Hawaiian Holdings, Inc. (NASDAQ:HA) Q1 2023 Earnings Conference Call April 25, 2023 4:30 PM ET Company Participants Marcy Morita - MD, IR Peter Ingram - President and CEO Brent Overbeek - CRO Shannon Okinaka - CFO Conference Call Participants Helane Becker - Cowen & Company Conor Cunningham - Melius Research Catherine O'Brien - Goldman Sachs Mike Linenberg - Deutsche Bank Dan McKenzie - Seaport Global Chris Stathoulopoulos - Susquehanna Operator Greetings and welcome to Hawaiian Holdings, Inc. First Quarter ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | |--------------------------------------------------|---------------------------------| | | | | Commission file | number 1-31443 | | HAWAIIAN | HOLDINGS ...

Revenue and Financial Performance - For the twelve months ended December 31, 2022, the company's revenue was approximately $2.6 billion, an increase of about $1.0 billion compared to 2021, but a decrease of approximately $191.0 million, or 6.7%, compared to the pre-pandemic period in 2019[70]. - Revenue from non-passenger operations, including cargo, accounted for approximately 11.6%, 14.1%, and 21.3% of total revenue during the years ending December 31, 2022, 2021, and 2020, respectively[75]. - The company is highly dependent on tourism to, from, and amongst the Hawaiian Islands, and financial results have been impacted by downturns in tourism levels due to the COVID-19 pandemic[78]. - The cost of jet fuel remains high and volatile, significantly impacting the company's operations and financial performance[81]. - The company experienced a significant decrease in demand for air travel due to the COVID-19 pandemic, which has led to operational challenges and reduced load capacity on flights[70]. - The company has faced increased competitive pressure on fares due to global economic volatility and uncertainty in demand for discretionary air travel[76]. - The ongoing global COVID-19 pandemic continues to pose risks to the company's operations, financial performance, and strategic objectives[69]. - The company has incurred ongoing expenditures to prevent information security breaches and expects these costs to continue[112]. - The company aims for aggressive cost-containment goals to maintain competitive fares while ensuring acceptable profit margins[123]. - The airline industry is characterized by low profit margins and high fixed costs, with significant competition from larger carriers that have greater financial resources[92]. - Inflation in 2022 increased costs for labor, fuel, and other services, which could reduce profit margins if price increases do not keep pace[94]. - Interest rate increases by the Federal Reserve have negatively impacted the fair value of the company's investments, affecting earnings and liquidity[95]. - The company’s financial liquidity could be adversely affected by credit market conditions, particularly due to the unpredictability of global credit markets[85]. - The company may incur additional indebtedness to meet future financing needs, which could limit cash flow available for operations[190]. - The company’s ability to satisfy obligations under its indebtedness may be impacted by adverse economic and industry conditions[190]. Operational Challenges - The company expects to incur additional costs to ramp up cargo operations for Amazon, including hiring crew and preparing maintenance for the Amazon fleet, which may negatively impact business results[75]. - The company has implemented enhanced health and safety measures to protect passengers and employees, which may further impact operations and results[72]. - The company is subject to various legal and regulatory risks related to COVID-19, including potential civil lawsuits and employee grievances[73]. - The company is subject to restrictive requirements under the Payroll Support Program 3 Agreement, including limitations on executive compensation through April 1, 2023[89]. - The company faces competitive pressures as approximately 73% of its passenger revenue was generated from North America routes, competing against larger network carriers[98]. - The company has entered into agreements with the Treasury under the CARES Act, which impose operating restrictions, including limits on executive compensation[89]. - The airline industry has substantial operating leverage, meaning a decrease in passenger numbers can lead to a disproportionately greater decrease in profits, especially in the context of economic downturns or external threats[136]. - The airline's operations are subject to significant seasonal volatility, with demand typically peaking during June, July, August, and December, and considerably weaker at other times of the year[139]. - Cargo