Hawaiian posts an operating profit

The carrier's net results were dragged down by a $28 million charge

Hawaiian Airlines' parent company, facing competition from new interisland rival go! and escalating fuel prices, posted a second-quarter net loss of $26.4 million during a period that included a special charge of $28 million.

But Hawaiian Holdings Inc.'s operating results returned to the black after a first-quarter operating loss. The company's operating profit was $9 million as revenue rose 10.2 percent to $222.3 million. Excluding the special charge, Hawaiian would have had pretax earnings of $6 million in the quarter.

In the year-earlier quarter, Hawaiian had a net loss of $1.7 million on revenue of $201.7 million. Its operating gain in the second quarter of 2005 was $155,000.

Exercising caution, Mark Dunkerley, president and chief executive of Hawaiian, said the company can do better.

"We recognize that our progress in this quarter has lagged that of several of our competitors, so we remain keenly focused on efforts to improve revenues and further control our costs," Dunkerley said yesterday in a statement.

Operating expenses increased 5.8 percent to $213.3 million from $201.6 million as fuel costs jumped 22.8 percent to $59.2 million from $48.2 million. Hawaiian, which has 48 percent of its fuel hedged for the third quarter, said its average cost per gallon of jet fuel rose 24 percent to $2.15 last quarter and represented 27.8 percent of operating expenses compared with 23.9 percent in the year-earlier quarter.

Despite the challenges it faced during the second quarter, Hawaiian boosted its unrestricted cash to $172.5 million from $153.7 million at the end of the first quarter.

The impact from Mesa Air Group Inc.'s go! was not fully reflected in the quarter since go! began service on June 9 -- three weeks before the end of Hawaiian's earnings period. Even though local airlines have seen increased interisland activity due to a fare war initiated by go!, Dunkerley said on a conference call yesterday that he doesn't think the increased traffic will last.

"There's been a palpable sense that there are a lot of people jumping on airplanes to take advantage of some of the low fares," he said. "All of these things, I think, over time are likely to diminish. We don't think the underlying trend in the marketplace is going to change. I think the reason why people have traveled less in the last five years will be with us going forward."

As he has in the past, Dunkerley pointed out that Hawaiian is facing competition both on its trans-Pacific routes and from mainland competitors who are flying directly to the neighbor islands. Hawaiian also is losing interisland customers due to a build-up of infrastructure -- such as big-box retailers -- on the neighbor islands that is reducing the need for those residents to fly to Oahu.

Dunkerley said Hawaiian is not overly focused on the increase in interisland traffic during go!'s first three weeks. "Mesa made a lot of statements about how they're doing, but I think the proof in the pudding is going to be a little ways down the road," he said.

Hawaiian's previously announced $28 million charge was for redeeming all of its outstanding 5 percent 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.

In addition, Hawaiian took a provision of $4.3 million for income taxes during the quarter due to a nondeductible charge taken upon the notes redemption, as well as an increase in deferred tax assets following the airline's emergence from bankruptcy on June 2, 2005.

Hawaiian's loss per share of 56 cents compared with a loss of 3 cents a share a year ago. Excluding the $28 million charge, Hawaiian had a gain of 3 cents a share last quarter that beat the estimate of 1 cent a share by Caris & Co. analyst Jason Kremer. The company's revenue also beat his estimate of $214 million.

"They beat my number so I was pretty happy," Kremer said. "But I think they wanted more. You can always strive for better and I think they were shooting for better and came up a little short on their estimations."

Hawaiian's planes flew 86.9 percent full in the second quarter, up from 85.4 percent a year earlier. Its passenger yield per revenue passenger mile rose 7.1 percent to 12.17 cents from 11.36 cents a year earlier.