On the day a $52.2 million settlement in its dispute with Mesa Air Group was announced, Hawaiian Airlines said it was increasing interisland fares by $5 to $20.

The fare increase, along with new fees, comes one month after the closure of Aloha Airlines' passenger service. Hawaiian's base fare will go up from $49 to $54 effective today.

go! airlines, which started a fare war in 2006, said it is "watching the situation closely, but has not made a decision" whether to match Hawaiian's increase. go!'s lowest Web fare yesterday was $49.

Early yesterday Mesa, the Phoenix-based parent company of go!, said it would pay Hawaiian $52.5 million to settle charges that it misused confidential information to enter the interisland market.

In October, U.S. Bankruptcy Judge Robert Faris awarded Hawaiian $80 million in damages.

The settlement does not bar go! from operating interisland flights, but it requires Mesa to drop its appeal of the judgment.

"This settlement is the last chapter in the legal dispute over Mesa's misuse of Hawaiian's confidential information," said Mark Dunkerley, Hawaiian's president and chief executive officer. "We are delighted with the award of damages and this settlement."

For Hawaiian, the settlement guarantees it will receive some money from its long-running legal dispute with Mesa.

During the past several months, Mesa's finances have deteriorated significantly and airline industry analysts have raised the possibility of a bankruptcy filing. A bankruptcy filing could wipe out or sharply reduce any money Hawaiian would expect to see from the judgment.

For Mesa, the deal with Hawaiian provides some breathing room for now.

Mesa disclosed earlier this month that Delta Air Lines plans to cancel its $20 million-a-month contract with Mesa's Freedom Airlines subsidiary. Mesa is suing Delta over the contract, which provides a large chunk of Mesa's $1.3 billion in annual revenues. Mesa also faces a $37.8 million payment to its bondholders on June 16.

more hikes to come?

Dunkerley yesterday hinted at more fare increases to come.

He quoted aviation industry expert Peter Forman, who said that fares need to be in the $75 to $85 range for the airline to break even on interisland flights.

"We think this is a very modest step in that direction and is probably appropriate," Dunkerley said at a luncheon of the Hawai'i Publishers Association.

Hawaiian said yesterday that its $54 base fare will be available to customers who book off-peak flights and those who buy tickets in advance.

In addition to the fare hike, Hawaiian announced that it will charge an extra $5 for customers flying between Honolulu and Hilo and Kona. The airline said the fee will help to cover fuel costs for these longer flights.

Customers who book a flight through Hawaiian's reservations department will be assessed another $5 each way to offset the cost of handling reservations by phone.

Also, passengers who check in a second piece of luggage will be charged a $25 fee on flights between Hawai'i and the Mainland effective June 10. This fee will not apply to interisland flights or Hawaiian's flights to the Philippines, Australia, American Samoa and Tahiti.

Dunkerley said a continuing increase in operating costs, particularly fuel prices, forced the airline to raise its rates.

COVERING LOSSES

Hawaiian yesterday said it lost $19.9 million, or 42 cents per share, during the three months ending March 31. That compares with a net loss of $11.9 million, or 25 cents per share, in the year-earlier period.

"The sudden shutdown of airlines locally and nationally these past few weeks shows how critically important it is for Hawaiian to cover its costs," Dunkerley said.

"The marketplace ultimately sets the fares," he added. "We are in competition and competition is vibrant and much alive today, even with the cessation of operations of Aloha. We put forward a price increase we think is just fine."

Paul Skellon, spokesman for go!, said the airline is "watching the situation closely, but has not made a decision" whether to match Hawaiian's increase.

Skellon said that since Aloha shut down its passenger service March 31, go! has increased its daily weekday flights from 54 to 84 and bookings are up 50 percent.

The Arizona-based airline, he said, appears to be overcoming a word-of-mouth boycott after being blamed for Aloha's demise. The airline touched off a fare war when it entered the Hawai'i market with $39 fares.

"We have carried more than 1.3 million people, and we only started in June 2006. The people of Hawai'i and the business community have been very supportive of us," Skellon said. "Now that we have put the Hawaiian (Airline) litigation behind us, we are really keen to just focus on continuing to grow a really great airline for the people of Hawai'i."

Shares of Hawaiian rose 15 cents to $8.05 on the American Stock Exchange yesterday. Mesa shares also increased 15 cents to 70 cents in afternoon trading on the Nasdaq market.