Cost cutting helps Hawaiian Airlines narrow first-quarter loss
Hawaiian Airlines' parent company said yesterday it pared its losses to $11.89 million in the first quarter, versus $12.29 million a year earlier.
Hawaiian Holdings Inc. attributed the improvement to cost-cutting measures in a competitive arena that remains "extremely challenging" in large part because of a fare war triggered by Mesa Air Group's go! interisland airline.
Mark Dunkerley, president and chief executive of Hawaiian, also noted signs of a softening economy in its important West Coast markets.
Total revenue gained 1.5 percent in the latest quarter, however, and Dunkerley said this year and next should begin to see benefits from outsourcing and other cost-cutting efforts.
Moreover, analyst Jason Kremer noted that while passengers are happy to pay the lower fares brought by go!, many are still choosing to fly Hawaiian.
Hawaiian Airlines' parent company, citing cost-cutting measures including outsourcing and a review of third-party labor contracts, said yesterday it narrowed its net loss to $11.89 million in the first quarter. Hawaiian Holdings Inc.'s loss is down from $12.29 million a year ago.
Mark Dunkerley, president and chief executive of Hawaiian, called the current market "extremely challenging" and attributed the airline's loss to a continuation of the same factors that weighed down fourth-quarter results -- competition in its trans-Pacific and interisland routes and weakness in demand for travel to Hawaii.
"While capacity growth on transpac routes (has) slowed, the cumulative impact of well over 30 percent growth since 2002 is depressing fares," he said. "More recently, we have seen signs of a softer U.S. economy as well, particularly in the western part of the country where most of our transpac customers originate."
Hawaiian is expecting total seats from the mainland U.S. to Hawaii to be down about 3 percent for the year, with West Coast travel expected to remain nearly flat.
The company is continuing its focus on cutting costs, Dunkerley said, with the outsourcing of some accounting activities and much of the company's IT operations overseas and a review of catering as well as West Coast ground handling contracts. The separation charges from the overseas transitions will result in a second-quarter charge of $1.6 million, with cost-reduction benefits showing up later this year and in 2008.
Hawaiian continues to battle a drop in fares forced by Mesa Air Group's go! interisland airline, which has pushed one-way prices to $19.
"What we are seeing is enormous leaps between the lowest fare and the next lowest fare that our competitors are offering," Dunkerley said in a conference call yesterday with investors. "Go! has lowered interisland fares to the point where $19 no longer constitutes a fare sale."
Dunkerley said he can't forecast a change in Hawaii's "competitive environment" anytime soon, but said the airlines couldn't continue to operate profitably at current pricing levels.
"Mesa is obviously still causing problems on pricing," said Jason Kremer, a sell-side analyst with Caris & Co. in San Francisco. " I don't think go! has any intentions of raising its prices until it can gain the market share that it wants. It is still having problems getting market share. People are still flying Hawaiian."
Hawaiian's net loss of 25 cents a share for the quarter beat Kremer's estimate of 30 cents a share.
For the quarter, revenue totaled $215.19 million, a 1.5 percent increase from $212.09 million last year. The number of seats filled sank slightly from 87.5 percent last year to 87.4 percent. Capacity for the quarter increased 14 percent year-over-year to 2.2 billion available seat miles, resulting in an 11 percent drop in revenue per available seat mile to 9.96 cents.
Passenger yield, or passenger revenue per revenue passenger mile, declined 11.1 percent to 10.37 cents from 11.66 cents a year earlier, reflecting the competitive environment, Dunkerley said.
Jet fuel and oil costs in the quarter increased from last year, to $59.29 million -- about 26 percent of operating expenses -- from $56.96 million.
Maintenance, materials and repairs expenses for the quarter rose by $8.3 million versus last year's $25.1 million, driven by engine work on its newly purchased fleet of three Boeing 767-300 ER aircraft it was formerly leasing from Ansett Worldwide Aviation Services. One of the aircraft was overhauled in the first quarter, with the other two expected to be overhauled later in 2007.
Capacity for the second quarter is expected to increase 18 to 18.5 percent, with long-haul 767 capacity rising at a greater rate than short-haul 717 aircraft, Chief Financial Officer Peter Ingram said. The company expects to fill 87-88 percent of seats, a slight increase over last year's second quarter. The second and third quarters are seasonally stronger, Dunkerley said.