How Slower Growth, Falling Oil Will Boost This Airline

The prospect of U.S. military action in Syria — which seemed quite likely just a few weeks ago — is now dimming. This has reduced the “risk premium” in oil prices . Moreover, Libya is starting to ramp up production again after strikes crippled production over the summer. Production is expected to rebound to 700,000 barrels per day by the end of this week, up from just 150,000 bpd recently .

If these trends remain intact, oil prices may retreat to the more moderate levels seen this spring. In Q2, Hawaiian Airlines’ economic fuel cost per gallon was $3.07 , whereas in Q4 2012 that cost was $3.27/gallon and in Q1 2013 it was $3.29/gallon . A $0.20/gallon reduction in fuel costs would boost Hawaiian’s quarterly EPS by approximately $0.13, all else equal.

Foolish bottom line

Lower fuel prices alone could give a nice boost to Hawaiian Airlines’ earnings. However, the company is also likely to return to solid unit revenue growth this fall, due primarily to the capacity cuts outlined above.

This combination of lower fuel prices and higher unit revenue is a formula for rapid earnings growth, which could portend significant upside to analyst estimates for Hawaiian’s profitability in Q4 and beyond.  . As a result, there is plenty of opportunity left for investors in Hawaiian Holdings, Inc. (NASDAQ:HA).

The article How Slower Growth, Falling Oil Will Boost This Airline originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Hawaiian Holdings and is long October 2013 $6 calls on Hawaiian Holdings. Adam Levine-Weinberg is short shares of United Continental Holdings.The Motley Fool has no position in any of the stocks mentioned.

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