Hawaiian Holdings at 52-Week Low: Does It Still Hold Promise?

Zacks Equity Research

Shares of Hawaiian Holdings HA, the parent company of Hawaiian Airlines, have been in the red territory for a while now. This is evident from the stock’s price trend year to date. Hawaiian Holdings has declined more than 8% against its industry’s 1.5% growth.


This Honolulu County, HI-based carrier also decreased more than 12% in the past month. The stock closed at $24.81 yesterday (Aug 21), after hitting a 52-week low of $22.84 during the course of the trading session.

Notably, Hawaiian Holdings is bearing the brunt of increased competition at its primary market, Hawaii, following Southwest Airlines’ LUV entry.

What's Hurting the Stock?

It is a well-documented fact that Hawaiian Holdings’ growth primarily depends on the demand for air travel to Hawaii. However, Southwest Airlines operations to Hawaii, which started from Mar 17, have intensified competition at Hawaiian Holdings’ primary market.

Recently, Southwest Airlines announced its decision to expand its Hawaiian operations. The company intends to initiate daily nonstop service between Sacramento and Honolulu. It will also introduce flights connecting Oakland and San Jose with Lihue and Kona. While the  Sacramento-Honolulu, Oakland-Kona and San Jose- Lihue flights are set to be launched on Jan 19, 2020, the Oakland-Lihue and San Jose-Kona flights will commence operations on Jan 21, 2020. (Read more: Southwest to Offer Hawaii Additional Flights in 2020)

Furthermore, weakness pertaining to inter-island travel demand is hurting the carrier’s operating revenues per available seat miles (RASM: a key measure of unit revenues). Evidently, RASM declined 3.4% in the first half of 2019. This downtrend is expected to persist as is evident from the company’s bleak projection for the third quarter. This key metric is anticipated to decline between 1.5% and 4.5% in the three-month period (ending Sep 30, 2019).

In the first seven months of 2019, passenger count at Hawaiian Holdings declined 2.1%. The decline in passenger count on a year-to-date basis can be attributed to the increased competition at its primary market.

With fuel costs moderating, the increase in non-fuel unit costs is hurting the bottom line at Hawaiian Holdings. Evidently, non-fuel unit costs increased almost 1% in the first half of 2019. The guidance for third-quarter 2019 non-fuel unit costs is worse. The metric is anticipated to increase between 3.5% and 6.5%.

Downward Estimate Revisions

Due to the above-mentioned headwinds, the Zacks Consensus Estimate for the company’s third-quarter earnings has moved 13.7% south over the past 60 days. Also, the reading for the current year has been revised 1.5% downward over the same time frame.

Is There Any Silver Lining?

We note that despite the headwinds, Hawaiian Holdings does have its share of positives. For instance, the company's efforts to reward its shareholders through dividends and buybacks are encouraging. Last year, the company rewarded its shareholders to the tune of $126.7 million through dividends ($24.2 million) and buybacks ($102.5 million). The company has been rewarding its shareholders in 2019 as well.

Moreover, the carrier's history with respect to punctuality raises optimism. We are also impressed by the carrier’s efforts to modernize its fleet. Hawaiian Holdings’ prudent capacity management also bodes well. In fact, load factor (% of seats filled by passengers) has improved 60 basis points to 86.6% in the first seven months of 2019 as traffic growth outpaced capacity expansion.

In view of the above, we believe that even though the stock is struggling, it should be retained by investors. The Zacks Rank #3 (Hold) carried by the Hawaiian Holdings stock also seems to suggest the same. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Investors interested in the airline space may consider Copa Holdings CPA and Delta Air Lines DAL, sporting a Zacks Rank of 1.

Shares of Copa Holdings and Delta have rallied 28.7% and 1.9%, respectively, in a year’s time.

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