ANALYSIS: Hawaiian says aloha to Asia

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Hawaiian Airlines loves Asia-Pacific.

The Honolulu-based carrier has increased capacity to the region from Hawaii nearly three fold since 2010, according to Flightglobal/Innovata data. Capacity increased 52% to 2.8 billion available seat kilometres during the first nine months of the year compared to the same period in 2011, and there is more to come.

Flightglobal/Innovata Data

"It's been absolutely a terrific move of ours to be able to move into the international space," says Mark Dunkerley, chief executive of Hawaiian, during an investor day on 3 December. "We've exceeded our own internal expectations of getting a footing in the international space." And by international he means the Pacific Rim, from Australia to Japan.

Hawaiian has launched flights to Tokyo Haneda (November 2010), Seoul Incheon (January 2011), Osaka Kansai (July 2011), Fukuoka (April 2012), Sapporo (October 2012) and Brisbane (November 2012) since 2010. Flights to Manila, Sydney and the South Pacific islands existed previously.

Hawaiian Asia-Pacifc routes, December 2012

Innovata Flightmaps Analytics

The share of revenue generated by Asia-Pacific has also increased. International revenues were up 20 percentage points to 28% at the end of September compared to three years earlier, executives say.

Hawaiian will continue to grow to Asia-Pacific in 2013. Three-times weekly Auckland flights will begin on 14 March and three-times weekly Taipei flights in July, the latter marking its entry into the greater China market. It will also increase frequencies to both Brisbane and Sydney between March and June.

Dunkerley says that the airline still has "uncommitted" capacity in the second half of 2013 that it could use to launch new destinations, increase frequencies or add capacity by upgauging aircraft on existing routes.

"The growth numbers there [Asia-Pacific] really tell the story where the opportunities are networkwise," says Peter Ingram, chief commercial officer of Hawaiian, during the investor day. "We strongly believe that the trend in visitation to Hawaii is going to become more heavily from Asia and Oceania in the future. As economies develop in that part of the world, you're going to see a greater proportion of visitors to Hawaii coming from there."

Asia dreams

Andrew Watterson, vice-president of planning and revenue management at Hawaiian, includes 10 cities in Asia-Pacific on a map of large population centres around the world that the airline considers opportunities during the investor day. Cities include Jakarta, Melbourne (Australia), Nagoya, Sendai and Singapore.

Greater China, however, is the jewel in Hawaiian's Asia ambitions. That same map includes Beijing, Chengdu, Guangzhou, Hong Kong and Shanghai - as many as in the rest of Asia - as potential destinations.

Great Circle Mapper

Dunkerley and other senior executives have all visited the country during the past six months, say executives. The airline is learning about the market through an interline agreement with Air China that connects passengers over Seoul and through third party sales offices in Beijing and Shanghai, they add.

"That's giving us market knowledge, its giving us insight into how the guests make their decisions, what the seasonality is of the market, what the competition is, how different third party intermediaries behave and that's all an important part of the process," say airline executives.

They say that launching a new destination with a dedicated daily flight for a full year requires an investment of about $100 million.

China's east coast is within range of Hawaiian's current fleet of Airbus A330-200s. Dunkerley says that the aircraft could reach Beijing, Guangzhou, Hong Kong and Shanghai for most of the year without payload restrictions.

Service to Chengdu, in the centre of China, would have to wait until the airline receives the A350s it has on order, he adds.

Hawaiian has six A350-800s on order with deliveries in 2017 and 2018, according to Flightglobal's Ascend Online database. It has options for another six -800s.

With the coast within range, Hawaiian launching service to China really depends on just one thing - US visa restrictions.

Visa challenges

Chinese nationals face an arduous visa application process to visit the USA. It includes a face-to-face interview with a consular officer and significant paperwork, including current bank account balances. It is a widely held understanding in the travel industry that leisure travel to the USA from China would increase significantly if visa restrictions were eased.

"The catalyst that has encouraged us to chose this moment to enter the market [Taipei] has been the removal of the visa requirement for Taiwanese nationals to visiting the United States for leisure purposes," says Dunkerley. "It would be hard for us to overstate the impediment that securing a US visa represents for citizens of countries where that is a requirement."

Taiwan joined the US visa waiver programme, which allows travellers to enter the USA for either tourism or business for up to 90 days without a visa, on 1 November.

Dunkerley says that traffic between Hawaii and South Korea more than doubled during the first full year after the country joined the visa waiver programme in November 2008.

Hawaiian anticipates a surge in traffic from Taipei similar to what it saw from Seoul. Watterson says that traffic between the island and Hawaii was greater than that between South Korea and Hawaii prior to stricter visa rules being implemented following 11 September 2001.

Hawaii-centric

Hawaiian will continue to grow with a focus on Hawaii. All of the airline's executives at the investor day emphasised that their business was and would continue to focus on the "Hawaii vacation", where a visit to the islands are either a central or significant portion of a traveller's itinerary.

Increasing the number of connecting passengers is not presently on the cards. Dunkerley says that, while a few connections between North America and Australasia will be possible with the planned new frequencies, the airline will continue to focus on bringing passengers to the Hawaiian islands.

What will change is that the Asia-Pacific will increasingly generate a greater share of Hawaiian's revenue. Executives say that a revenue share from the region of between 40% and 50% in five years time is certainly possible.

Ray Neidl, an airline sector analyst at Maxim Group, anticipates that double-digit growth will continue for the next few years as the airlines takes advantage of the opportunities it has laid out, in a report on 4 December. Hawaiian remains an attractive investment, he concludes.

"2013 is going to be another year in which we're going to be focused on diversifying our business and expanding our franchise," says Dunkerley.