Adam Levine-Weinberg The Motley Fool
While 2020 has been an awful year for every major airline, it has been especially bad for Hawaiian Holdings (NASDAQ: HA). In late March, the Hawaii state government countered the threat of the COVID-19 pandemic by imposing a 14-day mandatory quarantine on everyone arriving in the state. Naturally, this obliterated tourist demand: Hawaiian Airlines’ main source of traffic.
Hawaii now plans to relax the quarantine in mid-October for travelers who test negative for COVID-19 shortly before arriving in the state. This could finally enable demand to return to a meaningful level in the months ahead.
The pre-travel testing plan gets delayed
Three months ago, the state of Hawaii announced that it would start allowing travelers to skip the 14-day quarantine if they got tested for COVID-19 within 72 hours of departure and received a negative result from a certified lab. Hawaiian Airlines quickly made plans to resume service on most of its North America routes in August to capitalize on leisure travel demand in the last month of the summer travel season.
The pre-travel testing program wasn’t expected to be a perfect solution. COVID-19 tests aren’t 100% accurate, and someone could always get sick in the period between getting tested and boarding a plane for Hawaii. However, given that the pandemic seemed to be getting under control in the U.S. in June, the risk seemed manageable — and worth accepting, given how much Hawaii’s economy depends on tourism.
Unfortunately, almost as soon as Hawaii revealed its plan, COVID-19 case numbers skyrocketed in much of the U.S. — including California, the biggest source of tourist travel to Hawaii. The resulting jump in testing demand and lab bottlenecks made it impossible for most people to get tested and receive results within 72 hours. And Hawaii itself experienced a surge of COVID-19 cases beginning in late July and peaking near the end of August.
As a result, Hawaii delayed the start of its pre-travel testing program again and again, forcing Hawaiian Airlines to similarly postpone its plans to restore capacity to its system. That has made it hard for the leisure airline to generate revenue and keep its employees busy. Earlier this month, Hawaiian estimated that its capacity would decline 87% year over year in the third quarter.
Let’s try that again
With testing wait times improving and the pandemic easing in Hawaii and many other states, Hawaii Governor David Ige announced last week that the pre-travel testing program will launch on Oct. 15.
The general outline of the program is similar, although some of the details have changed over the past few months. Travelers who want to skip the 14-day quarantine period must get a nasal swab test no more than 72 hours before they arrive in Hawaii and present evidence of a negative test result. CVS and Kaiser Permanente will serve as initial “trusted testing partners” for the program, and the state plans to add more testing options over time.
Once again, Hawaiian Airlines is planning a significant expansion of its long-haul services that lines up with the loosening of the quarantine restrictions. However, management is understandably taking a cautious approach. The start of the pre-travel testing program has been delayed before, and it could be postponed again.
A crucial milestone
If the new Oct. 15 date sticks, it could unlock a meaningful amount of pent-up demand for travel to Hawaii, particularly during the major holiday periods later this year. Hawaiian Airlines may benefit from a big uptick in ticket sales over the next couple of months, just as ticket sales jumped in June for its mainland competitors as they sold tickets for summer travel.
Such an influx of cash wouldn’t come a moment too soon. Hawaiian Airlines has been burning about $3 million a day recently, a substantial sum for a smallish airline. It needs to reduce that level of cash burn pronto in order to avoid emerging from the pandemic overwhelmed by debt.
Hawaiian Airlines has already begun implementing staff cuts that will temporarily reduce its workforce by 2,501 positions (34%). Management warned in early September that without a resumption of tourism — which clearly depends on the pre-travel testing program — even more job cuts may be necessary.
Clearly, Hawaiian Airlines and its employees have a lot riding on the return of Hawaii tourist demand. If everything goes smoothly, Hawaiian Airlines’ cash burn will slow significantly next quarter, and cash flow could turn positive again in 2021. However, the airline sits in a tenuous position. If additional waves of the pandemic force Hawaii to clamp down on travel again, Hawaiian Airlines could find itself back at square one at any moment.