Congressman Faleomavaega announced today that on Thursday August 31, 2006 he met with Mr. Mark B. Dunkerley, President and CEO of Hawaiian Airlines, to discuss why roundtrip airfares between Pago Pago to Honolulu are more than 100% higher than roundtrip fares from Honolulu to Los Angeles, California considering the destinations are of almost equal distance. Hawaiian Air requested the meeting in response to Faleomavaega’s letter of August 23, 2006 in which he informed Mr. Dunkerley of his intent to call for a federal review of airfares.
“In response to my concerns about the high price of roundtrip fares between American Samoa and Honolulu, Mr. Dunkerley outlined the same issues which he has already conveyed to Governor Togiola,” Faleomavaega said. “From Hawaiian Air’s perspective, there are six factors which are driving up their costs. These include higher costs associated with fuel, low occupancy/low volume travel, landing and customs fees, American Samoa’s designation as an international route, mechanical repairs incurred as a result of runway problems, and 5 percent commissions which Hawaiian Air gives to travel agents servicing the Pago Pago market which it does not do for travel agents servicing other markets.”
“While I will address each of these factors point by point, I want to first say that Mr. Dunkerley and I had a good meeting and I appreciate the service Hawaiian Air provides our people. In American Samoa, we have seen many airlines come and go but, in fairness, Hawaiian Air has stayed with us and provided consistent, safe and reliable service. In turn, I believe the Pago Pago route has been good to Hawaiian Air.”
“But on the matter of roundtrip airfares, Mr. Dunkerley and I have some basic disagreements. On the one hand, Mr. Dunkerley wants ASG and the federal government to provide some assistance to lower the costs of airline tickets. In fact, Hawaiian Air stated that ASG gave Aloha Airlines over $400,000 worth of special treatment and incentives and even purchased equipment for Aloha Airlines which is now not being used. But, according to Mr. Dunkerley, ASG never offered Hawaiian Air any incentives for servicing the Territory.”
“From a federal perspective, while I would like to explore the possibility of assistance or subsidies, the problem I have is that we don’t have accurate information about Hawaiian Air. When I asked Mr. Dunkerley what Hawaiian Air’s annual expenses and gross sales are, he said this is confidential information. When I asked what Hawaiian Air’s profit margin is, I was told that it is not high and it is not low. When I asked Mr. Dunkerley why Hawaiian Air continues to operate in American Samoa if the route is so costly, I did not get a response. Nevertheless, I appreciate and understand Hawaiian Air’s need to protect its proprietary information. Like any CEO, Mr. Dunkerley is obliged to protect the interests of the corporation he represents.”
“But Hawaiian Air also has to understand that it is difficult for ASG or for the federal government to assist when we have no information or answers. Regarding the six factors Hawaiian Air raised as reasons why fares are double the price for its Pago Pago route versus its LAX route, I will specifically address each point.”
“One, Hawaiian Air states that fuel costs are 34 cents per gallon higher than in the mainland. While I accept this fact and while I even agree that this factor alone may justify an increase of ticket prices, I do not believe this differential justifies an increase of more than 100% in ticket prices,” Faleomavaega said.
“Two, Hawaiian Air states that low occupancy/low volume travel from American Samoa increases its ticket prices. In its other markets, Hawaiian Air claims that its planes are 90% full which keeps costs lower for all passengers. But I say if roundtrip airfares for American Samoa were at $500, then flights from Pago Pago would also be 90% full. But Hawaiian Air says that ticket prices do not determine load capacity. Hawaiian Air states that load capacity is determined by why people travel. According to Hawaiian Air, people travel between Los Angeles and Honolulu for leisure and business and, as a result, the traffic volume is high in large part due to the tourism industry. But in the case of American Samoa, we do not have much business or tourism and therefore our air traffic is not very high at all. While this may be the case, I am not convinced that price does not influence travel. I also still believe if ticket prices were lower, our people would travel more often.”
“Three, Hawaiian Air states that landing fees are approximately $1400 in American Samoa and about $700 in its other markets. According to Hawaiian Air, ASG determines how much Hawaiian Air will pay each time it lands at Pago Pago International. For now, Hawaiian Air pays $1400 per flight or about $150,000 per year to ASG and this money is used as a source of local revenue to help ASG maintain the airport, etc. Given that Hawaiian Air only lands twice a week in American Samoa while landing multiple times a day in other markets, I do not see how $150,000 per year in landing fees could be a serious factor in driving up ticket prices. Also, if ASG were to reduce its landing fees to be more in line with other markets, Hawaiian Air would only save $75,000 per year. On an annual basis, paying $75,000 more or less does not seem to justify a 100% increase in airfares. Related to landing fees, Hawaiian Air also states that it has to pay overtime rates to American Samoa custom agents because its flights come in at night and not during regular business hours. Again, ASG determines how much Hawaiian Air has to pay in custom fees and, therefore, only ASG and Hawaiian Air are in a position to determine if this is even an issue but it seems to me that is also probably just a nominal cost or factor which does not justify a significant increase in fares.”
