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Wednesday, August 20, 2014         

AIRLINES INDUSTRY


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By the seats

A boost in the number of flights and new markets help isle tourism fly higher

By Dave Segal

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Airline seats have been the lifeblood of Hawaii tourism, and this year they're expected to top the 10 million mark for the first time since 2007 and bring a record number of visitor arrivals.

More airlines, new routes, increased direct neighbor island flights and lower fuel prices are all coming together at a time when the economy in Hawaii is emerging from a four-year period of negative to slow growth.

"We continue to see momentum for Hawaii as a destination," Hawaii Tourism Authority CEO Mike McCartney said. "The expansion in the U.S. East will create further opportunity, and then when you add the expansion in Asia, China, Korea, Japan and Australia, we see strength in all those markets. So I wouldn't be surprised if we see further expansion because demand for Hawaii is strong."

Visitor arrivals are expected to grow to a record 7.75 million this year, up 6.5 percent from 2011, according to an economic forecast released in May by the state Department of Business, Economic Development & Tourism.

Flash back to 2008 and the Hawaii economic outlook wasn't so bright after the shutdown of Aloha and ATA airlines in the spring of that year. But HTA funded a promotional blitz by its marketing arm, the Hawaii Visitors & Convention Bureau, and the results are now coming to fruition, McCartney said.

"The concentrated marketing effort we took back in 2009, 2010 and 2011 is paying off and helped create demand, not just with the consumer but also with travel agents and wholesalers," he said. "We also had many, many meetings with the airline industry."

Airline seats, which include both scheduled and charter flights, hit a record 10.59 million in 2006 when visitor arrivals reached an all-time high of 7.63 million. But the number of seats coming into the state dipped to 10.40 million in 2007 and hit a low of 8.79 million in 2009 before beginning to increase. In February, HTA projected that scheduled airline capacity for 2012 would reach 9.99 million, up 7.7 percent from 2011. That number, which does not include charter flights, should now be higher this year due to expansion plans announced by several airlines since the forecast was released.

Through the first five months of this year, total air seats were up 4.5 percent to 4.06 million from 3.88 million in the year-earlier period. And earlier this month, HTA forecast that seats would be up 12.6 percent in the third quarter to 2.7 million and top the previous record level for a third quarter of 2.6 million in 2007.

Hawaii economist Paul Brewbaker, though, says increased seats rather than the marketing deserves credit for the rebound.

"Everybody in Hawaii's so-called visitor industry loves to think how important are our tourism marketing programs. Baloney," said Brewbaker, principal of TZ Economics. "There isn't a human on the planet that hasn't heard about Hawaii, except for those we don't care about. For a mature destination like Hawaii, it's mostly about lift: the numbers of carriers and the numbers of seats the carriers commit to Hawaii. When Aloha Airlines shut down, understandably, rival carriers were not highly motivated to replace the lost lift in the early phases of an unfolding recession."

Brewbaker said the decline in tourism in 2008 wasn't so much a function of travel demand as it was a consequence of a change in travel supply.

"The same is true now, as tourism rebounds way faster than anybody would have predicted based on ‘the economy' and presumed underlying travel demand associated with a weak economic recovery," he said.

Hawaiian Airlines, now in its 83rd year and the state's oldest carrier, has become more than just a regional airline with new flights added this year to Fukuoka and Sapporo, Japan; New York; and Brisbane, Australia. Hawaiian also created a Maui hub to ease connections statewide by increasing service between Maui and other neighbor islands by 25 percent. In addition, the airline increased frequency to Maui from the San Francisco Bay Area, reintroduced nonstop service to Maui from Los Angeles and added new flights from San Jose, Calif., to Maui.

"In the medium term, airlift follows the level of demand and the accommodation capacity in the state so I don't think that airlift drives the number of visitors," Hawaiian Airlines President and CEO Mark Dunkerley said. "Airlift follows demand for the Hawaii vacation and the ability of the state to accommodate it. The increase in airlift we're seeing at the moment is the result of pretty healthy demand, particularly overseas where the value of their local currencies have appreciated against the U.S. dollar over the last few years."

Jet fuel prices also had come down by midyear, bringing some relief — possibly temporary — to airlines who have had to turn to such ancillary items such as increased baggage fees to try to offset the high cost of fuel. At the end of June, the average price of jet fuel was trading at about $2.72 a gallon, down about 17 percent from peak levels of about $3.26 in March but still historically high, according to the U.S. Energy Information Administration.

In Hawaiian's case, it says every penny change in the average price of fuel affects its bottom line by $2 million on an annualized basis.

Las Vegas-based Allegiant Air, which primarily connects secondary markets to leisure destinations, entered the Hawaii market for the first time this year and began service in June from Las Vegas and Fresno. Allegiant plans to begin service to Hono­lulu and Maui in November from Bellingham, Wash., and to Honolulu that same month from Eugene, Ore.; and the California cities of Monterey, Santa Maria and Stockton.

United Airlines, the world's largest carrier, introduced the only nonstop daily flight from Dulles International Airport near Washington, D.C., to Honolulu in June.

Seattle-based Alaska Airlines, which flies 20 percent of its schedule to Hawaii, has been focusing on nonstop flights to neighbor islands and this year added service to Kauai from Portland, Ore.; to Kona from Anchorage; and to Maui from Bellingham, Wash., in addition to service from Oakland and San Jose to Honolulu.

Interisland carriers go!, Island Air and Mokulele Airlines also have been expanding service.

And discount carrier Southwest Airlines has been saying for the past two years that Hawaii is on its radar with plans to acquire 74 Boeing 737-800s, but the Dallas-based airline hasn't yet pulled the trigger.

Dunkerley said growth in the Hawaii airline industry and tourism will come from markets that represent developing sources of visitors as opposed to mature sources of visitors.

"I would expect to see faster rates of growth out of Asia than the United States," he said. "As a separate point, I think what's happening in terms of East Coast service is we've always had a lot of visitors from the East Coast because, after all, it's the second-largest source of visitors to the state. What the new service from Hawaiian and United have done is give those customers a better way of getting here."






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