Aloha Airlines, Incorporated

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Aloha Airlines, Incorporated

P.O. Box 30028
Honolulu, Hawaii 96820
U.S.A.
(808) 484-1111
Web site: http://www.alohaair.com

Wholly Owned Subsidiary of Aloha Airgroup, Inc.
Incorporated: 1946 as Trans-Pacific Airlines
Employees: 2,200
Sales: $248.3 million (1996)
SICs: 4512 Air Transportation, Scheduled

Aloha Airlines, Incorporated occupies a special place in the sun. One of the legion of postwar start-ups that has survived, Aloha has overshadowed its rival Hawaiian Airlines in the inter-island market by specializing and concentrating on customer service. Although it flies five and a half million passengers a year, the carrier often tallies the smallest number of customer complaints. A new generation of management aims to keep the company “flexible and focused.”

A Bird of Paradise Takes Wing, 1946

The surplus of military aircraft and pilots after World War II gave rise to many postwar start-up airlines across the world. Trans-Pacific Airways (TPA) began its flying life using the ubiquitous Douglas DC-3 (or C-47) and two former Naval aviators, Al Olson and Louis Lucas. The three planes only cost about $25,000 a piece. The maiden flight for paying passengers took place on July 26, 1946—a perfect day, according to Lucas, for flying between Oahu, Maui, and the Big Island of Hawaii. In spite of a spartan, military-style atmosphere all around, including cargo and baggage lashed into the cabin and deafening engine noise, the passengers were treated to bounteous views of unspoiled scenery. The first flights carried a full capacity of 21 passengers (to be increased by seven after reconfiguring the seating), but cash for payroll and other expenses would remain in short supply.

The venture was put together by publisher Ruddy Tongg, a shrewd Honolulu businessman of Chinese ancestry. Asian Americans (including future U.S. Senator Daniel K. Inouye and U.S. Representative Pat Saiki) also made up a great deal of the TPA staff. The enterprise was a symbol of cultural progress, therefore, as opportunity in the Hawaiian business community had been owned by the haole descendants of New England missionaries that controlled the “Big Five” companies and the sugar plantations—then comprising Hawaii’s leading industry. Ironically, thanks to aviation, tourism would soon supplant agriculture in importance.

Former Navy pilot Richard “Dick” King, marketing chief at TPA during its first 25 years, orchestrated the airline’s promotions, which pitched Hawaii itself. The planes themselves were dubbed “Alohaliners.” Flight attendants served not only pineapple juice, but hula and ukulele music. Celebrities began to pour aboard, from Frank Sinatra to Leonard Bernstein.

A dock strike in 1949 stymied the whole Hawaiian economy. There were other difficulties. To compete with Inter-Island Airlines (a subsidiary of Inter-Island Steam Navigation Co., later to become Hawaiian Airlines), TPA needed permission to operate scheduled flights, not just charters. The incumbent used the legal process to inflict devastating delays upon the upstart airline, but TPA was allowed to fly scheduled routes in February 1949. The order had to be signed by President Truman since Hawaii was a territory at the time. TPA also fought for a U.S. mail contract, hotly contested, but finally won in 1951.

In spite of the shortages imposed by the Korean War, the carrier, then calling itself TPA Aloha Airlines, was managing to trim its losses and posted its first profit, $36,000, in 1952. It had grown its share of the inter-island air market from 10 to 30 percent.

Flower Power in the Jet Age, 1950s-70s

Tongg had brought Dave Benz in to manage the airline early on. In 1957, Hung Wo Ching was named CEO and president while Benz returned to Tongg’s publishing operations. Ching immediately shortened the company’s name to simply “Aloha Airlines.” He also arranged for millions of dollars in new financing and ordered Fairchild F-27 propjets to compete with Hawaiian Airlines’ piston-engined but still modern Convair fleet. The F-27 aircraft proved instantly successful and helped Aloha capture a 40 percent market share. They were introduced the year Hawaii became a state, 1959.

Another propjet, the Vickers Viscount, was introduced in 1963. But it did not work as well in Hawaii as it had elsewhere in the world, and it was promptly replaced with the BAC-111 jet. It also had limitations, however, particularly taking off from short runways. Meanwhile, Hawaiian had begun flying DC-9 jets. The answer came in one of the most popular airliners of all time, the Boeing 737.

