Q1 2020 Earnings Call

Welcome to the Hawaiian Holdings incorporated first quarter fiscal year 20, Tony earnings call.

As a reminder, all participants are in listen only mode and the content is being recorded.

After the presentation, there will be an opportunity to ask questions to join the question can you May Press Star then one on your telephone keypad.

Should you need assistance during the conference call in Michigan and upgrade or by pressing star in zero I would now like to turn the conference over to align and James Managing director of Investor Relations. Please go ahead.

Thank you Carl Hello, everyone and welcome to Hawaiian Holdings' first quarter 2020 earnings call here with me in Honolulu, Our Peter and then a president and Chief Executive Officer, and Shannon Okinaka, Our Chief Financial Officer. We also have several other members of our management team on the call heard acuity, including Brent.

Ever be Hirst senior Vice President of revenue management and network planning.

Peter will be discussing the overall impact of Coca 19 on our business, thus far and our response to the crisis Shannon will provide an update on our cash and liquidity outlets as well as discussed our cash preservation efforts at the end of the prepared remarks, we will open up the call for questions.

By now everyone should have access to our 8-K filing that went out at about four o'clock eastern time today, if you've not seen year to filing it. It is available on the Investor Relations page of our website Hawaiian Airlines dotcom.

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 in metrics can be found at the end of today's press release posted on the Investor Relations Investor Relations page of our web site.

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 FCC for a more detailed discussion other factors that could cause actual results to differ materially from those projected in any forward looking statement. This includes the most recent annual report filed on form 10-K as well as subsequent reports filed on form 10-Q, an 8-K.

I will now turn the call over to Peter.

Hello.

Hello, everyone and thank you for joining us today.

In the eight weeks since our last call the world has changed dramatically.

We are facing the most significant demand shock in aviation history.

And then unprecedented and southern Delaware and the global economy due to the Corona virus.

Government mandated travel restrictions stay at home orders and social distancing recommendations have the vis rated demand for air travel and the timeline for recovery remains uncertain.

As you have seen in our press release today.

Cobot 19, that's had a significant impact on our financial results.

We reported a loss of $34 million, an adjusted net income for the quarter.

For 74 cents per share.

This is a result reflects a dramatic drop in demand that we experienced on our South Korea and Japan roots in February.

Which then escalated across our network throughout the month of March.

In response to this crisis, we are focusing on what we can control.

Taking aggressive steps to preserve and enhance liquidity.

And developing plans to be ready for the resumption of a larger operation when conditions permit.

I'll walk you through how we've responded as a pandemic evolve.

And Shannon will provide an update on our cash preservation measures and liquidity outlook.

Our actions to deal with the Koeppen 19 pandemic can be thought of in three broad streams of effort.

First.

Responding to the crisis as it emerged.

Then [noise].

Dave licensing our operations and our business to sustain the level of nearly zero revenue and flight activity.

And finally.

Taking action to prepare for the resumption of a fuller schedule as GE air travel industry starts to recover.

I'll talk a bit today about what we have done and are doing within each of these streams starting with our immediate response to the crisis as it emerged.

During our conference call with investors on March 9th we outlined the schedule changes, we had implemented in South Korea, and we're planning in Japan.

After that point.

Demand weakness in the remainder our our geographies was muted.

However, you all know by now that the destruction of demand accelerated rapidly from there.

Within three weeks scoping 19 cases escalated rapidly across the globe and severe restrictions on a rising passengers were imposed by governments in New Zealand, Australia, French Polynesia, and ultimately here in Hawaii.

Where the governor for Hawaii announced a 14 days sell quarantine mandate for any incoming traveler resident door visitor into the state starting from March 26.

And for all non essential neighbor island travel starting from April 1st.

In response, we reduced our scheduled to a bare bones level operating just to round trips per day to the U.S. mainland.

And 16 round trips per day neighbor Island.

As it became clear that the virus it spread beyond Asia would it would be a global crisis.

We took quick action to scale back flying.

Reduce costs and support our liquidity.

During March we were challenged by the rapid evolution of disease spread and demand deterioration, forcing multiple rounds of scheduled adjustment and significant guest inconvenience.

As the notion of a national grounding of airlines became a legitimate possibility.

We developed a plan to ground our entire fleet.

This plan ultimately served as a template for the transition to our current schedule, which we implemented following the Hawaii quarantine order.

Since then we have reintroduce up daily service to Inchon Korea carrying only cargo.

And the third daily flight to the U.S. mainland.

We expect to maintain this schedule through the month of May.

Any increase flying beyond may well be dependent on the timing of a relaxation of the Hawaii quarantine.

And conditions in specific certain cities, we serve outside Hawaii.

With our bare bones schedule in place our operational activity entered into a stable phase and we read doubled our focus on stabilizing the business.

In this demand environment flying as little as possible. We're not at all is the best way to minimize costs.

Shannon will detail some of the actions we have taken to make sure costs are is variable as possible.

And to minimize fixed costs, while we've managed through this hibernation period and beyond.

We are fully drawn down our revolving credit facility as the working capital normally provided by our air traffic liability has diminished.

Entering the year with a strong balance sheet and a cash balance above our long term target.

Put us in a relatively advantageous position as the crisis emerge.

Okay.

The care side payroll support program will help sustain our payroll is through the summer.

Aided by the voluntary leaves taken by many of our employees.

Weve applied for the economic relief loan program.

And we'll decide how much of this funding through access in the months ahead.

We're also evaluating opportunities to use our unencumbered aircraft to access funding and private capital markets.

With certain of these opportunities likely to be executed in the current quarter.

In assessing these options, we seek to preserve as much long term flexibility as possible.

Even as we take action to address the immediate term funding needs of the business.

Stated more clearly flexibility on being able to repay debt and fortify our balance sheet as conditions evolves or among our priorities.

Final stream of work may ultimately prove to be the most important and successfully managing through this crisis.

Modeling the pace of recovery in demand at this point is virtually impossible.

Doing so well.

I would rely on assumptions for which we cannot provide any degree of certainty.

Instead.

Our planning teams are evaluating multiple scenarios of corn came duration and pace with subsequent recovery.

It is against this backdrop, but we will continue to assess our liquidity needs and manage our cost structure.

Our fleet and network model provides us flexibility when we begin to build back.

It's unlikely the inter island quarantine restrictions will be relaxed before the restrictions on longer haul rivals.

When long haul demand resumes our ability to connect to the neighbor Island network will allow us to serve I wouldn't be markets that won't get support direct service.

And our Athree 21 Neos.

For a lower capacity option for markets that haven't yet go back to the point, where they can support wide body flying.

