Hawaiian Holdings Reports 2017 Third Quarter Financial Results

Third Quarter 2017 - Key Financial Metrics

GAAP

YoY Change

Adjusted

YoY Change

Net Income

$74.6M

($27.9M)

$102.6M

$(0.5)M

Diluted EPS

$1.39

($0.52)

$1.92

$—

Pre-tax Margin

16.6%

(7.8) pts.

22.8%

(1.8) pts.

Fourth Quarter

GAAP Fourth Quarter

Item

2017 Guidance

GAAP Equivalent

2017 Guidance

Cost per ASM excluding fuel and special items (a)

Up 3.5% to up 6.5%

Cost per ASM (a)

Down 10.3% to down 13.5%

Operating revenue per ASM

Down 1.0% to up 2.0%

ASMs

Up 4.0% to up 6.0%

Gallons of jet fuel consumed

Up 5.0% to up 8.0%

Economic fuel cost per gallon (b)(c)

$1.75 to $1.85

Fuel cost per gallon (b)

$1.72 to $1.82

Full Year

GAAP Full Year

Item

2017 Guidance

GAAP Equivalent

2017 Guidance

Cost per ASM excluding fuel and special items (a)

Up 6.0% to up 7.0%

Cost per ASM (a)

Up 3.6% to up 5.5%

Operating revenue per ASM

Up 5.0% to up 6.0%

ASMs

Up 3.0% to up 4.0%

Gallons of jet fuel consumed

Up 5.5% to up 6.5%

Economic fuel cost per gallon (b)(c)

$1.65 to $1.75

Fuel cost per gallon (b)

$1.64 to $1.74

(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 9, 2017 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

(in thousands, except for per share data) (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016 (a)

% Change

2017

2016 (a)

% Change

Operating Revenue:

Passenger

$

634,475

$

591,496

7.3

%

$

1,765,275

$

1,592,095

10.9

%

Other

85,084

80,341

5.9

%

243,804

225,512

8.1

%

Total

719,559

671,837

7.1

%

2,009,079

1,817,607

10.5

%

Operating Expenses:

Aircraft fuel, including taxes and delivery

110,111

94,818

16.1

%

316,423

248,516

27.3

%

Wages and benefits

161,059

136,356

18.1

%

466,772

395,718

18.0

%

Aircraft rent

35,195

32,891

7.0

%

102,883

92,345

11.4

%

Maintenance, materials and repairs

49,396

51,812

(4.7)

%

161,366

166,901

(3.3)

%

Aircraft and passenger servicing

36,360

33,971

7.0

%

104,569

93,245

12.1

%

Commissions and other selling

32,930

29,480

11.7

%

98,668

93,936

5.0

%

Depreciation and amortization

28,447

27,495

3.5

%

83,787

81,629

2.6

%

Other rentals and landing fees

30,989

28,926

7.1

%

86,763

78,338

10.8

%

Purchased services

24,736

25,614

(3.4)

%

79,428

72,889

9.0

%

Special items

—

—

—

%

23,450

—

100.0

%

Other

36,585

31,565

15.9

%

101,376

94,279

7.5

%

Total

545,808

492,928

10.7

%

1,625,485

1,417,796

14.6

%

Operating Income

173,751

178,909

(2.9)

%

383,594

399,811

(4.1)

%

Nonoperating Income (Expense):

Other nonoperating special items

(50,202)

—

(50,202)

—

Interest expense and amortization of debt discounts and issuance costs

(7,578)

(8,539)

(23,292)

(28,453)

Interest income

1,861

1,113

4,480

3,044

Capitalized interest

2,416

719

6,258

1,407

Gains (losses) on fuel derivatives

3,282

(3,601)

(10,228)

15,421

Loss on extinguishment of debt

—

—

—

(9,993)

Other components of net periodic benefit cost

(3,792)

(5,054)

(13,293)

(15,218)

Other, net

(100)

612

3,161

9,884

Total

(54,113)

(14,750)

(83,116)

(23,908)

