When Hawaii bellwether Hawaiian Airlines held its conference call last week to discuss annual results, there were few financial surprise. But what came into far better view was the airline’s strengths, weaknesses, direction and competition.
Regarding financials, the company reported 2022 results in which it lost about $240M, although the end of the year started to improve. Hawaiian’s capacity compared with 2019 was +15% domestically, -21% interisland, and -56% internationally. Obviously, two of its three primary business units remain challenged by the lack of returning international visitors and competition with Southwest.
CEO Peter Ingram acknowledged that while a lot has returned to normal, there’s a good part that has not. Some things are in their control, while many more are not. Here are six examples.
1. Ongoing interisland blood bath.
Acknowledging fierce competition at far-below-cost tickets, Peter said, “Low fares in the Neighbor Island market have stimulated traffic, and we continue to materially outperform our competitor on all these routes. We continue to succeed in earning a disproportionate passenger share with higher average fares than our competitors, and the gap is substantial.
BOH: Hawaiian has twice the number of flights interisland than Southwest. They don’t compete on every fare and can eke out higher fares, especially when Southwest doesn’t have similarly timed flights. On the other hand, Southwest has extremely deep pockets for this prolonged fight. They did a ten-year battle of a similar nature before withdrawing from Newark. So this is nothing new. For Hawaiian, where interisland is a significant portion of the overall revenue, it’s a bigger deal, albeit not back-breaking at this time. Remember that when these airlines sell tickets for $39, that actually represents just $26, with the rest being taxes and fees. That might be between 1/2 and 1/3 of their actual cost of providing the service.
2. International return simply hasn’t materialized.
Peter said that “Australia, New Zealand, and South Korea have all seen strong demand recoveries over the course of 2022.” But, “Japanese travelers have not yet resumed international travel at a pace comparable to pre-pandemic levels. With the timing of Japanese demand recovery still uncertain, we will need to be nimble.”
BOH: This is a huge problem for Hawaiian. It means they only have one leg of their normal three to lean on fully. And that is the mainland, where while traffic is still great, there remain concerns about a potential downturn later in 2023. All-important to Hawaiian’s success is Japan, and it is coming back, but at a seeming snail’s pace.
3. Spiraling costs.
Peter pointed out that costs have escalated, especially labor.
BOH: Their tentative agreement to raise pilot pay up to $448/hr will be very costly, among other things. Hawaiian doesn’t face these problems alone, as they are industry-wide. At the same time, Hawaiian lacks scale compared with its competitors. It also faces Hawaii cost of living issues for its employees that could prove undermining. Near-term financial performance, based on Hawaiian’s own words, is challenged and uncertain.
4. Lack of reliability.
Ingram said, “Over the past few months, we have not performed to our standards operationally. The root causes are not a function of our decisions, but it is our responsibility to overcome external forces and deliver the level of service and reliability our guests expect. Since October, on-time performance at our Honolulu hub has been undermined by construction on a primary arrivals runway and the air traffic control programs that constrain arrivals into the airport.”
BOH: The runway at Honolulu is just one of the issues. Inadequate staffing is another one. The problem has been going on for nearly a half-year, and no one seems to know or want to say when the Honolulu Airport mess could be over. Hawaiian has suffered far more than most airlines at the hands of the inept Hawaii Department of Transportation/Airports.
Hawaiian says they’ve adjusted their schedule to try to improve Hawaii airport performance. Yet, while their operations are improving overall, Flightware said 60% of all Hawaiian Air flights at Honolulu were delayed Saturday, while Southwest’s delay factor was 28%.
5. Amazon freighter business starting.
Hawaii is excited to enter a new freighter operations venture with Amazon later in 2023. That will use an Amazon fleet of A330 aircraft rather than Hawaiian’s passenger planes. As a part of that, Hawaiian will be handling maintenance and is moving some of its previously outsourced work in-house for greater efficiency and cost-effectiveness.
BOH: We’d give the company high marks for bringing this to fruition. It’s a much-welcome diversification, set to provide a meaningful revenue stream over an 8-year contract. Hawaiian will be Amazon’s largest airline partner thus far.
6. Premium market focus.
Hawaiian said that in the last quarter of 2022, their premium cabin revenue was up 30% compared with the prior year. Next, they have the Dreamliner fleet with 34 business-class suites, compared with the current 18 nice albeit quirky business-class suites. Hawaiian still refers to their business class as first class, which it is not.
BOH: Their strategy of being a versatile yet premium-focused airline seems to work quite well. It is an area in which they have a unique, well-differentiated premium product. They have not, however, figured out premium economy, which is a highly desirable offering in the industry, found on American, Delta, and United. Hawaiian has not announced its version yet, but we remain certain it will arrive at some point.
