Profit has been sinking at Hawaiian Holdings (NASDAQ:HA) for the past couple of years thanks to rising competition, particularly for flights between the U.S. West Coast and Hawaii. Despite the subpar market conditions, Hawaiian Airlines is forging ahead with its plan to grow in the West Coast-Hawaii market using its new fleet of Airbus (OTC:EADSY) A321neos.
The Hawaii-based airline's next new route isn't exactly new: It plans to resume nonstop flights between Las Vegas and Kahului (on the island of Maui) in December, after a seven-year hiatus. This looks like an attractive place to expand, especially with Southwest Airlines (NYSE:LUV) about to resume its growth trajectory in Hawaii.
The A321neo is for lower-traffic routes
As recently as two years ago, Hawaiian Airlines operated all of its flights between the mainland and Hawaii with wide-body jets equipped with more than 250 seats. While many travelers prefer wide-bodies for their roomy interiors -- and the planes have plenty of space for cargo -- it's hard to fill that many seats at reasonable fares. Furthermore, small wide-bodies tend to be more costly to operate on a per-seat basis than the largest narrow-body jets.
That's why Hawaiian Airlines decided to add the Airbus A321neo to its fleet. The A321neos have about 25% fewer seats than the Boeing 767s they replaced, are equipped with dozens of extra-legroom seats, and offer double-digit unit cost savings compared to the 767.
As a result, Hawaiian has used many of its new Airbus A321neos to operate routes it couldn't support with wide-body jets. That included resuming nonstop daily flights from Portland and San Diego to Kahului, offering year-round service on routes from Los Angeles to Kona and Lihue, and from Oakland to Lihue, and launching new routes like Sacramento-Kahului and Long Beach-Honolulu. Other A321neos have replaced wide-bodies on routes that were suffering from a little too much capacity -- or are about to face new competition from Southwest.
Hawaiian Airlines reveals its latest new route
For its next Airbus A321neo route, Hawaiian Airlines is resuming nonstop flights between Las Vegas and Kahului. Beginning on Dec. 15, the carrier will fly the route four days a week, with a red-eye departure from Kahului and an early morning return flight the next day from Las Vegas. (During the holiday season, it will use the same aircraft to add three extra weekly flights between Los Angeles and Kahului; as of Jan. 7, it will instead offer three additional weekly frequencies on its Honolulu-Seattle route.)
Hawaiian previously served the Las Vegas-Kahului route using 767s between 2010 and 2012. However, because it had to use a wide-body jet back then, it operated the route just twice a week. This made it less likely that the flight schedule would line up well with customers' travel plans. High fuel prices also contributed to the route's demise.
Now that Hawaiian will serve the route four times a week and will have significantly lower unit costs, the Las Vegas-Kahului route should be a strong performer. With this new route, Hawaiian Airlines will continue the process of diversifying its West Coast-Hawaii route network away from the markets where Southwest Airlines is growing right now.
Preempting Southwest, too
While Southwest Airlines is starting its foray into Hawaii service with flights from four cities in California, management has said that nonstop flights from Las Vegas to Hawaii could be on the table in the future. Indeed, Las Vegas is Southwest's third-largest focus city, with more than 200 daily departures.
By starting Las Vegas-Kahului flights later this year, Hawaiian Airlines may be able to pre-empt a potential entry into that market by Southwest. But even if the two carriers do end up going head-to-head on this route eventually, Hawaiian would be in a particularly strong position to compete with its larger rival in this particular market.
Whereas most mainland-Hawaii routes primarily carry tourists traveling to and from Hawaii for vacations, Hawaii residents account for a substantial chunk of the traffic on routes to Las Vegas. (Some locals jokingly call Las Vegas the "ninth island" of Hawaii.) Thus, Hawaiian Airlines will be able to tap into its large frequent-flyer base in its home state to help fill its Kahului-Las Vegas flights, rather than relying entirely on ticket sales in a mainland market where Southwest Airlines has a strong presence.
Weathering the challenge from Southwest Airlines won't be easy. But Hawaiian Airlines has all the tools it needs to remain highly profitable in the face of new competition from the popular low-fare airline.