“begin to think of
yourself as the loyal steward
of something much greater”
—from Steve Sherlock of our Ho‘ohana Community
Initially I had one of those routine, end-of-month bloggy type postings queued up and ready to go for today, but when I clicked in for a final check last night it seemed so trivial in light of the day’s “late breaking” news. I had just finished listening to the local Evening News coverage about the decision by Aloha Airlines to shut down their passenger operations and lay off 1,900 employees after their shift ended Monday, March 31st.
That’s today.
A 61-year old company, one which is an icon of interisland travel here in the islands, also connecting Hawaiian islanders to their Pacific neighbors, gives nearly two thousand employees less than 48 hours notice that they will be out of a job.
“In a news release Sunday, airline president and chief executive officer David Banmiller said the company did everything it could to find a buyer or financing, but ran out of time… Aloha filed for Chapter 11 bankruptcy March 20, the second time in three years. Aloha blamed what it termed unfair competition from go! airlines, a subsidiary of Arizona-based Mesa Air Group Inc., and Banmiller stood by that on Sunday.
“Aloha Airlines was founded in 1946 to give Hawaii's people a choice in inter-island air transportation,” he said. “Unfortunately, unfair competition has succeeded in driving us out of business, bringing to an end a 61-year-old company with a proud legacy of serving millions of travelers in the true spirit of Aloha.” —Pacific Business News
What is wrong with this picture?
If you have been in Hawai‘i over the last week, this is episode number two of tragic job loss.
This past Monday, the 24th, Molokai Properties Ltd. said Monday it will shut down Molokai Ranch by the end of March. The closure will result in the laying off of 120 staff over the next two months. Operations being closed include the Molokai Lodge, Kaluakoi Golf Course, Kaupoa Beach Village, Maunaloa Tri-Plex theater and gas station, and cattle-rearing and maintenance. Read back over that list of operations, and think about Molokai as an island of only about 260 square miles. Molokai Ranch has said access to its 60,000 acre property, more than a third of the island, will be closed indefinitely. Maunaloa only has about 230 people, 50% of them under the age of 18 (2000 census figures); it is a town and a community which will cease to exist.
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While the two stories differ quite a bit, both have something in common: Business models that just didn’t work. As I see it, broken business models are about as irresponsible and unethical as being in business can get.
In the case of Aloha Airlines, though I understand the extraordinary pressure exerted on all the airlines by rising fuel prices, Banmiller’s blame game on those fuel prices and “unfair competition” irks me to no end. He also stated;
“This is an incredibly dark day for Hawaii... Despite the groundswell of support from the community and our elected officials, we simply ran out of time to find a qualified buyer or secure continued financing for our passenger business. We had no choice but to take this action.”
I’m sorry; to say that you just “ran out of time” doesn’t cut it. This IS “an incredibly dark day for Hawai‘i” and a dark day for the credibility of smart, moral business practices.
My personal experience flying Aloha Airlines is a large part of my feelings; service levels on ‘Aloha’ Airlines were horrible. I fly interisland often enough to be in the highest level of frequent flyer clubs in both Aloha and Hawaiian Airlines; I would fly Aloha if, and only if, it was not possible for me to get a seat on Hawaiian – any seat, not a good one, or cheaper one. At a certain point of comparison between good service and inferior service, price gets irrelevant. As for go! Airlines, I have never flown with them; not once.
Broken business models, inferior customer service, and management which does little to nothing about both of those things is what causes businesses to fail. Tough competition and rising costs may accelerate your demise, but you can’t blame those two things for everything. It’s been tough for Hawaiian Airlines too, but their story has proceeded differently:
“Hawaiian, which had survived bankruptcy in the early 1990s, again sought bankruptcy protection in 2003 and emerged after trimming costs and reorganizing its debts in 2005. Since then, Hawaiian has been the stronger of the two, putting new planes into service, announcing plans to expand service to the Mainland and Asia and, most important, turning a profit even as fuel prices increased.” —Pacific Business News
Every year at about this time, fiscal seasonality in business (and the fact that the tax man cometh each April if you are a U.S. citizen) causes me to get on my Managing with Aloha soapbox about financial literacy. Because of my own experience with having to fix a badly broken business model, I can’t help thinking about Kuleana, the responsibility I feel businesses have to audit their business models, ensuring their financials are healthy enough for all the stakeholders of those businesses to thrive.
Survival is never quite enough. Asking your business partners and stakeholders to keep plugging away, working beyond their means, is inexcusable. Aloha claims they have been losing $5 million per month; perhaps their throwing in the towel should have happened much sooner. At the very least, saving the last few months of that operating cost may have taken care of more creditors, and made for a decent severance for those employees given less than 48 hours to say aloha to their jobs. For 1,900 employees, plus the many likely affected by the domino effect this causes (imagine half of the interisland terminals on every one of the major Hawaiian islands now being unstaffed and nearly vacant) this is an extremely tough lesson to learn about the wisdom of working for profit versus a paycheck.
