Larry Ellison, the billionaire founder of Oracle, has agreed to sell controlling interest of interisland carrier Island Air to a pair of Aloha State-based investment firms.


PaCap Aviation Finance and Malama Investments, two Hawaii-based companies managed by the Honolulu investment firm PacifiCap, have agreed to purchase control over the small airline, pending approval from the U.S. Department of Transportation.

While terms of the purchase were not released, Island Air officials did say in a statement last week that Ellison’s Ohana Airline Holdings will maintain “a non-controlling interest in Island Air and will continue to partner with the new local owners as they move forward.”

Ellison, who purchased 98% of Lanai for a reported $300 million in 2012, bought Island Air outright in 2013.

Should the deal be approved by the DOT, Island Air would be directed in the short term by a transition team of Dave Pflieger, the current CEO; Les Murashige, a former Island Air executive; and Jeffrey Au, PacifiCap founder and managing director.

Au told Travel Weekly, meanwhile, that he thought the proposed purchase was not only a good investment opportunity but also a chance to help Hawaii residents, who don’t see interisland flights as a travel luxury.  

“Every airline has multiple fare classes, and the bottom line is when inventory is sold out, or almost sold out, only the expensive seats are left,” he explained. “If you’re someone living on the neighbor islands and have to go to the doctor or hospital on short notice, it’s only going to be the expensive seats that are left, and that can be a major financial burden.”

Au, who was born and raised in Honolulu before attending university at Stanford and later Columbia, added that “it’s public knowledge Island Air lost a lot of money over the past few years,” but he said the carrier has also seen a great deal of operational improvement in recent months.

“They’ve been publishing their on-time completion records every month, and those have improved significantly,” he continued. “Their first safety audit had zero citations, which is unusual in the industry. Usually there are as many as 20 or 30 or more. So from an operational standpoint, things have been turned around, and now we see it as the point where we really start filling seats and ramping up revenue.”

In late spring of 2015, Island Air announced that it would cut its workforce by 20% and make a substantial reduction in service across the state. According to an April 30 letter, written for the carrier’s employees and customers by CEO Dave Pflieger, Island Air lost $21 million in 2014.  

Today, the carrier offers service on only two routes: Honolulu-Maui and Maui-Lanai.

“By the end of the year, if not sooner, we hope to re-enter other neighbor island markets,” Au said.

He added that the carrier will continue to fly its ATR 72 aircraft. “As things ramp up, we may possibly add aircraft and possibly bring in some newer aircraft to replace older ones.”  

Aware of concerns among many in Hawaii’s tourism industry regarding the increasing cost of interisland fares, Au indicated that more airlift and seat availability across the state could help travelers to pay less.   

“I keep hearing anecdotally that people had to go to a neighbor island and paid hundreds of dollars roundtrip,” Au said. “Somebody told me they paid $388 roundtrip. That’s almost more than the cost of going to California if you get a cheap ticket.

 “But that doesn’t mean the other airline is charging $388 on every flight,” he continued. “What that means is they’re sold out and perhaps only first class is left, [so] it’s not only how high or how low your fares are, but it’s the amount of inventory you have.”

Au acknowledged he’s spent a fair amount of time discussing Hawaii’s increasing inter-island airfares while meeting with tourism and governmental officials in recent weeks.

“But our view is that’s largely driven by the amount of inventory and seats in the market,” he said. “And we’re obviously trying to help remedy that.”

Hawaiian Airlines has, of course, dominated Hawaii’s interisland marketplace since Aloha Airlines’ failure in 2008, but travelers can fly between the islands not only on Island Air but also carriers such as Mokulele Airlines and Makani Kai Air.
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