Q4 2023 Hawaiian Holdings Inc Earnings Call
Participants
Catherine O'Brien; Analyst; Goldman Sachs Group, Inc
Michael Linenberg; Analyst; Deutsche Bank
Helane Becker; Analyst; TD Cowen,
Daniel McKenzie; Analyst; Seaport Research Partners
Christopher Stathoulopoulos; Analyst; Susquehanna International Group, LLP
Presentation
Operator
Yes, greetings. Welcome to the Hawaiian Holdings, Inc. fourth quarter and full year 2023 financial results call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I'll now turn the conference over to your host, Marcy Margarita. You may begin.
Thank you, Molly. 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 Sharon Malka, 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 performance. Brett 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. And by now everyone should have access to the press release that went out at about four o'clock Eastern time today. If you have not received the release. It is available on the Investor Relations page of our website, Hawaiian Airlines.com. During the call today, we refer at times to adjusted or non-GAAP numbers and metric. 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 though we refer you to Hawaiian Holdings' recent filings with the SEC for 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 formed and filed on Form 10 K as well as subsequent reports filed on Forms 10 Q and eight K. I will now turn the call over to Peter.
Mahalo, Marcy, and hello, 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 wanted 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 A3 21 and are ticking 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 wanted 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 third, we announced that we'll be joining Alaska Airlines and a new kind of combination for the US 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 and we can compete on our own, but the acquisition by Alaska has 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 Tamale, our total revenue for 2023 was up year over year due to the strength in our non-mall 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 now is not only our second largest hub, but is 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 US mainland to Hawaii network revenue performance from our non-mall routes remain solid. Our international markets ex Japan continued to perform well in spite of unfavorable exchange rates for visitors to the US in particular, our flights in China has been producing strong results. Japan traffic is improving, albeit more gradually than we would like. As we mentioned on our last call, there has 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 South West, as indicated by our substantially higher load factor and resin, 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 number one 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 a 321 neo 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 A. through 21 in December and are working with SpaceX acts to complete the installation across our A321 fleet, the industry's best WiFi connectivity will be available for our guests very soon. Our plan is to finish deployment across the 321 fleet by early in 2Q, and work is also underway to prepare for the expansion of this service to our 83 30s. And we're excited about receiving our first seven eight seven, which is scheduled for delivery in a few days in about three months. We'll be welcoming guests onboard this aircraft with the operation of our first commercial seven eight seven flights. We faced enormous external pressure in 2023 with Honolulu runway closures, Pratt & Whitney engine inspections, the Mowry 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, we 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 Thank you, Peter and hello.
Hi, everyone. In the fourth quarter, system resin 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 O'Malley wildfires and the challenging comparison period as we lapped 2022 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% or capacity. As we shared on our third quarter results call immediately after the fires, demand and fares, Tamale declined sharply resulting in overall degradation of resin. Since then, we've seen sequential improvement in Mallay as the fourth quarter progressed and looking at U.S. mainland and 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 Prism 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 problem was down about 2.5% on our Neighbor Island routes, we continue to compete and win. We saw average fare improved 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 for the Neighbor Island entity reached six reached $60, the highest in 16 months, we've maintained our significant lead over Southwest in load factor and Prism. The most recent DOT statistics for the third quarter show us at a 74% load factor and a 28.5% premium compared to 47% load factor and 13.1% price on for Southwest. These results continue to demonstrate that we are the inter-island 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%. And this 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 recovery of demand recovery in the short term, given the weakness of the yen and the compounding effect of Hawaii lodging inflation, strength in the US and other points of sale, including connections beyond Japan that helped offset the slower return of Japan point-of-sale traffic, but load factors have declined from the third quarter with the sharpest increase in industry capacity. Japanese consumers retain 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 all hotels means that we expect a return on Japanese travelers to be gradual, at least until one of those headwinds changes last week we notified the department of transportation that we are turning the route authority and slot for a midnight operation that serves Haneda to Honolulu four times a week and SEK 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 will deploy our assets to address demand in this market as the recovery develops in our international network outside of Japan, we continued to see strong performance in Korea with a diverse mix of traffic on that route. Sydney demand remained strong, but lag 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 Australian 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 Valley 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 America, the Maui market with load factors and average fares progressing towards historical norms. Relative to the fourth quarter's 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, an 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, unlike so unlikely to keep pace with the industry capacity increases. While we expect continued year-over-year improvement in the first quarter of 2020 for an international presence. And this will be the last quarter with historically low Japan rather important performance on a year-over-year basis for the network as a whole, we expect resin to be flat for the first 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. We which we anticipate will continue to progress over time. We have a lot to look forward to in 2024 with the headwinds from a 321 engine issues receding after the first quarter, the introduction of the seven eight seven into passenger service and steady improvement in the Valley recovery and progress in our Neighbor Island performance as well.
