Back to top

Image: Bigstock

Hawaiian Holdings' Dull Q3 Capacity View Due to Soft Demand

Read MoreHide Full Article

With air-travel demand remaining subdued as signs of recovery get bleaker by the day, stocks in the airline space are having a tough time. Lackluster travel demand implies that airline results for the September quarter will echo the dismal show of the June quarter.

Due to disappointing demand, Hawaiian Holdings (HA - Free Report) , the parent company of Hawaiian Airlines, provided a tepid capacity outlook for the September quarter earlier in the week. Fresh government restrictions following the spike in coronavirus cases on the Hawaiian island of O’ahu contributed to the guidance cut. The surging Covid-19 cases in O’ahu resulted in the modified reinstatement of a 14-day quarantine requirement effective Aug 11, 2020. The fresh quarantine mandate was imposed on passengers traveling from O’ahu to the counties of Maui, Kauai and Hawaii.

On Aug 20, 2020, Hawaiian governor announced a delay in the commencement of a program aimed at permitting travelers to Hawaii bypass the quarantine requirement by furnishing proof of a negative COVID-19 test.

The above-mentioned government restrictions crippled air-travel demand with services in the carrier’s North America and Neighbor Island networks being greatly reduced. Consequently, Hawaiian Holdings, currently carrying a Zacks Rank #4 (Sell), lowered its third-quarter capacity view.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hawaiian Holdings expects third-quarter capacity to decline 87% year over year (earlier outlook provided on Jul 28 projected an 86% plunge). Notably, third-quarter revenue passenger miles and the total number of passengers flown are down roughly 96% and 87%, respectively, on a year-over-year basis (data as of Aug 31). This disturbing demand trend is expected to continue for the remainder of the September quarter.

However, the company’s cash position as of Aug 31 improved to $997 million from $761 million at the June quarter-end. Management further confirmed that the company’s daily cash burn during July and August excluding the impact of the CARES Act, new financing and net sales was roughly $2.9 million. This marked an improvement from its original estimate of $3.2 million per day owing to lower level of operations and the resultant voluntary adjustments to staffing.

The company expects third-quarter daily cash burn of $3 million excluding the CARES Act and new financing. This projection is based on the assumption that the net of sales and refunds for September come to zero. In another update, the carrier stated that it received confirmation from the U.S. Department of Treasury that its allocation of loan funds under the CARES Act Economic Relief Program increased from $364 million to $420 million. The carrier has time until this month-end to decide to avail of any portion of the stipulated loan amount.

Notably, Hawaiian Holdings is not the sole carrier to have issued a grim third-quarter view due to pent-up demand. United Airlines (UAL - Free Report) too recently trimmed its outlook for third-quarter capacity and passenger revenues. Load factor (% of seats occupied by passengers) at Alaska Air Group (ALK - Free Report) dropped to 46% in August from 54% in July, highlighting drab air-travel demand. The metric is forecast in the 40-45% range for September.

Moreover, with no confirmation available as yet of additional financial help to the airlines from the government after Sep 30, many companies including American Airlines (AAL - Free Report) already warned of massive job-cuts under the current suppressed demand scenario.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>