Robert Mauracher says that there's plenty of room in Hawai'i's interisland market for a third airline.

But the 44-year-old chief executive of Island Air isn't about to get into a costly, head-to-head price war with Hawai'i's two largest airlines as many of his predecessors have done.

"We're not here to set up a fare war. Our intent is to make sure that we provide reasonable prices to get people in the community flying again," Mauracher said.

"Our objective is really not to follow the old plans of the airlines that have come before us."

Mauracher's company, San Francisco-based Gavarnie Holdings LLC, acquired Island Air from Aloha Airgroup Inc. in May 2004.

And after a bumpy handoff, the local airline is emerging as a low-cost alternative to Aloha and Hawaiian Airlines.

With more than $35 million in annual revenue, Island Air now runs about 90 daily flights with its 37-seat DASH-8 turboprop aircraft, which is up more than 60 percent from the 56 flights a day under Aloha's ownership.

Island Air also increased its payroll by about 50 percent to about 400.

Bonnie Gutner, owner and manager of Travel Inc. in Kailua, says Island Air is carving out an important niche in the interisland market: the budget-conscious local traveler.

She noted that the cost of flying to the Neighbor Islands has doubled in the past decade, reducing travel to the outer islands significantly.

A third carrier places pressure on Aloha and Hawaiian to hold the line when it comes to fares, Gutner said. She said that one-way fares on Island Air are typically cheaper than at Aloha and Hawaiian by about $10.

"Customers these days are much more price-conscious," she said. "They'll change their brand loyalties if the fare is $10 less."

Island Air's Web site lists one-way flights from Honolulu to Hilo for as low as $60. Aloha's Web site listed tickets for the same route on the same day at $79. Hawaiian offers that route for $73.

To be sure, the history of Hawai'i's interisland market is replete with examples of upstart third airlines such as Mahalo Air, Discovery Airways and Mid Pacific Airlines. To build market share, the airlines undercut the fares of the dominant carriers, only to shut down in face of mounting losses.

Island Air's Mauracher said his business plan is not to compete head on with Aloha and Hawaiian but to "fly around them."

The airline is expanding its flights between Maui, Kaua'i and the Big Island, whereas Hawai'i's dominant carriers tend to fly mostly between O'ahu and the Neighbor Islands.

Island Air also is focusing on smaller routes such as Kapalua, Moloka'i and Lana'i, which are traditionally underserved by Hawaiian and Aloha.

"The interisland market has always been a confrontational business, but that's not part of our business plan," he said.

To be sure, Island Air has seen its share of turbulence.

The airline received numerous complaints from passengers last year after flights were canceled or delayed because of mechanical and electrical problems.

Island Air's parent, Gavarnie, also got into a dispute with Aloha over the terms of the sale, with Gavarnie alleging that Aloha didn't provide Island Air with accounting, marketing and other backroom services after agreeing to do so.

Aloha, which filed for Chapter 11 bankruptcy reorganization in December, said Gavarnie failed to make payments on $7.8 million in loans Aloha had issued to finance Gavarnie's purchase.

Complicating matters, a federal arbitrator alleged that the sale was more like a lease when he ruled that Aloha violated a union contract provision protecting its pilots' jobs.

Mauracher acknowledged that the airline had some glitches as it started up but said those have been resolved. He added that the dispute with Aloha has been settled to the satisfaction of both sides.

Terms of the settlement, which was approved last month by a federal bankruptcy judge overseeing Aloha's bankruptcy, were not disclosed.

Mauracher said that one of the company's biggest challenges is to differentiate its brand image from its former parent, by creating a new logo, signage and uniforms for its employees.

He said a recent study conducted by Island Air's consultants found that some consumers incorrectly believed that Island Air is still a part of Aloha.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.