In the past few weeks, management teams across the airline industry have been backing off their previous unit revenue projections, citing a combination of weak demand and overcapacity.
That hasn't been true at Hawaiian Holdings (NASDAQ:HA). In fact, it raised its guidance for second-quarter revenue per available seat mile (RASM) earlier this month. Hawaiian Airlines also expects to continue growing RASM in the second half of the year -- unlike nearly all of its peers.
This strong performance suggests that while many airlines are being pummeled by global unrest -- especially in Europe -- Hawaiian Airlines is actually profiting from the chaos. Let's take a look at how the company is distinguishing itself this year.
Strong results -- and more good things expected
In the second quarter, RASM increased 1.6% year over year at Hawaiian Airlines. That was easily the best result among U.S. airlines, outpacing No. 2 Southwest Airlines (NYSE:LUV), which reported a 0.6% year-over-year RASM gain.
As has been the case in recent quarters, Hawaiian's unit revenue growth was driven primarily by strong demand for travel between the West Coast and Hawaii. Additionally, after years of rapid capacity growth in that market, industry capacity between North America and Hawaii was flat last quarter on a year-over-year basis.
Meanwhile, unit revenue declines are finally moderating on international routes. Hawaiian's passenger revenue per available seat mile declined 5.5% year over year for international routes last quarter, but was up excluding the impact of the stronger dollar and lower fuel surcharges. Among international markets, Japan-Hawaii routes performed particularly well.
Hawaiian Airlines expects unit revenue trends to remain solid in Q3. It has forecast that RASM will be in a range of down 1% to up 2% this quarter, despite an uptick in domestic competitive capacity and tougher comparisons.
Nobody else has it this good
Hawaiian Airlines' positive unit revenue trend contrasts sharply with what other airlines are facing. It is the only U.S. carrier that expects unit revenue to grow in Q3.
By contrast, Delta Air Lines (NYSE:DAL) -- which has recently had the best unit revenue results among U.S. airlines with large long-haul operations -- expects its unit revenue declines to get worse in the short term before improving after Labor Day. Delta has forecast that passenger revenue per available seat mile will decline 4% to 6% year over year in Q3.
Meanwhile, Southwest Airlines, the only other airline to post unit revenue growth in Q2, expects RASM to decline 3% to 4% year over year in Q3. Most of the sequential decline will be driven by tougher comparisons, but Southwest is also seeing softer demand for the summer peak travel period. Thus, focusing on the domestic market is no longer a sure defense against weak unit revenue.
Are vacationers fleeing to Hawaii?
So why is Hawaiian Airlines performing so well when other high-quality airlines like Delta and Southwest are having so much trouble both in the domestic market and abroad?
One possible explanation is that the threat of terrorism in Europe is driving more leisure travelers to head to Hawaii instead. Just last week, top European airline group Lufthansa slashed its 2016 profit forecast, stating that terrorism fears have caused a downturn in long-haul leisure travel to Europe.
If well-to-do travelers from places like the U.S. and Japan are afraid of going to Europe now, Hawaii is a premiere tourist destination that hasn't had security issues in the past. This could be an important contributing factor behind the strong demand for travel there.
Thus, while Southwest Airlines is suffering from the generally weak revenue environment and Delta Air Lines faces severe headwinds in Europe, Hawaiian Airlines may actually be benefiting from the current state of global unrest. That could keep it at the top of the U.S. airline industry in terms of unit revenue growth for the foreseeable future.