Hawaiian Airlines Keynote

Transcript

Peter Ingram:Aloha, everyone. Aloha. It's a pleasure to be here today, and it's been an exciting time for Hawaiian Airlines. I am new to the CEO seat, but I'm not new to Hawaiian Airlines. I joined the company in 2005, first as Chief Financial Officer and later as Chief Commercial Officer. So I've had a great opportunity to participate in the growth and development of our business. And today I was asked to come and speak a little bit about our fleet and our partnerships and how that plays into our overall strategy. And I think it would be useful for me to do— talk about that in the context of how we have built an airline That is very unique in the world in that when you think of the two major strategies that most airlines are pursuing, one is either to be a network carrier serving a broad offering guests a broad reach of opportunities and making any connections. We are not really that. We are also not a low-cost carrier or the more modern offspring, the ultra-low-cost carrier serving point to point with very low costs and very. low frills. And yet we have been able to craft out a successful strategy. If I start a little bit by talking about where we were a decade ago, we were obviously, we were much smaller. We were very domestically focused with the vast majority of our revenue coming between the Western U.S. and Hawaii and flying within the Hawaiian Islands. With a very tiny footprint internationally, a fleet of under 30 airplanes, Boeing 767s and Boeing 717s for our neighbor island network. We had a choice at that time, and that was shortly after emerging from bankruptcy in 2005 and being restructured. We had a choice whether we would stay essentially the same and just try and optimize what we had, to expand domestically on what we were doing in the Western U.S., or to stake out and expand internationally and build a bigger footprint. And we made that third choice and entered a period of very aggressive growth and expansion. adding many new destinations throughout the Pacific region, including expanding our presence here in Australia and nearby in New Zealand, but also entering Asia for the first time with a push into Japan and Korea and China. And that was a period of rapid, rapid growth for us. As we went about that, it was really important for us to think about the fleet we were going to use to accomplish that. And any airline CEO, I think, would get up and tell you that making the right decisions on fleet is very important for them. I would suggest that for Hawaiian Airlines, given the geography of where we are based, it is even more important. And to illustrate that point, The average flight length that we fly is 1,450 kilometers. And I'm used to giving it in miles, so I had to actually be conscious of my audience here and put it into kilometers for this presentation. If you were to put a compass on a map and draw a range circle around Honolulu, 1,450 miles, about a 2-hour flight, I hope you are able to land on an aircraft carrier, because otherwise you are going to be desperately looking for an airport, and the nearest airport you are going to find is to turn around and fly another 1,450 miles and come right back to Honolulu where you started. So we do not have an average flight. We have very distinct missions that we serve, and it's important for us to make sure we have the right aircraft for for each of those missions. Starts for us with a decision that predated my time at Hawaiian, and that was the 717, which is a terrific airplane for the very short sector, high frequency, high demand. So it's not really suitable to smaller turboprop aircraft. And that's an airplane that's been great for us, and we've grown our fleet to 20. In that time period where we were growing, We added the A330-200, and that has been a terrific airplane for us. We had an original order for 6 with purchase rights for 6 more. Having just come out of bankruptcy, I think there was probably a question at Airbus whether they would ever really deliver the original 6. We ended up with 4 times that, with 24. And that's been a great airplane and very important for us in our Asia expansion and expanding to the eastern U.S. But it is a little bit too big for some of the West Coast to Hawaii markets. It's certainly capable of flying those routes, but for some of the mid-sized O&Ds, it's not the optimal size. And that's why we have recently been adding the A321neo, of which we have already taken our first 8 deliveries, and we've got firm commitments to grow that fleet to 18 by early 2020. Each of these airplanes is ideally suited for the very specific 1-hour, 6-hour, 12-hour missions that we serve. Then we spend a lot of time thinking about configuration. And we're very conscious of the fact we have a leisure customer base. Our guests are very focused on value. But value is different for different guests. Some want the absolute lowest cost, and for that we have our main cabin product. For people who want a little bit of a higher level of amenity, we offer extra comfort seating, and that is with 5 extra inches of legroom and some other amenities. That has proved very, very positive for us. And then our premium cabin, particularly on our long-haul flights, which we've recently equipped our 330s with fully lie-flat business class seats. is for those guests who appreciate the value of a higher level of service and a higher level of amenity. We achieve density, which is important for leisure, not by squeezing everyone into the tightest possible pitch, but rather by allocating the seats in the cabin in a way that are optimal for the leisure routes we are serving. Here you can