Hawaiian Airlines Braces for Slow Return of Japanese Travelers

Hawaiian Airlines Airbus A330. Source:  Hawaiian Airlines
Hawaiian Airlines Airbus A330. Source: Hawaiian Airlines

Hawaiian Airlines reported a net loss of $240 million for all of 2022 on Tuesday, largely attributed to a slower than previously expected return of Japanese travelers and competition for inter-island service between the eight major Hawaiian islands.

The Honolulu airline saw a robust return in travel to Hawaii from North America and international markets excluding Japan, as well as strong support from premium and ancillary products’ performance. Compared to pre-pandemic levels, U.S. mainland to Hawaii total passenger revenue was up 29 percent on 9 percent more capacity.

Japan has historically been a major market for Hawaiian Airlines, which offered daily flights to each of Tokyo, Osaka, Sapporo and Fukuoka before the pandemic. In 2019, Hawaiian attempted to create a joint venture and code-share agreement with Japan Airlines by filing an application with the U.S. Department of Transportation (DOT) and Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) to seek antitrust immunity. While the country recently reopened for international travel, its tourists are not flooding back to Hawaii.

It is unclear when Hawaiian Airlines expects Japanese travelers to return to the islands and re-embrace international travel. The Japanese government has been promoting domestic tourism with incentive programs as an economic stimulus. Depreciation of the yen against the dollar is also impacting the spending power of these travelers when they consider U.S. destinations.

“Japan was one of the more conservative places in the world in terms of dealing with the pandemic and maintaining a fairly high level of caution,” said the airline’s CEO Peter Ingram. “The general sentiment toward travel and comfort is going to be a gradual thing.”

In line with expectations, Hawaiian’s earnings reports showed increased wage rates and airport rent lifted fourth-quarter unit costs by 14.2 percent compared to pre-pandemic levels. The company increased their order of Boeing 787s at the beginning of 2023 to add two more aircrafts to the deal, hoping to provide more flexibility when four A330 leases expire in 2024. Finalization of the deal’s delivery schedule brings the expected 2023 aircraft capital expenditure to be between $290 million to $300 million.

Construction on a primary arrivals runway and constrained arrivals from traffic control programs into its Honolulu hub has affected on-time performance in the past quarter. As a response, the airline added more block time in scheduling and created recovery buffers for flights. It reports being more susceptible than usual to weather-related mechanical disruptions, as the construction period and constraint on arrivals traffic will likely continue into the second quarter of 2023.

The company says it does not have a timeline for making its way back to profitability and plans to focus on operational execution and cost efficiencies to counter an inflationary environment.

In October, the company announced an agreement with Amazon to begin operating and maintaining an initial fleet of 10 Airbus A330-300 freighters towards the end of 2023. Separate from this initiative, Hawaiian reports that it is also working to complete the in-sourcing of certain maintenance program elements for the A330 fleet in the coming months for improving cost structures.

One focus for the airline is to rebuild its operating rhythm, citing some inefficiencies after hiring almost 20 percent of its 7,000 employee base in 2022. The airline reached terms with ALPA in January for a four-year pilot working agreement, subject to a ratification vote. If successful, these contracts will only become amendable after 2025. Costs incurred for growth opportunities were dedicated to start-up and pilot training, in preparation for its new Amazon flying and the induction of Boeing 787s later this year.

“We still have a lot of training this year, and we did a lot of training last year,” said Ingram. “We work to position crew so that we have the right staffing for the initial tranche of the freighter aircraft and work to move people through the training cycles to get equipped for the 787s coming on later this year.”

Ingram said training for pilots will only start to level off in 2024.

Competition in the so-called Neighbor Islands market continues to challenge the airline. Southwest entered the market, which was previously dominated by Hawaiian Airlines, in 2019 and sparked a fare war between the two that continues today. However, the airline reports a load factor of 22 points higher than competitors and a PRASM [passenger revenue per available seat mile, a passenger unit revenue measurement] of $0.293 compared to competitors’ $0.106.

The airline projects PRASM for the first quarter of 2023 to increase by approximately 15% compared to the first quarter of 2022. This metric will likely remain close to 2022 levels for 2023.

Hawaiian Airlines implemented a new revenue management system and plans to roll out capabilities around seat pricing on an international scale. The company will be more conservative with cash use to focus on long-term opportunities with their existing markets, although no major plans are in place to restrict expenditures.

“We’re comfortable with our liquidity position, but we have to be mindful of the fact they need to act prudently and make good decisions going forward, and that’s what you can expect from us in the period ahead,” said Ingram.

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