Hawaiian Airlines is still trying to bounce back from the effects of the pandemic. In the meantime, as it awaits the return of cautious Japanese travelers, a key demographic for the airline, the company hopes to renew itself by preparing for new aircraft, partnerships and pilots.
Hawaiian Airlines on Tuesday reported a net loss of $240 million for all of 2022, largely due to slower than previously expected returns of Japanese travelers and competition for inter-island service between the eight major Hawaiian islands.
The Honolulu-based carrier saw a robust return in travel to Hawaii from North America and international markets excluding Japan, as well as strong support from premium and ancillary product performance. Compared to pre-pandemic levels, total passenger revenue from the US mainland to Hawaii increased 29 percent with 9 percent more capacity.
Japan has historically been an important market for Hawaiian Airlines, which had daily flights to Tokyo, Osaka, Sapporo and Fukuoka before the pandemic. In 2019, Hawaiian attempted to form a joint venture and codeshare agreement with Japan Airlines by filing antitrust immunity filings with the U.S. Department of Transportation (DOT) and Japan’s Ministry of Land, Infrastructure, Transportation and Tourism (MLIT). While the country recently reopened to international travel, its tourists aren’t flocking back to Hawaii.
It’s unclear when Hawaiian Airlines expects Japanese travelers to return to the islands and resume international travel. The Japanese government promotes domestic tourism with incentive programs as an economic stimulus. The depreciation of the yen against the dollar is also affecting the purchasing power of these travelers when considering US destinations.
“Japan has been one of the more conservative places in the world in terms of handling the pandemic and maintaining a fairly high level of caution,” said the airline’s CEO Peter Ingram. “General sentiment towards travel and comfort will gradually diminish.”
As expected, Hawaiian’s earnings reports showed higher wage rates and airport rentals increased unit costs 14.2 percent in the fourth quarter from pre-pandemic levels. The company increased its order of Boeing 787s in early 2023 to add two more planes to the deal, hoping to offer more flexibility when four A330 leases expire in 2024. Finalization of the deal’s delivery schedule brings expected aircraft investments for 2023 to between $290 million and $300 million.
The construction of a main arrivals runway and restricted arrivals from traffic control programs at its Honolulu hub impacted on-time performance in the past quarter. In response, the airline added more block time to planning and created recovery buffers for flights. It is reported to be more vulnerable than usual to weather-related mechanical disruptions as the construction period and arrival traffic restrictions are likely to last into the second quarter of 2023.
The company says it has no timeline to return to profitability and plans to focus on operational execution and cost efficiencies to counteract an inflationary environment.
In October, the company announced an agreement with Amazon to begin operating and maintaining an initial fleet of 10 Airbus A330-300 freighters towards the end of 2023, with certain maintenance program elements for the A330 fleet over the coming months to improve cost structures.
A focus for the airline is restoring its operational rhythm, citing some inefficiencies after hiring nearly 20 percent of its 7,000 employees in 2022. The airline reached an agreement with ALPA in January on a four-year pilot employment contract, subject to a ratification vote. If successful, these contracts will not become amendable until after 2025. The costs incurred for growth opportunities were used for start-up and pilot training in preparation for the new Amazon aircraft and the launch of the Boeing 787 later this year.
“We still have a lot of practice this year, and we practiced a lot last year,” said Ingram. “We’re working to position the crew so we have the right personnel for the first tranche of the cargo plane and are working to get people through the training cycles to gear up for the 787 coming later this year.” “
Ingram said pilot training won’t begin to even out until 2024.
Competition in the so-called neighboring islands market continues to challenge the airline. Southwest entered the market previously dominated by Hawaiian Airlines in 2019, sparking a wage war between the two that continues to this day. However, HA reports a 22 point higher load factor than the competition and a PRASM [passenger revenue per available seat mile, a passenger unit revenue measurement] from $0.293 compared to $0.106 of the competition.
The airline forecasts that PRASM for the first quarter of 2023 will increase by approximately 15% compared to the first quarter of 2022. This metric is likely to remain close to 2022 levels for 2023.
Hawaiian Airlines has implemented a new revenue management system and plans to roll out international seat pricing functionality. The company will be more conservative in its use of cash to focus on long-term opportunities in its existing markets, although there are no major plans to limit spending.
“We’re happy with our cash position, but we have to keep in mind that they have to act prudently and make good decisions going forward, and that’s what you can expect from us in the coming period,” said Ingram.