Hawaii’s travel industry is a delicate ecosystem heavily influenced by the availability and reliability of its airlines. Hawaiian and Southwest Airlines are pillars of this system, and any disruption to their services could pose a significant threat, especially for travel between islands. The potential fallout would be huge if anything changed.
Hawaii Travel Industry Needs Both Hawaiian and Southwest.
The economic ripple effect of any loss of essential connectivity provided by these two companies, especially within Hawaii, would be felt across the islands, exacerbating the challenges already faced by Hawaii’s tourism sector and far more.
Challenges facing Hawaiian Airlines.
Established in 1929, Hawaiian has become synonymous with interisland travel, providing crucial connectivity for residents and Hawaii visitors.
The potential merger with Alaska Airlines has offered a strong glimmer of hope for stability and growth. But the path forward remains highly uncertain. Within the next two weeks, we will know for sure if the U.S. Department of Justice intends to approve or deny Alaska’s planned acquisition of Hawaiian.
Merger sentiment: Hawaiian Airlines stock sank 12% today, and 18% in past five days.
Reports and sentiment within the past week reflect growing concern that the Department of Justice may well block the $1.8 billion sale to Alaska Airlines, casting further doubt on the merger’s success. This uncertainty has significantly impacted Hawaiian’s stock, which sank 18% in the past five days. It is trading at a big discount compared with the price that Alaska is prepared to pay. In addition, there is this report out today from this investment market publication. Prior to that article, about one week ago, the share price began a descent.
“The Department of Justice is unlikely to approve its planned $1.8 billion sale to Alaska Air. The antitrust regulator is preparing to challenge the combination.”
Seeking Alpha.
Hawaiian Airlines continues to report significant, ongoing financial losses, with a staggering GAAP net loss of $137.6 million for the first quarter of 2024 and a net loss of $101.2 million in the prior quarter. This amounts to an alarming run rate of $1.515 million lost daily. Despite higher revenues, the airline has struggled to regain profitability, reporting a net loss of $260 million for 2023.
Adding to Hawaiian’s financial woes, market pressures and operational challenges, including long-term issues with their A321neo fleet and a still problematic Hawaiian Airlines reservation system upgrade more than one year on, have exacerbated its financial and customer satisfaction concerns.
Southwest became essential to Hawaii flights over the past five years.
Originally known in Hawaii for low airfares, Southwest also brought customer-friendly policies like two free checked bags, no change or cancellation fees, and non-expiring flight credits to Hawaii. Their entry here brought far cheaper interisland flights with a product that many residents and visitors like. See our most recent Southwest Hawaii review (JEFF LINK).
Since arriving in Hawaii, following a decade of planning and challenges, Southwest Airlines first expanded rapidly, then contracted by some fifty percent. Nonetheless, they continue to play a key role in keeping interisland flight prices (and some competitive West Coast prices) in check. While their presence has been transformative, their future here certainly hangs in the balance.
For a myriad of reasons, Southwest has been unable to achieve the desired results in keeping interisland flights full and profitable. Hawaiian Airlines reportedly maintains a healthy interisland load factor of 74%, while Southwest’s is about 36% lower.
Southwest continues to operate a significant quantity of daily flights within Hawaii, nearly half as many as bellwether Hawaiian. That is essential to providing competitive prices across the market, with both airlines still as low as $49. They also help add to and stabilize the connectivity here that we analogize with a mainland bus or train system.
Challenges Facing Southwest Airlines in Hawaii.
Southwest Airlines has been facing significant financial challenges, the most recent of which are multiple near-miss incidents involving Southwest flights. The FAA and NTSB have scrutinized the airline, raising concerns about safety and operational oversight.
Recently reporting a net loss of $231 million in the first quarter of 2024, investors and industry observers have also raised red flags about the airline’s profitability, stability, focus, and more.
Despite its popularity in Hawaii, the situation speaks to underlying difficulties the airline is grappling with, which may not be consistent with its current level of Hawaii flights. That since these do not appear to have translated into a profitable operation.
