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Airlines have been cutting flights between North America and Hawaii, and while that might bring fewer visitors to the islands this year than tourism officials initially projected, the reduced competition helped Hawaiian Airlines regain profitability.
The state’s largest carrier said Tuesday that earnings more than doubled in the April-June period following two consecutive quarters of losses when airlines were trying to capitalize on Hawaii’s rebounding economy.
“We maintained, when all that extra capacity was coming in, that it wouldn’t be a success for companies, and indeed it wasn’t,” Hawaiian President and CEO Mark Dunkerley said in a telephone interview. “We see some pulling back, which is kind of what we anticipated, and I think things are therefore heading in the right direction in terms of balancing supply and demand.”
Although air seats from North America to Hawaii were still up 5 percent last quarter from the year-earlier period, that was far less than the 13 percent increase in the fourth quarter of 2012 and the 11 percent rise in the first quarter of this year.
Dunkerley projects industry seat capacity between North America and the islands to go down 1 percent this quarter and then decline 5 percent in the fourth quarter.
North America routes accounted for 47 percent of Hawaiian’s passenger revenue last quarter. The diminished competition allowed Hawaiian to improve the passenger revenue it generated for every available seat.
With its neighbor island business also improving, Hawaiian was able to overcome currency exchange challenges on its international routes to earn $11.3 million, or 21 cents a share, in the quarter. The results easily beat analysts’ estimates of 12 cents a share.
A year ago Hawaiian earned $3.9 million, or 7 cents a share. Revenue rose 10.2 percent to $533.9 million from $484.6 million.
“On our international routes we are seeing the strengthening of the dollar undermine some of the excellent results we have had in the last couple of years, but this portion of our business remains the core focus of our expansion plans,” Dunkerley said.
Hawaiian, which has started five new international routes in the last nine months, said it is going to spend the next nine months “bedding them in” before its newest destination — Beijing — comes online in April.
“We think that’s the prudent thing to do,” Dunkerley said. “That’s always been the plan, and we think we’ve got the timing just about right.”
Since November 2010 Hawaiian has started nine new international routes. During that time Hawaiian also began service to New York. International routes accounted for 30 percent of Hawaiian’s passenger revenue last quarter.
Airline analyst Bob McAdoo of Los Angeles-based investment bank Imperial Capital said he was encouraged that Hawaiian will take a step back now from its rapid growth.
“Obviously they were in bankruptcy once (the last time from 2003-2005) and growth really wasn’t an option, but they’ve generated some earnings over the last several years and it’s possible now for them to finance their growth,” McAdoo said. “It’s good to see that they’re just not growing because they can, but they’re actually evaluating things and taking time to study them and are doing the right thing.”
Dunkerley said the diversity of the airline’s route network is paying off.
“Markets sometimes do well and sometimes do poorly,” he said. “Last year the neighbor islands and West Coast was performing very poorly, and international was performing very well. This year we’ve got some improvements on neighbor islands and West Coast flying, and international — chiefly because of the exchange rates — is not doing so well. So we see this all as validation of our strategy of diversifying our route network so we’re not overly dependent on one geography.”
Hawaiian said its neighbor island routes, which accounted for 23 percent of its passenger revenue last quarter, improved because the airline “did a good job of tailoring capacity by market and by date to the demand for travel.” As a consequence, the airline said its revenue per passenger increased 10.4 percent from the year-earlier quarter, and its percentage of seats filled rose 4.9 percentage points.
“Neighbor island routes remain an important aspect of our business,” Dunkerley said.
However, he expressed frustration that the company’s startup turboprop operation, ‘Ohana by Hawaiian, has yet to get regulatory clearance by the Federal Aviation Administration. He called it “a pretty hopeless situation.”
‘Ohana by Hawaiian, which will be operated by Idaho-based Empire Airlines, was expected to begin service to Lanai and Molokai this summer with 48-seat ATR 42 aircraft. Dunkerley said he now doesn’t have any idea when it might get off the ground.
“The FAA said it doesn’t have the resources (money and personnel) to finish the certification work for ‘Ohana by Hawaiian,” Dunkerley said. “We don’t see the FAA saying the same things about the American and US Airways merger. We don’t see the FAA saying the same things about United operating a new aircraft type, the 787. We don’t see the FAA saying the same thing about American Airlines taking delivery of a new aircraft type. So from our perspective it seems pretty apparent that our needs have been put on the back burner vis-a-vis the other airlines, and that’s deeply frustrating.”
Hawaiian’s stock jumped 23 cents, or 3.4 percent, to $6.92 in after-hours trading Tuesday after the results were released. In the regular session Hawaiian’s shares were unchanged at $6.69.
(c)2013 The Honolulu Star-Advertiser. Distributed by MCT Information Services.