Hawaiian Airlines, Inc.

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Hawaiian Airlines, Inc.

3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
U.S.A.
(808) 835-3700
Fax: (808) 835-3690
Web site: http://www.hawaiianair.com

Public Company
Incorporated: 1929 as Inter-Island Airways, Ltd.
Employees: 2,500
Sales: $384.47 million (1996)
Stock Exchanges: American
SICs: 4512 Air Transportation, Scheduled

Hawaiian Airlines, Inc. flies between the Hawaiian Islands, several cities in the western U.S. mainland and South Pacific destinations. Billing itself as Hawaii’s “flagship” carrier, it seeks to outpace even the Concorde (which does visit Hawaii rarely on world tours) by infusing five million passengers per year with Hawaiian sights, sounds, and smells as soon as they step into the plane. In spite of high ratings from customers, Hawaiian often finds itself navigating over financially dire straits.

Lifting Off in the 1930s

Hawaiian Airlines, Inc. began as Inter-Island Airways, Ltd., the brainchild of naval aviator Stanley Kennedy. In 1929, Kennedy was employed as general manager of Inter-Island Steam Navigation Company, whose directors he persuaded to establish a passenger airline linking the major Hawaiian Islands. The company was incorporated on January 30 and its first flights departed John Rogers Airport in Honolulu on November 11, bound for Maui and Hawaii (the Big Island), the beginning of thrice-weekly service. The company’s fleet consisted of two amphibious Sikorsky S-38s, which carried eight passengers each. At that time, statehood was several decades away, although Hawaii had already become a coveted, if remote, tourist destination. Inter-Island introduced airmail service between Oahu (site of Honolulu), Hawaii, and Kauai in 1934. The next year the fleet expanded to include 16-passenger Sikorsky S-43s to accommodate the mail and increased passenger traffic.

The company became known as Hawaiian Airlines in 1941. The ubiquitous twin-engine Douglas DC-3 gave Hawaiian still more capacity and began its long-term relationship with the manufacturer. During WWII, all inter-island flights were placed under military jurisdiction. Its planes were also used in wartime to carry cargo and service nearby Pacific islands. Between 1944 and 1948, TWA was a one-fifth owner of the company.

Cold War Competition

Competition had landed in the islands with the 1946 creation of Trans-Pacific Airlines, forerunner of Aloha Airlines. The Convair 340s Hawaiian added in 1952 gave it the advantage of modern, air conditioned and pressurized cabins. A single four-engine DC-6 purchased in 1958 allowed the carrier to operate long-distance military charters. In 1966, booming residential and tourist traffic prompted Hawaiian to begin operating the McDonnell Douglas DC-9, the first jet turbine aircraft to be used on inter-island flights. The islands were now no more than 30 minutes from each other. This type would be used for at least 30 more years.

Although Hawaiian typically was able to bring the newest, most advanced aircraft to the market, competition with Aloha reduced both carriers’ margins so severely that the two agreed to merge in 1970—a plan which was abandoned the next year.

The Deregulated 1980s

In the late 1970s, deregulation brought still more cutthroat competition. Although deregulation allowed the company to add service to the South Pacific (Pago Pago, American Samoa, and Nukualofa, Tonga), and was able to fill its planes more than any other airline, the amount the company made per passenger was not similarly impressive. In 1982, Hawaiian adopted the corporate name HAL.

Along with the new South Pacific scheduled routes, overseas charter services were offered in 1984 with the company’s three DC-8s. Five of the popular Lockheed L-1011 widebody aircraft were added the next year to fulfill these roles as well. In addition, HAL began serving the West Coast via Los Angeles. Routes to San Francisco and Seattle were added in 1986. A fare war ensued between United and Continental, which also served Hawaii from the West Coast. The year would show the company’s last profit for at least another decade.

The company built the West Maui Airport in 1987. HAL also stepped up its offering to Polynesia. By 1987, Western Samoa, Tahiti, and Rarotonga were linked with Hawaii, not by outrigger canoe, but DC-8 jetliner.

Losing Altitude in the 1990s

A group of investors led by Jet America founder J. Thomas Talbot bought a 46.5 percent stake in HAL for $37 million in 1989. Talbot assumed the positions of CEO and chairman. Former baseball commissioner Peter Ueberroth was also an investor in the Talbot group.

Although there were some minor incidents, HAL had built an impressive safety record while transporting more than 100 million passengers. In 1990, Conde Nast Traveler pronounced the airline one of the world’s safest after a 20-year survey. The magazine’s readers also consistently ranked it one of their favorites in the U.S. The carrier was recognized by the trade magazine Onboard Services and the World Airline Entertainment Association for its superior in-flight cuisine and audio programs.

