Hawaiian Airlines Results

Hawaiian Holdings Reports 2019 Second Quarter Financial Results

Hawaiian Holdings, Inc. (NASDAQ: HA), parent company of Hawaiian Airlines, Inc., yesterday reported its financial results for the second quarter of 2019.

Second Quarter 2019 - Key Financial Metrics

GAAP

YoY Change

Adjusted

YoY Change

Net Income

$57.8M

($21.6M)

$58.9M

($14.4M)

Diluted EPS

$1.21

($0.35)

$1.23

($0.21)

Pre-tax Margin

11.2%

(3.6) pts.

11.4%

(2.3) pts.

"We're encouraged by another quarter of strong performance," said Peter Ingram, Hawaiian Airlines president and CEO. "For the last year and a half, we've delivered consistently solid operational and financial results while facing heightened competitive pressures head on.  I want to thank the entire Hawaiian 'ohana for demonstrating day in and day out that no other airline is better suited to serve the needs of guests traveling to, from, and within the Hawaiian Islands than Hawaiian Airlines."

Statistical information, as well as a reconciliation of the non-GAAP financial measures, can be found in the accompanying tables.

Shareholder Returns, Liquidity and Capital Resources

The Company returned $25.3 million to shareholders in the second quarter through share repurchases of $19.6 million and a dividend payment of $5.7 million.

On July 19, 2019, the Company's Board of Directors declared a quarterly cash dividend of 12 cents per share to be paid on August 30, 2019 to all shareholders of record as of August 16, 2019.

As of June 30, 2019, the Company had:

  • Unrestricted cash, cash equivalents and short-term investments of $539 million
  • Outstanding debt and finance lease obligations of $565 million

Second Quarter 2019 Highlights

Leadership and People

  • Welcomed Justin Doane as Vice President of Labor Relations and David LeNoir Jr. as Vice President of Financial Planning and Analysis.

Operational

  • Ranked #1 nationally for on-time performance year-to-date through May 2019 as reported in the U.S. Department of Transportation Air Travel Consumer Report, adding to its record of 15 consecutive years as the most punctual U.S. airline.
  • Became the first U.S. airline to adopt the Pacelab Flight Profile Optimizer, a cutting-edge application by software provider PACE that enhances real-time aircraft and weather data to help determine the safest, most comfortable, and efficient flight routes while lowering annual fuel consumption and carbon emissions.
  • Announced the expansion of its in-house pilot training capabilities with its planned purchase of a Boeing 787-9 flight simulator to prepare for the arrival of its new Dreamliner fleet beginning early 2021.

Customer Experience

  • Debuted a newly designed lobby at Maui's Kahului Airport (OGG), Hawai'i's second busiest airport, as part of its ongoing plans to improve the day-of travel experience for its guests.  Similar lobby renovations are expected in 2019 at Kona International Airport (KOA), Hilo International Airport (ITO), and Lihue Airport (LIH).

Routes and Network

  • Received a preliminary decision from the U.S. Department of Transportation for additional service from Tokyo Haneda Airport (HND) to Honolulu's Daniel K. Inouye International Airport (HNL).  The additional service, expected to begin in early 2020, will expand Hawaiian's existing service between Tokyo and Hawai'i that consists of flights between Haneda (HND) and Honolulu (HNL) and Kona (KOA), and Tokyo Narita International Airport (NRT) and Honolulu (HNL).
  • Continued its international expansion with the announcement of non-stop service between Fukuoka Airport (FUK) and Honolulu (HNL) beginning November 2019.
  • Continued its domestic expansion with the launch of non-stop service between Sacramento International Airport (SMF) and Maui (OGG), and non-stop service between Boston's Logan International Airport (BOS) and Honolulu (HNL).

Fleet & Financing

  • Took delivery of one Airbus A321neo aircraft in May, increasing the size of its A321neo fleet to thirteen aircraft.
  • Retired its Boeing 717-200 Aircraft Facility with scheduled payments of approximately $45 million, increasing its unencumbered fleet to 37 aircraft.
  • On July 1, 2019, Fitch Ratings affirmed Hawaiian's and the Company's corporate rating of BB- with Stable outlook.

Third Quarter and Full Year 2019 Outlook

The table below summarizes the Company's expectations for the third quarter ending September 30, 2019, and the full year ending December 31, 2019, expressed as an expected percentage change compared to the results for the quarter ended September 30, 2018, and the full year ended December 31, 2018, as applicable.

