Wednesday, 14 March 2018

Hawaiian Airlines Updates Expected First Quarter and Full Year 2018 Metrics

Hawaiian Airlines, has updated its expectations for certain first quarter and full year 2018 financial metrics.  The Company has also retrospectively recast certain prior period financial results in accordance with its adoption of the new revenue recognition accounting standard.



First Quarter 2018 Outlook
The Company has revised certain of its expectations for the quarter ending March 31, 2018 that were previously provided on January 29, 2018.

Specifically, for the quarter ending March 31, 2018 the Company:

raised its expectations for operating revenue per available seat mile (RASM) due to better-than-expected passenger revenue performance in each of its geographies and cargo demand across the network;
revised its expectations for available seat miles (ASMs) and fuel consumption due in part to adjustments in aircraft deployments related to the delayed delivery of A321neo aircraft; and
revised its expectations for operating cost per available seat mile (CASM) excluding fuel and special items.
The Company also expects to record one-time charges in the first quarter totaling between $35 million and $40 million related to the purchase of three previously leased Boeing 767 aircraft, as well as the cancellation of an order for six Airbus A330-800 aircraft.  These one-time charges will have no impact on CASM excluding fuel and special items.
The table below summarizes the Company's revised expectations, expressed as an expected percentage change compared to results for the first quarter ended March 31, 2017.
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First
Quarter
2017

Original
First
Quarter
2018
Guidance

Revised
First
Quarter
2018
Guidance

GAAP
Equivalent

OriginalGAAP First
Quarter
2018
Guidance

Revised
GAAP First
Quarter
2018
Guidance
Operating revenue per ASM (a)
13.40¢

Down 0.5% to up 2.5%

Up 3.0% to up 5.0%






Cost per ASM excluding aircraft
fuel and special items (a)(b)
9.33¢

Up 3.5% to up 6.5%

Up 4.0% to up 6.0%

Cost per ASM

Up 3.3% to up 6.7%

Up 9.5% to up 13.2%
ASMs (000s)
4,522,353

Up 3.0% to up 5.0%

Up 4.0% to up 5.0%






Gallons of jet fuel consumed (000s)
61,738

Up 4.0% to up 6.0%

Up 5.0% to up 7.0%







(a) 2017 amounts recast in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers

(b) See Table 1 below for a reconciliation of GAAP operating expenses to operating expenses excluding aircraft fuel and special items
Full Year 2018 OutlookThe Company has also revised certain of its expectations for the full year ending December 31, 2018that were previously provided on January 29, 2018.
Specifically, for the year ending December 31, 2018 the Company raised its expectations for CASM excluding aircraft fuel and special items and lowered its expectations for ASMs due to unforeseen delays in the delivery of A321neos.  Excluded from the Company's expectations for CASM excluding aircraft fuel and special items are any assumptions related to the amendable contract with its flight attendant union.
The table below summarizes the Company's revised expectations, expressed as an expected percentage change compared to results for the year ended December 31, 2017.

Full Year
2017

Original Full
Year 2018
Guidance

Revised Full
Year 2018
Guidance

GAAP
Equivalent

OriginalGAAP Full
Year 2018
Guidance

Revised
GAAP Full
Year 2018
Guidance
Cost per ASM excluding aircraft fuel and special items (a)(b)
9.19¢

Down 0.5% to up 2.5%

Up 1.0% to up 4.0%

Cost per ASM

Up 1.9% to up 5.4%

Up 4.6% to up 8.3%
ASMs (000s)
19,006,682

Up 5.0% to up 8.0%

Up 4.0% to up 7.0%







(a) 2017 amount recast in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers

(b) See Table 1 below for a reconciliation of GAAP operating expenses to operating expenses excluding aircraft fuel and special items
The Company believes that cost per ASM excluding aircraft fuel and special items provides useful information about the underlying cost structure of the Company and is consistent with the metrics used by management to measure and monitor the Company's costs.


