Hawaiian Holdings Is Ready to Soar!

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Hawaiian Airlines has a lot of good things going for it. Airline analysts may be underestimating its unit revenue growth potential.

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Hawaiian Holdings Is Ready to Soar!

  1. 1. Hawaiian Holdings Is Ready to Soar! Photo: The Motley Fool
  2. 2. Overview • Hawaiian Holdings will report Q2 earnings on Tuesday. – The company will also provide initial guidance for Q3, which includes the busy summer travel season. Airline industry analysts may be underestimating Hawaiian’s profit potential for this summer…
  3. 3. Unit Revenue: Turning the Corner • Unit revenue is a key measure of air travel demand. – It takes into account the average fare, the distance traveled, and how many seats are filled on the plane. – Higher unit revenue=more profit! When air travel demand is high, unit revenue goes up (Photo: The Motley Fool)
  4. 4. Unit Revenue: Turning the Corner • In 2013, unit revenue (revenue per available seat mile or RASM) declined 3.9% at Hawaiian Airlines. – But the tide has turned: in Q1 2014, unit revenue increased 5.0% year-over-year! – Meanwhile, unit costs rose just 0.6% -- leading to a significant gain in Hawaiian’s profitability. • Hawaiian Airlines expects Q2 RASM growth of 4.5%-7.5%.
  5. 5. 3 Big Unit Revenue Growth Drivers • Hawaiian Airlines’ RASM growth will probably accelerate in Q3. – Here are 3 big reasons why… Hawaiian Airlines’ RASM growth will probably accelerate in Q3 (Photo: The Motley Fool)
  6. 6. 3 Big Unit Revenue Growth Drivers • In early 2014, Hawaiian Airlines announced that it was dropping 2 underperforming routes. – Taipei-Honolulu flights ended on April 7. – Fukuoka-Honolulu flights ended on June 30. • Hawaiian Airlines also reduced service on the Seoul-Honolulu route from daily to 5 weekly flights as of April 23. 1) Route restructuring
  7. 7. 3 Big Unit Revenue Growth Drivers • This capacity was redeployed to the U.S., where demand is much stronger. – Restarted nonstop San Jose-Honolulu flights – Added second daily Los Angeles-Maui flight for the summer peak season • Replacing weak routes with additional summer service from the U.S. will boost RASM. 1) Route restructuring
  8. 8. 3 Big Unit Revenue Growth Drivers • As of next month, Hawaiian Airlines will offer extra-legroom seats on its 18 A330s. – Each A330 will have 40 “Extra Comfort” seats, which sell for $60-$100 one-way. 2) Extra Comfort Seats Hawaiian is introducing “Extra Comfort” seats in August: for $60-$100 one-way (Photo: Hawaiian Airlines)
  9. 9. 3 Big Unit Revenue Growth Drivers • Extra Comfort seats will bring in millions of dollars in incremental revenue. – This revenue stream didn’t exist last quarter. • The benefit of Extra Comfort revenue will lead to faster RASM growth for the next year. 2) Extra Comfort Seats
  10. 10. 3 Big Unit Revenue Growth Drivers • Hawaiian is adding domestic flights. – West Coast service is replacing discontinued international flights. – Hawaiian is adding to its interisland business with turboprop flights. 3) Bag Fee Revenue Rising Hawaiian Holdings is expanding its “Ohana by Hawaiian” turboprop subsidiary (Photo: Hawaiian Airlines)
  11. 11. 3 Big Unit Revenue Growth Drivers • Hawaiian Airlines offers 2 free checked bags on all international flights. – By contrast, on flights from North America, it charges $25 each way for a first checked bag and $35 for a second checked bag. • More flights to North America means more checked bag revenue. 3) Bag Fee Revenue Rising
  12. 12. 3 Big Unit Revenue Growth Drivers • Hawaiian’s route restructuring, the Extra Comfort rollout, and higher bag fees will all help drive RASM acceleration in Q3. – This will be partially offset by tougher comparisons to 2013. • Hawaiian Airlines may guide for high single-digit RASM growth in Q3. – Yet the average analyst estimate implies just 3%-4% RASM growth!
  13. 13. Foolish bottom line • Hawaiian Airlines seems poised for faster RASM growth than analysts currently project in Q3 and beyond. • Guidance for high single-digit RASM growth could cause the stock to soar. A positive guidance surprise?
  14. 14. OPEC’s Worst Nightmare… and an Airline’s Best Friend!

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