Hawai i Air Service Overview August 2012
2 What Are The Big Issues?
Each Region Has Different Concerns EUROPE Need for Nonstop Struggling Carriers JAPAN Capacity Deficit Low Fare Revolution ASIA Catching the Wave (China) Absorbing Capacity (Korea) Airline/Aircraft Fit (HK & SE Asia) Struggling Carriers OCEANIA Business Model Changes New Markets 3 NORTH AMERICA Consolidation Low Fare Entry LATIN AMERICA Small Market Sizes Potential
4 The Big Picture
The Global Airline Industry Remains Volatile Erratic energy prices equal instability. New business models are causing turmoil. Consolidation occurring through alliances and mergers. Rapid growth and instability in developing markets. Dramatic changes in Japan. Turmoil in Europe. Maturity & relative stability in the U.S. 5
6 Domestic Markets
The U.S. Domestic Market is Mature Effectively no growth in 2012 and into the future. Bankruptcies and consolidation have reduced the number of carriers and hubs. Carrier revenue performance has been strong. Driven by higher fares and new ancillary revenues. Low Cost Carrier (LCC) growth has stagnated. Rising energy costs have impacted industry economics. Some long haul flights are cost challenged. 7
Consolidation in the Domestic Market 83% of all passengers are now carried on just five airlines. Versus eight in 2006. Domestic Traffic Share By Carrier YE3Q06 vs. YE3Q12 YE3Q12 WN, 25% AA, 12% DL, 20% UA, 16% US, 10% B6 AS F9 YE3Q06 WN, 18% AA, 14% DL, 13% UA, 12% CO, 8% NW, 8% US, 7% HP B6 AS FLF9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Diio Mi/T 100 8
Mainline Carriers Have Lost Their Grip Value carriers no longer shy away from large O&D markets. Value Carrier Enplanement Share New York City 1999: 7% 2011: 24% Boston 1999: 5% 2011: 40% Denver 1999: 8% 2011: 46% San Francisco 1999: 9% 2011: 24% Is Hawai i next??? 9 Source: Diio Mi/T 100
10 Hawai i Domestic Overview
Hawai i Mainland Traffic is Nearly Recovered Hawai'i Local Demand Changes By Domestic Market Sector (four quarter rolling total % change from 2001Q4 base) 60% 50% 40% 30% 20% 10% 0% (10%) (20%) (30%) (40%) 11,278 PDEW "Base" 18,763 PDEW "Base" 14,677 PDEW +30% 13,181 PDEW (30%) 16,760 PDEW +49% Mainland (PDEW = Passengers Daily Each Way ) Inter Island 17,588 PDEW (6%) 13,644 PDEW +21% 15,254 PDEW +35% 12,787 PDEW (32%) Inter Island Markets Mainland Mkts Source: Diio Mi, US DOT 10% Coupon Sample 11
20.0% 15.0% 10.0% 5.0% Aug 12 Dec 12 Apr 13 Apr 04 Aug 04 Dec 04 Apr 05 Aug 05 Dec 05 Apr 06 Aug 06 Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 Aug 08 Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 12 Mainland Seat Capacity is Still Recovering Annualized Mainland Capacity Change (Seats) (rolling 12 month % change versus April, 2004) Impending Growth 0.0% 5.0% Source: Diio Mi T 100 flown seats 4/2004 4/2012; scheduled seats 5/2012 4/2013
Nonstops to Big Island and Kaua i are Big Story 120.0% 100.0% 80.0% 60.0% Annualized Mainland Capacity Change (Seats By Airport) (rolling 12 month % change versus April, 2004) Kaua i (LIH) Big Island (KOA + ITO) 40.0% 20.0% 0.0% O ahu (HNL) Maui (OGG) 20.0% Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13 Source: Diio Mi, US DOT 10% Coupon Sample 13
14 Legacy Carrier Hawai i Ops Are Largely Stable
15 Alaska & Allegiant Are New Growth Players
Hawaiian Airlines is an Unparalleled Asset Hawaiian s vested interest in the market is an enormous advantage. Strengths: Quality brand. Inter Island dominance. Growing experience. Threats: Smaller global player. LCC growth. Lodging inventory. 16
Southwest Airlines Indications that Southwest is planning on entering the Hawai i market. Public statements from CEO. New 737 800 s are ETOPS qualified. Working with unions. Carrier has recently slowed growth. Hawai i network will likely be focused on West Coast markets that currently have nonstop service. 17
Other Players The other two carriers to watch are Virgin America and JetBlue. Neither is capable of serving Hawai i today due to lack of A320 aircraft capability. New variants will address this issue. JetBlue just signed an expanded marketing relationship with Hawaiian. 18
19 The Inter Island Market
