An Island Air/go! Merger May Be Brewing in Hawai’i, But Why?

Go!, Island Air, Mergers/Finance

Word out of Hawai’i is that Larry Ellison, multi-billionaire CEO of Oracle, isn’t content with just having bought most of the island of Lanai and interisland carrier Island Air. Now he’s interested in buying another interisland carrier, go! to expand his empire. One can only wonder… what the heck is he thinking?

After Ellison bought Lanai, the purchase of Island Air seemed to be straightforward. He could get a hold of an airline on the ropes and refocus the carrier to boost service to Lanai. More seats, more tourists, more money. I’m not necessarily suggesting this was a good idea, but I can at least understand the rationale.

Island Air used to be a Dash-8 operation that focused on smaller airports in Hawai’i, but that has changed. The airline’s fleet plan is now for ATR-42s to fill in the Dash-8 category alongside larger ATR-72s. And just take a look at this route map:

Island Air Routes

Island Air no longer flies to the Big Island at all. It was forced to abandon West Maui because the runway is too short for its new fleet to operate safely. And while Lanai continues to see service, much of the airline’s upcoming growth is on trunk routes between the islands like Honolulu to Kahului and Lihue.

That puts Island Air competing squarely with the behemoth in the islands, Hawaiian Air, as well as the much smaller go! operation. The overlap with Hawaiian will be even greater as that airline begins its ‘Ohana operation which will fly props to both Lanai and Molokai.

go! was originally started by Mesa Air Group under some highly questionable circumstances. Both Hawaiian and its chief rival Aloha had filed for bankruptcy and Mesa began sniffing around, looking for opportunities. After seeing inside the books, Mesa decided to walk away and start its own carrier. Aloha went out of business, and many (most?) in the islands still hold a grudge against Mesa for putting the final nail in Aloha’s coffin.

But even with Aloha gone, go! wasn’t very successful. It has never flown more than a handful of 50-seat CRJs and it’s now down to very little flying at all. For example, go! only has 5 flights a day from Honolulu to Kahului and fewer than 20 departures per day from Honolulu in total. It does sell commuter services on Mokulele’s 9-seat props, but they are separate airlines.

So, um, what does Ellison want with go!? According to reports, Ellison would basically buy the brand and merge it into Island Air. This is great news, because there’s nothing more obnoxious than the go! brand with its lower-case spelling and stupid exclamation point. So the Island Air name would survive, but Island Air wouldn’t operate the airplanes. Mesa would continue to operate the service similar to how it operates flights for other brands like US Airways.

From Mesa’s perspective, you can see how this would be enticing. I can’t imagine go! gets even close to making Mesa any money. So if it can get someone else to take on the risk and just pay Mesa for the service, then that’s great news. Nobody in their right mind would do that, unless Mesa was actually paying someone to take go! off its hands.

But even then, why would you want this? The distances between the islands are very short, so turboprops really are perfectly acceptable. And a 50-seat CRJ is far from ideal. (That’s being generous.)

The only way to look at this is that Ellison must think it’s time to get rid of some competition. Get rid of go! and then you become effectively the only real competitor to Hawaiian on large interisland routes. You still have Mokulele flying 9-seat aircraft, but that’s a different kind of market. (Maybe that’s on Ellison’s acquisition list too.)

If you eliminate competition, then Island Air can takes its place as the only alternative to Hawaiian. Right? I know, I know. Even I’m having a hard time seeing why you would want to do this deal.

But Ellison has billions of dollars and is one of the richest people in the world. The simple purchase of a tiny airline would be like buying a pack of gum for anyone else. You just don’t need to think about it because it has such little impact on your pocketbook. Then again, we’ll see if Ellison feels that way once this starts to burn holes in his pocket every single month.

There is one last theory. Ellison may just be jealous of Richard Branson. After all, Branson has a couple of airlines losing big money these days and Ellison wants to catch up. This deal would help.

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24 comments on “An Island Air/go! Merger May Be Brewing in Hawai’i, But Why?

  1. Didn’t Warren Buffet once say “the best way to get to $1 billion is to start with $2 billion and buy an airline”?

    Especially nowadays, the airline industry is such an awful industry to be a part of. I don’t know what Branson and Ellison are doing.

    1. But in light of the recent changes in the industry (the biggest of which are consolidation and managements who are concerned with return on investment, instead of market share) many investors like Jim Cramer, now think airlines can be a good investment.

      1. Good investments compared to what? if Cramer’s advice was any good (instead of being entertainment) then he’d be retired and rich!

        Even when airlines perform well, they aren’t that great an investment compared to what else is out there.

        1. Roger – Cramer IS rich. He just isn’t retired. He feels the airlines will ultimately be better able to generate a return on investment because of consolidation and managements that focus on profits, not volume.

          The freight railroads also were a shambles, until consolidation made their business model more rational. The same is happening now with airlines.

          Most airline “geeks” live in the past. But this isn’t your father’s airline industry. Because of executives like Doug Parker and Richard Anderson it’s business model is, and will become, more rational.

  2. Ellison is nowhere near Branson. Branson has airlines losing money on multiple continents, short haul, long haul, premium, low cost, everything. Granted like Ellison he has ventures that do make money so he doesn’t care.