It's too early to say exactly how this will evolve.

Well, we have leavers to pull and our thinking through the phases when the market recovers.

What is clear to us.

Is that demand is not going to quickly snapped back to the level seen before the pandemic.

As of yesterday may 4th.

Load factor is in the mid Twentys for the third quarter of 2020.

Which is a mid teens load factor point.

Difference below a more normal year.

Bookings are also building at a much slower pace and are far more susceptible than normal through erosion.

In addition to the obvious economic effects of the pandemic on our future guess Hawaiian and our industry will have to earn the confidence of our gas and the communities. We serve so the travel couldn't resume at scale well affording the spread of infection.

Like other airlines, we are enhancing the sanitation procedures for our aircraft, including the use of electrostatic bloggers to disinfect aircraft surfaces.

We are acquiring all guest facing employees to where face coverings and have adjusted procedures to facilitate increase spacing between guests on aircraft.

We've announced a requirement raw gas to where based coverings throughout their journey.

Which will be effective later this week.

And in place until further notice.

And we will revise product offerings and various policies as necessary.

More fundamentally though even.

Even if we can eliminate the transmission of the virus small guests are in our care.

We must address the fact that transporting people between communities raises the risk of geographic spread.

Our Hawaii home has been very successful in minimizing the extensive outbreak.

Hospitals have not being overwhelmed.

And daily case counts it peaked in the low thirtys have been in the low single digits in recent weeks.

By acting quickly and aggressively.

We are as close to cope with free as any place in the country.

At the same time.

We have led the nation in unemployment claims on a per capita basis.

Hotels restaurants and bars are shuttered.

An everyday activities for residents as well as gas are severely curtailed.

Our community is faced with a fundamental conflict between the desire to relax restrictions on movement and economic activity.

While simultaneously trying to ensure that the new wave of cases is not introduced.

Part of the solution to this problem is beyond the scope of the airline industry.

Communities like ours need testing capability.

Contact tracing resources and treatment capabilities to manage cases as economic activity resumes.

Within the scope of the travel and tourism sector.

We will need to do our part.

I expect changes in passenger screening to be part of this.

Well testing all travelers for Cobot 19 is infeasible, given current technology and resources.

We can look to some of the practices introducing the Asian response, Sars as a model emulate.

We're working with governments tourism industry partners and the business community to help shape this future.

When we look forward to progressing on this swiftly, but thoughtfully. So that we could again begin to welcome the visitors who are and will remain the lifeblood of Hawaii's economy.

Throws just this challenging and uncertain period my colleagues throughout the company have been nothing short of remarkable.

In the face of uncertainty and worry they have continued to lift the values that we share each and everyday.

Even as they face hardship and challenges in their own lives scores of our employees have volunteered time to answer phones, when our reservation lines were overwhelmed.

And to deliver meals to the elderly as demands on food banks reached levels not previously seen.

Over half of our employees have sacrificed compensation by taking voluntary leaves voluntary schedule reductions or in the case of our executives voluntary pay reductions.

I was particularly like the thing the leaders of our collective bargaining units for the spirit of collaboration they have demonstrated is as we work to address this crisis.

My message to this unparalleled team has been consistent.

We will get through this and.

And we will get through it together.

I'll now turn the call over the Shannon to give you an update on our cash and liquidity situation.

Thanks Peter.

Thanks, everyone for joining us today.

I would also like to express my gratitude to all my colleagues were working tirelessly to serve onto our guests.

Our community at each of the transfer of melanoma and Aloha.

Especial thanks to those in the back office, who are running hundreds of models to support our decision making is to help us run the business.

We closed the quarter with $815 million cash and short term investments, which is up from 619 million at December 31.

HM 235 billion, we drew down from our revolver and marks.

With largely idle operations.

Revenues down more than 90% and recently.

And a significant portion of our Uh huh.

We are aggressively working to preserve cash.

In addition to the variable cost savings from schedule reductions, including feel landing fees and passenger servicing costs.

We're working to eliminate our deferred non critical.

We have consolidated airport facilities on Amelia and worked with the state of Kuwait Committees Airport Huh.

We believe external contractors negotiated significant payment deferrals and minimize marketing advertising and other discretionary spend.

No suspended our share buyback dividend program.

Well requirements of the cares funding restrict our ability to voluntarily parallel or would you pay rate.

We implemented voluntary and leave options of varying lane and timing across our organization.

These programs are critical as we noted pay will support program monies from the federal government hover lesson, 80% of our budgeted payroll and benefits. This September 30.

Well over 50% of our employees have participated in our voluntary lead programs for which we are deeply grateful.

Sure that's a reduction.

The nation or deferral of spend and voluntary lead program.

We estimate that we have room removed approximately 57% smart car in the second quarter compared to our original plan.

We estimate our average daily cash burn Onyx and matures.

Excluding care that trending topics and refunds.

About $3.6 million per day.

Declining from an average of $4.5 million at the beginning of quarter to about $3.1 billion per day at the end at the corner.

Turning to topic.

We have deferred it seemed million dollars of non aircraft capex.

You're talking about $180 million to $200 million topic for 2020.

Aircraft Capex includes PDP is 77 and a single Athree 21, New York delivery that was originally scheduled for March.

Prior to the impact that permit 19, alright tend to what the paper the delivery from our cash reserve.

However in light of a dramatic change in industry circumstances.

We have worked with Airbus to delay acceptance of this aircraft to the second quarter to allow us time to secure financing.

Which will result in a net cash in club.

We're also planning to retire and part out one of our higher cycle 717 aircraft.

Which will bring any maintenance cost savings over the next several years and cash savings in immediate term.

In addition to reducing cost and topic, we're actively managing our air traffic liability, which as of March 31.

$24 million.

About one third is related to travel in the second quarter of 2020.

Well, we have modified some of our policies such as deferring ticket expiration date, and leaving change fees to encourage us to look for later date.

A portion of that liability continues to be at risk of cash refund and we have reduced our operations and cancel flights.

We have responded about $40 million to $45 million on average in each of March and April.

While we expect yet january's eligible for we plan to decline as we feel staffer schedules and management accommodations.

Were mindful of the needs of our yes.

As we emerged from this difficult period, our guests will remember how they were treated when times were most challenging.

We're also aggressively exploring options to raise cash by financing a portion of our unencumbered aircraft, which consist of 11 Athree 21.

Two athree 30.

14 717.

880, ours and have a market value of approximately $800 million.

With that to raise at least $270 million and financing in the second quarter. As he grew 21 deal in particular continues to be highly financeable, although at a higher than the financing we secured in 2019.

