Hawaiian Airlines Stock And The Amazon Cargo Deal

Key Takeaways

• Amazon is taking a 15% stake in Hawaiian Airlines, which will now move cargo for the retail giant.
• The deal helps the air carrier generate income as passenger volume has yet to return to pre-pandemic levels.
• Investors should hold tight before investing in Hawaiian Airlines as the financial impact of the deal is still unknown.

Online retail giant Amazon recently announced a cargo deal with Hawaiian Airlines. Here are the details of the agreement and the impact this will have on Hawaiian Airlines stock moving forward.

The History of Amazon Air

Amazon Air is Amazon’s private fleet of cargo planes that deliver Amazon’s goods from hub to hub. The retailing giant started the service in 2015 with 97 aircraft, all of which are leased from other airlines, including:

• Cargojet Airways
• ABX Air
• Silver Airways
• Atlas Air
• Sun Country Airlines
• ASL Airlines Ireland
• Air Transport International
• Hawaiian Airlines

Amazon recently partnered with Hawaiian Airlines to further expand its distribution network and deliver more cargo volume. The airline currently flies to 63 different hubs in the U.S. and Europe. Originally, Amazon Air was called Amazon Prime Air, but it was renamed in 2017 to differentiate this arm from its forthcoming drone package delivery service.

Details of the cargo deal between Amazon and Hawaiian Airlines

The deal consists of Amazon taking a 15% stake in Hawaiian Airlines in return for the airline operating the jets. Amazon is leasing 10 converted Airbus A330-300 freight airplanes from Altavair L.P. The first planes, which will enter into service in late 2023, will be flown under Hawaiian Airlines’ FAA operating certificate. All 10 aircraft will join the fleet by the end of 2024. The agreement also has an option for leasing additional planes and provisioning crews to operate the aircraft.

Amazon’s stake consists of warrants to buy a maximum of 15% of Hawaiian Holdings (the airline’s parent company) over the next 9 years. The stake consists of about 9.4 million warrants with an exercise price of $14.71. The warrants represent an investment of $110 million into the airline.

Hawaiian Airlines earns a monthly fee for each aircraft operated under the agreement, along with payments based on how many departures and flight hours each plane logs. The cost of operating the aircraft is passed onto Amazon, giving Hawaiian Airlines a stream of revenue that’s not dependent on placing paying passengers in seats. The airline is also opening a training hub in the continental U.S. to recruit and train pilots for its passenger and cargo service operations.

Why Amazon and Hawaiian Airlines are teaming up

Hawaiian Airlines suffered a drop in passenger volume due to the pandemic. Its flights from Japan to Hawaii were particularly hard hit as Japan was locked down, limiting travel throughout most of the health emergency. To survive, the airline decided to pivot and enter into offering cargo services to overcome the loss of revenue from passenger service. This has allowed Hawaiian Airlines to earn income as it waits for passenger air travel to return to pre-pandemic levels.

Amazon is partnering with airlines as a supplement to its own fleet of airplanes for moving cargo across the country. This allows for more items to be eligible for the company’s two-day Prime Shipping. Because of the enormous cost of purchasing planes, Amazon is partnering with airliner companies to save money.

By going this route, Amazon seeks to exercise more control over its supply chain and puts pressure on rival cargo carriers UPS and FedEx. Partnering with Hawaiian Airlines improves Amazon’s cargo capacity while eliminating the need to build a fleet from the ground up. However, Amazon will be able to control the scheduling of flights.

The partnership benefits both companies — it provides Hawaiian Airlines with guaranteed revenue and expands cargo capacity for Amazon. Amazon also benefits by having more control over the delivery process while keeping both costs and risk low.

Impact of the deal on Hawaiian Airlines stock

The deal was announced on October 21, 2022 and caused the price of Hawaiian Airlines stock to surge from $14.09 to a high of $16.00 at one point during the trading day. However, the stock quickly gave up most of its gains on Monday, October 24, reaching a low of $14.72 on the day. The week was volatile for Hawaiian Airlines stock as it gave up its gains and reached a mid-week trading low of $14.06 at the end of the trading day on Wednesday, October 26. It closed at 14.37 on November 1, 2022.

At present, investors are leery of the airline industry as a whole. Flight volume has yet to return to pre-pandemic levels, and fewer qualified pilots and crews are available to handle planes. It’s estimated that the airline industry is short 8,000 qualified pilots, and it will take years to fill those openings. In the meantime, consumers are spending less money on tangible goods, something that impacts Amazon’s profitability.

Investors who are interested in Hawaiian Airlines stock because of this agreement are best served to hold tight. As with many business agreements, there was an initial surge in the stock price as investors heard the news. However, the stock price usually comes back down as the excitement fades, which is exactly what has happened.

Because of this phenomenon, long-term investors are advised to pay attention to news reports about this deal going forward. These reports can offer insight into how well or poorly the operation performs. If reports reveal that the agreement is running better than expected, then investors can choose to build a position slowly.

The wild cards here are passenger travel and inflation. Most Hawaiian Airlines flights are to Asia and areas in the South Pacific, such as New Zealand and Australia. Passenger travel should slowly increase as countries begin to open back up from lockdowns and ease travel restrictions.

High inflation also plays an impact on passenger levels as fewer people can afford to travel since more of their income is going toward basic essentials. Since this instance of inflation is global, there is no escaping it. This means travel to foreign countries will be much more expensive than it had been previously.

Bottom Line

The deal between Amazon and Hawaiian Airlines has a sound foundation but it’s subject to market forces that may influence how well the agreement plays out. Both companies are looking to future-proof certain aspects of their operations, entering into this partnership makes a lot sense. Hawaiian Airlines gains a steady source of revenue, and Amazon doesn’t have to build out a cargo fleet as it did with ground transportation.

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