Hawaiian Airlines Needs Asian And Inter-Island Demand To Return

Carriers in the US have seen improving fortunes as domestic travel comes back. Hawaiian Airlines has also benefited from a recent spike in North American revenue and has deployed excess capacity in the market. However, the airline has still turned a loss and, to protect its business in the future, Hawaiian Airlines needs inter-island and international revenue to come back.

Hawaiian Airbus A330-200
Hawaiian Airlines is heavily reliant on international and inter-island travel. Photo: Vincenzo Pace | Simple Flying

Hawaiian relies heavily on inter-island and international revenue

Hawaiian Airlines is facing some tough times, just like most other airlines. Through much of 2020, Hawaii was closed off to tourists. This led the airline to operate a mostly skeleton network through the year and focus on the goalpost of reopening in Hawaii.

Now that Hawaii has reopened, tourists from the mainland United States are flocking in high numbers to the islands for a getaway. With most of Europe still closed off and rising case counts in Latin America, Hawaii is set to have another great summer, which should be good for Hawaiian. The problem is that it needs two more revenue streams.

Hawaiian Airlines mainly flies internationally to Japan, South Korea, New Zealand, and Australia. Photo: Getty Images

Shannon Okinaka, Hawaiian’s Chief Financial Officer, stated the following on the airline’s first-quarter earnings call:

“On our current trajectory, we see a path to positive EBITDAR later this year, even when assuming minimal recovery of our international business. However, achieving positive pre-tax or net income will require a more substantial recovery both in our Neighbor Island and our International, particularly Japan, geographies, which is unsurprising since Neighbor Island and International flying combined represented over 45% of our revenue pre-pandemic.”

Getting back to a positive EBITDAR, or earnings before interest, taxes, depreciation, amortization, and restructuring costs, is a financial goalpost the airline needs to reach to get back to profitability.

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What is the state of international business?

International business is down heavily. Hawaiian operated only 12% of its international schedule in the first quarter, and that number is likely to remain through the second quarter. Hawaiian has focused mainly on Japan.

It is continuing to operate flights to Tokyo, Osaka, and Seoul from Hawaii. While many of these flights are running based on cargo, Hawaiian needs to get passengers back onboard their flights to make the routes profitable.

Hawaiian A330
Hawaiian has pivoted its flying to heavy North America capacity, while its international legs remain weak. Photo: Vincenzo Pace | Simple Flying

At this point, Hawaiian is unsure of when restrictions will be lifted from Japan. Even if Hawaii removes restrictions for travel from Japan, returning travelers to Japan will face restrictions. Until those come down, the airline may face lower passenger counts on those routes.

Hawaiian Airlines is not worried about the return of international business. It relies on its booming North American market to tide the airline over for a bit, but even when international comes back, the airline should still be in a good spot.

Hawaiian’s model is focused on getting passengers to Hawaii. It orients itself as a premium leisure airline, offering hot meals, inflight entertainment, and a flatbed cabin onboard.

Hawaiian lie-flat
Hawaiian offers a lie-flat premium cabin onboard its Airbus A330s. Photo: Hawaiian Airlines

It does not do a lot of connecting travel, as international connecting traffic with intra-island services is around “mid-to-high single digits,” in terms of the carrier’s overall passenger count, according to Hawaiian Airlines. Hawaiian’s overall connecting portfolio is around 30% overall.

Neighbor Island is a different story

Hawaiian brands its inter-island services as “Neighbor Island.” Using mostly Boeing 717s, Hawaiian flies heavy schedules, but those were impaired after inter-island travel restrictions made it inconvenient for most people to travel.

However, with those restrictions coming down as Hawaii moves to allow inter-island services for vaccinated travelers, Hawaiian is optimistic about the return of these services. Even with Southwest in the market, the carrier feels it is positioned well.