Credit Suisse Warns Of Risks On The Horizon For Hawaiian Holdings

Hawaiian Holdings, Inc. HA shares have gained 6 percent year-to-date. Credit Suisse’s Julie Yates initiated coverage of the company with a Neutral rating and a price target of $43. The analyst commented that there were several longer-term concerns surrounding the company.

Analyst Julie Yates mentioned the concerns as:

1. The imminent entry of Southwest Airlines Co LUV into the attractive leisure destination would continue to be an overhang on Hawaiian Holdings’ shares.
2. Other carriers are likely to witness better sequential improvement in unit revenues, with easing comps and slowing capacity. Hawaiian Holdings is, however, up against tougher comps and rising growth.
3. Hawaiian Holdings’ shares are trading at the top of their historical valuation range, having outperformed year-to-day and in the past three years.

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Many Positives, But Risks On The Horizon

Hawaiian Holdings’ shares already reflect the company’s firmer pricing and lower levels of corporate travel exposure. The company could generate sequential unit revenue growth for the fourth straight quarter in Q2, Yates said.

Hawaiian Holdings is well positioned to benefit more than peers from FX and surcharges in the back half of the year, given its Japanese exposure. Both FX surcharges could become revenue tailwinds by the end of 2016, given yen strength and rising fuel.

The analyst pointed out, however, that nonfuel margins are set to contract into 2017, with competitive capacity ramps and pressure on nonfuel unit costs. “In addition, 2017 begins a multi-year capex ramp weighing on FCF, limiting HA's ability to further delever and pay shareholders.”