And with that, I'll turn the call over to Shannon.
Thanks, Brent. Hello, 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 EPS of $6.8 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 A. 32 one neo groundings due to engine issues, the impact of the Mali wildfires and the slower recovery of Japan. We believe that as we move past those factors, our strong business model paves the 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 and 2025. We continue to maintain a strong liquidity position of $1.1 billion, which includes a $235 million undrawn revolver. We expect to close financing concurrently with our first 77 delivery and are in the process of securing financing for the second 77, 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 77 fleet and flying more A3 30 freighters. Our 2020 for CapEx, including aircraft and non-aircraft spend, it is expected to be in the range of $500 million to $550 million and is primarily comprised of three 77 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 70 sevens 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 began our 77 and Amazon flying in earnest and benefit from changes in the new pilot CBA. For the full year, we expect our CASMex to be up about 1% from the prior year with about 1 percentage point resulting from direct Amazon costs do not generate assets our year over year. Now the change reflects the ramp-up of our capacity and starts off larger in the first quarter and improved 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 lease 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 ninth. If you have questions about the merger, we're likely to refer you back to that document. Operator, please open the line for questions.
Question and Answer Session
Operator
Thank you. At this time we'll be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two, if you'd like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We also ask that those that are in queue for Q&A to only ask one question and one follow-up to allow others an acute ample enough time you ask a question.
Our first question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.
Hi, everyone. Thank you. Just on the Hemnet, the slot decision, can you just provide some additional context there? I think you mentioned that you still expect a full recovery. But you know, if you don't see a steady improvement over the next couple of years, like is there another adjustment that needs to be made to that to that network if things start to materially improve from here? Thank you.
Yes, Conor, let me start on this and then see if Brent has anything he wants to add it all just put it in context. We talked a lot in the last call about the A.M. slot restrictions going away, capacity coming back into the market, Japan, it has been recovering, but it's been very gradual. And right now the supply demand situation is a little out of balance and we don't see an immediate snapback in that despite the enduring strong affinity that the folks in Japan have for Hawaii. And in particular, one of the things that's been bolstering some of the Japan flying has been really strong demand from US point of sale and from other international points of sale. But unfortunately, this particular frequency, the Midnight slide out of Panetta that we fly to Cona three times a week, Honolulu, four times a week. It doesn't benefit from that connectivity. We there's really no connectivity from US point of sale on the cone of flight. And as we looked at it, we thought one was really a unique situation that we just don't see it returning as strongly enough. Frank also mentioned the and the hotel inflation, which compounds the depreciation of the yen versus the dollar that is most striking in a corner where we've seen hotel rates now versus 2019 that are up something on the order of 70% from what they were. And so it's over 120% more expensive for someone spending into spent stay in a hotel in Hawaii Island than it was four or five years ago. And yet all of that just made us feel that this was a prudent decision at that time, but we really don't see this as the harbinger of other adjustments in Japan. We're very committed to the Japan franchise. Our other hand, net of flying is performing better. Our Narita route is performing better and where we're going to be planning to stay the course on the rest of our Japan network at this time.
Yes, I think the only thing I would add, Conor is if you recall, we are we were also awarded an additional amount of frequency that we never really got to operate right before the pandemic. So our overall kind of footprint in Tokyo is pretty close to what we had pre pandemic as opposed to adding a fourth daily Tokyo flight. So disappointing to have to make that decision, but it was the right thing to do and it felt good given the market and what was going on in the market. It felt a little difficult to be growing into it with the with the slower pace of Japan recovery.
Okay. That's really helpful. And then maybe just ask Mike to follow up on the capacity outlook now. And as you mentioned, mix and talks about accelerating throughout the year, can you just walk through the moving parts as does the GTF flip from a headwind to a tailwind in 2Q? And then if you could provide any breakdown between international and domestic?
I think most of your routes domestic but just any thoughts there could be could be helpful. Thank you.
Yes, I don't have to queue specifically for the GTF. It's probably more neutral is still a bit of a tailwind in capacity growth in 2Q. And certainly by the time we get out to the back half of the year, it will be a tailwind from 70 sevens, obviously are a source of growth. And if you think about it geographically, as you point out, it's disproportionately in North America, albeit we've got a little bit of it in the front part of the year as we as we lap some of the Japan, particularly in 1Q. But as we get out of that and 1Q and 2Q, that will that will become a bit flatter on a year-over-year basis.