operations also experience seasonal fluctuations, with demand historically low following the holiday peak in Q4[140]. - The airline industry faces potential adverse effects from terrorist attacks or hostilities, which could lead to decreased demand for air travel and increased operational costs[141]. - Extensive government regulations and potential new taxes could significantly increase operational costs and restrict airline operations[142]. - Compliance with FAA regulations requires significant expenditures, including maintenance and safety measures for older aircraft[144]. - Increased security measures and costs related to safety may impact financial performance[137]. Debt and Financial Obligations - As of December 31, 2022, the company had approximately $1.5 billion in outstanding commercial debt, excluding funds borrowed under the federal Payroll Support Program[87]. - The company has Japanese Yen denominated debt totaling $163.9 million as of December 31, 2022, which exposes it to foreign currency exchange rate fluctuations[83]. - Hawaiian had approximately $1.6 billion of total indebtedness as of December 31, 2022, which includes $1.2 billion principal amount incurred from the senior secured notes offering[190]. - The company is required to meet certain covenants under its financing agreements, and a breach could lead to a default, accelerating obligations and impacting financial stability[88]. - The company identified a material weakness in internal control over financial reporting as of March 31, 2022, June 30, 2022, and September 30, 2022, which has since been remediated as of December 31, 2022[195]. - The company may face litigation risks related to the restatement of financial statements and the identified material weakness in internal control over financial reporting[198]. Market and Competitive Environment - Approximately 89% of the company's passenger revenue was generated from Domestic routes during 2022, indicating a lack of geographical diversification[97]. - The company faces competitive disadvantages due to its reliance on specific city demand for North America flights, lacking a direct network to feed passengers[99]. - The company is increasingly dependent on technology and automated systems, with significant investments needed for upgrades and replacements, including the transition to the Amadeus Altéa Passenger Service System in April 2023[114]. - The company relies on code-share agreements to provide access to international destinations currently unserved, highlighting its dependence on partnerships for market reach[102]. - The company is exposed to potential losses from aircraft accidents, which could lead to significant claims and harm to reputation[127]. - The company faces risks related to compliance with privacy and data protection laws, which could lead to regulatory investigations and adversely affect reputation and financial condition[108]. - Any actual or perceived security breaches could result in significant financial expenditures for investigation, remediation, and potential liabilities, adversely affecting revenues and operating results[112]. - The company relies heavily on third-party contractors for critical services, and any failure by these providers could adversely affect revenues and operations[116]. Future Outlook and Strategic Considerations - The company has made substantial pre-delivery payments for Boeing 787-9 aircraft, with the first expected delivery in Q4 2023 and remaining deliveries scheduled through 2027[168]. - The carrying value of long-lived assets was approximately $1.9 billion as of December 31, 2022, and the company continues to evaluate these assets for potential impairment[172]. - Changes in U.S. tax laws, including a 1% excise tax on stock buybacks and a 15% alternative minimum tax, could materially increase the company's tax liabilities and operational costs[159]. - The company does not expect to repurchase its common stock or pay dividends for the foreseeable future due to restrictions and financial conditions[177]. - The market price of the company's stock is influenced by various factors, including operating results, competitive environment, and general economic conditions[176]. - The company is exposed to risks related to environmental regulations and sustainability goals, which may require significant capital investment and could impact brand reputation if not achieved[128]. - The company’s agreements with Amazon include termination rights that could adversely affect business operations and financial condition if exercised[133]. - The company must continuously invest in technology to mitigate risks associated with system failures and ensure operational efficiency[114].