Yes, [laughter] to receive $292 million through the payment program.

I was $263 million dollars will be received in the second quarter.

In that scenario, where we are well with our aircraft financing efforts.

Refund follow a similar trends for the remainder of the quarter.

For modeling our liquidity at the end of the second quarter to be about $1 billion.

Yeah, Hi for $364 million economic belief loans available to the care that which can be an alternative sources of financing.

We began the quarter with strong balance sheet <unk> demand recovery time, like uncertain, raising and preserving cash in our top financial priority.

Our team is focused on managing through this crisis looking for ways to minimize our cash outflow during this time and securing new sources of funding.

And with that I'll turn the call back over to Peter before we take questions.

Thanks Shannon.

As you have seen the situation we are facing is severe.

Despite the carriers act and our own cash preservation initiatives nowhere line can withstand the zero revenue environment indefinitely.

We need demand for air travel to return.

And the infrastructure and policies to facilitate this.

When that happens, we'll be prepared to ramp up our operations rightsize, our business to meet demand for traveled to prominent within Hawaii.

And deliver our outstanding service.

With Aloha.

Before I conclude let me briefly acknowledge a few other important items.

First in mid March we received the final order from the deal T denying our application for antitrust immunity with Zhao.

Well the deal T. deemed our partnership with Jal as pro competitive.

They were looking for further clarification regarding the governance JV, including the Intravase integration of ZIP Air gels low cost subsidiary.

Our capacity plans and the information technology development required to achieve public benefits.

Our application with the night out prejudice.

Which means that we tend to reapply yep, we choose to do so.

We have been solely focused on managing the cobot 19 crisis. Since we received the news from the deal D.

We remain committed to the strong Japan franchise, we have built and look to grow on this foundation over the long term.

The absence of the JV does not diminish our enthusiasm for our long term Japan prospects.

I'd also like to address our plans with respect to our 787 order.

We remain committed to the 787 as our flagship aircraft for the future.

This aircraft will be an incredible asset for us as we develop our business through this decade and beyond.

But with the uncertainty inherent in the current environment and the complexity cost and capital investment associated with adding a new fleet type.

Our previously intended first half from 2021 entry into service is no longer appropriate.

As a result.

We have engaged with Boeing in discussions to determine whether our 787 deliveries can be rebased.

This dialogue is ongoing.

So we won't be able to provide more specifics on these plans at this time.

The final item I wanted to share is important milestone that we reached.

After more than three years of negotiations we reached an agreement with our flight attendants Union on a new five year contract.

We are pleased to provide our exceptional flight attendants with a contract that offers market wages.

Well also addressing some provisions the limited our ability to operate as productively as we need to.

More than ever.

It is important that our team is unified in confronting the challenges ahead of us. So does great to have this long overdue agreement in place.

And as I said earlier, our entire team has been fantastic as this unprecedented crisis for our industry has evolved.

As difficult as this period has been.

I have never been prouder to be a part of this team.

Our employees all my heroes and they give me great confidence that we will have brighter days ahead.

Operator, we're now ready for questions.

Thank you Sir.

Well now begin the question answer session, who joined the question Q you make press Star then one on your telephone keypad.

We'll hear its own acknowledging or requests.

If you are using a speaker phone.

He's pick up your handset before passing any key.

I would draw your question. Please press Star then too.

Our first question comes from Joseph Denardi of Stifel. Please go ahead.

Yes. Thanks.

Peter can you just talking about maybe to the extent of your conversations with the state in terms of others thinking about.

Restrictions gone sword, and what what what you think needs to be put in place in order for.

Folks to.

I feel comfortable.

Coming out there sometime soon thank you.

Yeah, that's a it's something we've been spending Oh, a lot of time on.

The.

The discussions are continuing to evolve I think we've we've clearly with the cage count as low as it has been recently I think there's pretty broad.

Recognition that some relaxation of restrictions in the community are due and when we started to see some.

Low risk activities opened up you know, notably for some of the people in the room with me golf courses.

Began to open up this past weekend and so bit by bit we are going to start cheap it seeing things coming back in the weeks ahead.

Air travel is one that that.

For the reasons I articulated on call is something that people are concerned about particularly as we bring people into the state I think.

We are.

We are probably not very far away from some relaxation of.

The.

Neighbor Island quarantine restrictions for people just traveling on purely neighbor island itinerary recognizing that that's the Ur Cobot case count is not is not a problem on any of the islands and so I think you know each of the counties is.

Is starting to think about that.

In terms of or some of those some of the longer haul flying which is the the vast majority of our business and is really the core of the tourism in a business that is.

That is the backbone of our economy in the thing that's going to drive.

Employment back up to.

Somewhere better than it is right now.

I think I think you know there are.

A number of calls for testing of all incoming travelers, but I think there was a broad realization of back not being feasible in an environment where in in most of this country there isn't enough testing capabilities.

Specific for cold at 19 testing to even make sure that all the.

Health care providers, and first responders have adequate testing and so the notion that.

We're going to be able to scale that up and deliver that for people getting on airplanes in the near term is not feasible. So I think it really is a a layered and and phased approach and you're one of the models, we've shared with people from our own experiences thinking about.

The response.

From a security perspective, after 911, where it was not one single element of change that was introduced but it was layers of security and protection to make sure that you could get an environment, where people were overall state and comfortable and so you know I met.

And.

Frequent capability and community contact tracing testing I'm not just for air travelers, but for people in the community as a way to make sure but as you reintroduce that's activity you don't yet.

Hospitals to the point, where they're overwhelmed and the community is able to deal with it so.

That's a.

Sort of a bit of the character of how this discussion has gone what that means in terms of timing I can't tell you have any specificity yet but that is you know it's not our call to to make ultimately and I think it may there there may be.

Some evolution bye bye.

By geography that.

We see overtime.

That's.

So the high level, Joe I think that's why we're seeing I hope that is responsive to your question.

Yes, that's helpful. And then maybe just I didn't hear a whole lot in terms of has structural changes to the sleep on the other side of this and so can you talk little bit about to the extent that you think along all pieces of business comes back later I mean, how much time do you give that before.

To rethink what with the fleet should look like you know in the context of a cash conservation and liquidity. Thank you.

Yeah. So so with respect to our fleet you know one of things or as you know that we have done in recent years is we have been addressing the evolution of our fleet on a proactive basis and.

Completed.

The transition out of our aging 767, 300 fleet and added the Athree 21 neo to our.

Our fleet.

Over the last few years, so what that leaves us with particularly on the long haul aside of a business is a very very young fleet and there's nothing that is sort of.

