Island Air, which lost $21 million over the last year and has never made a profit under billionaire owner Larry Ellison, is laying off 20 percent of its workforce, cutting service and postponing indefinitely a decision on bringing in a new fleet.
CEO Dave Pflieger said in a letter to employees and customers that the changes will take effect June 1 and that the company hopes to manage some of the workforce reductions through attrition and canceling current vacancies. The company will cut approximately 68 jobs. Pflieger blamed the cuts primarily on a lack of cooperation from the unions representing Island Air employees. The unions rejected the charge.
"We expect we will still experience some furloughs," he said in the letter released Thursday. "Impacted employees will be notified within the next few days, with exit dates beginning in June."
Island Air, which now has 341 employees, had 245 when Ellison bought the airline in February 2013 for an undisclosed price. Pflieger said the airline already has reduced its management team by 20 percent. That reduction took place over the previous seven months, Island Air spokeswoman Andrea Oka said.
The state’s second-largest carrier earlier this week changed its flight schedule starting June 1 by eliminating Kauai service and reducing the frequency of Honolulu-Lanai flights to two daily flights from five daily flights. Island Air also added a 25-minute layover on Maui for the Lanai route.
In addition, Island Air is reducing service between Honolulu and Maui to seven daily round trips, down from eight, during weekdays, but increasing service to 10 daily round trips, up from eight, during weekends.
Island Air said customers affected by the elimination of Kauai service will be offered full refunds or reaccommodated on other airlines. Passengers affected by Maui and Lanai schedule changes will be reaccommodated on other Island Air flights.
The cutbacks will leave Island Air with only its Honolulu-Maui and Maui-Lanai routes.
"Over the course of the past many months we have all worked hard to give our airline the best chance possible to grow and compete — and your patience while we worked to evaluate our situation and develop a realistic, viable business plan has been greatly appreciated," Pflieger said in the letter to employees. "Today, we are announcing that plan — a plan that we had hoped would include new aircraft, new routes, and new opportunities for all of us, our customers and our state. Unfortunately, record financial losses of more than $21 million last year alone, coupled with our inability to achieve the productivity and cost certainty we needed from our unions, demand that in the short term we pursue an alternate course of action — a course that while disappointing today, we hope will pave the way for a brighter future for Island Air in the tomorrows that lie ahead."
The Air Line Pilots Union criticized Pflieger’s assertion that the unions were not willing to bend on negotiations.
"We take great issue with management’s characterizations of their recent ‘negotiations’ with the labor unions," according to a two-page letter issued to pilots by Island Air’s Master Executive Council of the Air Line Pilots Association. "We can assure you that had we accepted management’s demands, pilots would have had to endure dramatic net pay reductions and a significant erosion of our quality of life."
ALPA said in its letter that up to 20 or more pilots, roughly 40 percent of its group, can expect to be furloughed.
"The huge amounts the company is presently paying to its present (and past) senior management, as well as its army of high-priced mainland consultants, far outweigh any savings that the pilot group or even all of the labor groups combined could have provided to the company had we agreed to their concessionary demands," ALPA said. "More troubling to your MEC leadership is that management still has not articulated a coherent, viable plan going forward. We have repeatedly asked to be included in this discussion, without success."
In Pflieger’s letter he said that Island Air would not take delivery of the two Bombardier Q400 aircraft that it purchased for $60.9 million more than a year ago and that have been sitting in a Tucson, Ariz., airfield. He said the airline has been negotiating for several months with two aircraft manufacturers — presumably ATR and Bombardier — to get the best deal possible for two different types of new aircraft. The airline currently has a fleet of five 64-seat ATR 72 turboprop aircraft.
"We … knew that we needed to work with Island Air’s unions to obtain stability and certainty in our current cost structure before we could more forward to buy new aircraft, grow, and compete against a dominant competitor," Pflieger’s letter said. "Our efforts there led to discussions and negotiations with your union officials in an attempt to achieve a much more positive outcome — an outcome that would have resulted in buying new aircraft and growing our fleet to as many as eight to 10 planes operating 84 flights a day to all of the major airports in Hawaii."
Pflieger, who was unavailable for comment, said in the letter that the company has conducted meetings with state and federal officials to see what could be done to help the airline grow. The company also has pursued partnerships with other airlines.
Pflieger said part of the difficulty is competing with the much larger Hawaiian Airlines.
"Of course, we always knew that to remain Hawaii’s number two airline in the face of overwhelming competition from another local airline, which is 60 times our size in revenue and controls nearly 90 percent of the intra-island market, would not be without its challenges."