For the full year ending December 31, 2019, the Company expects its effective tax rate to be in the range of 26% to 28%.

Third Quarter

GAAP Third Quarter

Item

2019 Guidance

GAAP Equivalent

2019 Guidance

ASMs

Down 1.5% - Up 0.5%

Operating revenue per ASM

Down 1.5 - 4.5%

Cost per ASM excluding fuel and non-recurring items (a)

Up 3.5 - 6.5%

Cost per ASM (a)

Down 0.5% - Up 1.7%

Gallons of jet fuel consumed

Down 2.5 - 4.5%

Economic fuel cost per gallon (b)(c)

$2.11

Fuel cost per gallon (b)

$2.07

Full Year

GAAP Full Year

Item

2019 Guidance

GAAP Equivalent

2019 Guidance

ASMs

Up 1.5 - 2.5%

Cost per ASM excluding fuel and non-recurring items (a)

Up 1.0 - 2.5%

Cost per ASM (a)

Down 2.1 - 3.2%

Gallons of jet fuel consumed

Down 1.0 - 2.0%

Economic fuel cost per gallon (b)(c)

$2.07

Fuel cost per gallon (b)

$2.03

(a) See Table 4 for a reconciliation of GAAP operating expenses to operating expenses excluding aircraft fuel and non-recurring items.

(b) Fuel cost per gallon estimates are based on the July 9, 2019 fuel forward curve.

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

Table 1.

Hawaiian Holdings, Inc.

Consolidated Statements of Operations (unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except per share data)

Operating Revenue:

Passenger

$

653,423

$

655,162

(0.3)

%

$

1,254,727

$

1,266,762

(1.0)

%

Other

58,766

60,285

(2.5)

%

114,213

114,097

0.1

%

Total

712,189

715,447

(0.5)

%

1,368,940

1,380,859

(0.9)

%

Operating Expenses:

Wages and benefits

180,070

171,555

5.0

%

355,135

340,264

4.4

%

Aircraft fuel, including taxes and delivery

140,600

153,026

(8.1)

%

266,704

286,472

(6.9)

%

Maintenance, materials and repairs

58,131

60,970

(4.7)

%

121,176

119,111

1.7

%

Aircraft and passenger servicing

39,641

38,626

2.6

%

78,541

75,144

4.5

%

Depreciation and amortization

39,527

32,919

20.1

%

77,678

65,164

19.2

%

Commissions and other selling

32,471

31,853

1.9

%

63,307

63,778

(0.7)

%

Aircraft rent

30,843

29,865

3.3

%

61,239

61,765

(0.9)

%

Other rentals and landing fees

31,386

31,184

0.6

%

62,432

61,999

0.7

%

Purchased services

32,733

31,474

4.0

%

65,186

62,595

4.1

%

Contract terminations expense

%

35,322

(100.0)

%

Other

37,906

41,047

(7.7)

%

75,985

80,052

(5.1)

%

Total

623,308

622,519

0.1

%

1,227,383

1,251,666

(1.9)

%

Operating Income

88,881

92,928

(4.4)

%

141,557

129,193

9.6

%

Nonoperating Income (Expense):

Interest expense and amortization of debt discounts and issuance costs

(7,300)

(7,627)

(14,830)

(16,182)

Interest income

3,074

1,931

6,057

3,405

Capitalized interest

1,257

2,355

2,542

4,593

Gains (losses) on fuel derivatives

(3,220)

18,952

(2,650)

23,569

Other, net

(3,083)

(2,752)

(4,108)

(1,696)

Total

(9,272)

12,859

(12,989)

13,689

Income Before Income Taxes

79,609

105,787

128,568

142,882

Income tax expense

21,776

26,307

34,377

34,860

Net Income

$

57,833

$

79,480

$

94,191

$

108,022

Net Income Per Common Stock Share:

Basic

$

1.21

$

1.57

$

1.96

$

2.12

Diluted

$

1.21

$

1.56

$

1.96

$

2.12

Weighted Average Number of Common Stock Shares Outstanding:

Basic

47,854

50,776

48,122

50,915

Diluted

47,889

50,878

48,158

51,038

Table 2.

Hawaiian Holdings, Inc.

