Hawaiian Airlines’ Triple Whammy: From Turmoil to Acquisition To Unknown

In 20-20 hindsight, Hawaiian appeared to be hoping and praying to be acquired. We believe that was true as the small carrier faced a trifecta of seemingly insurmountable problems, both across technical issues, the need for modernization and new planes, and a billion dollars in mounting debt it racked up over the past few years.

Then, the Alaska Airlines acquisition offer mysteriously arrived. We’ve heard somewhat differing answers as to how and when this came about, although the word remains that Alaska approached Hawaiian. It happened sometime in 2023, but when and how exactly isn’t clear.

One Sunday last month, we received an early morning email from Hawaiian advising us of the acquisition and inviting us to a Honolulu meet-up later that day where the heads of both companies would address what was happening.

Later, we learned from a Hawaiian SEC filing that they would be open to other offers. That could be necessary should the Alaska deal fall through for any reason. It isn’t clear, however, who another suitor would be.

We’ve long thought JetBlue might be such a contender, but that’s an unknown and unlikely possibility. In that SEC filing, Hawaiian told employees their answer to this question:

“Are you open to other offers? What if Alaska backs out of the deal?” (We) may consider other unsolicited offers for Hawaiian Airlines with the best interest of our shareholders in mind. However, we are focused on the agreement we reached with Alaska Airlines, which we believe is the best path forward for our company.”

Hawaiian Airlines’ response to employees.

Hawaiian hasn’t recovered since Covid and other huge issues.

First, the airline has faced a huge decline in travel, of which the international component never returned in volume. While the domestic portion is back, it isn’t as strong as had been expected.

Next, the Hawaiian Air fleet of A321neo planes (18 total) developed severe engine problems that require long downtimes for each of the planes. That repair process is still ongoing. Hawaiian has become tight-lipped about the process that keeps some of the fleet on the ground at all times. We know that has been up to 5 planes at a time, but don’t know what the number is on a daily basis.

More in terms of planes, Hawaiian has an aged, cycle-heavy fleet of interisland planes that will also be coming up for replacement in the not-distant future. That change could easily cost more than a billion dollars to achieve when it comes.

In addition, Hawaiian moved to its new Amadeus reservation system in 2023, which did not go well. It created initial turmoil that threw their operations into disarray. Even many months later, features have never been restored, and we were told by CEO Peter Ingram that some planned features may not come to fruition prior to the planned Alaska Airlines acquisition.

Then the Maui fire hit and took Hawaii’s arguably most beloved island off of the travel map. That has remained the case, although Maui travel is clearly in recovery, albeit slowly.

Competition took another big toll on Hawaiian Airlines.

There’s no doubt that when Southwest Airlines sets its focus on any new destination, it causes the players in place to shudder. And that’s the case here, where Hawaiian had been the dominant airline in many ways. Not only has Southwest jumped effectively onto so many mainland routes that were Hawaiian’s bread and butter, but they also successfully took on interisland flights.

That was partly due to operational necessity. Southwest doesn’t have a dedicated fleet of interisland planes and flies its mainland-to-Hawaii aircraft around the islands before returning them ultimately back to the continent. It has proven effective for them in aircraft utilization and to move their passengers between islands since they do not cooperate with other airlines in that regard.

Not only has Southwest been a leader in discount pricing on their Hawaii routes, including interisland, but they also uniquely offer two free checked bags, which can be a multi-hundred dollar savings for a family traveling to Hawaii. The result has been difficult pricing pressure on Hawaiian, giving them few safe places to turn to.

How bad are the finances at Hawaiian Airlines?

Clearly, things haven’t been good for some time. One analyst compared Hawaiian to Spirit, only worse, saying, “Relative to Spirit, Hawaiian has a weaker financial profile, including credit and profitability metrics.” The airline is poised for a multi-hundreds of millions loss again in 2024. In addition, it faces more than a billion dollars of debt refinancing that will need to be resolved before it comes due in 2026.

Mixed and mitigating news at the Hawaii bellwether.

In spite of these losses, there has been a general improvement in Hawaii travel since the Lahaina fire that spooked the entire Hawaii travel industry following the Lieutenant Governor evacuating all of Maui’s tourists in the days after the fire while the governor was in Japan.

Not only that, but Hawaiian has begun a new and lucrative job flying and maintaining a fleet of A330-300 aircraft on behalf of Amazon Prime Air. That operation is not, however, based in Hawaii.

Hawaiian is also fortunate to operate a highly reliable fleet of customer-friendly A330-200 planes that, while aging, are the undisputed workhorse for the airline. It will take a few years for Hawaiian to start moving significant traffic away from the A330 via the drip of slowly arriving Boeing 787 Dreamliners. But when those come, it will bring the beginning of a new fleet era to the company, the likes of which it hasn’t seen in years. Then, in two years’ time, the airline will have another round of short-term A330 leases terminating, which will signal that another decision on aircraft is imminent.

Alaska Airlines to the rescue?

Alaska realizes that Hawaiian, and its typically lucrative tropical leisure destination market, hold much promise that the savvy Seattle company believes it can extract. It expects to be the market leader in Hawaii and its CEO stated at the Honolulu meeting at which we spoke with him that Honolulu will definitely be Alaska’s second-largest hub. Depending on a myriad of factors, Hawaii could someday even become Alaska’s top-performing hub.

Alaska will acquire much good and much not-so-good with Hawaiian Airlines.

They are undoubtedly looking forward to being a widebody carrier, with all the opportunities and challenges that entails and returning to a mixed fleet operation. That comes after Alaska just returned to operating an all-Boeing 737 fleet following disposal of the A321neo fleet that arrived when it acquired Virgin America.

Could Hawaiian’s primary mainland plane change to become 737 MAX?

It isn’t clear that Alaska would retain all of Hawaiian’s widebody capacity in and for Hawaii. They may choose instead to move some or most of that to the mainland, replacing many Hawaiian flights with Alaska’s preferred 737 MAX strategic solution. For sure, there is a lot to be worked out in each of the many areas of this proposed acquisition.

What do you think the result will be in the future of Hawaiian Airlines?