Hawaiian Holdings Results

Hawaiian Holdings Reports 2019 Third Quarter Financial Results

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

Third Quarter 2019 - Key Financial Metrics

GAAP

YoY Change

Adjusted

YoY Change

Net Income

$80.1M

($13.5M)

$81.5M

($15.2M)

Diluted EPS

$1.70

($0.14)

$1.72

($0.19)

Pre-tax Margin

14.4%

(1.0) pts.

14.6%

(1.3) pts.

"Our team did a fantastic job this quarter, demonstrating once again that Hawaiian Airlines is the carrier of choice for guests traveling to, from and within the Hawaiian Islands," said Peter Ingram, Hawaiian Airlines president and CEO. "In the face of heightened competition, we delivered strong financial results and made significant progress towards accomplishing the strategic priorities that we established at the beginning of the year.  As we enter the home stretch of 2019, we look forward to continuing to execute our proven formula for generating value for our guests and our investors.  I extend my thanks, as always, to my 7,300 colleagues for their tireless efforts to deliver award-winning, authentic Hawaiian hospitality every day."

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 $25.7 million to shareholders in the third quarter through share repurchases of $20.0 million and a dividend payment of $5.7 million.

On October 18, 2019, the Company's Board of Directors declared a quarterly cash dividend of 12 cents per share to be paid on November 29, 2019 to all shareholders of record as of November 15, 2019.

As of September 30, 2019, the Company had:

  • Unrestricted cash, cash equivalents and short-term investments of $745 million
  • Outstanding debt and finance lease obligations of $782 million

Third Quarter 2019 Highlights

Leadership and People

  • Appointed Robin Kobayashi as interim Senior Vice President of Human Resources.

Operational

  • Ranked #1 nationally for on-time performance year-to-date through August 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 airline.
  • Implemented Amadeus' Departure Control Flight Management to optimize load planning and improve operational efficiency.

Products and Services

  • In September and October, launched sales of Main Cabin Basic fares in all North American markets, enhancing Hawaiian's product portfolio with a fare option that appeals to the most price-conscious travelers.

Routes and Network

  • Received final U.S. Department of Transportation approval to operate one additional daily nonstop flight between Tokyo Haneda Airport (HND) and Honolulu Daniel K. Inouye International Airport (HNL) starting in March of 2020.
  • Announced service for three new routes with its A321neo fleet:
    • Four-times-weekly service between Maui's Kahului Airport (OGG) and Las Vegas' McCarran International Airport (LAS) beginning December 15, 2019
    • Thrice-weekly nonstop service between Honolulu (HNL) and Seattle-Tacoma International Airport (SEA) starting January 7, 2020, supplementing existing daily A330-200 service
    • Seasonal winter service between Maui (OGG) and Los Angeles International Airport (LAX) from December 14, 2019 through January 5, 2020, supplementing existing daily A330-200 service

Fleet & Financing

  • Took delivery of two Airbus A321neo aircraft, increasing the size of its A321neo fleet to fifteen aircraft.
  • Entered into two Japanese Yen-denominated debt financings, collateralized by four Airbus A330 aircraft and two Airbus A321neo aircraft.
  • Extended the leases on three A330 aircraft, enabling cost savings while maintaining fleet flexibility for future growth.

Fourth Quarter and Full Year 2019 Outlook

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

Fourth Quarter

GAAP Fourth Quarter

Item

2019 Guidance

GAAP Equivalent

2019 Guidance

ASMs

Up 3.0 - 4.5%

Operating revenue per ASM

Down 0.5 - 3.5%

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

Up 0.5 - 3.5%

Cost per ASM (a)

Down 0.1 - 2.5%

Gallons of jet fuel consumed

Up 0.5 - 2.5%

Economic fuel cost per gallon (b)(c)

$2.02

Fuel cost per gallon (b)

$1.98

Full Year

GAAP Full Year

Item

2019 Guidance

GAAP Equivalent

2019 Guidance

ASMs

Up 1.9 - 2.4%

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

Up 1.8 - 2.6%

Cost per ASM (a)

Down 2.3 - 2.9%

Gallons of jet fuel consumed

Down 1.0 - 1.5%

Economic fuel cost per gallon (b)(c)

$2.05

Fuel cost per gallon (b)

$2.00

(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 October 10, 2019 fuel forward curve.

