And now it’s time for the last part of my interview with Hawaiian Airlines CEO Peter Ingram. Today we talk about international flying, primarily Asia. If you missed the earlier posts, click to find the mainland discussion as well as the interisland discussion.
Brett Snyder, Cranky Flier: I always thought when you started that expansion several years ago going to different parts of Asia, I thought of it more as an Asia strategy but then I was looking at the route map and it’s really Japan. Manila is gone. Beijing you decided to pull out. So other than Australia/New Zealand and the Pacific, it’s Japan and Seoul right?
Peter Ingram, CEO, Hawaiian Airlines: Right. And we have Papeete in Tahiti and we have American Samoa that we’ve served for many many years even before the the current international expansion.
Cranky: Right. Well that’s Oceania, South Pacific all that. I’m thinking the Asian continent. I know Beijing previously you had said is a developing market. Sounds like it just wasn’t getting to a point where it worked for you guys on that one, and then Manila I assume was just horribly low fares.
Peter: They’re really two very different sort of markets so I’ll talk about them separately. Beijing, the business case was always that the market needed to continue to develop and grow. We did see immediately after we started, there was stimulation which you expect when you add new nonstop opportunities. And we operated into Beijing for about four years. Then the growth really stagnated. It didn’t continue to accelerate. Certainly in the last couple of years… there was a period of time during the Obama administration where it still was challenging to get a visa, but administratively there were some things put in place to make it easier to renew a visa. And that made access to travel to the US grow.
Certainly with the political and trade tensions I think that has in the last year or so hurt leisure travel from China to the US generally and Hawai’i is certainly a part of that. The economy wasn’t growing over the last couple of years in China at the pace that it had been so we had seen a period where the growth was not continuing to develop as we had needed for our business case. And I still believe just given the size of the overall market that there will come a time where Chinese tourism is going to be an important part of the the overall tourism picture for Hawai’i. But it became apparent to us that the realization of that is going to be longer out. And we were incurring losses and made the decision that it made sense to suspend that route and look for another opportunity sometime in the future.
Manila was a little bit different. Manila is a place that has a lot of cultural and family ties with Hawai’i. About a quarter of the population here in Hawai’i is Filipino or part. It was a big source of of immigrants to Hawai’i at one point. So a lot of the travel there was visiting friends and relatives. People always commented that “gosh the load factors were very high.” Yes, load factors were very high. The fares were not. And I can’t remember exactly what year we we stopped flying to Manila, but it was still in a fairly high fuel price environment.
We’ve looked for opportunities to expand… Korea, you mentioned a little while ago. We’ve established a good position in Korea. It’s a market that’s continuing to develop. Immediately before we started flying, Korea became eligible for visa waiver. That helped step up the accessibility of the US for visitors from Korea. If you get on one of those flights you will see a lot of honeymooners. Maui is a very popular location for honeymooners from Korea, but as you mentioned at the beginning of this in terms of the overall market size all of these developing markets pale in comparison to Japan which has an incredible historical affinity for Hawai’i. It is the number one aspirational leisure destination. It’s a big, big market. We’ve been able to establish a good presence there and we see great opportunities to continue to grow that.
Cranky: I want to come back to Japan, but just talking outside of Japan for a second because it really does feel like two completely different markets…
Peter: There’s one other general comment I’ll make about international, and this one I alluded to a little bit on the earnings call the other day. One of the features of the last couple of years as we think about opportunities internationally is the U.S. dollar has been incredibly strong. When the U.S. dollar is strong there’s two effects on markets where the point of sale is largely international and it’s tourism inbound demand to the United States.
Fact number one is we’re selling most of our tickets in that foreign currency, and so exchanging one Australian dollar today gets us a lot less than it did. The Australian dollar is trading south of 70 cents on the US dollar right now. At one point for an Australian dollar, you could get $1.05 US in the not too distant past.
The other thing is when you think about if you’re a citizen of one of those places and you earn your income in that foreign currency, when you come to the United States and spend money on accommodation or restaurants your your dollar doesn’t go as far and so that tends to slow down demand a little bit. That’s a phenomenon of 2019. It is not necessarily going to be like that forever. Currency markets tend to ebb and flow in cycles just like other markets. And the fact that we are established in Australia and in New Zealand and in Korea… when we are in a different currency environment or economic environment, it is much easier to add additional capacity into those places than it is to start off the first time, because we’ve got the selling infrastructure in place. We’ve got the airport infrastructure in place.
Cranky: Do you see opportunity in Korea for other cities there or is it really Seoul and maybe future frequencies could increase if currency shifts?
Peter: Probably in the near term it is more Seoul. That may not always be the case. But I think near term Seoul is so much bigger than the others. That’s likely where we will continue to focus for now.
Cranky: And do you see opportunity elsewhere in Asia at all except Japan? Or is the idea maybe that those cities are best served by connecting through your partner JAL?
Peter: So I think there will come a time again when there will be opportunities in some of the Chinese cities. That’s not something I expect us to be doing in a 2020 timeframe, but it is something we’ll continue to keep our eyes on just because of the size of the population overall and the potential that is there.