Sitting out there with a natural a retirement date in the next few years, a weekend accelerate to to bring capacity down or so.

From our standpoint that leads us to a point where I.

I don't think we aren't necessarily going to reduce fleet further, but obviously if were as were rightsizing capacity one of the isn't libors weekend and uses to reduce utilization of the fleet and manage capacity down in that standpoint.

Think we're comfortable with the ownership cost structure, but we have on those aircraft as Shannon alluded to we we can use the.

The fact that we do have a young fleet with value when we've got equity in that fleet as a source of liquidity as we're managing through this but where we're not out there.

I'm thinking that we should you know take some number of aircraft and sell them right now into a weak market I think we would oh, we would more likely manage that through.

Utilization in the near to medium term.

[laughter].

The next question comes from Kentucky <unk> Research. Please go ahead.

Hi, everybody.

Thanks for the time.

That book load factor you talked about in Threeq, you, then actually wasn't that bad.

And it sounded like to me I am I kind of curious when you feel good enough about it being and I know, what you said it susceptible to change and people canceling it.

In booking incentives I I get all that but when do you actually feel good enough about it being sticky enough to where you can actually sort of start comfortably relying on it.

These schedules you actually have to see these people get on the airplane I mean, how much volatility you expecting in that booking number and well how do you know when it's actually real or like I said or just you just wait to see only people get on the plane.

Yeah, Let me let me start on that and then see if maybe Brent has some thoughts on on top of that but I think the first thing I'm glad you heard.

For the the caveat about it being susceptible to change because that was that was in the prepared remarks for a reason.

I think the first thing we need.

To be able to make that reasonably sticky is to not have a quarantine because if it weren't being as an incredible disincentive for someone who is planning to come for Hawaii.

For a week spending the entire time in the hotel is not the reason they bought that ticket in the in first place.

So you know without any without a removal of the quarantine. The none of that is is real.

I think once we do have a removal of the foreign gene I think there there will be an interest in people.

You know traveling I think as you know as I think as on the one hand, you've got People's concerns about.

Getting out and interacting with people and you know moving around again, but on the other hand, I think people are tired of being cooped up and to the extent that they've.

They've got the flexibility and the economic wherewithal to do it there they're going to want to travel and.

And Hawaii is going to be.

An appealing place like it always is budget, but even more so now perhaps because this is a place where.

The effect.

Of this horrible disease haven't haven't ravaged it as much so.

So I think that is the environment, we're facing it will involve a lot in the next little while and.

And I you know I don't think you can expect a summer of EUR 80 to 90 is load factor like we have in normal times, but I do think there's an opportunity for us.

To to build once we're able to open up again.

Yeah, Hey hundred spread I think yeah around heaters.

Peters comments or rents are right on point in terms of via.

The most important element will really be kind of the timing and in terms of relaxation of the core and team.

We do have a bit more of a base built just given our booking curve relative to other folks I think.

Some of that you know there's clearly a.

Yes, depending on what happens.

In terms of timing of the current team I think speaking that kind of consumer behavior weve.

Interest under international markets at this point.

And just one last night at 100, and there's no precise way too.

To measure this but one of things we've been thinking about as we discuss it with people in that community, where we're anxious. So we don't open too soon and too fast either because when when the quarantine is removed.

And we start having more economic activity, we'd like it to stable removed and to continue to have economic activity and not the out do.

Toggle back and forth them restrictions, because I think that would.

That would be very destructive to consumer intent and demand. If there was uncertainty about what the conditions were going to be so we want to be thoughtful about this we want the the state and local and federal officials to be thoughtful about how.

They manage this ER and hopefully.

We can.

As a community we can work through that balance in the period ahead, you can get things to a point, where we have something that more resembles what it was in the past, although I don't think we go back to things like they used to be writer and anytime in the near term.

Right.

Thanks, guys and then yeah.

No in the last recession, Hawaiian decided that you guys need to do you really diversify the network, which which you did do you see something like that happening. After this recession is over.

Yeah look I think there will be there will be a number of things, but but this.

Opens up our eyes about adding perhaps or in the long term has us.

I'm thinking about them them differently I I don't think those you know.

And I can I'm not going to give you everything that's rattling through my head as I as I think about that right now, but I, but I would say I don't think those are 2020, 2021 sort of decisions, but I think yeah.

This is something I sure wasn't smart enough.

But brown's under our feet I'm sure we will spend some time I'm thinking about.

Thank you.

The next question comes from Helane Becker from Cowen. Please go ahead.

Thanks, very much operator, and thank you very much Peter in China in brand for your time, So here's my when I have two questions actually my first question is in the press release, you say that you have 7500 people and then you see that half tech.

I believe is that.

Does that mean that 3700 took the lead or does that mean, you had 15000 and now you have 7500 left.

[laughter] no what everywhere [laughter], sorry, 500, Yep, we have roughly 7500 employees at the company about half of those employees a little more than half of those in play employees have taken some form of.

Voluntary option and those voluntary options range from people, taking you know leaves the range from two weeks at a time to six months at a time or is it includes crew members taking reduce schedules.

Involve a reduction of of our.

And and I'm not working so it's a variety of different things that add up to half of that 70.

500 people participating.

And you know driving some pretty pretty significant and important savings horse.

Okay and then my other question. It's just an explanation from I guess Shannon on the taxes, where you have.

The tax you talk about the tax related to the care Sac kind of surprised to see that in the first quarter as opposed to the second quarter.

So I was kind of wondering if you could just explain that to me.

Right. So yeah, there has a lot.

Hang on that piece and this is related to income taxes, not ticket taxes, I believe helane, you're referring to.

So our effective tax rate that's really odd.

This quarter, because the care that if you recall that.

Has really been job.

I'm not going [laughter], it seems like a long time ago or eliminated that tax loss carry that you could only carry forward your losses, but with that cares that <unk>.

And now carrying that so we are paid we when we implemented the.

Previous type assets, we had to lower all of our.

Tax related items to then you have three.

Even call we were more in a 35, 38%.

I just didn't understand that.

What happened there so I appreciate it and actually.

I'm good the rest of my questions for now.

[noise] currently.

Your next question comes from Catherine.

Well, Brian from Goldman Sachs. Please go ahead.

Hi, everyone thinks it seemed like the time.

Yes, just a couple of quick ones here.

On your current why body, we understand in can you not in a place to Scott.

Yes, I worry about but.

Thoughts on how you're going to redeploy our current wide bodies in your free.

And he is then that the rebound as men and your international routes Asiapac is mark and isn't the rebound there's not that yet.