Operator
Okay, helpful.
Thank you. Our next question comes from the line of Catherine O'Brien with Goldman Sachs, Goldman Sachs. Please proceed with your question.
Catherine O'Brien
Good afternoon, everyone. And thanks so much for the time. And I just wanted to dig in a little bit more on the interisland, at least hear about the progress there and the average fare I'm just wondering, you know how it is at $60 average fare in December trended into the first quarter, and I realize a good portion of those bookings are close-in, but just from what you've seen so far and then what is the breakeven fair for interisland.
And we continue to see good progress as we moved into the first quarter and there wasn't any kind of real unique seasonality around that. And so we're encouraged that as we move through the first quarter, we'll continue to see improvements in average fare that are that are kind of consistent with what we saw and towards December there in terms of a breakeven amount, we're not going to we're either going to disclose that at this point I think we're like I said, we're encouraged with our relative performance and we'll continue to strive to get the entity back and improve our contribution to our overall performance as we strive to get back to and network profitability.
Catherine O'Brien
It was worth a shot and then we have for you, Shannon, you mentioned financing for the first seven eight seven delivery would close concurrently with the delivery of that aircraft. Sir, you decided on I think last call you were talking about again Germany that maybe sale leaseback and does the proposed acquisition by Alaska impact what options you're looking at all for financing or these are all going to be standalone decisions until the merger is closed? Thanks so much.
Thanks, Katy. Yes, this first one is and will be in the form of a finance lease, which is closer to a debt finance than it's not an operating lease. And the E note we can make that we can and gladly make our own decisions on financing. We have some some consultation requirements with Alaska as we go through on each financing. But largely, we're kind of free to do this as we would normally do it. And so we I'm pretty close on the second are not final. So I can't make any announcements about that one today, but just generally looking at market conditions seem as we were last year.
Catherine O'Brien
Thanks so much.
Operator
Our next question comes from the line of Mike Linenberg with Deutsche Bank. Please proceed with your question and how yes, this is.
Michael Linenberg
And maybe a question at Shannon. Peter, just dumb on the Amazon business, what do we what airplane now or maybe it's too, can you just talk about the pacing and at what point does that business become a contribution to the P&L? Is that a 2025 event? Is that back half of 2020 for any additional color on how that business is rolling up? Thanks.
Yes, thanks for that, Mike. We are operating one aircraft currently, and our team did a really stellar job. We've albeit with a very small operation, but with only a single airplane to execute it, we've had really outstanding operational performance. And I think the Amazon team is pleased with how that airplane is integrating into their fleet. And the plan as of as it stands right now is for us to ramp up to about six airplanes in operation over the course of this year, which is a little bit lower than what had initially been contemplated. And that is not a product of our desire or our customers' desire, but more a product of the pace at which those airplanes were available from the conversion line. And given that, you know, as Shannon and I think alluded to, we see the benefits of that investment ramping up over the course of the year where it should be a positive contributor will be at the tail end of this year or into next year is where we would anticipate that at this point.
Michael Linenberg
Okay. Great. That's helpful. And then on my second question, just to Brent, on interisland, we have seen a pretty meaningful increase in average fares, and you talked about that with that increase, did we see any sort of meaningful falloff in demand? Or was the market just mispriced a year ago? And I guess the consumer got an unsustainably good benefit.
And I would say load factors have held up really well. And if we're seeing any kind of impact on load factor, it's minimal. And certainly these changes have been kind of revenue positive, particularly if you like the kind of elasticity closer into departure, these have net-net been have been accretive to unit revenue.
Michael Linenberg
Great. Thank you.
Thanks, Mike.
Operator
Our next question comes from the line of Helane Becker with TD. Cowen. Please proceed with your question.
Helane Becker
Well, thanks very much, operator. Hi, team. So I have a question about the GTF issue and I'm hearing that that 250 to 300 day on the ground to get the engines repaired is starting to extend to over 400 days. And I'm wondering if you've heard something similar or if you new, we are in a better position to get the aircraft out sooner, especially given your answer to eCommerce question about second half seeing improvement?
Yes, Helane, I'm not aware of an expansion at this point in the from the overall span of shop visits. But I would point out and that whenever you hear those numbers you have to put it in the context of it's a range. And it really is a function when you when the engine comes off wing and goes into the overhaul shop of the scope of work that is required in there. I think in terms of, you know, the volume of engines that have to go through there probably is a greater waiting time before they actually get onto the shop floor and get operated on. And I think that's factored into the expectations from our specific situation.