see, you know, each of those 3 products, you know, very important to us to be able to offer different value propositions to different customer groups. And I would say one of the real changes over the last decade in our industry is how the distribution capability has enabled us to market those products, whereas before it was a single fare and it was very difficult to get the message out. Thank you, Peter. out about what the value attributes were of different products. Over the last 4 years, we've had a slower growth period, and this has allowed us to go into a real focus on pursuing true excellence in everything we do, really trying to make sure that we are optimizing our capabilities across a variety of aspects of our business. We have grown profitably. We've improved our balance sheet, improved our financial position in a way that the CFO job that I took 12 years ago looks very, very different today. As we think about, you know, what that means in terms of pursuing excellence, really for us it is a focus on this very specific mission of serving visitors coming to Hawaii, serving people traveling within the islands. And you need to step back a little bit and think about the fact of, you know, who comes to Hawaii. And first of all, it appeals to a broad demographic, male and female, different age groups. There are very many different experiences to take advantage of while you're there. But it is a premium destination. It is, it's a long way to get to from just about everywhere. And that means that prices can be a little bit higher. And so you need to make sure that you're delivering value and understanding the premium audience that we have. We accomplish this by really focusing on, you know, every aspect and it really starts with our people. We are blessed to have a workforce now of over 7,000 people, the vast majority of whom live and work and are from the Hawaiian Islands. And they've got a true appreciation of the culture and are able to deliver the appealing aspects of the Hawaii culture in a way that other carriers, you know, really can't match because they don't have that innate sense of what it means to be from Hawaii and from that culture. That is something that, you know, we've had for a long time, for our 89-year history. Where we focused even more recently is on building our hard product and refining our processes and making sure that we've got all of those fine-tuned to the needs of our guests. And finally, building that network out to really match where visitors to Hawaii are coming from. as opposed to being so singularly focused on the large Western U.S. to Hawaii market. The core of our offering is service. You see the term here on the screen, hoʻokipa. Hoʻokipa is a Hawaiian word for hospitality. It literally, you know, translates into I am host, and what we want people to feel on our airplanes is that when you come on a Hawaiian Airlines airplane, it is— we are caring for you as we would care for you if you were a guest in our home. And that is reflected in the engagement. It is reflected in the serving of food in the main cabin, even on our domestic West Coast to Hawaii flights. There is a warmth that our employees bring that is something we've always got compliments about, and it is something we are really reinforcing in the culture of our business. Products, again, very many, you know, attributes that are tailored to the colors and senses and sounds of Hawaii. One of the things I'm particularly proud of is if you look at the pictures on the screen right now. These are not Hawaiian Airlines marketing photos. These are social media images that people have taken from their trip, and they're picking up on the clues that we are putting on the airplane about, you know, different aspects that are true reflections of Hawaii because we are so focused on the one destination. You see in the bottom left, that's a lavatory light. You won't often see the lavatory sign wearing floral Hawaiian dresses or Hawaiian shirts, but you will on Hawaiian Airlines. So many things that we can do to really emphasize our connection to Hawaii culture. And then of course the network, as I said, now very much more reflective of where visitors to Hawaii come from. So we really have a proportional presence to the demand of visitors throughout the Asia-Pacific region and in the United States, including the Eastern U.S. and very importantly our growth in Japan. What this has meant for our investors has been a period of success. We have grown earnings in a way that really reflects that this strategy is working. And that's not just from revenue growth, that is also in our profit margins, which have been growing throughout this period. And in fact, last year we were somewhat remarkably the 2nd most profitable airline in the world according to one publication. So for all of those airlines focused on perfecting that strategy of being the network carrier and connecting all places, people to all places. And all of those carriers focused on low-cost or ultra-low-cost strategies. One carrier pursuing a different strategy managed to be near the very, very top of the league tables in profitability in 2017. Going forward, we're focused again on a period of growth. I mentioned earlier the A321neos coming into our fleet will allow us to open some mid-sized West Coast to Hawaii markets, those markets with 100 to 200 passengers per day that really can't support the service of a wide-body aircraft with 278 seats. And we're embarking on a partnership with JAL that is very important in the Japan region that I'd like to talk a little bit about. As you can see, over those last 7 years, I talked about how we established