ANALYSIS: New routes and aircraft brighten Hawaiian outlook

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Hawaiian Airlines’ executives painted a positive picture of the Honolulu-based carrier on 22 July, saying recent routes changes and the planned acquisition of Airbus A330-800neos will continue a positive revenue trend.

“We have continued to enjoy the fruits of an improving trajectory in our business, [which was] first seen towards the end of last year,” Hawaiian’s chief executive Mark Dunkerley says during the airline’s second quarter earnings call. “Results have strengthened substantially, built on strong demand across our geographies, stable fuel prices and good cost control.”

“We should see this positive trend continue and perhaps accelerate for the remainder of the year,” he adds.

The Honolulu-based carrier reports a second quarter operating profit of $51.6 million, up 38% year-over-year.

It also reports passenger revenue per available seat mile (PRASM) increased 4.1% to 11.9 cents during the quarter and cost per available seat mile (CASM) climbed 4.4% to 12.3 cents.

Hawaiian announced that it signed a memorandum of understanding to purchase up to 12 A330-800neos, replacing orders for the Airbus A350-800, on the same day.

The deal, which calls for deliveries to start in 2019, includes firm orders for six aircraft and purchase rights for another six A330-800neos.

Dunkerley declines to disclose the financial terms of the A330-800neo agreement, but says the carrier’s capital expenditure commitments will decline under the deal, and obligations will be pushed further into the future.

Those savings will be about $500 million through 2018, he says.

Dunkerley calls the A330-800neo an “elegant solution to the gap that would occur if Airbus decides not to produce the A350-800”, as has been speculated.

“From the cockpit to the passenger cabin, the [A330-800neo] is the same [aircraft] as what we operate today, giving us crew training, scheduling and capacity commonality,” he says.

Hawaiian’s long-haul fleet includes 18 A330-200s and 11 Boeing 767-300ERs, according to Flightglobal’s Ascend Fleets database.

Dunkerley adds that the A330-800neo will have greater range than Hawaiian’s current A330s, allowing it to “open markets deeper into Asia”, he says.

The airline will realise “considerable” operating savings with the A330-800neos, estimating the aircraft will generate “double digit” trip operating cost savings compared to current A330-200s, he says.

Savings will be about two-thirds of what the airline could have realised with the A350-800, he adds.

Mainland strength

During the second quarter, Hawaiian generated $575.7 million in operating revenue, roughly half of which came from flights between Hawaii and the US mainland, Peter Ingram, Hawaiian’s chief commercial officer, tells investors.

PRASM on the routes increased 4% year-over-year, he says, adding that Hawaiian expects industry capacity on those flights to increase about 9% in the third and four quarter of 2014.

“So far the results we have seen from the network changes we have made in North America have been very positive,” says Dunkerley.

Those changes include the June launch of new seasonal flights from Los Angeles to both Kona and Lihue.

The airline also recently launched year-round service from Los Angeles to Kahului on Maui in addition to a second daily seasonal flight on the route.

The company’s flights within the Hawaii’s islands accounted for 24% of total passenger revenue, and PRASM on the routes climbed 8.3% during the quarter, the sixth consecutive quarterly PRASM increase, Ingram says.

International routes accounted for 26% of the company’s passenger revenue, but PRASM on those routes declined 1.6% year-over-year. Ingram says

Hawaiian’s international PRASM will likely turn positive later this year barring significant changes in currency values.“This reflects the maturing of our relatively new international routes, as well as some network adjustments announced earlier in the year,” he says.

Those adjustments include the April launch of three-times weekly flights from Honolulu to Beijing and the discontinuation of flights from Honolulu to Taipei the same month.

In June, the carrier also discontinued its Honolulu-Fukuoka route.

“China will be an important component of Hawaii tourism in the upcoming years, and we are well-positioned to take advantage of this opportunity,” says Dunkerley.

The company expects its cost per available seat mile will increase up to 4% in the third quarter of 2013, with an estimate of 7.78 cents.

It anticipates revenue per available seat mile will increase 3% to 6%, with an estimate of 13.57 cents.