First Hawaiian deposits hit record high

By Dave Segal
Article from: Star-Advertiser

First Hawaiian Bank, the state’s largest bank in terms of assets, posted flat second-quarter earnings compared with a year ago but saw deposits jump 11.6 percent to a record $11.7 billion.

The bank, which released its earnings today, said net income slipped 0.4 percent to $54.5 million from $54.7 million in the year-earlier quarter. Deposits, though, increased from $10.8 billion in the first quarter and $10.5 billion in the second quarter of 2010.

“The deposit growth is reflective of both an increase in market share and also a wait-and-see attitude by our customers,” First Hawaiian Chairman and CEO Don Horner said. “The economy is improving, but our businesses are choosing to pay down debt and build cash reserves.”

Still, Horner said that despite weakness in the construction sector and sluggishness in employer hiring, the tourism and retail sectors are “producing positive trends which reflect improvement in consumer confidence.”

Last week, First Hawaiian, the state’s largest local credit and debit card processor of merchant services, said card sales at businesses open at least a year rose 8 percent over the same period a year ago and followed first-quarter growth of 10.7 percent.

“First Hawaiian remains committed and well positioned to supporting our customers, especially during these challenged economic times.”

The bank said total assets rose 0.3 percent to $14.8 billion last quarter from $14.7 billion a year ago but fell from $15.2 billion at the end of the first quarter. Loans and leases increased 2.2 percent to $8.2 billion from $8.1 billion a year ago but remained even with the first quarter of this year.

Nonperforming assets remained one of the strongest in the U.S. at 0.2 percent of total assets, the same level as a year ago.

“The bank’s strong credit quality has been consistent through the economic cycle,” Horner said. “In many ways the bank is old-fashioned because we look to our customers’ strength and character rather than the strength of their credit score. That credit philosophy has served us well.”

Horner said a challenge for the bank going forward is the lack of growth in its loan portfolio because of a decrease in demand.

“Given our strong deposit growth, the bank has substantial liquidity to lend,” he said.

First Hawaiian, a wholly owned subsidiary of French banking giant BNP Paribas, is not required to separately report its earnings, but does so voluntarily each quarter.

The Honolulu-based bank, founded in 1858, has 58 branches in Hawaii, three on Guam and two on Saipan.

Heavy hitters join board to gird for HEI bid

Ex-officials of the CIA and federal Energy Department ante up as the $35 billion plan gains momentum

By Andrew Gomes
Article from: Star-Advertiser

A $35 billion plan to buy Hawaii’s main electric utility and quickly get it off fossil fuel while reducing rates for consumers was greeted with heavy skepticism in January when the ambitious endeavor was made public.

Some dismissed the initiative by an entrepreneurial Minnesotan who moved to Hawaii last year as unrealistic or, worse, a joke. Others lauded the idea but figured it was financially impossible and wouldn’t gain traction.

But since then the venture named Ku‘oko‘a Inc. has attracted several leaders with powerful connections, including a past chief of the Central Intelligency Agency and a former deputy secretary of the federal Department of Energy.

T.J. Glauthier, the Energy Department’s No. 2 official from 1999 to 2001, and R. James Woolsey, CIA director from 1993 to 1995, have joined Ku‘oko‘a as investors and board members.

Rob Robinson, a Hawaii venture capitalist and professor of entrepreneurship and e-business at the University of Hawaii, is another investor taking a seat on the board recently.

And Rick Blangiardi, general manager of local TV broadcaster Hawaii News Now, agreed to serve as Ku‘oko‘a’s board vice chairman.

In all, Ku‘oko‘a has eight board members, and the addition of one or two more is being considered.

The company’s goal is to buy Hawaiian Electric Industries Inc., which provides power to about 95 percent of the state’s population, and shift it completely from its current dependence on imported oil to alternative energy sources within 10 years.

Of the eight board members, seven aren’t involved in running Ku‘oko‘a as employees or executive officers. But they all have invested money in the startup, giving them a financial stake in realizing the plan, according to Alan Tang, Ku‘oko‘a’s chief strategy officer and the owner of local marketing firm Olomana Marketing.

“They are committed to the vision,” Tang said.

