Hawaii seems like a nice place, unless you're an airline.

In recent months, Hawaii operations have been a burden for three airlines, a result of intense competition in both inter-island and trans-Pacific markets.

Hawaiian Holdings

(HA) - Get Report

, lost $11.9 million in the first quarter, as revenue per available seat mile (RASM) fell 11%. Privately held

Aloha

lost $8.5 million in the fourth quarter, its most recent reporting period.

Meanwhile,

Mesa

(MESA) - Get Report

said first-quarter earnings at its Hawaiian subsidiary

go

came in about $700,000 below plan. Saturday marks the first anniversary of go's arrival in Hawaii.

During the past year, inter-island capacity has grown by 20%, with go flying five 50-seat regional seats and Hawaiian adding flights. The resulting battle has seen one-way fares fall to as low as $9.

In the U.S.-Hawaii marketplace, capacity has grown 34% over five years.

US Airways

(LCC)

added two dozen weekly flights in 2005, and Hawaiian boosted its capacity by 18.7% in 2006, adding flights from Sacramento, San Diego and Seattle.

Last week,

Alaska

(ALK) - Get Report

said it will add flights to Hawaii from Seattle and Anchorage later this year.

Adding capacity, particularly within the islands, is clearly not a formula for airline success. In fact, the prevailing industry view on Hawaii can be summarized as "three's a crowd." The question is who will leave first.

To watch Aaron Task's video take of this column, click here

.

It's not Hawaiian, says CEO Mark Dunkerley. The carrier has been flying since 1929 and has repeatedly survived incursions. "This is a movie we've all seen before," Dunkerley says. "It's ended the same way every time."

While Aloha has been flying since 1946, Dunkerley says that Mesa's go strategy is about running Aloha out of business. "Either that will happen, or capacity has to come down dramatically," he says.

Aloha's potential demise comes as news to CEO David Banmiller. "Aloha is not about to go away," he says. "Go's predatory pricing is destabilizing the inter-island market, resulting in losses for all of the inter-island jet operators,

but we have faced tough competitors in the past and have always emerged a stronger and better airline."

United

( UAUA) recently took an undisclosed minority stake in Aloha, in exchange for increased cooperation in marketing, code shares and operations.

That leaves go, and Mesa CEO Jonathan Ornstein insists it won't go anywhere either. He says that while first-quarter fuel costs rose, overall expenses in Hawaii have been below anticipated levels. Besides, the 50-seat aircraft need a home, because U.S. partners prefer larger regional jets.

Hawaiian has added more seats on inter-island routes than go's total capacity, Ornstein says. "These guys talk out of both sides of their mouth. On the one hand, they say the price is too low. On the other, they add capacity," he says.

Both Aloha and Hawaiian have sued Mesa, alleging that it is unfairly seeking to force them out of business.

For investors, the obvious way to play the "who leaves first" game is Hawaiian. Its shares traded Friday at $3.56. "It's a difficult battle," says Dunkerley. "Everybody is losing money at $9 fares,

but there are lots of reasons why investors should have faith in our story."

Inter-island service accounts for about 25% of Hawaiian's revenue. In February, the carrier had 50.4% of the passengers and 45.9% of the capacity. Most of its remaining revenue comes from the mainland market, where first-quarter RASM declined 6.6%.

"Hawaii is a beautiful place to go, "Dunkerley says. "We are

usually blessed with firm demand, but it has been very soft over the winter." The causes are a cyclical reduction in Hawaii vacations, as well as concerns about the U.S. economy, he says. On a conference call, the carrier projected second-quarter overall RASM will drop 10% to 12%.

Hawaiian lost $40.5 million in 2006, following a 2005 emergence from two years in bankruptcy court. It has continued to cut outlays, with first-quarter cost per available seat mile dropping 5.5% to 7.96 cents. Last month, it laid off 98 administrative workers and eliminated 28 additional positions. But its service, like Aloha's, continues to be highly regarded.

Meanwhile, Dunkerley says Hawaiian will seek new revenue by applying for a China route. Currently, Asian carriers offer connecting service to China. A recent bilateral agreement means U.S. carriers may add 13 daily China flights within five years.