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

Table 2.

Hawaiian Holdings, Inc.

Selected Statistical Data (unaudited)

Three months ended September 30,

Nine months ended September 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except as otherwise indicated)

Scheduled Operations (a) :

Revenue passengers flown

3,066

3,035

1.0

%

8,843

8,943

(1.1)

%

Revenue passenger miles (RPM)

4,673,734

4,554,393

2.6

%

13,288,823

12,918,174

2.9

%

Available seat miles (ASM)

5,321,812

5,347,156

(0.5)

%

15,325,559

15,098,431

1.5

%

Passenger revenue per RPM (Yield)

14.85

¢

15.31

¢

(3.0)

%

14.67

¢

15.20

¢

(3.5)

%

Passenger load factor (RPM/ASM)

87.8

%

85.2

%

2.6

pt.

86.7

%

85.6

%

1.1

pt.

Passenger revenue per ASM (PRASM)

13.05

¢

13.04

¢

0.1

%

12.72

¢

13.01

¢

(2.2)

%

Total Operations (a) :

Revenue passengers flown

3,072

3,039

1.1

%

8,853

8,949

(1.1)

%

Revenue passenger miles (RPM)

4,679,632

4,557,706

2.7

%

13,300,090

12,921,666

2.9

%

Available seat miles (ASM)

5,331,914

5,352,976

(0.4)

%

15,341,510

15,104,500

1.6

%

Operating revenue per ASM (RASM)

14.16

¢

14.18

¢

(0.1)

%

13.85

¢

14.17

¢

(2.3)

%

Operating cost per ASM (CASM)

11.98

¢

12.02

¢

(0.3)

%

12.16

¢

12.55

¢

(3.1)

%

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

9.38

¢

8.94

¢

4.9

%

9.53

¢

9.32

¢

2.3

%

Aircraft fuel expense per ASM (c)

2.60

¢

3.05

¢

(14.8)

%

2.64

¢

2.98

¢

(11.4)

%

Revenue block hours operated

56,088

55,147

1.7

%

162,556

155,369

4.6

%

Gallons of jet fuel consumed

69,749

72,133

(3.3)

%

201,547

206,032

(2.2)

%

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

$

1.99

$

2.26

(11.9)

%

$

2.01

$

2.18

(7.8)

%

Economic fuel cost per gallon (c)(d)

$

2.04

$

2.15

(5.1)

%

$

2.06

$

2.06

%

(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 September 30,

Nine months ended September 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

138,586

$

162,932

(14.9)

%

$

405,290

$

449,404

(9.8)

%

Realized losses (gains) on settlement of fuel derivative contracts

3,399

(8,085)

NM

9,294

(24,572)

NM

Economic fuel expense

$

141,985

$

154,847

(8.3)

%

$

414,584

$

424,832

(2.4)

%

Fuel gallons consumed

69,749

72,133

(3.3)

%

201,547

206,032

(2.2)

%

Economic fuel costs per gallon

$

2.04

$

2.15

(5.1)

