Recognizing that much of its growth will come from markets outside the United States, Hawaiian Airlines opened new routes to destinations in Japan and South Korea this year, and it did so using a project-management approach the company evolved when it began service to the Philippines in 2008.
Demand from a country’s consumers for travel to Hawaii and revenue opportunity are the key factors in deciding on new routes. However, whether it’s entering a developed economy like Japan’s or developing markets like South Korea and the Philippines, the Honolulu-based airline with $1.3 billion in 2010 revenue follows a process that begins with assessing the revenue opportunity, costs and regulatory hurdles.
“We’ve developed a repeatable process around the entry into a market, especially if it’s a country we haven’t served before,” says Peter Ingram, Hawaiian Airlines’ CFO since 2005.
Ingram says the airline’s marketing, finance, legal and operations departments work together closely to decide whether to enter a country. Revenue may appear promising to marketing and sales executives, but if operating expenses are prohibitive, then the opportunity may be limited.
Treasury and finance address many of the operational details, Ingram says, including processes for hiring and paying employees, tax filing requirements and how payments are processed. Hawaiian Airlines discovered, for example, that not all credit cards in South Korea were affiliated with a big processing system and not having the right mechanism to process those card payments could result in lost sales.
“We had to learn about popular forms of payments there, so when we were setting up our Web site to sell tickets in Korea we could set up as many possible forms of payment that our customers wanted to use,” Ingram says.
Many South Korean credit cards are unique to specific banks, he adds. “So we had to set up separate mechanisms in our credit card acceptance process to process those cards and feed the information to the appropriate bank.”
That involved dealing with the banks in a different language, culture and time zone, and adapting to local business practices. Ingram says addressing those issues with local sales agents that the company is often already working with in other parts of the business, such as cargo, has proved invaluable. In fact, identifying sales agents is a key part of Hawaiian Airlines’ process for entering a new country and typically an early one, since the airline usually has already established an economic presence there, perhaps to sell interline tickets, those used by travelers whose trips involve multiple airlines.
Ingram says the company is building those types of relationships in China, where it’s still difficult for nationals to get visas to fly to the United States. When the restrictions ease, he says, “we’ll take the experience we’re learning today by building a sales presence and commercial relationships in that marketplace to ease the transition into operating there directly with our own metal.”
Ingram says Koreans purchase tickets through travel agencies and also over the Internet, a method that is less common there than in the U.S., although more common than it is in Japan.
Hawaiian Airlines was well-acquainted with tackling the distribution channel of travel agencies. Although it has been at least a decade since travel agencies were a significant channel in the U.S., they’re still prevalent in the Philippines, where the airline began flying in 2008. The Philippines travel-agency industry is highly fractured and competitive, Ingram says, and having a local general sales agent was very important in understanding which agencies were most relevant in terms of travel between Hawaii and the Philippines.
The airline supplemented the information from the local general sales agent with data generated by organizations such as the International Air Transport Association. “There’s data mining we can do to learn where tickets are being bought and which bases we need to touch,” Ingram says.
Hawaiian Airlines found that much of the travel between Manila and Hawaii reflects visits to friends and family, and consequently a lot of the travel decisions are made in Hawaii, he says. “So reaching out to the Philippine community here in Hawaii, through cultural organizations or travel agencies that do a lot of business for travel between the Philippines and Hawaii was an important part of preparing ourselves.”
Hawaiian Airlines’ finance executives are tasked with figuring out distribution channel and other costs. “We set prices and build expectations about what demand is in the market, based on all the costs of operating there,” Ingram says.
He says repatriating currency from South Korea and the Philippines is relatively easy. That’s important for U.S. airlines, he adds, because unlike many other industries, they collect foreign currency in ticket sales, but most of their expenses, such as fuel, labor and leasing aircraft, are denominated in U.S. dollars. So the airline takes in significantly more revenue in foreign currencies than it has in expenses in those countries. Hawaiian Airlines’ treasury aims to leave just enough revenue in the countries to which it flies to cover expenses there and bring the rest back to the U.S. to cover domestic expenses.
“The last thing we want to do is enter a market and generate lots of revenue and then find we can’t actually touch it,” Ingram says.
See more stories here about countries where multinationals have spotted opportunities.