Hawaiian Holdings, Inc. (NASDAQ:HA) Q4 2023 Earnings Call Transcript
Hawaiian Holdings, Inc. (NASDAQ:HA) Q4 2023 Earnings Call Transcript January 30, 2024
Hawaiian Holdings, Inc. misses on earnings expectations. Reported EPS is $-2.37 EPS, expectations were $-2.35. Hawaiian Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Hawaiian Holdings, Inc. Fourth Quarter and Full-Year 2023 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] I will now turn the conference over to your host, Marcy Morita. You may begin.
Marcy Morita: Thank you, Jamali. Hello, everyone, and welcome to Hawaiian Holdings' fourth quarter and full-year 2023 results conference call. Here with me in Honolulu are Peter Ingram, President and Chief Executive Officer; Brent Overbeek, Chief Revenue Officer; and Shannon Okinaka, Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A. Peter will provide an overview of our performance. Brent will discuss revenue, and Shannon will discuss costs and the balance sheet. At the end of the prepared remarks, we'll open the call up for questions. By now, everyone should have access to the press release that went out at about 4'o clock Eastern Time today. If you have not received the release, it is available on the Investor Relations page of our website, hawaiianairlines.com.
During our call today, we'll refer our times to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today's press release posted on the Investor Relations page of our website. As a reminder, the following prepared remarks contain forward-looking statements, including statements about our future plans and potential future financial and operating performance. Management may also make additional forward-looking statements in response to your questions. These statements are subject to risks and uncertainties and do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to Hawaiian Holdings' recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements.
These include the most recent annual report filed on Form 10-K as well as subsequent reports filed on Forms 10-Q and 8-K. I will now turn the call over to Peter.
Peter Ingram: Mahalo, Marcy. Aloha, everyone, and thank you for joining us today. While 2023 certainly had its challenges, we accomplished an extraordinary amount, including the realization of foundational investments in the business. I want to give a big mahalo to all our team members. Through their dedication, compassion, and hard work, we continue to deliver to our guests the hospitality that is the hallmark of our brand. We wrapped up the year with FAA approval of Starlink on the A321 and are kicking off 2024 by taking delivery of our first 787 in the next few days. I'll talk more about each of these milestones in a few moments. Before that, I want to touch on the merger announced at the end of the year. We've provided exhaustive detail on this topic in public filings, so we're not going to dwell on it on this call.
On December 3rd, we announced that we'll be joining Alaska Airlines in a new kind of combination for the U.S. industry, becoming a single airline with two distinct brands. We are confident that this combination is the best way to help us meet the needs of Hawaii and the other communities we serve. We strongly believe that this merger is pro-consumer and pro-competitive. Over the next several months, as we proceed through the regulatory review process, we're staying focused on the task at hand, running an outstanding airline and advancing our priorities, which are delivering industry-leading operational performance and enhancing the guest experience; fully integrating recent investments into our business; focusing on long-term financial sustainability; and taking care of the people and places we serve.
We have immense confidence that we can compete on our own, but the acquisition by Alaska is an even better outcome for consumers, employees, and the communities of our home state of Hawaii. I'll go over a few highlights of our 2023 results and 2024 outlook, on which Brent and Shannon will expand in more detail. On last quarter's call, we spoke extensively about the impact of the Maui wildfires. In spite of this tragic event and the ensuing reduction in travel to Maui, our total revenue for 2023 was up year-over-year due to the strength in our non-Maui domestic markets and the continuing recovery of international travel to Hawaii. The return of visitors to Maui remained steady and consistent with our expectations, which is important. Maui is not only our second largest hub, but it is home to many of our employees, and we remain committed to supporting the island and its residents in the ongoing recovery.
On the U.S. Mainland to Hawaii network, revenue performance from our non-Maui routes remained solid. Our international markets ex-Japan continued to perform well in spite of unfavorable exchange rates for visitors to the U.S. In particular, our flight to Incheon has been producing strong results. Japan traffic is improving, albeit more gradually than we would like. As we mentioned on our last call, there's been a snapback of industry capacity in the Japan-Hawaii market as slot usage requirements were reinstated, and that has taken load factors off the highs recorded in August. On the Neighbor Island front, we continue to see overwhelming consumer preference for our brand over Southwest, as indicated by our substantially higher load factor and RASM.
We faced a number of challenges outside of our control in 2023 that affected our on-time performance, which we know is incredibly important to our guests. With many of those issues, like the Honolulu runway closure, now behind us, we're focusing on getting back to our traditional place as the industry's on-time performance later. I'm proud that we were back at No. 1 for on-time performance for July, August, and September and ended the year at 83.5% for the busy month of December. Although we're not immune to additional challenges, we're moving into a period of relative stability. This includes A321neo engine supply, which we expect to improve by the middle of the second quarter, when we get back engines that have been undergoing overhaul. This adds to my confidence that we are going to be able to consistently provide the high standard of operational performance that our guests expect.
