Hawaiian Still Needs This Merger
Demand is OK, but the airline lost a lot of money in the first quarter.
Dear readers,
Hawaiian Airlines CEO Peter Ingram didn’t say it directly, but I suspect that he wants you to know that he learned a lesson from the failed JetBlue-Spirit merger. As both of those airlines planned for a transaction that would never close, they seemed to lose focus on day-to-day operations. Now that the deal is kaput, each is reeling.
“There is a lot going on in 2024 with exciting new projects in addition to the pending merger,” Ingram told analysts on Wednesday during the airline's first quarter earnings call. "My focus is on making sure that we don't lose sight of the fundamentals."
For his sake, I hope his concerns are moot, and that the U.S. Department of Justice doesn’t block Alaska’s proposed acquisition. While the aviation romantic in me would love to see an airline with Hawaiian’s strong brand and rich history remain an independent entity, the airline’s first quarter results — while an improvement over some recent quarters — show why that’s difficult. Hawaiian posted a big loss of $137.6 million, with a pre-tax margin of -23.7%. On the bright side, RASM increased 2.6 percent year-over-year.
Yes, the industry runs in cycles, and Hawaiian naturally might find its way out of this mess. But the longer this lasts, the more I wonder if there’s a structural issue to blame, because Hawaiian has a very small addressable market for a 21st-century major U.S. airline. For its entire history, Hawaiian has flown people between the Hawaiian islands and to and from the state. I guess it could change that approach, and fly elsewhere, but there’s been little interest in doing so.
This business of focusing only on one state is a tough one. The good news is that flights from the Lower 48 to Hawaii have robust demand and solid revenue, executives said on Wednesday. But the battle with Southwest over inter-island traffic remains challenging. And while the overall climate for long-haul flights is OK, Hawaiian still is having trouble selling tickets in Japan, a segment it once found highly lucrative.
I believe Ingram when he says he is keeping tight control of Hawaiian in case the government moves to block the merger, but it’s probably best if it does not come to that. I didn't hear anything on Wednesday's earnings call that persuaded me that Hawaiian's board made a mistake in agreeing to Alaska's offer.
Here are some highlights from the call (not all of which were bad).