Individual investments weren’t disclosed, but Tang said the total amount is roughly a “few hundred thousand dollars.” Some local business leaders said Ku‘oko‘a’s founder sought $20,000 investments with offers for a seat on the board.

Investments tied to board positions are common for startup companies trying to raise seed capital, according to corporate governance experts. Such board members differ from independent directors, who typically provide guidance to well-established companies and are paid for attending meetings.

Glauthier, who is involved in the private-sector energy industry and was on the 2008 transition team helping Barack Obama assume the presidency, said he examined Ku‘oko‘a closely.

“I looked at it hard before agreeing to sign on,” he said. ”I believe it’s feasible.”

Woolsey, whose introduction to Ku‘oko‘a was made by Glauthier, said he has high regard for Glauthier’s judgment of people and technology. Woolsey is also a founding member of an organization dedicated to freeing the United States from its dependence on oil for fuel, and views Hawaii as an opportunity to demonstrate that independence from oil can be achieved.

“It’s a very interesting opportunity,” Woolsey said of Ku‘oko‘a, which is the Hawaiian word for freedom or independence. “It seems to me it’s really worth a try.”

Ku‘oko‘a’s vision is to tap a variety of renewable energy sources to replace oil as Hawaii’s main source for electricity. The backbone of the plan is to derive most electricity from geothermal energy on Hawaii island and Maui for delivery to Oahu and other islands via undersea cables.

Geothermal power is proven and has the benefit of not being an intermittent source of energy like the sun and wind. An existing geothermal plant on Hawaii island, Puna Geothermal Venture, supplies about 20 percent of that island’s electricity needs.

Other power sources such as wind, solar, biofuel, wave and ocean thermal energy would likely also play roles, though geothermal would supply the base load and is the linchpin to Ku‘oko‘a’s plan, according to Roald Marth, a self-described nerd from Minnesota who started Ku‘oko‘a and is the company’s chief executive officer.

Marth told a Rotary Club of Honolulu meeting in April that geothermal energy might even be able to oversupply the state with power, allowing extra power to be exported if converted to another form such as liquid hydrogen.

The exports and fixed energy costs, according to Marth, would not only insulate ratepayers from higher oil prices and electricity rates, but also would cut the cost of electricity to 20 cents per kilowatt-hour statewide. Presently the rate is about 30 cents on Oahu and around 40 cents on neighbor islands.

Marth also told the Rotary Club group that a state plan to reduce Hawaii’s dependence on oil, the Clean Energy Initiative, will result in too little alternative energy too late.

The initiative, launched in 2008 with support from the U.S. Department of Energy, has a goal to reduce statewide energy consumption by 30 percent through efficiency and shift 40 percent of production to renewable sources by 2030. Renewable energy production under the initiative is largely based on planned but controversial wind farms on Maui and Lanai.

Even if the state’s goal is achieved, Hawaii could still be 60 percent reliant on oil that could cost $300 or $400 a barrel — enough to drive the price of a kilowatt-hour of electricity to 80 cents, Marth told the group.

“The Hawaii Clean Energy Initiative does not go far enough and does not go fast enough,” he said. “The cost of electricity and the cost of fuel is killing the economy of Hawaii — and it can be fixed.”

Of course, Ku‘oko‘a’s plan is far from being realized, and faces monumental obstacles.

The company is still in a formation stage, has no physical office and has not made a formal bid to buy Hawaiian Electric.

Hawaiian Electric saidin January that it would not acknowledge or comment on any purchase offer it might receive, and the company reiterated that position last week.

Buying Hawaiian Electric — with its subsidiaries on Oahu, Maui and Hawaii island — would be at least a $2.3 billion proposition based on the company’s market value.

Marth has estimated total costs of buying the utility plus shifting it to 100 percent renewable energy production and delivery could be roughly $35 billion over 10 years.

To date, Marth has raised some seed money from investors but has largely funded Ku‘oko‘a himself. He said he has personally contributed $1.2 million. Most of that, according to Tang, is to pay salaries for eight executives and a similar number of employees.

Marth claims to have 26 investment bankers interested in financing the $35 billion plan. “I’m fighting off the money right now,” he said at the Rotary Club meeting.

Some observers question whether it’s feasible to run a cable along the extremely rough and deep Alenuihaha Channel between Hawaii island and Maui.

