Hawaiian Airlines' March Traffic Drops 41% on Coronavirus Woes

Hawaiian Holdings HA subsidiary Hawaiian Airlines’ traffic (measured in revenue passenger miles or RPMs) plunged 40.9% to 851.02 million in March with acceleration in government travel restrictions due to the coronavirus pandemic.

The demand scenario, which started softening in late January, began to worsen in mid-March. The company does not expect demand to return to pre-crisis levels any time soon, given how badly the coronavirus is affecting the global economy. With tumbling demand, the carrier reduced its systemwide capacity by 95% for April. Other U.S. airlines like United Airlines UAL, Delta Air Lines DAL and American Airlines AAL also slashed capacity dramatically due to the drastic drop in demand.

Coming back to the traffic results, available seat miles (ASMs or capacity) declined 11.9% to 1.47 billion in March. With traffic declining more than the contraction in capacity, load factor (percentage of seats filled by passengers) decreased 28.4 basis points (bps) to 58%.

In the first three months of 2020, the carrier recorded 10% fall in RPMs while ASMs inched up 2.6%. As a result, load factor was down 10.5 bps to 74.6%. Passenger count fell 16.3% on a year-to-date basis while it plunged 45.4% in March.

Coronavirus Weighs on Price Performance

Shares of Hawaiian Holdings have nosedived 57.6% since the beginning of February due to the coronavirus-led dwindling demand for air travel.

Price Performance Since February

To mitigate the adversities, the airline estimates an approximate $380-million reduction in costs for the next six months. This includes cost savings from the schedule cuts. However, with the carrier’s fixed costs being quite huge, the average cash outflow is still estimated to be $4.5 million per day. In fact, Hawaiian Airlines anticipates using up $120-140 million of its cash reserves (excluding refunds) in April itself.

The company, which applied for its share of the coronavirus relief grant on Apr 3, stated that cost-cutting measures and efforts to raise finance including the support from the CARES Act (Coronavirus Aid, Relief and Economic Security Act of 2020) will not be enough to tide over the challenges posed by the coronavirus pandemic and that the situation can only improve with recovery in travel demand. In this regard, “near-term initiatives to preserve cash, like the voluntary furlough programs offered to all employees, remain critical.” Around 41% of the company’s total workforce including contract and non-contract employees had applied for voluntary leaves as of Apr 1.

Labor Contract Ratification

Earlier in the month, Hawaiian Airlines’ flight attendants represented by the Association of Flight Attendants-CWA (AFA) ratified a collective bargaining agreement. The deal includes a ratification payment to be cleared over the course of a year, increased medical cost sharing, better pays and a one-time medical savings contribution to eligible flight attendants upon retirement. The contract will become amenable on Apr 3, 2025. The company is likely to record a charge of approximately $24 million in the first quarter of 2020 due to ratification-related bonus and other benefits.

Zacks Rank

Hawaiian Holdings carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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