Pontifications: Hawaiian Air ponders A380

Hamilton ATR

By Scott Hamilton

Oct. 31, 2016, © Leeham Co.: Hawaiian Airlines continues to ponder the possibility of acquiring one or two Airbus A380s, its CEO said on the third quarter earnings call—something that raises eyebrows and a lot of questions with industry officials.

Mark Dunkerley, responding to a question on the call, said there are two or three routes that could support the giant A380.

Demand vs Complexity

“We’ve got a small number of discrete markets that have enough demand where a large capacity vehicle would make some sense,” Dunkerley said, according to a

Could Hawaiian Airlines acquire two or three Airbus A380s? It's under consideration. Rendering via Google images.

Could Hawaiian Airlines acquire two or three Airbus A380s? It’s under consideration. Rendering via Google images.

transcript on SeekingAlpha.com. “I think arguing against it is complexity the fact that a fleet size would necessarily be very small indeed to look after these markets.

“I think in general, we’re always interested in finding out more about what the manufacturers are producing in terms of aircraft, what their capabilities are because I think we learn a great deal that way. I think in that sense, we’re always interested in finding out more. But the A380 would be an extremely large airplane in our network and it would necessarily be limited to two, maybe three routes.”

Which routes?

Dunkerley did not identify the routes, but it’s assumed to be Japan. The Japan-Hawaii market is a big one and generally lucrative. Further, with plans by Japanese carrier ANA to acquire three A380s (ex-Skymark), the assumption is likewise ANA will put at least some of them on routes to Hawaii.

Airbus likes to say you can only compete with an A380 with another A380.

Hawaiian also has ambitions to fly to Europe. The A380 could theoretically be assigned to this service.

Fleet complexity

But Dunkerley’s reference to fleet complexity and a small number of A380s argue against acquiring the airplanes.

Indeed, Hawaiian has a fleet of just 52: three ATR turboprops, 23 Airbus A330-200s, 18 Boeing 717s and eight Boeing 767s. It has 16 Airbus A321neos and six A330-800s on order and it’s acquiring two more 717s. The 767s are on their way out.

Adding two or three A380s adds to complexity: scheduling, crewing, maintenance, gates, passenger bookings and more, including operations.

Operational challenges

Such a small fleet begs unique problems in the event of a flight cancellation or mechanical issue.

Hawaiian’s A330s are common worldwide. Cooperation with other airlines for parts and Airbus supply centers are readily accessible. It’s also easy, relatively speaking, for Hawaiian to substitute one A330 for another if the assigned airplane must be taken out of service for a mechanical issue.

With only two or three A380s, aircraft substitution becomes problematic.

Sourcing

Where would Hawaiian get the airplanes for such a grand experiment and what would it cost?

Acquiring new aircraft adds to the risk factor for an airline Hawaiian’s size. So does timing. Airbus might be able to accommodate on the latter, but the former could be an issue. Airbus could do a sweetheart lease arrangement to get another operator for the A380, and the first US-based airline. Thus, pricing might not be an insurmountable issue.

Leasing in a use A380 might make more sense. Singapore Airlines was the first operator and it’s already said it will return the first A380 (a 2007 model) to the lessor next year. There are four others come off lease is quick succession. HAL might take up the two or three from Singapore.

Cost

The appraisal firm Aviation Specialists, in its September Guide, pegs the current market value (CMV) of the A380 at $91.1m. This implies a lease rate of $728,800 to $910,000 per month under a balanced supply-and-demand situation.

But with demand for the A380 on the secondary market so far to be (1) unproved (there have been no previous transactions) and (2) at face value, dismal at best (Very Large Aircraft, be it the A380 or Boeing 747, or even the Boeing 777-300ER, are out of favor right now in a sluggish wide-body market), HAL might be in the position to get very, very favorable lease rates and terms.

One of its new A330-200s has a CMV of $90m, according to Aviation Specialists.

If HAL can fill the A380, which easily carries more than twice the passengers of the A330-200 (and it flies farther), it can be a profitable airplane for the same lease rate—or less.

35 Comments on “Pontifications: Hawaiian Air ponders A380

  1. The CMV and subsequent lease rates are very very interesting and does change the picture quite a bit…

  2. If Airbus handles “everything” except crew Hawaiian could pretty easy put used A380’s with fresh cabins to good use from Asia to Honolulu and on to the US East cost cities that are A380 compliant (JFK, BWI, MIA, ORL) & Toronto and sometime in the future ATL, ORD, BOS. Even doing morning flights from the east cost to SFO/LAX taking off with half filled tanks could find many takers even for the 615 seat Emirates configuration.

