A strengthening U.S. dollar may make imported goods cheaper for American consumers, but the stronger currency didn’t do Hawaiian Airlines any favors in the third quarter.
The state’s largest carrier said its earnings fell nearly 11 percent during the July-to-September period primarily because of foreign exchange conversions that cut into revenue.
Without that reduction, Hawaiian President and CEO Mark Dunkerley said the earnings per share for parent company Hawaiian Holdings Inc. would have represented the best quarter in the company’s history.
"As is customary, we price tickets overseas in the local currency," Dunkerley said in a telephone interview Tuesday after earnings were released. "Those tickets — our revenue — get converted into U.S. dollars at the prevalent exchange rate. When the U.S. dollar strengthens, as it has done dramatically against the yen and the Australian dollar, that has the effect of reducing the value of every ticket that we sold in Japan and Australia."
Hawaiian ended the quarter with net income of $40.6 million, or 76 cents a share. That was down 10.7 percent from $45.5 million, or 86 cents a share, a year earlier. Hawaiian’s adjusted net income, which excludes fuel hedging, was $36.8 million, or 69 cents a share. Hedging is a strategy that allows Hawaiian to buy fuel at a set price to lock in the cost and guard against possible future price spikes.
"The currency exchange is the largest part of it, and that really explains all of the difference between the results we announced today and last year," Dunkerley said. "Had we not have had the effect of currency on our financial results, our financial results would have been this company’s best ever."
The currency conversion decreased revenue by $13 million, including the hedges, Hawaiian said.
Dunkerley said the fluctuating currency represents a head wind that the airline will have to address, especially since international service comprises 30 percent of the company’s revenue.
"A lot of it is to continue to improve our knowledge of the new international routes," he said. "We’ll continue to promote Hawaii as a destination in our new international locations to help build traffic."
Despite the lower earnings, Hawaiian’s revenue rose 9.1 percent last quarter to $599.3 million from $549.3 million.
Hawaiian’s shares edged up 1 cent to $8.18 Tuesday on the Nasdaq. The earnings were announced after the market closed.
"In general, the business performed pretty well during the quarter," Dunkerley said. "We are encouraged in what is happening with the West Coast-to-Hawaii market as some of the speculative capacity added last year began to recede."
The available number of seats, or capacity, on all airlines’ West Coast-to-Hawaii flights was down 1 percent in the third quarter from the year-earlier period, Dunkerley said. That’s a significant improvement from the double-digit-percentage increase seen in the third quarter of 2012 compared with the third quarter of 2011. When there is greater capacity, airlines often have to reduce fares to fill the available seats.
Dunkerley said Hawaiian is doing "a good job" in its interisland operations after being "rocked" in 2012. And he said the company is in even better shape internationally this year as the new routes in its network mature.
"I thought the quarter was good," said analyst Bob McAdoo of Los Angeles-based investment bank Imperial Capital. "Part of the reason was that Alaska Airlines scaled back in some of the markets (in which it competes with Hawaiian). The overall competitive landscape has kind of stabilized."
Dunkerley expressed disgust, though, that the startup of the company’s new interisland turboprop operation, ‘Ohana by Hawaiian, has been delayed indefinitely. The service initially was to begin this summer to Lanai and Molokai with 48-seat ATR 42 aircraft. Hawaiian now has three ATR 42s sitting unused at the airport. The turboprop operation, which will be operated by Idaho-based contractor Empire Airlines, will allow Hawaiian to serve the state’s smaller airports.
"I think the situation is deplorable," Dunkerley said. "It really has little to do with the federal government shutdown and has to do with sequestration and the FAA (Federal Aviation Administration) telling us they don’t have the resources to get through the important certification work that needs to take place for us to launch ‘Ohana by Hawaiian. We’ve invested a lot of money to get ready for this, and this situation is to my knowledge without precedence. We’ve been supported by Sen. (Brian) Schatz and Rep. (Colleen) Hanabusa, and I’m afraid at the moment we have nothing positive to report."