Just any thoughts there I realize you said that you would you know where do you those they seem likely rather than retiring aircraft fleet. So just wondering like how are you thinking about incorporating those <unk>.

Potentially into your domestic network or should we expect to see some of those remain grounded over the medium term. Thanks.

Yeah, So gudrun you broke up.

A little bit, but I think question was about how we're thinking about redeploying the wide bodies in particular, the international network doesn't fully rebound and at that is that is a good question and I think it is is one for which.

No the answer in the short.

Short to medium term might end.

That being different than the answer in the longer term and of course in the longer term, we do have more retirement capabilities, because we get out a couple of years because we've got some some lease returns.

Coming up or at least termination opportunities coming up which would allow us to.

To make different decisions about how many total we want to have I I think.

Yes.

Certainly.

The virtually all of <unk> I think all of our international flying requires us to have the range of the wide body aircraft. So it's all wide body, if we need less for the international piece of the business. There are some places.

Domestically, where the demand is deep enough that it or it might benefit from that and where we have demand for cargo that that helps but I think were I I can tell you. We're gonna be very mindful of not just forcing capacity into markets, where there is not a man.

Just because we have aircraft available until that is where we would.

We would play the the utilization card to make sure where we're matching supply and demand an appropriate basis for whatever market conditions are going to be a few months down the road.

Brent do anything to add to that.

No I think that Ah I think that that Conversely, I think you know because.

Depending on how things evolve the ability to you know, particularly use holder, who is a hub and be able to leverage the cargo capabilities as Peter mentioned them three Thirtys, Inc.

Connecting to our neighbor island that worked I think give us some.

Unique opportunities should or should the opportunities exist, but but I think.

Okay, and consistent with what Peter mentioned.

Understood maybe one quick follow up to that one and then I have the second one but when do those lease terminations on wide bodies start to.

All right to happen.

Cash refunds looking on the majority that's left for for future traveled.

Going to wind up is that true is that similar Hawaiian or is there something we should be keeping in mind with respect to your apparently large percentage of tickets sold internationally and you know just being up and then just.

During the fourth point of sale. Thanks.

Yes, so so.

You know what.

I don't know exactly what what it looks like for other carriers. So I'll just speak to what ours is the the the biggest susceptibility of that to to refund is when we.

When we cancel flying and don't have a re accommodation option for people and and you know our our policy is that when we do not operate.

The flight, we provide a refund weather and and if I guess were to call us back having having changed their own and then we subsequently or cancel the flight. Our policy is that we will refinance so to the extent in particular that the quarantine the order.

Extends out further and it doesn't make sense for us to operate.

As much of our schedule than we have some exposure to.

The future refunds, Shannon and Brent and their teams are spending kind of time on this so.

So let me just see if they have any other comments add to that.

Yeah, Hi, I was just Alan a little bit you know if you look at our network structure versus some of the other carriers.

There are many routes that we buy one per game, which makes it really difficult Soviet comedy people. When they have like 14 restrictions. If you have you know like why you know a route that supply by 10 times. A day you can lead is a significant portion of that hackneyed they'll be able to.

Turning to accommodate passengers. So I would just be you know do our sites in our network and our frequencies it becomes a little harder to have yet comedy and again, we are belly thing you know our cash me with the needs of I guess because.

You know we need these people to want to come back to us when that all ranking and that's it.

Yeah, and we did we have done things as as Shannon mentioned in her remarks as well too.

Provide more flexibility for people, who do want to travel with this in the future so extending the time period over what you can use.

Youre credits gives people a little bit more flexibility uncertainty and some of those have been.

Successful, so where we're certainly mindful of it more managing it is as best we again.

I understand that makes sense. Thank you.

Sure.

The next question comes from Mike Linenberg from Deutsche Bank. Please go ahead.

Oh, Hey, everyone, Hey, Peter the comments that you made about sort of re phasing in the introduction of the 787.

Can you talk about just you know because I know you haven't put out your K, yet, but what predelivery deposits. You currently have with falling and I know Shannon I think even mentioned that 787, Pdps, where part of your Capex for this year, what's what's the magnitude of that.

I don't know that they see if you will have a specific number that you're going to be able to to see on that it's.

It's a material number and Mrs is as we look at the things.

That.

You know single decisions.

That have a.

Hey.

Very material impact on our cash flow over the next.

12 to 24 months. This is the biggest single one we can manage so it yeah, that's what I'm right.

We're not doing this for a couple of dollars when we do want those airplanes absolutely for the long term.

And I was just I mean like a we continue to included in our model until now let me have progressed flick filling all right now.

Able to take it out so most of our model. It's not all have that T cell in there, which is why reported Atlanta.

Okay. No. That's that's Super helpful. Then just my second question and maybe this is Peter maybe even brand I you know I sort of think back you know in times past when when we hit it demand crisis.

It was always tougher for an airline like Hawaiian where it was just the narrow bodies were neighbor island and wide bodies, where you know long haul and you know Hawaii West coast and yet here, we are facing a significant falloff in demand and yet you have the perfect vehicle here. The Athree 21, now which would be a great airplane as you ramp up back into service.

Except for potentially one issue, which is you know this whole social distancing mandate and I'm still trying to square, whether or not an athree 21, neo from Hawaii to the West Coast is a more cost effective way to get there based on where demand is and yet.

Now incorporating the aspects of social distancing you know I eat how many people can you actually sit on a small narrow body and trying to separate them out whether it's one per Roe or two per Roe versus a wide body and so I'm sure you're going through that analysis right now about what's the right airplane in a perfect a normal garden variety recession hands down.

And you would want to use the Athree 21, now as you started to rebuild your schedule, but now it just doesn't seem clear to me. So I'm just I'm curious sort of your thoughts on that.

Anything thanks appreciate taking the time.

Yeah. It's an interesting question I I think you know.

<unk>, where we're not alone and having introduced.

Policies and procedures to provide a little bit more distance for people on the airplane when they're traveling right now but right now.

That is obviously an easier thing to do went across the industry people are carrying the load factors that we are absolutely I'm familiar with and in recent history certainly.

I I do think.

You know our expectation is that long term.

Some of the distancing is not.

Particularly sustainable I, maybe I'm not creative enough in thinking about different models, but I I'm pretty decent with math and I kind of understand if we had an industry that had a 10%.

Pre tax profit margins roughly at you know a time period, when we were operating load factors in.

Hi, Eightys that if you just you know without fares going way way up and moving to demand curve, you've got to have pretty full airplanes to Atlanta sustainable industry I'm not that math works for Hawaiian Airlines on that works for.

Every airline that that we compete with so.

I think we've got a separate a little bit some of the things that are going in place.

