As travelers enjoy Southwest’s $39 interisland fares into the spring, Hawaiian Airlines holds the local market but posts net losses.

When Hawaiian Airlines executives presented an otherwise downbeat earnings report for 2022, there was at least one bright spot: the state’s dominant air carrier claimed victory over Southwest Airlines in an interisland fare war in the latter part of last year.

By some measures, Hawaiian outperformed Southwest despite the Dallas-based airline’s much-ballyhooed promotion in which it sold one-way tickets between the islands for $39, Hawaiian’s chief revenue officer, Brent Overbeek, told investors earlier this year.

Overbeek ticked off metrics from the third quarter of 2022, the most recent data available from the U.S. Transportation Department.

Hawaiian Airlines, the state’s dominant carrier, lost $240 million in 2022 due to higher fuel prices, labor costs and a scarcity of Japanese tourists. (Ludwig Laab/Civil Beat/2021)

‘People Are Choosing Us’

Hawaiian’s load factor, a measure of airplane occupancy, was 22 percentage points higher than Southwest’s; passenger revenue per available seat mile, another financial performance measure, was 29.3 cents for Hawaiian versus 10.6 cents for Southwest; and Hawaiian’s average fares of $51 were nearly twice those of Southwest, he said.

“Clearly the market dynamics have led to a short-term deterioration of our financial performance in the neighbor islands,” Overbeek said in an interview.

But he reiterated an overarching point: even with Southwest dropping fares to compete, “People are choosing us.”

Almost four years after Southwest came to Hawaii with its promise of low fares, that apparent loyalty is a good thing for Hawaiian.

The last three years have been financially hard for Hawaiian, the island state’s largest private employer and perhaps the most important player in its tourism industry. 

Hawaiian lost $240 million in 2022 due in part to higher fuel prices, labor costs and a pandemic-induced scarcity of Japanese tourists. It was the third straight year of net losses, which persisted as other airlines have rebounded with the lifting of Covid restirctions.

And, while Hawaiian has big plans for the latter part of this year, including a cargo deal with Amazon, Hawaiian needs Japanese visitors to come back.

Rebounding tourism has boosted U.S. carriers like Southwest. Despite a historic operational breakdown in December that cost Southwest $220 million in the fourth quarter, the airline still raked in $539 million in net income overall in 2022, according to its year-end report.

Southwest has posted earnings totaling $1.5 billion the past two years, after losing more than $3 billion in 2020.

Southwest Airlines aircraft as one aircraft taxis to takeoff at Daniel K. Inouye International Airport.
Despite losing $220 million because of a historic schedule meltdown in December, Southwest Airlines posted net earnings of $539 million in 2022. (Cory Lum/Civil Beat/2022)

The Japan Factor

The difference between Hawaiian and North American competitors like Southwest can be summed up with one word: Japan. It’s a key market for Hawaiian but not most other U.S. carriers, which instead have vast networks of mainland routes guiding flights through hub airports with connections to final destinations. 

Before the pandemic, in 2019, Hawaiian reported almost $2.6 billion in total passenger revenue, with about $677 million, or 26%, from international flights.

In 2022, international passenger revenue dropped to just 11% of the total, which also dropped. Hawaiian reported just $2.3 billion of passenger revenue in 2022, about $262 million less than the company reported in 2019.

Precisely how much of that decline was the result of the diminished traffic to and from Japan isn’t clear. Hawaiian doesn’t break down financials by smaller geographical areas, Overbeek said. But he acknowledged generally that international markets like Australia, New Zealand and South Korea have bounced back faster than Japan.

Peter Fuleky, who studies tourism for the University of Hawaii Economic Research Organization, noted it’s not just Japanese travel restrictions that hurt Hawaiian and tourism in Hawaii in general. While the Japanese government has lifted the restrictions, the yen remains weak against the dollar, which adds to the cost of a trip to Hawaii beyond the prices that already have risen because of inflation.

“Even the dollar price went through the roof when you look at hotel room rates and whatnot,” Fuleky said.

Previous Fare War Drove Isle Carrier Aloha Out Of Business

To some, the recent fare war between Hawaiian and Southwest is reminiscent of the early 2000s, when Arizona-based Mesa Air Group Inc.’s go! airline offered $19 one-way tickets as part of a fare war with now defunct Aloha Airlines.

David Farmer, a Honolulu bankruptcy lawyer who represented Aloha in Chapter 11 bankruptcy proceedings, said offering super low fares can be a good way to generate business.

“It works because the motive is to get butts in the seats,“ he said. And offering cheap seats isn’t necessarily a money losing proposition, Farmer said.

Once a carrier covers the fixed costs of flying a route, including the costs of fuel and crew, the airline doesn’t lose much by even giving away for free a seat that wasn’t going to be filled, Farmer said.

While the Hawaiian-Southwest fare war might have parallels to the one between Mesa and Aloha, Farmer said there’s a difference: Mesa sought to knock Aloha out of the market.

“Unlike Southwest, Mesa targeted Aloha to put them out of business,” Farmer said.

Hawaiian remains the the state’s dominant carrier, as illustrated by this U.S. Department of Transportation data covering Honolulu’s Daniel K. Inouye International Airport for December 2021 through November 2022

Neither Southwest nor Hawaiian would talk about fares in 2023. But the carriers’ websites show low fares continuing into the spring, at least.

Home Field Advantage

As of Wednesday, for instance, Hawaiian offered round-trip tickets between Honolulu and Kona in April for as low as $77, $1 less than Southwest’s $39 each way. But that super-low fare was unusual for Hawaiian – the most common price was $102 roundtrip. Meanwhile, the $39 one-way fare was more widely available on Southwest in April.

If Hawaiian isn’t consistently matching Southwest on price, it has something else it is touting: the airline’s ties to Hawaii and role in the economy.

Hawaiian employs almost 7,200 workers, many in high-paying union jobs for pilots and flight attendants, and spent $1.6 billion in Hawaii in 2022, according to an economic impact study produced by Hawaiian. In addition, the study said, Hawaiian supported an additional 46,000 jobs last year and more than $10 billion in economic activity.

Also, Hawaiian still dominates neighbor island business, with 67.6% of neighbor island seats, the study noted, citing federal transportation data.

Paul Brewbaker, a Kailua-based economist who study’s the state’s economy, said it’s not surprising Hawaiian would point to its local ties to generate support. 

“I understand why Hawaiian gloms onto it from a public relations standpoint, but the economics matter,” he said.

Specifically, Brewbaker said, there’s no rational reason a person should pay more for a plane ticket simply because it’s sold by a local company. Accordingly, he said, it’s not likely that a “fly local” consumer movement explains Hawaiian’s dominance over Southwest between the islands. Instead, he said, it’s more likely that Hawaiian offers more service.

“Southwest offers some interisland flights,” Brewbaker said. “Hawaiian offers choke interisland flights.”

Heading into 2024, Hawaiian will have even more to offer passengers and more ways to make money. A deal to provide cargo services for Amazon is expected to start gaining traction by early 2024, Overbeek said.

In addition, late this year, the airline is expecting delivery of a fleet of Boeing 787-9 “Dreamliner” planes, which will have more premium cabin seats to generate revenue, Overbeek said.

In the meantime, Overbeek said it is not just Hawaiian’s extensive flight schedule that’s helping the airline maintain market share. It’s also to an extent loyalty, service and a desire to support a local business. 

“When you look at Hawaiian’s influence in the community, everybody knows someone who works for Hawaiian Airlines,” he said.

Hawaii’s Changing Economy” is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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