Hawaiian Air's Routes, Margins Grow but Flat Share Price Bugs CEO

McAdoo, who has a $9 price target on Hawaiian, noted that "these capacity challenges will ease in 2013 as schedules are optimized for seasonal changes in demand." Said Dunkerley: "I don't see anything wrong with the way we are situated in the Bay Area, but it will take time until capacity rationalizes or demand grows to fill it."

RASM has also been impacted by new Hawaiian service in three long-haul markets. When a carrier adds long flights, revenue is spread over more miles, so RASM declines (cost per mile also declines.) This year, Hawaiian has added service from Hawaii to Fukuoka and Sapporo in Japan and to New York. Capacity has also expanded within Hawaii, chiefly because of Hawaiian itself, which added a Maui hub. Hawaiian capacity is 25% intra-island, 47% mainland and 28% in Asia.

An October report on Hawaiian by Wolfe Trahan analyst Hunter Keay was titled "Something Isn't Working." Keay said that typically "when airlines grow capacity and report good results, their P/E multiples tend to expand," and yet the opposite is happening for Hawaiian.

"Network expansion into Asia has seemingly fallen on deaf ears amongst investors, who we believe are focusing more on competitive capacity incursions from Allegiant and Alaska on the west coast," Keay wrote. With Hawaiian trading at $5.37 a share when he issued his report, Keay said that it is "now the cheapest stock we cover on nearly all metrics." With investors so unresponsive, Keay suggested that the cash-rich company could go private. Dunkerley declined to comment. Since Keay's report, shares have gained 10%.

For New York, Hawaiian's most visible 2012 accomplishment was the June start of Kennedy service in June, aboard an A330 seating 294 passengers. The flight competes with United's (UAL) Newark-Honolulu flight. "We're happy with New York," Dunkerley said. Advantages in competing with United are that "we've got an unsurpassed level of connections throughout the islands, our schedule is well-timed for the market and we've got a code share with JetBlue (JBLU) and use their terminal at JFK."

Dunkerley foresees more expansion. Hawaiian will begin service to Brisbane, Australia on Tuesday. It will take delivery of five more A330s in 2013. The strong yen means more travelers from Japan to Hawaii and better pricing ability, since most Hawaiian expenses are paid in dollars, while Japanese revenue is in yen. "Long term we are bullish about Asia, given the growing middle-class, which translates into a greater propensity to travel," he said.

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