Friday, 23 June 2017

Mesa Air Shuts Down go! Airlines

go! Airlines is set to go away for good in a few weeks’ time, on April 1st. Parent company and regional carrier Mesa Air Group announced the decision to shut down go!.

The small, inter-island Hawaii based carrier ultimately faced the same fate as competitors that went before it in the same market: higher fuel costs and increased competitive leverage on the part of Hawaiian Airlines. In addition, Mesa cited existing contracts for regional jet flying back on the mainland.

Thanks to the looming pilot shortage, dedicating several pilots to the small and unprofitable go! Airlines operation simply didn’t make financial sense. However at one point in time, go! was largely thought to be the predator that put Aloha out of business just over six years ago.

go! was founded in 2005, and it flew its first flight the following year. The airline originally undercut the market and many said it was the last nail in the coffin for the already weak Aloha whose fortunes further declined with competition from go, increased fuel prices, and a weakening U.S. economy.

The locals blames go largely for the loss of Aloha, and it did play a bit of a role.

Not that it would have taken much convincing. After battling the fuel beast along with entrenched home town favorite Hawaiian whose new regional arm Ohana cuts down opportunities in secondary interisland markets as well competitors Mokulele Airlines and Larry Ellison’s Island Air, the carrier’s operation had shrunk to only two small CRJ-200 jets in recent months.

Mokulele Airlines was originally part of a joint venture with go! back in 2009 that was quickly dissolved in 2011 when Mokulele Airlines received the turboprop portion of the go! Mokulele operation. It was also the only Mesa branded operation.

go! suffered in particular from high fuel prices in recent years because its competitors were either flying mainline Boeing 717s or turboprops, both of which had lower per-seat fuel costs than go!’s notoriously fuel inefficient fleet of 50-seat CRJ-200s.

Today go! serves the “big five” Hawaiian airports of Honolulu, Kahului, Hilo, Kona, and Lihue. Additionally, when the carrier was known as go! Mokulele, service was provided to Lanai, Molokai, and Kapalua, though those flights were eliminated when the joint venture partnership ended.

All of the airlines that have risen to compete with Hawaiian Air in recent years have done so in part to fill the massive void left by the death of inter island player Aloha Airlines in March of 2008. The niche market offers some of the highest fares in the country on a seat-mile basis, which has only increased since Aloha’s demise due to the pricing power held by Hawaiian Air.

Unfortunately for competitors Hawaiian’s Boeing 717-200s have by far the lowest seat mile costs of any aircraft plying working the routes, which means that it has a significant advantage. For the fourth quarter of 2013, Hawaiian’s interisland operations generated roughly $122.3 million in revenue with unit revenues growing a healthy 12.7%.

Still, the emergence of Island Air, now with the backing of Oracle CEO and business titan Larry Ellison, should provide some well-capitalized competition to Hawaaiian Airlines and Ohana.

And the exit of go! from the market should allow Island Air to improve its financial position in the core interisland markets, thereby providing a solid financial base with which to expand into secondary markets like Lanai (which is now mostly owned by Mr. Ellison himself).

go! will rebook tickets sold through June 30th on Hawaiian and Mokulele, while all travel booked from July 1st will be refunded.