With its new go! airline, Mesa (MESA) touched off what The Wall Street Journal calls the "fiercest battle in U.S. airline history," dramatically altering the marketing landscape. Even so, the battle echoes those that drove other "upstart" carriers, including Mid Pacific and Mahalo, out of business because they did not have deep enough pockets to withstand the competitive maneuvers of the islands' 900-pound guerillas.

Mesa's Chair and CEO Jonathan Ornstein told Regional Aviation Weekly that the battle royale is little more than the stages someone goes through when facing bad news - first there is denial, then anger (where Aloha and Hawaiian are now) and finally acceptance. "They just haven't accepted that we are there to stay," he said. "When they do they will stop acting irrationally."

Press reports indicate that Mesa had originally approached Aloha and Hawaiian, offering to invest in them in exchange for a capacity agreement. The upshot would have meant a much more efficient and cost-effective inter-island operation for the major carrier, which would end up doing what the majors across the United States have done - replace larger equipment used in short-haul markets with more profitable regional jets. Fares also would have dropped and the carrier who partnered with Mesa would have been in a far better position to compete. It would have also provided more frequency without added capacity.

The federal bankruptcy judge overseeing Hawaiian's case declined to enjoin Mesa from selling tickets as requested by but said on October 5 that a review of documents "raises real doubts about the propriety of Mesa's conduct." That ruling and the revelations made in court, prompted Aloha to sue Mesa for predatory pricing. (RAN, October 23, p.2).

The competition has taken its toll on Aloha ending whatever positive financial momentum the carrier had in emerging from bankruptcy. Market share dropped from 47 percent to 36 percent, despite a 7.9 percent year-over-year increase in inter-island traffic. Its July traffic was down 17 percent from July 2005, according to the DOT's Bureau of Transportation Statistics. Hawaiian's traffic was up for the period and its market share is 49 percent to go!'s 10 percent.

The judge found that confidential information that Mesa agreed to return or destroy when its bid for Hawaiian was rejected had not been destroyed. Mesa said the information was not particularly useful and most was obtainable from public sources.

Ornstein pointed out that what you need to go into a new market is the answer to three questions - how many passengers, what the fares will be, and what the costs will be. "That tells you whether or not you'll make money," he said. "If anyone is being predatory, it is Aloha and Hawaiian." Indeed, paradise is littered with the bones of past attempts to compete with the two airlines, which may prove his point. "We added approximately eight percent more capacity to the market. How can Mesa be considered predatory? It is my opinion, and apparently one shared by many people in Hawaii, that the two carriers are doing whatever they can to eliminate competition and return to the days prior to go! of $100 one-way fares. In fact, that is exactly what has happened in the past. The way competition was dealt with was to match fares, take them to court, get the FAA and DOT on them and wait for them to run out of money."

Hawaiian's court filings indicated that Mesa copied large chunks of text and several charts from Hawaiian's information memos and reproduced them in its own offering memorandum and was used in a presentation to Mesa's board. Hawaiian charged Mesa CFO George Murnane sent one of his colleagues an electronic copy of part of the information memo and told him that a portion of Mesa's offering "needs to be more like the attached." It further charged that both actions occurred at a time long after Murnane claimed under oath the Hawaiian material and the CD to have been destroyed.

The information included financial forecasts, market data, cost information, revenue information and route performance. Similarly, the information from Aloha included financial information and data, business plans, internal forecasts, analysis of its business potential, strategic opportunities as well as management and other proprietary information and trade secrets including costs and projections of its inter-island operations. However, Ornstein said this could all be obtained from public records. Indeed, Ornstein said it was not hard to get the information. "They've been in the market for over 60 years," he said. "All you have to do is look at a Form 41 and other readily available public documents." But Hawaiian called it a "users guide" to operating an inter-island airline.

According to Hawaiian's filings, Murnane initially testified that he had not looked at Hawaiian's information while Mesa was considering entry into the inter-island market. It also stated that Murnane still denies, however, that the information he copied was confidential. The court called his contradictory statements "profoundly troubling" and concluded that "serious doubts" had been raised about Murnane's "recollection and credibility."

The Pacific Business News quoted Ornstein as blaming Hawaiian and Aloha for doing irrational things like pouring on capacity in the face of the new competition from go! "I can't save them from themselves," he told the publication.

Indeed, observers wondered, given how little Mesa's capacity was, why the larger carriers didn't just ignore the fledgling operation. With only eight percent of capacity and 10 percent of that mandated for any fare sale, that means Mesa was actually offering only eight tenths of one percent of the capacity on sale.

Ornstein explained some of the remarks quoted in Hawaiian's legal briefs, saying that most were taken out of context. He said he was asked how long Mesa could run the operation unprofitably. His answer was forever if just the math were considered. He could, indeed, fly the planes empty and lose $20 million per year as a company with $300 million in the bank and $100 million in cash flow. "I was asked could we, not would we," he said. "Is there room for three carriers? Of course. The question is how much total capacity will the market support. Aloha and Hawaiian increased capacity the minute we entered the market. That was their choice. And simple economics tells you that prices will decline when capacity is increased. I am not sure why they are surprised the fares are lower."

Dunkerley pointed to a memo written by Murnane to a consultant working on its plans. "I agree that if we assume (Aloha) stays in the market and in business forever, this project makes no sense." The memo, written in September 2005, a week before Mesa announced its Hawaiian plans, went on to say, "Clearly if we can get Aloha out of the market without anyone else stepping in, this is a home run."

Just before go! launched, however, emails were flying back and forth between consultants and Mesa, said Ornstein. "It became clear through our own analysis that 10 aircraft on a variety of routes would not work with the existing capacity in the market," said Ornstein. "That is exactly why the business plan changed. Their argument, in fact, proves our point."

Hawaiian said that Mesa's consultant wrote that entry into the market did not make sense as long as Aloha was in the market. Court documents indicate that Murnane responded that rather than wait, Mesa should enter and give them the last push. Hawaiian also quoted a January 2006 teleconference presentation Ornstein made to potential investors when he reportedly said he was confident that Mesa could make a profit in the inter-island market because "we do have the benefit of looking at both Aloha and Hawaiian when they were in bankruptcy...."

While Hawaiian and Aloha matched go!'s $19 and $39 fares and increased capacity by 20 percent, inter-island travel only rose 3.1 percent June-August, according to state statistics. However, Marsha Wienert, state tourism liaison, told the Honolulu Advertiser, the increased inter-island travel is remarkable given the fact that majors offer more flights directly to Neighbor Islands. She indicated inter-island was on the rise before go! began service. In 2005, travel between Hawaii's airports increased 1.3 percent to 15.6 million visitors from the previous year's 15.4 million, DOT figures show. Inter-island traffic had been in a steady decline, down from 20.8 million in 2000 to 15.6 million in 2005, largely attributable to direct flights as well as expansion of big box stores and better medical service in those markets.

"We believe they would not have come to Hawaii at all but for the advantage of having looked over our confidential information," Hawaiian CEO Mark Dunkerley told the Journal, adding it was like playing poker with someone who has seen your cards. But Ornstein countered that he had been interested in the market since 1992. It was not until a leasing company asked Mesa to take several 50-seat regional jets at very low cost that the plans solidified. Mesa's program to enter the inter-island market was known as Project Hele and started in early 2004.