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Airline Competition: Cargo Airline Has Enhanced Competition in Hawaii but Faces an Uncertain Future
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1998-06-18
[PDF-1.35 MB]
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Alternative Title:Report to the Honorable John McCain, U.S. Senate
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Abstract:The transport of cargo throughout Hawaii is greatly affected by the state's unique geography. Because Hawaii comprises eight major islands remote from the U.S. mainland, many cargo customers must rely on air service as the only way to transport their goods in a timely fashion. Historically, two airlines - Aloha Airlines and Hawaiian Airlines - have provided service to meet this need. Under an exemption from provisions of the Airport Noise and Capacity Act, these two airlines are permitted to operate an interisland "turnaround" service (i.e., flights within Hawaii) with relatively noisy "Stage 2" aircraft, which are being phased out on the mainland. In May 1995, the Federal Aviation Administration (FAA) determined that American International Cargo (AIC) also qualified on the basis of its November 1990 operations, in which it provided what FAA deemed turnaround service in Hawaii - and "onward" service to the U.S. mainland - with a McDonnell-Douglas DC-8 Stage 2 aircraft. Shortly after AIC began to conduct scheduled interisland cargo service, in a reinterpretation of its 1995 decision, FAA concluded that AIC did not qualify to continue providing such service; but rather, it had to either exit the market or begin operating quieter Stage 3 aircraft. The General Accounting Office was asked to determine on what basis FAA revised its interpretation of turnaround service; and also to evaluate how AIC's November 1995 entry has affected - and how its future exit could affect - competition in Hawaii's air cargo markets. Briefly, in May 1995 FAA determined that one segment of a flight AIC had been operating in November 1990 with a single Stage 2 aircraft included a takeoff and a landing in Hawaii and that it therefore qualified as interisland turnaround service. However, after a formal inquiry from Aloha Airlines and a broader assessment of the legislation's intent, FAA revised its interpretation of turnaround service. This revised decision held that the flight AIC was operating in November 1990 did not constitute turnaround service because it included points outside Hawaii. AIC's November 1995 entry into Hawaii's interisland markets has enhanced competition markedly by providing new services to a variety of customers. While there could be a discernible effect on the breadth of services provided if AIC exits Hawaii's interisland markets after September 30 1998, the extent to which rates might increase remains unclear.
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