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What Really Killed Aloha?

The long answer may be simple: Us

(page 3 of 4)

He took the job anyway, and hit the ground running. On his second day on the job, he met with union officials to make permanent earlier wage concessions, and two weeks later he laid off 12 top managers (half of the company’s vice presidents) and froze 35 other management positions. The move would save $3 million a year in operating expenses and show everyone throughout the company that the belt-tightening effort would be top-down.

“I joined the company on November 14th, and we owed the ATSB [U.S. Treasury’s Air Transportation Stabilization Board] $4 million on December 23” says Banmiller. “I told everyone that we were going to save $60 million and this is how we’re going to do it: I showed them the same piece of paper, one page, that listed what the lessors, unions, management and ownership had to do. The ATSB ended up giving us a 90-day deferral to our $4 million obligation, and we made all the cuts we promised and more.”

A short week later, Banmiller announced that Aloha Airlines would be joining rival Hawaiian Airlines in Chapter 11 bankruptcy. Under bankruptcy protection, Aloha renegotiated its aircraft leases, its largest expense at the time, with GE Capital Aviation Services and Boeing Capital. Some of the leases of the airlines’ 737-200 planes were as high as $135,000 a month; now they were as low as $50,000 a month.

On Feb. 17, 2006, Aloha Airlines emerged out of bankruptcy with a new owner, Yucaipa Corporate Initiatives Fund, $64 million in cash, another $35 million in debt financing and a line of credit from GMAC, the finance arm of General Motors. It also had a new competitor, go! airlines.

Instead of going to badly needed fleet and airline infrastructure upgrades, the cash went to fund the airfare war that commence shortly after go!’s arrival. Yucaipa poured in an additional $100 million over the next two years, but those monies, according to Banmiller, went right into the fuel tanks and were used to subsidize $29 airfares.

“Within the last two years, we saw the price of fuel go up $1.50 a gallon, so our costs went up $70 million to $75 million right off the top,” says Banmiller. “Take $20 off of the average fare of three million passengers each year, and you have a company that is taking a $15 million annual hit. Where is that going to come from? It comes from somewhere.”

The airline executive goes into excruciating detail about the challenges Aloha Airlines faced and who he met and what deal he and his staff brokered at the 11th hour to save the airline. There were also the deals he couldn’t close with other airline CEOs that ultimately doomed the airline. But the story that Banmiller really wants people to remember isn’t a complicated business allegory or even a simple lesson in economics. Rather, the lesson is in civics.

“We made some really hard decisions to keep this airline alive. We furloughed people. We cut salaries 20 percent, and we got rid of pension plans. These are 3,500 employees, 3,500 vital members of our community,” says Banmiller. “In essence, one part of our community was subsidizing another part of the community’s airfare. Someone was taking a 20 percent pay cut, so his or her neighbor could fly cheaper. They could have walked right across the street and just given them the money. That sounds overly simplistic, but that is basically what happened.

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Jun 3, 2008 04:26 pm
 Posted by  hulalady

A right to the heart article. Now maybe Go should go! I for one would not support them, regardless how low they bring the fares. It is unfortunate there no longer are two regular local airlines. Also, we in Hilo need to fly west before we can fly east to the mainland, using several hundred more miles of fuel consumption. Perhaps rerouting flight schedules might help.

Jun 21, 2008 09:00 pm
 Posted by  keoni48

On a trip to the islands in 1994 I used both Aloha and Hawaiian for my inter-island flights. The cabin crews on both Hawaiian flights exhibited true Aloha Spirit and were friendly and courteous. However the cabin crews on both Aloha flights were basically arrogant and condescending. They acted like they could care less about their passengers. They laughed and joked among themselves during boarding and bassically offered no assistance with seating. In-flight service seemed to be offered simply because it had to be. If this poor service had been on one flight I would have shrugged it off, but it was the same on both flights, which indicated this was company-wide. Since then I have booked all my inter-island flights on Hawaiian and have not been disappointed with the high quality of service both on the ground and in the air.

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