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Analysts Downgraded Hawaiian Airlines on Rising Competition


Mar. 27 2019, Updated 2:11 p.m. ET

Rating downgrade

Hawaiian Airlines (HA) faces a rating downgrade on fears of a rising competitive threat from Southwest Airlines (LUV). Following Southwest’s March 4 announcement of launching its services to the Hawaiian islands, Deutsche Bank downgraded its rating on Hawaiian Airlines while Buckingham Research lowered its target price.

On March 4, Deutsche Bank said it sees a direct competitive threat to Hawaiian Airlines as Southwest is set to start its services to the island from four California cities—Oakland, San Jose, San Diego, and Sacramento. The bank’s analyst Michael Linenberg believes Hawaiian Airlines will be hurt the most from Southwest’s inter-island business, as it’s the most profitable route for the company.

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Southwest is known for its low fares. The company, in its promotional offer, had kept its inter-island one-way fare as low as $29, which is a quarter Hawaiian Airlines’ fares. To remain competitive and retain its market share, Hawaiian Airlines will have to lower its tariffs drastically, which could hurt its revenues and margins.

Citing increased competitive pressure, Linenberg downgraded his rating for Hawaiian Airlines to “sell” from “hold” and cut its target price on the stock to $27 from $33.

Buckingham Research also lowered its one-year target price for Hawaiian Airlines to $28 from $33. Nonetheless, the research firm reaffirmed its “neutral” recommendation on the stock.

Consensus rating

Most analysts polled by Reuters still maintain a “hold” recommendation on Hawaiian Airlines and a consensus target price of $31.18. Among the 13 analysts covering Hawaiian Airlines stock, 23% recommended a “strong buy” or “buy,” 46% recommended a “hold,” and the remaining 31% recommend a “strong sell” or “sell.”

The majority of analysts are bullish on the airline industry (IYT). Analysts have “buy” ratings on major US air carriers including Delta Air Lines (DAL), Southwest Airlines, and United Airlines (UAL). Wall Street’s one-year target prices for Delta, Southwest, and United suggest returns of 23.1%, 22.9%, and 31.4%, respectively.


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