You know, if you recall even before the powder metal issue became the subject of the day last July, we had had a number of removals for other reasons. And so we've had a number of engines that have already been in the overhaul process and part of what is helping our outlook on a relative basis in the next little while as some of those engines start to come out of the overhaul shop that have been in there since the early part of last year before we even got into having removals for the powdered metal inspections. So it's a moving picture and there's still uncertainty and a number of things from one of the things we have to factor into our forecast is unexpected engine removals, and they're always hard to forecast by the nature of being unexpected, but we feel relatively better about where we are right now. We're working closely with Pratt & Whitney to keep our finger on the pulse of that and make sure that whatever expectations we have can be built into our schedule. So where we're giving a reliable aircraft availability forecast to Brent before his team goes and lays out the network plan going forward.
Helane Becker
Got it. That's really helpful. Thank you. And then I have two other questions are really short. One is, can you say as you're talking about financing the 77th, what your cost of capital is? And the other question is, can you and talk a little bit about how you're thinking of or if you've seen in the forward schedules? And any sign that Southwest is pulling some have the interisland capacity out in kind of rerouting those aircraft to red eyes?
Yes. Yes, Holly, I think at this point yet we're not completely done with the financing. It will be concurrent with the delivery. So I would I can probably provide you more information when we're when it's all final on the exact cost of capital.
Helane Becker
Okay.
But in terms in terms of competitive schedules, we haven't seen any recent activity in terms of Neighbor Island or conversion from daytime flying to red-eye flying.
Helane Becker
Okay.
All right.
Well, both for us and I think, James, thank you for your overview.
Thanks, line of course.
Operator
Our next question come from the line of Dan McKenzie with Seaport Global. Please proceed with your question.
Daniel McKenzie
It's a fix on Peter. Going back to the script about some the commentary around the number of pilots undergoing training and the GTF issues on what efficiency metrics are you focused on? And I guess, where are you at today? Where do you want those metrics to be in 2025? And I guess what I'm really trying to get at here is the embedded inefficiency that's in the cost structure today that eventually goes away next year. So 2024 going to the I think the messaging that this is really a transition year and that should give way to a much better 2025.
Yes. In terms of efficiency metrics, there's obviously a wide variety of things that we look at in terms of aircraft utilization and tune in terms of, you know, four crews in particular, you mentioned pilots. We really focus on and the number of productive block hours relative to the hours we pay for. And of course, training is training is a big part of that because, well, it is essential and we certainly have to do it every time we bring a new pilot on or we shift someone to a new fleet or seat. It's not producing block hours that generate ASMs that generate revenue. So of it, we're in a position this year going over the last couple of years, we've had an incredible amount of training, and I think this has been a theme throughout the industry as airlines have dealt with, have some turnover in the ranks and a lot of hiring. And of course, with us bringing on a couple of new fleet types and over a several month timeframe that that, as Shannon said, in her commentary, that training level remains elevated, but it's actually not higher year over year. We're into a slower pace of hiring now and a slower pace of movement. And so it does become more manageable and we see more productivity improvements as we go through back part of the year.
So on the I'll add a little bit more there on down. You know, last quarter we talked about that percent of efficiency compared to 2019, and we believed our exit point this year was going to be I think it was around 10% to 11% greater than 2019 as far as excess pilots on partial, of course, with the delivery delays this year. We're not expecting we will have to change our expectation for the exit rate. It improve over this year, but we don't expect to get to that level maybe until the middle of 2025 when we have about that equivalent of flying after all the delivery delays, we don't believe that that's the steady state. We believe we can get more improvement even off of that. But with that, we're looking at about a six month delay to get to the point that we talked about last quarter.
Daniel McKenzie
I see okay. And then a separate question here, and this is kind of a, um, a question I've been asking all the airlines here is about the shift to the cloud. So I guess I'm curious, first as a line shifting to the cloud, I guess first off or if you've already started, how far along are you at this point on? And I'm just curious if you can provide some perspective around the cost to make the switch or what the savings might look like once that transition is completed?
