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Hawaiian Holdings Gains on Expansion Amid High Fuel Costs

Zacks Equity Research
Updated

Despite high fuel costs and labor expenses, shares of Hawaiian Holdings, Inc. HA have fared well in a year’s time. The stock has gained 5.4%, against the industry’s decline of 2.3%.

The carrier’s decision to expand operations is impressive. Recently, Hawaiian Airlines, the wholly-owned subsidiary of Hawaiian Holdings, launched non-stop flights connecting Honolulu's Daniel K. Inouye International (HNL) airport to the Boston Logan International (BOS). The flights, operational since Apr 4, will operate five days a week. The newly-initiated service to Boston highlights the carrier’s focus on strengthening its global network. Notably, this non-stop service combines well-acclaimed Hawaiian hospitality and complimentary island-inspired cuisine with Boston’s renowned educational and medical facilities.

Moreover, the carrier’s initiatives to modernize its fleet are positives. To this end, it is remodeling the A330 fleet by adding lie flat premium seats. Moreover, the exit of Island Air has strengthened Hawaiian Holdings’ foothold on the island. Efforts to expand scope of operations are also encouraging. Also, Hawaiian Airlines and Japan Airlines have upgraded frequent flyer program partnership, in which JAL Mileage Bank (“JMB”) members will earn and redeem JMB miles on all international and domestic flights in the company’s network. Hawaiian Miles members will earn and redeem miles on all international and domestic flights in JAL’s reciprocally. The enhanced program is intended to offer more value to travelers, which will strengthen their partnership.

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Further, we are impressed with Hawaiian Holdings’ efforts to reward shareholders in the form of dividends and buybacks. In the second quarter of 2018, the company rewarded shareholders to the tune of $8.6 million through dividends ($6.1 million) and buybacks ($2.5 million). Earlier, the company announced a new share repurchase program worth $100 million through Dec 31, 2019. Such shareholder-friendly moves bode well for the stock. Additionally, the carrier has an impressive surprise history. It beat earnings estimates in each of the trailing four quarters, the average being 12.8%. Also, the company also has an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores.

In spite of these tailwinds, the company has its own share of challenges. High fuel costs are a major headwind, which has been hurting the company's bottom line in the past few quarters and is expected to persist throughout the rest of 2018.

Fuel cost per gallon (economic) is anticipated in the band of $2.05-$2.15 for 2018. Moreover, Hawaiian Holdings’ August traffic report was disappointing. Load factor declined in the month as traffic growth was outpaced by capacity expansion. Also, the decline in August passenger count was caused by adverse impacts of Hurricane Lane. The storm disrupted operations and induced soft bookings due to passengers cancelling flights. Consequently, the carrier trimmed guidance for third-quarter operating revenue per available seat mile (RASM), which is currently projected between -2% to 0% (year-over-year change) compared with the previous guidance of -1.5% to 1.5% (year-over-year change).

Considering these headwinds, we advise investors to wait for a better entry point before investing in the shares of Hawaiian Holdings. The company’s Zacks Rank #3 (Hold) seems to suggest the same.

Stocks to Consider

A few better-ranked stocks in the broader Transportation Sector are Matson, Inc MATX, Trinity Industries, Inc TRN and Old Dominion Freight Line, Inc ODFL. While Trinity and Old Dominion carry a Zacks Rank #2 (Buy), Matson sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Matson, Trinity and Old Dominion have gained 41.3%, 15.7% and 13.9% in the past six months, respectively.

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