Challenges against the airline mounted in 1991. After 45 years, Aloha Airlines finally succeeded in capturing the dominant share (61 percent) of inter-island traffic. HAL also lost three South Pacific routes to Northwest Airlines in a deal which gave Northwest a minority share (25 percent) in exchange for $20 million. Peter Ueberroth’s younger brother John, who had previously led the Carlson Travel Group, succeeded Talbot as HAL chairman. Losses for 1991 amounted to $99 million (including a one-time accounting charge of $36.7 million).

As if ferocious competition and high fuel costs were not enough to deflate the company’s tentative comeback, Hurricane Iniki chased away an estimated $7 million of HAL’s business in 1992. The next year, it opted for Chapter 11 bankruptcy protection and John Ueberroth stepped down as chairman.

In 1993, the company sold the DC-8s that it had used on South Pacific flights, resulting in more modest Polynesian coverage. The next year, it ceased flights to West Maui Airport, which could not service jets, as it sold its fleet of propeller-driven aircraft. (Jets could operate from Maui’s Kahului Airport; eventually HAL would fly between Maui and the Mainland in direct competition with a United Airlines route.) Further competition landed in the fall of 1994 in the form of budget carrier Mahalo Air.

A New Lease on Life in the Mid-1990s

The company resumed its old name of Hawaiian Airlines as it emerged from bankruptcy protection in 1994, still able to fly but also susceptible to chronic cash shortages. AMR Corp., parent of American Airlines, began providing technical expertise to Hawaiian, which enrolled in American’s frequent flyer program and replaced its L-101 Is with DC-10s leased from AMR, which also assumed maintenance duties.

New York’s Smith Management Co. provided $20 million of desperately needed cash in 1996. The Airline Investors Partnership it assembled bought two-thirds of the company, and Smith president John Adams assumed the role of chairman of the Hawaiian board. The group nevertheless displayed such confidence in Nobles that he retained the duties of CEO and president. The airline needed a $3 million loan from Smith to keep running until the deal could be approved. Later in the year, a Hawaiian stock offering raised $39 million.

Various players made concessions to keep Hawaiian in the sky. AMR Corp. extended the carrier credit and reduced its rates on Hawaiian’s leased DC-10 jets by nearly 30 percent. Hawaiian’s four unions approved less remunerative contracts.

Hawaiian was a very busy airline, operating over 150 flights per day, and its volume increased steadily into the late 1990s. Its new route to Las Vegas, the favorite holiday destination of Hawaii residents, proved highly popular. However, higher fuel costs for its longer flights gutted profits. The company lost $2.4 million in the first quarter of 1997 and $4.1 million for the previous year, thanks to a 20 percent increase in fuel prices.

Hawaiian Airlines served 14 destinations. Its 50 percent market share in inter-island flights (to the six major Hawaiian Islands) accounted for about 40 percent of revenues. Daily West Coast flights (to Los Angeles, San Francisco, Seattle, Las Vegas, and Portland) brought in another 50 percent, with about six percent coming from the company’s air service to weekly flights to the South Pacific (American Samoa and Tahiti, where the company had a monopoly on air service to and from Honolulu). The company maintained limited cargo and mail operations. In the late-1990s, its fleet was comprised of about 13 DC-9s (all but two leased) for inter-island flights and 8 DC-10s (all leased) for long-range flights.

Company Perspectives:

Hawaii’s largest airline since its founding 67 years ago, Hawaiian Airlines today serves 14 domestic and international destinations in the Pacific region. It specializes in air transportation among the Hawaiian Islands and bringing visitors to Hawaii from points in the Western U.S. and the South Pacific.

Carrying approximately 5 million passengers a year, Hawaiian Airlines provides high-frequency jet service daily to seven destinations on six Hawaiian Islands and weekly service to the South Pacific destinations of Tahiti and American Samoa. In North America it provides daily service to Hawaii from Los Angeles, San Francisco, Seattle, Las Vegas, and Portland, Oregon.

Flying into a New Century

In February 1997, Bruce Nobles stepped down as CEO to be replaced by travel executive Paul Casey. In spite of a slack tourist market in Hawaii (which prompted the state to suspend airport landing fees), a number of initiatives seemed likely to pay off for the airline. It began using the new AIRMAX computerized routing system, supplied by AMR subsidiary SABRE Decision Technologies, which promised more efficient scheduling of flights. The airline took part in the trials of a new satellite-based system designed to allow pilots greater control in selecting routes. And code-sharing agreements with American, Continental, Northwest, and Reno Air should ensure a steady flow of customers from the Mainland. These factors, and the backing of enthusiastic supporters, suggested a positive outlook for Hawaiian Airlines.