A Beech C-45G, N888M, call sign LANI 8 and a Beech E18S, N162SP, call sign LANI 9 were part of a flight of 5 aircraft, with call signs of LANI 6 thru 10, that were being used on an inter-island tour. The first aircraft, LANI 6, was cleared for takeoff and departed immediately. LANI 7, 8, and 9 contacted the tower for taxi clearance, respectively. In turn, LANI 7 was cleared for takeoff and LANI 8 and 9 were cleared on the runway to hold, but LANI 9 did not acknowledge. As LANI 7 took off, LANI 9 stopped short of the runway and told the tower he was ready for takeoff. The pilot of LANI 9 said that he reviewed his takeoff checklist and heard the tower clear LANI 8 for takeoff, and at the same time clear him (LANI 9) on the runway to hold. He thought he saw LANI 8 taking off, when LANI 8 actually was still holding. Subsequently, LANI 9 collided with LANI 8 and both aircraft were damaged.