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| HA > SEC Filings for HA > Form 10-Q on 29-Jul-2009 | All Recent SEC Filings |
29-Jul-2009
Quarterly Report
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.
Factors that could cause actual results to differ materially from any future results, expressed or implied, in these forward-looking statements include, but are not limited to, the following:
† a continued decline in the U.S. and global economies;
† the price and availability of aviation fuel;
† competition in the transpacific and interisland markets;
† our dependence on tourist travel;
† the effects of seasonality and cyclicality;
† the concentration of our business in Hawaii;
† the demand for transportation in the markets in which we operate;
† the competitive advantages held by network carriers in the transpacific markets;
† the effects of new entrants into the transpacific and interisland markets;
† competitive pressures on pricing (particularly from lower-cost competitors);
† our ability to negotiate amendments to labor agreements which are currently amendable;
† our dependence on satisfactory labor relations;
† the impact of our substantial financial and operating leverage;
† our ability to comply with financial covenants;
† our substantial funding obligations under our defined benefit pension plans;
† our ability to attract, motivate and retain key executives and other employees;
† our increasing dependence on technologies to operate our business;
† our reliance on other companies for facilities and services;
† our fleet concentration in out-of-production Boeing 717-200 aircraft;
† our long-term commitments with aircraft and engine manufacturers and eventual financing arrangements;
† delays in scheduled aircraft deliveries or other loss of fleet capacity;
† the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack;
† bankruptcies in the airline industry and the possible negative impact such bankruptcies might have on fares and excess capacity;
† government legislation and regulation, including the Aviation and Transportation Security Act and other similar regulations;
† the impact of possible aircraft incidents;
† the impact of litigation, anticipated and unanticipated;
† the impact of possible disruptions due to unpredictable weather and environmental concerns;
† the potential impact of consolidation within the airline industry;
† increased airport rent rates and landing fees at the airports within the State of Hawaii or elsewhere;
† the cost and availability of insurance, including aircraft insurance;
† security-related costs and regulation;
† our ability to implement our growth strategy and related cost reduction goals; and
† consumer perceptions of our services compared to other airlines.
We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this quarterly report.
Overview
Our Company
Hawaiian Holdings, Inc. (the "Company," "Holdings," "we," "us" and "our") is a holding company incorporated in the State of Delaware. The Company's primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. ("Hawaiian"). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and became the Company's indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002. Hawaiian became a Delaware corporation and the Company's direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005.
Hawaiian is engaged primarily in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the interisland routes) and between the Hawaiian Islands and certain cities in the Western United States (the transpacific routes), the South Pacific, Australia and Asia (the South Pacific/Australia/Asia routes). Hawaiian is the largest airline headquartered in Hawaii and the twelfth largest domestic airline in the United States based on revenue passenger miles reported by the Research and Innovative Technology Administration Bureau of Transportation Services as of March 2009. At June 30, 2009, Hawaiian's operating fleet consisted of 15 Boeing 717-200 aircraft for its interisland routes and 18 Boeing 767-300 aircraft for its transpacific, South Pacific/Australia/Asia and charter routes. Based in Honolulu, Hawaiian had approximately 3,750 active employees as of June 30, 2009.
General information about us is available at http://www.hawaiianair.com/about. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.
Second Quarter Highlights
† $27.5 million in net income or $0.53 net income per diluted share for the quarter.
† Operating income of $31.7 million, compared to $48.5 million in the second quarter of 2008 (which included the benefit of a $52.5 million litigation settlement)
† Operating cost per available seat mile ("ASM") decreased by 5.6% to 10.69 cents.
† Ranked as the #1 carrier for on-time performance as reported by the U.S. Department of Transportation Air Travel Consumer Report for the months of April and May 2009.
