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Monday, October 20, 2014         

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Fuel hedging helps Hawaiian Air turn profit

Locking in prices before they rise enables the carrier to earn $855,000

By Dave Segal

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In a quarter marked by tragedy in Japan and soaring fuel prices, Hawaiian Airlines’ parent managed to stay out of the red as it parlayed an $8.4 million net gain from fuel hedging into overall net income of $855,000.

Hawaiian Holdings Inc.’s profit came during a first quarter in which the nation’s five biggest U.S. airlines showed a combined loss of more than $1 billion.

“In the big picture our company did a good job of overcoming a lot of difficult situations associated with fuel and inflation elsewhere in order to break even in the first quarter,” Hawaiian President and CEO Mark Dunkerley said yesterday. “All routes contributed.”

Bookings from Japan are down 20 percentage points since the March 11 earthquake and tsunami, Dunkerley said, but Japan-Hono­lulu flights during Golden Week are “essentially full,” he added.

Hawaiian began daily service to Tokyo’s Haneda International Airport last November and plans to begin daily service to Osaka in July. Dunkerley also said the airline recently filed an application with the U.S. Department of Transportation seeking approval for Hawaiian to add a second daily Haneda flight if Delta Air Lines’ two suspended Haneda routes (from Detroit and Los Angeles) and the one suspended by American Airlines (from New York) aren’t restored within the required 90-day period. Last year, Hawaiian applied for two of the four Haneda slots earmarked for U.S.-based carriers and was granted one route.

“This is a good quarter in as much as it could have been a whole lot worse given the high cost of fuel,” Dunkerley said. “Even with the gains of fuel hedging, our profit represented one-quarter of 1 percent of our revenue.”

Dunkerley said every 1-cent move in the cost of a gallon of jet fuel represents a change in income up or down of $1.6 million.

Hawaiian said even though aircraft fuel expenses jumped 55.6 percent, or $39 million, last quarter, the company benefited from fuel-hedging activity that enabled it to lock in about 40 percent of its fuel costs before they rose. The company said its average cost per gallon of jet fuel, including taxes and delivery, rose 32.4 percent to $2.86 from $2.16 a year ago.

However, the company’s operating results, which exclude the fuel hedging, resulted in an operating loss of $4.9 million in the quarter compared with operating income of $5.6 million in the year-earlier quarter.

In the first quarter of 2010, Hawaiian had net income of $216,000, or break-even on a per-share basis. The earnings per share last quarter were 2 cents.

Revenue, which includes the amount generated from cargo, rose 22.5 percent to $365.6 million from $298.4 million in what is the company’s historically weakest revenue period. Trans-Pacific routes, which accounted for 52 percent of the company’s passenger revenue, generated a 2 percent increase in revenue per available seat mile (RASM), the key revenue measure for the airline industry. Interisland routes, which represented 31 percent of passenger revenue last quarter, showed a 12 percent increase in RASM. There was no equitable comparison for international routes, which accounted for 17 percent of passenger revenue, because the airline doubled its number of international flights from a year ago.

Analyst Bob McAdoo of Prairie Village, Kan.-based Avondale Partners LLC, said it was an impressive quarter considering the obstacles.

“Given Japan as a new business, given Japan as a center of unbelievable tragedy and given fuel prices, you got to think they did pretty well,” McAdoo said.

“Just starting up a brand-new market like they have (in Japan) is always a drain at first, and that was going pretty well until everything came crashing down. Just dealing with uncertainty of everything going on in Japan, and doing that at a time that fuel’s been doing what it’s been doing, that speaks pretty well for them.”

Hawaiian’s stock fell 1 cent to $5.58 yesterday on the Nasdaq stock market. The results were announced after the market closed.






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