Right now well, while the you know entire world is in the throws of this crisis and what we evolved to as communities throughout the country and throughout the world are able to get the spread of this disease under control and we can start to relax some of the.

Restrictions that we're putting in place and various aspects of our lives.

Okay very helpful.

Thanks, everyone.

Thanks, Mike.

The next question comes from Steve O'hara from Sidoti and company. Please go ahead.

Hi, good afternoon, thanks for taking the question.

Sure.

Hi, just curious.

Maybe you no longer term if you think about.

You know the industry overall I'm.

Assuming demand comes back you know.

Slowly, but you know maybe steadily.

I mean.

You know what are you in terms of is the competitive landscape and maybe you know the.

Capacity that's out there.

I mean would your.

Do you have a feeling as to the size the industry, maybe versus what you might think normally in terms of capacity or.

Do you think you know.

I would think there'll be some change in.

Service levels for markets that Youre maybe.

Non essential to.

Somebody corporations.

Route structure business, but I'm just.

Kind of curious are you thinking about it longer term.

Yeah, I'll I'll make a couple observations and then see if anyone else in the room wants to to chime in I think making a making a spot estimate on the.

ER percentage change in the size of the industry with all the uncertainty right now is sort of fraught with apparel I think and that's why we're we're modeling out a variety of scenarios. So we understand how will you responded or different scenario, but we just don't have enough certainty right now to say, it's going to be.

The X percent smaller than it was and I think that pertains to the markets, we serve as well as a as air travel markets more generally.

I do think that in terms of the competitive environment in you know two from and within the Hawaii. My view has not really change from what I'm. You know I would have told you six months ago that you always we were.

We have spent time the good old days, when we talked about competition as opposed to how we're doing to raise liquidity.

You know I wouldn't told you six months ago. When I'd just tell you six months ago. The I didn't expect any of our competitors to just abandon flying to Hawaii I thought it would be part of their networks and they would continue to compete and and I still feel the same way about bad.

I think it is just a question of what amount of flying is going to make sense in the environment that we're competing as I raised that because that's a little bit different than.

2008, 2009, when we were responding to the global financial crisis. When there were a couple of.

Of carrier, serving Hawaii at that time, but she's flying altogether in the span of about a one week and that meant that you know there was little adjustment needed by the other participants in this particular part of the market in fact in 2008 Hawaiian Airlines.

One of the few carriers in the world, but actually grew at a time that the overall airline industry was in pretty severe contraction boat.

So I don't think given the strength of the carriers that we have a in the markets whether it's our U.S. carriers are international carriers that we're gonna see something like that where there was a wholesale.

Withdrawal from the market, but I think people are gonna have to adjust as the demand is going to be different and how different I don't know yet but people are gonna have to adjust to a different environment.

Okay No that's that's very helpful.

And then maybe just going back.

Back to Shannon's question, or I'm, sorry, Shannon's commentary on liquidity.

Was that including some action by Boeing or was that excluding.

That I wasn't sure if that was.

What she said.

Oh, Yeah, I think you're referring to my comment about entering the second quarter wasn't billion dollars in cash.

If that's the key Steve It doesn't include any action labeling I I've taken.

Contractual obligation from that perspective.

Okay, all right. Thank you very much.

This concludes the question answer session I would now like you tend to conference back over to Mr., Peter Ingram for any closing remarks.

Hello again, everyone for joining us today, we appreciate your interest.

Uh huh.

This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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HM.

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Thank you for spending by this is the conference operator.

Welcome to the Hawaiian Holdings incorporated first quarter fiscal year 2020 earnings call.

As a reminder, all participants are in listen only mode.

And just being recorded.

After the presentation, there will be an opportunity to ask questions to join the question can you give me press Star then one on your telephone keypad.

Should you need assistance during the conference call you may signal and populated by pressing star Enzo.

Now I'd like to turn the conference over to Atlanta, James Managing director of Investor Relations. Please go ahead.

Thank you Carl Hello, everyone and welcome to Hawaiian Holdings' first quarter 2020.

Here with me in Honolulu, Peter and then a president and Chief Executive Officer, and Shannon Okinaka Chief Financial Officer. We also have several other members of our management team on the call for the Q any including bank overview, our senior Vice President of revenue management and network planning.

Peter I'll be discussing the overall impact of cut the 19 on our business that sorry.

In response to the crisis, Shannon will provide an update on our cash and liquidity outlets as was discussed our cash preservation effort.

At the end of the prepared remarks, well open up the call for questions.

Now everyone should have access to our 8-K filing that went out at about four o'clock eastern time today, if you're not seeing it you're filing it. It is available on the Investor Relations website Hawaiian Airlines dotcom.

During the call today, when you look at first time to adjusted or non-GAAP number isn't that right.

Detailed reconciliation of GAAP to non-GAAP embracing metrics can be found at the end of today's press release posted on the Investor Relations Investor Relations page of our website.

As a reminder, the following prepared remarks contain forward looking statement.

Greetings statements about our future plans and potential future financial and operating performance management May also make additional color to think statements in response to your question.

These statements are subject to risks and uncertainties and do not guarantee future funding and therefore undue reliance should not be placed upon and.

We refer you to Hawaiian holdings recent filings for the FCC for more detailed discussion other factors that could cause actual results to differ materially and those projected in any forward looking statement.

It's the most recent annual report filed on form 10-K, as well [laughter] filed on form 10-Q and <unk>.

I will now turn call over to Peter.

Hello.

Aloha, everyone and thank you for joining us today.

In the eight weeks since our last call the world's has changed dramatically.

We are facing the most significant demand shock in aviation history.

And then unprecedented and southern downturn in the global economy due to the Corona virus.

Government mandated travel restrictions stay at home orders and social distancing recommendations have eavis rated demand for air travel and the timeline for recovery remains uncertain.

As you have seen in our press release today.

Cobot 19, that's had a significant impact on our financial results.

We reported a loss of $34 million, an adjusted net income for the quarter.

Or 74 cents per share.

This result reflects a dramatic drop in demand that we experienced on our South Korea, and Japan roots in February.

Which then escalated across our network throughout the month of March.

In response to this crisis, we are focusing on what we can control.

Taking aggressive steps to preserve and enhance liquidity.

And developing plans to be ready for the resumption of a larger operation when conditions permit [noise].

I'll walk you through how we've responded as a pandemic involved [noise].

And Shannon will provide an update on our cash preservation measures and liquidity outlook.

Our actions to deal with the Koeppen 19 pandemic can be thought of in three broad streams of effort.

First.

Responding to the crisis as it emerged.