Results of Operations
Statistical Data (unaudited)
Three Months ended June 30, Six Months ended June 30,
2009 2008 2009 2008
(in thousands, except as otherwise indicated)
Scheduled Operations:
Revenue passengers flown 2,079 2,154 4,074 3,884
Revenue passenger miles (RPM) 2,051,342 2,034,395 4,010,893 3,964,473
Available seat miles (ASM) 2,434,877 2,391,463 4,826,750 4,662,346
Passenger revenue per ASM (PRASM) 10.54 ¢ 12.35 ¢ 10.58 ¢ 11.27 ¢
Passenger load factor (RPM/ASM) 84.2 % 85.1 % 83.1 % 85.0 %
Passenger revenue per RPM (Yield) 12.51 ¢ 14.51 ¢ 12.73 ¢ 13.26 ¢
Total Operations:
Operating revenue per ASM 11.99 ¢ 13.35 ¢ 12.03 ¢ 12.21 ¢
Operating cost per ASM (CASM) 10.69 ¢ 11.32 ¢ 10.63 ¢ 11.64 ¢
Aircraft fuel expense per ASM 2.24 ¢ 5.16 ¢ 2.17 ¢ 4.59 ¢
Litigation settlement per ASM - ¢ (2.20 )¢ - ¢ (1.12 )¢
Revenue passengers flown 2,081 2,154 4,076 3,887
Revenue block hours operated
(actual) 28,057 26,352 55,694 50,453
RPM 2,051,648 2,034,395 4,011,733 3,973,307
ASM 2,435,191 2,391,463 4,827,744 4,672,847
Gallons of jet fuel consumed 34,307 34,030 68,125 65,941
Average cost per gallon of jet
fuel (actual) (a) $ 1.59 $ 3.63 $ 1.54 $ 3.25
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Three Months ended June 30, 2009 Compared to Three Months ended June 30, 2008
During the three months ended June 30, 2009, we recognized net income of $27.5 million on operating income of $31.7 million, compared to net income of $54.3 million and operating income of $48.5 million for the same three-month period in 2008, which prior year period included a $52.5 million litigation settlement with Mesa Air Group, Inc. (Mesa). The significant differences between income and expense items for the three months ended June 30, 2009 and 2008 are discussed below.
Operating Revenue. Operating revenue was $292.0 million for the three months ended June 30, 2009, a 8.5%decrease over operating revenue of $319.2 million for the same three-month period in 2008 due to a decrease in passenger revenue, primarily resulting from decreased yields (Revenue per Revenue Passenger Mile). The decrease in our passenger revenue was partially offset by increases in our cargo and other revenue. The detail of the change in passenger revenue is described in the table below.
Three Months ended June 30, 2009 Compared to Three Months ended June 30, 2008
Change in
scheduled Change in Change in Change in
passenger revenue Yield RPM ASM
(millions)
Transpacific $ (19.6 ) (9.9 )% (0.9 )% (0.0 )%
Interisland (19.5 ) (18.1 ) (3.3 ) 7.9
South Pacific/Australia/Asia 0.5 (3.0 ) 24.3 8.9
Total scheduled $ (38.6 ) (13.8 )% 0.8 % 1.8 %
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Cargo revenue increased by $6.1 million or 68.0% for the three months ended June 30, 2009 primarily due to an increase in baggage fees related to the implementation of incremental fees for passenger bags during 2008.
Other operating revenue increased by $5.2 million or 35.0% for the three months ended June 30, 2009 compared to the comparable three-month period in 2008, primarily due to additional marketing revenue resulting from increased rates on the sale of frequent flyer miles to program partners.
Operating Expenses. Operating expenses were $260.3 million for the three months ended June 30, 2009, a $10.4 million decrease from operating expenses of $270.7 million for the comparable three-month period in 2008. The decrease in our operating expenses was due to a 56% decrease in the cost of aircraft fuel which was offset by the litigation settlement of $52.5 million recognized in the prior year period.
Change from Three Months ended
Three months ended June 30, 2008
June 30, 2009 Amount %
(in thousands)
Operating expenses
Aircraft fuel, including taxes and oil $ 54,661 $ (68,716 ) (55.7 )%
Wages and benefits 66,772 1,814 2.8
Aircraft rent 28,083 4,761 20.4
Maintenance materials and repairs 28,201 (1,759 ) (5.9 )
Aircraft and passenger servicing 14,610 296 2.1
Commissions and other selling 16,266 (3,882 ) (19.3 )
Depreciation and amortization 13,054 1,299 11.1
Other rentals and landing fees 13,759 4,815 53.8
Litigation settlement - 52,500 (100.0 )
Other 24,895 (1,548 ) (5.9 )
Total $ 260,301 $ (10,420 ) (3.8 )%
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Aircraft Fuel
The decrease in aircraft fuel expense of 55.7% was substantially due to a 56.1%
decrease in the cost of jet fuel. The elements of the change are illustrated in
the following table:
Three Months Ended June 30,
2009 2008 Change
(in thousands, except per-gallon amounts)
Gallons of jet fuel consumed 34,307 34,030 0.8 %
Raw price per gallon, including taxes and fees $ 1.59 $ 3.63 (56.1 )%
Aircraft fuel expense $ 54,661 $ 123,377 (55.7 )%
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During the three months ended June 30, 2009, our fuel derivatives were not designated for hedge accounting under SFAS No. 133 and were marked to fair value. As such, $6.5 million of net gains from our fuel hedging activities were not recorded as part of Aircraft fuel expense in operating activities, but rather as nonoperating income/expense. Included in this amount are losses realized during the period of $0.2 million, a reversal of $3.2 million of unrealized losses recognized in prior periods for contracts which settled in the current period and $3.5 million of unrealized gains recognized in the current period for derivative contracts settling in future periods.
