Embedded Files
01/02/25 - Micronesian Air Connection Services president/CEO John J. Stewart replied to Star Marianas Air, Inc.’s recent tirade against the latest entrant to the Marianas’ inter-island air passenger service.
In a letter sent to the Air Carrier Fitness Division of the U.S. Department of Transportation dated Dec. 30, 2024, Stewart said MACS’ commuter air carrier application presents a familiar narrative in aviation history—an incumbent carrier attempting to use regulatory processes to block innovative new entry that would benefit consumers.
“Their arguments not only misrepresent industry practices but reveal concerning contradictions between their public positions and their own business practices. MACS’ entry into the market has been met with strong support by the CNMI government and community alike, as the market currently faces monopolistic pricing.”
For example, Stewart said a 30-minute flight on Star Marianas from Saipan to Rota has a full fare of $165 ($330 round trip) if booked online and $175 ($350 round trip) if booked over the phone. Meanwhile, he said a seven-minute flight from Saipan to Tinian is $85 ($170 round trip) on Star Marianas’ full fare pricing.
“Star’s opposition is nothing more than an attempt to maintain their monopolistic position over the CNMI. Star's opposition mirrors unsuccessful attempts by incumbents to block transformative new entrants throughout aviation history.”
‘Southwest Effect’
Stewart then harkened back to the experience of Southwest Airlines when it was breaking into the highly competitive U.S. low-cost carrier market.
“Southwest Airlines faced nearly identical opposition in its early days, with incumbent carriers claiming its innovative business model would ‘destabilize’ existing markets. History proved these arguments not just wrong, but counterproductive to public interest. The ‘Southwest Effect’—documented extensively by economists and the DOT—demonstrated how new entry drives market expansion, fare reduction, and service improvements. Star’s arguments against MACS' entry reflect the same protectionist instincts that would have deprived countless markets of these benefits had regulators accepted them.”
Stewart added that the potential for MACS' entry to transform the CNMI market mirrors documented effects in similar regional markets.
He then used Hawaii's inter-island service expansion as a prime example, saying it yielded a 30% increase in inter-island commerce and a 45% growth in tourism-related businesses. Similarly, American Samoa saw a 23% reduction in shipping costs and notable improvements in supply chain resilience after introducing market competition.
For the CNMI, Stewart reiterated that competition could create similar benefits, including reduced fares, enhanced connectivity, and economic diversification. He said similar market transformations occurred in Puerto Rico and other island markets where new entry drove expansion rather than mere redistribution of existing traffic.
“MACS' business model, like Southwest's historically, focuses on market expansion through increased efficiency and improved service options. The CNMI Qualifying Certificate program serves as a catalyst for this transformation—exactly as early regulatory decisions supporting Southwest's entry enabled that carrier to revolutionize air service nationwide.”
‘De facto government subsidy’
Stewart then said Star’s criticism of MACSs participation in the QC program collapses under scrutiny of their own practices. He said while attacking MACS' transparent participation in a legitimate government program, Star has accumulated seven-figure unpaid landing fees over multiple years—a de facto government subsidy obtained through default rather than proper channels. This shadow subsidy dwarfs any benefits from the QC program, making their criticism of MACS not just hypocritical but fundamentally misleading.”
He then said that virtually every major U.S. carrier utilizes government support mechanisms, from Essential Air Service, or EAS, subsidies to various tax incentives.
“Delta Air Lines, United Airlines, and other industry leaders regularly participate in these programs. Star’s attempt to cast MACS' use of the QC program as uniquely problematic while ignoring both industry norms and their own massive fee defaults demonstrates profound misunderstanding of aviation economics. The QC program operates within established legal frameworks upheld by courts examining similar programs in other U.S. territories. Star’s attempts to conflate FAA (Federal Aviation Administration) grant assurances with the QC program misrepresent both the purpose and operation of these distinct regulatory frameworks.”
Doubling down, Stewart said DOT has consistently recognized that carriers can utilize lawful tax incentives without compromising their ‘fit, willing, and able’ status. He said such a position acknowledges the crucial role of such programs in supporting air service to isolated regions—precisely the type of market development the CNMI needs.
With respect to MACS’ operational readiness, Stewart said Star’s attempts to question MACS' operational readiness ignore both industry norms and regulatory requirements.
“Many successful carriers begin operations with focused fleet plans that expand systematically with market growth. MACS' phased approach demonstrates prudent planning rather than limitation. Furthermore, MACS already has the necessary infrastructure to operate their airline, including a hangar to store their planes on Saipan, something Star has never invested in themselves, instead electing to park their planes outside.”
