Hawaiian Airlinesthe state’s dominant air carrier and one of its biggest private employers is reeling amid a surge in visitors from the mainland, executives said Tuesday during an earnings call with Wall Street analysts.
But one big piece is still missing: the Japanese travelers.
The good news: Even without much travel from Japan, Hawaiian executives said the company’s losses are slowing and the carrier may have positive cash flow through the summer.
It’s a notable turnaround since spring 2020, when travel to Hawaii was largely shut down by orders that required all arriving passengers to be quarantined for two weeks because of the coronavirus pandemic. In April 2020, Hawaiian president and chief executive Peter Ingram said the company was losing $4 million to $4.5 million a day.
Even with a federal aid package valued at up to $654 million in grants and loans, with its fleet grounded, the company has allowed voluntary furloughs and furloughs for about half of its employees, who before the pandemic numbered about 7,500.
During Tuesday’s presentation, Ingram presented a brighter picture, saying it’s now hard to remember how bad things were.
“There’s a lot to be encouraged now,” Ingram said.
The already strong US market gained another boost in late March when Hawaii lifted restrictions that required arriving passengers to take a Covid-19 test or show proof of vaccination to avoid a five-day quarantine.
And even before that trip the mainland was growing. In fact, Ingram said, compared to the same period in 2019, Hawaiian operated at 118% of its domestic capacity in the first three months of this year.
This has allowed Hawaiian’s workforce to grow back to more than 6,700 workers, according to spokesperson Alex DaSilva. And Hawaiian continues to hire, especially airport and maintenance workers, Ingram said. Meanwhile, Australia, South Korea and New Zealand started to open as Covid infections decline.
Hawaiian plans to resume nonstop service three times a week between Auckland and Honolulu starting in July and a seasonal increase in flights between Seoul and Honolulu for the summer.
This does not mean that everything is perfect. Hawaiian reported a net loss of $122.8 million for the quarter, with negative cash flow, or adjusted EBITDA, of $105.5 million. But the company expects that to change soon. Its outlook for the quarter ended June 20 calls for cash flow to increase to a point where the company could end up with positive adjusted EBITDA of up to $10 million.
In other words, by summer, Hawaiian Airlines could be back in the black.
And that’s even as Japan’s recovery remains uncertain. The questions about Japan are so important to Hawaiian’s fortunes that nearly all of the half-dozen or so equity analysts who attended the call had questions about Japan, which is Hawaii’s third-largest travel market after the western and eastern USA.
While domestic capacity is up, international travelers are down, filling only 25% of the capacity on international routes.
Quarantine requirements for previously returning Japanese residents prevented people from coming to Hawaii for vacations.
Japan has lifted quarantine rules for returning travelers. The problem now, Ingram said, is a testing requirement for returning residents. Japanese authorities can only administer a few tests on arriving passengers and as a result limit the total number of passengers that can arrive in Japan per day from around the world.
Before the pandemic, Ingram said, Japan had 140,000 arrivals a day. Now Japan only allows 10,000, with each airline serving Japan receiving an allocation. Ingram described the arrival limit as “an artificial rigid restriction”.
Forecasts for visits to Hawaii during Japan’s “Golden Week” vacation period, which runs from April 29 to May 5 of this year, show the impact of limits. During other years, Hawaii may have 4,500 to 6,000 Japanese arrivals a day during this period, said Eric Takahata, managing director of Hawaii Tourism Japan, which markets Hawaii to Japan for the Hawaii Tourism Authority.
This year, Takahata said, the four carriers connecting Japan to Hawaii — Hawaiian, JAL, ANA and ZIPAIR — expect 6,500 to 7,000 travelers in total for the week.
“It’s a start,” he said in an interview, but added: “I know it’s not close to pre-pandemic.”
At the same time, Takahata in an interview and Hawaiian Airlines executives during the conference call expressed optimism when asked about other factors worrying travel industry analysts.
Japan floods will ‘open with full force’
For example, Michael Linenberg, managing director and airline analyst at Deutsche Bank, noted that Japanese travelers tend to plan trips six to nine months in advance and work with travel agents. Given this dynamic, he asked whether Hawaiians and Hawaiians in general could expect a quick “turnaround” in travelers from Japan when the arrival limit was lifted.
Takahata said tour operators are already working to sell Hawaii, and he expects little delay after Japan lifts its restrictions.
“When the cap is lifted, you can bet the floodgates will open in full force from Japan,” he said.
Meanwhile, Conor Cunningham, executive director and senior travel analyst at MKM Partners, asked if a weakened japanese yen could harm Hawaii by reducing the purchasing power of Japanese visitors.
Takahata said the Japanese public is so eager to travel that the weak yen shouldn’t be an issue.
“The industry is telling us that pent-up demand is currently so pent-up that this 20% decline in currency isn’t that much of a concern,” he said.
Hawaiian executives echoed that view. Brent Overbeek, senior vice president and chief revenue officer at Hawaiian, said Hawaiian is confident that Japanese visitors will be back.
“We know we’re going to be really attractive to Japan when it opens,” Overbeek said.
The question is when will that happen.
“We were hesitant to try to speculate on this,” Ingram said. But he added: “We are confident he will return.”
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