Financial Data and Key Metrics Changes - The company reported an adjusted EBITDA of $25.6 million for Q4 2022 and an adjusted EBITDA loss of $31.0 million for the full year 2022, equating to an adjusted loss of $0.49 per share for Q4 and $4.08 per share for the full year [30][31] - Unit costs, excluding fuel and non-recurring items, were up 14.2% compared to 2019, driven by increases in wage rates and airport rents [31] Business Line Data and Key Metrics Changes - The company experienced strong demand for travel from North America and international markets, excluding Japan, with overall PRASM surpassing 2019 levels due to robust performance in premium and ancillary products [19][20] - Neighbor Island routes faced competitive pricing pressures, but the company managed to maintain yields above $39 when possible, achieving a load factor 22 points higher than competitors [22][23] Market Data and Key Metrics Changes - The recovery in Japanese travel demand has been slower than anticipated, attributed to consumer conservatism, government promotion of domestic travel, and the weakness of the yen [21][60] - The U.S. Mainland to Hawaii total passenger revenue was up 29% on 9% more capacity compared to Q4 2019, with load factors remaining in the high 80s [20] Company Strategy and Development Direction - The company is focused on operational execution to unlock efficiencies and maximize revenue generation in each market, while also investing in technology and fleet upgrades [10][36] - Plans include the launch of freighter operations for Amazon and the introduction of the Boeing 787-900, which will enhance premium offerings and overall capacity [15][32] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by ongoing operational issues, including construction at the Honolulu hub and supply chain constraints affecting A321 engines [12][14] - The company remains optimistic about the long-term recovery of the Japanese market and is prepared to adjust capacity as needed [7][21] Other Important Information - The company has made significant investments in technology and facility improvements, including a new passenger service system and enhancements to airport security checkpoints [16][33] - The company expects 2023 aircraft-related capital expenditures to be in the range of $290 million to $300 million, reflecting the delivery schedule for the 787s [32] Q&A Session Summary Question: Clarification on 1Q RASM guidance - Management explained that the guidance was year-over-year and not sequential, with factors like spoilage and softness in bookings impacting the outlook [38][40] Question: Impact of Amazon costs on 2023 - Management indicated that pilot training costs are intermingled with preparations for Amazon operations, affecting first-quarter costs [42][43] Question: Hiring and productivity levels - Management noted that about 20% of employees have joined since early 2022, and productivity is expected to improve as training progresses [46][48] Question: Japan routes and alliance considerations - Management confirmed ongoing commercial relationships with Japan Airlines and the potential to revisit joint venture applications in the future [50][51] Question: Japanese leisure market outlook - Management discussed the conservative nature of Japanese consumers and the impact of domestic travel incentives, with expectations for gradual normalization [60][62] Question: Operational challenges and revenue impacts - Management identified the slower recovery in Japan and Neighbor Island competition as significant near-term revenue drags, while operational challenges at Honolulu are manageable [70][71]

Financial Data and Key Metrics Changes - The third quarter revenue performance was as expected, with passenger revenue down just 4.5% from 2019, operating 113% of domestic capacity and 52% of international capacity compared to 2019 [15][21] - Adjusted EBITDA for the quarter was $47.9 million, with non-fuel costs up 10% compared to 2019 [21][22] - Fuel costs rose to $3.54 per gallon, up approximately 1.2% from previous guidance [21] Business Line Data and Key Metrics Changes - Neighbor Island routes saw a significant increase in load factors, up over 10 points compared to 2019, particularly in markets with high local traffic [16] - International markets, excluding Japan, experienced a 31% increase in average fares compared to 2019, with PRASM improvement of 25% [16] - Cargo revenue reached its highest third quarter ever, up over 62% compared to the third quarter of 2019 [16] Market Data and Key Metrics Changes - Demand for travel between Hawaii and the US Mainland has fully recovered, with strong performance noted in the peak summer period [8] - The removal of pandemic travel restrictions in Japan is expected to lead to a solid recovery in Japan-Hawaii travel in the coming months [8][18] - Sydney showed notable demand strength, with PRASM improvement of over 50% compared to 2019 [16] Company Strategy and Development Direction - The company plans to compete aggressively in the Neighbor Island market despite deeply discounted fares from competitors [11][12] - An agreement with Amazon is expected to diversify revenue and add a new growth avenue, with preparations for the first A330-300 freighter underway [12][23] - The company remains focused on long-term success, investing in operations and technology to enhance service and productivity [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of leisure travel demand despite inflationary pressures and an uncertain economic outlook [13] - The company anticipates overall revenue to be up about 3.5% from 2019 in the fourth quarter, with strong demand expected to continue [17][19] - The competitive position is strong across the network, with expectations for premium cabin PRASM improvements to accelerate [19] Other Important Information - The company will restate the first and second quarter GAAP results due to an adjustment of