What happened

Shares of Hawaiian Holdings (NASDAQ:HA) closed down 9% on Thursday, a down day for most of the airline sector. Shares were likely under additional pressure due to geopolitical issues that could weigh on Hawaiian Airlines' recovery.

So what

Airlines are facing significant declines in travel demand due to the COVID-19 pandemic, and Hawaiian has not been immune.

The airline's niche network relies on visitors to its home state. When Hawaii temporarily shut its borders earlier this year in response to the pandemic, much of the airline's route network shut down with it. And if the U.S. emerges from the pandemic in a recession, expect Hawaiian traffic to return more slowly than elsewhere, since it's considered a high-cost destination.

A Hawaiian A330 flying over Diamond Head.

Image source: Hawaiian Holdings.

Hawaii and Hawaiian Airlines could face additional issues due to rising tensions between the U.S. and China. On Thursday, China approved a proposal to impose a contentious national security law on Hong Kong, and President Donald Trump late in the day said he would make a statement on Hong Kong on Friday.

Asia is a major source of travelers to Hawaii, and prior to the pandemic, Hawaiian Airlines was looking to Asia for growth and to offset rising domestic competition from Southwest Airlines and others. Japan is a major source of that demand, but Hong Kong and mainland China are also among the regions targeted by the state-funded Hawaii Tourism Authority.

Now what

Hawaiian Holdings is a well-managed airline in a tough predicament. I believe the company can survive the crisis, but it is unlikely to be among the first to rebound because of its concentrated network and reliance on its home state.

It remains to be seen if rising geopolitical tensions soon fade or become another obstacle for management to navigate past. But on a day when China worries weighed on the broader markets, and Asia-focused stocks in particular, investors were in no mood to hold on and find out.