Mokulele Airlines will continue to service Hana through Jan. 31 as Makani Kai prepares to take over Essential Air Service for the East Maui community, according to the U.S. Department of Transportation.

The department said in an order issued Friday that it planned to rely on Makani Kai to service Hana through its Essential Air Service program, but added that it was extending Mokulele’s contract through Jan. 31 to help smooth the transition and ensure continued service to Hana.

Mokulele has been operating at Hana with the help of an annual subsidy from the federal government; Makani Kai plans to operate without one.

However, the announcement on Friday came nine days after Makani Kai announced that it had been awarded the Essential Air Service contract. At the time, Makani Kai said it would be servicing Hana starting Dec. 1.

P.J. O’Reilley, Makani Kai director of sales, explained that the airline had contacted an official at the department in October to ask for an update on the Hana contract, which was set to expire at the end of November. He said they were told that they had gotten the contract.

“I thought we were getting it from the horse’s mouth,” O’Reilley said Monday. “Scott (Faulk) is the guy we’ve always dealt with in the past, and he told me flat out, you guys got it. When you bid zero in the Essential Air Service, there is no contract. So I didn’t think a contract would be forthcoming.”

But after Makani Kai put out a news release, company officials learned they’d been given wrong information about the Dec. 1 start date, O’Reilley said. He claimed the airline was told the department was “good to go when you guys are good to go.”

“And then I got this notice that came over the weekend that no, it’s Feb. 1,” O’Reilley said. “If you ask me, it’s a bunch of shibai. Mokulele is milking this thing as long as they can. They’re not ready to give up their service.”

O’Reilley said Makani Kai hasn’t yet decided whether it will start service to Hana on or before Feb. 1.

Keith Sisson, spokesman for Southern Airways, which purchased Mokulele earlier this year, declined to comment Monday on Makani Kai’s early announcement, saying “that’s between them and their conscience.”

However, he emphasized that “Makani Kai did not win the contract. The DOT simply canceled the contract because Makani Kai is interested in flying the route at no subsidy. So there is no contract anymore.”

Sisson said that Mokulele plans to stay in the Hana market even after its contract expires because it has a “core group of passengers” that still wants to fly with Mokulele. He said the airline also plans to do a promotion of no bag fees for all Kahului-bound flights out of Hana that will start immediately.

Mokulele had been servicing Hana since 2012 without a subsidy, thanks to a cost-sharing agreement with Hana businesses that helped support flights. However, with the agreement coming to an end, Mokulele sought a subsidized Essential Air Service contract in 2017. The federal government awarded Mokulele a contract from Nov. 21, 2017, to Nov. 30, 2019, with an annual subsidy of $114,099.

Earlier this year, both Mokulele and Makani Kai applied for the new Hana contract. Mokulele proposed a total subsidy of $668,006 over a four-year term. Makani Kai proposed to offer service without a subsidy.

The department explained in its order Friday that if basic Essential Air Service “can be reliably provided without such compensation, the department typically will not proceed with the carrier selection case.

“Instead, the department relies on that airline’s subsidy-free service as proposed,” David Short, the department’s deputy assistant secretary of aviation and international affairs, explained in the order.

When asked Nov. 22 about Makani Kai making an announcement before the department had made a decision, department spokeswoman Caitlin Harvey said that “we have no further comment.”

According to the order, Mokulele will continue to provide Hana with 14 nonstop round trips per week to Kahului through Jan. 31. Sisson said the airline would “probably” follow the same schedule after its contract expires.

“We haven’t even gotten that far yet,” he said. “I can’t imagine why we would do anything different.”

In a description of its annual compensation requirements provided to the department, Mokulele put its total revenue for the Hana-Kahului route at $267,921 and total operating expenses at $363,829. The annual subsidy of $114,099 helped offset the difference and provide some return for Mokulele.

When asked how Mokulele would be able to afford to service Hana without federal funding, Sisson said, “I think a better question is how they’re going to afford to operate with no subsidy ever.” He said Mokulele has a core group of passengers that has flown with the airline for the past three or four years, “so we’re just going to retain our customers and give them free bags, of course, so that gives them extra incentive to stay with us.”

He added that “the projections look like we’re going to do pretty good, so we’ll see what happens.”

“It’s such a short flight, and because we have such great scale at Kahului — we’ve got a plane already there, we’ve got pilots already there — so running a 20-minute flight is not going to be that costly,” Sisson said.

O’Reilley said that Makani Kai would be able to forgo a subsidy because the airline’s operating expenses are lower than Mokulele’s and that they expect to have better ridership.

He also pointed out that they offer fixed fares of $55.50 one way.

Makani Kai has proposed 12 weekly round trips (twice a day, six days a week) between Kahului and Hana, with flights departing Kahului at 7:20 a.m. and 2 p.m., and Hana at 8 a.m. and 2:40 p.m.

O’Reilley said it was hypocritical of Mokulele to ask for federal funding over the past two years, then decide to continue operating without a subsidy. He made it clear that “there’s no love lost between our two organizations.”

“They told the fed they needed the money. Now that there’s no money they’re still going to do it,” O’Reilley said. “What does that tell you? They didn’t need the money.”

In response, Sisson that “we are following the orders of the Department of Transportation.

“They extended the contract, we did not,” he said.

* Colleen Uechi can be reached at cuechi@mauinews.com.