In addition, Southwest’s low airfares on its Hawaii routes, especially interisland, while beneficial for Hawaii visitors and residents, are too low for profitability. The competition has put a significant strain on revenue generation in Hawaii. This balance remains a critical challenge for Southwest Airlines Hawaii ops going forward.
Potential flight disruption scenarios.
Recent revelations about Southwest’s financial issues and investor discontent raise questions about their Hawaii flight operations and threaten to result in possible, if not likely, reductions in their Hawaii flights.
Hawaiian Airlines, too, faces looming troubles, including possible, if not likely, bankruptcy, should the Alaska Airlines acquisition in fact not come to fruition. As the primary interisland carrier and a major player in trans-Pacific flights, any issues impacting Hawaiian Airlines’ flights would leave a significant void that other airlines could not fill.
Hawaii’s economy is completely reliant on air travel.
Air travel is essential in sustaining Hawaii tourism and the entire functioning of the state. Disruptions in Hawaii flights for any reason would have far-reaching consequences, not only for the travel industry and its visitors but also for Hawaii’s economy and its residents.
A surge in pricing could be ahead for Hawaii flights.
Hawaii airfares will rise significantly in the future due to reduced competition across all airlines and before any potential interruptions by Southwest or Hawaiian. This will continue to make travel to Hawaii less affordable. Without two thriving interisland carriers, interisland flights would see base prices jump by double or more each way, and mainland to Hawaii flights would also see fares rise. See Airfare to Hawaii Takes Off: A Challenging Future Offers Glimmers of Hope.
Hawaii flights remain a small and delicate ecosystem.
Hawaiian and Southwest Airlines are crucial to maintaining the accessibility and affordability of Hawaii travel, especially between islands. If the merger proceeds, we will support both carriers, including a new Hawaiian/Alaska. Any decrease to what we have now could have difficult consequences for visitors and residents.
We welcome your input on these fast-changing developments in Hawaii’s air travel industry.
I would expect Alaska to pare down or exit inter Island flying completely if it is not quickly profitable. I also expect Alaska to cease flying the transpacific routes and eliminate the Hawaiian brand regardless of what they say they intend to do. Alaska isn’t going to buy a money losing airline and continue to lose money. They want to eleminate Hawaiian, not be it’s savior.
Personally, I am not that excited about the merger since
Alaska is committed to a single aisle Boeing fleet.
My favorite plane is the A 330 wide body with the 2 – 4 -2 layout.
You should be excited about the merger
Not sure how much longer Hawaii can sustain the entire onslaught of tourism disruption. The airline insecurity is just part of incredibly insufficient oversight of the tourism in the state. First and foremost, there are the inherent conflicts between the HTA (changes leadership every 18 months), HVCB (had entrenched leadership for 18 years) and the various committees of the legislature. There is also the runaway interests of Hawaii’s hoteliers, who command a powerful lobbying operation, while at the same time directing visitors to vacation rentals (they are trying to eliminate) due to ultra high hotel pricing. Outrageous accommodations taxes & fees are no help. Rental vehicle pricing drives visitors to despair. And now Hawaiian Airlines is in jeopardy of complete failure, while Southwest is severely cutting back services and raising prices. Visitors, especially annual visitors, are letting it be known they will not be coming back. Where is the leadership and solutions?
Best solution, don’t go to Hawaii for a few years, I’ve gone at least once a year for the past 8 years and close to every other for about 15 years before that.
But I won’t be going next year due to the prices doubling this summer over what I normally pay. Instead I will take my wife and kids to Europe for the next few summers at least and if the prices continue to go up then Hawaii might be canceled all together.
If we let the airlines charge more and pay for it we will all end up paying more. Avoid travel to the places where travel is rising and take control back from the airlines.
Using HA’s stock price as an indicator of this deal going through or not is foolish when several stocks plunged over the last 2 days due to profit taking.
Today HA’s stock has rebounded is that now an indicator the deal is going to be approved?