2 Smart Moves Will Boost Hawaiian Holdings' Financial Performance

Hawaiian Holdings has been facing competition from Alaska Air. But now Hawaiian Holdings is in a much better position than its competitor.

Jul 23, 2014 at 7:00PM

American travelers who wish to take an excursion from the "lower 48" to Hawaii or Alaska often turn to those states' namesake airlines: Hawaiian Holdings (NASDAQ:HA) and Alaska Air (NYSE:ALK). Hawaiian Airlines has an incredibly strong presence in Hawaii after the 2008 bankruptcy of rival Aloha Airlines. But recently Alaska Air has been gaining ground in the region and this has forced Hawaiian Airlines to respond. Let's look at what Hawaiian is doing to maintain its dominance in its home market, and how these developments will impact investors' portfolios.

Why Alaska Air gained ground
After Aloha Airlines closed down in 2008 because the economy tumbled into recession and fuel prices increased, Hawaiian Airlines quickly filled the void that was left behind. The airliner enjoyed an ability to operate almost unopposed in the Hawaiian air market for some time, but soon Alaska Air also joined in the fun. Alaska began to rapidly expand its Hawaiian flight services, and by 2012 flights to Hawaii represented roughly 20% of Alaska's capacity.

How did Alaska Air accomplish this? For starters, Alaska Air began to offer flights to select secondary non-Honolulu locations in Hawaii. With a well-managed fleet and a good cost structure, Alaska Air is a relatively inexpensive, attractive option for travelers who wish to fly from West Coast locations to secondary airports in Hawaii.

Alaska Air also holds several 737-800 long-range narrow-bodied airplanes which are configured to hold fewer passengers for smaller markets. Hawaiian Airlines, on the other hand, almost exclusively flies its West Coast customers to Honolulu and does not have narrow-bodied airplanes. Thus, Alaska has been able to gain an important foothold in non-Honolulu air travel that Hawaiian currently does not have, which has allowed Alaska to gain some market share in the region.

But while Alaska Air has made some important headway in Hawaii, Hawaiian Airlines is still poised to dominate the region for two primary reasons. 

First, Hawaiian Airlines enjoys a comfortable virtual monopoly on inter-island travel.

Second, Hawaiian Airlines has just purchased a fleet of smaller-bodied planes to better compete with Alaska Air and improve its financial results.

Hawaiian Airlines' virtual monopoly
Fellow Fool Adam Levine-Weinberg explains the importance of inter-island travel to Hawaiian Airlines:

Hawaii may be one of the smallest U.S. states by population, but it has one of the largest markets for intrastate air travel. With its population spread across several islands and without a state ferry service, a significant proportion of travel within Hawaii is by air. Additionally, most long-haul flights land in Honolulu, so tourist itineraries to the outlying islands often require an interisland flight.

So while Alaska Air does have flights from the West Coast to secondary locations in Hawaii, Hawaiian Airlines has a virtual lock on all inter-island travel due to the lack of serious competition as well as important partnerships with large airline companies like Delta Air Lines and American Airlines. Both Delta and American offer flights from major cities like Atlanta, Los Angeles, Phoenix, and Salt Lake City to Honolulu. But Delta and American don't offer flights to other smaller Hawaiian airports from as many cities; in fact, Delta only flies passengers to smaller Hawaiian airports from Los Angeles.

What is the solution then? Both Delta and American fly their customers to Honolulu and then put them on Hawaiian Airlines planes that fly to smaller locations, instead of flying them to Los Angeles and then on to smaller Hawaiian airports. By partnering with Delta, American, and other airlines, Hawaiian gains a stable, strong source of revenue which will remain profitable due to the importance of inter-island travel.

The new fleet
Hawaiian Airlines is also ratcheting up competition by purchasing a new fleet of smaller-bodied planes. Hawaiian Holdings placed a firm order for 16 Airbus A321neos last year and also holds purchase rights for nine more A321neos. The planes are very fuel-efficient and will help Hawaiian profitably serve its customers' needs when it rolls out the fleet in the coming years. 

Before it decided to purchase the A321neos, Hawaiian Airlines couldn't serve routes with lower demand due to the large sizes of its planes. But now Hawaiian Airlines can now more profitably serve existing routes and add new routes that wouldn't be possible with wider-bodied planes. These new planes will allow Hawaiian Airlines to compete strongly with Alaska Air on non-Honolulu flight paths.

Overall, with increasing earnings, a bolstered fleet, and consistent revenue derived from partnerships, Hawaiian Airlines is poised to continue delivering good financial performance and thus to return value to its shareholders over the long term.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Evan Buck has no position in any stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers