A little more than six years ago, Hawaiian Holdings (NASDAQ:HA) launched its first route to the U.S. East Coast: a nonstop flight between Honolulu and New York. This route has been quite successful. Nevertheless, Hawaiian Airlines has focused its subsequent growth on international markets and additional West Coast flights.
Last week, the carrier finally announced its second East Coast route. In April, Hawaiian Airlines will begin flying nonstop between Boston and Honolulu five times a week. Here's what this move means for the Hawaii travel specialist.
Redeploying unproductive capacity
Last month, Hawaiian Airlines decided to suspend its Beijing-Honolulu route indefinitely after Oct. 11. For the past five years, management has touted the long-term promise of China as a source of tourist traffic to Hawaii, but interest in visiting Hawaii remains low in China. As a result, demand was never high enough to make the Beijing flights profitable.
Boston should be a much easier market for Hawaiian Airlines to crack. Indeed, it is the largest U.S. market without nonstop service to Hawaii. On a typical day, nearly 500 people fly to Hawaii from eastern New England (the airport's catchment area, broadly speaking), according to the carrier. For comparison, Hawaiian Airlines will offer 1,390 seats from Boston to Hawaii per week -- an average of around 200 per day.
In other words, there is already a large pool of demand for travel to Hawaii. Hawaiian Airlines just has to convince travelers to choose its nonstop flight to Honolulu over the myriad one-stop options that other carriers offer from Boston to the Hawaiian islands.
Hawaiian will be helped in this respect by its long-running partnership with JetBlue Airways (NASDAQ:JBLU), which is the No. 1 carrier in Boston. JetBlue doesn't fly to Hawaii itself, but it has a codeshare relationship with Hawaiian Airlines. This will likely be extended to the new Boston-Honolulu route, allowing travelers to book a single ticket for a JetBlue flight to Boston and the Hawaiian Airlines flight to Honolulu. Additionally, JetBlue frequent flyers can redeem their TrueBlue loyalty points for Hawaiian Airlines flights to Hawaii.
Avoiding a West Coast capacity logjam
Hawaiian Airlines will use the aircraft freed up by canceling the Beijing route to accelerate the retirement of its last Boeing 767s by a few months. In the short term, the carrier will also add capacity in the West Coast-to-Hawaii market.
For example, it plans to operate an extra weekly flight to Las Vegas on several busier weeks between now and year-end. For three weeks around the Christmas and New Year's Day holidays, it will also add second daily flights from Honolulu to San Francisco and Seattle, to serve peak demand. This will allow Hawaiian to capitalize on strong seasonal demand in these markets.
However, it's important for Hawaiian Airlines to avoid becoming too dependent on the West Coast market, which already accounts for about half of its revenue. Some West Coast routes have already been struggling with overcapacity in 2018. Southwest Airlines plans to launch numerous West Coast-to-Hawaii routes in the coming year, which could exacerbate this situation.
By shifting the capacity pulled from the China market (and then some) to Boston, Hawaiian Airlines will avoid contributing to potential overcapacity on West Coast-to-Hawaii routes.
In fact, Hawaiian Airlines' West Coast-to-Hawaii capacity is on pace to be flat or slightly down in 2019. While the carrier will launch at least one new West Coast route next year (Sacramento to Maui), it will also replace all of the 767s currently flying to the West Coast with smaller A321neos.
Given the size of the Boston market and the strength of JetBlue (Hawaiian's partner) there, the only surprising thing about Hawaiian's upcoming launch of a Boston-to-Honolulu route is that it didn't happen sooner. Yet the timing may be ideal. The new flights to Boston will enable growth at a time when other markets are looking less attractive for expansion.