Income Before Income Taxes

119,638

164,159

300,478

375,903

Income tax expense

45,072

61,705

108,567

142,413

Net Income

$

74,566

$

102,454

$

191,911

$

233,490

Net Income Per Share

Basic

$

1.40

$

1.92

$

3.59

$

4.37

Diluted

$

1.39

$

1.91

$

3.57

$

4.35

Weighted Average Number of Common Stock Shares Outstanding:

Basic

53,185

53,427

53,456

53,488

Diluted

53,509

53,588

53,799

53,715

(a)

The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  Accounting Standard Update 2017-07 (ASU 2017-07) is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption only permitted for the Company in the first quarter of 2017, provided all provisions of the ASU are adopted. The Company early adopted this standard during the first quarter of 2017. The adoption of ASU 2017-07 resulted in a reclassification of $5.1 million and $15.2 million from wages and benefits to other components of net periodic benefit cost on the Company's consolidated statement of operations for the three months and nine months ended September 30, 2016, respectively.

Table 2.

Hawaiian Holdings, Inc.

Selected Statistical Data (unaudited)

Three months ended September 30,

Nine months ended September 30,

2017

2016

% Change

2017

2016

% Change

(in thousands, except as otherwise indicated)

(in thousands, except as otherwise indicated)

Scheduled Operations (a) :

Revenue passengers flown

3,000

2,916

2.9

%

8,588

8,317

3.3

%

Revenue passenger miles (RPM)

4,290,499

4,166,487

3.0

%

12,187,344

11,554,522

5.5

%

Available seat miles (ASM)

4,946,678

4,887,608

1.2

%

14,203,112

13,805,563

2.9

%

Passenger revenue per RPM (Yield)

14.79

¢

14.20

¢

4.2

%

14.48

¢

13.78

¢

5.1

%

Passenger load factor (RPM/ASM)

86.7

%

85.2

%

1.5

pt.

85.8

%

83.7

%

2.1

pt.

Passenger revenue per ASM (PRASM)

12.83

¢

12.10

¢

6.0

%

12.43

¢

11.53

¢

7.8

%

Total Operations (a) :

Revenue passengers flown

3,001

2,918

2.9

%

8,592

8,321

3.3

%

Revenue passenger miles (RPM)

4,293,095

4,170,671

2.9

%

12,190,846

11,559,795

5.5

%

Available seat miles (ASM)

4,950,800

4,894,768

1.1

%

14,208,642

13,813,955

2.9

%

Operating revenue per ASM (RASM)

14.53

¢

13.73

¢

5.8

%

14.14

¢

13.16

¢

7.4

%

Operating cost per ASM (CASM)

11.02

¢

10.07

¢

9.4

%

11.44

¢

10.26

¢

11.5

%

CASM excluding aircraft fuel and special items (b)

8.80

¢

8.13

¢

8.2

%

9.04

¢

8.46

¢

6.9

%

Aircraft fuel expense per ASM (c)

2.22

¢

1.94

¢

14.4

%

2.23

¢

1.80

¢

23.9

%

Revenue block hours operated

49,384

47,534

3.9

%

141,955

134,627

5.4

%

Gallons of jet fuel consumed

67,160

64,918

3.5

%

193,404

182,471

6.0

%

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

$

1.64

$

1.46

12.3

%

$

1.64

$

1.36

20.6

%

Economic fuel cost per gallon (c)(d)

$

1.68

$

1.50

12.0

%

$

1.65

$

1.53

7.8

%

(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 special 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

(in thousands, except per-gallon amounts) (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,

2017

2016

% Change

2017

2016

% Change

(in thousands, except per-gallon amounts)

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

110,111

$

94,818

16.1

%

$

316,423

$

248,516

27.3

%

Realized losses on settlement of fuel derivative contracts

2,787

2,525

10.4

%

2,100

30,349

(93.1)

%

Economic fuel expense

$

112,898

$

97,343

16.0

%

$

318,523

$

278,865

14.2

%

Fuel gallons consumed

67,160

64,918

3.5

%

193,404

182,471

6.0

%

Economic fuel costs per gallon

$

1.68

$

1.50

12.0

%

$

1.65

$

1.53

7.8

%

Estimated three months ending

December 31, 2017

 Estimated full year ending

December 31, 2017

(in thousands, except per-gallon amounts)

(in thousands, except per-gallon amounts)

Aircraft fuel expense, including taxes and delivery

$

111,576

to

$

121,471

$

421,148

to

$

451,175

Realized losses on settlement of fuel derivative contracts

1,700

1,700

3,800

3,800

Economic fuel expense

$

113,276

to

$

123,171

$

424,948

to

$

454,975

Fuel gallons consumed

64,729

to

66,579

257,544

to

259,986

Economic fuel costs per gallon

$

1.75

to

$

1.85

$

1.65

to

$

1.75

Table 4.