Today, just one day from our MWAC April 1 shift to Mālama, the value of caring and stewardship, our local business news saddens me greatly. My heart goes out to the employees who have lost their jobs, and to their families. I feel for the ripple effects there will surely be: A company of 3,500+ employees operating over six decades to connect all the Hawaiian islands with each other and their neighbors over the Pacific makes an impact and leaves quite a mark on our business, civic, and social landscape.
It is a sad day indeed. I would have loved to see Aloha Airlines live up to its name fully, working and managing with aloha, and all the intellectual honesty aloha demands.
From our January Archives: Get Pono Integrity for your Business Model.
See a short video clip on Aloha Airlines History, and more local news coverage, at KGMB9
From Pacific Business News:
(Image of 1956 logo from Wikipedia)
Founded as Trans-Pacific Airlines, the company started with a war-surplus DC-3 that offered charter flights from Honolulu to Maui and Hilo. Nicknamed "the Aloha Airline," Trans-Pacific officially changed its name to Aloha Airlines in 1958.
The airline was started out of frustration by Honolulu businessman Ruddy Tongg, a Chinese-American who was tired of seeing Hawaii residents treated as second-class citizens while tourists -- mostly white -- were given favored status. Tongg made a point to hire local residents and to promote it as the friendliest for inter-island travel.
Rosa, a tough day indeed. Short notice is unacceptable but considering it is coming from someone blaming "unfair competition" all to be expected I guess.
What was so unfair about the competition? Didn't they have the same weather to fly in? Did they have special planes? Did the competition use a special fuel?
Or was Aloha lacking in good management to assess the situation, deal properly with their employees, stakeholders and ultimately their customers to keep them in business? In comparison, I think the answer must be "yes, they were lacking".
Posted by: Steve Sherlock | March 31, 2008 at 06:50 AM
Steve, it’s basically been a two-year long fare war between three airline carriers, and inevitably someone would lose.
Over the past six decades since Aloha was established, the Hawai‘i market has been considered only big enough for two airlines: Hawaiian Airlines was founded in 1929. Others have come and then gone, unable to make a substantial enough business dent in the customer loyalty (and habits) these two local carriers have been able to connect with. Even our current Honolulu International terminal was essentially built to house Aloha and Hawaiian equitably, with newcomers like go! relegated to the old terminal they had vacated (and now void of any other commerce, i.e. no coffee!)
Initially, go!, a subsidiary of the Mesa Air Group, considered investing in Hawaiian Airlines during its Chapter 11 bankruptcy proceedings in 2006. But then, Mesa decided to enter the market themselves, establishing go! here with 5 planes, 8 destinations, and 54 flights daily. (To compare: Aloha has been #2 with 27 planes, 11 destinations and 117 flights, and Hawaiian is the largest, with 29 planes, 19 destinations and 145 flights. —these #s are taken from this morning’s Honolulu Advertiser).
To survive, go!’s primary competitive strategy has been price. In 2005 I was paying anywhere from $149 to $220 for a one-way ticket on Hawaiian and Aloha; all fares now start at $49 and I rarely pay more than $78; when one drops prices, the other two follow on their websites within mere minutes. During promotions, tickets have gone for as little as $1, usually $9 or $18 (though loss-leaders for just a handful of hard-to-get seats). With current fuel prices, industry analysts speculate that all 3 airlines need to charge at least $50 per seat to break-even on interisland flights.
As you can tell from my commentary, I agree it has been tough on them, but yes, I also think there is another story here.
Posted by: Rosa Say | March 31, 2008 at 07:25 AM
Rosa:
Interesting how you have captured the story within the story. Perhaps even more interesting is how it says "Talk Story" on their last inflight magazine. Maybe they needed to tap into a few more of your resources and they wouldn't be in this mess.
Posted by: tim | March 31, 2008 at 08:42 AM
Tim, I’ll be the first to say that I do not know the ins and outs of the airline industry, however my frustration with ‘talking story’ to some about MWA over the past few years has been the “yeah-but…”s I get that have to do with industry-related technicalities. Often I do think that we business people way over-complicate the basic good ‘bone structure’ of what a business model should be —regardless of the industry. And poor management practice puts up a lot of red flags along the way, the question becomes one of sweeping them under a rug or bravely dealing with them.
*Dear readers, for any of you newly reading MWAC (or my writing) Talking Story is the name of the first blog I ever created back in August of 2004: http://www.sayleadershipcoaching.com/talkingstory/
I have not traveled with Aloha Airlines for the last two months Tim, so yes, when I clicked in to www.spiritofaloha.com last night (I was curious about the letter that Banmiller always has there) that cover jumped out at me too.
Posted by: Rosa Say | March 31, 2008 at 08:57 AM
More numbers offered in the 6pm News tonight... if their reporting is accurate:
Aloha's financials to bankruptcy cite $1.7million in available cash
Estimate is that it takes them about that same amount to operated each day
400,000 tickets have been sold for flights beyond today and now canceled... that is a HUGE number of people looking to re-book or get a refund...
The coverage of stakeholders' stories (employees and others) is terribly sad.
Posted by: Rosa Say | March 31, 2008 at 06:37 PM