Fuel costs offset Hawaiian Air revenue gains
Hawaiian Airlines' corporate parent, weighed down by a 48.6 percent increase in fuel costs in what is historically a seasonally weak period, said yesterday it posted a wider net loss of $12.3 million in the first quarter.
The company's net loss in the first quarter of 2005 was $1.7 million and included $3.1 million in nonrecurring expenses.
Revenue, however, grew 10.8 percent to $209.7 million last quarter from $189.3 million a year earlier when the company was in the midst of a 26-month bankruptcy.
"The first quarter was a difficult one for Hawaiian," said Mark Dunkerley, president and chief executive ofHawaiian Holdings Inc."However, we remain committed to our strategic direction and are focused on taking the tactical steps necessary to improve our financial performance in what we anticipate will remain a challenging environment in the near term."
Hawaiian, which generates 30 percent of its revenue from its interisland service, said on a conference call it is considering seeking a preliminary injunction againstMesa Air Group Inc., whose new interisland airline, go!, is scheduled to debut one month from now. Hawaiian sued Mesa in February, claiming that Mesa violated a nondisclosure agreement as a potential investor in Hawaiian and used proprietary information in preparing to start the new airline.
"We're reserving our right to seek a preliminary injunction or not," Dunkerley said. "We are certainly pursuing this case. We believe they flagrantly violated the terms of that agreement, will cause us some damage and we're seeking redress."
Dunkerley said the $39 one-way introductory fares initiated by Mesa and matched by Hawaiian andAloha Airlines have created a bump in interisland purchases but he expects interisland air traffic to slow down after an initial flurry. The three airlines have been matching each other in extending the availability of those fares and, in the latest moves, all three will offer $39 one-way trips through May 31 for travel from June 9 through Sept. 30.
"Mesa's entry into the market is having a big effect on the competitive dynamics, driven by an increase of available seats and a change in the pricing structure," Dunkerley said. "We do not expect the lower fares initiated by Mesa to increase traffic over the medium and long term. Although we didn't pick this fight, we expect to emerge from it in the strongest position."
Hawaiian, which is tripling the size of its term loans to $135 million, said yesterday it would take a $28.3 million second-quarter charge for completing the redemption of all of its outstanding subordinated convertible notes due in 2010. The redemption avoided a massive dilution of Hawaiian stock because the notes would have been convertible on June 2 into about 12 million shares at $4.35 a share.
Dunkerley, who last week announced that Hawaiian was using its four newly acquired Boeing 767s to add 21 flights in the fall to West Coast cities that the carrier already serves, said he still believes there are more opportunities there, as well as possibilities in Japan. He downplayed expansion to the Midwest because major carriers have hubs there and said the East Coast already has lots of flights. He said Hawaiian generates 60 percent of its revenue from the West Coast markets and about 10 percent from the South Pacific and charter operations. One of the new Boeing 767s will be kept as a spare.
Hawaiian, which ended the quarter with $153.7 million in unrestricted cash and cash equivalents, had an operating loss of $4.6 million compared with operating income of $6.3 million a year ago. Operating expenses rose 17.1 percent to $214.3 million from $183.1 million with fuel costs rising to $57 million from $38.3 million. Hawaiian said it has hedged, or purchased ahead of time, 59 percent of its jet fuel for the current quarter, 42 percent for the third quarter and 10 percent for the fourth quarter.
Dunkerley said the airline's 87.5 percent load factor, or percentage of available seats filled, was up from 85.1 percent a year ago and represented the highest load factor in the country.