In the airline industry, bigger is almost always better. But Hawaiian Airlines is betting its unique niche will help it as more competitors add capacity in its markets. Still, the airline could someday be a takeover target for another airline that wants to grow.
To thrive as a full-service U.S. airline, a carrier must be all things to all people, taking customers everywhere they want to go, on their own aircraft or through partners, with enough frequency to satisfy business travelers.
At least that’s conventional wisdom. It’s espoused by big carriers, like United Airlines, as it adds capacity and grows its hubs, and smaller ones, such as Alaska Airlines, which acquired Virgin America so it could better fight for West Coast passengers. That was a blow to mid-sized JetBlue Airways, since it coveted Virgin America for the same reason.
But one U.S. airline doesn’t seem interested in bulking up. It’s Hawaiian Airlines, the niche Honolulu-based airline with robust service within Hawaii and a network that extends as far as Sydney, Beijing, Tokyo and New York. Analysts sometimes float Hawaiian as a merger partner for a larger carrier — perhaps Alaska or JetBlue — but the airline is content to remain small.
“Size isn’t the only thing that matters in terms of being successful in the business,” Hawaiian CEO Peter Ingram said this week in an interview at the IATA Annual General Meeting in Sydney. “Our formula is be the Hawaii experts and to serve a unique market, and to be better at that than anyone else.”
It’s a model that soon could be tested. For decades, Hawaiian has competed with most U.S. airlines and many Asian ones, but it has never had to worry about Southwest Airlines, which expects to fly to Hawaii late this year or in early 2019. So far, Southwest has said it will fly across the Pacific from Sacramento, Oakland, and Diego and San Jose, as well as fly some short-hops within the islands.
We spoke with Ingram, who became CEO in March after a long stint as the carrier’s chief commercial officer, about how Hawaiian plans to stay relevant in a world dominated by massive airlines.
This interview has been edited for length and clarity.
Skift: Many U.S. airlines are growing in Hawaii. Now Southwest is coming. Can the market absorb the capacity?
Ingram: There’s plenty of demand. We’ve already proved that this year. In the first quarter, seats were up 10 percent and I don’t think anyone is flying empty airplanes to Hawaii, so demand remains very strong and has been very strong for a number of years. Southwest obviously has made a lot of noise about coming into the market next year and we certainly expect to see them and we think we can compete very effectively against them.
Skift: Southwest keeps teasing the public, naming airports it will serve but not specific routes. Do you have more clarity?
Ingram: I only know what I read in the papers and see on TV.
Skift: Southwest likely will fly short-haul flights within the islands. You have a near monopoly on those routes. Are you concerned?
Ingram: We’ve been flying between the islands of the state for almost 89 years. We know the business very well. We’ve got the right fleet. We’ve got a broad network. We’ve got fantastic local employees who deliver outstanding hospitality and they’ve competed with lots of other folks over the years and we’ve stood up to that competition well. I would expect that to be the case going forward.
Skift: You planned to gain an edge in the U.S. market by deploying the new technology Airbus A321neo to smaller West Coast airports, like Long Beach, California. But Airbus has struggled to deliver aircraft because of issues with the Pratt & Whitney engines. What’s the latest?
Ingram: I am encouraged that we’re seeing deliveries pick up again. Obviously the news early this year that deliveries would be suspended for a couple of months was disappointing and we’ve been frustrated having to deal with the impact on our schedule plans for the summer, since we had to re-accommodate a number of guests who were booked on trips that we couldn’t fly as the schedule was originally laid out.
We expect to be on track later this year. We should have 11 A321neos by the end of the year. That was the plan at the beginning of the year. That’s still the plan. Unfortunately, they’re coming more in June and July and August instead of coming in in February, March and April when we expected.
In operation, the A321neo has worked very well and the engine is performing to specification. The airplane is performing to specification. It’s a fantastic airplane and it’s got undeniable economics. We will be frustrated about what didn’t happen in 2018, but we need to maintain the perspective that we’re going to be flying these airplanes for 25 or 30 years and the promise of those 25 and 30 years is every bit as rich today as it was then.
If you ask people who bought the 787 and suffered through the original teething pains — that was very, very painful at the time — they’re probably pretty satisfied with the economics and guest satisfaction now that it’s up and running.
Skift: You’ve got one thing Southwest doesn’t have — orders for 10 Boeing 787s, with deliveries starting in 2021. They can fly 14 or more hours, cost effectively. Could that someday mean nonstop flights from Europe?
