Hawai i. Air Service Overview. Hawai i Tourism Conference - August 2014

Transcription

1 Hawai i Air Service Overview Hawai i Tourism Conference - August

2 The Most Diverse Air Service Network Ever Region Destinations Dec 2009 Destinations Dec 2014 North America Asia 7 12 Oceania

3 Is the Hawai i Air Service Cycle Changing? Increased Lodging Demand Rising Room Rates Less Budget for Air Airlines Add Capacity Increased Air Demand Growth and network diversity has helped to mitigate major swings recently Lower Air Demand Airlines Reduce Capacity More Budget for Air Fewer Visitors Lower Room Rates Higher Vacancy 3

4 North America

5 Mainland Traffic Began Tapering Last Year 30% 25% Hawai'i Local Demand Changes By Domestic Market (four quarter rolling total % change from 2004Q1 base) 15,944 PDEW +19% 20% 15% 10% 5% 0% 13,369 PDEW "Base" Mainland (5%) (10%) 15,022 PDEW "Base" Inter-Island 13,026 PDEW (13%) (15%) (20%) 2004 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 5 5 Source: Diio Mi, US DOT 10% Coupon Sample

6 And Fares Strengthened $6.0 Mainland Revenue & Fare Growth (Rolling four quarters daily each way) $400 $5.0 RDEW (USD Millions) Avg. Fare (Each Way) $350 $300 $4.0 $250 $3.0 $200 $2.0 $150 $100 $1.0 $50 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 $0 6 6 Source: Diio Mi, US DOT 10% Coupon Sample

7 So Mainland Capacity is Returning Record levels of mainland capacity will test demand. 22,000 Hawai i - Mainland Capacity Growth (Rolling 12-months Average Daily Outbound Seats) 21,000 Up 5.5% Jan 15 vs. Jan 14 20,000 19,000 18,000 17,000 16,000 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr Source: Diio Mi

8 But Growth is Mostly Bypassing HNL Reducing demand for inter-island service and further challenging the ability to distribute international visitors between the islands % 80.0% Annualized Mainland Capacity Change (Seats By Airport) (rolling 12-month % change versus April 2006) Kaua i (LIH) 60.0% 40.0% 20.0% 0.0% -20.0% Hawai i Island (KOA + ITO) Maui (OGG) O ahu (HNL) -40.0% Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr Source: Diio Mi, US DOT 10% Coupon Sample

9 Delta Has Been Particularly Active in 2014 US Airways Merger; Seasonal ORD Did Not Return; LAX-HNL #4 Japan Reductions; LAX-HNL #4; SEA-HNL #2; SEA-OGG #1 No Significant Change vs

10 Alaska Airlines Growth Has Stabilized 140,000 Alaska Airlines Hawai i Monthly Seats 120, ,000 80,000 60,000 40,000 20,000 0 Oct 2007 Feb 2008 Jun 2008 Oct 2008 Feb 2009 Jun 2009 Oct 2009 Feb 2010 Jun 2010 Oct % Jan08 vs. Jan15 Feb 2011 Jun 2011 Oct 2011 Feb 2012 Jun 2012 Oct 2012 Feb 2013 Jun 2013 Oct 2013 Feb 2014 Jun 2014 Oct Source: Diio Mi

11 Allegiant s Model Continues to Evolve The only true low-fare domestic airline. Average Allegiant LAX-HNL one-way fare: $145 vs. $254 for industry. Destination Dec-12 Seats Dec-13 Seats Dec-14 Seats Phoenix-Mesa Bellingham 3,833 4,560 0 Boise Eugene 1, Fresno 2, Spokane Las Vegas 3,122 2,508 2,964 Los Angeles 0 2,508 6,156 Monterey Stockton 1, Santa Maria 1, TOTAL 13,645 10,944 9, Source: Diio Mi

12 Big Changes Coming to Canadian Market Air Canada introduces Rouge leisure product to Hawai i in seats on a ER versus current 211-seat configuration. New, year-round 2x weekly Toronto-Honolulu service from November WestJet launches 262-seat ER service beginning late

13 Hawaiian Airlines

14 Hawaiian Faces an Evolving Environment Hawaiian s vested interest in the market is an enormous advantage to the state. Recent expansion and network diversification have put Hawaiian in the crosshairs. Particularly in growing international markets. Improving domestic economics are good news. Domestic markets still account for 74% of revenue. Entity % of Total Revenue Passenger Unit Revenue Performance Mainland 50% 4% Inter-Island 24% 8.3% International 26% (-1.6%) 14 Source: Hawaiian Airlines

15 Tough Competition in International Markets Competitive pressures are fierce and Yen devaluation continues to sting. Competitors often operate from hubs with significant connecting services to draw from. International Competitive Challenges Market Competitor Result Tokyo (HND) JAL & ANA Flying Osaka JAL & Delta Flying Nagoya Delta Flying Fukuoka Delta Cancelled Seoul Korean & Asiana Flying Beijing Air China Flying Manilla PAL Cancelled Taipei China Airlines Cancelled Sydney Qantas & Jetstar Flying Brisbane Jetstar (Dec 14) Flying Auckland Air New Zealand Flying 15 15

16 Fleet Limits Neighbor Island Opportunities Expansion of service by other carriers has put Hawaiian at a neighbor island disadvantage. Adding year-round and seasonal service in some larger markets in Smaller A321NEO aircraft arrive beginning