“Four, Hawaiian Air states that it pays an extra $500,000 per year because American Samoa is designated as an international route. However, Hawaiian Air makes up for this loss with its US Postal Service contract and therefore I believe this is a moot point. According to the US Postal Service, Hawaiian Air receives $1.95 per pound for delivering our mail and this equates to $500,000 to $1million per year or more than enough to compensate for our international designation. Furthermore, the federal government cannot change this designation due to the fact that to get to American Samoa an air carrier must fly through international airspace and international airspace is governed by agreements with the United Nations not with the federal government. This is a non-negotiable matter.”
“Five, Hawaiian Air states that in the past it incurred unnecessary costs in mechanical repairs as a result of Pago Pago’s runway being in a state of disrepair. For example, two or three years ago, Hawaiian Air had to temporarily cancel its flights to American Samoa because the runway was unsafe. During this time, Hawaiian Air suffered over $1 million in engine damage and was forced to charter a Russian aircraft at a cost of about $500,000 to bring parts into American Samoa in order to repair the aircraft for its return flight to Honolulu. Hawaiian Air also states that it costs more to make routine repairs in American Samoa due to American Samoa’s remote location. In other markets, parts are more readily available and other airlines also trade parts if necessary. While I believe these are legitimate concerns, Hawaiian Air agrees that since ASG has repaired the airport its costs for repairs have gone down and thus this is an issue that for the most part has been favorably resolved.”
“Six, Hawaiian Air states that it pays 5% commission to travel agents servicing the Pago Pago market. Hawaiian Air does not offer this commission in any of its other markets. Given that Hawaiian Air is unwilling to let us know how many tickets it sells per year, I cannot make a proper determination about whether or not this is a significant factor but, according to my calculations, a 5% commission only equates to about $25 or $50 per ticket. Again, this does not justify a 100% increase in roundtrip airfares.”
“As far as I can tell, Hawaiian Air has a legitimate complaint about fuel costs and the fact that its competitor, Aloha Air, was offered incentives but Hawaiian Air was not. Nevertheless, I am not convinced that these factors justify a 100% increase in roundtrip airfares. But I do credit Hawaiian Air for its willingness and its pledge to reduce ticket prices if costs in the six areas listed above can be reduced.”
“In conclusion to our meeting, Mr. Dunkerley stated that Hawaiian Air is committed to working in partnership with ASG and the federal government in finding ways to lower fares and I am appreciative of this promise. However, I will say again that is very, very difficult for us to come up with federal and local solutions when we don’t have information about Hawaiian Air’s gross sales and expenditures. Until Hawaiian Air is willing to be more forthcoming about its profits, there is little we can do to assist the airline.”
“While we have had preliminary discussions about the Essential Air Services (EAS) program, only Hawaiian Air can decide if it will pursue this option. EAS is a program put in place by Congress to make sure that those living in rural and remote areas have access to the national transportation system. If at any time an area, like American Samoa, is only serviced by one airline carrier, EAS requires the airline carrier to file a 90-day notice with local officials, the appropriate state aviation agency, and the DOT before terminating, suspending or reducing air service below the required level.”
“This means that Hawaiian Air, being the only U.S. carrier servicing American Samoa, cannot discontinue service to the Territory without filing a 90-day notice. If Hawaiian Air were to file a notice to discontinue service, then DOT would have the option of subsidizing Hawaiian Air or replacing Hawaiian Air with a subsidy-free carrier willing to service the Territory. If no carrier is willing to service the Territory on a subsidy-free basis, then the DOT would solicit proposals for subsidized service.”
“In other words, if Hawaiian Air files for EAS assistance, it takes a chance that another airline will be awarded the subsidized service. Also, ASG cannot request DOT to federally subsidize Hawaiian Airline’s service. These filings are strictly between the airline carriers and the DOT and it is up to Hawaiian Airlines to determine what its next course of action should be.”
“Like any corporation, I believe Hawaiian Air has a right to protect its proprietary information meaning it should not have to reveal to its competitors how much money it is making in any market including American Samoa. On the other hand, for us to solve the serious problems we are now facing, Hawaiian Air is going to have to offer up solid reasons and more specific information to justify the discrepancy in its airfares. I believe our people could understand a 30% difference in ticket prices due to our remote location and other mitigating factors. But none of us understand a 100% increase and, for now, I am not satisfied with the explanations Hawaiian Air has offered,” Faleomavaega concluded.