Hawaiian earnings up while loads down

Hawaiian Airlines "did OK" during its third quarter, the first full quarter since Aloha Airlines and ATA disappeared, and despite rocketing fuel prices.

Chief Executive Officer Mark Dunkerley said Wednesday that OK was not that encouraging.

"The retreat of fuel prices from historic peaks reached in the summer will lower our operating costs, but our enthusiasm over this is tempered by the uncertain economic environment and its effect on short- and medium-term demand for Hawaii vacations."

Nevertheless, Hawaiian pumped up its overseas re-equipment project by adding two more Airbus A330-200 aircraft to its planned acquisitions. The new aircraft are set to arrive in 2011; Hawaiian owns seven of its widebodies and leases eight. The two additional planes will be leased, so Hawaiian doesn't have to worry about financing in the severe credit squeeze, only with selling enough tickets to pay the rent.

With aircraft that have much longer range, Hawaiian is scouting new markets both on the Mainland and in East Asia, where it got its toes wet by inaugurating service to Manila.

"Through this eventful year the one constant has been the outstanding contributions from all of Hawaiian's employees," Dunkerley said in releasing the profit report. "Their ressponse to the collapse of two major competitors and performance under the operational strain of a rapid expansion of our interisland operations has been fantastic.

"Our team is the best in the industry and our ability to rely on their continued dedication gives us confidence to meet the challenges and opportunities that lie ahead."

Hawaiian Holdings Inc., which is the parent of Hawaiian Airlines, reported consolidated net income for the three months ended Sept. 30 of $6 million, or 12 cents per diluted share, on total operating revenue of $339.9 million.

It had net income of $19.6 million, or 41 cents per diluted share, for the third quarter in 2007.

The company hedges its fuel buying, and it got caught to the tune of $9.2 million in the brief era of $147 a barrel oil. (Airlines actually pay substantially over the world price, because they require premium oil, plus refining costs.)

"We buy fuel and hedge in all circumstances," Dunkerley said.

"The extent of the rise in fuel prices was evident in our third quarter results as extremely strong improvements in both interisland and trans-Pacific revenue were offset by the high cost of fuel," Dunkerley said.

"Our results, nonetheless, bettered the sizable losses posted by many of our principal competitors."

Operating income during the third quarter improved to $27.3 million, compared with $25.6 million a year ago. Even with higher nonoperating expenses related to fuel hedge contracts and an increase in the company's tax provision, net income increased year over year.

For the nine months ended Sept. 30, Hawaiian reported consolidated net income of $40.5 million, or 81 cents per diluted share, on total operating revenue of $910.3 million. This compares with net income of $3.7 million, or 8 cents per diluted share, for three quarters in 2007.

The 2008 results improved to $53.8 million in operating income, compared with $8.8 million a year ago. This year's results include a litigation settlement of $52.5 million from Mesa Air Group.

During the third quarter, Hawaiian significantly expanded its interisland operations, while long-haul capacity increased by a much smaller proportion.

Since shorter-haul operations tend to have both higher revenue and costs per seat mile, this shift in mix of flying toward a higher percentage of shorter segment operations tends to inflate both revenue per available seat mile (RASM) and cost per seat mile relative to the prior year.

Third quarter 2008 operating revenue of $339.9 million was 24.7 percent higher that the year before.

Capacity for the quarter increased 2.6 percent to 2.4 billion available seat miles (ASMs), resulting in RASM of 13.92 cents, up 23 percent from 11.32 cents in the third quarter a year ago.

Third quarter load factor decreased to 80.3 percent from 87.8 percent the year before. Passenger yield (passenger revenue per revenue passenger mile) increased 34.2 percent to 15.95 cents from 11.89 cents.

Some other airlines managers were quoted earlier this year as saying that they had structured their business plans to be profitable with oil at $90-$100 a barrel. With oil around $64, as it is this week, that would seem to promise healthy returns.

There is a significant catch, though, Dunkerley said. Such statements probably were made on the assumption that demand would remain stable.

"Oil came down, but demand changed dramatically," he said.

* Harry Eagar can be reached at heagar@mauinews.com.