17 Hawaiian s Future Despite the challenges, Hawaiian has been marginally profitable. Hawaiian Key Questions Will international markets grow fast enough to support total capacity? How will frenemy airlines behave over time? Can the mainland market grow without becoming overheated? Will the inter-island market remain a virtual monopoly? What new opportunities will A321NEO and A330NEO aircraft allow for? Will the state tourism infrastructure support further growth? 17

18 Inter-Island

19 HA Controls Over 90% of Inter-Island Market 100% 90% 80% 70% 60% 50% 40% Inter-Island Traffic Share % 9% 82% Hawaiian s domestic and international growth has reduced inter-island seats available to other carriers. Multi-island itineraries are getting more difficult for other carriers to sell. Can/will Island Air evolve into a viable inter-line option? 30% 20% 10% 19 0%

20 go! Capacity Has Not Been Replaced Inter-lsland Capacity Growth (Rolling 12-months Average Daily Outbound Seats) 38,000 36,000 34,000 32,000 30,000 28,000 go! exits Hawai i April ,000 24,000 22,000 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr Source: Diio Mi, US DOT T-100

21 Capacity Restraint is Boosting Fares $1.2 Inter-Island Revenue & Fare Growth (Rolling four quarters daily each way) $80 $1.0 RDEW (USD Millions) Avg. Fare (Each Way) $70 $60 $0.8 $50 $0.6 $0.4 $0.2 $0.0 +9% 1Q14 vs. 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 $40 $30 $20 $10 $ Source: Diio Mi, US DOT 10% Coupon Sample

22 International Markets & Carriers

23 Despite Challenges Capacity is Still Growing 30.0% 20.0% 10.0% Annualized International Capacity Change (Seats) (rolling 12-month % change versus April 2006) Will yields allow this to continue? +25.6% 0.0% -10.0% -20.0% -30.0% Apr-06 Jul-06 Oct-06 Jan % Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr % Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr % Jan10 vs. Jan15 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr Source: Diio Mi

24 The Japan Market Remains Challenged Beginning to see some small capacity reductions. Hawaiian has exited Fukuoka. Delta has reduced capacity across all markets. Not likely to grow materially until Japanese economy is in a strong growth mode. Wild Cards SkyMark Changes in the currency situation Korean and China Airlines 5 th Freedom service Delta fleet dynamics Kona 24 24

25 China Market Needs to Absorb Rapid Growth Three carriers have entered two markets in the past four years. 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 China Scheduled Monthly Seats +350% Jan12 vs. Jan

26 Big Changes in South Korean Market? Revenue growth has not kept pace with capacity. Carriers have been right-sizing capacity. Korean has reduced aircraft size and cut frequency. Capacity glut and attractive schedules have led Seoul (ICN) to become a primary transit point for China-Hawai i traffic. LCC expansion looks imminent (2015?). Wild Cards LCC Entrance Impact of direct China service Hawaiian relationship Korean and Air China 26 26

27 Taiwan Growth Will be Tempered Hawaiian s quick withdrawal leaves China Airlines as the only carrier in the market. 8,000 Taiwan Scheduled Monthly Seats 7,000 6,000 5,000 4,000 3,000 2,000 1,000 No Scheduled Service +11% Jan10 vs. Jan15 0 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May

28 Australia is a Growing Competitive Battle JetStar is making an aggressive competitive move against Hawaiian by adding Brisbane- Honolulu service. Hawaiian has countered by upgrading Brisbane service to an A330. Qantas upgrades Sydney service to larger A330 in September. JetStar also now offering 3x weekly service in the Melbourne market most of the year. Sydney Brisbane Melbourne Hawaiian Hawaiian JetStar JetStar JetStar Qantas 28 28

29 New Zealand Market is Absorbing Capacity Hawaiian entered the New Zealand market in March 2013 with 3x weekly. Air New Zealand has been gradually raising capacity over the past year and a half

30 Changing Dynamics/ Changing Opportunities

31 Smaller, More Efficient Planes Change the Game Allow smaller markets to be connected to Hawaii. Domestic markets like San Diego-Kaua i International markets like Melbourne-Honolulu Open up opportunities for more traffic to transit HNL. Oceania to North America Potential to add larger longhaul markets like London and Hong Kong. 31

32 Hawai i a Target for New Business Models? Long-Haul International Domestic 32

33 Things to Keep an Eye On Hot growth in emerging markets coupled with U.S. economic recovery has been a perfect storm of increased demand. Increasing network diversity has counterbalanced some cyclical issues. But Underlying Risks Abound International yields must rise in order to maintain capacity growth Hawaiian Airlines may not succeed in all competitive markets Risk of over-capacity to North America Yen devaluation continues to pressure the traditional Japan market Korea/China/Taiwan markets are young and unproven markets Difficulty in transferring demand to neighbor islands (particularly international) Airport infrastructure issues and an inferior experience (Customs & Immigration) 33

34 Non-Aviation Issues Can Have a Big Impact Visitor industry issues will impact airline capacity. Concerns Impacting Aviation Will lodging inventory keep pace, particularly in Waikiki? Neighbor island appeal for international visitors Hawai i value perception changes as prices rise Competition is getting better (Maldives, Hainan, Thailand, Vietnam, etc..) Do Hawai i service standards meet the expectations of new Asian visitors? Casual North American visitors may be priced out if lodging prices continue to rise 34

35 A Final Thought Take nothing for granted. Fight for air service. The competition is

36 Mahalo! Brad DiFiore Managing Director 36