Panic in paradise: Are high fares the new reality for Hawaii?

— -- Earlier this month there was panic in paradise. On March 31, Aloha Airlines, a 60-year veteran of Hawaii aviation, abruptly shut down, followed two days later by ATA, an airline known for cheap flights to four of Hawaii's islands. With those shutdowns, Hawaii lost 15% of its service from the mainland, or about 1.1 million seats annually.

Price gouging for travelers flying to or from the West Coast cities served by the airlines set in immediately, with stranded passengers quoted prices up to $1,000 for one-way flights out of Honolulu on other airlines. While ticket prices remain exorbitant for this week, as travelers stuck with worthless Aloha and ATA tickets scramble to get to or from Hawaii, looking forward, increases seem a lot less daunting.

The lowest average round-trip fares between the major cities affected—Los Angeles, Oakland, San Diego, San Francisco, and Honolulu—drop considerably for travel later this month. The bad news is those fares are about $60 to $100 higher than pre-April prices, and they don't appear to drop any further for travel during the remainder of the year. You can expect those fares to spike by $200 to $400 for the usual summer high season between late May and late August, and by $200 for the December holidays.

If you're hoping to go to Hawaii this year, don't put off booking because you think you'll find a sale. "Now that ATA is gone [ATA had a price point of $100 to $200 less than the competition], the other airlines aren't going to lower their prices," says Rick Seaney, CEO of Farecompare.com, a consumer airline ticket research website. "You won't see any Hawaii sales in the near future—maybe at the end of the summer when the kids are back in school." With oil prices reaching new highs nearly every week, it's likely fuel costs will only drive airfare prices higher in the foreseeable future.

Thus far, other airlines haven't been eager to announce new transpacific Hawaii service, except Hawaiian, which plans to start Oakland-to-Honolulu service on May 1; and Alaska Airlines, which plans to introduce new Seattle-to-Maui flights in July. (Intra-island service is a different story.) "Right now there's not a huge incentive for airlines to add more Hawaii service," says Seaney. "Hawaii is not very profitable for airlines because so many passengers use their frequent flier miles for free Hawaii flights." Without added capacity and competition on routes between Hawaii and the mainland, Seaney speculates the airlines will be tempted to gradually jack up fares.