CAPA Live: Hawaiian Air swiftly builds up a robust testing network
Hawaiian Airlines has had a unique experience during the COVID-19 pandemic as state quarantines have rendered the airline essentially dormant for nearly six months.
But despite those challenges, the company was able to build up a robust testing system once Hawaii decided that COVID-19 testing was an acceptable alternative to quarantining.
Obviously, Hawaiian welcomed the change in Hawaii's travel regulations; but the airline continues to navigate a patchwork of differing restrictions in its interisland network.
Despite the obstacles Hawaiian has faced during the COVID-19 restrictions, the airline holds a positive view for the long term that vaccines will be a catalyst for the rebuilding of demand to historical levels. But in the short term, the airline is bracing for continued choppiness until some level of certainty around vaccines and testing crystallises.
Summary
- A certain level of necessity has resulted in Hawaiian Airlines quickly scaling up testing compared with other airlines.
- A patchwork of requirements in Hawaiian's interisland markets is creating headwinds in that sector of the airline's business.
- Hawaiian is joining other airlines in its assessment that vaccines are an important catalyst in jump-starting demand.
Hawaiian adapts quickly, recognising the importance of controlling testing supply
Shortly after the COVID-19 virus spread rapidly worldwide, in late Mar-2020 the US state of Hawaii mandated a 14-day quarantine for all visitors and residents returning to Hawaii.
The quarantine requirement remained in place until mid-Oct-2020, when Hawaii allowed residents to obtain a negative COVID-19 PCR test from a state-approved partner as an alternative.
At the recent CAPA Live Jan-2021 conference, Hawaiian SVP revenue management and network planning Brent Overbeek remarked that the option for travellers to opt out of quarantining was a fantastic opportunity for the airline to determine "what demand would really be like for people to come back to Hawaii".
At the same time, Hawaiian was working to build up its own testing network, which "if you go back and think about the world a year ago," the company would have not expected to be working with, managing and bringing in partners from the lab business, Mr Overbeek explained.
"One thing our team recognized really quickly was that it was going to be important for us to be in control of the supply chain of tests", Mr Overbeek said.
More recently, in a discussion with analysts and investors, Mr Overbeek explained that during 4Q2020 Hawaiian had added four new testing partners, and four new testing locations.
In total, Hawaiian has five testing partners and seven testing locations, and "we are now testing approximately 60% of our enplaned passengers", said Mr Overbeek, adding that the airline expects that percentage to increase over time.
During Nov-2020, as cases of COVID-19 began to climb on the US mainland, Hawaii tightened its testing restrictions, requiring a negative COVID-19 test before departure to the state. Previously, travellers could arrive and upload negative test results into a state database - but some individuals arriving without test results later tested positive.
Mr Overbeek explained that due to those tighter restrictions, many of the larger testing providers that have outsourced their testing to commercial labs have "been unable to meet the state's 72-hour turnaround requirement, making it more difficult for travellers to find tests".
Those circumstances "validated our strategy of setting a proprietary testing capacity dedicated to our guests and performed by partners who are not doing any medically necessary testing", said Mr Overbeek.
Hawaiian has faced headwind in interisland markets due to uneven policies
Although Hawaiian had a degree of foresight in essentially creating its own testing supply chain, the airline still faces challenges in its interisland operations, which accounted for 20% of its revenue 2019.
Travel regulations in the interisland market have been fast moving and confusing.
Interisland travellers were subject to a mandatory 14-day quarantine from Apr-2020 to mid Jun-2020. In early Aug-2020 the quarantine was reinstated for travel from Oahu.
In Nov-2020 Kauai instituted a mandatory two-week quarantine for arrivals. In Jan-2021, Kauai modified the rules, allowing interisland travellers to take a pre-travel COVID-19 test within 72 hours of arriving on the island to avoid the quarantine.
But testing does have some drawbacks. "When the testing programme for long haul arrivals was launched in October, a similar programme was created for interisland travel", said Hawaiian CEO Peter Ingram. "The fundamental problem, however, is that the high cost of COVID tests relative to the total costs of interisland journeys has deterred and will continue to deter people from making these short trips."
Hawaiian believes vaccines are a key catalyst in restoring demand
Hawaiian does believe the pre-travel testing program is a way to build back tourism to the islands safely, which is key to the economic health of the region, said Mr Ingram.
Vaccines are also a catalyst to move the industry and the broader economy "beyond this incredibly difficult chapter," said Mr Ingram. He stated that vaccination holds a true key tor restoring demand closer to historical levels.
It could take some time for confidence to build in vaccine administration and distribution, which is why airlines are bracing for uncertainty to continue for the near term.
But Hawaiian, along with other airlines does have a level of optimism for the longer term.
"We are optimistic about recovery despite an expectation of challenges in the next few months", Mr Overbeek recently told analysts and investors.
Hawaiian's distinct pandemic experience led to astute management of testing
Hawaiian has had a distinctly different experience during the COVID-19 pandemic from that of some of its US peers.
In some respects, it had to move toward building up a testing pipeline faster than other airlines, and had gained valuable experience in creating its testing programme.
Now the airline is looking toward the next step in building up consumer confidence - vaccines. And for now, operators are waiting for vaccines to create a step change in demand.