For the past two years or so, Hawaiian Holdings (NASDAQ:HA) has been one of my top picks due to its strong growth potential and low valuation. However, shares have more than doubled in the last 12 months. Is there any more upside left?

HA Chart

Hawaiian Holdings One-Year Stock Chart,. Source: YCharts.

Based on Hawaiian's performance last quarter and several initiatives designed to improve profitability going forward, it looks like there is plenty of additional upside. Within a year or two, Hawaiian Holdings' earnings could more than double from last year's level. Rapid earnings growth on this scale would virtually guarantee great results for shareholders.

Margin growth is the opportunity
Unlike the largest American carriers, Hawaiian Airlines has significant long-term growth potential. As members of the rising middle class in China and other developing Asian economies become more interested in overseas leisure travel, the Hawaiian travel market will grow. However, the biggest potential earnings growth driver for the next few years will be margin expansion.

Airline industry analysts are expecting significant margin growth from most major airlines this year. Most notably, American Airlines (NASDAQ:AAL) posted pre-tax earnings of less than $2 billion last year, but analysts expect it to earn as much as $3.5 billion this year. That would represent nearly four percentage points of margin expansion.

New American Livery

Analysts expect huge pretax margin growth at American Airlines this year. Source: American Airlines.

I'm skeptical that it will be able to hit this target, but it's likely that American Airlines -- and the industry as a whole -- will see two to three percentage points of year-over-year margin improvement, with further gains likely next year.

Analysts aren't quite as bullish when looking at Hawaiian Holdings. Today's analyst estimates imply less than two percentage points of margin improvement this year and less than one percentage point of improvement next year. However, Hawaiian already has plenty of earnings momentum, and several key initiatives should further boost its margin growth.

The situation today
On Tuesday, Hawaiian Holdings reported an adjusted loss of $0.02 per share, which was a major improvement on the $0.29 a share loss it posted in Q1 2013. This reflects an approximately four-and-a-half percentage point margin improvement for the quarter. Hawaiian's Q2 forecast implies another margin gain next quarter -- albeit more modest -- assuming fuel prices remain near today's levels.

Hawaiian Airlines

Hawaiian Holdings posted strong margin growth last quarter. Source: Wikimedia Commons.

While most other airlines will be able to report profits for Q1, it's the weakest quarter of the year -- especially for Hawaiian Airlines, which depends heavily on tourist traffic. Hawaiian's small loss is better than what many analysts feared, as unit revenue came in at the top of the company's most recent guidance and unit costs were slightly lower than expected.

Looking ahead
Several initiatives should turbocharge Hawaiian's earnings growth going forward. First, Hawaiian has moved aggressively to cut underperforming routes. Earlier this year, it decided to end service to Taipei and Fukuoka and cut some flights to Seoul on off-peak days. Meanwhile, it will add some capacity in California, where demand for travel to Hawaii is rising. All of these network changes will be in effect by the end of Q2.

Second, currency headwinds are easing, which should allow a return to unit revenue growth for Hawaiian's remaining international routes. The normal maturation process should also lead to better results for Hawaiian's relatively new routes to Brisbane, Auckland, Sapporo/Sendai, and Seoul.

Third, Hawaiian Airlines is rolling out its first true premium economy product -- called "Extra Comfort" -- this summer. It includes perks such as five inches of extra legroom, priority boarding, free on-demand TV and movies, and in-seat power. Last year, the company estimated that this project could double its $6.6 million in annual preferred seat revenue. Now, it thinks the revenue potential is even higher.

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Hawaiian's Extra Comfort seats will boost margins starting this summer. Source: Hawaiian Airlines.

Lastly, Hawaiian signed a new co-branded credit card agreement late last year. This will provide at least $100 million in incremental cash flow over the six-year term of the agreement. Due to accounting quirks, the positive impact of this change will build up over the next several quarters so that Hawaiian will not recognize the full benefit until next fall.

Foolish conclusion
Hawaiian Holdings has plenty of earnings growth catalysts for the next year or two. Meanwhile, analysts have a rosy view of airline industry fundamentals. This is reflected in their predictions that American Airlines and other major airlines could post three to five percentage points of pretax margin growth in the next two years.

The net result is that Hawaiian's earnings could quite plausibly grow to double last year's level -- or beyond -- as soon as 2015. Barring any major economic disruptions or unforeseen changes in the competitive environment, Hawaiian Holdings is positioned for massive earnings growth. Investors should enjoy the ride.

Adam Levine-Weinberg owns shares of Hawaiian Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.