United Continental Holdings Inc (UAL), Alaska Air Group, Inc. (ALK): Skies Clearing for Hawaiian Holdings, Inc. (HA)

Page 1 of 2

Last month, Hawaiian Holdings, Inc. (NASDAQ:HA) — the parent company of Hawaiian Airlines — reported its second straight disappointing quarter. Hawaiian Holdings, Inc. (NASDAQ:HA) posted an adjusted loss of $0.29 per share in Q1, compared to a profit of $0.06 per share in the prior year period. Over the past six months, Hawaiian has been challenged by a convergence of two negative factors: the depreciation of the yen relative to the dollar, which has affected revenue and margins on flights between Japan and Hawaii; and heavy competition on routes between the U.S. mainland and Hawaii.

Fortunately, Hawaiian Holdings, Inc. (NASDAQ:HA)’s future prospects appear to be improving. While the yen remains depressed compared to the dollar, Hawaiian has taken actions to mitigate this headwind. More importantly, competition on routes between the U.S. West Coast and Hawaii is on pace to decrease over the next several months. This should improve pricing power for Hawaiian, Alaska Air Group, Inc. (NYSE:ALK), and United Continental Holdings Inc (NYSE:UAL), the three largest competitors in the West Coast-Hawaii market. Furthermore, Hawaiian has been consistently reducing its non-fuel costs, and jet fuel prices have been decreasing recently. The combination of lower costs and stabilizing unit revenue should allow Hawaiian to return to earnings growth by Q3 at the latest. With shares trading for just over six times expected 2013 earnings, this makes Hawaiian a strong investment candidate today.

Course correction in Japan
Hawaiian Holdings, Inc. (NASDAQ:HA) entered the Japanese market in November 2010 with service between Tokyo and Honolulu, and has rapidly expanded in the ensuing two and a half years. Today, the carrier flies daily from Honolulu to Tokyo, Osaka, and Fukuoka, and three times a week to Sapporo. One of the primary points in favor of expanding in Japan was the strong yen, which made Hawaiian vacations more affordable for Japanese tourists while giving Hawaiian an outsized cost advantage vis-a-vis Japanese airlines. However, in the past year the yen has declined by more than 20% versus the dollar. This sharp change in exchange rates is making it difficult to reliably turn a profit on those routes.

However, the company is taking action to mitigate these headwinds. First, Hawaiian instituted a currency hedging program to create better clarity on exchange rates going forward. Second, beginning next month, the aircraft serving Sapporo will also stop in Sendai to pick up passengers, which will help Hawaiian fill those seats more effectively. Lastly, Hawaiian is improving its distribution in Japan, which is still a relatively new market. This may help stimulate demand while building brand awareness.

While Hawaiian Holdings, Inc. (NASDAQ:HA) is suffering due to external factors in the Japanese market, its competitors have higher cost structures and are suffering more. On a recent conference call, Delta Air Lines, Inc. (NYSE:DAL) executives highlighted weak sales from Japan to “beach markets” like Hawaii as a significant headwind, and mentioned that they are considering cutting capacity there. Delta Air Lines, Inc. (NYSE:DAL) competes directly with Hawaiian Holdings, Inc. (NASDAQ:HA) on routes from Fukuoka and Osaka to Honolulu, and so any capacity reductions would have a clear benefit for Hawaiian’s unit revenues going forward.

Saturation of the U.S. market
Hawaiian is also facing an overcapacity situation on routes between the U.S. and Hawaii, but here the industry has already planned capacity cuts for the next several months. On Hawaiian’s recent conference call, CEO Mark Dunkerley observed that industry capacity increased 13% year over year in Q3 and Q4 of 2012, and 11% last quarter. This growth led to excess capacity, making it harder for Hawaiian to fill its planes at reasonable prices. On the other hand, based on published schedules, industry capacity will grow just 5% in the current quarter, before decreasing by 2% in Q3 and by 6% in Q4.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!