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Hawaii News

Hawaiian Airlines still bleeding despite CARES Act and says it can’t withstand the severity indefinitely

CINDY ELLEN RUSSELL / APRIL 21
                                Hawaiian Airlines suffered a $144.4 million loss in the first quarter before it received federal assistance from the Payroll Support Program of the CARES Act.
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CINDY ELLEN RUSSELL / APRIL 21

Hawaiian Airlines suffered a $144.4 million loss in the first quarter before it received federal assistance from the Payroll Support Program of the CARES Act.

DENNIS ODA / APRIL 13
                                About 50% of Hawaiian’s workforce already has contributed to the company’s quest to conserve costs by taking voluntary leave, reduced hours or pay cuts. The Hawaiian Airlines check-in area remains empty during the pandemic.
2/2
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DENNIS ODA / APRIL 13

About 50% of Hawaiian’s workforce already has contributed to the company’s quest to conserve costs by taking voluntary leave, reduced hours or pay cuts. The Hawaiian Airlines check-in area remains empty during the pandemic.

CINDY ELLEN RUSSELL / APRIL 21
                                Hawaiian Airlines suffered a $144.4 million loss in the first quarter before it received federal assistance from the Payroll Support Program of the CARES Act.
DENNIS ODA / APRIL 13
                                About 50% of Hawaiian’s workforce already has contributed to the company’s quest to conserve costs by taking voluntary leave, reduced hours or pay cuts. The Hawaiian Airlines check-in area remains empty during the pandemic.

Tens of millions of dollars in federal government support wasn’t enough to prevent Hawaiian Airlines from suffering a staggering first-quarter loss as COVID-19 fears and containment policies zeroed out travel demand.

Hawaiian reported Tuesday that it lost $144.4 million in the first quarter of this year as compared with a gain of $36.4 million during the first quarter of 2019. Revenue fell to more than $559.1 million, a nearly 15% drop from the year-earlier quarter, when revenue was nearly $656.8 million.

Last month the airline’s parent, Hawaiian Holdings Inc., received $146.2 million in the first of two installments from the Payroll Support Program, which is part of the CARES Act to help companies pay employee salaries, wages and benefits.

Even after the carrier adjusted its net income to account for the CARES Act tax benefit, it sustained a loss of $34 million. As part of the PSP, Hawaiian also agreed to limit executive compensation through March 24, 2022, and to suspend dividend payments and stock repurchases through Sept. 30, 2021.

If losses continue, it would be another blow for the state’s economy. Hawaiian, the state’s hometown carrier, plays a major role in supporting visitor access to the state, where it is also one of the largest employers. Hawaiian employs about 7,500 workers, 90% of whom live in Hawaii.

“As you have seen, the situation we are facing is severe. Despite the CARES Act and our own cash preservation initiatives, no airline can withstand a zero revenue environment indefinitely,” Peter Ingram, Hawaiian Airlines president and CEO, said during a Tuesday earnings call. “We need demand for air travel to return and the infrastructure and policies to accelerate this. When that happens, we will be prepared to ramp up our operations, right-size our business to meet demand for travel to, from and within Hawaii and deliver our outstanding service with aloha.”

The state’s largest and oldest carrier said demand began dropping early in the year when the U.S. government imposed restrictions on Chinese arrivals, followed by hits to its South Korea and Japan routes. Losses accelerated in mid-March after governments in Australia, New Zealand, Tahiti, American Samoa and Hawaii implemented self- isolation or quarantine policies for incoming arrivals.

Prior to the downturn, Hawaiian offered nonstop service to Hawaii from 13 U.S. gateway cities — more than any other airline. It also offered service from Japan, South Korea, Australia, New Zealand, American Samoa and Tahiti. On average it provided more than 160 jet flights daily between the Hawaiian Islands and over 240 daily flights systemwide.

In mid-March, Hawaiian began making significant reductions to flights and instituted a hiring freeze and other cost-cutting measures. The airline said Tuesday that capacity in terms of available seat miles is expected to be 94% below April 2019 and 91% below May 2019.

