Cover Story
North Pacific Air War
Airlines Need Deep Pockets To Compete With Continental
Anyone who’s lived for years in Palau, the Federated States of Micronesia or the Marshall Islands knows the euphoria that surrounds the announcement of new air service to the islands. But for 34 years Continental Micronesia has watched other air carriers start up with a bang only to flame out months or, at most, a few years later. Continental’s “island hopper” service not only continues to connect these far-flung islands, the airline spent more than $400 million in aircraft upgrades in the last three years. It’s the airline everyone loves to hate, but can’t live without.
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The history of aviation service in the North Pacific is littered with failed airline enterprises. Air Nauru connected Majuro, Pohnpei and Guam at various stages, but is no longer in North Pacific service. South Pacific Island Airways (SPIA) gave Honolulu service a shot from Majuro in the mid-1980s using Boeing 707s, but shut its doors not long after it began flying after its entrepreneurial founder had a serious accident. Air Marshall Islands launched a strong effort between Honolulu and the Marshalls from 1990-1996, burning millions of dollars in government funds before the service was halted. Other smaller carriers provide inter-island service in the Northern Marianas and in the FSM but don’t compete on Continental’s main routes.
So it’s not surprising that Continental Micronesia’s executives seem to shrug at the brash announcement by Palau Rock Island Air that it’s starting service in Continental’s backyard. “We are constantly working to improve our product, not because of anyone planning new service, but because we strive to offer our customers the best service possible,” says Walter Dias, Continental’s Guam-based vice president for marketing. “Many airlines have come and gone [in the 34 years Continental has served Micronesia], but Continental Micronesia has remained committed to the region.”
But the Palau Air development is extremely significant for the region. The company’s president, Alan Seid, is bringing in Hawaii-based Aloha Airlines as a partner in the venture, a move that will create an unprecedented situation—a regional U.S. carrier competing with Continental on virtually all of its Micronesian routes. In 1998, Aloha Airlines started a once-a-week service from Honolulu to Majuro and Kwajalein in the Marshall Islands. Three years ago, Aloha stepped up service to the Marshalls to twice weekly. Aloha this month launches its service from Hawaii to the Cook Islands, in addition to its long-standing charter service to Christmas Island in Kiribati. Palau Air is proposing to fly Guam-Chuuk-Pohnpei-Kosrae in addition to its Palau-Yap-Guam service. For the first time, Continental is going to have strong competition from both east and west.
The problem facing Continental, Palau Air and Aloha is that there are relatively few leisure travelers in this area. “The percentage of seats utilized within the Micronesia island routes is extremely low and without bringing new customers into the market we just do not see sufficient passenger traffic in the region,” Dias says about the viability of two carriers competing on these routes. Seid says Palau Air wants 70 percent of its passenger traffic to come from new visitors.
Palau Air and Aloha face a huge challenge by virtue of the slim numbers on these routes and Dias’ promise that “we will compete vigorously.” Indeed, last month Continental added three Guam-Narita (Japan) flights that will continue on a year-round basis. Dias says the airline is also seriously looking at adding one additional flight per week between Guam and Chuuk early next year, a move that would increase the number of seats in that market by 25 percent.
For customers—both individuals and businesses—Palau Air and Aloha Airlines’ expansions are welcome. But for the airlines, it will be tough going, particularly in the early days. History has proven that only those with deep pockets survive in the Micronesian market.