    I still don’t understand how Hawaii supports 2+ airlines on interisland operations. You would think United (a la Continental Micronesia) would have scooped up the interisland market with a small regional operation.

  3. It’s pretty obvious that Ellison isn’t satisfied with being a multi billionaire, he wants to become a millionaire. It’s also possible that he wanted a train set as a kid. Buying a couple of airlines may be his substitute toy.

    1. I vote for this explanation as well. I was proven wrong once before when I thought RP had some grand master plan in merging YX/F9 that I couldn’t yet understand, when in fact, there was no plan. So I am going to go with Occam’s Razor–he just wants to play with an airline. How many moguls have airlines enticed to their financial detriment before???

  4. Hawaii is one of those areas that has a lot of people flying between the islands year round, both locals and tourists. There is enough room for two airlines on the major routes, and now Larry may have a smart idea.

    Since HA is branching out more into Asia plus it’s mainland and South Pacific operations, Larry may be thinking tie ups with all the airlines that now are competing with HA would use his larger airline. If you are AA,UA,DL,JL,NH,QF etc do you want to fly to Hawaii and then put your connecting passengers on HA who is also matching your Hawaii service and can offer HA to/from HA through service.

    A second better run (deep pocket) owned carrier could now codeshare with everyone HA competes with and become a big player in the market.

    1. This seems like the most logical theory. Although, I’d be curious how many interisland connections there are? It seems like the trend is along the lines of the usual international long and thin: connect people directly from the mainland to their final destination using smaller aircraft (e.g. a 737 vs 747)

      1. North American carriers are diversifying with more flights to the outer islands, but Asia/Pacific carriers are focused on HNL, as are HA, UA, and DL’s flights to Asia.

    2. Seems like a waste of time for someone like Larry when you look at it as a business. How much profit can he possibly expect from this operation?

  5. We definitely need more competition out here. Hawaiian has the market locked and they act like it. I find that their people are rude, and that they have taken all the magic and “Aloha” out of traveling in the islands. E Komo Mai to Kahuna Ellison if he can give Hawaiian a run for their money.

  6. I can see this working – if the pricing and economics are right, which won’t be easy.
    In some ways, this is like intra-Alaska flying, and there are quite a few successful airlines there. Both Alaska and Hawaii are geographically isolated, and depend on air travel throughout most of the state (Alaska probably a bit more so, but there is much more tourist travel in Hawaii to make up for it). And both have ‘their’ large airline with intra-state flights as well as to other destinations, AS and HA. So why can’t both support smaller airlines that only fly within the state as well?

  7. Build a runway on Nihoa and Necker and fix the one on French Frigate Shoals!

    (heck, I’d be happy if someone would fly to Midway again)

  8. I have always wished someone would start an ULCC for Hawaii service. It seems to be a perfect market with lots of people, short distance and great weather. Cramming the maximum number of passengers on a couple of A319’s or 737-700’s, especially now that their prices have dropped, would make a lot of money for their owner.

    1. 319s and 73Gs aren’t really suitable for high frequency, short haul service…one reason Aloha kept the 732 for inter-island flights.

    2. Physical size is an issue. There seem to be a good number of local residents that are, shall we say, rather big. Not always fat though, sometimes just broad shouldered. For these types of customers, having a densely packed plane with limited seat pitch and width would be an issue.

      I’m not sure the ULCC model would work so well. Hawaiian already charges for checked bags and beer, and their web site can bundle in hotels too. But a lot of local VFR pax don’t need the hotel or car as they stay with family. The flights are so short, there’s not a lot of time or opportunity to sell. I don’t see a lot of passengers opting to purchase a meal during the flight.

  9. Ellison bought Island Air because they were on the verge of shut down and had such a HORRIBLE reputation in the isles. Tourists (haoles) didn’t know any better. They make Mesa’s WORST operation seem like a dream. “If you have time to spare, fly Island Air” was their local slogan for a long time. 3 – 5 hour delays were the norm, and so was combining flights. So Ellison needed a reliable version of Island Air in order to get people to visit and stay at the resorts. And Mokulele & Pacific Wings just weren’t big enough to get the lift needed.

  10. Just came back from the Islands and flew Island Air’s newest member of the fleet – ATR75 N425MJ, formerly of AA Eagle. Flight ran about 20 minues late (always expected…”it’s Hawaiian Time” as the locals say, especially a few years ago about HA) and was full. Great service, friendly check in staff and crew. My only complaint was ATR72s have no APU (GPU only and I assume the propeller brake was dis-engaged by Eagle), we literally melted on the airplane when we boarded. They got number two running (without prop brake), but little air circulated until we got into the air. I hope they succeed, they have a much better reputationthan go!/Mesa according to my family on Kauai. And of course, Island Air traces their routes to Princeville Airways!

  11. Agree with tomhmartin. Flew OGG-LNY-HNL on July 8th on a “new” ATR 72, still unpainted and ex American Eagle. Roughly on time departure, and excellent friendly service by the two flight attendants. Captain came out of the cockpit to welcome us on board. I grew up in Hawaii, now live on the mainland. Never too fond of either Aloha or Hawaiian, but I think Island Air can become the new “Aloha.” And if they get rid of go! even better.

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