Cranky: OK. So Japan. You’re growing. You applied for, I think every frequency to Haneda… laughing
Peter: We applied for a modest 3 of the 12 available frequencies.
Cranky: And at least you got something. But I mean I imagine you would have absolutely flown every one of those if you had gotten them, right? It seems like it’s just a bottomless pit of demand.
Peter: We have not applied for any Haneda frequencies that we have not flown when they were granted and in fact if people remember the history of when Haneda first reopened for international, it was late 2010. We started flying in late October and November of 2010. It was only about five months later that the Fukushima earthquake tragedy hit and we were the one carrier that sustained our service, and in fact over time grew by adding a larger airplane into that market. So we’ve been very committed to Japan since we started up on Haneda. We’ve added service to Narita. We’re flying three times a week to Sapporo now. We’ve got a Fukuoka flight coming back to our network later this year four times a week, and we fly to Osaka as well. So we think there’s great opportunity in Japan. You mentioned the JAL partnership. That is really the best of both worlds combining the one carrier that can deliver authentic Hawaiian hospitality to a marketplace where that’s really appreciated and combining that with the strength of the traditional Japanese flag carrier of JAL. We think we’ve got the best of both worlds.
Cranky: With that partnership do you expect a lot of traffic to come through connectivity? I know you talked about domestic connectivity with the Haneda flights. But is there a lot of that traffic? Does the affinity for Hawai’i extend beyond the major cities?
Peter: There’s not as much today. We do have some connectivity beyond our gateways in Japan today. We mentioned that in the context of the incremental frequency we may be adding at Haneda. [Ed note: The “maybe” is because this was before the slot awards were finalized.] That really is a frequency that the business case is built around connectivity. When we got our first flight into Haneda back in 2010 we were limited to operating very late at night. And so there is a lot of potential for domestic connections at Haneda but not if your flight operates long past the time that all those domestic flights are flying.
Cranky: You still have one of those don’t you? Is that the Kona one that splits?
Peter: It’s three times a week to Kona, four times a week to Honolulu.
Cranky: It’s amazing that weird legacy slot still exists.
Peter: So that made Haneda more of a local market. With having the ability to operate earlier in the day, we’ve got more opportunity for connections both directions and having multiple flights. So today we’re operating 11 times a week to Haneda; it’ll be 18 by next year. That gives us the connectivity both ways to a number of markets that don’t have it conveniently today. And that should be stimulative when you think about if your alternative was to fly a domestic flight into Haneda and then transfer on the ground on a bus over to Narita to get a flight to Honolulu. It’s a lot more convenient if you can transfer right in Haneda airport.
Cranky: Is Narita still going to be a part of the network going forward? Does it still do well? I saw today Delta’s has officially pulled the plug on Narita, it sounds like.
Peter: I hadn’t seen that article yet. That’s not a surprise to us given the Haneda frequencies that they were awarded. For us we’re continuing to fly Narita. We’ve got a daily flight that we expect to continue.
Cranky: OK. So that still does well.
Cranky: I guess it is more leisure, I mean, that was sort of the idea is that Narita was going to become more leisure. But I guess with Haneda for you the real benefit, besides the fact that it’s more convenient to a lot of the people there, is connectivity.
Peter: Yes it is. It is both those things and we’ve highlighted the convenience factor in our DOT applications over the years. I think about 80 percent of the population of the metropolitan Tokyo finds Haneda is more conveniently located. It’s got the access to the rail infrastructure, so it is the convenient airport for people who are living in Tokyo which is a big part of our customer base.
Cranky: So is there more opportunity to go direct to other cities? I know Fukuoka is new. I think Delta just pulled out of that. Right?
Cranky: But do you think there’s more opportunity there, or is this really about feeding into the JAL network and using what you have?
Peter: We’re now in the five biggest airports in Japan with Narita, Haneda, Osaka, Sapporo, and Fukuoka. We don’t have plans beyond that for right now. But as we assess opportunities we’ll figure out the best way particularly after we get what we expect to be our joint venture approval over the next few months. We’ll certainly look for opportunities whether they’re connecting or nonstop to see what we can do.
Cranky: Right. And in Tokyo now, the capacity increase is massive. You have ANA dedicating their A380s to Hawai’i. You have the latest slots opening up which it sounds like at least for you is not going to result in a decrease elsewhere. It’s just additional capacity. Is this a market that has been underserved?
Peter: There’s been some changes over time, so a lot of focus on ANA with the A380s adding incremental service and we’ve seen some other carriers reduce their service as the market has adjusted. China Airlines was flying a fifth freedom route. They’ve ceased that. Delta has adjusted their Honolulu frequencies over the last several years so there’s been some puts and takes. The net is that capacity is up and we expect capacity to go up next year with our additional Haneda flight. We’re yet to see what the Japanese carriers are going to do with their additional Haneda flights and whether those will be additive or replacing something in Narita.
But again it’s like the other places we fly. They’re competitive markets. We’ve got to have a good proposition for our guests in terms of delivering great service and a quality product at a price that people find value in. And we think we can do that in Japan as we do in North America and the neighbor islands.