Hawaiian Airlines Results

Hawaiian Holdings Reports 2018 Third Quarter Financial Results

Hawaiian Holdings, Inc. (NASDAQ: HA), parent company of Hawaiian Airlines, Inc., yesterday reported its financial results for the third quarter of 2018.

Third Quarter 2018 - Key Financial Metrics

GAAP

YoY Change

Adjusted

YoY Change

Net Income

$93.5M

+$21.9M

$96.7M

$(3.0)M

Diluted EPS

$1.84

+$0.50

$1.91

+$0.05

Pre-tax Margin

15.4%

(0.6) pts.

15.9%

(6.3) pts.

"Through back-to-back hurricanes in Hawai'i and a typhoon in Japan, my colleagues minimized disruptions to operations, kept our guests safe, and supported community relief efforts all while delivering our authentic Hawaiian hospitality that is unmatched in the industry," said Peter Ingram, Hawaiian Airlines president and CEO.  "Our healthy financial and operational performance in this eventful quarter once again demonstrated that the Hawaiian team is second to none."

Shareholder Returns, Liquidity and Capital Resources

The Company returned $37.3 million to shareholders in the third quarter through $31.2 million in shares repurchased and $6.1 million in dividends paid.

On October 19, 2018 the Company's Board of Directors declared a quarterly cash dividend of 12 cents per share to be paid on November 30, 2018 to all shareholders of record as of November 16, 2018.

As of September 30, 2018, the Company had:

  • Unrestricted cash, cash equivalents and short-term investments of $591 million
  • Outstanding debt and capital lease obligations of $718 million

Third Quarter 2018 Highlights

Commercial

  • Expanded its cargo services with the launch of its All-Cargo Neighbor Island service between Honolulu's Daniel K. Inouye International Airport (HNL), Lihu'e Airport (LIH) and Hilo International Airport (ITO).  The All-Cargo service, which currently consists of two ATR-72 aircraft, is expected to expand in 2019 with the addition of flights between Honolulu (HNL) and Maui's Kahului Airport (OGG) and Hawai'i Island's Kona International Airport (KOA).

Operational

  • Carried more than 3 million guests across its network, a record for the third quarter.

Partnerships

  • Enhanced its comprehensive partnership with Japan Airlines with the implementation of reciprocal frequent flyer benefits for HawaiianMiles and JAL Mileage Bank members effective October 2018.  The enhanced program is the second phase of the comprehensive partnership launched in March 2018 with codeshare flights.

New Routes

  • Announced its second East Coast route with new five-times-a-week non-stop service between Boston's Logan International Airport (BOS) and Honolulu (HNL) beginning April 2019.

Fleet and Financing

  • Took delivery of three Airbus A321neo aircraft between July and August, increasing the size of its A321neo fleet to nine aircraft.
  • Retired two of its Boeing 767 aircraft in the third quarter as part of the planned exit from its 767 fleet.  Retired an additional 767 aircraft subsequent to quarter end, decreasing the size of its 767 fleet to five aircraft.
  • Completed a sale-leaseback transaction for one of its Airbus A330-200 aircraft.
  • Subsequent to quarter end, signed a definitive agreement with General Electric for the acquisition of GEnx engines to power its Boeing 787-9 fleet to be delivered starting in 2021.

Fourth Quarter and Full Year 2018 Outlook

The table below summarizes the Company's expectations for the fourth quarter and full year ending December 31, 2018 expressed as an expected percentage change compared to the recast results for the quarter and year ended December 31, 2017, as applicable.

As a result of discretionary contributions to defined benefit and other postretirement plans made by the Company in the third quarter, and the resulting impact of the Tax Cuts and Jobs Act, the Company expects its effective tax rate for the full year ending December 31, 2018 to be in the range of 21 percent to 23 percent.

Fourth Quarter

GAAP Fourth Quarter

Item

2018 Guidance

GAAP Equivalent

2018 Guidance

ASMs

Up 4.5 - 6.5%

Operating revenue per ASM

Down 2.5% - Up 0.5%

Cost per ASM excluding fuel and special

items (a)

Down 2.0% - Up 1.0%

Cost per ASM (a)

Up 2.3 - 5.8%

Gallons of jet fuel consumed

Flat - Up 2.0%

Economic fuel cost per gallon (b)(c)

$2.20 - $2.30

Fuel cost per gallon (b)

$2.31 - $2.40

Full Year

GAAP Full Year

Item

2018 Guidance

GAAP Equivalent

2018 Guidance

ASMs

Up 5.5 - 6.5%

Cost per ASM excluding fuel and special

items (a)

Up 1.5 - 2.5%

Cost per ASM (a)

Up 7.0 - 8.9%

Gallons of jet fuel consumed

Up 4.5 - 5.5%

Economic fuel cost per gallon (b)(c)

$2.05 - $2.15

Fuel cost per gallon (b)

$2.17 - $2.27

(a)

See Table 4 for a reconciliation of GAAP operating expenses to operating expenses excluding aircraft fuel and special items.