As we kick off 2024, we're delivering on several very important initiatives and integrating them into everyday practice. We're deploying technology enhancements for our guests using the capabilities of our new Amadeus PSS. We received FAA approval of the Starlink system on the A321 in December and are working with SpaceX to complete the installation across our A321 fleet. The industry's best Wi-Fi connectivity will be available for our guests very soon. Our plan is to finish deployment across the A321 fleet by early in 2Q, and work is also underway to prepare for the expansion of this service to our A330s. And we're excited about receiving our first 787, which is scheduled for delivery in a few days. In about three months, we'll be welcoming guests aboard this aircraft with the operation of our first commercial 787 flight.
We faced enormous external pressure in 2023 with Honolulu runway closures, Pratt & Whitney engine inspections, the Maui wildfires, intense competition in our core markets and, through it all, accomplished a lot. Our employees remain focused on caring for our guests and representing our brand as only they can with authentic hospitality and aloha. What we have not done yet is return to consistent profitability, and we will not be satisfied until we accomplish this goal as well. I'm confident that 2024 will be a year of further progress towards sustained profitability as the significant investments we've made in the business begin to deliver results. We will mark an important anniversary this year, celebrating 95 years of continuous service as Hawaii's airline.
We are confident in the core strength of our brand and business model. I believe that our investments will make us an even stronger airline. Let me now turn it over to Brent to go over our commercial performance and outlook in more detail.
Brent Overbeek: Thank you, Peter. Aloha, everyone. In the fourth quarter, system RASM was in line with our guidance but down approximately 11% year-over-year due to a slowdown in the pace of recovery of Japan outbound traffic, a softer fare environment for travel to Hawaii, and an increase in our longer-haul flying. Headwinds from the Maui wildfires and the challenging comparison period as we lapped 2022's high watermark for spoilage and cargo activity were also factors. As a consequence of these factors, total revenue for the quarter was down approximately 8% compared to the same period in 2022 on 3% more capacity. As we shared on the third quarter results call, immediately after the fires, demand and fares to Maui declined sharply, resulting in overall degradation of RASM.
Since then, we've seen sequential improvement in Maui as the fourth quarter progressed. And looking at U.S. Mainland to Maui flights, our October average fare was approximately $60 lower than the prior period -- the prior year with load factor eight points lower. By December, the average fare gap had narrowed to approximately $30, and the load factor gap was four points. The impact of softness in Maui travel demand drove fourth quarter North America PRASM to a year-over-year decline of 16%. While a bit dated, the last relatively clean quarter we had on a year-over-year perspective was the second quarter of 2023, when year-over-year North America PRASM was down about 2.5%. On our Neighbor Island routes, we continue to compete and win. We saw average fare improve progressively year-over-year throughout the quarter as we lap a period in 2022 when $39 fares were available on Southwest up to the last seat availability.
In December, our average fare from the Neighbor Island entity reached $60, the highest in 16 months. We've maintained our significant lead over Southwest in load factor and PRASM. The most recent DOT statistics for the third quarter show us at a 74% load factor and a $0.285 PRASM compared to 47% load factor and $0.131 PRASM for Southwest. These results continue to demonstrate that we are the interisland carrier of choice. On last quarter's call, we mentioned that industry capacity for Japan would return to its highest point yet compared to 2019. Japan fourth quarter industry capacity was just over 90% of 2019 levels, up from about 70% in the third quarter. Japan point-of-sale bookings finished 2023 at around 50% of 2019 levels, and we're expecting a modest pace of demand recovery in the short term given the weakness of the Yen and the compounding effect of Hawaii lodging inflation.
Strength in the U.S. and other points-of-sale, including connections beyond Japan, have helped offset the slower return of Japan point-of-sale traffic, but load factors have declined from the third quarter with the sharp increase in industry capacity. Japanese consumers retain an enduring interest in travel to Hawaii, and we are seeing steady improvement. But the dual effect of the weaker Yen and dramatic inflation in the cost of Hawaii hotels means that we expect the return of Japanese travelers to be gradual at least until one of those headwinds changes. Last week, we notified the Department of Transportation that we are returning the route authority and slot for a midnight operation that serves Haneda to Honolulu four times a week and Kona three times a week.
