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Will Hawaiian Airlines Bounce Back to Record Profitability?

Will Hawaiian Airlines Bounce Back to Record Profitability?

 

In the previous edition of Airline Profits, we discussed the financial performance of Air Canada over the decade ending December 2015. In this article, we are reviewing the Aloha spirit guided Hawaiian Airlines’ profitability during the same span of time.

Review of Net Profits

In 2006, Hawaiian Airlines ended the fiscal year with a 40 million US dollar loss. Given the context of the airline, that negative result was significant. Yet, that has proven so far to be the only time Hawaiian Airlines saw a red-ink bottom line for that decade. Shortly thereafter, the airline increased its total revenues by 10% to .98 billion and bounced back with 7 million US dollars in net earnings in 2007.

The next three years will end with even higher profits. Firstly, the airline saw a revenue surge to 1.2 billion US dollars and quadrupled its net profits to 28.5 million US dollars in 2008, when most airlines were reporting significant losses. Then, just one year later, although total revenues dropped 2% down to 1.1 billion US dollars, Hawaiian Airlines did it again by quadrupling its profits to 116.7 million US dollars in 2009.

The Honolulu-based carrier reported another 10.8% increase in total revenues and closed the financial year with slightly lower net earnings of 114.3 million US dollars.

By contrast, although Hawaiian Airlines reported a significant 25% more revenues, which reach 1.65 billion US dollars, the airline experienced what can be dubbed a touchdown with a deep dive in net profits to 7.9 million US dollars. Since then, however, the Aloha-driven airline began an upward climb in terms of profitability. For instance, in 2012, Hawaiian Airlines earned more revenue to reach 1.96 billion US dollars and reported a seven-fold profit compared to the previous year. From then until the end of 2015, yearly total revenues have surpassed beyond the two billion mark to reach 2.31 billion US dollars. Meanwhile, net profits have skyrocketed to reach 182.6 million US dollar that same year.

Review of Profit Margins

Operating Margins

From a slight break-even point in 2006 and 2007, the subsequent financial years were much more profitable from an operational standpoint. Operating margins have risen quickly from the previous two years to reach 9.08% in 2009. Then followed a slight drop to 7.28% in 2010 with a significant dive to 1.5% just a year later. However, Hawaiian Airlines made a rebound starting 2011 with 6.59% and progressively reached a coveted 18.39% at the end of 2015.

During the 10-year period ending 2015, Hawaiian Airlines has consistently outperformed the airline industry except on three occasions namely 2006, 2007 and 2011.

Net Margins

As mentioned earlier, Hawaiian Airlines reported a loss in 2006 with a negative 4.57% net margin. From the following year until 2015, Hawaiian Airlines’ net margins appear to be almost cyclical. Starting at a near break-even point in 2007 then climbed quickly to 9.86% in 2009. From that high point, if first dropped slightly to 8.72% a year later, then dived abruptly to 0.48% in 2010.

For the following three years, Hawaiian Airlines’ net margin remained almost constantly just above 2%, reach 2.98% in 2014. The following year however, was a different story, Hawaiian Airlines was able to achieve 7.88%. Similar to operating margins, Hawaiian Airlines has also outperformed the airline industry, except on three occasions 2006, 2007 and 2011. It must be highlighted however, that from 2012 to 2014, the gap has narrowed significantly due to the fact that the airline’s net margins have shrunk well below 3%. It is only in 2015 that Hawaiian Airlines has again widen that gap by 3.2%.

Summary

Based on the results of the first three quarters, Hawaiian Airlines is well on its way to report another profitability record for the financial year ending December 31, 2016, and probably with higher profit margins compared to 2015. With that said, these are two things worth highlighting.

Firstly, the airline’s total revenues have increased considerably. Compared to 2006, the revenues have doubled in 2011, then almost tripled since 2014.

Secondly and by contrast, when considering cumulative revenues and earnings, the first half of the decade has proved to be more profitable than the second half, even though cumulative revenues have almost doubled after 2011.

The key takeaway from this review is that although Hawaiian Airlines’ total revenues have increased significantly over the decade ending 2015, operating costs are also rising rapidly. Furthermore, the average net profits represent only 50% of the average operating results. This suggests that financial costs are eating a good chunk of the earnings before interest and taxes (EBIT).

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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is a speaker, an airline business thought-leader, and author an innovative book series intended for the 21st century airline, namely Airlines for Business and Airlines for Technology.