Published in July 2015 issue

One of the most successful and unusual US mainline carriers soars to new heights as it reaches its 85th anniversary with excellent numbers.

By Andreas Spaeth

Resplendent in shining red, the world’s last airworthy Bellanca CH-300 Pacemaker taxies out onto the busy ramp of Honolulu International Airport (HNL). In the pilot’s seat is Mark Dunkerly, president and CEO of Hawaiian Airlines (HA), one of the most successful and unusual of US mainline carriers. The airline has grown tremendously since the six-seat, 1920s-era Bellanca was young—and it is soaring still.

The eye-catching, utility plane, registered NC251M, embodies the rich history of aviation in Hawaii like no other aircraft. But it is not the airplane that started it all on November 11, 1929, when the then Inter Island Airways—it would be renamed Hawaiian Airlines in 1941—started the first scheduled interisland air service between Honolulu and Hilo. That honor falls to a Sikorsky S-38 amphibian propeller aircraft, of which the startup had two. The flight took an hour and 40 minutes. Today, on one of Hawaiian’s Boeing 717s, the ride is a mere 36 minutes.

But also during 1929, Inter Island Airways apparently acquired a Bellanca for sightseeing flights over Oahu, before selling it in 1933. In early 2009, prior to Hawaiian’s 80th anniversary, the airline bought it back from an enthusiast in Oregon and had it totally restored by the Port Townsend Aero Museum in Washington State, before unveiling it in Honolulu to mark its jubilee.

Dunkerley, a licensed commercial pilot, who describes his perfect day as starting with “an aerobatic flight at dawn,” now flies this very special company asset roughly every other weekend, mostly inviting an airline employee or two to go up with him as a special reward. A treat, indeed—both to fly on this aircraft, as Airways was invited to experience, taking off between 747 freighters, Air Force aircraft and vintage DC-3s from Honolulu, and to admire the stunning island of Oahu and its pristine beaches, remote mountains and pineapple plantations from above. Not to forget the metropolis of Honolulu and nearby Pearl Harbor.

HAWAIIAN’S 85 YEARS OF IMPROVEMENT

Soaring above Oahu in this vintage aircraft is also a good opportunity to look back at the remarkable milestones Hawaiian Airlines has achieved since its founding: Introducing airmail and cargo service to the islands, in 1934; becoming America’s first certified air cargo carrier, in 1942. It was the first airline in Hawaii to fly pressurized aircraft (1952), the first carrier operating jet aircraft on inter-island routes (1966), the first airline in the US with an all-female operating crew (1979) and the first Hawaii-based airline to offer scheduled service to the US mainland (1985). As old as it is, the airline has never had a fatal accident.

On November 11, 2014, Hawaiian Airlines celebrated its 85th anniversary. The eighth-largest commercial US airline has done a remarkable job in turning itself around in the last decade, with Dunkerley at the helm. In March 2003, after a decade of losses, it filed for Chapter 11 bankruptcy protection, from which it emerged two years later. The airline never looked back.

“We have been profitable every single year since 2007,” says Mark Dunkerley, a 51-year-old Englishman, said in an interview with Airways at Hawaiian’s headquarters near the airport. “Hawaiian has enjoyed a terrific decade, been punctuated by some tremendous growth in the last three to four years.”

A significant amount of that growth has come from a spurt of new international routes. “In the last few years we have taken our international network from largely non-existent to almost 32% of our revenues now,” Dunkerley said. “It was just 6% only in 2010.”

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A STRONG INTERNATIONAL NETWORK

Hawaiian Airlines now offers non-stop scheduled service from Honolulu to 11 destinations throughout the South Pacific and AsiPago Pago (PPG) in American Samoa, Papeete (PPT) in Tahiti, Seoul (ICN), Auckland (AKL), Beijing (PEK), Sydney (SYD), Brisbane (BNE), and four cities in Japan.

“We had a dramatic growth of our international business by focusing on Hawaii,” Dunkerley said. “By understanding the customer base who wants to come here, we have been able to optimize our product for this specific market place as most of the world’s largest network carriers have been unable to do.”

Thanks to its international expansion, Hawaiian set a passenger record in its anniversary year 2014, when it flew a total of 10.19 million passengers. To reach the first 10-million-passenger milestone in its history took the carrier from 1929 to 1967.

Hawaiian Airlines is unusual as a business model for a major airline, as its business is almost entirely tied to tourism. “On the mainline we carry about 90% tourists, in inter-island traffic it’s a third,” Dunkerley said.