Shifting Inter Island Carrier Shares Inter Island Carrier Shares (YE 2007Q1) Mokulele, 2% Inter Island Carrier Shares (YE 2012Q1) Pacific Wings 1% Go!, 10% Aloha, 42% Hawaiian, 47% United 1% Pacific Wings, 1% Island Air, 7% Go!, 9% Hawaiian, 81% Source: Diio Mi, US DOT 10% Coupon Sample 20
Higher Costs = Higher Fares = Decreased Demand Hawai i Inter lsland Capacity Growth (Rolling 12 months Average Daily Outbound Seats) 37,000 36,000 35,000 34,000 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25,000 24,000 23,000 22,000 Growth driven by HA Maui Hub Operation Jan 13 Aug 12 Mar 12 Oct 11 May 11 Dec 10 Jul 10 Feb 10 Sep 09 Apr 09 Nov 08 Jun 08 Jan 08 Aug 07 Mar 07 Oct 06 May 06 Dec 05 Jul 05 Feb 05 Sep 04 Apr 04 Source: Diio Mi, US DOT T 100 21
Inter Island Capacity by Island 60.0% 50.0% 40.0% 30.0% Maui (OGG + JHM) Big Island (KOA + ITO) 20.0% 10.0% O ahu (HNL) Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 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 22 Annualized Inter Island Capacity Change (Seats By Island) (rolling 12 month % change versus April, 2004) 0.0% 10.0% 20.0% 30.0% Kaua i (LIH)
$80 $70 $60 $50 $40 $30 $20 $10 $0 2011 Q4 Inter Island Fares Have More Than Doubled Inter Island Revenue & Fare Growth (Rolling four quarters daily each way) +$36 each way $1.0 $0.9 $0.8 $0.7 $0.6 $0.5 $0.4 $0.3 $0.2 $0.1 $0.0 2011 Q2 2010 Q4 2010 Q2 2009 Q4 2009 Q2 2008 Q4 2008 Q2 2007 Q4 2007 Q2 2006 Q4 2006 Q2 2005 Q4 2005 Q2 2004 Q4 2004 Q2 2003 Q4 2003 Q2 2002 Q4 2002 Q2 2001 Q4 23 RDEW (USD Millions) Avg. Fare Source: Diio Mi, US DOT 10% Coupon Sample
24 International Markets
Strong Growth Trend Across All Intl Markets 30.0% 25.0% Annualized International Capacity Change (Seats) (rolling 12 month % change versus April, 2004) 26.2% 20.0% 15.0% 14.6% 10.0% 5.0% 0.0% 5.0% 10.0% Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13 15.0% 20.0% 14.6% Source: Diio Mi T 100 flown seats 4/2004 1/2012; scheduled seats 2/2012 4/2013 25
26 Canada
Canada Capacity Approaching Decade High 50.0% 40.0% 30.0% 20.0% 10.0% Canada Annualized International Capacity Change (Seats) (rolling 12 month % change versus April, 2004) 39.4% 33.0% 0.0% 10.0% Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13 20.0% 13.7% Source: Diio Mi T 100 flown seats 4/2004 1/2012; scheduled seats 2/2012 4/2013 27
Air Canada & WestJet Compete heavily out of Vancouver. Air Canada operates a full service model. Fighting significant financial challenges. WestJet is an extremely successful low fare carrier. Operates less than ideal aircraft to Hawai i. 28
29 Japan
Japan Capacity Has Mostly Recovered 20.0% 15.0% 10.0% 5.0% Japan Annualized International Capacity Change (Seats) (rolling 12 month % change versus April, 2004) 15.3% 9.8% 0.0% 5.0% Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13 10.0% 15.0% 20.0% 14.9% Source: Diio Mi T 100 flown seats 4/2004 1/2012; scheduled seats 2/2012 4/2013 30
Japan Market is Now More Diverse Less dependent on JAL and Narita. Japan Hawai i Capacity Share 2007 vs. 2012 2012 JL, 32% DL, 31% HA, 15% CI, 8% NH, 8% UA, 6% 2007 JL, 48% DL, 25% CI, 6% NH, 6% UA, 15% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 31 Source: Diio FMi
Other Low Fare Carriers Have a Watchful Eye The Japan Hawai i market is a huge leisure market currently dominated by legacy type airlines. JetStar and Air Asia are in the process of setting up Japanbased regional operations. Skymark acquiring A380 and A330 aircraft. Hawai i will naturally become a market of interest for these carriers long haul affiliates. 32
33 China
34 China Revenue Is Up More Than 3x Since 09 China Hawai i Demand (Rolling 12 months daily each way) 250 200 150 100 50 Passengers 0 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Source: Diio FMi
Most Traffic Still Travels Via Seoul & Tokyo The majority of passengers traveling between China and Hawai i now transit via Seoul. 82% of Chinese visitors to Hawai i transited a non China gateway. ICN NRT Nonstop Other China Hawai i Demand By Gateway 24% 18% 15% 40% HND 3% 35 Source: Diio FMi