Hawaiian Holdings, Inc.

Non-GAAP Financial Reconciliation

(in thousands, except per share and CASM data) (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 and interest rate derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts.  The Company believes that excluding the impact of these derivative adjustments helps investors analyze the Company's operational performance and compare its results to other airlines in the periods presented below.

• Loss on extinguishment of debt, net of tax, is excluded to help investors analyze the Company's operational performance and compare its results to other airlines in the periods presented below.

• The collective bargaining charge 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. The loss on sale of aircraft was a result of a sale-leaseback transaction covering three Boeing 767 aircraft as part of the planned exit from its 767 fleet. In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (the Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, the Company terminated the Merged Plan and recorded a one-time nonoperating special charge of $35.2 million. The Company also settled a portion of its pilots' other post-retirement medical plan liability and recorded a one-time nonoperating special charge of $15.0 million. These one-time charges are considered special items by the Company and are not expected to represent ongoing expenses. The Company believes that excluding such special items helps investors analyze the Company's operational performance and compare its results to other airlines in the periods presented below.

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Total

Diluted Per Share

Total

Diluted Per Share

Total

Diluted Per Share

Total

Diluted Per Share

GAAP net income, as reported

$

74,566

$

1.39

$

102,454

$

1.91

$

191,911

$

3.57

$

233,490

$

4.35

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

(6,069)

(0.11)

1,076

0.02

8,128

0.15

(45,770)

(0.85)

Add: loss on extinguishment of debt

—

—

—

—

—

—

9,993

0.19

Add: special items

  Operating

  Loss on sale of aircraft

—

—

—

—

4,771

0.09

—

—

  Collective bargaining charge

—

—

—

—

18,679

0.35

—

—

  Nonoperating

  Partial settlement and curtailment loss

15,001

0.28

—

—

15,001

0.28

—

—

  Loss on plan termination

35,201

0.66

—

—

35,201

0.65

—

—

Total special items

50,202

0.94

—

—

73,652

1.37

—

—

Add (deduct): tax effect of adjustments

(16,091)

(0.30)

(409)

(0.01)

(29,817)

(0.55)

13,595

0.25

Adjusted net income

$

102,608

$

1.92

$

103,121

$

1.92

$

243,874

$

4.54

$

211,308

$

3.94

Three months ended September 30,

2017

2016

2017

2016 (a)

Income Before Income Taxes, as reported

$

119,638

$

164,159

$

300,478

$

375,903

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

(6,069)

1,076

8,128

(45,770)

Add: loss on extinguishment of debt

—

—

—

9,993

Add: special items

  Operating

  Loss on sale of aircraft

—

—

4,771

—

  Collective bargaining charge

—

—

18,679

—

  Nonoperating

  Partial settlement and curtailment loss

15,001

—

15,001

—

  Loss on plan termination

35,201

—

35,201

—

Total special items

50,202

—

73,652

—

Adjusted Income Before Income Taxes

163,771

165,235

382,258

340,126

Three months ended September 30,

Nine months ended September 30,

2017

2016 (a)

2017

2016 (a)

GAAP operating expenses

$

545,808

$

492,928

$

1,625,485

$

1,417,796

Less: aircraft fuel, including taxes and delivery

(110,111)

(94,818)

(316,423)

(248,516)

Less: special items

  Operating

  Loss on sale of aircraft

$

—

$

—

$

(4,771)

$

—

  Collective bargaining charge

$

—

$

—

$

(18,679)

$

—

Total special items

$

—

$

—

$

(23,450)