Then [noise].

Stabilizing our operation and our business to sustain the level of nearly zero revenue and flight activity.

And finally.

Taking action to prepare for the resumption of a fuller schedule as the air travel industry starts to recover.

I'll talk a bit today about what we have done and are doing within each of these streams starting with our immediate response to the crisis as it emerged.

During our conference call with investors on March 9th we outlined the schedule changes, we had implemented in South Korea, and we're planning in Japan.

After that point.

Demand weakness and the remainder our our geography is was muted.

However, you all know by now that the destruction of demand accelerated rapidly from there.

Within three weeks scoping 19 cases escalated rapidly across the globe and severe restrictions on a rising passengers were imposed by governments in New Zealand, Australia, French-polynesia and ultimately here in Hawaii.

The Governor of Hawaii announced a 14 days self quarantine mandate for any incoming traveler resident or visit or into the state starting from March 26.

And for all Nonessential neighbor Island travel starting from April 1st.

In response, we reduced our scheduled to a bare bones level operating just to round trips per day to the U.S. mainland.

16 round trips per day neighbor Island.

As it became clear that the virus in spread beyond Asia would it would be a global crisis.

We took quick action to scale back flying reduce costs and support our liquidity.

During March we were challenged by the rapid evolution of disease spread and demand deterioration, forcing multiple rounds of scheduled adjustment and significant guest inconvenience.

As the notion of a national grounding of airlines became a legitimate possibility.

We developed a plan to ground our entire fleet.

This plan ultimately served as a template for the transition to our current schedule, which we implemented following the Hawaii quarantine order.

Since then we have reintroduce up daily service to Incheon Korea carrying only cargo.

And the third daily flights in the U.S. mainland.

We expect to maintain this schedule through the month of Meg.

Any increase flying beyond may well be dependent on the timing of a relaxation of the Hawaii quarantine.

And conditions in specific certain cities, we serve outside Hawaii.

With all bare bones schedule in place our operational activity entered into a stable phase and we read doubled our focus on stabilizing the business.

In this demand environment flying as little as possible. We're not at all is the best way to minimize Cox.

Shannon will detail some of the actions we have taken to make sure costs are is variable as possible.

And to minimize fixed costs, while we manage through this hibernation period and beyond.

We are fully drawn down our revolving credit facility as the working capital normally provided by our air traffic liability is diminished.

Entering the year with a strong balance sheet and a cash balance above our long term target put us in a relatively advantageous position as the crisis emerged.

The care side payroll support program will help sustain our payroll is through the summer.

Aided by the voluntary leaves taken by many of our employees.

Weve applied for the economic were leak loan program.

And we'll decide how much of this funding to access in the months ahead.

We're also evaluating opportunities to use our unencumbered aircraft to access funding and private capital markets.

With certain of these opportunities likely to be executed in the current quarter.

In assessing these options, we seek to preserve as much long term flexibility as possible.

Even as we take action to address the immediate term funding needs of the business.

Stated more clearly flexibility on being able to repay debt and fortify our balance sheet as conditions evolves or among our priorities.

Final stream of work May ultimately proved to be the most important and successfully managing through this crisis.

Modeling the pace of recovery in demand at this point is virtually impossible.

Doing so.

I would rely on assumptions for which we cannot provide any degree of certainty.

Instead.

Planning teams are evaluating multiple scenarios of corn came duration and pace with subsequent recovery.

It is against this backdrop, but we will continue to assess our liquidity needs and manage our cost structure.

Our fleet and network model provides us flexibility when we began to build back.

It's unlikely.

The entire island quarantine restrictions will be relaxed before the restrictions on longer haul arrivals.

When long haul demand resumes.

Our ability to connect to the neighbor Island network will allow us to serve I wouldn't be markets that wont get support direct service.

And our Athree 21, neos opt for a lower capacity options for markets that haven't yet to go back to the point, where they can support wide body flying.

It's too early to say exactly how this will evolve.

Well, we have leavers to pull and our thinking through the phase is when the market recovers.

What is clear to us is that demand is not going to quickly snap back to the level seen before the pandemic.

As of yesterday may 4th.

Book load factor is in the mid Twentys for the third quarter of 2020.

Which is a mid teens load factor point, a different below a more normal year.

Bookings are also building at a much slower pace and are far more susceptible than normal to erosion.

In addition to the obvious economic effects of the pandemic on our future guess Hawaiian and our industry will have to earned the confidence of our gas than the communities. We serve so the travel can resume at scale well supporting the spread of infection.

Like other airlines, we are enhancing the sanitation procedures for our aircraft.

Moving to use of electrostatic bloggers disinfect aircraft surfaces.

We are acquiring all guest facing employees to web based coverings and have adjusted procedures to facilitate increase spacing between guests on aircraft.

We've announced a requirement raul and gets to where faced coverings throughout their journey.

Which will be effective later this week.

And in place until further notice.

And we will revise product offerings and various policies as necessary.

More fundamentally though even.

Even if we can eliminate the transmission of the virus while guests are in our care.

We must address the fact that transporting people between communities raises the risk of geographic spread.

Our Hawaii home has been very successful in minimizing the extensive outbreak.

Hospitals have not being overwhelmed.

And daily case counts it peaked in the low thirtys have been in the low single digits in recent weeks.

By acting quickly and aggressively.

We are as close to cope with free as any place in the country.

At the same time.

We have led the nation in unemployment claims on a per capita basis.

Hotels restaurants and bars are shuttered.

And everyday activities for residents as well as gas are severely curtailed.

Our community is space like fundamental conflict between the desire to relax restrictions on movements and economic activity.

While simultaneously trying to ensure that the new wave of cases is not introduced.

Part of the solution to this problem is beyond the scope of the airline industry.

Communities like ours need testing capability.

Contact tracing resources and treatment capabilities to manage cases as economic activity resumes.

Within the scope of the travel and tourism sector.

We will need to do our part.

I expect changes in passenger screening to be part of this.

Well testing all travelers for cope with 19 is infeasible, given current technology and resources.

We can look to some of the practices introducing the Asian response, Sars as a model tabulate.

We're working with governments tourism industry partners and the business community to help shape this future.

When we look forward to progressing on the swiftly, but thoughtfully. So that we can again begin to welcome the visitors who are and will remain the lifeblood of Hawaii's economy.

Throws just this challenging and uncertain period my colleagues throughout the company have been nothing short of remarkable.

In the face of uncertainty and worry they have continued to lift the values that we share each and every day.

Even as they face hardship and challenges in their own lives scores of our employees have volunteered time to answer phones, when our reservation lines were overwhelmed.

