Hawaiian Airlines profits up as routes mature

Hawaiian Airlines Chief Executive Officer Mark Dunkerley said the company’s financial performance is on an upward trajectory and that the second half of the year should be even better.

The parent of the state’s largest carrier said Tuesday that earnings more than doubled in the second quarter from the year-ago period. Hawaiian also announced Tuesday it plans to switch an order for six new Airbus jets to the A330-800neo model instead of the A350XWB-800 model.

"Demand remains pretty strong in all of the geographies that we serve," Dunkerley said in a telephone interview following the company’s earnings conference call. "Secondly, we’ve done a good job controlling our costs. And third, if you look at 2010, ’11 and ’12, we started a lot of new things (six new international routes), and it takes a while for them to settle in. Now in 2014 we’re starting to enjoy the benefit of them maturing."

Hawaiian Holdings Inc. posted net income of $27.3 million, or 43 cents a share, during the quarter compared with $11.3 million, or 21 cents a share, in the year-earlier period. Adjusted for fuel hedging, Hawaiian earned $22.4 million, or 35 cents a share. That beat by 2 cents analysts’ consensus estimate of 33 cents.

Fuel hedging is a calculated bet against the future price of fuel and allows the company to lock in a price for fuel it will need in the future.

Revenue rose 7.8 percent to $575.7 million from $533.9 million.

"Our financial results improved during the first half of the year and, barring any changes to the macro-environment or competitor behavior, we would expect to see strengthening in the back half of 2014," Dunkerley said.

Hawaiian’s stock closed down 5 cents to $12.97 on the Nasdaq Stock Market during the regular trading session and then jumped 36 cents, or 2.8 percent, to $13.33 in after-hours trading. The earnings were released after the close of the regular trading session.

"It was better than we expected," said Baltimore-based airline analyst Joseph DeNardi of investment bank Stifel. "I think the results benefited from some better revenue performance. They’re seeing better pricing on some of their routes, and they’re benefiting from some of the network cuts (Tai­pei and Fuku­oka, Japan) they made earlier this year. Competitive capacity trends (a pullback by competitors) have gotten a little bit better compared to last year. Overall, I think it was a pretty good quarter, and I think the decision with the A350 was smart and improves the longer-term outlook for the stock."

Hawaiian had an order for six A350XWB-800 aircraft that were due for delivery starting in 2017, but Airbus had seen limited demand for the A350-800s and was encouraging its customers to switch to another type of aircraft. The delivery date for the six A330-800neo aircraft, which includes rights to purchase an additional six aircraft, starts two years later in 2019. Although Hawaiian didn’t disclose terms of its agreement with Airbus, the A330-800neo aircraft have a total list-price value of about $2.9 billion for 12 jets.

The new deal also decreases Hawaiian’s overall capital commitments as well as pushing back what will be owed further into the future. For the period through the end of 2018, this amounts to $500 million.

Hawaiian said the A330-800neo wide-body is similar in size to Hawaiian’s A330-200 with a seating configuration for 294 passengers and will have up to a 400-nautical-mile increase in range and reduced fuel consumption by 14 percent per seat.

"We see opportunities in every geography that we operate — both in North America and in Asia — and once we get into more detail understanding the opportunity of this particular aircraft, we may be able to look further afield into Europe," Dunkerley said.

He said the three-times-a-week Beijing-Hono­lulu service that began April 16 "is meeting expectations" but said the airline, local businesses and tourism officials need to be focused on promoting Hawaii in China.

"Once that takes place, I’m sure there’s a great opportunity for expanded service to China," he said.

Dunkerley also said Hawaiian is making big strides in its cargo business with cargo revenue up 24 percent year-over-year to $19 million.

"These results were better than our expectation going into the period and were highlighted by a record-breaking month of June that featured our four highest cargo traffic days ever," Dunkerley said on the conference call.

"We expect to continue to build on the steady improvement we’ve seen in our cargo business over the past three years, albeit at a more moderate space of year-over-year improvement as our network expansion slows."