Ingram said the company’s new focus is on “sustaining a limited operation, enhancing liquidity, preserving cash and preparing for a new reality as we begin to emerge from the pandemic in the weeks ahead.”

But additional fallout could come if improvement doesn’t happen by Sept. 30, the date under PSP terms when Hawaiian could begin to conduct involuntary furloughs or cut employees’ pay or benefits.

“We remain hopeful that a comprehensive plan is in the works for a phased reopening of the economy that includes protocols that allow residents and visitors to feel safe and confident when traveling,” said airline spokeswoman Ann Botticelli. “However, we have told our employees that if our business is materially smaller beyond September 30th, we would exhaust all voluntary options — such as early retirements — before resorting to involuntary separations from our company.”

About 50% of Hawaiian’s workforce already has contributed to the company’s quest to conserve costs by taking voluntary leave, reduced hours or pay cuts, Ingram said.

Ingram said Hawaiian Airlines management and the flight attendants, who belong to the Association of Flight Attendants-CWA union, also have finally agreed on a new five-year contract. The contract, which covered some 2,100 flight attendants, became amendable on Dec. 31, 2016.

Association of Flight Attendants-CWA spokeswoman Taylor Garland said in a statement, “We were pleased to reach an agreement with Hawaiian management last month, so that we could all focus on the COVID-19 crisis facing our industry.”

How the carrier and its employees fare will depend a lot on when Hawaii and other destinations lift tourism lockdowns and consumers feel comfortable enough to travel.

Some Hawaii lawmakers, tourism leaders and community members have said they want to see rapid- testing capabilities before the quarantine ends. However, Ingram said he doesn’t think there are enough rapid tests available to make that feasible in the near term.

In the interim, Hawaiian and other airlines have begun to require masks as well as implement new cleaning and social distancing protocols to make travelers safe. However, Ingram expects social distancing won’t have long-term sustainability as load factors start to come back unless airfares rise to cover it.

While Hawaii probably isn’t far from seeing an interisland passenger quarantine lifted, Ingram said tourism recovery won’t really start until Hawaii ends its out-of-state passenger quarantine, which began March 26 and is an “incredible disincentive” for travel.

Hawaiian’s passenger traffic plummeted more than 45% to just 542,456 passengers in March compared with 993,548 passengers in the year-ago month. Hawaiian’s March load factor — the share of seats filled — decreased by 28.4 percentage points to 58%.

During the first quarter, Hawaiian carried 2,362,196 passengers — a more than 16% decrease compared with the first quarter of 2019. During the same period, Hawaiian’s load factor fell 10.5 percentage points to 74.6%.

The picture has only worsened since. In the 39 days since Hawaii’s passenger quarantine began, only 5,523 visitors have come to Hawaii, and not all of them were flying Hawaiian.

Still, Ingram doesn’t want to see the quarantine lifted unless Hawaii is ready to reopen travel for good.

“When the quarantine is removed and we start having more economic activity, we’d like it to stay removed and to continue to have economic activity,” he said.

Toggling back and forth on restrictions “would be very destructive to consumer intent and demand if there was uncertainty of what the conditions were going to be,” Ingram added.

Once Hawaii lifts the quarantine, Ingram anticipates there will be demand for travel to Hawaii.

“On one hand, you’ve got people’s concerns about getting out and interacting with people and moving around again,” he said. “But on the other hand, I think people are tired of being cooped up. And to the extent that they’ve got the flexibility and economic wherewithal to do it, they are going to want to travel.”

Ingram said he does not expect Hawaiian’s load factors to return by summer to normal 80% to 90% levels, but he sees opportunity for the carrier to begin rebuilding once Hawaii reopens for travel.

”Hawaii is going to be an appealing place like it always is,” he said. “But even more so now, perhaps, because this is a place where the effects of this horrible disease haven’t ravaged it as much.”

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