In a Bankruptcy Court hearing last week, the former Island Air CEO reveals the cause of bankruptcy. And the stated reason is, well, no surprise.
Island Air has been a part of Hawaii’s aviation scene for the past 37 years. And its sudden closure this past November stunned the community and the Airline’s 423 employees who lost their jobs right before the holiday season. It’s been a shocking and sad turn of events, but one that, apparently, been known issue since at least July.
Reason for Bankruptcy
In his testimony, former Island Air CEO David Uchiyama sites delays in deploying their new fleet as the primary reason for the Airline’s insolvency. However, the situation was further compounded by the unwillingness of the Airline’s owners to contribute the funds necessary to see the revitalization plan through. And with the Airline now bleeding cash, they began a desperate attempt to stay afloat back in July. This effort included selling spare parts, reducing overtime, and modifying flight schedules. And, unfortunately, this strategy wasn’t enough. Island Air continued to fall behind on payments and eventually ran out of money.
So the situation at Island Air was much more dire when the company filed for Chapter 11 Bankruptcy Protection on October 16. Things were so bad, in fact, that when the company shut down on November 10, it couldn’t pay its employees. And thanks to missteps made by the Airline, employees also lost medical coverage and do not qualify for COBRA coverage. Further, employees still have not been paid for their last ten days of work too.
A Losing Strategy
U.S. Bankruptcy Judge Robert Faris called the situation at Island Air a “catastrophe.” And I have to agree. Outside of the disaster of a shutdown, Island Air’s modernization strategy always seemed odd to me. The Airline had been in poor financial health, so a fleet revitalization seemed like an ambitious thing to do. What’s more, Island Air had decided to acquire new Bombardier Q400s, which are arguably better than the ATRs they were flying. They’re faster, quieter, more fuel efficient, and more reliable. But they’re also still too large to bring service back to the Lanai and Kapalua, Maui. Further, the Q400s aren’t jets.
To me, the decision to stick with turboprop aircraft was a BIG mistake. Especially since Island Air was essentially positioning itself to compete directly with Hawaiian Airlines, which operates a fleet of mainline Boeing 717-200s for its intra-Hawaii operations. The 717s are, of course, quieter and more comfortable than even the modern Q400s.
But beyond that, Island Air didn’t have the perceived value of Hawaiian either. HawaiianMiles is the defacto loyalty program of Hawaii and has a very (blindly) loyal following here. So that in itself already makes it more difficult to compete with Hawaiian, nevermind the aircraft type. Further, Island Air didn’t have relationships with very many other airlines, making it more difficult for the Airline to build feed for itself too. Add to that the fact that more and more airlines are flying directly to each island, and the writing was kind of on the wall for Island Air.
What Island Air Should Have Done
I’m no expert, nor do I have any aviation experience, but Island Air really needed to find a way to differentiate itself. And in a way, it did. The Airline did offer kupuna (seniors) and keiki (children) discounts, but that isn’t enough. It needed to build a compelling, desireable loyalty program to compete with HawaiianMiles. It also needed to establish relationships with other airlines to build feed for itself. In fact, this is one of the first things Island Air should have done. Further, if the Airline was going to modernize its fleet, it should have gone with jets. There are many great options out there today, and something like an Embraer E175-E2, Bombardier CS100, or even a SuperJet 100 or a (still under development) Mitsubishi Regional Jet would have been a good fit for the Airline.
Island Air CEO Reveals the Cause of Bankruptcy, Final Thoughts
Island Air really has been a catastrophe of an airline. It had an incredibly questionable strategy, in my opinion, and none of its owners seemed to be committed to the airline. Nothing could have saved it once it started down the path that it did. Of course, I don’t know the whole story either. I never got to see the business plan, but from what did get implemented, it seemed flawed and short-sighted.
And like I’ve said before, the loss of Island Air is a major one for the islands. It turned Hawaiian into a virtual monopoly (Mokulele really can’t compete with them) and left hundreds without jobs. But, it’s Island Air’s former employees that I feel for the most. Yes, the loss of competition sucks, but what’s worse is how employees were blindsided by the Airline. If the financial situation was really that bad back in July, why not file bankruptcy back then? Why wait till the Airline essentially had to shut down? And why not be upfront with employees about the dire situation?