$

—

Adjusted operating expenses - excluding aircraft fuel and special items

$

435,697

$

398,110

$

1,285,612

$

1,169,280

Available Seat Miles

4,950,800

4,894,768

14,208,642

13,813,955

CASM - GAAP

11.02

¢

10.07

¢

11.44

¢

10.26

¢

Less: aircraft fuel

(2.22)

(1.94)

(2.23)

(1.80)

Less: special items

  Operating

  Loss on sale of aircraft

—

—

(0.04)

—

  Collective bargaining charge

—

—

(0.13)

—

Total special items

—

—

(0.17)

—

CASM - excluding aircraft fuel and special items

8.80

¢

8.13

¢

9.04

¢

8.46

¢

(a)

The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Accounting Standard Update 2017-07 (ASU 2017-07) is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption only permitted for the Company in the first quarter of 2017, provided all provisions of the ASU are adopted. The Company early adopted this standard during the first quarter of 2017. The adoption of ASU 2017-07 resulted in a reclassification of $5.1 million and $15.2 million from wages and benefits to other components of net periodic benefit cost on the Company's consolidated statement of operations for the three months and nine months ended September 30, 2016, respectively.

Estimated three months ending

December 31, 2017

Estimated full year ending

December 31, 2017

GAAP operating expenses

$

555,349

to

$

586,888

$

2,170,820

to

$

2,234,049

Less: aircraft fuel, including taxes and delivery

(111,576)

to

(121,471)

(421,148)

to

(451,175)

Less: special items

  Operating

  Loss on sale of aircraft

—

—

(4,771)

(4,771)

  Collective bargaining charge

—

—

(18,679)

(18,679)

Total special items

$

—

$

—

$

(23,450)

$

(23,450)

Adjusted operating expenses - excluding aircraft fuel and special items

$

443,773

to

$

465,417

$

1,726,222

to

$

1,759,424

Available Seat Miles

4,753,506

to

4,844,920

18,936,175

to

19,120,021

CASM - GAAP

11.68

¢

to

12.11

¢

11.46

¢

to

11.68

¢

Less: aircraft fuel

(2.34)

to

(2.50)

(2.22)

to

(2.36)

Less: special items

  Operating

  Loss on sale of aircraft

—

to

—

(0.02)

to

(0.02)

  Collective bargaining charge

—

to

—

(0.10)

to

(0.10)

Total special items

—

¢

—

¢

(0.12)

¢

(0.12)

¢

CASM - excluding aircraft fuel and special items

9.34

¢

to

9.61

¢

9.12

¢

to

9.20

¢

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Pre-Tax Margin, as reported

16.6

%

24.4

%

15.0

%

20.7

%

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

(0.8)

%

0.2

%

0.4

%

(2.5)

%

Add: loss on extinguishment of debt

—

%

—

%

—

%

0.5

%

Add: special items

  Operating

    Loss on sale of aircraft

—

%

—

%

0.2

%

—

%

    Collective bargaining charge

—

%

—

%

0.9

%

—

%

    Nonoperating

         Post retirement benefits related

7.0

%

—

%

2.5

%

—

%

Total special items

7.0

%

—

%

3.6

%

—

%

Adjusted Pre-Tax Margin

22.8

%

24.6

%

19.0

%

18.7

%

Twelve months ended

September 30, 2017

Debt and capital lease obligations

$

506,118

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

945,721

Adjusted debt and capital lease obligations

$

1,451,839

EBITDAR:

Income Before Income Taxes

$

304,039

Add back:

Interest and amortization of debt discounts and issuance costs

31,451

Depreciation and amortization

110,286

Aircraft rent

135,103

EBITDAR

$

580,879

Adjustments:

Add: changes in fair value of derivative contracts

6,221

Add: loss on extinguishment of debt

480

Add: special items

  Operating

  Impairment charge (a)

49,361

  Termination charge (a)

21,000

  Bonuses and a proposed collective bargaining agreement payment (a)

38,781

  Loss on sale of aircraft

4,771

  Collective bargaining charge

18,679

  Nonoperating

  Partial settlement and curtailment loss

15,001

  Loss on plan termination

35,201

Total special items

182,794

Adjusted EBITDAR

$

770,374

Leverage Ratio

1.9

x

(a)

For additional details, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2016.