Hawaiian Airlines Goes to China

China presents a huge growth opportunity for Hawaiian Airlines, but flights between China and Hawaii are not likely to be profitable from day one.

Apr 15, 2014 at 2:45PM

Later this week, Hawaiian Holdings (NASDAQ:HA) subsidiary Hawaiian Airlines will start flying to China. Its thrice-weekly Beijing-Honolulu flights mark the beginning of a potentially huge new chapter in its long-term-growth plan.

Hawaiian

Hawaiian Airlines will start flying to China this week. Source: Wikimedia Commons.

International expansion has not been a panacea for Hawaiian Airlines. In fact, in the last year, the company has decided to drop three international destinations due to weak demand and too much competition. However, the China-Hawaii travel market is potentially so vast that it can accommodate a number of successful players. As a result, I expect Hawaiian to persevere in China.

Big potential
China's massive size and rapid economic growth are creating a large potential market for leisure travel to Hawaii. Japan -- which is much wealthier but much less populous -- has become one of the biggest sources of travelers to Hawaii. Last year, more than 1.5 million visitors came to Hawaii from Japan.

By contrast, Hawaii only had 132,634 visitors from China last year. That was up 13.5% year over year, but still fell short of the Hawaii Tourism Authority's earlier projection that Hawaii would receive 145,000 tourists from China in 2013.

Nevertheless, this was an impressive result, considering that for most of the year, the only nonstop flights between China and Hawaii were China Eastern's three weekly flights from Shanghai to Honolulu. Most Chinese visitors had to connect in South Korea or Japan. As nonstop service from China to Hawaii increases, it should stimulate more travel demand.

Expansion isn't easy
While China is a very promising market, international expansion isn't simple. For Hawaiian Airlines to be successful, it needs to learn what potential customers are looking for, promote its brand, and develop relationships with local travel agents and tour companies. Ultimately, it also depends on people being interested in taking a vacation to Hawaii.

In the last year or so, Hawaiian Airlines has dropped (or announced plans to drop) three of its international destinations: Manila, Fukuoka, and Taipei. In those markets, Hawaiian faced direct competition from Philippine Airlines, Delta Air Lines (NYSE: DAL), and China Airlines, respectively.

Ultimately, none of these routes could handle two competitors, and in each case Hawaiian was first to pull the plug, seeing better opportunities elsewhere. In Beijing, Hawaiian Airlines will face competition as well -- Air China began Beijing-Honolulu service earlier this year.

However, Beijing is a much bigger city than any of the markets Hawaiian Airlines has pulled out of recently. With two carriers starting service from Beijing to Honolulu at around the same time, it could potentially take two to three years for the service to become profitable.

For Hawaiian Airlines, the difference between China and the markets it has dropped comes down to the size of the long-term opportunity. Hawaiian Airlines has every reason to believe that it could eventually offer daily flights to several cities in China, up from three weekly flights starting this week. It could take a decade to reach that point, but the growth potential can justify racking up losses for a few years if necessary.

Foolish conclusion
Now that Hawaiian Airlines has eliminated most of its underperforming routes and its other new routes are maturing, it can afford to invest in a long-term growth opportunity in China. Even though its Beijing-Honolulu flights will probably lose money initially, improvements elsewhere in Hawaiian's route network should drive robust profit growth for the next few years.

Hopefully, the Beijing route will be profitable by then, and Hawaiian Airlines will be ready to expand its operations in China. Succeeding in China will require patience, but it could be very rewarding for long-term shareholders, because Hawaiian Airlines is getting in on the ground floor of this big growth opportunity.

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Adam Levine-Weinberg owns shares of Hawaiian Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers