Mokulele and go! Join Forces to Cut Capacity in Hawai'i

(MoneyWatch)  The "cut capacity" mantra has been uttered by just about every airline manager over the past couple of years, and now two airlines are putting it into practice once again. Mokulele and go! have decided to form a joint venture that will rationalize capacity in the market.

For the longest time, Hawai'i was a two airline market. Hawaiian and Aloha split the lion's share of the business with a couple other guys flying smaller interisland routes. Challengers would come (like Mid Pacific Air in the 80s) but they would go just as quickly.

Then Hawaiian and Aloha ran into trouble. Regional carrier Mesa was looking for a place to put some airplanes, and they looked into the books of both carriers while in bankruptcy. In the end, they walked away and decided to start their own airline, go! (complete with awful punctuation).

The market quickly went south. Aloha failed in March 2008, and it was once again back to a two airline market. But then Mokulele decided to make a run. Mokulele flew little Grand Caravans between smaller towns in the islands, but it worked with Republic to bring Embraer 170s out to compete on the big routes.

The experiment was a failure. The company basically ran out of money and Republic stepped in to take over. Now with Republic forming its mainland presence, Mokulele seemed like a distant memory that really was an outlier. Republic had better uses for those airplanes.

So now, Republic is taking those airplanes back to the mainland. It's unclear where they'll be going, but I imagine it will be for Frontier or Midwest (I'm guessing Midwest). Mokulele's shares will form 25 percent of the joint venture along and they've made a commitment to pour $1.5 million into the venture.

Now, it appears that flights between the two carriers on big routes will be operated by Mesa as go! Mokulele. Mokulele will still operate the Grand Caravans on smaller routes. This is highly amusing since Mokulele was operating as go! Express before it decided to compete. There was no love lost between these two, but the bottom line is most important.

Capacity will drop. For example, an average weekday now sees six daily Embraer 170s on Mokulele and seven CRJs on go!. That's a total of 734 seats one way. Now, there will be only eight daily CRJs for a total of 400 seats each way, a 46 percent drop.

This is smart for both airlines. go! eliminates a competitor and recapitalizes while Republic gets to take its planes back and get out of a big money losing situation.