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WASHINGTON — David Banmiller, chief executive of badly wounded but not yet dead Aloha Air Group, defended his attempts to keep Aloha Airlines passengers flying in testimony to a U.S. Senate committee Thursday.

He said he is trying to find an investor or partner that could bring the passenger planes back, but he was pessimistic.

He also criticized the U.S. Department of Transportation for its lack of interest in helping to protect his airline from predatory pricing by Mesa Air Group’s go! Airlines.

When Hawaii Sen. Daniel Inouye asked him whether he had sought help from the DOT to fight predatory pricing, Banmiller said he had.

He was brushed off, he said, with the comment that “our interests are to the consumer and low fares.”

Michael Reynolds, acting assistant secretary of transportation, said predatory pricing is difficult to define and hard to prove.

Reynolds said Aloha’s complaint was strange to regulators. In every other case he was aware of, he said, the complaints about unfair pricing (and scheduling and other tactics) had come from a new entrant into a market, alleging that the established dominant carrier was unfairly squeezing it out.

He said low introductory fares were a typical marketing maneuver by new entrants.

Few new entrants ever went as low as go!, though, which at times sold tickets for a dollar.

Last week, when Aloha announced it was ending its passenger operations, economist Leroy Laney of Hawaii Pacific University had wondered why no one had pursued go! on the pricing issue. He said “there’s no doubt” that go! was using predatory pricing tactics, selling tickets for less than the cost of running its airline.

As chairman of the Committee on Commerce, Science and Transportation, Inouye questioned what was done.

Reynolds said no one at DOT actively scouts the airline industry for predatory pricing tactics, and that when the issue is raised, the Department of Justice typically becomes the lead agency in pursuing it. He said Justice has had a hard time proving the offense.

Banmiller said when he took his case to DOT, he was told, “We’ll look into it.” But that was the end of it, he said, not the beginning.

Charles Willis, owner and chairman of Island Air, also said it was obvious that go!’s price wars, when prices stepped down from the introductory $39 to $29, $19, $9 and, briefly, $1, were a predatory maneuver.

Banmiller, who has been criticized by Gov. Linda Lingle and by Aloha’s labor unions, for taking the company into bankruptcy hastily, recounted a long struggle to re-establish the 62-year-old carrier after it was discharged from bankruptcy in 2006.

By bitter coincidence, he said, the very same day that he sealed a deal with Yucaipa Cos. to invest $98 million ($63 million in equity, $35 million in loans) into a reviving airline, Mesa Chairman Jonathan Ornstein announced he would enter the interisland market with a low-fare airline.

Aloha employees had already, he said, taken 20 percent pay cuts and the airline had done everything it could think of to cut costs.

By his estimation, Aloha had made itself into the most efficient airline in the business, measured in cost to deliver a seat between island airports.

According to a consultant’s study, Aloha’s cost was $50, Hawaiian’s was $55 and go!’s was $67.

In theory, the most efficient carrier is supposed to prevail in an unregulated market.

Ornstein said he was willing to operate at a loss to get established, and he did — about $20 million in 16 months. That was a tiny fraction of Mesa’s revenues, because go! was a tiny fraction of Mesa’s operations.

Interisland business was a huge part of Aloha’s business (3 million out of 4 million annual boardings), and its losses were bigger absolutely and proportionately — $81 million on revenues of $407 million last year.

The ratio of loss to revenue exploded, reaching $10.6 million in January on revenue of $34 million, with higher fuel costs playing a big role.

Aloha’s major lender, GMAC, which had put up $100 million, turned off the spigot.

Banmiller said he searched hard for an investor, but fuel costs changed the picture so much that no outside money could be found.

The upset state of credit markets has dried up outside money for all airlines, according to James May, chief executive of the Air Transport Association.

So Banmiller sought a rescue from another, bigger airline. All were so preoccupied with their own fuel-driven alarms that they were not interested, he said.

“No one wanted to believe that a passenger airline with 62 years of history could disappear,” he said.

Although he is still open — providing the U.S. Bankruptcy Court would agree — to a rescue or revival of the passenger side, Banmiller had no expectation that it will happen.

He is trying to keep the profitable cargo business going; and also the contract services business, which he said is marginally profitable. He said the cargo business has 40 suitors, and five of those are “extremely serious.”

Those segments employed 1,600 of Aloha’s 3,500 employees, and he said he would like to save those jobs.

Banmiller predicted that consumers will end up paying an additional $200 to fly to the Mainland and that interisland fares will rise to what they were before go!, or even higher.

• Harry Eagar can be reached at heagar@mauinews.com.

 

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