There’s a simple reason why Hawaiian Airlines continues to face severe pressure on its revenue and earnings. Prior to the pandemic, interisland flights and international routes generated close to half of the company’s revenue — and those markets remain essentially closed. Waiting for the interisland and international markets to return The interisland market relies on local business travel, people visiting friends and relatives, or even just travel to access services not available on Hawaii’s less-populated islands. Testing and quarantine requirements have decimated those market segments, by dramatically increasing the expense of an interisland trip. Similarly, testing and quarantine requirements for international travelers returning to their home countries are keeping a lid on international demand.
Despite this rapid improvement in the demand environment, Hawaiian Airlines expects revenue to be 45% to 50% lower than 2019 levels in the second quarter. As a result, adjusted earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) will remain negative. Still, the midpoint of management’s forecast for adjusted EBITDAR between -$20 million and -$70 million would represent an improvement of over $100 million from the first quarter. Indeed, Hawaiian Airlines’ load factor — the percentage of seats filled with paying customers — roughly doubled on North America-Hawaii routes between January and March. Furthermore, whereas ticket sales were very weak in January, bookings have exceeded pre-pandemic levels by more than 10% since March. That has put the carrier on track to post higher load factors and average fares with each passing month. Management is cautiously optimistic that load factors could reach normal levels (around 90%) by the summer.
Image source: Hawaiian Airlines. Like other airlines, Hawaiian Airlines experienced a big uptick in demand in February as the U.S. COVID-19 vaccine rollout gave people more confidence to book travel. However, the effect was even more dramatic for Hawaiian than for mainland-based airlines that had been able to redeploy capacity to regions with higher demand (such as Florida and the Rockies) earlier in the pandemic.
Meanwhile, Hawaiian has launched four new routes over the past two months, connecting Austin, Orlando, and Ontario, California to Honolulu and Long Beach, California to Maui. A new seasonal route between Phoenix and Maui starts later this month. As a result, the airline plans to operate slightly more capacity in the mainland-Hawaii market this summer than it did in 2019. Hawaiian Airlines is expanding its North American route network in 2021. Image source: Hawaiian Airlines. With international demand likely to remain artificially depressed for a while, Hawaiian Airlines is doubling down on the mainland-Hawaii market. By the summer, it will have restored all of the mainland routes it operated prior to the pandemic.
Tapping new markets However, as of May 11, fully vaccinated Hawaii residents will be able to travel between the islands with no restrictions. That should quickly unlock a lot of incremental interisland demand. It will take longer to remove barriers to international travel, but management is optimistic that Hawaiian Airlines will benefit from strong pent-up demand whenever that happens.
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