(b)

Fuel cost per gallon estimates are based on the October 11, 2018 fuel forward curve.

(c)

See Table 3 for a reconciliation of GAAP fuel costs to economic fuel costs.

New Revenue Recognition Accounting Standard

As of January 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, which affects the Company's accounting for frequent flyer mileage sales, passenger revenue, other operating revenue, and selling costs.  The prior periods presented have been recast to reflect adoption of these new standards.

For additional details on the impact of the adoption of the new standards, see the Company's Annual Report on Form 10-K for the year ended December 31, 2017, and the Company's subsequent periodic filings beginning with its Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

 

Table 1.

Hawaiian Holdings, Inc.

Consolidated Statements of Operations (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017 (a)

% Change

2018

2017 (a)

% Change

(in thousands, except per share data)

Operating Revenue:

Passenger

$

697,232

$

668,643

4.3

%

$

1,963,994

$

1,856,401

5.8

%

Other

61,855

47,573

30.0

%

175,952

136,140

29.2

%

Total

759,087

716,216

6.0

%

2,139,946

1,992,541

7.4

%

Operating Expenses:

Wages and benefits

176,642

161,059

9.7

%

516,906

466,772

10.7

%

Aircraft fuel, including taxes and

delivery

162,932

110,111

48.0

%

449,404

316,423

42.0

%

Maintenance, materials and repairs

57,118

49,396

15.6

%

176,229

161,366

9.2

%

Aircraft and passenger servicing

42,063

37,533

12.1

%

117,207

107,459

9.1

%

Depreciation and amortization

36,373

28,447

27.9

%

101,537

83,787

21.2

%

Commissions and other selling

32,704

33,163

(1.4)

%

96,482

94,967

1.6

%

Aircraft rent

31,768

35,195

(9.7)

%

93,533

102,883

(9.1)

%

Other rentals and landing fees

33,227

30,989

7.2

%

95,226

86,763

9.8

%

Purchased services

32,509

24,736

31.4

%

95,104

79,428

19.7

%

Contract terminations expense

%

35,322

100.0

%

Special items

%

23,450

(100.0)

%

Other

37,925

36,585

3.7

%

117,977

101,371

16.4

%

Total

643,261

547,214

17.6

%

1,894,927

1,624,669

16.6

%

Operating Income

115,826

169,002

(31.5)

%

245,019

367,872

(33.4)

%

Nonoperating Income (Expense):

Other nonoperating special items

(50,202)

(50,202)

Interest expense and amortization of

debt discounts and issuance costs

(8,446)

(7,578)

(24,628)

(23,292)

Gains (losses) on fuel derivatives

3,495

3,282

27,064

(10,228)

Interest income

3,124

1,861

6,529

4,480

Capitalized interest

1,821

2,416

6,414

6,258

Other, net

937

(3,892)

(759)

(10,132)

Total

931

(54,113)

14,620

(83,116)

Income Before Income Taxes

116,757

114,889

259,639

284,756

Income tax expense

23,215

43,267

58,075

102,594

Net Income

$

93,542

$

71,622

$

201,564

$

182,162

Net Income Per Common Stock

Share:

Basic

$

1.85

$

1.35

$

3.97

$

3.41

Diluted

$

1.84

$

1.34

$

3.96

$

3.39

Weighted Average Number of

Common Stock Shares Outstanding:

Basic

50,594

53,185

50,807

53,456

Diluted

50,731

53,509

50,935

53,799

(a)

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts

with Customers.

Table 2.

Hawaiian Holdings, Inc.

Selected Statistical Data (unaudited)

Three months ended September 30,

Nine months ended September 30,

2018

2017 (a)

% Change

2018

2017 (a)

% Change

(in thousands, except as otherwise indicated)

Scheduled Operations (b) :

Revenue passengers flown

3,035

3,000

1.2

%

8,943

8,588

4.1

%

Revenue passenger miles

(RPM)

4,554,393

4,290,499

6.2

%

12,918,174

12,187,344

6.0

%

Available seat miles (ASM)

5,347,156

4,946,678

8.1

%

15,098,431

14,203,112

6.3

%

Passenger revenue per RPM

(Yield)

15.31

¢

15.58

¢

(1.7)

%

15.20

¢

15.23

¢

(0.2)

%

Passenger load factor

(RPM/ASM)

85.2

%

86.7

%

(1.5)

pt.

