Hawaiian Airlines expects to incur extra costs this year for pilot training and is shifting its maintenance approach as it prepares to absorb 10 large Airbus freighters to be flown under a new contract with Amazon, executives said Tuesday.
The carrier set a fourth-quarter record with $34 million in cargo revenue — a paltry sum compared to the big U.S. international carriers with sales that were eight to 14 times as large. Even Alaska Airlines pulled in about $50 million in cargo revenue. But the October deal with Amazon will change all that, significantly increasing cargo revenues and diversifying business for an airline in a limited market for island travel.
Hawaiian Airline’s (NASDAQ: HA) unit costs are expected to increase up to 5% this year for several reasons, including extra training for pilots involved in Amazon (NASDAQ: AMZN) flying and higher wages from new labor contracts with pilots, machinists and other categories of workers. Pilots are currently voting on whether to ratify a new contract that significantly boosts pay and sets the bar for all-cargo carriers.
“As we work to position through so we have the right staffing for the initial tranche of the freighter aircraft and [train people for the arrival of the first 787 Dreamliners], we’ll have some unproductive time in terms of pilots spending time in training rather than flying revenue block hours for us,” President and CEO Peter Ingram said on an earnings call with analysts.
The Amazon business is expected to add about 160 pilots to Hawaiian’s ranks. And Hawaiian will set up a pilot base on the U.S. mainland.
Amazon is leasing 10 Airbus A330-300 cargo jets and will place them with Hawaiian, which will fly and maintain the aircraft under a 10-year contract. The lessor is sending the used passenger aircraft to a special repair shop to have them converted to full cargo configuration. Hawaiian has said it expects to begin operating the first two A330 converted freighters in the second half of 2023.
Hawaiian Airlines, which boasts two dozen A330 in its passenger fleet, will also take over maintenance programs previously outsourced to a third party during the next few months.
“This will improve our cost structure over time and immediately give us more control over fleet reliability and performance,” said Ingram. “While separate from the Amazon initiatives, taking on this insourcing at the same time as we are adding at least 10 freighters to our A330 fleet makes it even more timely.”
Chief Revenue Officer Brent Overbeek forecast cargo revenue will shrink this year as international yields continue to decline and because the airline no longer has a charter contract with the U.S. Postal Service as it did for the first three quarters of 2022.
Overall, Hawaiian reported a better-than-expected adjusted net loss of $24.7 million, thanks to strong leisure travel. But 2023 potentially could be more difficult because of the new 787s not contributing to earnings this year, maintenance delays for some A321 narrowbody aircraft, construction on the primary runway at its Honolulu hub, weakness in travel from Japan and higher wage costs.
Japan has removed all travel COVID-19 restrictions, but passenger traffic hasn’t bounced back because Japanese are tentative about long international trips, the government has encouraged travel agencies to promote domestic travel and the weak yen has made it more expensive to journey to Hawaii.
Two A321 aircraft remain out of service because engine-maker Pratt & Whitney is still waiting on parts for a tune-up. Hawaiian has shifted two A330s underutilized on the Japan route to cover A321 routes to the U.S. mainland, but running planes that can’t be filled will increase first-quarter costs, Overbeek said.
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