Hawaiian Airlines has reported that third quarter revenue was trending positively in July, but the devastating wildfires in Lahaina in West Maui in August 2023 caused a sharp decrease in traffic to Maui and a $25 million hit on revenues. With most areas of the island unaffected by the fires and portions of West Maui reopening to tourism on October 8, 2023, Hawaiian said that demand for travel to Maui is recovering, but remains below historical levels. Hawaiian's third quarter schedule was also negatively impacted by the July 25, 2023 announcement from RTX, parent company of Pratt & Whitney, of anticipated accelerated removals and inspections of a significant portion of the PW1100G-JM engine fleet, which powers Hawaiian's A321neo aircraft. This unanticipated time out of service resulted in, among other things, lower-than-expected capacity growth in the quarter.
On an earnings call, Peter Ingram - President & Chief Executive Officer, shared that the airline had also seen a number of engine removals not associated with the powder metal inspection issue. “These removals contributed to an elevated cancellation rate in the early days of the current quarter,” shared Ingram. “We currently have two aircraft grounded, which is an improvement over the earlier part of this month, and expect to have between two and four aircraft out-of-service at any point in time over the next few months.”
Ingram stated that in response to the recent engine removals, Hawaiian had adjusted schedules to accommodate up to four out of service aircraft through the fourth quarter and into the beginning of next year. “We expect the situation for 2024 will improve, as our engine inventory will be bolstered by the return of several engines that are already in the MRO pipeline,” he said.
Ingram also revealed that the airline had reached terms with Pratt & Whitney on short-term compensation for the company’s failure to provide required engine spares over the course of the past several months but noted that this interim agreement would expire later this quarter. “We're in ongoing discussions with Pratt on further compensation beyond the scope of the short-term agreement and most importantly, to provide more certainty about engine availability so that we can plan more effectively for the medium and long-term,” said Ingram.
Hawaiian’s third quarter 2023 operating revenue was down 1.8% from the third quarter of 2022 on 4.1% higher capacity across Hawaiian's network. Passenger traffic remained strong on Hawaiian's Japan routes in the third quarter of 2023. International revenue increased 90.9% from the third quarter of 2022 on a 43.6% increase in capacity.
On October 2, Hawaiian flew its first A330-300 freighter revenue flight from Cincinnati to San Bernardino, which marked the beginning of a contractual relationship that envisions initial growth to a 10 aircraft fleet in the months ahead. Ingram said: “The first flight this month was a significant milestone as we embark on this new venture to provide important diversified growth for our business.”
During the quarter, Hawaiian also announced initial route deployments for its new Boeing 787 Dreamliner aircraft that will debut on an April 15 flight from Honolulu to San Francisco before transitioning to flights between Honolulu and Los Angeles, as well as Maui and Los Angeles in May.
Hawaiian has firm orders for 12 787 that are scheduled for delivery between early next year in 2027. The airline noted that it has several A330 passenger aircraft leases ending in this timeframe, giving options to balance growth and replacement. “We're excited to get this fleet in the air next year,” said Ingram. “It's not only the vehicle of growth for our passenger business for the next few years but the larger 34 seat premium cabin allows us to expand this high performing margin enhancing element of the business.”
As of September 30, 2023, Hawaiian had unrestricted cash, cash equivalents and short-term investments of $1.13bn, and $1.39bn in liquidity, including its undrawn $235 million revolving credit facility. The airline’s outstanding debt and finance lease obligations total $1.65bn.
Hawaiian intends to finance its 787 deliveries and CFO Shannon Okinaka noted on the earnings call that the company had received proposals from several lenders and lessors and stated that the airline would finalise its financing plan for 2024 “soon”.
Okinaka commented that the 787 was a “very financeable airplane” and that Hawaiian is an attractive name to the financing community. “Our fourth quarter costs remain elevated as we approach the conclusion of preparations to bring the 787 and A330 freighters into service throughout 2024,” she said.