Marth says it can be done, though not easily or cheaply. According to Puna Geothermal, the state investigated the feasibility of an Alenuihaha Channel cable in the 1980s and concluded it was possible but too costly without considerable government subsidies. The state estimates it will cost $800 million to $1 billion to install a cable linking Oahu to wind farms on Molokai and Lanai.

Marth has said a company like Hawaiian Electric with public shareholders interested in growing quarterly profits faces a disincentive to invest billions of dollars in renewable energy production.

A company like Ku‘oko‘a with private capital focused on long-term returns from renewable energy investments is necessary to make the conversion, he said.

One big concern for local consumers and businesses is whether such a return could be achieved without coming at the expense of ratepayers. Some stock analysts and energy industry experts have expressed doubt about Ku‘oko‘a’s plan penciling out.

Another uncertainty is whether the state Public Utilities Commission, which regulates utilities, would approve a purchase of Hawaiian Electric.

Beside the technical and financial issues, much skepticism raised in January focused on the people leading Ku‘oko‘a.

Marth, 46, is a former real estate agent and motivational speaker who later co-founded and sold two companies — one that provided technology and software training for the real estate industry and one that provided Internet services to real estate agents.

Two initial partners also helped Marth start Ku‘oko‘a. One is Richard Ha, owner of Hamakua Springs Country Farms on Hawaii island. Ha, who is Ku‘oko‘a’s board chairman, has researched alternative energy as a source for his business and is co-chairman of a state advisory group on geothermal energy.

Ku‘oko‘a’s other initial partner is Ted Peck, who quit his job as the state’s energy administrator to become company president. Peck, among other things, directed Hawaii’s Clean Energy Initiative.

Marth has said Ku‘oko‘a has been belittled as a plan by a motivational speaker, a tomato farmer and a bureaucrat. He told the Rotary Club audience that the founding partners have a lot of talent and drive that is now being combined with board members and others on Ku‘oko‘a’s team to move the initiative forward.

“We’re not just the tomato farmer and the bureaucrat and the motivational speaker trying to buy an electric utility,” Marth said. “That’s not what we’re about. We’re a bunch of really, really smart, determined people with a little bit of money who are trying to build a new industry in Hawaii.”

Australian airline plans Brisbane-Oahu flights

Strategic is expected to offer three trips a week beginning late this year

By Dave Segal
Article from: Star-Advertiser

Michael James, who started Brisbane-based Strategic Airlines less than two years ago, has his sights set on Honolulu as the carrier’s first U.S. destination. James is the managing director of the airline and CEO of the parent company, Strategic Aviation Group.

Strategic Airlines, a 22-month-old Australian carrier, plans to announce in the next two weeks that it will inaugurate nonstop service between Brisbane and Honolulu later this year.

Heather Jeffery, spokeswoman for the Brisbane-based carrier, confirmed today from Australia that it is the airline’s intention to announce new routes “in the next fortnight” and that Brisbane-Honolulu will be one of the new services. She said operations are expected to begin in November or December.

Strategic applied with the U.S. Department of Transportation last month to fly between Australia and the United States and proposed that its first route be Brisbane-Honolulu.

The airline is expected to fly between the two cities three times a week starting in December, said David Uchiyama, Hawaii Tourism Authority vice president of brand management. He said the new service from Brisbane would open the state to a new market because all the airlines now flying to the islands from Australia come out of Sydney.

“Strategically, it’s important because we’d be able to draw from a different part of the country without them having to transit through Sydney,” Uchiyama said.

“They were here a couple of weeks ago, and we had meetings with them and they met with the state and with some industry partners. If the Brisbane departures are successful, they’d consider originating out of Melbourne.”

Australia has been a burgeoning market for Hawaii, with Hawaiian Airlines, Jetstar Airways and Qantas Airways all carrying Australian visitors to the islands. There were 143,742 visitors from Australia who came to Hawaii in 2010, up 18.3 percent from 2009.

Through the first five months of 2011, Australia arrivals are up 41.3 percent to 78,708 from 55,727 in the corresponding period in 2010, while daily per person spending is ahead 22.3 percent to $253.77 from $207.74.

