MIAMI — Honolulu-based Hawaiian Holdings Inc, the parent company of Hawaiian Airlines, announced a $17.1 million net profit for the fourth quarter of 2013, or 31 cents per diluted share on Tuesday, a marked reversal from a $3.4 million dollar net loss in Q4 2012. For calendar year 2013, Hawaiian reported net profits of $51.9 million, down 2.6% year-over-year (YOY)

Operating revenues grew 9.9% year-over-year (YOY) to $2.16 billion, mirroring a 9.9% increase in passenger revenues to $1.94 billion. Other operating revenues increased 9.1% to $213.0 million, and are set to rise in coming years as the carrier trades in its current credit card partnership with Bank of Hawaii for a more lucrative one with Barclays, which is expected to add an incremental $100 million in cash flow.

On a region by region basis, the North American business (excluding inter-island flights)–which represents 47% of operating revenues–passenger revenues per available seat miles (PRASM) increased 13.5% YOY on a 1.5 percentage point decrease in load factor. This improvement was driven by a moderation of supply (namely Alaska Airlines has ended its massive capacity expansion in Hawaii and legacy carriers have largely plateaued) and the improved revenue environment thanks to the improved economic conditions amongst affluent Americans.

These improvements will likely hold over in 2014 as the US economy continues to improve (thereby driving up Hawaiian demand), while no major players appear set to pour additional capacity into the market. 2015 could be more challenging as that would be the first window in which legacy-network hybrid behemoth Southwest Airlines could conceivably enter the market.

The carrier’s interisland operation, which represents 23% of passenger revenue, saw PRASM grow 12.7% YOY. Structurally, the interisland operation is in excellent shape. Surging demand from foreign tourists to Hawaii has naturally increased interisland demand, while the recent failure of several players in the Hawaiian industry has maintained market capacity discipline.

More importantly, the soon to launch Ohana turboprop operation will allow the carrier to further expand its high-yield short haul business. The Ohana operation, which will operate 48 seat ATR 42 turboprop aircraft primarily to the islands of Lanai and Molokai, has been delayed by the complicated process of FAA approval.

Simultaneously, a previously weak interisland competitor, Island Air, has been reinforced with additional capital after being purchased by Oracle founder Larry Ellison. But with Hawaiian set to launch Ohana, they will once again serve high yield secondary destinations in Hawaii, previously a major hole in their interisland network.

The Pacific business (Asia, Australia, and Tahiti), which comprises 30% of passenger revenues, had a challenging 2013. PRASM declined 10.6% on a 0.2 percentage point increase in load factor. The PRASM decline arose due to the YOY weakness in the value of the yen and Australian dollar (this hurts outbound demand from those nations) and the continuing maturation of the large number of new markets launched by Hawaiian Airlines over the past five years.

The map below these paragraphs displays all of the new (and planned routes) launched and announced by Hawaiian over the past three years and into summer 2014. While Hawaiian is suffering from temporary headwinds, it is important to keep the larger strategic vision in mind. Over the past few years, foreign tourist demand for travel to Hawaii has exploded thanks to growing affluence in Asia.

Meanwhile foreign carriers have largely focused on other more lucrative domestic opportunities (Hawaii is a leisure market) allowing Hawaiian to quickly build up a trans-Pacific network and customer base that will allow it to grow into the future.

Stomaching the temporary losses (which will likely continue into 2014 as Japan continues to pursue the Abenomics economics platform of prime minister Shinzo Abe which calls for increased inflation of the Japanese yen) incurred in building up this network will position Hawaiian for a stronger future.

Adjusting for currency effects, PRASM declined a more respectable 3.3% YOY, and the revenue pressures should continue to moderate into 2014 as routes mature and the airline will not add any new cities except Beijing in April.

PRASM, overall, decreased 3.8% to 11.59 cents on a 14.3% increase in capacity as measured by available seat miles (ASMs), largely due to the aforementioned pressures in the Pacific. Yield correspondingly decreased as well, down 1.9% YOY to 14.22 cents.

On the expenses side, operating expenses increased as well, jumping 10.3% to $2.02 billion. Due to the massive capacity expansion, expenses rose in nearly every line item across the board, but declined on a per ASM basis.

Most notable of these rising expenses were a 10.6% YOY increase in fuel expense, a 16.2% YOY increase in services, and a 13.5% YOY increase in employee wages/benefits. Cost per available seat mile (CASM) decreased 3.4% YOY to 12.05 cents from 2012’s 12.48, and CASM excluding fuel decreased 3.7% YOY to 7.88 cents, reflecting the fleet shift from the aging Boeing 767-300ER to the more efficient A330-200 and continued cost discipline on the part of Hawaiian.

Hawaiian ended the year with $423 million in cash and cash equivalents versus $406 million the year prior. The carrier has not yet released its balance sheet and cash flow data, but this space will be updated with that data as soon as it is made available. For the full year, Hawaiian recorded an operating profit of $133.75 million, good for an operating margin of 6.2%. Return on invested capital (ROIC) was 12.9% pretax (7.7% post-tax) and is especially of note given that chief executive Mark Dunkerley’s compensation is tied to the company’s ROIC performance.

Looking forward into 2014, the company’s finances are likely to face continued pressure due to demand headwinds in Asia (currency devaluations and weakening economies) and added complexity from the Ohana operation along with the new FAR 117 work rules required by the FAA.

The second half of the year should see these pressures subside somewhat, and the carrier could receive a boost if it receives the route authority from the Department of Transportation (DOT) to serve Tokyo Haneda from its tertiary hub in Kona. Still, Hawaiian has made an aggressive bet on evolving its business model to take advantage of Asia, small interisland markets, and in 2016, the potential of secondary West Coast markets that have already been tapped into by fellow niche carrier Alaska Airlines.