Hawaiian had been expecting a robust Japanese Tourism to bring in their bottom line, it hasn’t materialized. The hold up could be attributed to several ongoing issues, the least of which is the dispute over Who is Worthy. Follow that with the STR problem, lack of workers in the service and hospitality industry. Japanese Tourists do enjoy to be pampered, served and respected among other things. Certain Japanese rent STR Properties for the privacy, feeling of family closeness, some for exclusivity. They can afford it. The Asian Market has Certain wants and needs, if not being met why waste their time and money. 2/3 down isn’t a good place to be.
Ernie, you propose a hodge-podge of possible reasons for diminished Japanese tourism, none of which are backed by any evidence. Here’s my hypothesis: the Japanese are accustomed to and demand high quality, diverse and fresh sushi, which in Hawaii is only available intermittently (sorry, poke from Foodland just don’t cut it). Make great sushi available everywhere on the islands (not just a few exclusive restaurants) and Japanese tourism will return.
Precisely Eldo.
During the pandemic it was a hugh loss not only for HA but the island & its people. HA has not done much to help. HA kept people’s money that were sick from the ongoing pandemic and would love to return. Myself I was just told my $700.00 plus just expired and they won’t do anything about it.Heartbreaking. I miss Hawaii & culture. My daughter even went to college on big island. The best locals and best experience. Please HA help the economy there. Lower those prices, and don’t let hard working people’s money expire. Thank you.
Poor Hawaiian got what it deserved.
They price gouged passengers when they were the only ones flying between islands. Even for medical reasons flying to Oahu was way to costly. Discounts for medical issues should have been given.
No more offshore maintenance- if you can find mechanics!
Good luck to you if HA goes out of business. SWA will be charging $200 inter island fares since they’ll have a monopoly and you will be crying out. SWA currently charges $230 for their inter-Texas (AUS-DAL) routes.
That is a typical predatory practice. My career was in music education. In the early 1970’s a large part of the western USA was serviced by a brass manufacturer, Olds Mfg., located in Fullerton. A Japanese company, Yamaha, was trying to become established in the market. Their prices were considerably lower than Olds. There came a point where a small company like Olds could not compete against against Yamaha and they ceased operations. Almost overnight the cost of the Yamaha instruments went way up in California!
The same thing will happen if HA can not compete against SWA on interisland flights.
I have no issue flying SWA around the mainland on flights under 3 hours. Sorry, but I will not fly SWA to Hawaii.
Regarding Hawaiian’s premium economy, known as Extra Comfort on Hawaiian, when we first began frequent flights from the Los Angeles area to Kahului, the Extra Comfort price included free IFE, I believe there was a small charge ($5) for IFE in regular economy. There were one or two other little perks that were included in the price differential. Now, the only advantage over regular economy, albeit a large one in my book, is the extra legroom. I can deal with tight legroom for interisland flights but when in a seat for 6+ hours, including the time boarding and before you you leave at your destination, the EC legroom is a must.
Amazon taking up to 15% ownership of Hawaiian airlines portends bad things in terms of customer service. Everything Amazon touches becomes depersonalized. Look at what they did to Whole Foods.
I wouldn’t expect Australian tourism in HI to resume to pre-pandemic levels. Firstly, their dollar is much weaker compared to the US dollar, secondly, and I say this, as someone who lived in Australia for several years, Hawaii doesn’t really offer anything in terms of a tourist destination that isn’t readily available on Australia’s coasts and small islands. The only upside is that we have no snakes. But that’s about it.
HAL is laying about there delays. They had those for the last 3 years, well before the runway work. They blame delays on the first flight on the runway because the bags can’t get loaded. It’s right in front of their terminal. The Maui to HNL flights between 3-5 p.m. are delayed 100 percent for three years. Our company switched half our flights to Southwest and amazingly have only been delayed once in 6 months. Does Southwest have priority on runway instead of HAL. Interview customers that make that fly daily or several times a week. They’ll tell you the truth. Even HAL employees tell you real reasons and it’s not the runway. Can’t understand and accept companies thatlie instead of telling the truth. Been flying HAL for 30 years.
Yeah, it could be difficult living off $448/hour. I’d love to get back to that beautiful island but things are so messed up there. Not sure when that time will be with all the other destinations to consider.
Aloha y’all!!
Can you please tell me if the tram at OGG is back in operation yet? We will be arriving this Friday.
Thank you for your help!
Ted
Hi Ted.
Having heard nothing to the contrary, it is working.
Aloha.
Yes the tram is running!
“Peter said that “Australia, New Zealand, and South Korea have all seen strong demand recoveries over the course of 2022.”
I haven’t seen any press about these destinations having the angst about tourists that I read about in other articles/comments in this web source. Seems like both the HI government and many of its citizens both aren’t very interested in tourists unless its to take advantage of them with mounting fees/costs at an already costly place to visit. Lots of long time visitors may think twice about further HI travel as we are doing.
Wow there is a lot here. I wonder how much more expensive everything in a flight will become. I am a Premier Club member and hold Hawaiian Mastercard. Premier perks are nearly extinct all being folded into card. Comfort seats getting really expensive and sounds like they will become part of first class “suites”. I am going to Honolulu end of month and dread the new terminal. Thank you for info