Hawaiian Airlines Slowly Adds Freighters for Amazon Business

Under a  transportation services agreement that kicked in last year, Amazon AMZN leases the aircraft from a dealer and transfers them to Hawaiian Airlines to fly and provide routine maintenance. Hawaiian, which is branching out to all-cargo operations for the first time, began commercial revenue service for Amazon in early October on a route connecting San Bernardino with Amazon Air's superhub at Cincinnati/Northern Kentucky International Airport (CVG). 

Amazon plans to acquire 10 A330 converted freighters as replacements for aging Boeing 767-200s operated by other partner airlines. The original schedule called for Hawaiian Airlines to receive eight more freighters this year, but the airline said delivery flow is behind by two aircraft because the airframe repair company responsible for reconfiguring the used passenger jets to carry heavy containers is experiencing production delays. That means Hawaiian will have seven aircraft, instead of nine, in possession by the end of the year, if the current schedule remains intact.

CEO Peter Ingram said Hawaiian may postpone deploying some cargo aircraft that join the fleet this year in order not to add complexity to Amazon's network during the busiest shipping period.

"I would caution that they may not all be flying by the end of the year because during the peak period our partner doesn't necessarily want to introduce new lines of flying into the operation" he said on an earnings briefing with analysts.

Amazon has been operating Boeing 767s between New York-San Bernardino, according to a route map compiled by a team of researchers at DePaul University. Their most recent report, in March, found that Amazon is streamlining its airport network, slowing fleet growth and utilizing larger aircraft like the A330 to improve efficiency. 

Industry experts say the best use of the A330, from the standpoint of minimizing operating costs, is on the longest routes in Amazon's network.

Amazon has always been willing to overfly the CVG hub if aircraft have high load factors, said Derek Lossing, founder of e-commerce logistics consultancy Cirrus Global Advisors and a former senior manager at Amazon Logistics. 

"The hub is great for when you have to put multiple destinations on a flight to fill it up. But if there is enough New York to Los Angeles volumes, doing a sort at the hub just costs time and extra flying. So if you can fill up aircraft on point to point routes, and they are full or almost full, you actually prefer to avoid the hub" he explained by email.

During the first quarter, Hawaiian Airlines recorded an adjusted loss of $143.5 million despite a 5.4% increase in revenue to $646 million that benefited from increased system capacity. The operating loss increased 26% year over year as expense growth exceeded revenues.  Unit costs increased about 7% year over year, including a point attributed to the Amazon flying. Losses were also higher because of how the company's lower effective tax rate was booked.

High lodging rates in Hawaii and the strength of the U.S. dollar versus the Japanese yen have contributed to low travel demand from Japan, a key market. The wildfire that destroyed Maui last year has also been a drag on business.

On the bright side, Hawaiian expects all its Airbus A321neos back in service within a few weeks after several were sidelined because of problems with Pratt & Whitney engines that required extensive inspections. More than 1,000 P&W engines have been recalled across the industry. 

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