So it’s no surprise that when tourism to the Hawaiian islands soars, the island’s carrier goes along. Last year, accordingly, was a record year for Hawaiian tourism overall, with nearly 8.2 million visitors arriving on the archipelago—almost entirely by air—about 2% over the previous record year of 2013. Hawaii’s biggest market is the American West with 3.2 million visitors, followed by the US East (1.7m), Japan (1.5m) and Canada (523,500). Hawaiian Airlines customers’ originating points exactly reflect this ranking.

“Over 8 million visitors for a community of little over 1 million is an enormous dimension,” Dunkerley noted. Even so, there used to be even busier times for markets like Japan, which peaked in 1992. “In 1995 there were 25% more seats flying from Honolulu to Japan than there were from London to New York,” the CEO recalled. “Today there are about 18 wide-bodies daily from Honolulu to Japan, still a very considerable market size.”

Adapting specifically to the needs of tourist travelers seems a recipe for success at Hawaiian Airlines. “Vacationers have as clear a set of needs as does the business traveller, just different,” Dunkerley said. “Other network carriers focus increasingly on business travellers. Their focus on leisure customers has diminished, which created an opening for carriers like Hawaiian.”

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A FULL SERVICE LEGACY CARRIER

Hawaiian Airlines prides itself in not being a low-cost carrier. “We are a full service airline even in economy class, where you get a free glass of wine on a US domestic flight. That’s something only we do,” Dunkerley stressed.

Of course, for Hawaiian a domestic flight can be quite a long haul, with New York-JFK to Honolulu taking around 10 hours. Such flight lengths are becoming more common with the addition of more Asian destinations. So Hawaiian has to reconsider its inflight product, which so far doesn’t offer anything nearly like lie-flat seats in business class. But even the Asian carriers fly only their regional, non-bed products to Honolulu, with Air New Zealand being the only carrier offering flat beds on most flights. “We are looking at our own product currently. We will always have a competitive offering, and when the market evolves, we will, too,” Dunkerley said.

“People pay with their own money when they fly us,” added Chief Operating Officer Peter Ingram, “not with a corporate account. That’s why we need to balance our product.” Even Japanese tourists, when booking package holidays at Waikiki Beach or in Maui, “are keenly aware on which airline they fly,” Dunkerley said.

Then again, Hawaiian’s service has to be seen in the context of its competitors.

“In Asia, Japan Airlines (JL), Korean Air (KE) and the Qantas Group are the biggest competitors,” Dunkerley said. “We are market leader to Hawaii from the US West with a share of 25%. Second largest is United (UA), followed by Delta (DL), Alaska (AS) and American Airlines (AA).”

In California alone, Hawaiian serves six cities, with three flights daily to Los Angeles (LAX) from HNL. Las Vegas (LAS) has between two and three flights a day. Phoenix (PHX), Portland (PDX) and Seattle (SEA) are the other destinations in the West. New York-JFK, served five to seven times weekly, is the only port of call east of these cities.

“We are still growing very quickly in the mid-single digits, which would still be high rates of growth to most established carriers,” Dunkerley said. “But it’s much less than the 25% of annual growth we had the last couple of years. It will be much slower growth for the next three years, before it accelerates again towards the back half of this decade.”

In theory, he said, even non-stop service to Europe could be within range: “Linking Hawaii to London-Heathrow or Paris- Charles de Gaulle would take around 14 hours from Honolulu. Modern aircraft are capable of flying such a distance. The question is: Is there a viable market? I think over time there will be one for a specialized airline like Hawaiian.”


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NEW HORIZONS WITH NEW AIRLINERS

Before that happens, a priority is to develop the Chinese market. Hawaiian started three weekly flights to Beijing in April 2014. “In total there are nine flights a week now to China versus 18 a day to Japan, while the income of our target groups is the same,” Dunkerley said. “In China, there are issues getting a US visa and Hawaii has to raise awareness and make known what is special about it.”

Further expansion is also on the CEO’s mind. “We want to raise all of our international services to daily frequencies and go deeper into Southeast Asia, like to Vietnam and Thailand, when we get the right new airplanes,” Dunkerley said.

Hawaiian Air was one of the few customers for the Airbus A350-800. The airline ordered six back in February 2008, but switched its order last summer to six A330-800 after Airbus said the A350-800 “was going to be late,” Dunkerley said.

“We can continue our fleet growth with the A330-800, which delivers the lion’s share of benefits the A350-800 would have delivered,” Dunkerley said. “But it doesn’t deliver the fuel savings and range we were looking for. Instead we get more commonality [standardization of the fleet] and the commercial terms will be different.” This probably means the new aircraft, with deliveries starting in 2019, will be cheaper. “It remains to be seen if we cannot serve destinations we were planning to with the new arrangement, which is very dependent on weight,” Dunkerley said. The airline, he added, is working with Airbus “right now to see what the technical specs are.” At present, Hawaiian operates 19 Airbus A330- 200s, with three more arriving this year.