85.6

%

85.8

%

(0.2)

 pt.

Passenger revenue per ASM

(PRASM)

13.04

¢

13.52

¢

(3.6)

%

13.01

¢

13.07

¢

(0.5)

%

Total Operations (b) :

Revenue passengers flown

3,039

3,001

1.3

%

8,949

8,592

4.2

%

Revenue passenger miles

(RPM)

4,557,706

4,293,095

6.2

%

12,921,666

12,190,846

6.0

%

Available seat miles (ASM)

5,352,976

4,950,800

8.1

%

15,104,500

14,208,642

6.3

%

Operating revenue per ASM

(RASM)

14.18

¢

14.47

¢

(2.0)

%

14.17

¢

14.02

¢

1.1

%

Operating cost per ASM

(CASM)

12.02

¢

11.05

¢

8.8

%

12.55

¢

11.43

¢

9.8

%

CASM excluding aircraft fuel,

loss on sale of aircraft,

contract terminations

expense, and special items

(c)

8.94

¢

8.83

¢

1.2

%

9.32

¢

9.04

¢

3.1

%

Aircraft fuel expense per

ASM (d)

3.05

¢

2.22

¢

37.4

%

2.98

¢

2.23

¢

33.6

%

Revenue block hours

operated

55,147

49,384

11.7

%

155,369

141,955

9.4

%

Gallons of jet fuel consumed

72,133

67,160

7.4

%

206,032

193,404

6.5

%

Average cost per gallon of jet

fuel (actual) (d)

$

2.26

$

1.64

37.8

%

$

2.18

$

1.64

32.9

%

Economic fuel cost per gallon

(d)(e)

$

2.15

$

1.68

28.0

%

$

2.06

$

1.65

24.8

%

(a)

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

(b)

Includes the operations of the Company's contract carrier under a capacity purchase agreement.

(c)

See Table 4 for a reconciliation of GAAP operating expenses to operating expenses excluding aircraft fuel, contract

terminations expense, and special items.

(d)

Includes applicable taxes and fees.

(e)

See Table 3 for a reconciliation of GAAP fuel costs to economic fuel costs.

Table 3.

Hawaiian Holdings, Inc.

Economic Fuel Expense (unaudited)

The Company believes that economic fuel expense is a good measure of the effect of fuel prices on its business as it most closely approximates the net cash outflow associated with the purchase of fuel for its operations in a period.  The Company defines economic fuel expense as GAAP fuel expense plus losses/(gains) realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled during the period.

Three months ended September 30,

Nine months ended September 30,

2018

2017

% Change

2018

2017

% Change

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and

delivery

$

162,932

$

110,111

48.0

%

$

449,404

$

316,423

42.0

%

Realized losses (gains) on settlement of

fuel derivative contracts

(8,085)

2,787

NM

(24,572)

2,100

NM

Economic fuel expense

$

154,847

$

112,898

37.2

%

$

424,832

$

318,523

33.4

%

Fuel gallons consumed

72,133

67,160

7.4

%

206,032

193,404

6.5

%

Economic fuel costs per gallon

$

2.15

$

1.68

28.0

%

$

2.06

$

1.65

24.8

%

Estimated three months ending

December 31, 2018

 Estimated full year ending

December 31, 2018

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and

delivery

$

153,424

to

$

163,135

$

588,403

to

$

621,152

Realized losses on settlement of fuel

derivative contracts

(7,100)

(7,100)

(31,600)

(31,600)

Economic fuel expense

$

146,324

to

$

156,035

$

556,803

to

$

589,552

Fuel gallons consumed

66,511

to

67,841

271,611

to

274,210

Economic fuel costs per gallon

$

2.20

to

$

2.30

$

2.05

to

$

2.15

Table 4.

Hawaiian Holdings, Inc.

