Shares of Hawaiian Holdings, Inc. HA hit a 52-week low of $29.95 during the trading session on Dec 7 before inching up to close at $30.52.

Reasons for the Fall   

Downbeat Q4 RASM Guidance

The Honolulu, HI-based carrier lowered projection for fourth-quarter 2018 with respect to revenue per ASM (RASM) due to sluggish demand in its Neighbor Island network, especially to Hawai'i Island, as well as weak market pricing on the North America routes. The company anticipates the metric to decline in the range of 3-5% year over year compared with the previous guidance of a down 2.5% to up 0.5%. Despite a lower rate than industry’s capacity growth, traffic growth from North America to Hawai'i is projected to be steady.

Apart from the dismal guidance, the company also reported unimpressive traffic figures for November 2018. Traffic (measured in Revenue Passenger Miles or RPMs) increased 2.8% to 1.37 billion. Available Seat Miles (ASMs) also climbed 5% to 1.62 billion. However, load factor (percentage of seats filled by passengers) contracted 180 basis points (bps) to 84.1% as traffic growth was outpaced by capacity expansion. Also, passenger count dipped 0.8% year over year in the month.

The damage was not limited to Dec 7. In fact, shares of the company have lost 24% in a year’s time compared with the industry’s 18.3% decline.

Let’s delve into the factors causing this downtrend.

Fuel Costs

Despite the current downtrend in oil prices, fuel costs are a major headwind for the company. As was the case in the previous few quarters, fuel costs are expected to mar the bottom line in the fourth quarter. Fuel cost per gallon (economic) is anticipated in the band of $2.20-$2.30 in the final quarter. The metric is projected in the range of $2.05-$2.15 for 2018.

Intensifying Competition

The fact that Southwest Airlines Co. LUV intends to start flights to Hawaii at lower fares will increase competition for Hawaiian Holdings. Although the dates for commencement of flights have not yet been officially announced, Southwest Airlines initially decided on four destinations, namely Honolulu (island of Oahu), Kahului (Maui), Lihue (Kauai) and Kona (Hawaii's “Big Island"). Such efforts might pose a challenge for Hawaiian Holdings, since growth for any airline stock is backed by strong demand for air travel. The carrier’s price performance might be significantly hurt, thanks to decline in the company’s market share.

Zacks Rank & Stocks to Consider

Hawaiian Holdings carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Frontline Ltd. FRO and Air France-KLM SA AFLYY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Frontline and Air France have gained 22.5% and 26.4% in the past six months, respectively.

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