The sky’s the limit for Hawaiian Airlines

Since the dark days of bankruptcy nearly a decade ago, Hawaiian Airlines has never been in better shape — either financially or structurally.

The state’s largest and oldest carrier, which turns 83 today, had $433.5 million in unrestricted cash at the end of the third quarter. It is changing its long-range fleet to larger and more efficient Airbus A330-200s from Boeing 767-300ERs, and is in the midst of expanding to eight new mainland and international cities in an approximately two-year span. All of its labor groups are under contract, and it has more than 80 percent of the interisland passenger market after the shutdown of Aloha Airlines in March 2008.

What’s not to like?

"It’s a success story," said Capt. Lee Moak, president of the Air Line Pilots Association, which represents 650 pilots at Hawaiian, 51,000 pilots in North America and 37 airlines.

Moak, who was in town last week to meet with local union officers and Hawaiian management, said he’s been impressed with the airline’s turnaround since emerging from Chapter 11 reorganization in June 2005.

"Hawaiian has a market niche here, and what they’re recognizing is there is an opportunity for them to organically expand and still focus on their core market," said Moak, 55, a 1975 Kailua High School graduate who was back in Hawaii for the first time since flying F-4s out of Marine Corps Base Hawaii in Kaneohe from 1982-85.

"If you read what the analysts are saying, they’re doing an excellent job of maintaining their cost structure and bringing revenue in at a time when they’re growing at an incredible rate," he said. "I think it’s good for Hawaiian Airlines, good for the employees, and I think it’s really good for the Hawaiian economy and business —in particular, the tourism industry because they’re bringing that many more seats in."

Since November 2010 Hawaiian has added routes in Japan to Tokyo, Osaka, Fuku­oka and Sapporo in addition to service to Seoul and New York. Later this month Hawaiian will begin service to Brisbane, Australia — its second route to that country — and then in March will make its first foray into New Zealand when it flies to Auckland. For all of 2012 Hawaiian will bring into the state 21.5 percent of the nonstop air seats from mainland and international destinations — second only to the 21.9 percent transported by United Airlines.

"If you look at the routes that they’ve been adding, some of those routes they don’t have severe competition on," Moak said. "I think they’ve done a good job in their network in revenue analysis in what they can do. I’m very impressed with Hawaiian Airlines."

Hawaiian’s pilots ratified their current five-plus-year contract in January 2010, and it becomes amendable on Sept. 14, 2015.

"I would say the contract is comparable to a Delta and the other airlines that are out there," Moak said. "There’s always room for improvement, but I believe this contract, considering where this airline has been and where it is going, is a contract that is compensating the pilots commensurate with their education, training and experience."

Where the airline has come from was a more than 26-month stay in bankruptcy that began on March 21, 2003, and ended on June 2, 2005.

"Bankruptcies are terrible," he said. "They’re quite complicated, and the airline that comes out of the bankruptcy is not the one that came into the bankruptcy. Whether it’s shareholders losing all their money or pilots losing their homes or jobs because they got furloughed, or their children can’t pursue the school they were pursuing because of the concessions that come out of bankruptcy.

"Those are the things that are a shock to anyone in or out of bankruptcy, but it occurs all at once in a bankruptcy. So bankruptcy from a very practical standpoint on the individual employees is a terrible, terrible thing, and we know as we look at Aloha there are many airlines that are never able to restructure, and they don’t come out of bankruptcy."

Since 1978, when federal deregulation of the airline industry removed government control over fares, routes and market entry of new airlines, every U.S. carrier has gone through bankruptcy and restructuring, with American Airlines — which is now in Chapter 11 — the last one to take the plunge. In several cases airlines have merged or been acquired. Some of the more recent marriages have been Delta and Northwest, United and Continental, and Southwest and AirTran. US Airways is now in talks with American Airlines.

"I believe that mergers and consolidation in the United States was necessary to compete globally," Moak said. "If you’re going to compete globally, you needed scale and you needed to consolidate. There were just too many carriers without enough connectivity. We were going through bankruptcy and massive losses and furloughs over a 20-year span. Airlines, at best during that period of time, would have a 2 percent margin, and then, all of a sudden, they were losing a ton. It was a terrible time for the airlines and a terrible time for airline employees and particularly pilots."

Moak said the airline industry is still in transformation and survival mode.

"It’s very fragile because they have to stand on their own two feet to be profitable competing globally (against some international carriers that are subsidized by their countries)," he said. "I think the trend is positive right now because you see capacity discipline in the U.S., and they’re competing quite well internationally because they have a good handle on their operations."

Hawaiian is as large as it has ever been, with a workforce of 4,816 after hiring 500 new employees this year. Contrast that with the 3,317 employees it had when it emerged from bankruptcy.

The airline also plans to add another 300 new operational and administrative positions in 2013.

"It’s a very different company since bankruptcy," said analyst Bob McAdoo of Los Angeles-based investment bank Imperial Capital. "In addition to having more money in the bank, they’ve diversified their customer base and gone into a bunch of markets that are a lot less likely to have competition, or where the competition is very different from where they were historically. Historically, their long-haul business was competing against people who were much bigger than them, and they were competing on the basis of price for U.S. customers coming from the West Coast. I think now they have a better book of business, and they’ve spread the risk."

That diversity should ensure that Hawaiian is here for the long haul.

"It’s important for Hawaii to have a carrier (based) here," Moak said. "Hawaiian Airlines is that carrier, and now you have an airline where the executive team is doing a great job running it. It’s expanding, it’s a viable airline with business and it’s growing. For the first time in a long time, you’ve got a financially successful carrier in Hawaiian that’s expanding."

In the third quarter, Hawaiian’s earnings soared 77.6 percent to $45.5 million, and its revenue jumped 20.5 percent to $549.3 million. Hawaiian has posted a profit in 14 of its past 15 quarters.

At some point Hawaiian might attract interest from a potential acquirer or even decide to be the one making the acquisition. But Hawaiian President and CEO Mark Dunkerley won’t publicly discuss either possibility.

"We constantly evaluate the level of cash we have on hand to make sure it’s appropriate to our business plan," he said. "With five Airbus A330s coming in 2013 and several more in 2014, having some cash to help finance these aircraft has been something that we think is important."

Whatever happens, Moak says Hawaiian is in an enviable position.

"Hawaiian is in the driver’s seat in whatever it wants to do, and what a great place to be in the airline business," he said. "Most people never have that choice. So whether it would be a takeover candidate or whether it would be an acquirer, it has its financial house in order. So it’s definitely in the driver’s seat. It can do what it wants to do. And that’s nice to see for a change."