Hawaiian Air Pins Its Revival on Better Service

The first public sign that the investors who bought Hawaiian Airlines meant business were the half-page ads in mainland newspapers touting discount flights to Hawaii, with an inter-island hop thrown in for free.

But employees of HAL Inc., the airline’s holding company, knew things would be different long before the advertisements were published Jan. 2.

Most painfully, 242 had been laid off just two weeks before the acquisition was completed Dec. 29.

And in October, two months after Newport Beach developer J. Thomas Talbot and former Baseball Commissioner Peter V. Ueberroth launched their buyout bid, the five unions representing most of HAL’s then-3,000 workers signed new contracts to help ensure that the deal would go through.

They agreed to forgo raises for three years while increasing productivity to shave nearly $100 million from the airline’s operating costs over the five-year span of the new labor pacts.

The new contracts were necessary, Talbot said, because HAL had been losing money ($30 million in the past three years), was saddled with an aging fleet that was costly to maintain and needed a major cash infusion, significant operational savings and renewed employee and management dedication to pull out of its dive.

HAL, owner of Hawaii’s largest air carrier, has been criticized for a low level of service, including a poor on-time record caused in part by a shortage of airplanes.

The chore facing the new owners is to turn things around.

To do that, Talbot said, “our strategy is fairly simple. We want to bring the company back to basics. Customer service is the No. 1 concern because this is a service business and he who services best wins the passengers.”

It has been less than two weeks since his group took control of HAL, and Talbot--who has helped start three successful carriers including Southwest Airlines and AirCal--has his rejuvenation program under way.

In a telephone interview from his Honolulu office, Talbot--named president and chief executive of HAL the day the $36.7-million acquisition was completed--unveiled some of those plans. He also hinted at expanding Hawaiian Airlines’ routes, but declined to be specific.

Within a few days of the takeover, Talbot implemented a retraining program for all employees and began arrangements to increase the size of Hawaiian Airlines’ fleet so there will be spare planes on hand for expansion and to enable the company to increase its maintenance schedule and reduce flight delays caused by equipment failure.

On Tuesday, 9 Talbot and Co-Chairmen Ueberroth and Jack Magoon Jr., the 73-year-old former majority owner of HAL, nominated a group of industry superstars to the board. Ultimately, all but three of the 15 pre-acquisition directors will be replaced, Talbot said in a recent interview.

Among the nominees are former United Airlines Chairman Richard Ferris; Nordstrom Inc. Co-Chairman James F. Nordstrom; senior partner and international attorney Ko-Yung Tung of the O’Melveny & Meyers law firm, and two Orange County notables, former AirCal co-owner George Argyros and home builder Ron Lane of Lane/Kuhn Pacific in Newport Beach.

As part of the deal to get the airline’s unions to support the pay freeze and productivity increases, Samson Po’omaihealani, assistant general manager of the machinists union, will also be elected to the new board.

The new board members, he said, were chosen because of their expertise in areas critical to the airline’s future--Nordstrom, for example, heads a retail chain noted for its customer service; Ferris and Argyros both headed successful airline companies, and Tung has business connections throughout Asia and the Pacific.

HAL, financed by as much as $74 million in operating and equipment loans from Security Pacific National Bank, also has hiked its advertising budget to $4 million from $1.9 million last year.

In addition, the company is pursuing its pre-acquisition bid for a scheduled flight to Japan, which it now serves with a weekly charter flight.

HAL is also installing sophisticated computer software that will keep track of passenger loads and ticket prices to ensure that the most seats are sold at the most profitable fares.

But the paramount task, Talbot said, is to reinstate a high level of service after several years of decline. That is why all employees, from computer operators to mechanics to flight attendants will undergo retraining sessions.

“We want everyone to know how to do their job in the best and most efficient manner while always stressing personal service to the passengers,” Talbot said.

A second point of attack will be Hawaiian’s lackluster on-time record. The carrier has been plagued by delayed and canceled flights--because it did not have enough planes to replace those down for repairs.

“The bulk of what they are proposing is what a quality management team should have been doing in the past--trying to get the operation acceptable and to improve service and the level of expertise represented on the board and in management,” said Daniel A. Hersh, an airline industry analyst with Bateman Eichler, Hill Richards Inc. in Los Angeles.

“That’s why the airline was in trouble and why it was for sale,” he said. “It had not been well-managed. So Talbot is taking an important first step. The question that remains is whether it is enough to enable the company to become profitable again. . . . At least they are looking to the west, toward Japan, for possible expansion. That is where the future lies, not in the overcrowded mainland-to-Hawaii market.”

Talbot agrees with Hersh’s assessment but blames a lack of capital for prior management inadequacies. The company had been for sale for two years, he said, “and management had been distracted because of this.”

To get the airline back on schedule, all flight times and the intervals between flights have been increased by five minutes, and a one-hour “standstill” with no flights scheduled has been added to the middle of the day. These steps are intended to give Hawaiian’s pilots time to catch up if there are any delays.

Hawaiian’s new owners are also leasing several new jets--at more than $1 million a month--to provide backups for out-of-service planes and to increase the carrier’s charter capacity.

For Hawaiian’s Southern California market--the carrier flies out of Los Angeles International Airport--Talbot promises “more frequent flights into LAX.” He has acknowledged that it would be a coup for Hawaiian to start flying from Orange County but said it would take a major change in airline regulations.

For safety reasons, federal rules prohibit flights to Hawaii by smaller twin-engine commercial jets. And planes such as Hawaiian’s three-jet L1011s that are big enough to fly to Hawaii are too big for John Wayne Airport’s relatively short runways.

“But rules can change,” Talbot said. “And if they do, we’ll be there.”

HAL INC. Subsidiaries: Hawaiian Airlines and North Maui Airport Businesses: Commercial airline with scheduled and charter flights. Private airport used by Hawaiian and Aloha airlines’ turboprop inter-island planes. Corporate Headquarters: Honolulu, Hawaii Employees: 2,750 Current Stock Prices: $21 on the AMEX Jet Aircraft Fleet: 5 L1011-50s at 350 seats each. 5 DC-8-26s at 204 seats each. 1 DC-8-63 at 235 seats each. 8 DC-9-50s at 139 seats each. 2 DC-9-10s at 97 seats each. Turboprop Fleet: 8 de Havilland Dash 7s at 50 seats. Service: Mainland: Los Angeles, Las Vegas, San Francisco, Seattle and Anchorage. Hawaiian Islands: Oahu, Hawaii, Maui, Kauai, Molokai and Lanai. South Pacific: Guam, American Samoa, Western Samoa, Tonga, Tahiti, Cook Islands, New Zealand and Australia. Charters: Japan and Western Europe Revenue Sources: 35% from mainland flights. 35% from inter-island flights. 20% from charter flights. 10% from South Pacific flights. 1989 Financials (first nine-months): Revenue: $268.3 million Loss: $12.7 million Key Executives: President and CEO, J. Thomas Talbot Director nominee, George L. Argyros Director nominee, Ron Lane Source: HAL Inc.