New Revenue Recognition Accounting StandardAs 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.  For additional details on the impact of the standard, see the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
The Company elected to adopt ASC 606 using the full retrospective transition method and is recasting certain quarterly and full year 2016 and 2017 financial results previously reported to reflect the expected results.  The adoption and related disclosures required by GAAP will be reported in the Company's future filings beginning in its Quarterly Report on Form 10-Q for the first quarter of 2018.
Statements of Operations: Select Recast GAAP Results (unaudited)

(in thousands, except per share data)
First
Quarter
2016

Second
Quarter
2016

Third
Quarter
2016

Fourth
Quarter
2016

FullYear2016
Operating Revenue:









   Passenger
$     507,935

$     551,776

$     628,975

$     583,001

$  2,271,687
   Other
36,339

39,109

40,908

44,370

160,726
      Total
$     544,274

$     590,885

$     669,883

$     627,371

$  2,432,413
Operating Expenses
451,023

469,507

496,294

618,102

2,034,926
Operating Income
93,251

121,378

173,589

9,269

397,487
Nonoperating Income (Expense)
(13,846)

4,688

(14,749)

(12,361)

(36,268)
Income tax expense (benefit)
30,235

48,093

59,684

(913)

137,099
Net Income (Loss)
$      49,170

$      77,973

$      99,156

$      (2,179)

$    224,120
Net Income Per Common Stock Share:









   Basic
$          0.92

$          1.45

$          1.86

$        (0.04)

$          4.19
   Diluted
$          0.91

$          1.45

$          1.85

$        (0.04)

$          4.15


(in thousands)
First
Quarter
2017

Second
Quarter
2017

Third
Quarter
2017

Fourth
Quarter
2017

FullYear2017
Operating Revenue:









   Passenger
$     563,752

$     624,006

$     668,643

$     630,426

$  2,486,827
   Other
42,457

46,110

47,573

52,178

188,318
      Total
$     606,209

$     670,116

$     716,216

$     682,604

$  2,675,145
Operating Expenses
544,179

533,276

547,214

586,438

2,211,107
Operating Income
62,030

136,840

169,002

96,166

464,038
Nonoperating Income (Expense)
(15,813)

(13,189)

(54,113)

9,898

(73,217)
Income tax expense (benefit)
12,572

46,755

43,267

(42,383)

60,211
Net Income
$      33,645

$      76,896

$      71,622

$     148,447

$     330,610
Net Income Per Common Stock Share:









   Basic
$          0.63

$          1.43

$          1.35

$          2.86

$          6.23
   Diluted
$          0.62

$          1.43

$          1.34

$          2.84

$          6.19

Financial Summary and Statistical Metrics: Select Recast Results


First
Quarter
2016

Second
Quarter
2016

Third
Quarter
2016

Fourth
Quarter
2016

FullYear2016
Pre-Tax Margin
14.6 %

21.3 %

23.7 %

(0.5) %

14.9 %
Adjusted Pre-Tax Margin
12.1 %

17.4 %

23.9 %

16.7 %

17.8 %
Diluted Earnings per Share
$          0.91

$          1.44

$          1.85

$        (0.04)

