Hawaiian Airlines CEO Update – Delivering A Network Now More Reflective To Visitor Demand
Hawaiian Airlines president and chief executive officer Peter Ingram highlights that the carrier has been growing earnings in a way that reflects its strategy is working and says the airline now provides a network of services that better reflects demand. He discusses how the A321neo has changed the way the airline has been able to look at capacity, frequency and scheduling; how the airline has been targeting expansion in Asia, especially in Australia, New Zealand and Japan, and why the latter and South Korea could be key future growth markets.
Transcript
Peter IngramIt's really important to us to be able to expand the horizons of the business, and frankly, to diversify our revenue. If we go back to 2005, 2006, 2007, about 60% of our revenue was from the west coast of the US to Hawaii, about a third of our revenue was from flying within the islands of Hawaii. And so, if anything happened in either of those two markets, in terms of a demand shock or a competitive incursion, it was really challenging for our business. By growing internationally, we've exposed ourselves to a broader range of markets. We really today mirror where visitors to Hawaii are coming from, so our network really perfectly overlaps the sources of visitors. And it's given us a valuable bit of diversification as well as the opportunity to participate in some markets that are candidly growing more rapidly than the more mature markets that we're established in.
So, the beginning of that expansion, actually, we were first flying into Australia, and we've expanded our service in Australia and now into New Zealand over the last few years. Japan was a really important one for us, because Japan is the largest international source of visitors to Hawaii. So establishing our presence there was very important. And as we look into 2019 and beyond, even with the maturity of that market, we see great opportunities in part because of our partnership with Japan Airlines, where we've got an application for a joint venture in front of regulators in the US and Japan right now. But we also see growth in markets that are growing at a more rapid pace from a GDP perspective. I use Korea as an example of that, where we've established a presence. So we'll continue to look for opportunities to expand both in the mature markets, to make sure we're capturing our share of growth, and also in the emerging markets like Korea, to look for opportunities to expand in the future.
Aircraft is really essential for us, and the point I would make is, at Hawaiian Airlines, we really don't have an average flight. The average flight we fly is about a two hour flight. If you draw a range circle around Hawaii to where a two hour flight will take you, you better be able to land on an aircraft carrier, because there's no airport anywhere near that. In fact, the closest one is turning back and getting back to Hawaii where you started. So, it's important for us to have aircraft that are not just good on average, but good for very specific missions. The 717 has been great for us as an airplane that is durable enough for the high frequencies of our neighbor island service, but also has good economics over those roots. And the size, beyond what you could get from, say, turbo props that are being offered in the market today.
The [330 200 00:03:16] was the cornerstone of our long haul expansion, and has been a great airplane for us and will be for a long time. It is really optimized for flying over eight hours, and we've got a lot of those routes in our network, but we also use it on our west coast to Hawaii services. But there, although it's great in the Los Angeles, San Francisco, Seattle, big demand markets, it's a little bit too much capacity for some of the more midsize markets that are available, and that's why we're adding the A321Neo, which has got terrific economics for those midsize markets. We've got eight of those that have already arrived, out of an order of 18, and we're really pleased. We've been frustrated with some of the delivery delays that we've had with that aircraft, but as we're getting through those challenges and have eight delivered now, it's really living up to exactly what our expectations were.
The 787 really continues that focus on making sure we have the optimal airlines for our markets, and when we ordered the 330s back in 2008, the 787 was on offer at that point. We couldn't get it delivered before 2016 because Boeing had been very successful at selling an airplane that has great potential and great economics. They were still struggling to ramp up production. So as we have an opportunity to think about fleet renewal again now, the 787 is perfect for us. It's got great economics, and especially fuel burn, which is really important on long-haul routes. It's got great customer appeal because of the carbon fiber exterior, the large windows, the lower pressurization that you can have on the airplane. And so we're really excited about that airplane, it'll start arriving in 2021 and over time, will give us more growth opportunities, and further over time, will allow us to retire the 330 200s and the 787 will become very much the flagship of our fleet for the next decade and beyond.
Clearly, fuel for most airlines is either the largest or second largest cost line, so it's something we monitor very closely. We like to be able to provide value to our guests, and part of that is being able to provide affordable fares. So we would prefer an environment where fuel prices are lower. What I would say, though, is the current level of fuel prices is pretty manageable for us. We have built a successful business over the last few years. That means building a stronger balance sheet, being able to withstand the rigors of competition, but also the rigors of market forces, including the price of fuel. So we're really better equipped today than we were a decade ago when we saw fuel prices rising over $100 a barrel, and even $140 US a barrel, back in 2008. So, I'd like them to be lower, but I think we can manage in the environment that exists today.
It really is a fantastic combination of two carriers that bring very complimentary aspects of how we compete in that marketplace today. From our standpoint, Hawaiian, we're the Hawaii experts. We've got our great [inaudible 00:06:42] island network. We deliver aloha on every flight with our real deep understanding of Hawaiian culture and Hawaiian hospitality. Japan Airlines is obviously the preeminent airline in Japan. They have a very well-established brand, a terrific network, and over the last several years, it's been really exciting to see how Japan Airlines has become more forward-thinking as they've moved through some of their challenges from the last decade. We think it's a great complementary partnership.
By joining together in a joint venture, we'll be able to optimize schedules, so take the breadth of the service that the two airlines provide and offer that at different time channels throughout the day. Combine the connectivity behind [JAL's 00:07:34] gateways in Japan and our gateways in Hawaii to give even more guests the opportunity to travel between Japan and beyond, into Hawaii. We think there is tremendous potential for the future, and we can't wait to get started with the joint venture. We've already established our code sharing and our distribution of Hawaiian's product through [JAL-PAX 00:07:58], so we're working hard on the partnership already, but the joint venture is the next step.
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