines have tried a number of gimmicks to reach passengers.
United, for example, is serving passengers on its domestic flights Hawaiian meals, such as sesame chicken with chocolate covered macadamia nuts for dessert to create an interest in its Hawaiian service. A tiny orchid is placed on each meal tray.
But the main area of competition is fares.
Most tickets to Hawaii are deeply discounted. Currently, the airlines offer a $348 round-trip fare between Los Angeles and Honolulu that requires an advance purchase and can't be refunded. That compares to United's unrestricted coach fare of $1,032 round-trip.
Hawaiian Airlines, the discount leader, offers an even lower once-a-week fare from Los Angeles. That special fare is $298 round-trip. No airline has matched that fare, which is regarded as too low to be profitable.
"We look at their fares on a market-to-market basis," said Wogan. "Before you match them, you have to decide if it makes prudent business sense."
HAL INC. AT A GLANCE Revenue Net income (loss) Main business Hawaiian Airlines
Assets $132.3 million
Common stock 1.95 million shares
52-week high $40.25
52-week low $20.625
Monday close $25.25, down $6.625
Source: Standard & Poor's, Associated Press