We believe economic fuel expense is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations in a period. We define economic fuel expense as raw fuel expense plus (gains) losses realized through actual cash receipts/payments received from or paid to hedge counterparties for fuel hedge derivatives settled in the period. Economic fuel expensefor the three months ended June 30, 2009 and 2008 is calculated as follows:
Three Months Ended June 30,
2009 2008 Change
(in thousands, except per-gallon amounts)
Aircraft fuel expense $ 54,661 $ 123,377 (55.7 )%
Less realized (gains) losses on settlement
of fuel derivative contracts 213 (8,336 ) (102.6 )%
Economic fuel expense $ 54,874 $ 115,041 (52.3 )%
Gallons of jet fuel consumed 34,307 34,030 0.8 %
Economic fuel costs per gallon $ 1.60 $ 3.38 (52.7 )%
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See Item 3, Quantitative and Qualitative Disclosures About Market Risk, for additional discussion of our jet fuel costs and related hedging program.
Other operating expense
Aircraft rent expense increased primarily a result of a charge resulting from a change in the amount we estimated to be recoverable with respect to certain deposits covering engine parts. The increase in Commissions and other selling expense was primarily a result of lower credit card fees related to lower sales activity and changes in the value of our frequent flyer liability. The increase in Depreciation and amortization expense is attributable to the amortization of four Boeing 717 capital leases which we began leasing in the second half of 2008. Other rentals and landing fees increased primarily due to increased rates for landing fees and space rent at airports in Hawaii. During the three months ended June 30, 2008, we received $52.5 million of cash settlement related to our litigation with Mesa.
Nonoperating Income and Expense. Nonoperating income, net, was $5.6 million for the three months ended June 30, 2009, as compared to nonoperating income, net, of $5.9 million for the three months ended June 30, 2008. The decrease of $0.3 million was due to lower net gains on our fuel derivative instruments recognized during the three months ended June 30, 2009 compared to the comparable period in 2008. We realized losses of $0.2 million on contracts that settled during the period, reversed $3.2 million of unrealized losses recognized in prior periods for contracts which settled in the current period, and recognized $3.5 million in unrealized gains on contracts settling in future periods. This was slightly offset by a $1.7 million adjustment to unrealized loss on securities for the correction of our other-than-temporary impairment on our auction rate securities.
Income Taxes. The Company recorded a provision for income taxes for the three months ended June 30, 2009 of $9.8 million. No provision or benefit was recognized for the same period in 2008. See Note 7 to the consolidated financial statements.
Six Months ended June 30, 2009 Compared to Six Months ended June 30, 2008
During the six months ended June 30, 2009, we recognized net income of $51.0 million on operating income of $67.6 million, compared to net income of $34.4 million and operating income of $26.5 million for the same six-month period in 2008. The significant differences between income and expense items for the six months ended June 30, 2009 and 2008 are discussed below.
Operating Revenue. Operating revenue was $580.6 million for the six months ended June 30, 2009, a 1.8%increase over operating revenue of $570.5 million for the same six-month period in 2008, driven mainly by increases in cargo and other revenue, which was partially offset by a decrease in passenger revenue.
Passenger revenue decreased by $14.8 million primarily to decreased yields (Revenue per Passenger Mile). The detail of changes in revenue is described in the table below.
Six Months ended June 30, 2009 Compared to Six Months ended June 30, 2008
Change in
scheduled Change in Change in Change in
passenger revenue Yield RPM ASM
(millions)
Transpacific $ (19.7 ) (2.8 )% (3.1 )% (2.3 )%
Interisland (0.7 ) (9.3 ) 9.7 21.3
South Pacific/Australia/Asia 5.6 (1.5 ) 42.5 37.8
Total scheduled $ (14.8 ) (3.9 )% 1.2 % 3.5 %
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Cargo revenue increased by $13.3 million or 79.1% for the six months ended June 30, 2009 primarily due to an increase in baggage fees related to the implementation of incremental fees for passenger bags during 2008.
Other operating revenue increased by $11.7 million or 41.5% for the six months ended June 30, 2009 compared to the comparable six-month period in 2008, primarily due to additional marketing revenue resulting from increased rates on the sale of frequent flyer miles to program partners and an increase in ancillary and ground handling revenue.
