72 Hours With Hawaiian: Across the Aisle From President and CEO Mark Dunkerley

My day started with an interview with President and CEO Mark Dunkerley. But when Mark walked in the door, something didn’t seem quite right. He was red, swollen, and clearly not feeling all that well. He ever-so-calmly explained in his subtle English accent that he had been stung by a jellyfish while surfing that morning. Here’s a dramatic recreation of the situation.

Mark seemed willing to go ahead with the interview, so we sat down to talk shop. Naturally, the conversation started with me telling him about my ride on the Bellanca the previous day. And that led into our discussion about culture.

[Disclosure: Hawaiian provided my flights and hotel]

Cranky: Obviously heritage, culture, and history is something you’ve put a lot of emphasis on, and the Bellanca, you’ve maintained that and made it available for employees. Could talk about how and why it’s so important?

Mark: Well, Hawaiian is 85 years old this year. It’s hard if you’re not from Hawai’i to understand exactly the contribution the airline makes to this community. It is almost the only way of getting between the islands of the state, truly the fabric that holds the community together economically and socially. The 85 year history of our business is one that’s had many sorts of ups and downs. And because employees tend to stay with the business over much of their careers, we have very low turnover. The history is really the fabric that binds the employees together and gives them a sense of belonging to something more than just a corporation.

Cranky: How do you view it in terms of the brand? You’re not just going interisland but you’re going to the west coast which you have for years and to Asia. How important is that as a part of what you’re doing as you expand?

Mark: I think it’s terribly important for a business to stand for something. As we expand and grow into areas that are not part of our traditional core, I think it’s important that our employees feel that they are exporting Hawai’i. What we do is sell Hawai’i as a destination, and having that sense of place in everything we do is terribly important. That is born itself out of the history of the business. We are as an airline, older than the state. This community is a relatively young, new community. There are very few things that go back as far as the airline. We’re really synonymous with Hawai’i, certainly modern day but also the history.

Cranky: Can you quantify the value of that? Or is it just an innate part of the DNA of the airline?

Mark: I think it’s an innate part of the airline; certainly not something we’ve created. It’s something we’ve fostered and nurtured, but it certainly existed when I got here.

Cranky: When you first got here, it was a very different airline. Pre-bankruptcy, a heavy focus on the west coast and interisland, and a strong-ish interisland competitor in Aloha. When you came in, how did you view the challenge?

Mark: When I came in it was pretty apparent this was a business that had all of the good foundations of a business. I thought the fleet was basically right. I thought the employees were terrific. I always felt there was a business specializing in bringing people to Hawai’i. So I think all of the elements were there for success. Really all we’ve done in the last decade or thereabouts is get the various aspects of the business working well together. And having achieved that it really has allowed us to grow out of our traditional network and expand more broadly.

Cranky: And now, you have an airline that’s in much better shape financially, operationally, as well. So for you what are the challenges going forward that keep you interested?

Mark: Well the airline business is a challenging business so there are no shortage of challenges. As much a Hawaiian has accomplished, we can always get better. As Hawaiian grows and expands I think there are many opportunities that remain for Hawaiian Airlines not only to grow but also to prosper and do well.

Cranky: So for example?

Mark: I think our growth to international destinations has not fully run its course, so I think there’s plenty more to be had there. We’ve got starting 2017 the A321neos arriving. That’s an airplane that’s going to open up new markets for us, markets we haven’t traditionally served with our widebody airplanes. These are just some of the clear network opportunities we have. Away from the network, we are participating in the modernization of Honolulu International Airport, we are building a hub in Maui, which is a great opportunity. So in all kinds of different ways there are opportunities.

Cranky: The 321neos will be used to go to small cities on the mainland, so you have people moving away from connecting over Honolulu. Are connections still going to be a big part of the business?

Mark: Essentially when you’re looking at the US mainland to Hawai’i, almost all the islands are served directly. Internationally, that’s not the case. All of the international flights come into Honolulu. We see the main growth in Hawai’i tourism coming from international travel. So at the time when the number of domestic connections is naturally going down, the number of international connections is naturally going up.

Cranky: You were recently attempting to get the Haneda slots for Kona. Obviously those went to another airline. Do you see a future for international service in Kona?

