This may be the last time I write something about Hawaiian Holdings. It reported full year earnings a few days ago and provided guidance for the year ahead. Its guidance provided for fuel costs of $1.90 to $2.00 per gallon.
I am instead going to plug in a fuel cost of $2.30 per gallon (corresponding with $75/bbl for Brent) so that 2015 looks something like this:
and, consequently, the end of year picture would look like this absent a return of capital to shareholders:
The company has begun to buy back the convertibles. The diluted share count at the end of 2015 should therefore be in the neighborhood of 55 million.
$2.30/ gallon in 2015 and $2.80/gallon on average in the years beyond (corresponding to $90/bbl Brent) implies the following range of values for Hawaiian's shares:
I think excess cash plus 10x FCF is fair and I therefore wouldn't be surprised if the shares traded at ~$37 within a year.
In the medium term, we should also see some improvement in HA's operating performance as the international business matures and its load factor rises from the low 70s to the mid 80s.
This is what HA has looked like on a segment basis:
Note: DCASM = cost of operating the aircraft divided by available seat miles and expressed in cents.
A $35 to ~$50 range implies that Hawaiian is an attractive investment in its own right -- that is, apart from its usefulness as a hedge against the oily names in my portfolio.
HA's cost competitiveness:
Note: CASM figures are adjusted in order to allow for like-for-like comparisons of competitiveness. Short haul flights are more expensive than long-haul flights -- more labor, less flying time, more maintenance, etc.
Untapped pricing power?
Capacity discipline by domestic airlines?
Room for improvement in the international business:
Disclosure: I am long HA