Mokulele joins Hawai’i airlines in a three-way dance

The last time three Hawai'i airlines went head-to-head in a price war, Aloha Airlines' passenger service was shut down, leaving 1,900 people unemployed.

Today, Mokulele Airlines launched its inter-island jet service between Honolulu, Kona, and Lihu'e. Mokulele joins its former business partner, Mesa Air Group's go!, and Hawaiian Airlines in a three-way battle to survive through a hurting economy and historically cut-throat business practices.

Mokulele's 70-seat Embraer 170 jet service is the result of a new service agreement with Indianapolis-based Republic Airways.

"We welcome this agreement between Republic Airways and Mokulele Airlines," Gov. Linda Lingle said. "This is very good news for the economy while providing the people of Hawai'i an additional choice in inter-island service. This agreement also means new job opportunities, and that is very welcome news for our residents."

A long bitter battle

The agreement between Mokulele and Republic Airways comes after a business partnership with go! went sour.

The partnership began in 2007 when Mokulele's regional operations and go! completed a code-sharing agreement as part of the go!Express service, which offered inter-island one-way flights for as low as $19.

What ensued was an inter-island airline price war that left Aloha unable to compete. In March 2008, Aloha filed for Chapter 11 bankruptcy. Its parent company, Aloha Airgroup, blamed rising fuel costs and predatory pricing from Mesa.

"In the highly competitive inter-island market, Aloha was forced to match go!'s below-cost fares at a time when the airline industry was facing unprecedented increases in the cost of jet fuel," Aloha announced in a statement.

During the price wars, Mesa faced duel lawsuits from Aloha and Hawaiian, who said go! set its prices based on confidential information obtained while the airlines were in bankruptcy.

In June, U.S. Bankruptcy Judge Lloyd King approved an offer by private-equity firm Yucaipa Cos. to buy Aloha's stake in their lawsuit against Mesa for a $10 million credit bid.

Hawaiian was awarded $80 million in damages and $3.9 million for attorney fees and costs. Mesa has filed an appeal.

Earlier this month, Mokulele filed a countersuit in U.S. District Court against Mesa, citing anticompetitive behavior. Mokulele said Mesa threatened to drive it out of business by ending payments due to them under the go!Express agreement, Aviation Today reports.

In its suit, Mokulele said, "[Mesa's] misconduct is part of a plan to run [Mokulele] out of business so that [Mesa] will be one of only two main airlines in the inter-island market."

Court documents also said Mesa CEO Jonathan Ornstein threatened Mokulele CEO Bill Boyer after the deal with Republic was announced: "Mokulele is done. We are going to bury you."

Three's a crowd

Mokulele's entrance into the inter-island airline war comes at a time when go!'s parent company is facing erratic times—not unlike the situation when go! entered the race while Aloha was struggling to stay afloat, explained Hawai'i aviator John Sharkey.

"Historically, the market doesn't support three airlines," Sharkey said. "go! came into the market when they saw Aloha was in dire straights. Now Mokulele is hoping to put the nail in go!'s coffin."

In addition to defending itself in lawsuits against three Hawai'i airlines, Mesa cut 250 jobs last month due to service cuts by large carriers.

Despite a volatile presence in the press and on Wallstreet, as of now Mesa appears to be hanging on strong—Mesa's stock finished up ten points today. And in October, go! saw a 19 percent passenger increase compared to last year.

An unpredictable market during unstable economic times may mean another fierce airline battle in Hawai'i is ready to erupt—and really really cheap tickets.