Aloha decorated the new jets with kitschy yellow and orange flowers, celebrating the “flower power” motif of the day, and called them “Funbirds,” much to the chagrin of Boeing representatives. But their introduction was not all sunny. Delays in deliveries resulted in business lost to Hawaiian’s DC-9s, so that Aloha posted a loss in 1968.

It was not the aircraft of the inter-island carriers, however, that boosted tourism the most. United Airlines, TWA, and American Airlines began sending jet airliners to the islands, cutting flying time in half. Unfortunately, this service also was delayed as the newly installed Nixon administration reviewed the route awards. This new service did not start until September 1969, overflying the summer tourist season.

The sum of these delays put Aloha on the ropes. Hawaiian Airlines, a past suitor of the company, made yet another overture of a merger. This time the two parties agreed. Aloha canceled orders for new 737s, incurring stiff penalties; yet, as journalist Bill Wood recounts in Fifty Years of Aloha, Hawaiian CEO John Magoon was having second thoughts. Why merge when Aloha was going out of business anyway? “In 1971 Magoon walked away from the merger and left Aloha to die. But it didn’t,” reports Wood, although the airline was $7 million in debt and had lost $2.4 million in 1970. “In fact, Aloha rebounded to a banner year in 1972.” Further, Aloha sued Hawaiian for antitrust violations and eventually won.

All indicators pointed up in 1972. Not only did incoming passenger traffic pick up, but Mainland airlines had contracted to include inter-island flights in their package deals. The Vietnam War had ended. The local economy was booming. On top of all this, Aloha’s market share rose to 40 percent. It earned a profit of $1.4 million—most impressive for a carrier nearly bankrupt the year before.

The 1973 Arab oil embargo put an end to that growth. In spite of record load factors—the number of seats sold per flight—fuel costs had risen to the point (they doubled) that it was nearly impossible to break even. They further depressed the islands’ economy and kept tourists at home.

Stuart T. K. Ho became director in the mid-1970s. The company’s 30th anniversary and the U.S. bicentennial gave cause to celebrate. Aloha had been steadily garnering recognition for its superior service. It attracted the attention of a California-based company, International Air Service Co., which mounted a weak takeover attempt in 1976.

Deregulated Flight, 1980s-90s

The aviation industry after deregulation became one of extremely low margins and fierce competition. The number of carriers was reduced eventually, although the volume of traffic grew by leaps.

One spawn of deregulation was Mid Pacific Airlines, which was launched into the inter-island market in 1981. It relied on old planes and cheap labor to undercut Hawaiian and Aloha. The upstart quickly grabbed a fifth of the recessionary market and Aloha, faced with dwindling market share, again posted a loss in 1982. The company called on executives and employees for concessions to stay in the air. Still, the struggling carrier led the country in fewest customer complaints. The Mid Pacific threat was met by matching fares—but not on all seats.

Joseph O’Gorman, a former United Airlines executive, was called in to lead Aloha for two critical years. Among other accomplishments, he made meeting customers’ expectations—particularly relating to on-time service—a top priority. He also joined Aloha Airlines with United’s frequent flyer program.

Company Perspectives

Whether you seek the lush serenity of Kaua‘i or the unrivaled excitement ofWaikiki, Aloha Airlines will take you there. With a unique spirit of service that has consistently placed us among the leading carriers in the nation for customer satisfaction, Aloha Airlines has an all-jet Boeing-737 fleet for fast, comfortable travel between O‘ahu, Maui, Kaua ‘i and the Big Island of Hawai‘i. Best of all, with over 180 flights daily, there’s always a jet leaving soon.

In fact, combined with our sister airline, island Air, no one offers more flights to more places in the islands. For those seeking the truly “hidden Hawai‘i,” Island Air offers daily scheduled flights to Moloka‘i and Kalaupapa, and the resort destinations of Lana‘i City, Hana, and Kapalua with DeHavilland Dash-6 and Dash-8 jetprop service.

But we’re more than just reliable transportation. Aloha is the only airline in Hawai’i to offer first class seating and service. For business passengers, our modern Suite 737 lounge offers complimentary beverages and a variety of business amenities. And no one matches Aloha Airlines for truly innovative service —we’re the only airline in the world to offer Drive-Thru Check-In that allows passengers to drop off baggage and check-in from the comfort of their car.

So when your travels bring you to the magnificent islands of Hawai‘i, see for yourself why we’re Hawai‘i’s Favorite Airline.

