HONOLULU ( TheStreet) -- In November, Hawaiian ( HA - Get Report) began service between Honolulu and Tokyo's Haneda Airport, using a Boeing ( BA) 767 seating 260 passengers. Eight months later, it upgraded to a bigger, newer airplane, an Airbus A330 with 294 seats.

While replacing an aircraft with a bigger aircraft generally denotes strong demand, Hawaiian's capacity increase has a second dimension: The vast majority of passengers between Tokyo and Honolulu are Japanese tourists who buy tickets with yen, while Hawaiian pays most bills in dollars. Hence, currency exchange is benefitting the carrier, not just on routes to Japan, but also to Australia and Korea, whose currencies are also strong.
Mark Dunkerley, CEO of Hawaiian Airlines

"The strong yen is spurring traffic to the U.S.," said Hawaiian CEO Mark Dunkerley, in an interview with TheStreet. "It's hard to quantify exactly, but you only have to visit Japan and buy things with dollars to appreciate how expensive it is, or to see how Japanese customers in Hawaii, to understand how affordable it is."

He said Asia flights account for about 10% to 12% of revenue -- and that's growing. Hawaiian began Honolulu-Osaka service in July. It is scheduled to take delivery of a new A330 in October and four more early in 2012, bringing the total to nine. Dunkerley indicated some of the new aircraft will fly to Asia, although he declined to specify destinations.

"We are seeing very strong demand for our services in Japan, and we are looking at Asia in general for further expansion in 2012, in large part due to the strength of the Asian currencies versus the dollar," he said. "As the fleet of A330s grows, you can expect to see A330s flying to Asia."

Lucrative Mainland Flights

At the moment, however, with just four A330s, it makes sense to use some on mainland U.S. routes, which are shorter and lend themselves to higher utilization of the aircraft, he said.

Hawaiian gets more than half of its revenue from flights to ten U.S. cities, with about a third derived from inter-Hawaii flying. The mainland market is intensely competitive, with all of the major U.S. carriers involved. United ( UAL - Get Report) and Hawaiian each have about 30% of the market, while Delta ( DAL - Get Report) has about 18%. Dunkerley said capacity is flat compared to a year ago.

So far, stock market volatility and weak world economies have not diminished bookings. "Anxiety in the financial markets and a low level of consumer confidence are not reflected in demand," he said. "In keeping with our experience in 2008 and 2009, as we entered a recession, we found that vacations in Hawaii were not as discretionary an expense as people anticipated -- demand held up well."

Despite the positive trends, Hawaiian shares, like those of other airlines, have not fared well this year. This year, they are down 50%, trading Wednesday morning at $3.92. The stock had its moment of glory in 2008, reaching $11.10 a share, after two principal competitors went out of business.

"Hawaiian was a beat-down company that got life when its competitors died," said Avondale Partners analyst Bob McAdoo. "So you bought it for the recovery."

But now, McAdoo said, "The nature of Hawaiian as an investment may be changing to a bet on the strong yen and other Asian currencies -- which is something people haven't focused on yet."

Tokyo-Honolulu is one of the world's biggest international markets. Most flights serve Tokyo Narita, which has nine widebody flights a day. Only three carriers -- Hawaiian and Japanese carriers ANA and JAL -- fly Haneda-Honolulu.

In 2010, Hawaiian was one of four U.S. carriers awarded a Haneda route by the U.S. Transportation Department.

"We were fortunate enough to secure one of the routes to Haneda, when there were only four of them, and we are the only one" not to cut back, Dunkerley said.

In the wake of the March earthquake and tsunami in Japan, American Airlines ( AMR) suspended Haneda-New York Kennedy service, while Delta has suspended Haneda-Detroit (it continues to fly Los Angeles-Haneda). "We suspended Detroit-Haneda this week for the winter, but it will return next summer on a year-round basis," said Delta spokesman Trebor Banstetter.

Dunkerley said Hawaiian is now benefitting from its decision not to cut back in Japan. "We were the only airline not to reduce service to Japan in the aftermath," of the disasters, Dunkerley said. "That was a conscious decision against an expectation it would bounce back sooner rather than later. Such was our confidence that, having already announced plans to start Osaka, we did start service as planned.

"Today we are seeing levels of traffic in Japan not only back to levels before the tsunami, but actually ahead of them." he said.

-- Written by Ted Reed in Charlotte, N.C. .

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