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Why You Should Retain Hawaiian Holdings (HA) in Your Portfolio

Hawaiian Holdings HA is benefiting from buoyant air-travel-demand scenario and debt-reduction efforts. However, escalating fuel costs are worrisome.

Factors Favoring HA

With improving air-travel demand, Hawaiian Holdings is making constant efforts to expand its network. In March, management at HA adjusted the schedule to match the anticipated demand swell during summer.

Owing to the continued recovery in air-travel demand, Hawaiian Holdings' unit revenue guidance for first-quarter 2023 is encouraging. Unit revenues are likely to increase 7.5-10.5% year over year.  Efforts to reduce debt are added positives.

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Hawaiian Holdings received encouraging news on the labor front when its pilots, represented by the Air Line Pilots Association, cleared a four-year deal. Following the approval, pilots of the carrier are eligible for pay-hikes, average of which will be more than 32% over the four-year period. In the voting procedure, 93% pilots cast their votes with 65% favoring the deal. The agreement, which took effect on Mar 2, includes industry-leading rates for HA’s future Airbus A330F cargo fleet.

Pilots at HA are now eligible for an immediate 16.6% pay raise on average. Other benefits include the presence of a $10-million ratification bonus and the creation of a new $2,500 health reimbursement account. The deal will also result in the improvement in quality of life of pilots by providing more schedule flexibility, apart from raising company retirement contributions.

Key Risks

The current scenario of rising fuel costs does not bode well for the airline. Evidently, average fuel cost per gallon (economic) jumped 41.4% to $3.31 in fourth-quarter 2022. Despite coming down from the highs, the metric is still high. Fuel price per gallon is expected to be $3.10 in the March-end quarter, suggesting a rise from the $2.83 reported in first-quarter 2022.

High capital expenditure in the current scenario of economic uncertainty may hinder the company's growth prospects. For 2023, the company projects capital expenditure of $330-$380 million. Operating expenses increased 13.8% year over year in 2022, with aircraft fuel (including taxes and delivery) expenses, and wages and benefits increasing 50.6% and 15.1%, respectively, in the same time period.

Such rising expenses are hurting bottom-line growth. Operating expenses are likely to be high in first-quarter 2023 as well.

Zacks Rank & Key Picks

Currently, HA carries a Zacks Rank #3 (Hold). Some better-ranked stocks for investors interested in the Zacks Airline industry are:

Alaska Air Group ALK, aided by the improved air-travel-demand situation, reported better-than-expected fourth-quarter 2022 results. The company expects a 29-32% increase in the top line in first-quarter 2023.

ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023.

The Zacks Consensus Estimate for Alaska Air's current-year earnings has been revised upward by 4.6% in the past 60 days. ALK currently has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

American Airlines AAL, currently carrying a Zacks Rank of 2, is seeing steady recovery in domestic and leisure air-travel demand. AAL has an expected earnings growth rate of more than 100% for the current year. AAL delivered a trailing four-quarter earnings surprise of 7.79%, on average.

The Zacks Consensus Estimate for AAL’s current-year earnings has improved 12.5% over the past 60 days. Shares of AAL have gained 16.1% over the past six months.

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American Airlines Group Inc. (AAL) : Free Stock Analysis Report

Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report

Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report

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