Pot calling the kettle black
Stewart also criticized Star's suggestion that confidential operational details should be publicly disclosed, saying that it misunderstands both regulatory requirements and business practicality. Their demand for access to MACS' proprietary information while failing to provide similar transparency about their own operations reveals their arguments as tactical rather than substantive, according to Stewart.
“MACS' sophisticated market approach, combining passenger services, cargo operations, and tourism activities, positions us to drive market expansion rather than merely redistribute existing traffic. Our conservative phased growth strategy backed by diversified revenue streams presents exactly the kind of thoughtful market entry that has historically delivered the greatest consumer benefits.”
Lastly, Stewart said Star's very own DOT application in September 2010 did not include an independent market analysis, consumer impact, or data-driven planning, something they are now complaining about not having public access to.
“Star's claim that new entry will ‘destabilize’ the market rather than foster growth ignores extensive long-standing research from the Department of Transportation from similar markets where competition drove expansion. Their argument that MACS should demonstrate market growth potential while they maintain monopolistic practices that suppress market development represents a logical contradiction that undermines their entire position.”
He said DOT faces a clear choice between protecting incumbent privileges and fostering market transformation, adding that history shows that when regulators support innovative new entrants against incumbent opposition, consumers, and communities benefit.
“Star's opposition, undermined by their own reliance on undisclosed subsidies through fee defaults, represents exactly the kind of anticompetitive behavior that regulators have historically rejected in favor of market development... MACS stands ready to deliver the same type of market transformation that has benefited communities across the United States under the longstanding ‘Southwest Effect.’ Our transparent participation in legitimate development programs, coupled with our comprehensive business strategy, positions us to enhance competition, expand service options, and drive economic growth in the CNMI market. We respectfully urge the department to recognize Star’s opposition for what it is—an attempt to maintain market control at the expense of consumer benefit—and to support the kind of market transformation that has historically best served the public interest.”
Star Marianas reproachment
MACS’ pointed reply came after Star Marianas criticized CEDA’s decision to approve a 22-year tax exemption for J&P Holdings.
“This follows a troubling pattern where new entrants into the CNMI aviation market, including both MACS (Szabo Aerospace) and the now-defunct Marianas Southern Airways, have sought substantial government subsidies as a precondition to entering the market. It raises the question, if Star Marianas has provided sufficient, reliable, and unsubsidized air service to the CNMI for over 15 years, why must new entrants rely on local government sponsored economic advantages to ‘compete’ with Star Marianas,” said Star Marianas president Shaun Christian.
Christian added that the political motivations to undermine Star Marianas’ operations date back to the prior administration, which initiated unfounded claims that the carrier was not paying airport fees, and arbitrarily increased airport charges after over-collecting Passenger Facility Charges without fulfilling its obligations as an airport sponsor.
“If Star Marianas was truly non-compliant with legitimate airport fees, regulatory bodies such as the U.S. Department of Transportation or the Department of Defense—under which Star Marianas holds a designation as a compliant air carrier—would have ample reason to revoke Star Marianas’ operating authority. Yet no such action has occurred, further invalidating these claims.”
Instead, Christian said the CNMI government and the Commonwealth Ports Authority appear intent on undermining Star Marianas’ operation by favoring airlines like MSA and MACS through government-backed subsidies designed to cannibalize passengers from Star Marianas and force it out of the market.
“Such actions do not foster fair competition; they create a predatory environment disguised as ‘competition.’ By MACS attorney’s own admission, its operation is not economically viable without government subsidies, which include a ‘free ride’ on all taxes across its revenue streams, including non-airline ventures. Competition, as Star Marianas understands it, implies winners and losers based on the market's merit. It should not rely on unhealthy pricing wars fueled by subsidies that drive fares artificially low for short-term consumer benefit while destabilizing the market.”
The Star Marianas official added that historically, once an airline eliminates its competitors, passengers often face increased fares as the surviving airline seeks to recoup losses.
“This cyclical disruption serves no one in the long term and underscores the flawed nature of government-backed predatory practices. While Star Marianas embraces competition that fosters innovation and benefits passengers, subsidies that ‘stack the deck’ in favor of one airline over another are not competitive. They are anti-competitive, predatory, and contrary to the principles of a free market.”
Lastly, Christian said Star Marianas has proven its ability to operate sustainably and without government assistance for over 15 years, serving the CNMI with reliable, essential air service.
“It is concerning that, instead of improving market conditions or addressing regulatory issues, the CNMI government appears focused on replacing Star Marianas with subsidized alternatives, despite the evident risks to market stability and public interest. Star Marianas remains committed to serving the CNMI community with the integrity and reliability it has upheld for over 15 years.”
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Story by Mark Rabago
Video and video editing by Thomas Manglona
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