  3. Maybe Airbus & Hawaiian aren’t just smoking Maui Wowi after all. Pass the Kona Gold, please.

    • Mark Dunkerley has been reading far too many press clippings saying how “great” he is, and it’s going to his head. I eagerly await the spectacular fail that would result if he went the A380 path.

      HA is in good, if not great shape with their measured growth and logical equipment choices. If Dunkerley thinks he can operate the A380 in Hawaii in a vacuum (i.e. no other carrier will notice), he is indeed smoking the ganja pretty hard.

      • Kind of reminds me of People Express and their foray into the 747 market. It started the fall of the carrier. Mark Dunkerley has a bad case of vocalizing his day dreams. No how, no way could this work for such a small carrier.

      • “Dunkerley did not identify the routes, but it’s assumed to be Japan. The Japan-Hawaii.. ”

        Japan – Hawaii – Brazil ? Can’t think of any reason to do this other than making a hub out of Honolulu to link North East Asian Countries with places like Brazil.

    • Well let’s think about it, shall we?

      If they can get the right lease deal then HA can try it out at very low risk. They’re already an airbus operator, so crew training is minimal. If it doesn’t work out they’ll probably be able to return the aircraft to the lessor and walk away from it, put the crew back on A330s.

      If it does work, well then they’ve hit pay dirt, especially if they can start operating before ANA do. Sure it’s not the cheapest per seat to operate, but there’s soooo many seats. If they can fill it up regularly it’ll turn out well. Nothing ventured nothing gained.

      Incidentally does anyone know about slot congestion at Haneda, Tokyo? AFAIK it has limited international slots, and if ANA wanted to increase capacity without extra slots A380 would be a way of doing that. Narita is all very well and good, but it’s a rubbish place to land at compared to Haneda.

    • Gorgeous! But they passed on the A359 and A339 in favor of the smaller ‘8 versions. Much as I’d be thrilled to as an AvGeek, I don’t see a VLA in that livery any time soon.

      • The difference for Hawaiian between A330-900 and the A330-800 is range. That was the reason to choose the smaller aircraft.

        • Range – from Hawaii ? When existing A330s can cross the pacific from US west coast to major cities in north asia, I cant see that being the only factor.
          If you read the statement , range as would be expected isnt really the clincher.
          “The A330-800neo is an aircraft which meets all of our needs,” said Mark Dunkerley, president and CEO of Hawaiian Airlines. “It is the right size, with the right range and costs, and shares much commonality with our A330-200 fleet.”
          Commonality seems to be deciding factor to me

          • The guides say their A330-200s are configured for 294 seats, not exactly low capacity for the type.
            The 330-800 has cabin optimization to allow 6 extra seats, so it would be 300 if the same mix of seats was retained.

          • Longest route for Hawaiian seems to be JFK to Honululu which is about 4500nm, about the same as Sydney in the other direction.
            Not on the schedule now, but if possible Honululu – Paris is around 6500 nm, which around the max for the 330-900 under ideal circumstances

          • I basically agree. Airbus would have happily upgraded HA to the A350-900 when it put the A350-800 on the back burner. That has more range than any A330 variant. HA was adamant that it did not need/want the extra seats and so it held out until the A330-800 became available. HA likes the commonality with the A330-200 and the smaller gauge.

            FYI, HA is in the midst of reconfiguring all of its A330s to 278 seats in order to replace its first class recliners with flat-bed seats. It’s also increasing the number of extra-legroom seats.

            If HA sees enough demand to justify extra capacity, upgauging to the A330-900neo would make sense. Very low risk, very low incremental operating costs. And I think it has more range than anything HA flies today. Going all the way to the A380 seems hard to justify.

  4. I think AIRLINES have been the problem for the a380 thus far, using it as a trophy aircraft, and not a people carrier as it should have been.

    A few months back I suggested this also and that the higher density emirates’ 615 seater was where it should have started.

    I also suggested a 2nd life in Haj/mass transport markets, wet-lease post-weather/fleet emergencies/sporting events etc. and used at established and new LCC hubs… Like for example ryanair-feed-to-aerlingus through Dublin for US… And through TAP for Latin America etc. long haul LCC is only beginning, and likely needs 700/800 value seats twice daily to be profitable. Airlines seem to be finally coming around to making money and acting as people-moving businesses again.

