Hawaiian Holdings (NASDAQ:HA) stock fell hard in 2017 and 2018, because of rising competition in the West Coast-Hawaii travel market and investors' fears that the competitive environment would continue to deteriorate.

On Tuesday, the Hawaiian Airlines parent reported another earnings decline for the final quarter of 2018. That drop seemed to validate the bears' concerns. Furthermore, the company's unit revenue guidance for the first quarter of 2019 is fairly dismal. Nevertheless, Hawaiian's management remains confident that a comeback will begin soon.

Hawaiian Holdings results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$697.5 million

$682.6 million

2.2%

Total unit revenue

13.76 cents

14.23 cents

(3.3%)

Adjusted cost per available seat mile excluding fuel

9.46 cents

9.64 cents

(1.9%)

Adjusted net income

$49.2 million

$55.0 million

(10.5%)

Adjusted pre-tax margin

9.3%

13.1%

N/A

Adjusted EPS

$1.00

$1.05

(4.8%)

Data source: Hawaiian Holdings Q4 earnings release. 

What happened with Hawaiian Holdings this quarter?

Hawaiian Airlines' revenue per available seat mile (RASM) continued to fall in the fourth quarter, sliding 3.3% year over year. This showing fell short of the carrier's initial quarterly guidance.

Unit revenue increased on international routes, but this showing was more than offset by a substantial RASM decline in the domestic market. A downturn in inter-island travel demand hurt Hawaiian Airlines' business within its home state, while routes between Hawaii and the mainland continued to suffer from overcapacity.

On the operational front, Hawaiian Airlines completed its fleet transition away from the Boeing 767. It retired its last 767 earlier this month in favor of the smaller -- and far more fuel-efficient -- Airbus A321neo. This move should contribute to better unit cost trends in 2019 and 2020.

Hawaiian Airlines also held an investor day last quarter, during which it described several initiatives that could help it improve its unit revenue trajectory over the course of 2019. Most notably, it will roll out a "basic economy" fare option later this year. Hawaiian Airlines will also expand its new dedicated inter-island cargo service in 2019. Finally, management hopes to receive final approval for Hawaiian's planned joint venture with JAL for the Japan-Hawaii travel market at some point in 2019, enabling greater cooperation between the two carriers.

What management had to say

While 2018 had its share of disappointments for Hawaiian Holdings investors, CEO Peter Ingram tried to keep things in perspective. He noted that the company faced a number of unusual challenges during the year but still managed to produce solid results -- both by historical standards and relative to its competitors:

Hawaiian delivered another year of strong financial results in 2018, with an adjusted pre-tax margin in the top tier of industry performance. ... 2019 will be an important year for Hawaiian. Successfully dealing with all of 2018's twists and turns gives me tremendous confidence in our ability to sustain and build upon our achievements in the years ahead.

Looking forward

Hawaiian Holdings expects RASM to drop 3% to 6% year over year in the first quarter of 2019. Meanwhile, nonfuel unit costs are on track to rise 1% to 4%. And while oil prices have moderated in the past few months, jet fuel prices are likely to be flat or up slightly year over year this quarter. (On the bright side, the transition to the A321neos should drive a roughly 4% fuel efficiency improvement on a fleetwide basis.)

A Hawaiian Airlines A321neo parked on the tarmac

The A321neo is more fuel efficient than the planes it is replacing. Image source: Hawaiian Airlines.

This forecast implies that Hawaiian Holdings' Q1 adjusted pre-tax margin could fall by half, or more, compared with the 11% result it posted in the prior-year period.

However, earnings trends could improve later in 2019. The timing of Easter will negatively affect RASM by about 1 percentage point in the first quarter, while providing a corresponding benefit in the second quarter. In addition, year-over-year unit revenue comparisons will get much easier as the year progresses. RASM surged nearly 5% in the first quarter of 2018, whereas it declined in the back half of the year. Another key factor to keep in mind is that most of Hawaiian's revenue initiatives won't kick in until near the end of the year.

Thus, while Hawaiian Holdings' earnings trajectory remains negative for now, a lot could change over the next few quarters.

Adam Levine-Weinberg owns shares of Hawaiian Holdings. The Motley Fool recommends Hawaiian Holdings. The Motley Fool has a disclosure policy.