Non-GAAP Financial Reconciliation (unaudited)

The Company evaluates its financial performance utilizing various GAAP and non-GAAP financial measures, including net income, diluted net income per share, CASM, PRASM, RASM, Passenger Revenue per RPM and EBITDAR.  Pursuant to Regulation G, the Company has included the following reconciliation of reported non-GAAP financial measures to comparable financial measures reported on a GAAP basis.  The adjustments are described below:

  • Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period.  This line item includes the unrealized amounts of fuel derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts.
  • Unrealized loss (gain) on foreign debt is based on fluctuations in foreign exchange rates related to foreign-denominated debt agreements the Company executed during the three months ended June 30, 2018.
  • Loss (gain) on sale of aircraft is the result of adjustments to the final purchase price of the Company's Boeing 767-300 aircraft included in a forward sale agreement the Company entered into in January 2018.  During the three months ended September 30, 2018, the Company recorded a loss on the sale of two Boeing 767-300 aircraft covered under the forward sale agreement of $1.8 million.
  • The Company believes that excluding the impact of these derivative adjustments, fluctuations in foreign exchange rates, and the sale of aircraft helps investors better analyze the Company's operational performance and compare its results to other airlines in the periods presented.

2018 contract terminations expense

  • During the three months ended March 31, 2018, the Company terminated two contracts which resulted in a $35.3 million contract terminations expense.  In February 2018, the Company exercised its right to terminate its purchase agreement with Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft.  The Company recorded a contract terminations expense to reflect a portion of the termination penalty.  In January 2018, the Company entered into a transaction with its lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft.  These aircraft were previously accounted for as operating leases.  In order to exit the leases and purchase the aircraft, the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a lease termination fee.  The expensed amount represents the total purchase price over fair value of the aircraft purchased as of the date of the transaction.

2017 special items

  • During the three months ended September 30, 2017 the Company terminated the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portion of its pilots' other post-retirement medical plan liability (OPEB).  In connection with the reduction of these liabilities the Company recorded one-time other non-operating special items of $35.2 million related to the Merged Plan termination and $15.0 million related to the OPEB settlement.
  • During the three months ended June 30, 2017, the Company executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft as part of the Company's planned exit from its 767 fleet.  During the three months ended June 30, 2017, the Company recorded a loss on sale of such aircraft of $4.8 million.
  • During the three months ended March 31, 2017, the Company accrued $18.7 million related to (1) a one-time payment to reduce the future 401k employer contribution for certain pilot groups, and (2) a one-time true up of the pilot vacation accrual at the new negotiated contract rates.

Three months ended September 30,

Nine months ended September 30,

2018

2017 (a)

2018

2017 (a)

Total

Diluted

Per Share

Total

Diluted

Per Share

Total

Diluted

Per Share

Total

Diluted

Per Share

(in thousands, except per share data)

GAAP net income, as

reported

$

93,542

$

1.84

$

71,622

$

1.34

$

201,564

$

3.96

$

182,162

$

3.39

Add: changes in fair value

of derivative contracts

4,590

0.09

(6,069)

(0.11)

(2,492)

(0.05)

8,128

0.15

Add: unrealized loss (gain)

on foreign debt

(2,267)

(0.04)

(2,331)

(0.05)

Add: loss on sale of aircraft

1,844

0.04

1,844

0.04

Operating

Add: contract terminations

expense

35,322

0.69

Add: special items

23,450

0.44

Nonoperating

Add: partial settlement and

curtailment loss

15,001

0.28

15,001

0.28

Add: loss on plan

termination

35,201

0.66

35,201

0.65

Deduct: tax effect of

adjustments

(1,042)

(0.02)

(16,091)

(0.30)

(8,086)

(0.16)

(29,817)

(0.55)

Adjusted net income

$

96,667

$

1.91

$

99,664

$

1.86

$

225,821

$

4.43

$

234,125

$

4.35

(a)  

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

Three months ended September 30,

Nine months ended September 30,

2018

2017 (a)

2018

2017 (a)

(in thousands)

Income Before Income Taxes, as reported

$

116,757

$

114,889

$

259,639

$

284,756

Add: changes in fair value of derivative contracts

4,590

(6,069)

(2,492)

8,129

Add: unrealized loss (gain) on foreign debt

(2,267)

(2,331)

Add: loss on sale of aircraft

1,844

1,844

Add: contract terminations expense

35,322

Add: special items

23,450

Add: nonoperating special items

50,202

50,202

Adjusted Income Before Income Taxes

$

120,924

$

159,022

$

291,982

$

366,537

(a) 

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

Operating Costs per Available Seat Mile (CASM)

The Company has separately listed in the table below its fuel costs per ASM and non-GAAP unit costs, excluding fuel and special items.  These amounts are included in CASM, but for internal purposes the Company consistently uses cost metrics that exclude fuel and special items (if applicable) to measure and monitor its costs.