Operating Expenses. Operating expenses were $513.0 million for the six months ended June 30, 2009, a $31.0 million decrease from operating expenses of $544.0 million for the comparable six-month period in 2008. The decrease in our operating expenses is detailed below.
Change from Six Months ended
Six months ended June 30, 2008
June 30, 2009 Amount Change
(in thousands)
Operating expenses
Aircraft fuel, including taxes and oil $ 104,860 $ (109,553 ) (51.1 )%
Wages and benefits 134,237 11,978 9.8
Aircraft rent 52,234 5,099 10.8
Maintenance materials and repairs 56,980 (2,355 ) (4.0 )
Aircraft and passenger servicing 29,230 1,244 4.4
Commissions and other selling 33,715 (2,604 ) (7.2 )
Depreciation and amortization 25,777 2,003 8.4
Other rentals and landing fees 26,253 9,140 53.4
Litigation settlement - 52,500 (100.0 )
Other 49,693 1,537 3.2
Total $ 512,979 $ (31,011 ) (5.7 )%
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Aircraft Fuel
The decrease in aircraft fuel expense of 51.1% was due to a 52.7% decrease in
the cost of jet fuel. The elements of the change are illustrated in the
following table:
Six Months Ended June 30,
2009 2008 Change
(in thousands, except per-gallon amounts)
Gallons of jet fuel consumed 68,125 65,941 3.3 %
Raw price per gallon, inlcuding taxes and fees $ 1.54 $ 3.26 (52.7 )%
Total raw fuel expense $ 104,860 $ 214,797 (51.2 )%
Realized gains from settled SFAS No. 133 hedges - (384 ) (100.0 )%
Aircraft fuel expense $ 104,860 $ 214,413 (51.1 )%
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During the six months ended June 30, 2009, our fuel derivatives were not designated for hedge accounting under SFAS No. 133 and were marked to fair value. As such, $5.1 million of gains from our fuel hedging activities were not recorded as part of Aircraft fuel expense in operating activities, but rather as nonoperating income/expense. Included in this amount are losses realized during the period of $11.2 million, a reversal of 11.3 million of unrealized losses recognized in prior periods for contracts which settled during the current period and $5.0 million of unrealized gains recognized in the current period for derivative contracts settling in future periods.
Economic fuel expense for the six months ended June 30, 2009 and 2008 is calculated as follows:
Six Months Ended June 30,
2009 2008 Change
(in thousands, except per-gallon amounts)
Raw fuel expense $ 104,860 $ 214,797 (51.2 )%
Less realized (gains) losses on settlement
of fuel derivative contracts 11,177 (13,249 ) (184.4 )%
Economic fuel expense $ 116,037 $ 201,548 (42.4 )%
Gallons of jet fuel consumed 68,125 65,941 3.3 %
Economic fuel costs per gallon $ 1.70 $ 3.06 (44.3 )%
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See Item 3, Quantitative and Qualitative Disclosures About Market Risk, for additional discussion of our jet fuel costs and related hedging program.
Other operating expenses
Wages and benefits expense increased as a result of higher pension costs primarily due to a lower estimated expected return on plan assets resulting from a lower market value of our plan assets as of December 31, 2008 compared to December 31, 2007. The increase in aircraft rent expense was primarily the result of a charge resulting from a change in the amount we estimated to be recoverable with respect to certain deposits covering engine parts. Other rentals and landing fees increased due to increased rates for landing fees and space rent at airports in Hawaii. During the six months ended June 30, 2008, we received $52.5 million of cash settlement related to our litigation with Mesa.
Nonoperating Income and Expense. Nonoperating expense, net, was $0.7 million for the six months ended June 30, 2009, as compared to nonoperating income, net, of $8.0 million for the six months ended June 30, 2008. The decrease of $8.7 million was primarily due to lower net gains recognized on our fuel derivative instruments during the six months ended June 30, 2009 compared to the comparable period in 2008. We realized losses of $11.2 million on contracts that settled during the period, reversed $11.3 million of unrealized losses recognized in prior periods for contracts which settled during the current period, and recognized $5.0 million in unrealized gains on contracts settling in future periods.
Income Taxes. The Company recorded a provision for income taxes for the six months ended June 30, 2009 of $15.9 million. No such provision was recognized for the same period in 2008. See Note 7 to the consolidated financial statements.
Liquidity and Capital Resources
Our liquidity is dependent on the operating results and cash flows of Hawaiian, along with our significant debt financings. Cash, cash equivalents, and short-term investments were $282.6 million as of June 30, 2009, an increase of $76.6 million from December 31, 2008. We also had restricted cash on those dates of $31.9 million and $28.0 million, respectively, which consisted almost entirely of cash held as collateral by entities that process our credit card . . .
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