$          4.15
Adjusted Earnings per Share
$          0.76

$          1.18

$          1.86

$          1.20

$          4.98
Passenger revenue per ASM (PRASM)
11.63 ¢

12.12 ¢

12.87 ¢

12.77 ¢

12.37 ¢
Operating revenue per ASM (RASM)
12.46 ¢

12.98 ¢

13.69 ¢

13.73 ¢

13.23 ¢
Operating cost per ASM (CASM)
10.33 ¢

10.32 ¢

10.14 ¢

13.52 ¢

11.07 ¢
CASM excluding aircraft fuel and special items
8.73 ¢

8.48 ¢

8.20 ¢

9.04 ¢

8.60 ¢



First
Quarter
2017

Second
Quarter
2017

Third
Quarter
2017

Fourth
Quarter
2017

FullYear2017
Pre-Tax Margin
7.6 %

18.5 %

16.0 %

15.5 %

14.6 %
Adjusted Pre-Tax Margin
12.6 %

19.6 %

22.2 %

13.1 %

17.0 %
Diluted Earnings per Share
$          0.62

$          1.43

$          1.34

$          2.84

$          6.19
Adjusted Earnings per Share
$          0.98

$          1.52

$          1.87

$          1.05

$          5.41
Passenger revenue per ASM (PRASM)
12.47 ¢

13.18 ¢

13.52 ¢

13.17 ¢

13.09 ¢
Operating revenue per ASM (RASM)
13.40 ¢

14.15 ¢

14.47 ¢

14.23 ¢

14.07 ¢
Operating cost per ASM (CASM)
12.03 ¢

11.26 ¢

11.05 ¢

12.22 ¢

11.63 ¢
CASM excluding aircraft fuel and special items
9.33 ¢
(a)
8.99 ¢

8.83 ¢

9.64 ¢

9.19 ¢

(a) The recast first quarter 2017 CASM excluding aircraft fuel and special items was previously estimated as 9.29 cents in the Company's Fourth Quarter and Full Year 2017 Earnings Release dated January 29, 2018, and has been updated based on refinement of our calculations.
Non-GAAP Financial ReconciliationsThe Company evaluates its financial performance utilizing various GAAP and non-GAAP financial measures, including net income, diluted net income per share, PRASM, RASM, and CASM.  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 to analyze the Company's core 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 core operational performance and compare its results to other airlines in the periods presented below.
  • As originally reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as a result of the Tax Cuts and Jobs Act of 2017, the Company recognized a one-time benefit of $104.2 million in the quarter ended December 31, 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. As a result of the Company's retrospective adoption of ASC 606, Revenue from Contracts with Customers, effective January 1, 2018, the one-time benefit has been adjusted to $83.0 million.
Refer to the Company's Annual Report on Form 10-K for further detail on special items.
Table 1. Operating Costs per ASM (CASM) excluding Aircraft Fuel and Special Items Outlook(in thousands, except CASM data) (unaudited)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.


Estimated three months ending
March 31, 2018

Estimated full year endingDecember 31, 2018


(in thousands, except for CASM figures)

(in thousands, except for CASM figures)
GAAP operating expenses, as recast

$
619,533

-
$
646,734


$
2,403,642

-
$
2,560,549

Less: aircraft fuel, including taxes and delivery

(128,167)

-
(137,119)


(533,894)

-
(576,805)

Less: special items – net

(35,000)

-
(40,000)


(35,000)

-
(40,000)

Adjusted operating expenses - excluding aircraft fuel and special items

$
456,365

-
$
469,614


$
1,834,748

-
$
1,943,743

Available Seat Miles

4,703,247

-
4,748,471


19,766,949

-
20,337,150

CASM – GAAP

13.17
¢
-
13.62
¢

12.16
¢
-
12.59
¢
Less: aircraft fuel

(2.73)

-
(2.89)


(2.70)

-
(2.83)

Less: special items – net

(0.74)

-
(0.84)


(0.18)

-
(0.20)

CASM - excluding aircraft fuel and special items

9.70
¢
-
9.89
¢

9.28
¢
-
9.56
¢

Table 2. Recast Adjusted Income Before Income Taxes
(in thousands) (unaudited)

(in thousands)
First
Quarter
2016

Second
Quarter
2016

Third
Quarter
2016

Fourth
Quarter
2016

FullYear2016
Income Before Income Taxes, as recast
$      79,405

$    126,066

$    158,840

$      (3,093)

$   361,218
Add: changes in fair value of derivative contracts
(16,960)

(29,886)

1,076

(1,907)

(47,678)
Add: loss on extinguishment of debt
3,350

6,643

-

480

10,473
Add: special items – net
-

-

-

109,142

109,142
Adjusted Income Before Income Taxes
$      65,795

$    102,823

$    159,916

$    104,622

$    433,156


(in thousands)
First
Quarter
2017

Second
Quarter
2017

Third
Quarter
2017

Fourth
Quarter
2017

FullYear2017
Income Before Income Taxes, as recast
$      46,217

$    123,651

$    114,889

$    106,064

$    390,821
Add: changes in fair value of derivative contracts
11,387

2,810

(6,069)

(11,974)

(3,846)
Add: special items – net
18,679

4,771

50,202

(4,617)

69,035
Adjusted Income Before Income Taxes
$      76,283

$    131,232

$    159,022

$      89,473

$    456,010

Table 3. Recast Adjusted Net Income


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