Hawaiian Banks on Japan Reopening For Summer Recovery

Photo credit: Hawaiian Airlines is betting on Japan reopening for its 2022 recovery. Flickr / ken H

Hawaiian Airlines expects its recovery to begin in earnest next summer, when it believes its essentially shuttered international network will spring back to life. Although the Omicron variant has roiled its recovery timeline, the carrier forecasts that key international markets will ease travel restrictions in time for peak summer demand.

The most important of these markets for Hawaiian is Japan, which had taken tentative steps toward reopening, but has since begun to lower the portcullis again to stay the Omicron variant’s advance. The year has been a series of setbacks for the Japanese market, as the country’s leaders had “anxiety” around the Olympic Games and parliamentary elections, Hawaiian CEO Peter Ingram told analysts during the airline’s investor presentation on Monday. Hawaiian has been in talks with its local distribution partners and partner Japan Airlines on when the country may begin to relax its entry restrictions, but no definite timeline has emerged, he said.

Ingram derided policymakers’ reaction to the Omicron variant as “chaotic.” Governments reacted too quickly to re-impose restrictions without waiting for the science to emerge. Quarantines, in particular, are unnecessary and stifle demand for leisure travel. “Quarantines make it very difficult for someone to take a leisure trip,” he said. “They add immeasurably to the time burden of travel.”

“We have demonstrated with domestic [flights] that people are willing to provide information on vaccine status,” he said. “They are willing to be tested before or after travel.” Domestic demand this year on mainland routes exceeded 2019 levels, soaring after Hawaii relaxed its strict entry rules.

Despite uncertainty around Japan’s reopening and the threat of the Omicron variant, Hawaiian is hewing to its summer 2022 capacity plans and expects international capacity to come back strong. Desire for Japanese tourists to visit Hawaii remains unabated and in fact may have grown after almost two years of restrictions, Ingram said.

Hawaiian’s other international markets are coming back slowly. The carrier restarted flights to Tahiti in August and resumed Sydney flights this week. New Zealand is expected to start reopening to international travel in April, although Ingram said the first phase of the country’s reopening may not include travel to the U.S. South Korea had begun to reopen, but that is paused as it assesses the Omicron variant, Ingram said.

Because of this uncertainty, Hawaiian expects its 2022 capacity to be flat to 4 percent higher than 2019. The airline Hawaiian should have more clarity on where it will be in that range at the end of the first quarter, or 60-90 days out from summer travel, MKM Partners analyst Conor Cunningham said in a note to investors.

With its international network largely idled during the pandemic, Hawaiian redeployed its widebodies on domestic routes, opening new markets like Austin, Texas, and Orlando. The carrier renegotiated and extended the leases on its Airbus A330s favorably, which has lowered their operating cost. This gives Hawaiian more flexibility in route planning and could lead it to open other new markets that previously would have been cost-prohibitive to operate, Chief Financial Officer Shannon Okinaka said, although she declined to specify what markets those could be. “The lease rates on the A330s give us a bit more opportunity where things on the margin look better now,” Ingram added.

Hawaiian last year renegotiated its Boeing 787 delivery schedule with the airframer, but now Boeing’s ongoing delivery delays of the type have pushed its entry-into-service further out. The carrier now expects to take its first 787 at the end of 2022. It will take two next year, three in each of 2024 and 2025, and two in 2026. Meanwhile, it the leases of four A330s expire in 2024, two in 2025, and three in 2027.

Hawaiian expects unit costs excluding fuel to rise between 2-6 percent next year, mainly due to higher labor costs and expenses associated with the 787 introduction. The carrier has open contract talks with the International Association of Machinists and the Transport Workers union and its pilots contract becomes amendable next year.

One trend Ingram noticed during the pandemic is not showing signs of going away: The rise of premium leisure. Without offering specifics, he said unit revenues in the front of the aircraft and on the carrier’s premium economy product have done better than economy class. “People have money and are willing to spend it for a good experience,” Ingram said.