Hirzel Capital Management Further Trims Stake In Hawaiian Holdings Inc. (HA)

Let’s start by going back in time for a while. The stock of the company surged by some 170% in 2014, which has been primarily supported by strong unit revenue performance and falling fuel prices. However, the management announced earlier this year an abrupt setback of its unit revenue momentum, so the stock plummeted at the end of January as the market overreacted to the downgraded revenue outlook. Overcapacity has also been occasionally hurting the unit revenue generated by Hawaiian Airlines, which mainly arises because the company flies most of its long-haul routes with big aircrafts (i.e. a 294-seat A330). Indeed, the existing fleet does not allow the company to fine-tune capacity, but this will change in the upcoming years. Hawaiian Airlines updated its fleet plan and expects to receive 16 A321neos (190-seat aircraft) from Airbus starting from 2017, which will enable the company to reduce capacity when needed. Subsequently, the company will be able to match the demand more precisely, resulting in stronger margins for the company.

On July 28, Hawaiian Holdings has released its financial results for the second quarter of 2015, posting revenues of $571.29 million, up from $540.28 million reported a year ago. At the same time, the company reported adjusted net income, reflecting economic fuel expense and excluding loss on extinguishment of debt, of $37.5 million or $0.61 per diluted share, up $15.1 million or $0.26 year-over-year. Even though a strong U.S. dollar has had an adverse impact on the company’s financial results by reducing the dollar value of the tickets sold abroad, the strong demand across its network and low fuel prices have offset this headwind and other transitory challenges faced by Hawaiian Airlines.

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