Seeing expansion as the only way to survive in the free-for-all atmosphere of deregulation, O’Gorman initiated the company’s first international service, to Taiwan via Guam. The venture, dubbed Aloha Pacific, proved troublesome and was terminated within six months. Aloha posted a loss of $1.9 million in 1984. Using a leased jet, the company lost less money than it could have, though, and tempered its expansion plans while rival Hawaiian Airlines went gung ho into the overseas market. As Hawaiian’s fortunes fell, the price of Hawaiian’s sprawling Pacific network appeared to be that of surrender on the home front.

Maurice Myers succeeded O’Gorman. Aloha began offering jet cargo transport to the islands via dual-purpose 737 jets and the company soon owned the market, achieving up to a 90 percent market share. Myers also initiated the AlohaPass frequent flyer program and premium service, culminating in the Alii Club.

The company’s stock price soared in 1986 when it became the apparent target of a leveraged buyout led by Norman Seigal of Dallas. Aloha Airline’s principals managed to buy back the 16 percent share the group accumulated within the year, repulsing the takeover attempt and keeping the company operating and in local hands. At the end of the ordeal, Aloha’s owners took the company shares off the public market. They created the holding company Aloha Airgroup, Inc. and bought a commuter airline called Princeville Airlines, whose propjet fleet could reach places Aloha’s big jets could not. It was later renamed Island Air.

Aloha was having a great business year in spite of the threat to its existence. The Hawaiian economy was booming; the number of visitors increased by 15 percent in one year. Aloha built up its fleet to 12 737s while losing a competitor, Mid Pacific, due to cash flow problems. The worst day in the company’s history, however, was soon to come.

On April 28, 1988, part of the roof of Right 243 flying from Hilo to Honolulu peeled off, killing a flight attendant. The accident, which occurred in an older 737, brought the issue of metal fatigue to national attention, leading to new inspection standards.

An economic downturn was also on the horizon. The wave of Japanese speculation in Hawaii finally slowed, diminishing the volume of air traffic. The early 1990s, which saw the Persian Gulf War, were slow for airlines worldwide.

In spite of all this, Aloha Airlines fared relatively well. Its air cargo operations continued to thrive, and it had finally established leadership in the inter-island passenger market—a 60 percent share, while rival Hawaiian Airlines was busy losing $111 million in one year, 1992, forcing it into bankruptcy. Aloha dressed its jets with a smart new design, resplendent with an elegant bird of paradise flower on a navy tail. Still, Aloha was not immune to misfortune in 1992. In September, Hurricane Iniki ravaged the island of Kauai, sweeping away with it a quarter of Aloha’s market as well as its profits.

These factors postponed a planned initial public offering. Nevertheless, Aloha soon recovered, while Hawaiian continued to flounder. Yet another entrant, Mahalo Air, emerged to compete with low fares. Aloha stayed on the offensive, entering into a code-sharing agreement with United Airlines in 1993 and installing what it billed as the world’s very first drive-through check-in service.

Focusing on the Horizon

Glenn Zander, a former TWA executive, emerged as the successor to Maury Myers. Zander had more of a financial focus than Myers. He brought the company to a new level of corporate sophistication. Interestingly, he furthered standardization by trimming the fleet to include only 737-200 series aircraft, cutting out the larger variants bought to meet an anticipated rise in demand. The smaller aircraft’s passenger compartments were reconfigured to hold an equivalent number of seats. Although this cost $12 million to perform, the measures trimmed roughly $10 million per year from operating expenses. The company lost $6.9 million in 1995, not including the cost of reconfiguring the fleet, but the next year (the company’s silver anniversary) saw a strong performance and net profits of $4.8 million, in spite of rising fuel costs.

Aloha’s freight business was estimated to be worth $30 million per year, and in 1997 the carrier was able to devote a dedicated 737 to cargo flights. UPS implemented plans to enter the inter-island market itself, however. It had originally subcontracted these parcels to various lines before settling on Aloha in 1987. Aloha also carried parcels for Federal Express.

Several factors boded well for Aloha Airlines in the new millennium. Tourism was expected to increase and Hawaii was expected to continue to reap the benefits of its position at the economic center of the Pacific Rim. Honolulu appeared to supplant Hong Kong as the region’s premier retail outlet thanks to the phenomenon of tourist shopping. The opening of the city’s new convention center and a statewide moratorium on landing fees late in 1997 did not hurt, either.