Mark: I think the opportunity for the Japanese market to Kona is relatively unique and I think Haneda to Kona is relatively unique. I don’t think it’s a broad opportunity.

And with that Mark promptly excused himself. He was sweating and couldn’t focus. Though he was supposed to be on a flight to Japan that morning, instead, he instead rushed off to the hospital. Fortunately, it was an allergic reaction with a quick fix, and he was even on his way to Japan later that day. But it meant my interview was cut very short. After I had returned home, Mark volunteered to get back on the phone with me to finish up what we started. He was unnecessarily apologetic for having to run the previous week, and we picked things right up where we left off.

Cranky: When we left off, we were talking about the international opportunity. What is the future growth opportunity for international from Honolulu?

Mark: We think the future of international growth to Honolulu is very bright indeed. If you just take a step away from the day to day of our business and you look at demographics, macro environment, it’s not difficult to see there’s a region of the world that’s growing very, very quickly [Asia]. If you look to see where they’re quite likely to travel, what would appeal to them, and things like relatively proximity, that bodes well for Hawai’i in general. It’s a development we’ve seen before with the Japanese in the ’80s and early ’90s. So for all of those reasons, we think that international travel to Hawai’i is really where the growth is over the short, medium, and long term.

Cranky: In your international expansion we’ve seen hits and misses. Manila didn’t work, Taipei didn’t work, I think one or two others. There’s been some criticism about that saying that your view of all this opportunity might not be all its cracked up to be. How do you respond?

Mark: We’ve enjoyed many more successes than we’ve had failures, and the successes have been really big successes for us. When you look at the three particular routes, Manila, most of the people sitting on the airplane unusually are actually residents in Hawai’i and not visitors. Taipei was a route that we launched chiefly on the back of the expectation we had that like every other country that had joined the US visa waiver program there would be very substantial stimulation of traffic. That did not pan out. I believe it’s the first country where joining the program did not lead to a substantial increase in the amount of traffic. That was a disappointment. I think from a managerial perspective, we’re very pleased with the fact that we took a look at the situation and we made a very decisive decision.

Cranky: Talking about Taipei in particular, do you have a sense of why it didn’t work or was it a quirk?

Mark: All countries and all cultures are different. On the other hand, we have to acknowledge that each country is different, and just because the playbook has been consistent in other countries does not mean it will be in Taiwan. One of the things we’ve discovered is that the level of awareness of the people of Taiwan about Hawai’i as a destination was not as well developed as it was in other countries in the region. That is admittedly something that in hindsight we could have been more sensitive to before we started. I think that was the most significant factor.

Cranky: I assume when you’re looking at places like Mainland China, they don’t have a high level of recognition but the reception has been different?

Mark: The difference between mainland China and Taiwan is essentially one of scale. A country like Taiwan, you need a pretty good share of the outbound traveler to leisure destinations to fill an airplane. The sheer scale of China means that you don’t need near the same share of outbound traffic in order to prosper. The issues in China are in some respects similar to Taiwan. We do have a real visa impediment in which we force Chinese visitors to go through significant and expensive hoops before they can visit the US on vacation. And at the same time it is a new market, and the knowledge of Hawai’i is not particularly developed. We have a lot of work to do and we know that. We’re starting with a low level of frequency and we’re in it for the long haul.

Cranky: Looking at Japan, I assume that’s a developed market. China obviously is on your radar for future growth, but where else to do you see opportunity?

Mark: A couple points. Yes, Japan is quite different in the sense that it’s a very developed market. The logic of our service in Japan is we have the most competitive product in the marketplace in terms of our service, which is extremely highly rated by the Japanese because we take great pains to cater our service to our Japanese guests. And in comparison to the Japanese carriers, we are relatively low cost. That puts us in a strong competitive position. In the other countries in the region, the outbound traffic to leisure destinations is growing. And the logic of our participation in those markets is to get our share of a pie that’s growing very quickly.

Cranky: Do you see a lot of new destination opportunity or is it just the volumes are increasing in existing markets?

Mark: We see new destinations and more frequency on existing destinations, more capacity. We always get the question, which new destinations. And for competitive reasons, we will stay mum on that.

