The interisland air fare war is prompting Island Air to cut back on its passenger capacity by one-eighth and to postpone its expansion plans.

The local carrier said yesterday that it will replace its sole 78-seat Bombardier Q400 aircraft next month with a smaller Dash-8 plane, which seats 37 passengers.

Island Air said it also will delay the delivery of two additional Q400 jets, which were scheduled to begin service later this year.

"The added capacity of go! in the market, high fuel prices and ongoing fare wars have affected the industry," said Rob Mauracher, Island Air's chief executive officer, in an e-mail yesterday.

"It is clear that go!'s recent $19 fare was a direct attempt to damage yield throughout the marketplace and a blatant effort to drive an airline out of business."

Mauracher was referring to recent statements by Hawaiian Airlines that go!'s Phoenix-based parent, Mesa Air Group, aimed to drive Aloha Airlines out of business after Aloha emerged from bankruptcy protection earlier this year.

Hawaiian, based on Mesa e-mails it had subpoenaed, said that Mesa was selling its tickets at a loss and that the start-up airline would raise fares once Aloha went out of business.

Mesa's CEO Jonathan Ornstein denied that Mesa and go! are trying to drive out any of its competitors. Ornstein previously said that he has always envisioned having three major players in the interisland market.

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

Since then, go! has lowered one-way fares to $29 on several occasions and last week the start-up airline dropped fares to $19. Aloha and Hawaiian have matched go! each time it has announced a discount.

Founded in 1980 as Princeville Airways, Island Air is a niche-player in the interisland market. In March, the company, owned by San Francisco-based Gavarnie Holdings LLC, unveiled a corporate redesign and announced that it expanding its service with the new Q400 jets.

Mauracher said Island Air's reduced capacity will not affect its routes or its daily schedule. Island Air currently operates 103 daily flights.

"Our business plan remains the same: to focus on serving the Hawai'i market and to build our niche markets with more direct point-to-point service and off-peak travel than any other scheduled air carrier serving the community," Mauracher said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.