Strategic has one long-range A330-200 aircraft and six A320-200s that are used for short- and medium-range flights. The company plans to add two Airbus A330s within six months, said Damien Vasta, executive commercial officer for its parent company, Strategic Aviation Group.

Strategic uses its lone 273-seat A330 to fly from Brisbane to Bali, Indonesia, and Phuket, Thailand, as well as between Melbourne and Phuket.

Jeffery, the carrier’s spokeswoman, said the airline plans to re-brand and rename itself later this year.

Several news outlets in Australia reported the airline’s new name likely will be Air Australia.

“Hawaii is definitely in our planning as well as China,” she said.

The airline is privately held by 34-year-old entrepreneur Michael James, its managing director and Strategic Aviation Group CEO.

Jobless recovery persists in Hawaii

Retail and tourism sectors rise but the construction industry “has yet to turn the corner”

By Dave Segal
Article from: Star-Advertiser

Credit card sales at businesses open at least a year rose 8 percent over the same period a year ago, according to a second-quarter business activity report released today by First Hawaiian Bank.

First Hawaiian Bank reports that Hawaii hotels had the second-largest increase in year-over-year transaction volume at 15.1 percent and accounted for the highest transaction volume at $149.9 million.

Consumers pulled out their credit and debit cards more liberally last quarter and increased spending at Hawaii hotels and restaurants as the tourism-led recovery continued to gain traction.

Credit card sales at businesses open at least a year rose 8 percent over the same period a year ago, according to a second-quarter business activity report released today by First Hawaiian Bank, the state’s largest local card processor of merchant services. The increase follows first-quarter growth of 10.7 percent over the year-earlier period.

While the report showed year-over-year gains in 14 of the 16 sectors it tracks, it doesn’t include the lagging construction sector since credit and debit cards aren’t typically used in that industry.

“We continue to be encouraged by the positive trends in both our tourism and retail sectors,” First Hawaiian President Bob Harrison said. “However, our recovery continues to be fragile and is unfortunately, to date, a jobless recovery. This is, in part, due to the continued weakness of our construction segment.”

Convenience stores showed the largest percentage increase in transaction volume with a 19.4 percent gain to $14.9 million. Hotels had the second-largest increase at 15.1 percent and accounted for the highest transaction volume at $149.9 million.

First Hawaiian CEO Don Horner said the growth in the hotel sector for the quarter reflects the strength of the tourism industry, which has continued to gain market share.

“The numbers include not only an increase in the visitor count but also an increase in the average room rate,” he said. “Our hotels were able to not only improve volume but also improve margin, which translates into an important increase in the transient accommodations tax, which helps fund our public sector.”

Visitor arrivals through May were up 6.7 percent to 2.8 million and visitor spending was ahead 15.3 percent at $4.3 billion. Statewide hotel occupancy for the same period was up 4.7 percentage points to 73.2 percent while the average daily room rate grew 9.0 percent to $188.21.

Restaurants had the second-highest transaction volume at $98 million even though it was up just 8.2 percent from a year earlier.

Home furnishings, which slipped 0.8 percent in transaction volume to $22.7 million, and travel agencies, off 25.6 percent to $25.1 million, were the only sectors that had deceased spending from the year-earlier period.

“The decrease in home furnishings is a reflection of the slower real estate market while travel, which includes outbound, is down because more people are staying home,” Horner said.

Construction, though, continues to be a major drag on Hawaii’s recovery.

In the first quarter, residential building permits plunged 37.7 percent, construction permits declined 16.4 percent, commercial and industrial permits were down 9.5 percent and government contracts were off 9.2 percent, according to the most recent data from the state Department of Business, Economic Development & Tourism.

And construction jobs are also lagging despite the state unemployment rate in May falling to 6 percent, matching its lowest level since January 2009, according to the state Department of Labor and Industrial Relations.

Through the first five months of this year, not-seasonally-adjusted construction jobs were down 2.3 percent to 140,800 from 144,100 during the same period a year ago, according to the Labor Department.

“Construction has yet to turn the corner in the recovery from the recession,” First Hawaiian economic adviser Leroy Laney said. “That’s the lagging sector of the economy.”

