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As Hawaii’s hotel and restaurant sector reels from Gov. David Ige’s announcement of a 14-day quarantine for tourists visiting the islands, Hawaiian Airlines, the state’s largest and perhaps most important single travel-related company, also faces enormous uncertainty.
Like the rest of the tourism industry, the airlines have been battered. Passenger traffic into Honolulu has already dropped dramatically, according to data from the Hawaii Department of Business, Economic Development and Tourism.
On Sunday, the airline announced it would take the dramatic step of suspending almost all of its long-haul flights starting late next week. The move comes a day after Gov. David Age announced a plan to quarantine all visitors to Hawaii for two weeks starting Thursday.
Peter Ingram, Hawaiian’s chief executive, said the airline will continue to operate its regular flight schedule through Wednesday to allow people to get home and for airplanes to be able to return to their home bases.
The company said it will continue to provide one daily nonstop flight between Honolulu and Los Angeles and its Thursday flight between Honolulu and American Samoa in order to provide a baseline of service out o the islands.
” We will be ready to resume our schedule when the quarantine has been lifted,” Ingram said in a news release.
At a news conference with Ige and other officials at the State Capitol on Saturday Ingram gave no hint of the dramatic step; however, he predicted the governor’s move would all but shut the flow of visitors to the islands.
“I don’t think there’s much appetite for 14 days in a hotel,” Ingram said Saturday, adding that people come to Hawaii to spend time outdoors.
Ige’s decision marked the end of a difficult three-week period for Hawaii’s largest private employer. On Thursday, in a move that showed how deeply the virus is affecting Hawaii’s travel and tourism business, Hawaiian Airlines on Thursday announced it was reducing flights system-wide by 40%. This came after the airline in early March said it would cancel service to South Korea and scale back expansion plans in Japan.
Demand for air travel has dropped so much, Ingram said on Saturday, that for some routes the airline has negative bookings. That means it has more flight cancellations than new reservations. Revenue has dwindled to virtually nothing, he said.
On Saturday, Ingram also reiterated a talking point he made to stock analysts during a March 9 conference call. The company is doing everything it can to avoid mandatory furloughs, he said. Still, that goal appears increasingly aspirational rather than realistic for a company with thousands of employees, a fleet of expensive jets to maintain and plunging revenue.
As of December, Hawaiian had slightly fewer than 7,500 employees, 83% of whom were covered by labor agreements, the company reported in its annual report to security regulators. This included 869 pilots and 2,151 flight attendants.
For pilots, Ingram said during the March 9 call, the airline can use a contract provision called a “flex month,” which gives the airline some flexibility when it comes to assigning hours. There’s also something known in Hawaii as a “surfer leave,” which is a leave granted for a short time with limited compensation, he said.
As for flight attendants, an initial step could be to ratchet back hiring new employees, said Jon Snook, the airline’s executive vice president and chief operating officer. There’s also the option of voluntary leave of varying types, he said.
“I think certainly voluntary leave would be the first port of call for us before we started doing anything involuntary,” he said. “We’ve had success offering voluntary leaves in the past.”
But labor costs aren’t the only expenses facing Hawaiian. In the short term, the company has some $485 million in contractual obligations, including about $70 million in debt payments and $177 million in aircraft purchase commitments, according to the company’s annual report for 2019.
Ingram told Wall Street in March that the company has enough asset liquidity to weather the crisis. But the market has hardly spared Hawaiian the brutal treatment it has given airline stocks in general. Hawaiian shares have lost more than 60% of their value as the crisis has unfolded, dropping from more than $30 a share to less than $9.
The issue is cash flow.
For all of its mind-bending complexity, the airline business is in some ways a simple enterprise: It carries people from place to place for a fee. The problem these days is that a lot of people don’t want to fly. And for those who do want to fly, governments are increasingly saying they can’t – or, as in Hawaii’s case, making the prospect of a holiday in a locale so unpleasant that nobody wants to go there.
“This is very different from a weak economic situation where people wanted to travel but don’t have the means to travel,” Ingram told Wall Street earlier this month. “This is really driven by the level of anxiety that has built up around travel and just anxiety in general about the spread of the disease.”
Asked to compare COVID-19 to the terrorist attacks of Sept. 11, 2001, Ingram said one difference is that relatively little is known about the virus.
“The key difference is what it is the fear of,” he said. “In 2001, it was a fear of terrorism and uncertainty about what the next event was going to be in that extremely difficult time. Here it is a fear about a disease that’s got a number of unknowns.”
The result is declining demand. Japan is a case in point. Normally, the airline’s Japan flights would be 80% to 90% full, Ingram said. But by early March, that had dropped by as much as 20 percentage points, Ingram said at the time. On Saturday, he said, some flights were about 20% full.
Many of Hawaiian’s key markets remain open at least through Wednesday. Although the airline has suspended service to South Korea, Australia, New Zealand and Tahiti, it still is offering multiple flights per day between Hawaii and Japan. And the airline continued to have a robust schedule connecting Hawaii to the Western U.S. market with daily flights between Honolulu and destinations like San Francisco, Las Vegas and Seattle.
But Ingram said at the press conference the number of those flights will shrink in the coming weeks.
Keeping airlines like Hawaiian thriving is important for the tourism industry as a whole, said Kekoa McClellan, Hawaii spokesman for the American Hotel and Lodging Association.
“Our airlines are the lifeblood of the industry,” he said. “Simply put, if there is no airlift, there are no guests.”
Hawaiian Airlines could benefit from a $1 trillion coronavirus economic stabilization package unveiled by Senate Republicans in Congress last week. The proposed legislation, which has yet to earn the support of Senate Democrats, provides $208 billion in emergency relief to airlines and other businesses through loans and loan guarantees.
Of that, no more than $50 billion would be for passenger airlines. Another $8 billion would be dedicated for air cargo carriers. Some labor unions and lawmakers have said that any bailout for the airline industry should come with significant strings attached, such as capping executive bonuses and prohibiting stock buybacks by the companies.
President Donald Trump seemed to agree, at least on buybacks. During a coronavirus task force news conference Friday he said the discussions between Republicans and Democrats were ongoing.
“I don’t want to have stock buybacks,” Trump said. “I don’t want some executive saying we’re going to buy 200,000 shares of stock. I want that money to be used for the workers.”
Senate leaders were expected to continue negotiations over the coronavirus package through the weekend, and Majority Leader Mitch McConnell has said he hoped to have a final version ready by Monday.
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