Hawaiian Airlines can’t catch a break.
Runway construction at its home base, engine supplier problems and other headaches outside its control continue to hamper the carrier’s return to profitability as it prepares to fly freighter aircraft for Amazon (NASDAQ: AMZN) for the first time.
The challenges contributed to a $98 million loss during the first quarter, with rising revenues not expected to offset costs until next year, according to financial results issued on Tuesday. Hawaiian Airlines (NASDAQ: HA) cargo revenue fell 25% from last year’s quarterly record as yields decreased with the global drop in shipping demand and a U.S. Postal Service contract for dedicated charter flights expired. Cargo revenue, however, was 16% better than in 2019.
Hawaiian lumps cargo together with “other” revenue, which fell to $64 million, making it difficult to ascertain the exact amount of cargo sales. A change to a separate line item in earnings reports could be possible once the airline’s new freight transportation contract with Amazon is fully implemented and cargo becomes more material to the bottom line.
Hawaiian plans to begin revenue service for Amazon in the fourth quarter, CEO Peter Ingram said on an earnings briefing with analysts.
Amazon is leasing 10 used Airbus A330-300 jets and will place them with Hawaiian to fly and maintain under a 10-year contract after they have been converted from passenger configuration to carry large shipping containers. Management has previously said it will receive two of the Amazon-branded freighters this year and ramp up operations as the remainder of the fleet gets delivered during 2024.
Hawaiian Airlines will deliver packages to Amazon’s hub at Cincinnati/North Kentucky International Airport and other destinations in its domestic network.
Within days, Hawaiian will be fully ready to maintain A330 jets with its own personnel after completing the transition from a third-party provider, Ingram reported. Delta TechOps currently handles A330 maintenance under a complete fleet services agreement. The move is not directly related to the Amazon business but is designed to reduce overhead and improve fleet reliability, especially as the A330 fleet grows with the addition of the Amazon cargo jets. Hawaiian operates 24 A330 passenger jets.
Ingram said insourcing maintenance will reduce “steady state expenses, giving our team greater control of our day-to-day operation, and allowing us to scale our costs more effectively as we grow the fleet with the Amazon A330 freighters.”
Hawaiian has also established a pilot base on the continental U.S. and is hiring about 160 pilots for the Amazon Air operation.
Difficult operating conditions
The new Amazon partnership portends a boost to future growth. Until then management must still deal with operational challenges that are reducing operating efficiency and revenue opportunities.
Five Airbus A321s remain grounded, up from two the previous quarter, because supply chain disruptions are preventing engine supplier Pratt & Whitney from securing parts needed for maintenance. The limited availability of the narrowbody jets has forced Hawaiian Airlines to backfill routes with A330s that aren’t flying to Japan because of slow demand recovery there. The A330s are a poor substitute for smaller markets because they are less fuel efficient and too big for demand, and they don’t generate any cargo benefit as they do for destinations like Los Angeles or Seoul, South Korea, said Ingram.
Hawaiian’s fuel consumption in the first quarter increased 21.4% over the prior year, in part due to inefficiencies from flying large aircraft in markets suited for the A321, according to the earnings report.
Hawaiian is also paying pilots trained to fly the A321 who are sitting around because there aren’t enough planes.
Under its contract with Pratt & Whitney, Hawaiian is eligible for penalty payments, but “those penalties fall far short of covering the financial impact of not having the aircraft,” said Ingram.
The CEO said he expects one aircraft to return to service later this week. Another could be ready a week later.
Meanwhile, construction on the main arrivals runway at Daniel K. Inouye International Airport in Honolulu is interfering with Hawaiian’s on-time performance during peak hours. The project, which began in October and has experienced delays, is scheduled to be completed before the end of May.
Air traffic control is managing the situation by holding aircraft on the ground, which has severely impacted Hawaiian’s inter-island flights in Hawaii. Delays then cascade throughout the day. The airline has added more buffer time in its schedule to try to get back on schedule, but with the return in recent weeks of daylight savings time schedules, “we have seen performance deteriorate again,” Ingram said.
A rebound in Japan travel, which accounted for a significant portion of the carrier’s pre-pandemic schedule, has been slow to materialize. The lack of bookings has resulted in underutilized A330 aircraft and pilots. Hawaiian management is compensating for the situation by moving some capacity to U.S. mainland routes that are performing better.
Click here for more FreightWaves and American Shipper articles by Eric Kulisch.
Sign up for the weekly American Shipper Air newsletter here.
RELATED STORIES:
Hawaiian Airlines faces higher costs for training Amazon pilots
The post Hawaiian Airlines to begin Amazon cargo flights in 4th quarter appeared first on FreightWaves.