Selected Statistical Data (unaudited)

Three months ended June 30,

Six months ended June 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except as otherwise indicated)

Scheduled Operations (a) :

Revenue passengers flown

2,957

3,018

(2.0)

%

5,777

5,909

(2.2)

%

Revenue passenger miles (RPM)

4,487,362

4,333,125

3.6

%

8,615,090

8,363,783

3.0

%

Available seat miles (ASM)

5,153,025

5,019,962

2.7

%

10,003,748

9,751,275

2.6

%

Passenger revenue per RPM (Yield)

14.56

¢

15.12

¢

(3.7)

%

14.56

¢

15.15

¢

(3.9)

%

Passenger load factor (RPM/ASM)

87.1

%

86.3

%

0.8

pt.

86.1

%

85.8

%

0.3

pt.

Passenger revenue per ASM (PRASM)

12.68

¢

13.05

¢

(2.8)

%

12.54

¢

12.99

¢

(3.5)

%

Total Operations (a) :

Revenue passengers flown

2,959

3,018

(2.0)

%

5,781

5,910

(2.2)

%

Revenue passenger miles (RPM)

4,491,974

4,333,178

3.7

%

8,620,459

8,363,961

3.1

%

Available seat miles (ASM)

5,157,677

5,020,026

2.7

%

10,009,598

9,751,523

2.6

%

Operating revenue per ASM (RASM)

13.81

¢

14.25

¢

(3.1)

%

13.68

¢

14.16

¢

(3.4)

%

Operating cost per ASM (CASM)

12.09

¢

12.40

¢

(2.5)

%

12.26

¢

12.84

¢

(4.5)

%

CASM excluding aircraft fuel and non-recurring items (b)

9.38

¢

9.35

¢

0.3

%

9.62

¢

9.54

¢

0.8

%

Aircraft fuel expense per ASM (c)

2.73

¢

3.05

¢

(10.5)

%

2.66

¢

2.94

¢

(9.5)

%

Revenue block hours operated

54,840

51,477

6.5

%

106,466

100,223

6.2

%

Gallons of jet fuel consumed

67,277

68,627

(2.0)

%

131,798

133,906

(1.6)

%

Average cost per gallon of jet fuel (actual) (c)

$

2.09

$

2.23

(6.3)

%

$

2.02

$

2.14

(5.6)

%

Economic fuel cost per gallon (c)(d)

$

2.14

$

2.07

3.4

%

$

2.07

$

2.02

2.5

%

(a)

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

(b)

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

(c)

Includes applicable taxes and fees.

(d)

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 June 30,

Six months ended June 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

140,600

$

153,026

(8.1)

%

$

266,704

$

286,472

(6.9)

%

Realized losses (gains) on settlement of fuel derivative contracts

3,051

(10,827)

NM

5,895

(16,488)

NM

Economic fuel expense

$

143,651

$

142,199

1.0

%

$

272,599

$

269,984

1.0

%

Fuel gallons consumed

67,277

68,627

(2.0)

%

131,798

133,906

(1.6)

%

Economic fuel costs per gallon

$

2.14

$

2.07

3.4

%

$

2.07

$

2.02

2.5

%

Estimated three months ending

September 30, 2019

 Estimated full year ending

December 31, 2019

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

142,552

to

$

145,596

$

544,996

to

$

550,664

Realized losses (gains) on settlement of fuel derivative contracts

2,800

to

2,800

10,400

to

10,400

Economic fuel expense

$

145,352

to

$

148,396

$

555,396

to

$

561,064

Fuel gallons consumed

68,887

to

70,330

268,307

to

271,045

Economic fuel costs per gallon

$

2.11

to

$

2.11

$

2.07

to

$

2.07

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.
  • During the three and six months ended June 30, 2019, the Company recorded a gain on disposal of Boeing 767-300 aircraft equipment of $0.9 million and $1.9 million, respectively, in conjunction with the retirement of its Boeing 767-300 fleet.

The Company believes that excluding the impact of these derivative adjustments, fluctuations in foreign exchange rates, and the sale of aircraft and aircraft equipment 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 six months ended June 30, 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.

