In the shadow of two bankrupt competitors, Island Air has nearly doubled its operations since May when it became an independently owned regional carrier serving the Hawaiian Islands.

After 17 years as a unit of Aloha AirGroup, the owner of Aloha Airlines, Island Air has charted a course to expand its services to all eight Part 135 airports on the chain of mid-Pacific islands - and to do so profitably. When it separated from Aloha, Island Air had four Bombardier [BBD] Q100s with 44 flights per day and 220 employees. The regional carrier now has eight Q100s flying 82 flights per day with nearly 400 employees, said CEO Neil Takekawa. "We went from flying five routes daily to 12 daily routes. In the expansion we opened Kona and Hilo on the big island and Lihue on Kauai. We started to link cities together without coming back to Honolulu," he said.

Island Air flies both as a competitor of and a partner with Aloha Airlines and Hawaiian Airlines [HA] in flights to various island locations. Hawaiian has been operating in bankruptcy since the spring of 2003 and Aloha entered Chapter 11 in late December.

After Aloha sold Island Air to investor Charles Willis, who was leasing the planes to Island, the regional unit continues to code-share all its flights with Aloha. Takekawa also struck a deal with Hawaiian so that the Hawaiian code is now on 24 Island Air flights. "We approached Hawaiian because we thought it would be a good opportunity," he said. Due to Aloha's code-share pact with United Airlines [UALAQ], some of the flights also have a United code.

"The competition between Aloha and Hawaiian all these years has been akin to the Hatfields and the McCoys and I feel like Switzerland as I am in the middle between the two. I try to compliment both carriers. I have no desires to compete head-to-head because there is no benefit to anyone," Takekawa told Regional Aviation News. The recently bankrupt Aloha has not made any service changes. "It is the calm before the storm. We are sitting here quietly watching across the ramp for smoke signals as to what they may do," Takekawa said. "Their decisions will affect our pacing more than anything else."

More Convenient

More of Island Air's routes are point-to-point between various island airports - an advantage over Aloha and Hawaiian that funnel their traffic to Honolulu and then onto a connecting flight to another island destination. A popular flight is Kahului on Maui to Kona on the island of Hawaii. The same flight on Hawaiian would take 105 minutes due to the Honolulu connection. "No one likes to waste time," Takekawa noted.

"I have to assume my customers came from somewhere. I don't know if they came from Aloha or Hawaiian. I don't know if they have noticed we have increased our passengers. I like to think we got people off their couches that were not traveling before. It is now easier."

Takekawa also contends that his turboprops are better suited for the island trips that the mainline jets that the others fly. On a per seat cost it is much more economical, he said. On the mainline flights - Boeing [BA] 717s and 737-200s - the stage lengths are between 100 and 200 miles. "It is hard to finish a beer," he said.

On Island Air's new routes, the 37-seat planes average a 62 percent load factor, he said. "We anticipate that will climb as the word gets out because of the convenience of these flights. We are at about break-even which is a far cry from where we want to be, but at least we are in the positive.

Seeks Profitability

"I want to take this company to profitability. I have absolutely no desire to bring in jets or be the biggest carrier in the U.S. I do have a desire to be profitable. We are break-even which is a good thing considering that all the expansion and growth were internally funded. Considering the growth, a break-even means we are doing very well," he said.

Island Air had been profitable for most of the previous nine years it had been a unit of the privately held Aloha AirGroup, Takekawa said, based on his history with the company. "Some years Island Air carried Aloha and some years Aloha carried me," he noted.

He has had talks with both Bombardier and ATR about flying larger turboprops on some routes. That day, he said, is less than three years away.

Fredrick Collison, a transportation professor at the University of Hawaii, is not as confident of the demand. Residential travel between the islands has fallen off since both major carriers dropped flight coupons that enabled resident to fly as walk-up fares at rates below posted fares. In addition, the first-ever passenger-vehicle ferry is scheduled to begin operations next year, which could further reduce inter-island flights. A second ferry goes into service in 2007, he added.

Inter-island flights by tourists has fallen as more mainline carriers fly non-stop to Maui, thus negating the connecting flight from Honolulu, Collison said.

>>Contacts: Neil Takekawa, Island Air, (808) 833-0077; Fredrick Collison, University of Hawaii, (808) 956-5637.<<