Hawaiian Airlines earnings were hit by negative capacity and foreign exchange trends during the fourth quarter.
Industrywide overcapacity between Hawaii and the North American mainland drove passenger revenue per available seat mile (PRASM) down on Hawaiian's flights in the market by 10% in the period compared to a year earlier, says Mark Dunkerley, chief executive of the Honolulu-based carrier, during an earnings call on 29 January.
He says that industry capacity was up 13% with Hawaiian contributing three percentage points to the growth during the quarter.
"I would say that we are not seeing any weakness in demand whatsoever," says Dunkerley. "It's a question of there being simply too many seats in the marketplace."
Alaska Airlines is also better managing capacity between Hawaii and North America. Brandon Pedersen, chief financial officer of the Seattle-based carrier, cited industrywide capacity increases as a reason for a decline in PRASM on its flights to Hawaii, during an earnings call on 24 January.
"We have already adjusted our schedule in certain markets to better match capacity and demand and are considering whether additional adjustments should be made," he said. "We know that having the right capacity is the best thing we can do to improve unit revenue performance going forward."
Hawaiian reported a GAAP net loss of $3.4 million on operating income of $12.2 million during the fourth quarter. Operating revenue was $493 million and operating expenses were $480.7 million.
The carrier generates about 45% of its revenue from routes to North America, with the rest split between its international and interisland operations.
Dunkerley says that Hawaiian has already reduced capacity to North America on a seasonal basis during the late first quarter and early second quarter, and shifted that capacity to Asia-Pacific.
Hawaiian's inter-island operations also negatively impacted earnings. Dunkerley says that while local originating and departing demand was strong, connecting traffic from its codeshare partners "fell off" during the quarter. The airline cut capacity by 4% but still suffered a 9.6% decline in revenue per available seat mile (RASM) and a 2.1 percentage point decline in load factor.
"We added too much capacity to our neighbour island flying from our Honolulu hub in particular," says Dunkerley. "It takes a little time to cut capacity but, frankly, we didn't cut soon enough or deeply enough so our neighbour island results were utterly unsatisfactory for the quarter."
He adds that the airline's Maui hub performed well despite the disappointing interisland results.
Depreciation of the Japanese yen versus the US dollar also hit Hawaiian during the period. Scott Topping, chief financial officer of the airline, says that the carrier is implementing a foreign exchange hedging programme beginning with the yen to mitigate the impact this year.
"As we've expanded internationally, our foreign currency receipts have become material," he says.
Hawaiian generates about a third of its revenue in foreign currencies, with between 50% and 60% of that in yen - or up to 20% of total revenue. The Australian dollar represents about a third of foreign currency receipts and the Korean won about 10% with the balance in other currencies.
Topping also notes that an adjustment in the way it accounts for frequent flier mileage credit sold to other carriers resulted in a $7.9 million decrease in operating revenue in the fourth quarter.