Expansion pays off for Hawaiian
is continuing to buck U.S. industry trends by aggressively ramping up capacity, as it looks for new opportunities not just on the Pacific Rim but also on its own doorstep.
Growth exceeding 20% is almost heretical in the industry's new religion of capacity discipline. But Hawaiian is proving to be one of the rare airlines that can expand quickly and still improve its financial performance.
The carrier's long-haul growth is driven by the delivery of new, enabling it to open routes to New York, North Asian markets in Japan and South Korea, and to the South Pacific. Another new development sees Hawaiian focusing on the other end of the fleet scale, with a plan to launch a turboprop subsidiary for inter-island service.
Hawaiian boosted its capacity by 16.8% in the second quarter, and it predicts full-year growth of 21-24%. While this may seem risky in uncertain economic times, it has also increased unit revenue and yield by healthy margins. The airline has recorded four straight profitable quarters despite the challenges of opening new markets.
Not everyone is convinced about the pace of growth, however. In a recent earnings call, Hawaiian CEO Mark Dunkerley admitted that Wall Street analysts are divided about the merits of launching direct flights between Honolulu and New York, the carrier's first foray to the U.S. East Coast.
But Dunkerley says the New York route is already showing very promising signs since its June debut. Forward bookings are stronger than for other U.S. mainland destinations, and the new route is performing better than the company's internal expectations.
During the analyst call, in response to a question about whether Hawaiian can handle the launch of a regional subsidiary simultaneously with the long-haul expansion, Dunkerley replied that this new operation—which will have up to six turboprops—will be too small to materially affect systemwide costs, revenue or profitability.
He also says the new unit is not aimed at merely increasing capacity, but at filling gaps that exist in Hawaiian's inter-island network. It will fly to small markets that cannot be served—for economic or operational reasons—by717s, currently the carrier's smallest aircraft.
Hawaiian has not yet set a start date for the turboprop operations, although it has signed a letter of intent with an unidentified party covering the acquisition of turboprops. The aircraft are used, and will be owned rather than leased.
The aircraft type is also not being revealed. The carrier's collective bargaining agreement restricts turboprop operations to aircraft with no more than 69 seats, and Hawaiian believes 50 or fewer seats is the right size for the markets it has in mind.
On the long-haul front, Hawaiian has either launched or announced eight new routes since November 2010. All except the New York service are to Pacific Rim international destinations.
One aim of this international push is to reduce the carrier's reliance on its traditional core business, flights from U.S. West Coast cities to Hawaii. These now account for 47% of overall revenue—still the largest segment, but down considerably from a share of almost 70% just five years ago, Dunkerley says.
Hawaiian took delivery of three A330-200s in the second quarter, and now has nine in its fleet. It is due to receive five more next year, out of a total of 13 slated for delivery between 2013 and 2015. While its-300ERs are used on some international routes, the A330s have been the spur for long-haul growth.
The airline's main focus for international expansion has been North Asia, but lately it is turning its attention to the South Pacific. Hawaiian will begin three times weekly service to Auckland, New Zealand, in March, following the introduction of three weekly flights to Brisbane, Australia, in November 2012. It already operates to Sydney, and this route was increased to daily in December 2011.
As things stand, Hawaiian will be the only U.S. carrier serving New Zealand directly when it launches the Auckland route. The service will connect to Hawaiian's inter-island and U.S. mainland networks, opening up one-stop options to New Zealand from multiple U.S. cities.
Dunkerley tells Aviation Week that the Hawaiian fleet is fully committed through the first quarter of 2013, but there will be scope to add new long-haul destinations from the middle of next year.