China Carrier Overview Chinese carriers have been reluctant to jump into the market for a few reasons: Visa issues. Aircraft constraints. First mover reluctance. China Eastern s entrance was an important first move. Dramatically different conversational tone in 2012 versus past years. Seasonal charter opportunities. 36
37 South Korea
Visa Waiver a Huge Success for Hawai i 400.0% 350.0% 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% 50.0% Apr 04 Sep 04 South Korea Annualized International Capacity Change (Seats) (rolling 12 month % change versus April, 2004) Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 377.6% Mar 12 Aug 12 Jan 13 Source: Diio Mi T 100 flown seats 4/2004 1/2012; scheduled seats 2/2012 4/2013 38
South Korean Market Carrier Overview Revenue has kept pace with traffic growth. Seoul has become the primary transit point for China Hawai i traffic. Korean now at double daily service. New entrants Asiana and Hawaiian already going to daily service. 39
40 Taiwan
Taiwan Market Carrier Overview Taiwan revenue has been flat for several years. China Airlines current daily service is routed via Tokyo Narita. Impending U.S. visa waiver program likely to lead to substantial growth. 41
42 Hong Kong & Southeast Asia
43 Hawai i is Ripe for Hong Kong Capacity 70 Hong Kong Hawai i Demand (Rolling 12 months daily each way) 60 50 40 30 20 10 Passengers 0 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Source: Diio FMi
Hong Kong Market Carrier Overview Carrier related obstacles stand in the way of Hong Kong service. Cathay Pacific operates aircraft capable of operating to Honolulu. However, the carrier operates in the premium segment of the market. Dragonair and Hongkong Airlines are currently operationally precluded from serving Hawai i from Hong Kong. Opportunity for Hawaiian? 44
45 SE Asia Carrier Evaluation & Recruitment
46 Oceania
Oceania Capacity at Record High and Climbing 40.0% 30.0% 20.0% 10.0% Oceania Annualized International Capacity Change (Seats) (rolling 12 month % change versus April, 2004) 14.1% 34.6% 0.0% 10.0% 20.0% Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 May 06 Oct 06 Mar 07 Aug 07 Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13 30.0% 40.0% 50.0% 42.1% Source: Diio Mi T 100 flown seats 4/2004 1/2012; scheduled seats 2/2012 4/2013 47
Oceania Market Carrier Overview Until now, the Oceania Hawai i market has been concentrated at Sydney. Hawaiian adds Brisbane in November 2012 and Auckland in March 2013. JetStar adds Melbourne in December 2012. 48
49 International Opportunities
Opportunities Are Focused On The Pacific Rim Bang for the buck is greatest in markets reachable nonstop. 4,500 4,000 3,950 Top International Markets By Daily Passengers Each Way (ranked for period YE March, 2012) 3,500 3,000 2,500 2,000 1,500 1,214 1,000 500 0 460 383 212 171 64 58 58 40 35 31 20 20 18 18 17 16 15 15 14 10 4 3 126 50 Source: Diio FMi
Opportunities Will be Driven By Fleet Growth Asia/Pacific growth opportunities will be driven by fleet growth. Boeing forecasts 11,450 new airplanes will be delivered in the region by 2030. 51
Aircraft Range From HNL Economic factors, along with aircraft capability, limit the markets airlines will choose to deploy aircraft in. 6,000sm 767 A330 7,500sm 747 777 787 A350 ETOPS Restrictions Crew Time Fuel Price Aircraft Configuration Aircraft Value vs. Opportunity 52
Increasing Premium Traffic is an Important Goal Global competition is increasing and geographic isolation does Hawai i few favors in terms of aircraft economics. Building and retaining a premium airline revenue base is vital to ensuring continued growth. Fewer frequent flyer awards. More business, meeting and convention travel. 53
54 Moving Forward
Moving Forward Hawaiian Airlines is a precious resource. Stability in the Inter Island market has empowered the carrier to expand internationally. Mainland market growth will likely be driven by newer entrants like Alaska, Allegiant, and others. The most significant growth potential lies in Asia/Pacific markets reachable by nonstop flights. Oceania, China, Taiwan, Korea and Japan. Asian airlines are GROWING. 55
Questions? Brad DiFiore Managing Partner Will Berchelmann Managing Partner 56