Cranky: Well I had to ask.

Mark: Absolutely.

Cranky: When the A350 comes in, a little bit bigger than the A330 assuming Airbus makes the -800, what does that do for your network? Obviously a little more capacity and lower costs, but does it open something up for you or is it just an efficiency thing?

Mark: The A350-800 when we ordered it represented I think 3 advantages to us. The first is on existing routes it was more efficient than the fleet we already had. The second is that the aircraft size is a little bit larger, so it’s a particularly efficient way to grow capacity in many markets that don’t have multiple frequencies today. And the third thing is that it has greater range to allow us to reach deeper into Asia. We’re obviously working with Airbus at the moment to understand what’s going to happen with the A350-800 program, and if it’s not going to be produced, what alternatives there might be.

Cranky: Do you have any interest in anything larger or is that the largest you’re interested in at this point?

Mark: I think these are some of the questions we’re looking at at the moment. I would say that the A350-800 is already a pretty large airplane for our markets. These aren’t markets where you can increase the size of the airplane infinitely.

Cranky: When it comes to the product, I assume you’ll review again with the A350, but even with the A330, you came in with a similar product to what the 767s offered at a time maybe when the focus was on mainland US. What are the things you’re looking at as you become more international that need to be addressed?

Mark: We look at our product all the time. If you look over the last several years, there have been some substantial changes. Not the least of which as I mentioned earlier is the tailoring of our product to our international guests. Developing a product and keeping ahead of the competition, is something that doesn’t happen in fits and starts but something we do continually. In terms of the hard product, we are looking at different seats. It’s premature at the moment to be able to suggest which way we are likely to go, but we are very clear that Hawaiian Airlines is in a position today to offer a better value for money product than any of our competitors in any of our markets and that’s a position we intend to keep.

Cranky: In terms of the hard product, you now have Extra Comfort. But in the Business/First class cabin, the trend around the world is for flat beds. I don’t know that many are using that product to Hawai’i today, but are you seeing a demand for that?

Mark: First of all I would say there are relatively few carriers that are flying a lie flat product [to Hawai’i]. The Asian carriers which do have lie flat products actually operate their regional widebodies to Hawai’i rather than the full international configuration airplanes. So we are in a marketplace where lie flat seats are the exception rather than the rule. There’s always a demand for lie flat when somebody else is paying for it. We’re in a business where our customers pay for their own seats and are value conscious. On long haul flights what they want is a level of comfort and an affordable price and they want to be provided excellent service. Exactly what is the right hard product for that is under review at the moment.

Cranky: I want to shift back to the smaller end. The A321neos are coming not all that far away now I suppose. We already talked about them doing mainland to Hawai’i [outer islands]. Is there any other mission they could do?

Mark: It is an airplane that will have the range to get to some of our South Pacific destinations like American Samoa and Tahiti, and that obviously raises the interesting possibility of increased frequencies to those areas.

Cranky: The amount of flying in the Pacific has fallen over the years. Is that an area you’re looking at? Intra-Pacific?

Mark: It certainly will be once we have the right equipment to operate there. We think the A321neo will be that equipment. Today we serve Tahiti and American Samoa as you know. The main reason why the South Pacific has seen a dramatic fall in the amount of seats has been the advent of long range airplanes which obviated the need for the aircraft to stop anywhere between the US and Asia.

Cranky: Sure, but there are still people that travel between the islands, so if there is a smaller gauge…

Mark: I think it’s a interesting opportunity. As you pointed out the A321neo is still some way off yet it’ll be here before we know it. So we are beginning to look at them.

Cranky: Could you talk about the interisland market a little. For most of your history, there’s been some sort of direct competitor, Aloha for most of that time. Today you don’t really have that kind of competitor. Is that something that you expect you’re going to see? What’s your take on the state of the interisland market.

Mark: First thing is that the neighbor island business has attracted competitors forever. And we anticipate that will continue to be the case. So we don’t approach the market with any other expectation than the fact that if we don’t provide competitive service and good quality of service at an affordable rate, then we will see someone leaping in to the marketplace.