%

$

2.06

$

2.06

%

Estimated three months ending

December 31, 2019

 Estimated full year ending

December 31, 2019

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

134,541

to

$

137,278

$

539,836

to

$

542,642

Realized losses (gains) on settlement of fuel derivative contracts

3,000

to

3,000

13,000

to

13,000

Economic fuel expense

$

137,541

to

$

140,278

$

552,836

to

$

555,642

Fuel gallons consumed

68,089

to

69,444

269,676

to

271,045

Economic fuel costs per gallon

$

2.02

to

$

2.02

$

2.05

to

$

2.05

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.
  • During the nine months ended September 30, 2019, the Company recorded a gain on disposal of Boeing 767-300 aircraft equipment of $1.9 million in conjunction with the retirement of its Boeing 767-300 fleet. During the three and nine months ended September 30, 2018, we also recorded a loss on the sale of two Boeing 767-300 aircraft covered under a 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 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 nine months ended September 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 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, $35.3 million, 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 September 30,

Nine months ended September 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

$

80,076

$

1.70

$

93,542

$

1.84

$

174,267

$

3.64

$

201,564

$

3.96

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

1,154

0.02

4,590

0.09

(2,091)

(0.04)

(2,492)

(0.05)

Add: unrealized loss (gain) on foreign debt

717

0.01

(2,267)

(0.04)

2,254

0.05

(2,331)

(0.05)

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

1,844

0.04

(1,948)

(0.04)

1,844

0.04

Add: contract terminations expense

35,322

0.69

Deduct: tax effect of adjustments

(490)

(0.01)

(1,042)

(0.02)

473

0.01

(8,086)

(0.16)

Adjusted Net Income

$

81,457

$

1.72

$

96,667

$

1.91

$

172,955

$

3.62

$

225,821

$

4.43

Three months ended September 30,

Nine months ended September 30,

2019

2018

2019

2018

(in thousands)

Income Before Income Taxes, as reported

$

108,519

$

116,757

$

237,087

$

259,639

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

1,154

4,590

(2,091)

(2,492)

Add: unrealized loss (gain) on foreign debt

717

(2,267)

2,254

(2,331)

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

1,844

(1,948)

1,844

Add: contract terminations expense

35,322

Adjusted Income Before Income Taxes

$

110,390

$

120,924

$

235,302

$

291,982

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 September 30,

Nine months ended September 30,

2019

2018

2019

2018

(in thousands, except CASM data)

GAAP Operating Expenses

$

638,515

$

643,261

$

1,865,898

$

1,894,927

Less: aircraft fuel, including taxes and delivery

(138,586)

(162,932)

(405,290)

(449,404)

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

(1,844)

1,948

(1,844)

Less: contract terminations expense

(35,322)

Adjusted Operating Expenses

$

499,929

$

478,485

$

1,462,556

$

1,408,357

Available Seat Miles

5,331,914

5,352,976

15,341,510

15,104,500

CASM - GAAP

11.98

¢

12.02

¢

12.16

¢

12.55

¢

Less: aircraft fuel

(2.60)

(3.05)

(2.64)

(2.98)

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

(0.03)

0.01

(0.01)

Less: contract terminations expense

(0.24)

Adjusted CASM

9.38

¢

8.94

¢

9.53

¢

9.32

¢

Estimated three months ending

December 31, 2019

Estimated full year ending

December 31, 2019

(in thousands, except CASM data)

GAAP Operating Expenses

$

630,768

to

$

655,760

$

2,495,146

to

$

2,523,013

Less: aircraft fuel, including taxes and delivery

(134,541)

to

(137,278)

(539,836)

to

(542,642)

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

to

1,948

to

1,948

Adjusted Operating Expenses

$

496,227

to

$

518,482

$

1,957,258

to

$

1,982,319

Available Seat Miles

5,219,434

to

5,295,446

20,541,144

to

20,641,934

CASM - GAAP

12.08

¢

to

12.38

¢

12.15

¢

to

12.22

¢

Less: aircraft fuel

(2.58)

to

(2.59)

(2.63)

to

(2.63)

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

to

0.01

to

0.01

Adjusted CASM

9.50

¢

to

9.79

¢

9.53

¢

to

9.60

¢

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 September 30,

Nine months ended September 30,

2019

2018

2019

2018

Pre-Tax Margin, as reported

14.4

%

15.4

%

11.2

%

12.1

%

Add: changes in fair value of derivative contracts

0.2

0.6

(0.1)