approximately $19.4 million in unrealized losses [20] - Total liquidity at the end of the quarter was $1.7 billion, with adjusted net debt near 2019 levels [20] Q&A Session Summary Question: Cost guidance related to Amazon startup costs - Management indicated that final determinations on the treatment of Amazon startup costs are still pending, with more information expected in January [25][26] Question: Inter-island competition and pricing strategy - Management acknowledged that current fares do not cover total operational costs, but emphasized the importance of competing aggressively [27][28] Question: Capacity and CASM outlook for next year - Management is not yet prepared to provide full year CASM guidance but noted that investment costs will impact unit costs [33][34] Question: Strength in sequential revenue improvement - Management highlighted that North America is driving a significant portion of the sequential revenue improvement, with strong average fare performance [36][37] Question: Amazon business and pilot sourcing - Management expressed confidence in sourcing pilots, citing attractive career earnings potential and ongoing hiring efforts [49][50] Question: Capacity recovery in Japan - Management plans to gradually restore capacity to Japan, aligning with expected demand recovery in the first half of 2023 [46][47]

Financial Data and Key Metrics Changes - The company closed the quarter with $1.8 billion in total liquidity, including cash, short-term investments, and undrawn revolver [24] - Adjusted net debt was $944 million, below 2019 levels, with a reduction of $223 million or 11% in outstanding debt during the quarter [25] - Adjusted EBITDA for the quarter was $1.1 million, better than expected despite rising fuel costs [26] Business Line Data and Key Metrics Changes - Passenger revenue was down 5.5% from 2019, with a load factor peaking at 92.9% in June [15][16] - Premium Cabin PRASM increased by 37% compared to 2019, while Extra Comfort revenue was up 25% on 15% more capacity [17] - Cargo revenue reached its highest second quarter ever, up 50% compared to the second quarter of 2019 [18] Market Data and Key Metrics Changes - North America saw robust demand, with expectations for load factors to approach 2019 levels [19] - Internationally, markets like South Korea and Australia showed strong recovery, while Japan's recovery is still constrained by government restrictions [21][22] - Overall capacity for the third quarter is anticipated to be down approximately 6.5% from 2019 levels [22] Company Strategy and Development Direction - The company is focused on sustainability, aiming to become carbon neutral by 2050 and exploring sustainable aviation fuel [10][11] - A strategic partnership with REGENT for developing a 100-seat electric seaglider is part of the long-term vision for inter-island travel [10] - The company plans to maintain liquidity above pre-pandemic levels and is focused on strengthening its brand and service [25][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand continuing into the third quarter, with stability returning to the demand environment [7] - High fuel prices are acknowledged as a challenge, but management is optimistic about managing costs and revenue generation [13] - The company is encouraged by the performance in domestic markets and anticipates continued strong demand for travel to Hawaii [19][23] Other Important Information - The company has implemented variable seat pricing on all North America routes, with early results exceeding expectations [9] - Staffing challenges are being addressed, with a focus on pilot training and recruitment to ensure operational flexibility [12] - The company is committed to reducing its carbon footprint and enhancing operational efficiency through technology investments [30] Q&A Session Summary Question: Decision to leave Orlando - Management indicated that the decision was based on insufficient aircraft availability and softer demand during off-peak periods [33] Question: Impact of fuel prices on 717s replacement - Management stated that fuel costs are a smaller proportion of total costs for short-haul operations, and the 717s will continue to operate through the middle of the decade [37] Question: A330 utilization and productivity - Management noted that A330 productivity is currently below pre-pandemic levels but is expected to improve as international routes ramp up [41] Question: Revenue generation amidst fuel price increases - Management remains optimistic about revenue generation, citing strong demand in North America and potential improvements as international markets recover [43] Question: Impact of foreign exchange on bookings - Management reported no material shift in point-of-sale mix, with a slight increase in U.S. point-of-sale for Australia and New Zealand [51] Question: Ranking of international markets for planning - Management indicated that Australia, New Zealand, and South Korea are at steady state, while Japan is still significantly below pre-pandemic capacity [61] Question: Competitors' capacity and fare trends - Management noted that capacity from the U.S. mainland remains above 2019 levels, with yields holding up well throughout the summer [63][64] Question: Variable pricing initiative impact - Management reported early positive results from the variable pricing initiative, with expectations for greater impact as the year progresses [67]

Hawaiian Holdings, Inc. (NASDAQ:HA) Q1 2022 Earnings Conference Call April 26, 2022 4:30 PM ET Company Participants Ashlee Kishimoto – Managing Director-Investor Relations Peter Ingram – President and Chief Executive Officer Brent Overbeek – Chief Revenue Officer Shannon Okinaka – Chief Financial Officer Conference Call Participants Conor Cunningham – MKM Partners Mike Linenberg – Deutsche Bank Helane Becker – Cowen and Company Andrew Didora – Bank of America Dan McKenzie – Seaport Global Catherine O’Brien ...