In the meantime, Hawaiian Airlines has placed an order for 16 Airbus A321neo narrow-bodies, which will start being delivered in 2017. “They will have a range covering the US West and will allow us to do three things,” the CEO explained. “First, grow our presence in these markets by linking the neighbor islands direct to the West Coast. Second, replace some Boeing 767-300s, of which we currently have 11 and will get down to six by 2017. We will keep three, whose leases terminate only in 2021. And thirdly, increasing capacity on some existing routes.”

While the A330s today have 294 seats, the A321s will allow the airline to replace one wide-body flight with two narrow-body ones. “That allows us a more incremental approach to growing the market, and save wide-bodies for more long-haul flight offerings,” Dunkerley said. These days it has become the norm to fly overwater with twin-engine aircraft. “ETOPS 180 (Extended Operations) was originally designed to reach Hawaii from the US West Coast by Boeing 767. There are no alternates in between. The requirement for extra fuel out of Hawaii is much heavier, therefore, than when flying across the Atlantic,” explained Dunkerley, all the pilot himself. “These aircraft are remarkably reliable, although diversions happen periodically.”

INTER-ISLAND DOMINANCE

While 45% of Hawaiian’s revenue comes from North America and 30% from international traffic, a full quarter of its business is inter-island traffic. About half of all Hawaiian’s passengers fly on inter-island services.

“We have 85% market share after Aloha Airlines went out of business in 2008, and the market is much bigger than people normally appreciate,”

Dunkerley said. “There are more people flying between Honolulu and Kahului per annum than between New York- La Guardia (LGA) and Washington-Reagan (DCA).”

Between the island’s biggest airport in Honolulu and Maui’s airport Kahului, there are about 30 round trips offered daily. “Our neighbor island business is fascinating,” Dunkerley observed. “We tend to see the world split between leisure and business travelers, but that’s a poor description for flying between the islands. We carry everyday life—doctors, patients, high school athletes. It is a very unique blend of customers, like dock workers going to an island where a ship is docking one day, and then getting somewhere else for the next day.”

Inter-island services, in which the shortest run is Honolulu to Kahului, with a distance of just 85 miles (155km) or about 20 minutes flight time, are served by Hawaiian’s fleet of 18 Boeing 717s. In total, they perform around 160 flights a day. “These are the best aircraft for our mission,” Dunkerley said. “The airframe is the old DC-9 airframe, which was operated by Hawaiian since 1966, so nobody knows more about it than we do today.” With an average age of a little over 13 years “they are relatively young and approaching mid-life,” he said, rejecting any notion they should be replaced.

“Today’s breed of smaller regional aircraft seem to be optimized for cruise. We need aircraft optimized for cycles, as the distances are so short. There is no airframe being built today which is as good for what we do as the 717. So we have no agenda today to replace it. Probably we will look to the marketplace only at the back half of this decade.”

Since March 2014, Hawaiian operates a new inter-island partner operation called “’Ohana by Hawaiian,” currently flying with three ATR42- 500 turboprops acquired in 2012 from Czech Airlines (OK), and operated under contract by Empire Airlines (EM) from Idaho.

“Serving inter-island destinations only by Boeing 717s left a gap in our network,” ’Ohana’s Managing Director Hadden Watt told Airways. “The introduction of turboprops means we can now serve all of Hawaii.” Currently ’Ohana, which means “Family,” connects the previously unserved smaller islands of Moloka’i and Lana’i to the bigger islands.

“We couldn’t have viably operated the 717s here, as there are both weight and demand issues,” explains Watt. “’Ohana is very much part of Hawaiian and interconnects seamlessly from a passenger perspective.” As the operation currently flourishes with about 20 flights a day, “adding one or two more aircraft would be possible,” the MD said. ‘Ohana delights aircraft enthusiasts with an elaborate livery designed by local artists, who take the inter-island route map and local patterns as inspirations.

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A BRIGHT FUTURE AHEAD

With record profits in its 85th year of operations, record numbers of passengers carried, and other achievements, Hawaiian Airlines seems to be a force to be reckoned with. With an average on-time performance of 91.9%, it achieved the status of most punctual US carrier for the 11th year in a row in 2014. Even in December, it ranked second for the fewest flights cancelled. Hawaiian also regularly leads the US industry in the fewest bumped passengers who are denied boarding. Not a single customer of almost 2.5 million suffered this fate in the fourth quarter 2014.

“Last year was a good year,” said Dunkerley, who seems very keen on enjoying the good Hawaiian lifestyle, including his favorite hobbies of surfing and flying, while piloting the company to even greater heights. “If the world stays the same, 2015 will be even better.”

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