Three months ended September 30,

Nine months ended September 30,

2018

2017 (a)

2018

2017 (a)

(in thousands, except CASM data)

GAAP operating expenses

$

643,261

$

547,214

$

1,894,927

$

1,624,669

Less: aircraft fuel, including taxes and delivery

(162,932)

(110,111)

(449,404)

(316,423)

Less: loss on sale of aircraft

(1,844)

(1,844)

Less: contract terminations expense

(35,322)

Less: special items

(23,450)

Adjusted operating expenses - excluding aircraft

fuel, loss on sale of aircraft, contract terminations

expense, and special items

$

478,485

$

437,103

$

1,408,357

$

1,284,796

Available Seat Miles

5,352,976

4,950,800

15,104,500

14,208,642

CASM - GAAP

12.02

¢

11.05

¢

12.55

¢

11.43

¢

Less: aircraft fuel

(3.05)

(2.22)

(2.98)

(2.23)

Less: loss on sale of aircraft

(0.03)

(0.01)

Less: contract terminations expense

(0.24)

Less: special items

(0.16)

CASM - excluding aircraft fuel, loss on sale of

aircraft, contract terminations expense, and special

items

8.94

¢

8.83

¢

9.32

¢

9.04

¢

(a)

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

Estimated three months ending

December 31, 2018

Estimated full year ending

December 31, 2018

(in thousands, except CASM data)

GAAP operating expenses

$

627,102

to

$

660,656

$

2,495,994

to

$

2,565,075

Less: aircraft fuel, including taxes and delivery

(153,424)

to

(163,135)

(588,403)

to

(621,152)

Less: loss on sale of aircraft

(1,844)

(1,844)

Less: contract terminations expense

(35,322)

(35,322)

Adjusted operating expenses - excluding aircraft

fuel, loss on sale of aircraft, and contract

terminations expense

$

473,678

to

$

497,521

$

1,870,425

to

$

1,906,757

Available Seat Miles

5,013,951

to

5,109,192

20,052,050

to

20,242,116

CASM - GAAP

12.51

¢

to

12.93

¢

12.45

¢

to

12.67

¢

Less: aircraft fuel

(3.06)

to

(3.19)

(2.93)

to

(3.07)

Less: loss on sale of aircraft

(0.01)

(0.01)

Less: contract terminations expense

to

(0.18)

to

(0.17)

CASM - excluding aircraft fuel, loss on sale of

aircraft, and contract terminations expense

9.45

¢

to

9.74

¢

9.33

¢

to

9.42

¢

Pre-tax margin

The Company excludes unrealized gains from fuel derivative contracts, losses on extinguishment of debt, and special items from pre-tax margin for the same reasons as described above.

Three months ended September 30,

Nine months ended September 30,

2018

2017 (a)

2018

2017 (a)

Pre-Tax Margin, as reported

15.4

%

16.0

%

12.1

%

14.3

%

Add: changes in fair value of derivative contracts

0.6

(0.8)

(0.1)

0.4

Add: unrealized loss (gain) on foreign debt

(0.3)

(0.1)

Add: loss on sale of aircraft

0.2

0.1

Add: contract terminations expense

1.6

Add: special items

1.2

Add: nonoperating special items

7.0

2.5

Adjusted Pre-Tax Margin

15.9

%

22.2

%

13.6

%

18.4

%

(a)

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

Leverage ratio

The Company uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to represent long-term financial obligations.  The Company excludes unrealized (gains) losses from fuel derivative contracts, losses on extinguishment of debt, and special items from earnings before interest, taxes, depreciation, amortization and rent (EBITDAR) for the reasons described above.  Management believes this metric is helpful to investors in assessing the Company's overall debt.

Twelve months ended

September 30, 2018 (a)

(in thousands, except

Leverage Ratio)

Debt and capital lease obligations

$

718,034

Plus: Aircraft leases capitalized at 7x last twelve months' aircraft rent

898,898

Adjusted debt and capital lease obligations

$

1,616,932

EBITDAR:

Income Before Income Taxes

$

365,703

Add back:

Interest and amortization of debt discounts and issuance costs

32,237

Depreciation and amortization

131,027

Aircraft rent

128,414

EBITDAR

$

657,381

Adjustments:

Add: changes in fair value of derivative contracts

(14,465)

Add: unrealized loss (gain) on foreign debt

(2,331)

Add: loss on sale of aircraft

1,844

Add: contract terminations expense

35,322

Add: partial settlement and curtailment loss

(4,617)

Adjusted EBITDAR

$

673,134

Leverage Ratio

2.4

x

(a)

Amounts recast due to the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with

Customers.

 



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