Yahoo Finance Hawaiian Holdings, Inc. (NASDAQ:HA) Q1 2024 Earnings Call Transcript
Hawaiian Holdings, Inc. (NASDAQ:HA) Q1 2024 Earnings Call Transcript April 23, 2024
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 and welcome to the Hawaiian Holdings, Inc. First Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It my now my pleasure to introduce your host, Jay Schaefer, Vice President and Treasurer. Thank you. You may begin.
Jay Schaefer: Thank you, Camila. Hello everyone and welcome to Hawaiian Holdings' first quarter 2024 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. 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 will 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 will refer at 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. I will now turn the call over to Peter.
Peter Ingram: Mahalo Jay. Aloha everyone and thank you all for joining us today. As always, I want to thank our team for an incredible job in the first quarter. In a quarter that featured some operational and commercial challenges, we made great progress on major initiatives and saw important improvement in some key operational metrics. Early this year, a number of very important investments, ones like Starlink, our work for Amazon and the 787 that we've been talking about on these calls for some time began to come to fruition. I'll talk more about these in a moment. While I'm sure the pending merger with Alaska Airlines is a topic of great interest, we don't have anything material to share today beyond what we have already publicly disclosed.
We received shareholder approval for the combination in February and are working diligently to respond to the Department of Justice's second request, which we received in early February. Our aim is to comply with that request as soon as possible and we are making steady progress to that goal. On March 27th, Hawaiian and Alaska disclosed a timing agreement with the DoJ in which we agreed not to consummate the merger until 90 days after the date on which both parties have certified substantial compliance with the second request. More information about this and other recent merger-related events can be found in our SEC filings. The early part of this year has featured some major milestones in the development of our fleet. As of this month, we have two 787s in service, and we flew our first 787 revenue flight between Honolulu and San Francisco on April 15th.
Our second A330 freighter was also delivered and has commenced revenue operation. Greater flying is going well and we look forward to continued expansion of the fleet and network over the course of the year. We completed installing Starlink in-flight connectivity on all 18 of our Airbus A321neos and are working towards certification for the A330 so that we can complete installations on that fleet later this year. As promised, the Starlink product sets a completely new standard for in-flight connectivity and the response from our guests has been incredibly positive. On another positive note, we expect our full A321neo fleet to be available for service within the next couple of weeks, based on current engine availability, including the return of some engines from overhaul visits.
Brent will talk about our commercial performance in more detail, but I'll hit a couple of highlights. Overall, the topping of our revenue guidance in the first quarter reflects generally strong demand for travel to Hawaii in the majority of our markets. While some core parts of our network, notably Maui and Japan have room to improve, the aggregate demand we're seeing across our portfolio of roots is encouraging. With the additions to our fleet, we are launching some new service in May and the initial customer response to our flights between Salt Lake City and Honolulu as well as between Sacramento and both Kona and Lihue has been very encouraging. We're also seeing good demand for additional seasonal frequencies that we've added to existing routes like Austin, Boston, Las Vegas, LAX, and American Samoa.
We have talked previously about some of the challenges we faced with operations in 2023, mostly rooted in factors outside of our control. A key theme for us this year was ensuring that we get back to industry-leading on-time performance and baggage delivery, things we know we excel at when not facing external headwinds. We saw some tangible results from these efforts in Q1 as reliability improved month by month through the quarter, including hitting 87% on-time arrivals in March, which should rank us near the top of the industry for the month. We're also working on initiatives to handle disruptions better, improve our call center experience, and introduce new self-service options for guests. I'm excited about the progress we're making on this work.
First, because it matters to our guests; and second, because running a smooth, reliable operation has a positive impact on costs. Shannon will speak more about our costs, but I want to underscore that we continue to focus on returning to profitability. The investments that we are making and the initiatives that we are pursuing lay a strong foundation for financial resilience. There is a lot going on in 2024 with exciting new projects in addition to the pending merger. My focus is on making sure that we don't lose sight of the fundamentals; safety, running a great operation, and sharing aloha with our guests, while we execute against a lot of initiatives. I'm grateful to my leadership team and to all of the employees of Hawaiian for keeping a daily unrelenting focus on those fundamentals, especially safety during such a busy time.
With that, I'll turn the call over to Brent to go over our commercial performance and outlook in more detail.
Brent Overbeek: Thank you, Peter, and aloha everyone. As Peter mentioned, demand remains strong across most of our network in the first quarter. Total revenue was up 5.4% as we flew 2.7% more capacity versus the same period in 2023. We saw a good close-in demand and strong fares driven by continued strength in our premium cabinet. System RASM was up 2.6% year-over-year for the first quarter, which, as Peter mentioned, was above our guidance. Digging into our first quarter performance by geography. North America continues to perform well, and the overall healthy demand was augmented by two factors; first, accommodating other airlines passengers impacted by the MAX 9 grounding; and second, by the timing of Easter, which on a year-over-year basis, pushed more traffic into the first quarter.