It’s a marketplace that’s broadly misunderstood. It’s quite different from any other market in the US that I’m aware of in that it’s larger than most people think. Honolulu to Maui is a bigger city pair than Reagan [Washington/National] to [New York] LaGuardia. We operate 32 roundtrips a day. Secondly while we obviously carry businesses between the islands, the mainstay of our business is local residents who are traveling for everyday life. What I mean by that is when think of travel in the lower 48, we put it into one of two buckets. It’s either business travel or leisure travel. Neither of those labels suit the traffic we carry.

We carry the kind of traffic that elsewhere goes on the road. Some of the largest customers are the high school athletics association. Because when high schools play on another, they have to get on airplanes to play. The medical service providers here are big customers. For many doctor visits, specialists, people get on an airplane. It therefore is a market which tends to be not particularly income sensitive. It’s gonna grow or in our case probably shrink slightly based on the population, so it’s a very different market. Our job is to provide frequent, good, efficient, and low cost air travel.

Cranky: You say it’s likely to shrink. Is that due to more amenities being available on the outer islands or is it a population issue?

Mark: It’s more amenities on the outer islands. When I first moved to the islands I was coming back from Lihue to Honolulu and I sat next to a couple coming to Honolulu to go to Home Depot to look at tile, faucets, what have you because they were renovating a bathroom in their home. About 6 months after that, I happened to see in a newspaper that Home Depot was opening in Kaua’i. So we are unlikely to see them traveling for that reason on our Lihue to Honolulu flights again. As communities develop, naturally you’ll see a slight reduction.

Cranky: What percentage roughly is travel for every day life versus tourism.

Mark: Roughly 50/50

Cranky: Going down to the smallest part of the airline here, ‘Ohana. Starting out modestly with just a handful of routes. Could you talk about the reason for doing that instead of partnering with an existing interisland turboprop carrier?

Mark: The reason for going to these markets is pretty clear. I articulated in the answer to your last question, that we see ourselves as having a responsibility to provide the economic and social infrastructure for the community needs. For the last 10 years there has a been a hole in that because we didn’t have the appropriate aircraft to serve Lana’i and Moloka’i. It’s long been a desire of ours to rectify that. When we got the requisite changes to our collective bargaining agreement that would allow this, we looked around at what would be the most effective way to serve the market and we chose a service provider in Empire Airlines that fit the bill.

Cranky: Is there much opportunity for ‘Ohana to do more than it’s doing today?

Mark: The answer is both yes and no. It is a small niche, but it is not one that we have fully exploited yet. We have indicated that we think something in the 5 to 6 aircraft range is the right size for this operation. In common with he way we approach these things in general, we wanted to start at a scale and make sure that our operations were good (they’re going extremely well) before we grow that part of the business.

Cranky: I assume that means connecting outer island to outer island.

Mark: Indeed this month we’re doing just that. Moloka’i and Lana’i will gain services to Maui. And ‘Ohana by Hawaiian will also be operating from Kahului to Hilo.

Cranky: And that’s the type of growth we can expect at a 5 to 6 aircraft level.

Mark: Yeah, that’s correct.

Cranky: Well thanks for taking the time. It was a great visit. It’s a very unique business and it’s one that certainly warrants a more in-depth discussion for a lot of people who aren’t familiar with it.

Mark: Just as a closing thought, I’m always struck by the lack of awareness about Hawai’i and what goes on here, certainly in the airline space that prevails on the mainland. I’m not just talking about how everyone knows of Hawai’i as a place to come and visit. But having a concept of a state with a population and economic activity and businesses and institutions and cultures. The level of understanding of that on the mainland always struck me as less than it should be.

Cranky: Well good, we’ll keep the education process going here.
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Other posts from my 72 hours with Hawaiian Airlines:
72 Hours with Hawaiian: Flying to Honolulu in Extra Comfort
72 Hours with Hawaiian: A Unique Headquarters Setup, Flying Hawaiian’s Very First Airplane
72 Hours with Hawaiian: Meeting with Execs, Flying ‘Ohana by Hawaiian
72 Hours with Hawaiian Airlines: The Honolulu International Airport Modernization Plan
72 Hours With Hawaiian Airlines: Talking to Flight Ops, the Ride Home in First Class