They Don’t Call it Paradise For Nothing: Why Hawaii is a dreamy destination for some of the world’s most successful airlines

This is not a false alarm. No, really, this is not a false alarm: A surge in new airline capacity is headed for Hawaii, and Hawaiian Airlines is bracing for impact.

Why wouldn’t airlines want to expand?

As boom markets go, after all, there’s none quite like Hawaii. Try to find any place—anywhere on the planet—with such a sustained run of robust inbound visitor demand. How robust? So robust, that a once-bankrupt airline has turned itself into one of the global airline industry’s profit superstars.

That airline, of course, is Hawaiian Airlines, which was in the news last week for operating its first A321-NEO revenue flight and announcing another new California route (see page eight). More quietly but more significantly, Hawaiian’s 20% operating margin in the 12 months to September was second best among all carriers worldwide, trailing only Ryanair. In 2017’s third quarter alone, Hawaiian’s 24% operating margin led all U.S. carriers—at a time when the whole U.S. airline sector is prospering, Hawaiian’s prosperity is second to none.

How did Hawaiian soar to such heights just a decade after its very survivability was in doubt? There are many reasons, including the carrier’s Chapter 11 cost cutting, plus its own efforts to expand abroad, improve services and upgrade its fleet. But none is more important than the rocksolid demand for Hawaiian vacations, uninterrupted by security fears, big weather events, health scares or other demand shocks. Following a decline in visits during the 2008-09 recession, visitor demand to the 50th state quickly recovered, growing every year from 2010 onward. In the first 11 months of 2017, arrivals topped 8.5m, up 5% y/y. Just as importantly, visitors are spending more money on their Hawaiian vacations—outlays rose about 7% last year and nearly 10% from the booming western U.S. Yes, airfares are included in this spending.

As booms go, however, this is not one characterized by explosively growing passenger volumes. On the contrary, air traffic at Hawaii’s airports—like the number of tourist arrivals—rose a modest 5% last year. In 2016, growth was less than 1%, which followed annual growth rates of 3%, 0% and 2%. This touches on the explanation for some of Hawaiian’s success: strong demand growth coupled with limited…

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