On Wednesday morning, Hawaiian Holdings, Inc. (NASDAQ:HA) subsidiary Hawaiian Airlines announced that it plans to fly to Beijing from its Honolulu hub, beginning on April 16, 2014. Assuming that the route is approved by the U.S. and Chinese governments, it will be Hawaiian’s 10th new international destination since it began its recent round of expansion in November, 2010.
China, here we come
Hawaiian Holdings, Inc. (NASDAQ:HA) has had its eyes on growth markets in Asia for several years, but began its expansion with the more mature, developed countries of the Pacific Rim. In the past two and a half years, the carrier has added four destinations in Japan (and will beginning serving a fifth city, Sendai, in late June), as well as cities in South Korea, Australia, and New Zealand. Hawaiian is also preparing to launch service to Taiwan — another relatively wealthy Pacific Rim country — this summer.
However, the big prize is China, which is an enormous market with a rapidly growing economy and rising middle class. Hawaiian Holdings, Inc. (NASDAQ:HA)’s management has continually stressed China’s potential as a long-term-growth driver. The company already has a Chinese-language website, and targets Chinese customers with “codeshare” flights on Korean Air and ANA that connect with Hawaiian’s flights from Japan and South Korea to Honolulu. Moreover, at the Hawaiian Airlines investor day last December, the company pointed to Beijing as one of five cities in China that could be viable for near-term expansion.
Management has repeatedly stated that the biggest impediment to succeeding in China is the complexity of the U.S. visa process. Despite the difficulty of obtaining U.S. visas, the Hawaii Tourism Authority expects visitor arrivals from China to increase 25% this year, to 145,000. Hawaiian Holdings, Inc. (NASDAQ:HA)’s Beijing flights will provide approximately 46,000 seats annually, and will be the only direct flights between Beijing and Hawaii. It should be manageable to fill this amount of capacity given the size and growth of the market, especially because the existence of direct flights will stimulate demand.
Why it matters
Hawaiian Holdings, Inc. (NASDAQ:HA) Airlines’ capacity is still heavily concentrated on West Coast-Hawaii routes. This over-reliance on one region has made Hawaiian vulnerable to supply and demand trends there. Most notably, the rapid growth of Alaska Air Group, Inc. (NYSE:ALK) Airlines in the West Coast-Hawaii market has put pressure on Hawaiian’s operating results. While Hawaiian is not pulling back in the West Coast market, its global expansion nevertheless helps it diversify its revenue base. Moreover, after rapid expansion in Japan, Hawaiian is now trying to diversify its international reach, particularly because the yen’s rapid fall has diminished the profitability of Japan flights.