(0.1)

Add: unrealized loss (gain) on foreign debt

0.1

(0.3)

0.1

(0.1)

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

0.2

(0.1)

0.1

Add: contract terminations expense

1.7

Adjusted Pre-Tax Margin

14.6

%

15.9

%

11.1

%

13.6

%

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

September 30, 2019

(in thousands, except

Leverage Ratio)

Debt and finance lease obligations

$

781,541

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

869,407

Adjusted debt and finance lease obligations

$

1,650,948

EBITDAR:

Income Before Income Taxes

$

278,606

Add back:

Interest and amortization of debt discounts and issuance costs

29,641

Depreciation and amortization

157,603

Aircraft rent

124,201

EBITDAR

$

590,051

Adjustments:

Add: changes in fair value of derivative contracts

$

20,373

Add: unrealized loss (gain) on foreign debt

4,965

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

(3,483)

Adjusted EBITDAR

$

611,906

Leverage Ratio

2.7

x

SOURCE Hawaiian Airlines

Table 1.

Hawaiian Holdings, Inc.

Consolidated Statements of Operations (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

% Change

2019

2018

% Change

(in thousands, except per share data)

Operating Revenue:

Passenger

$

694,263

$

697,232

(0.4)

%

$

1,948,990

$

1,963,994

(0.8)

%

Other

60,888

61,855

(1.6)

%

175,101

175,952

(0.5)

%

Total

755,151

759,087

(0.5)

%

2,124,091

2,139,946

(0.7)

%

Operating Expenses:

Wages and benefits

182,862

176,642

3.5

%

537,997

516,906

4.1

%

Aircraft fuel, including taxes and delivery

138,586

162,932

(14.9)

%

405,290

449,404

(9.8)

%

Maintenance, materials and repairs

61,363

57,118

7.4

%

182,539

176,229

3.6

%

Aircraft and passenger servicing

41,762

42,063

(0.7)

%

120,303

117,207

2.6

%

Depreciation and amortization

41,596

36,373

14.4

%

119,274

101,537

17.5

%

Commissions and other selling

33,291

32,704

1.8

%

96,598

96,482

0.1

%

Aircraft rent

30,534

31,768

(3.9)

%

91,773

93,533

(1.9)

%

Other rentals and landing fees

33,345

33,227

0.4

%

95,777

95,226

0.6

%

Purchased services

33,120

32,509

1.9

%

98,306

95,104

3.4

%

Contract terminations expense

%

35,322

(100.0)

%

Other

42,056

37,925

10.9

%

118,041

117,977

0.1

%

Total

638,515

643,261

(0.7)

%

1,865,898

1,894,927

(1.5)

%

Operating Income

116,636

115,826

0.7

%

258,193

245,019

5.4

%

Nonoperating Income (Expense):

Interest expense and amortization of debt discounts and issuance costs

(6,438)

(8,446)

(21,268)

(24,628)

Interest income

3,148

3,124

9,205

6,529

Capitalized interest

1,171

1,821

3,713

6,414

Gains (losses) on fuel derivatives

(4,553)

3,495

(7,203)

27,064

Other, net

(1,445)

937

(5,553)

(759)

Total

(8,117)

931

(21,106)

14,620

Income Before Income Taxes

108,519

116,757

237,087

259,639

Income tax expense

28,443

23,215

62,820

58,075

Net Income

$

80,076

$

93,542

$

174,267

$

201,564

Net Income Per Common Stock Share:

Basic

$

1.70

$

1.85

$

3.65

$

3.97

Diluted

$

1.70

$

1.84

$

3.64

$

3.96

Weighted Average Number of Common Stock Shares Outstanding:

Basic

47,119

50,594

47,784

50,807

Diluted

47,236

50,731

47,847

50,935



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