    The new MAS a380 solution is the beginning of this type of utilization-with-purpose… And I’m glad to see the big-bird stretch her very strong wings, and fill her abdomen with folks and not hot air.

    If the interior of aircraft have quality ‘neutral’ cabins using common recaro type seating (not cheap seats per se), they can be semi-branded as Hawaiian or TUI or Whatever’s through airline-owned head rest covers, pillow/blankets, bulk head/IFE branding, and using decals for the exterior if on use for 6month tourist seasons etc.

    There are solutions and methods’ to all problems… But you need to approach it from a business perspective and not a holistic one.

  5. I think the most illuminating part of the comment related to even the B777-300er being out of favour. This is the backbone of almost all the airlines I fly. Presumably this suggests that the new upper end of the market is coalescing around the A359/B781.

    • Or all Wide bodies are struggling with sales other than the 787 which keeps on selling?

      • That´s got me a bit curious, as Boeing needs sales to go to 14 or keep 12, these rates were no in the plan at the start of things, I am wondering about their pricing.
        I doesn´t look like it will ever be a cheap aircraft to build.

      • @TW

        I wasn’t aware it was that stark, have you the breakdown? I thought what few orders were made were spread relatively evenly. I could be out of date

  6. If we go back a decade or more GO Fiji Air (Air Pacific) had an agreement with Singapore Airlines for the purchase of surplus 747’s including maintenance.

    In the end Fiji Air decided to go its own way purchasing new A330’s for their long haul flying.

    Even though Hawaii is a larger market, there are many similarities between the two island countries and subsequently airlines.

    I just see the A380 as being too large for Hawaii Airlines. It may be good for some routes today, but in five years time the market realities could be very different.

  7. From a strategy perspective Hawaii Airlines might be better using its CAPEX for A330(NEO) type aircraft that can be deployed on a variety of routes with less risk to the airline.

    • Not if the lease rates for 380s and 332s are the same. 380 is the best use of the money if they can fill them. ANAs 380 competition might make it a no option scenario also, like EKs use of 380s in Australia, you use 380s or you get out of the business on a lot of routes.

  8. But at the sort of lease rates that are likely, not a bad bet?

    A few months ago Sir TC said his discarded A380’s would go to the desert as they were paid for, so maybe a new LCC industry may arise with dirt cheap leases offsetting the higher operating costs?

  9. Is the stated A380 stated CMV a general average for the fleet? I would guess the CMV of a 12 year old A380 is quite a bit lower. Maybe worth 25 to 50 million, with lease rates of 200K per month possible. Could be a good deal for everyone.

  10. I sort of get the idea of filling up an A380 with 600 people from Tokyo or LAX to Honolulu. Maybe you could risk it on a relatively short and inexpensive lease, but you’re looking at a lot of complexity from a staffing and maintenance perspective. There’s a substantial chance that such an experiment would be a complete flop.

    However, it would make a lot more sense to switch from the A330-800 to the A330-900 on the upcoming neo orders, or at least some of them. You get some extra gauge with hardly any more complexity. (I also assume that the A330-900neo will be quite a bit more fuel efficient than an A380 — does anybody know?) It just seems bizarre to me (as a long-time HA shareholder) that an airline which for years said A350-900/A330-300/A330-900neo planes were too big would now decide the A380 makes sense.

  11. ANA is going to use the A380 only for Hawaii.

    Its not getting the Skyrmark number 1, its got the two that were not built (or completed) and one other.

    But ANA is in far better position to handle it and who knows what kind of a deal they got as well.

    On the other hand I think its the perfect aircraft for Alaska Airlines Anchorage to Seattle.

    • This is wrong, ANA will get some fresh ones!
      The 2 “build” (already being in FAL) Skymark will go to EK (EK just increased there order by 2) The 3rd one (never been in the FAL) became maybe already another MSN.

  12. And note the 747-8F buy for UPS.

    14 firm, 14 options.

    Great deal I am sure and if someone wants that bird then they need to buy it now as its not going to be there a lot longer.

  13. These discussions remind of Braniff . The industry laughed at them when they decided to acquire a 747 for a single route, Dallas – Honolulu. It was a niche market, but at the the same time Braniff’s most profitable route. Granted, this was before deregulation, but it demonstrates industry prognosticators’ prognostications aren’t always so reliable.
    More power to Hawaiian if they can make it work!!

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