STAR-BULLETIN Hawaiian Airlines credits a decrease in its wages and benefit expenses for its fourth-quarter profit.

Hawaiian Air soars above analysts’ negative forecasts

Hawaiian Airlines' parent, capitalizing on effective cost-cutting initiatives and an adroit oil-price hedging program, posted a $3.3 million profit in the fourth quarter and full-year net income of $7.1 million, trouncing analysts' estimates.

A year ago, Hawaiian Holdings Inc. lost $9.6 million in the quarter and $40.5 million for all of 2006.

Revenue rose 14.1 percent in the quarter to $250.7 million from $219.6 million, with nearly 70 percent of the sales generated from trans-Pacific routes and slightly less than 25 percent coming from interisland service. For the year, revenue jumped 10.6 percent to $982.6 million from $888 million.

Hawaiian received a big boost from its oil-price hedging program, which accounted for $5.5 million of its $6.5 million in nonoperating income. Nevertheless, the airline's overall fuel costs rose 44.7 percent during the quarter.

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The parent of Hawaiian Airlines surprised analysts with profitable fourth-quarter and full-year earnings as continuing cost-control initiatives, fuel hedging and a one-time gain from workers' compensation benefits helped offset higher fuel costs and heated competition in both the interisland and trans-Pacific markets.

Hawaiian Holdings Inc. posted net income in the quarter of $3.3 million, or 7 cents a share, to end the year with a profit of $7.1 million, or 15 cents a share. In 2006, Hawaiian had a fourth-quarter loss of $9.6 million, or 20 cents a share, to end the year with a loss of $40.5 million, or 86 cents a share.

Revenue rose 14.1 percent in the quarter to $250.7 million from $219.6 million, with nearly 70 percent of the sales generated from trans-Pacific routes and slightly less than 25 percent coming from interisland service. For the year, revenue jumped 10.6 percent to $982.6 million from $888 million.

"It was a great quarter," said Nick Capuano, an analyst with Los Angeles-based Imperial Capital LLC. "There were a couple of nonrecurring gains, such as a $4 million benefit in workers' comp, and that helped the results. But even taking into consideration the one-time benefits, it was a very solid quarter, much better than I expected on the top line (revenue)."

Capuano had been looking for a fourth-quarter loss of 28 cents a share and a full-year loss of 17 cents a share. His revenue forecasts of $236.4 million for the quarter and $968.3 million for the year also were exceeded.

Bear Stearns analyst Kim Zotter was forecasting a fourth-quarter loss of 40 cents a share and a full-year loss of 29 cents a share, according to a research report. Her revenue projection was $237.5 million for the fourth quarter and $969.3 million for the full year.

Hawaiian received a big boost from its oil-price hedging program, which generated $5.5 million of its $6.5 million in nonoperating income, according to Chief Financial Officer Peter Ingram.

The company's wages and benefit expenses also decreased 17.1 percent to $51 million from $61.5 million, with $7.1 million of the improvement related to a favorable adjustment to Hawaiian's workers' comp liabilities in the quarter and an unfavorable pension adjustment in the year-earlier quarter. Ingram said about $4 million of that amount was due to the workers' comp adjustment in the quarter.

Despite Hawaiian's hedging program, fuel costs soared 44.7 percent to $87.4 million from $60.4 million during the quarter and represented 34 percent of operating expenses. Hawaiian's average cost per gallon of jet fuel in the quarter increased 33 percent to $2.63. For the year, fuel costs jumped 20.7 percent to $291.6 million from $241.7 million.

Mark Dunkerley, president and chief executive of Hawaiian, said the company has been able to manage its costs through three main initiatives:

» The internal restructuring of the company's nonunion work force that resulted in the second-quarter layoff of 98 employees and 38 nonunion positions going unfilled;

» The review of third-party contracts;

» And the outsourcing of back-office accounting and information technology infrastructure positions to India, and reservation duties to the Philippines.

Dunkerley said Hawaiian showed a double-digit percentage increase in revenue per available seat mile on its interisland routes due to higher average fares and higher load factors in the fourth quarter. A fare war initiated in June 2006 by Mesa Air Group's go! eased during the quarter, as Hawaiian, Aloha Airlines and go! raised their lowest one-way fares to $49 from $39.

"The interisland market continues to suffer from excess capacity and destructive pricing," Dunkerley said. "As we look forward over the coming months, we can't project any dramatic changes with the competitive environment in the interisland market in 2008."

For its trans-Pacific routes, Hawaiian said its revenue per available seat mile in the quarter rose 6 percent in the quarter mainly due to an improved yield, but also because of a slight uptick in load factor, or percentage of seats filled.

Hawaiian ended the quarter with $183.2 million in cash, with $38.7 million of that amount restricted cash.