The interisland fare war has claimed its first victims.

Island Air, the state's third largest airline, laid off 65 of its 415 workers yesterday.

Interisland fares have been cut in half since the entry of go! airline in June with its $39 one-way fares.

"It is no secret that the market has become unstable with the addition of go!," said Island Air Chief Executive Officer Rob Mauracher. "These were tough but necessary decisions required to ensure our prosperity moving forward."

Island Air also eliminated five of its 17 interisland routes and will take two of its 37-seat De Havilland Dash-8 aircraft out of service.

"We are adjusting our operations by cutting unnecessary costs, and also by reducing workforce, aircraft and routes," said Mauracher.

Island Air said the five canceled routes include Honolulu to Lihu'e, Kahului to Kapalua, Kapalua to Lihu'e, Kona to Lihu'e and Kapalua to Kona.

The airline said passengers who have already booked flights to these destination will be placed on other Island Air flights or will be booked on other carriers that fly to those destinations.

Founded in 1980 as Princeville Airways, Island Air is a niche-player in the interisland market. The company, owned by San Francisco-based Gavarnie Holdings LLC, operates 75 daily interisland flights.

The layoffs come after Island Air announced in September that it was putting its expansion plans on hold due to higher fuel prices and lower fares brought on by go!'s entry in the market.

The airline postponed the delivery of two additional aircraft that it had planned to put into service this year.

Mauracher said since Phoenix-based Mesa Air Group Inc. started go! airline it has destabilized interisland market's fare structure.

Mesa launched go! on June 9 and triggered a fare war when it introduced $39 one-way interisland tickets on its first day of business.

Since then, go! has lowered one-way fares to $29 on several occasions and to as low as $19.

Aloha and Hawaiian have matched go! each time it has announced a discount but Island Air did not match the fare cuts.

Joe Bock, spokesman for go!, called the Island Air layoffs "unfortunate" but said it would be inaccurate to blame go! for the layoffs. Bock said that go! only competes with Island Air on one of five routes it is canceling.

"The airline industry is a difficult one for all of us and we feel compassion for those employees who are losing their jobs," Bock said.

Hawaiian Airlines Chief Executive Officer Mark Dunkerley also blamed go! for the cutbacks at Island Air.

"This unfortunate development comes as no surprise to anyone," Dunkerley said in an e-mail yesterday in response to Island Air's layoffs.

"Mesa's avowed strategy for go! to 'be the ones to give the last push' to competitors is bound to result in such casualties," Dunkerley said.

Hawaiian and Aloha Airlines have sued Mesa, alleging Mesa improperly took proprietary information from the local airlines during their recent bankruptcies to plan the start-up of go!

Hawaiian has said in court papers that Mesa is selling tickets at a loss and that the start-up airline would raise fares once Aloha went out of business.

Aloha emerged from bankruptcy in February and Hawaiian completed its reorganization in June 2005.

Aloha Airlines spokesman Stu Glauberman declined comment.

Dunkerley's comments were echoed by a group composed of Island Air, Aloha and Hawaiian employees who oppose go!'s practices. The group calls itself H.E.R.O, or Hawaii's airline Employees Repelling Ornstein, referring to Mesa CEO Jonathan Ornstein.

H.E.R.O. said in an e-mail the cuts at Island Air show that go!'s entry will lead to reduced competition.

"We hope the people of Hawai'i can finally see through the mirage created by go! and their executives that Mesa has not come to Hawai'i to increase competition, but rather to squash it," the group said.

Local aviation industry historian Peter Forman believes that Island Air had to cut back its less profitable routes to compete in the low-fare environment.

Of the five routes canceled by Island Air, three are to Kapalua, where the passenger traffic has dropped significantly as a result of the low fares, said Forman, a former airline pilot and author of the 2005 book "Wings of Paradise."

Rather than flying to Kapalua where fares are much higher, passengers are opting to fly to Kahului with the low fares offered by go!, Aloha and Hawaiian and are then driving to Kapalua, he said.

Unlike Hawaiian and Aloha, Island Air doesn't operate Mainland routes, which have been profitable given the strong visitor arrival numbers, said Forman.

"They're caught more directly in the the crossfire," Forman said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.