Mokulele Hires Republic for Interisland Flying in Hawai’i

I wrote about this on BNET last week when it was still a rumor. Now it’s been confirmed that Republic will operate Embraer 170s within Hawai’i for Mokulele. This seems like a smart move, and it will put some pressure on go!. Mokulele Begins Embraer 170 Service in Hawai'i[/caption]In fact, I’m tempted to refer to this as “go! Away Airlines.”

Here’s the plan. Republic will take up to four 70 seat Embraer 170s and operate them for little Mokulele Airlines in a traditional regional airline-style fixed fee agreement. Two of those aircraft will arrive in time for flights to begin between Honolulu and both Lihue and Kona in mid-November. I’m somewhat surprised to not see Kahului (Maui) on the list, but maybe we’ll see that when the other two aircraft join the fleet in March. Or maybe since that’s the most competitive market in the Islands, they’re going to play a game of wait and see. Either way, they’ll need to enter that route eventually if they want to be a serious player.

Unlike the all-coach airplanes that Republic will be flying for Midwest, these will actually have 6 First Class seats and 64 in coach. Republic spokesperson Warren Wilkinson confirmed that these were aircraft that had been operating for Delta Connection, but now that Delta has up-gauged to Embraer 175s, these aircraft needed a new home.

The one thing about this deal that makes it a bit more non-traditional is that Republic will actually open a line of credit for Mokulele worth $8 million. It’s unclear whether Mokulele will need to tap this line of credit, but if they do, Republic will have the right to turn it into an equity stake in the airline.

You might think the name Mokulele sounds familiar. I’ve written about them once before when they began flying as go! Express. Yes, that’s Mesa-owned go!, the very same airline with which Mokulele will now be competing. What’s the chance they continue to fly as go! Express for very long? Just about none. In fact, Mesa CEO Jonathan Ornstein was quoted as saying “he’s disappointed in Mokulele and says he does not plan to continue a partnership with a competitor.”

go! must be livid because this does not bode well for them. Economically, the 170s are better planes to fly between the Islands. So, go! is going to have a tough time competing on seat costs. Just when it thought capacity had rationalized with Aloha’s disappearance, this new operation comes along to make life more difficult again.

For Mokulele and Republic, I think this is a smart move. Mokulele enables Republic to fly planes under a local brand name, and we saw how much backlash their was against go! for being from the mainland. Besides, Republic has stayed away from being a marketing carrier in general, and they likely are not looking to build up the infrastructure required for things like marketing and revenue management. This partnership is good for both airlines. There also seems to be broad local and political support for this venture, especially since they are promising to put many ex-Aloha employees back to work.

In short, this is the right airplane for the market, and Republic had some planes it needed to get flying again. This is a very creative way to put those planes to work in a venture that I think has a decent chance for success.

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