Yes. I'll take that one, Dan. We don't have our IT experts here in the room with us. But but I think the way we have focused on this is not to think about the evolution of our technology stack as being something that is that is immediate and we're trying to cut overall at once. But as as the systems evolve and as we bring on new systems in different part of the business. We are always focused on moving to more modern architectures. And that means moving to and a lot of cases, cloud-based applications are a number of areas where we use software as a system as well. And so the storage is on things like that is not only cloud-based, but it is provided by our vendors. So it really for us is more of an evolution than a revolution and something that we are continuously continuing to pursue as we modernize the technology stack around the whole business.
Daniel McKenzie
I see. Okay. So if we were to look at it today, what percent of the IT is switched over? And where would you expect that to be, say in three years or five years? Longer term.
I don't have a percentage that I want to be quoted on today, Dan, but maybe we can follow up with you offline on that one.
Daniel McKenzie
I see. Okay. Thanks so much for the time you guys.
Thanks, Ed.
Operator
Our next question comes from the line of Chris that will ripple this with escort and international. Please proceed with your question.
Christopher Stathoulopoulos
Okay. Thank you, operator. So Peter, if you sign it up the headwinds around FX and lodging inflation as it relates to Japan, if Japan does take longer than expected to return for whatever reason Could you walk us through how we should can think about your other international point of sale markets and potentially some of the levers that you could pull to offset that a longer ramp-up? Thanks.
Yes, I'll start. And then again, see if Brent wants to add anything to this in terms of our overall footprint in Japan Post this adjustment will have we'll have three Tokyo flights. We'll have our Osaka flight and we have a less than daily frequency, two to Fukuoka. So each of those flights is about an aircraft worth of flying. So call it about 4.5 airplanes worth of flying that are I'm dedicated to add Japan going into the summer. There's really nothing in terms of the international markets that rivals the importance of Japan to Hawaii. It really is by far and away the most significant source of international visitors to our state. So I think in the hypothetical, which we don't envision where we were looking to deploy some of that capacity elsewhere. It is probably into the larger domestic market, but again, at this point, and that is as we said earlier, is novel. We're foreseeing we've got some other sources of revenue in terms of US point of sale and international points of sale. The benefit of the other flights that we have into Japan. And so and yes, right now, we expect there to be a gradual ramp up. We will certainly be cheering for some appreciation of the yen, which would be helpful. But obviously we can't count on that. We've got a forecast based on what we know today, but that that's our plan going forward as we sit here today.
Yes, I think the only thing I would add is we've made good progress on increasing traffic beyond Japan and other parts of Asia will continue to pursue that. I think that is a market where we've matured a lot, but there's still some more opportunity there from a few things. Then likewise, I think we've got the opportunity that continue to grow traffic connecting from the mainland to Japan, as we've seen strong US point of sale and some business that traditionally we didn't pursue, but we've been more active in pursuing that as well as obviously at some point of origin traffic heading to Japan. So I think we've done a good job in those spaces where we haven't traditionally had a to search for as much traffic. But I think we'll continue to look for ways to continue to grow that business.
Christopher Stathoulopoulos
Okay. And as a follow-up, if you could just break down the moving pieces of the capacity guide for 2024 stage gauge and departures.Thank you.
Chris will have Marcy follow up because we are we don't have the detail on that for 2024.
Christopher Stathoulopoulos
Okay, thanks.
Operator
And our next question comes from the line of Catherine O'Brien with Goldman Sachs. Please proceed with your request.
Catherine O'Brien
Everyone, thanks so much for the follow-up. Appreciate it. Just one more for you, Brent. You called out the international presence comps get harder into 2Q. Does that mean that you expect year over year international pricing performance sequentially worse in 2Q versus 1Q as it stands? And if that's the case, do you expect North America and Neighbor Island pricing to offset that or, you know, should we system present year over year in the second quarter, especially tougher in 1Q, just given those Thanks so much for that.
Yes, I don't think we're at a point where we're ready to guide to Q to QIKD. So I just wanted to point out that.
Yes, Japan gets a little harder comp as we head out. And certainly we had the ramp up that improved as we got out of 1Q last year. So we will give specific entity guidance either for 2Q. But I think international will sit and we'll be more likely to see kind of more flattish unit revenue as we as we had a low market as the industry adds little capacity back there and in 2Q and beyond, as opposed to some of the improvements that we'll still see in the first.
Catherine O'Brien
Yes. Thanks so much.
Operator
And we have reached the end of our question-and-answer session, and I'll now turn the call back over to President and CEO, Peter Ingram, for closing remarks.
Again for joining us today and we're excited about the opportunities ahead of us in 2024 as we integrate the initiatives of the past couple of years into our day-to-day operations. I look forward to sharing our progress with you again in a few months.
Aloha.
Operator
Yes, this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
