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Monday, September 01, 2014         

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Hawaiian Air going global

The soon-to-be-launched Honolulu to Tokyo and Korea routes open major markets to the local carrier

By Dave Segal

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There is a large map of the world on the wall of Hawaiian Airlines' boardroom.

Taken as a big picture, Hawaii represents a blip on the global stage.

But the state's largest and oldest carrier is beginning to connect the dots as it embarks on the biggest international expansion in the company's 81-year-old history.

Hawaiian makes its maiden Japanese flight from Honolulu to Japan's Haneda International Airport on Wednesday and then on Jan. 12 launches Honolulu service to South Korea's Incheon International Airport, just 45 minutes out of Seoul.

Hawaiian Airlines President and Chief Executive Officer Mark Dunkerley said the timing is right for expansion.

"We go into a new market when we think the opportunity is right and the window is open," Dunkerley said. "And it so happened that the opportunity in our judgment and the windows were open on both of these routes in close proximity."

Hawaiian's reach into Japan was predicated on the airline earlier this year landing one of four coveted U.S. slots to Tokyo's newly expanded Haneda International Airport after the U.S. and Japan signed an "open skies" agreement last December.

"Hawaiian Airlines has always been a proponent of opening up this market," Dunkerley said. "We always knew that if our point of view prevailed (other airlines were opposed) and the U.S. government did in fact reach an agreement with Japan, this would be something of great interest to us. We were ready when the opportunity came to leap all over it."

South Korea beckoned after the country was included in the U.S. visa waiver program in November 2008, allowing Koreans to travel to the U.S. without a visa. Dunkerley said Hawaiian didn't target Korea at the time because the global economic recession had just begun.

"Korea was hit every bit as hard as the United States in terms of the economic consequences of the recession," he said. "The difference is that Korea has bounced back more strongly than almost any other country, and so we find ourselves with this happy consequence with the visa waiver making it much more easier for Koreans to visit the United States and the economic recovery in Korea taking off."

Mike McCartney, president and CEO of the Hawaii Tourism Authority, calls downtown Haneda an important hub for Japanese travelers and said the new Hawaiian service will improve accessibility for international travel by business travelers and Japan residents living in secondary prefectures.

That Hawaiian is talking about international growth shows how far the company has come. This is an airline that filed for Chapter 11 bankruptcy twice in the span of a decade, most recently in March 2003. It emerged in June 2005.

ASIAN PERSUASION

Hawaiian Airlines' launch dates to Asian destinations:

» April 14, 2008 -- Manila
» Wednesday -- Tokyo (Haneda)
» Jan. 12, 2011 -- Incheon, South Korea (just outside Seoul)
Note: Hawaiian also offers international flights to Sydney, Australia; Pago Pago, American Samoa; and Papeete, Tahiti.

Source: Hawaiian Airlines

But in 2010 this is a carrier that is as healthy as it's ever been. It has been profitable for the last 10 quarters. It recently signed contracts with all of its labor unions. And its new daily service to Japan and four-days-a-week service to South Korea will complement its first Asian route to Manila that debuted in 2008. Hawaiian will begin service to Japan and South Korea with its 264-seat Boeing 767s before eventually switching to its newly acquired 294-seat Airbus A330-200s.

"When you look at our business, there is not much prospect to generate growth out of the interisland marketplace," Dunkerley said. "When you look at the trans-Pacific marketplace from our traditional market -- the West Coast to Hawaii -- that market is always very, very well served. There's going to be some growth opportunities there, but not dramatic, game-changing growth opportunities. So it forces us to cast our eyes further afield, and when we do that, Asia beckons. And it beckons because it's going to be the fastest-growing region of the world from an economic perspective."

JTB Hawaii Travel President Akio Hoshino said the Japan travel wholesaler is seeing signs that its business will increase next year, partly due to new flights from Haneda by Hawaiian, Japan Airlines and All Nippon Airways.

Airline industry analyst Robert Mann said Hawaiian is making the right move by looking internationally to expand because it represents a large source of ticket revenue and limited competition.

"Historically, the interisland carriers only carried a portion of the traffic and the revenue from the very large number of Asian visitors," Mann said. "Hawaiian would carry Japan Airlines passengers interisland or Korea Air passengers interisland. Now it's a significant development to be able to capture the very large revenue associated with the over-the-water trip from Japan and Korea."

Airline analyst Mike Boyd also said "it makes sense" for Hawaiian to look abroad.

"There's a great deal of Japanese and, down the line, Chinese tourism to the Hawaiian Islands, so it makes sense for Hawaiian to go after that," Boyd said. "It probably makes more sense for Hawaiian to go after that than get additional traffic out of the mainland because Hawaiian can connect people to the other islands. They don't have a U.S.-connecting hub going to the U.S. (like mainland-based carriers do), so they're going to end points."

Dunkerley said the U.S. East Coast is on Hawaiian's list of possible future destinations with China among potential future stops in Asia.

"The most important determinant of when we get into the China market is the ease with which Chinese nationals can get tourist visas to visit the United States," he said. "We've very open in our desire and belief that it needs to be made a far less onerous process than it is today. As we hope that occurs, there will come a point where we think the market to China can really open and blossom."

Ultimately, Hawaiian may cast an eye toward Europe after it begins receiving in 2017 the first of six new Airbus A350XWB-800s that will allow the airline to fly nonstop between Hawaii and anywhere in the world.

But in an industry that has undergone rapid consolidation over the last two years (Northwest-Delta, United-Continental, Southwest-AirTran), Dunkerley can't say for sure whether Hawaiian will be independent in 2017. He will not say whether he has been approached by suitors.

Boyd, though, said Hawaiian would be "a zero-value acquisition target."

"American (Airlines) can carry all the traffic it wants to the Hawaiian Islands," Boyd said of the largest carrier not to pair up with another airline. "Hawaiian doesn't bring anything to anybody's party."

Boyd said Hawaiian's long-haul routes are vulnerable to the upswings and downswings of the economy because Hawaii is a leisure market, "and flying within Hawaii has always been a dog" even though it can be profitable.

"Hawaiian may have made money for 10 straight quarters, but if you look at their history of flying in the islands, you're one step in the financial casket," Boyd said.

Mann doesn't look at Hawaiian's value as harshly.

"Historically, the interisland carriers have tried to play the field and create alliances with numerous domestic and international carriers through code-shares and other sorts of arrangements," Mann said. "That's been a good business model. The question becomes whether at present market capitalization ($349.8 million) whether it becomes an acquisition target. As the international revenue becomes a much larger piece of the overall top line, those disadvantages of the short-haul operations are proportionately smaller."

For Dunkerley's part, he said he hopes Hawaiian will remain independent, but "whether we still are independent depends on whether or not we can continue to be sufficiently successful."

That being said, Dunkerley calls the airline's service to Japan "an incredibly important opportunity" and said that about 90 percent of the people on the flights will be Japanese residents coming to and from Hawaii. He said that if Hawaiian can grow successfully, the company can lower its cost per seat, which is good for customers; improve the standard of living for its employees; and increase the number of employees at a time when unemployment in the state is still above 6 percent.

"Tourism is our No. 1 industry in the state," Dunkerley said. "It's not possible for our state to do well without tourism doing well. So encouraging more people from overseas to visit our islands is completely aligning the interest of Hawaiian with the interests of Hawaii."






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