Hawaiian Airlines' parent company, Hawaiian Holdings (HA - Get Report) , took a nosedive on Monday -- falling nearly 10% -- after Deutsche Bank spotted a direct competitive threat" from Southwest Airlines (LUV - Get Report) .
The bank dropped the company to sell from hold on Monday as Southwest Airlines moves to expand offerings for the island.
This week Southwest said it would ramp up its flights to Hawaii, starting with service on March 17 from Oakland to Honolulu, and followed by more flights next month to Maui and then even more in May.
A team of Deutsche Bank research analysts said they had previously believed Southwest's California to Hawaii service would be a priority, with flights that would limit opportunities for inter-island travel that wouldn't make sense on Boeing 737-800s and MAX 8s.
"However, it has been reported that Southwest will schedule its Hawaii aircraft on 3-day rotations which include one full-day (i.e. Day 2) in Hawaii operating inter-island service. As a result, Southwest will be able to fully allocate 175 of its seats for the majority of its inter-island flights providing formidable competition against Hawaiian's 128-seat Boeing 717s," wrote research analysts Michael Linenberg, Koosh Patel, Matt Fallon and Doug Runte.
The team called this a "direct competitive threat" to Hawaiian Airline's profitable inter-island business -- estimated as pulling in a quarter of Hawaiian's revenue. It also saw "further downside risk" to the bank's 2019 earnings per share forecast.
"Hawaii's inter-island market has been a challenging place to succeed when there has been more than one major operator. And while we have yet to see the full unveiling of Southwest's schedule, we do think that LUV's presence will pressure Hawaiian's profit margins," wrote the team.
The bank is lowering its 12-month price target to $27 from $33.
Hawaiian Holdings was down to $26.65 on Monday, while Southwest was also trading down 1.73% to $53.42.