Turning to Japan, after seeing demand ramp up through the third quarter of 2023, we have seen the Japan point-of-sale demand recovery flat, driven by the challenges of a weekend compounded by high lodging rates in Hawaii. Somewhat offsetting that weakness, we have been pleased with U.S. point-of-sale demand, which has backfilled some of the gap in Japan originating demand. We expect that U.S. point-of-sale strength to remain robust while the exchange rate environment persists. The rest of our international markets are seeing similarly strong U.S. point-of-sale demand. However, international RASM is down year-over-year as lower yields offset improved load factors compared to a very strong first quarter of 2023. Neighbor Island saw a strong close-in demand and improving yields, which are driving unit revenue improvement.
We are seeing the strongest unit revenue improvement since the second quarter of 2022 when the state of Hawaii reopened travel without COVID-19 restrictions. We continue to perform exceptionally well against the competition with a 28-point load factor differential and a PRASM that was roughly twice that of our competitor in the fourth quarter of 2023. Looking at our ancillary revenue performance. Revenue generated from our Extra Comfort and preferred seat products remained strong and was up 16% year-over-year driven by strong demand and price optimization. We continue to make good progress on our NDC distribution initiative and are now processing roughly 60% of eligible U.S. indirect transactions through NDC. Overall, the feedback from our distribution partners who have implemented this more modern distribution technology is positive and we are pleased with the pace at which we are able to bring on new partners and expand NDC adoption.
Looking forward, we anticipate our NDC penetration will continue to grow as we begin to offer NDC content through the Sabre GDS in the back half of this year. Looking forward to the second quarter. In North America, we are seeing a little bit of year-over-year revenue pressure in the front part of the quarter, mostly attributable to the Easter shift. And our expectations for the summer peak remained strong. As Peter mentioned, our new markets, including Salt Lake City and Sacramento, to Kona and Lihue are building well into the summer. Specifically for Maui, we are seeing continued improvement in advanced bookings, narrowing the demand gap relative to Honolulu. And building off positive year-over-year PRASM improvement in the first quarter, we expect continued improvement in Neighbor Island performance.
We have a lot to look forward to in the second quarter with the recent introduction of the 787 into revenue service, the return to service of our entire A321 fleet, further rollout of Starlink and strong performance on our new routes. All of that combined with our authentic Hawaiian hospitality, and we continue to give travelers to Hawaii lots of compelling reasons to choose us over the competition. For the second quarter, we expect RASM to be about flat year-over-year on capacity growth of about 5%. Looking out over the full year, ASMs are now expected to be up about 6% as the full impact of our previously announced Japan schedule reductions are incorporated into the forecast. With that, I'll turn the call over to Shannon.
Shannon Okinaka: Thanks, Brent. Aloha everyone and thank you for joining us today. We ended first quarter of the year with an adjusted EBITDA loss of $116 million, equating to an adjusted loss of $2.77 per share, which includes the impact of $0.32 per share due to a change in our effective tax rate that I'll discuss in a moment. Our CASMex results for the first quarter were better than our expectations, even considering the slight reduction in ASMs, primarily due to the shift in timing of heavy maintenance events, which will be incurred later this year. As we mentioned on our last call, our year-over-year CASM change reflects the preparation for and ramp-up of our capacity throughout the year. Thus, the year-over-year change in CASM starts off larger in the first quarter and improves throughout the year.
Pilot training and other fleet induction costs are being incurred now, but will be offset by the capacity and revenue generated as we begin operating the new additions to our fleet. Significantly affecting our first quarter results and likely the remainder of 2024 is the reduction in our effective tax rate from 21% to 10%. Since 2020, we've generated significant federal and state net operating losses, which will be used to reduce future cash tax obligations. Our analysis of the net operating losses under GAAP required us to increase the valuation allowance, lowering the effective tax rate and decreasing our book tax benefit for the quarter. For the second quarter, we expect our unit costs, excluding fuel and special items, to be about 6.5% higher than the same period in 2023.
About 3 points are due to the timing of heavy maintenance events and about 1 point related to Amazon operations and another point related to increased labor costs. For the full year, we expect our unit costs, excluding fuel and special items, to be up about 2.5%. The change from our prior guidance of up 1.5% is primarily due to the lowering of our capacity forecast. Turning to the balance sheet, Peter mentioned that we took delivery of our first two 787s, both of which we have financed, one in the first quarter and one in April. We continue to receive competitive offers from financing companies for our future 787 deliveries as well, and we will make a decision whether and how best to finance them closer to their deliveries. We're also evaluating the best path forward for our 2026 loyalty program bond maturity.
While the closing of the merger with Alaska Airlines may render this moot, we're building a solid plan for our balance sheet. While we are not satisfied with our current financial performance, we believe that we are taking the right actions and are starting to see some of the major investments we put in motion several years ago start to materialize. I want to reiterate our gratitude to all of the employees of Hawaiian who have persevered as we work our way back to sustainable profitability. And with that, we can open up the call for questions.
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