our presence in a number of markets. You can see what we have built, particularly in Japan, where we went from just starting at the end of the year in 2010 to now being the 2nd largest carrier overall in terms of travel between Japan and Hawaii. Japan is an— has an incredible affinity for Hawaii, and that's reflected in the large proportion of our international visitors that come from Japan. Fully 60% of our international arrivals are from Japan, dwarfing what we get from other destinations. And that is, that is an enduring sustainable level of demand that we've seen for well over 30 years now. We entered, as I said, in 2010, began flying a single daily flight to Haneda Airport. And establishing that presence initially, we were very reliant on building strong relationships with the established travel distributors in the region, in particular JTB and HIS, who remain very strong partners of us now. But over time, we were focused on that not being the long-term strategy. Just like we had built a brand presence and an awareness in the West Coast, going from, you know, beginnings of being a a wholesale provider that was a somewhat anonymous operator. It was important to us to build a brand and have people become aware of us. Part of that was putting our own sales team there, moving away from focusing on GSA distribution. And now we have a much more diversified model. Again, still partnering with the established distributors, but also working with some of the newer distributors. And you mentioned the distributors in the region and building our own online presence. The partnership with JAL is a continuation of that development, and it really brings together 2 airlines that are able to offer great complementary benefits. From our standpoint, we're the Hawaii experts. We've got the great connectivity within the islands of Hawaii. JAL is obviously a very established leader in the Japan market, great connectivity beyond, but also a great traditional presence in the Japanese market. In 2014, we enhanced our special prorate agreement. We've now, as of early this year, in the end of March, we have codesharing with JAL across all of our shared trunk routes between Hawaii and Japan and also behind their gateways and behind our gateways in Hawaii. And we are uniquely have the position now to have distribution through JALPAC, the wholly owned distributor that— of Japan Airlines. The next phase of this is our application for a joint venture which is in front of the regulators in the U.S. and Japan right now, and which we hope to implement starting in the second quarter of 2019, which will really allow us to bring together the best of both these terrific airlines. The benefits for our guests, we think, are clear. The opportunity to take our strong mutual schedules and to combine them and to optimize so that we offer more schedule choices for travel. Between Japan and Hawaii. More product options across a broad range since Japan— JAL's service and our services is different but very complementary. And finally, those network connectivity options. And I would say it's, it's not always been easy for us to establish partnerships with other carriers, even though we think there are many cases where where because of the same things that appeal to JAL as a partner would appeal to others. But we're not in one of the big global alliances. We don't think that that is appropriate for us for a variety of reasons. Our neighbor island network within Hawaii, we partner with a number of different airlines. And so it is important to us to be able to not just focus on one or two partners, but have that broad reach. So it is, you know, really important to us to have been able to establish this relationship in such a key market in a way that we think is really going to be beneficial to our guests and to both of the carriers. So to sum up, we have, you know, really applied a focus on being the Hawaii experts. That is what we do better than anyone else, and we have built a business strategy around that, and we've proven that that can be successful. Our fleet is crucial to that because of the unique geography of Hawaii, and we're really proud of what we've done to develop the optimal fleet for our network, and then building that network so that we reflect where visitors to Hawaii come is the other piece of that puzzle that, that's brought us to where we are today. Of course, we're not done. We have much ahead of us and we see great opportunities going forward. The most recent announcement we have made about our future and the direction we're going is the decision to continue investing in modernizing our fleet. With the 787 Dreamliner that will be joining us in 2021. It seems like a long time away, but there's much work to do to get prepared for that already. So we're, you know, really very, very excited about the opportunities this has. And as great as the A330-200 has been and will continue to be in our fleet, we think this is an airplane that takes us not only into the next decade but beyond the next decade in terms of serving Hawaii optimally and efficiently. With that, I'd just like to say mahalo for your time today. It's wonderful to come here. As I talk about the expansion of our business, one of the key growth areas for us was, was starting to fly to Australia now almost 15 years ago, and we have built a strong presence in here as part of growing in the Pacific region, and we, we love to come down here. So it's been great being here for the last couple of days and meeting with our team, and I, I thank you all for inviting me to come speak today. Mahalo. Thank you.

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