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

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

$

57,833

$

1.21

$

79,480

$

1.56

$

94,191

$

1.96

$

108,022

$

2.12

Add (deduct): changes in fair value of derivative contracts

169

0.00

(8,125)

(0.16)

(3,245)

(0.07)

(7,081)

(0.14)

Add: unrealized loss (gain) on foreign debt

2,167

0.05

(64)

(0.00)

1,537

0.03

(64)

(0.00)

Add: loss (gain) on sale of aircraft and equipment

(851)

(0.02)

(1,948)

(0.04)

Add: contract terminations expense

35,322

0.69

Deduct: tax effect of adjustments

(386)

(0.01)

2,047

0.04

951

0.02

(7,045)

(0.14)

Adjusted Net Income

$

58,932

$

1.23

$

73,338

$

1.44

$

91,486

$

1.90

$

129,154

$

2.53

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

(in thousands)

Income Before Income Taxes, as reported

$

79,609

$

105,787

$

128,568

$

142,882

Add (deduct): changes in fair value of derivative contracts

169

(8,125)

(3,245)

(7,081)

Add: unrealized loss (gain) on foreign debt

2,167

(64)

1,537

(64)

Add: loss (gain) on sale of aircraft and equipment

(851)

(1,948)

Add: contract terminations expense

35,322

Adjusted Income Before Income Taxes

$

81,094

$

97,598

$

124,912

$

171,059

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 non-recurring items.  These amounts are included in CASM, but for internal purposes the Company consistently uses cost metrics that exclude fuel and non-recurring items (if applicable) to measure and monitor its costs.

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

(in thousands, except CASM data)

GAAP Operating Expenses

$

623,308

$

622,519

$

1,227,383

$

1,251,666

Less: aircraft fuel, including taxes and delivery

(140,600)

(153,026)

(266,704)

(286,472)

Less: (loss) gain on sale of aircraft and equipment

851

1,948

Less: contract terminations expense

(35,322)

Adjusted Operating Expenses

$

483,559

$

469,493

$

962,627

$

929,872

Available Seat Miles

5,157,677

5,020,026

10,009,598

9,751,523

CASM - GAAP

12.09

¢

12.40

¢

12.26

¢

12.84

¢

Less: aircraft fuel

(2.73)

(3.05)

(2.66)

(2.94)

Less: (loss) gain on sale of aircraft and equipment

0.02

0.02

Less: contract terminations expense

(0.36)

Adjusted CASM

9.38

¢

9.35

¢

9.62

¢

9.54

¢

Estimated three months ending

September 30, 2019

Estimated full year ending

December 31, 2019

(in thousands, except CASM data)

GAAP Operating Expenses

$

630,427

to

$

657,806

$

2,478,624

to

$

2,532,391

Less: aircraft fuel, including taxes and delivery

(142,552)

to

(145,596)

(544,996)

to

(550,664)

Less: (loss) gain on sale of aircraft and equipment

to

1,948

to

1,948

Adjusted Operating Expenses

$

487,875

to

$

512,210

$

1,935,576

to

$

1,983,675

Available Seat Miles

5,272,681

to

5,379,741

20,474,490

to

20,676,209

CASM - GAAP

11.96

¢

to

12.23

¢

12.11

¢

to

12.25

¢

Less: aircraft fuel

(2.70)

to

(2.71)

(2.66)

to

(2.66)

Less: (loss) gain on sale of aircraft and equipment

to

0.01

to

0.01

Adjusted CASM

9.25

¢

to

9.52

¢

9.45

¢

to

9.59

¢

Pre-tax margin

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

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

Pre-Tax Margin, as reported

11.2

%

14.8

%

9.4

%

10.3

%

Add: changes in fair value of derivative contracts

0.0

(1.1)

(0.2)

(0.5)

Add: unrealized loss (gain) on foreign debt

0.3

0.0

0.1

0.0

Add: loss (gain) on sale of aircraft and equipment

(0.1)

(0.1)

Add: contract terminations expense

2.6

Adjusted Pre-Tax Margin

11.4

%

13.7

%

9.2

%

12.4

%

Leverage ratio

The Company uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and finance leases, to represent long-term financial obligations.  The Company excludes unrealized (gains) losses from fuel derivative contracts, losses on extinguishment of debt, and non-recurring 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

June 30, 2019

(in thousands, except

Leverage Ratio)

Debt and finance lease obligations

$

565,283

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

878,045

Adjusted debt and finance lease obligations

$

1,443,328

EBITDAR:

Income Before Income Taxes

$

286,844

Add back:

Interest and amortization of debt discounts and issuance costs

31,649

Depreciation and amortization

152,380

Aircraft rent

125,435

EBITDAR

$

596,308

Adjustments:

Add: changes in fair value of derivative contracts

$

23,809

Add: unrealized loss (gain) on foreign debt

1,981

Add: loss (gain) on sale of aircraft and equipment

(1,639)

Adjusted EBITDAR

$

620,459

Leverage Ratio

2.3

x

SOURCE Hawaiian Airlines



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