First Hawaiian, the largest bank in the state with $15.2 billion in assets at the end of the first quarter, processed more than $1.8 billion worth of credit and debit card sales transactions during the first half of this year, a 10.9 percent increase over the same period a year ago.

The bank has more than 7,500 merchant locations throughout Hawaii, Guam and the Commonwealth of the Northern Mariana Islands.

For Hawaiian Air, Osaka is just the start

After unveiling the carrier’s new route, an executive hints at further expansion

By Dave Segal
Article from: Star-Advertiser

Hawaiian Airlines launched its third Asian route in eight months Tuesday and said it plans to announce service to more new markets before the end of the year.

The state’s largest carrier, which has been aggressively expanding as other domestic and international airlines have been scaling back, kicked off its inaugural flight to Osaka, Japan, with music, dancing, a Hawaiian blessing and the traditional maile lei. The new service comes on the heels of Hawaiian’s inaugural flights to Tokyo’s Haneda International Airport in November and South Korea’s Incheon International Airport in January.

And there’s more expansion to come.

Hawaiian Chief Financial Officer Peter Ingram, who said bookings from Japan have been “very, very strong” despite the March 11 earthquake and tsunami, said the airline will make more route announcements next quarter.

“We’ve got some ideas about other places in Asia. We’ve got some ideas about other places in North America,” Ingram said. “And we have some aircraft availability coming up next year.”

Ingram said Hawaiian will take delivery of four Airbus A330-200s next year that will give the company the opportunity to look at some new markets.

Hawaiian, which said on March 31 it was maintaining daily Tokyo flights and moving forward with its Osaka service even though other carriers cut service due to the disasters, has been rewarded for its commitment to Japan.

“We’ve seen a real strong recovery (in Japan) as we’ve gone into the summer,” Ingram said. “Bookings for June and July are very, very strong, and we’re confident about a continuation of strong bookings going forward.”

Until Tuesday only Delta Air Lines and Japan Airlines offered daily flights from Osaka, which is Japan’s third-largest city with 2.62 million residents. The Osaka region — which includes Kyoto and Kobe — has more than 18 million residents.

The Hawaii Tourism Authority said last month it expects Japanese arrivals to increase by 3.3 percent this year to nearly 1.3 million visitors and spending to rise by 8.2 percent to $2.1 billion.

HTA CEO Mike McCartney, who flew on the Osaka flight Tuesday, said the new service will result in up to $120 million in visitor spending per year and $18 million in state tax revenue based on 86 percent capacity on the flights. For all three of Hawaiian’s new Asia flights, McCartney said the annual payoff will be up to $350 million in visitor spending and $38 million in tax revenue.

“Osaka is like a new region for us, and I think they’re hungry for Hawaii and want to experience Hawaii,” he said. “So it’s a good opportunity for the travel industry in Osaka and for us.”

Hawaiian’s flight to Osaka will depart Honolulu daily at 2:20 p.m. and arrive at Kansai International Airport at 6 p.m. the next day. The return flight will leave Osaka at 9:30 p.m. and arrive in Honolulu at 10:50 a.m. the same day. The flights will take between eight and nine hours. Japan is 19 hours ahead of Hawaii.

Akio Hoshino, president of JTB Hawaii Travel LLC, said Hawaiian’s new Osaka route is a welcome development for the tour operator after Japan Airlines decreased its seat capacity.

“It’s a very good opportunity for Hawaiian and Japan to have this new route,” Hoshino said. “We cannot survive without having air seats, so this is a great opportunity for the tourism industry in Japan.”

Leon Yoshida, president and CEO of travel agency Tellmeclub Hawaii, also welcomed the new route.

“Any time we’re looking at additional flights, it’s good for all of us, not just the tour companies,” he said.

Passengers Christine and Fritz Harris-Glade, former Hawaii residents who now live on Whidbey Island, north of Seattle, were excited Tuesday to be making their first trip to Japan after winning an online sweepstakes held by Hawaiian.

“We didn’t believe it when we heard,” Christine said. “I was a little skeptical because I didn’t think we had won, but we’re very excited to go.”

Fritz said he had received an email six weeks ago about the sweepstakes and entered his mileage number.

“I forgot all about it,” he admitted, “and then six weeks later I got a phone call and here we are.”