Is The Market Pricing Hawaiian Holdings Fairly?
Hawaiian Holdings (NASDAQ: HA), which operates Hawaiian Airlines, saw its stock price fall by around 29% in 2017, largely on account of increased competition as Southwest is expected to make an entry into Hawaii. Hawaiian Airlines is the largest airline in Hawaii and the 10th largest domestic airline in the U.S. based on revenue per passenger mile. The company’s revenue grew to $2.7 billion (+10% year-on-year), primarily driven by growth in Available seat miles (ASM) and Revenue per passenger mile (RPM). The growth in RPM was based on strong demand in North American routes and the company’s expansion of Hawaii to Japan service. Our expectation for 2018 is based on strong trends in Passenger yield in both domestic and international markets, coupled with the performance cargo market.
We have created an interactive dashboard analysis to estimate Hawaiian airline’s valuation based on its expected revenues for fiscal 2018. You can make changes to these variables to arrive at your own price estimate for the stock.
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We have arrived at a $44 price estimate for Hawaiian Holdings, which is around 20% higher than the current market price. This is based on revenue projections of $2.8 billion for 2018 and a Price/Sales multiple of 0.8, which is slightly higher than that for 2017, but still lower than the industry average, and a share count of 53 million.
Hawaiian Holdings’ revenue comes from two primary sources: Passenger revenue and other revenue. The passenger revenue is derived from three major geographic areas: approximately 53% comes from flights between U.S. mainland and Hawaii, 22% comes from flights within Hawaii, and approximately 25% comes from International routes.
We estimate Hawaiian Holdings’ revenue using the following steps. The average seat miles, load factor, and passenger yield have been estimated. The revenue for Passenger segment is arrived at by multiplying the three metrics. The Other revenues have been estimated based on historical revenue growth. The total revenues for Hawaiian Holdings are then calculated by adding the revenues for the two divisions.
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