Ingram: There is probably a big enough market, particularly if you have the ability to connect beyond London. It’s a little early for us to be planning destinations for an airplane that isn’t going to be delivered for about three years, but we would have the capability to do London and fly some other things. It’s always exciting when people look at the opportunities with a new aircraft that does something you can’t do with your current fleet.
That’s not the reason we’re getting the 787. The 787 has got to work for our network and that includes Tokyo and it includes Los Angeles and it includes San Francisco, and it very much includes Sydney, Australia. All of those things we can do with our current fleet but we think the 787 will cover those missions even better.
Skift: You don’t seem that bullish on Europe.
Ingram: You have to be careful. We’re talking about long-haul leisure and one of the things we know about long-haul leisure is that guests can be very price sensitive because they’re paying with their own money. It’s not like saying you’ll fly between two business destinations that are an extremely long distance away. This week we’ve been reading about Singapore to Newark. That’s all predicated on business demand and premium demand.
For a long-haul leisure to work, you still have to be competitive with connecting options because a family of four traveling on vacation is going to be conscious of how they’re spending their money.
People get excited about it. We’ve talked about it in the past. We’ll go further down the road of analyzing that more seriously when we’ve got the airplane in service.
Skift: Many U.S. and Asian airlines are adding capacity to Hawaii. But there are only so many hotel rooms, and Airbnb isn’t beloved in some areas. Will we get to a point when there’s nowhere for people to stay?
Ingram: It’s something we’ve been thinking about for a long time. Hotel room growth has been anemic for as long as I’ve been at Hawaiian and I’ve been at Hawaiian for over 12 years now. There has been some growth in other accommodations, so timeshares have grown more. You see some visitor inventory that’s being opened up by the Airbnbs and other alternative accommodation sites. That’s not new inventory. That’s just inventory that’s more accessible because there’s technology for consumers to find it.
It’s an issue we talk about in the local community, and there are interesting pressures that you have to manage. People who live in Hawaii live in Hawaii because they love living in Hawaii and many of them don’t want anything that threatens to change the Hawaii they live in today. On the other side, tourism is the absolute engine of Hawaii’s economy and finding ways to generate growth is a positive thing for funding the economy and providing tax dollars that build our roads and build our schools and keep our community safe.
Skift: Asia has been a strength, particularly Japan. By summer, you have said you plan to apply for anti-trust immunity with Japan Airlines. Why?
Ingram: We see a lot of opportunities with the powerful brands, a real good sharing of values. We think there is a lot of consumer benefit.
Skift: Most immunized joint ventures are created by big carriers, like the transatlantic partnerships among United, Lufthansa Group and Air Canada. Small airlines like yours don’t create them. Is this the start of a trend?
Ingram: It’s natural you think of the big global network carriers getting together with big global network carriers because that’s the only model we’ve seen so far. We’re a somewhat unusual airline. We fly long-haul international even though we’re a smaller carrier. We’ve got a neighbor island network that is unique.
I don’t know if this will be the start of a trend or if this is just something that makes sense. If it’s a start of a trend, and smaller carriers have more of an opportunity to participate in some of these things, I think that would be a great outcome.
Skift: The U.S. government almost always approves these arrangements. But in the Obama Administration, regulators rejected a deal between Qantas and American, saying it would not benefit customers. Could you be turned down?
Ingram: I think we’ve got a very compelling case that there are strong consumer benefits, so I certainly expect this to be approved. I think it would be somewhat ironic if one of the very, very few that didn’t get approved was the first opportunity for one of the smaller carriers to participate.
Skift: Hawaiian sided with Gulf carriers during the recent Open Skies debate with U.S. airlines, who argued Emirates, Etihad Airways and Qatar Airways take illegal subsidies from their governments. Why?
Ingram: We fly internationally so we’re concerned about anything that would potentially threaten the great success Open Skies had been. We’re not flying to the Middle East countries and they’re a long way from Hawaii, so the particular issue of those three carriers is not on our radar. The broad threat to Open Skies feels a little bit at times like some of the bigger players have had the opportunity to benefit from some of these policies and they want to close the gate so that other people can’t benefit.
Open Skies has been important to us, including flying to Australia, and expanding in Japan. We think things that democratize air travel and make access more available are good for competition, good for the consumer and ultimately good for the industry.
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Photo credit: Hawaiian Airlines CEO Peter Ingram took over in March. He will lead the carrier's strategy to compete with Southwest Airlines. Marco Garcia / Hawaiian Airlines