The interisland fare wars, now entering their second year, show little sign of letting up.

Despite combined losses of as much as $100 million last year, Hawaiian Airlines, Aloha Airlines and go! have vowed not to be undersold by each other, even if it means dropping one-way fares to $9 — as they did last week.

"What's going on makes zero business sense," said Scott Hamilton, a Washington-based aviation industry consultant. "It's more a testosterone battle than a business battle.

"But airlines are tough to kill, and the fare war can easily go another year."

Saturday will mark the first anniversary of the interisland fare war, which was triggered by the launch of Phoenix-based Mesa Air Group's upstart local carrier. When go! opened for business June 9, 2006, it dropped regular one-way ticket prices to $39, or about half of what they cost here previously.

Since then, go! has slashed fares to $29, then $19 on several occasions before dropping the prices to $9 last week. In each case, Aloha and Hawaiian matched.

Jonathan Ornstein, Mesa's chief executive officer, said the low fares are here to stay.

Even though its planes are flying two-thirds full and sales have been "several hundred thousand dollars" below projections, Ornstein said go! remains committed to the Hawai'i market for the long term.

Ornstein declined to disclose go!'s losses but he said the carrier is profitable when fares are between $39 and $79, which is the most go! would charge.

Ornstein said the $9 and $19 fares are in response to the increased capacity by Hawaiian and Aloha. The glut has forced carriers to slash prices to fill seats.

"They're trying to effectively drive us out of the market," Ornstein said.

"Why would you add capacity in a market you can't make money in?"

David Banmiller, Aloha's chief executive officer, vowed to match any discounts offered by competitors. But Banmiller said he believes that go!'s fare cuts have destabilized the market, which may hurt the consumer over the long term.

ACCUSATIONS

In October, Aloha sued Mesa, alleging that Mesa misused proprietary information it had obtained about Aloha, in an attempt to drive the state's second-largest carrier out of business and eventually raise fares.

Last year, Aloha lost $41.5 million, according to the company's filings with the U.S. Department of Transportation. Although much of those results can be attributed to high fuel prices and other factors, losses from the interisland market were also a factor.

A recent study commissioned by Aloha and conducted by Dallas-based Sabre Airline Solutions concluded that Aloha, Hawaiian and go! are each losing money when they sell interisland tickets below $50.

"We believe that the current aggressive competitive activities can't be good for Hawai'i in the long run," Banmiller said.

Hawaiian Airlines, which lost $40.6 million in 2006, also promised to match go!'s prices. The state's largest airline said its share in the interisland market grew last year, even though revenues were hurt by the fare wars.

Customers have remained loyal because Hawaiian has matched go!'s discounts while offering better service, said Keoni Wagner, Hawaiian's spokesman. Hawaiian and Aloha offer larger planes and their on-time performance and baggage handling record are the best among all U.S. carriers.

Like Aloha, Hawaiian also has sued Mesa for alleged improper use of confidential business records. A federal judge in October 2006 rejected Hawaiian's request to bar Mesa from the interisland market, but not before concluding that "at one time, Mesa hoped to drive Aloha out of business." The suit is pending.

"You can choose to compete by misusing competitors' confidential information ... or even pricing your product below costs but at the end of the day you need to offer a product that people are willing to pay for," Wagner said.

Karl Moore, a business professor at McGill University in Montreal, called the interisland fares "irrational" and said that at $9 one way, no one is making money.

Moore said the duration of the interisland fare war depends on how deep the airlines' pockets are.

The airline go! is supported by Mesa, whose revenues topped $1.3 billion last year, while Hawaiian has the backing of owner Ranch Capital LLC, a San Diego-based investment firm, which pulled the company out of bankruptcy in June 2005.

Aloha emerged from bankruptcy protection in February 2006 under new ownership led by California billionaire Ron Burkle. Aloha got another boost last month when United Airlines agreed to acquire a minority stake in the local airline.

"If the company has deep pockets and lots of resources, they can keep it up for a long time," said Moore, a visiting professor at the University of Hawai'i-Manoa in 2005 and 2006. "If you are the consumer, take advantage of it while you can."

Nick Capuano, a Los Angeles-based analyst who follows Hawaiian, doesn't see the fare wars lasting another year. The market isn't big enough to support three major players, said Capuano, director of Equity Research for Los Angeles-based Imperial Capital LLC.

Who blinks first?

Capuano believes that Hawaiian is the best-positioned of the three airlines for survival. It is the largest carrier in the state, has the newest and largest planes and can count on its trans-Pacific business, where it is second to United in the number of passengers, he said.

"You have a situation that doesn't make financial sense. No one's backing down because no one's going to give up market share. Everyone is waiting for someone else to blink," Capuano said.

"But it does not make sense that this will continue for another year."

Hamilton, the aviation industry consultant, agrees that the battle for survival is between Aloha and go! He said go!'s business plan works only if Aloha is out of business and that's not going to happen soon, he said.

He noted that Mesa's planes are flying less than two-thirds full, despite the low fares. Hawaiian's flights are more than 80 percent full, while privately held Aloha doesn't report its load factors.

Mesa "has burned through a lot of cash," he said. "I think it's time to move on."

Usha Pillai hopes that doesn't happen soon.

The Hilo resident said she used to pay $80 each way for her bimonthly trips to see her son, a student at UH-Manoa. But since go!'s entry, she's been able to book a number of flights at $19 and $29, she said.

"I hope the airlines are doing OK and don't go bankruptcy, because I think more people fly because it's cheaper," she said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.