While we are bullish long-term on Japan to Hawaii given the short- to medium-term challenges impacting the market, we have elected to reduce our Tokyo to Hawaii footprint back to 18 to 21 trips a week based on seasonality. We remain committed to serving demand for Japanese travel to the Big Island through our Honolulu hub using the robust connectivity available on our Neighbor Island flights. We're still confident in the full recovery in Japan, and we'll deploy our assets to address demand in this market as the recovery develops. In our international network outside of Japan, we continue to see strong performance in Korea with the diverse mix of traffic on that route. Sydney demand remains strong but lagged the year-over-year performance in the fourth quarter due to additional industry capacity between North America and Australia and a tough comp against the pent-up return of Australia travel demand in the fourth quarter of 2022.
Although fares are down year-over-year, they're still well ahead of 2019, indicating better high-yielding demand from that market. Looking ahead to the first quarter of 2024, we anticipate continuing improvements in Maui and are confident that demand will continue to recover as we progress throughout the year. We believe the worst is behind us for the North American to Maui market with load factors and average fares progressing toward historical norms. Relative to the fourth quarter year-over-year comps, the first quarter will benefit from a more favorable comparable period as we no longer have headwinds from the pandemic-related cargo comps and uncharacteristically high-ticket spoilage. We anticipate improvement in Maui as well as our Japan market, and we see a modest recovery of Japan point-of-sale demand, though unlikely to keep pace with the industry capacity increases.
While we expect continued year-over-year improvement in the first quarter in 2024 in international PRASM, this will be the last quarter with historically low Japan RASM performance on a year-over-year basis. For the network as a whole, we expect RASM to be flat for the first quarter year-over-year on capacity growth of about 4%. This reflects moving past the challenging 2022 comparison period and illustrates an improved operating environment with steady recoveries in our Maui and Japan markets, which we anticipate will continue to progress over time. We have a lot to look forward to in 2024 with the headwinds from A321 engine issues receding after the first quarter, the introduction of the 787 into passenger service, and steady improvement in the Maui recovery and progress in our Neighbor Island performance as well.
And with that, I'll turn the call over to Shannon.
Shannon Okinaka: Thanks Brent. Aloha, everyone, and thank you for joining us today. We finished the fourth quarter with an adjusted EBITDA loss of $98 million and an adjusted loss of $2.37 per share. Full-year 2023 resulted in an adjusted EBITDA loss of $169 million and adjusted loss of $6.08 per share. Unit costs, excluding fuel, nonrecurring costs, and direct merger costs, came in as anticipated. While these fourth-quarter and full-year results are in line with the guidance we provided, we're disappointed that we have yet to achieve profitability since the pandemic. Our results were significantly affected by factors outside of our control such as the A321neo groundings due to engine issues, the impact of the Maui wildfires, and the slower recovery of Japan.
We believe that as we move past those factors, our strong business model paves a path to return to profitability. The investments we have made and are continuing to make will begin providing financial benefits this year with a more profound impact in 2025. We continue to mean a strong liquidity position of $1.1 billion, which includes a $235 million undrawn revolver. We expect to close financing concurrently with our first 787 delivery and are in the process of securing financing for the second 787, which will position our liquidity well as we continue to invest in our business and prepare to address the maturity of our $1.2 billion loyalty bond in early 2026. Over the next few quarters, we will be ramping up our 787 fleet and flying more A330 freighters.
Our 2024 CapEx, including aircraft and non-aircraft spend is expected to be in the range of $500 million to $550 million and is primarily comprised of three 787 scheduled for delivery this year and PDPs related to future deliveries. Moving to costs, the general themes for 2024 are consistent with 2023. We'll continue to see elevated levels of pilot training as we prepare for our fleet growth. While productivity will be challenged in the first quarter and aircraft delivery delays, both 787s and freighter aircraft have slowed our recovery, we will be on the road to normalization in this regard by the end of this year. We also face headwinds from higher airport and labor rates. However, we expect the benefits from our investments to also ramp up throughout the year as we begin our 787 and Amazon flying in earnest and benefit from changes in the new pilot CBA.
For the full-year, we expect our CASM ex to be up about 1% from the prior year, with about one percentage point resulting from direct Amazon costs that do not generate ASMs. Our year-over-year CASM change reflects the ramp-up of our capacity and starts off larger in the first quarter and improves throughout the year. We expect our first quarter unit costs, excluding fuel and special items to be about 9% higher than the same period in 2023. In addition to labor and benefits, which account for about four points of the increase, a heavier maintenance schedule, airport rate increases, and Amazon each add about one point of increase. We have been deliberately investing to make us a more profitable, resilient company and have the strong balance sheet and financial resources to benefit from those investments over time.
With that, we will open the call for Q&A. We're happy to address any questions you have about our ongoing strategy, performance, and the outlook for 2024, but I'd like to remind everyone that we remain in our proxy solicitation period. So all of the information we can share related to the Alaska merger is captured in our definitive proxy filing of January 9th. If you have questions about the merger, we're likely to refer you back to that document. Operator, please open the line for questions.
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