And to deliver meals to the elderly as demands on food banks reach levels not previously seen.

Over half of our employees have sacrificed compensation by taking voluntary leaves voluntary schedule reductions or in the case of our executives voluntary pay reductions.

I was particularly like the thing the leaders of our collective bargaining units for the spirit of collaboration they have demonstrated is as we work to address this crisis.

My message to this unparalleled team has been consistent.

We will get through this and.

And we will get through it together.

I'll now turn the call up the Shannon to give you an update on our cash and liquidity situation.

Thanks Peter.

Thanks, everyone for joining us today.

I would also like to express my gratitude to all my colleagues were working tirelessly tester onto our yet.

Committee at each of the transparent myeloma and Aloha.

Especial thanks to those in the back office, who are running hundreds of models to support our decision, making and to help us running the business.

We closed the quarter with $815 million cash and short term investments, which is up 619 million at December 31.

And it's good that 235 million lead you down from our revolver and marks.

Yes, largely idle operations.

Revenues down more than 90% and recently.

And that's significant portion of our hot but.

We are aggressively working to preserve cash.

In addition to the variable cost savings from definitely adoption.

Including feel landing fees and passenger servicing costs.

We're working to eliminate or deferred non critical.

We have consolidated airport facilities, and one Amelia and worked with the state of light Sweets Airport Huh.

We believe external contractors negotiated significant payment deferral and minimize marketing advertising and other discretionary spend.

We have also suspended our share buyback dividend program.

Well I requirements of the cares funding restrict our ability to end voluntarily parallel or would you pay rate.

We implemented voluntary and leave options of varying lane and timing across our organization.

These programs are critical and we know that hey, well quite program monies from the federal government hover lessened, 80% of our budgeted payroll and benefits that number 30.

Well over 50% of our employees have participated in our voluntary lead programs for which we are deeply grateful.

So that's a reduction elimination or deferral of Stan and voluntary lease program.

We estimate that we have real removed approximately 57% smart car in the second quarter compared to our original plan.

We estimate our average daily cash burn Onyx and the church.

Excluding care that trending topics and refunds.

To be about $3.6 million per day.

Declining from an average of $4.5 million at the beginning of quarter to about $3.1 billion per day at the end of quarter.

Turning to cabinet.

We have deferred it seemed million dollars of non aircraft capex.

Which resulted in about $180 million to $200 million topic for 2020.

Aircraft Capex includes PDP 77.

Single eight 321, New York delivery that was originally scheduled for March.

Prior to the impact that look at 19, our intent was to pay for the delivery from our passionate there.

However in light of a dramatic change in industry circumstances.

I have worked with Airbus to delay acceptance of this aircraft to the second quarter to allow us time to secure financing, which will result in a net cash inflow.

We're also planning to retire and part out one of our higher like 717 aircraft, which will bring any maintenance cost savings over the next several years and cash savings and immediate term.

In addition to reducing cod in Capex, we're actively managing our air traffic liability, which as of March 31.

<unk> $24 million.

It's about one third is related to travel in the second quarter of 2020.

Well, we have modified some of our policies such as deferring ticket expiration date, and leaving change fees to encourage Jeff.

For our later date.

A portion of that liability continues to be at risk of cash refund and we have reduced our operations and capital flight.

We have responded about $40 million to $45 million on average in each of March and April.

Yeah, Canterbury's eligible for refund to decline as we feel that's our schedule and management accommodations.

We are mindful of the needs of our yet.

As we emerged from that period, I guess, well remember how they were treated when times are most challenging.

We're also aggressively exploring options to raise cash by financing a portion of our unencumbered aircraft, which consist of 11 Athree 21.

Two athree 30.

14 717.

Eight A.T. ours and have a market value of approximately $800 million.

With that to raise at least $270 million and financing on the second quarter I.

He grew 21 deal in particular continues to be highly financeable, although at a higher than the financing we secured in 2019.

Yes.

Should we see $292 million payroll <unk> okay.

I was 263 million dollar <unk> dollar it's lumpy received in the second quarter.

In that scenario, where we are well with our aircraft financing effort.

And we plan, although similar trends for the remainder of the quarter.

For modeling our liquidity at the end of the second quarter, you about $1 billion.

We are I quit $364 million economic believe loans available to the care that which tend to be an alternative sources of financing.

We began the quarter strong balance sheet.

Demand recovery time, like uncertain, raising and preserving cash top financial Perry.

Our team is focused on managing through this crisis looking for ways to minimize our cash outflow during this time.

Securing new sources of funding.

And with that I'll turn the call that leverage and Peter before we take questions.

Thanks Shannon.

As you have seen the situation we are facing is severe.

Despite the carriers act and our own cash preservation initiatives nowhere line can withstand the zero revenue environment indefinitely.

We need demand for air travel to return and the infrastructure on policies to facilitate this.

When that happens, we'll be prepared to ramp up our operations rightsize, our business to meet demand for traveled to problem and within Hawaii.

And deliver our outstanding service.

With Aloha.

Before I conclude let me briefly acknowledge a few other important items.

First in mid March we received the final order from the D O T denying our application for antitrust immunity with gel.

Well the D.O.G. deemed our partnership with Jal as pro competitive.

They were looking for further clarification regarding the governance and J.D., including the Intravase integration of ZIP Air gels low cost subsidiary.

Our capacity plans and the information technology development required to achieve public benefits.

Our application was denied out prejudice.

Which means that we tend to reapply yep, we choose to do so.

We have being solely focused on managing the cobot 19 crisis. Since we received the news from the deal D.

We remain committed to the strong Japan franchise, we have built and look to grow on this foundation over the long term.

The absence of the JV does not diminish our enthusiasm for our long term Japan prospects.

I'd also like to address our plans with respect to our 787 order.

We remain committed to the 787 as our flagship aircraft for the future.

This aircraft will be an incredible asset for us as we develop our business through this decade and beyond.

But with the uncertainty inherent in the current environment and the complexity cost and capital investment associated with adding a new fleet type.

Our previously intended first half of 2021 entry into service is no longer appropriate.

As a result.

We have engaged with Boeing in discussions to determine whether our 787 deliveries can be rebates.

This dialogue is ongoing.

So we won't be able to provide more specifics on these plans at this time.

The final light am I wanted to share is important milestone that we reached.

After more than three years of negotiations we reached an agreement with our flight attendants Union on a new five year contract.

We are pleased to provide our exceptional flight attendants with a contract that offers market wages.

Well also addressing some provisions the limited our ability to operate as productively as we need to.

More than ever get it's important that our team is unified in confronting the challenges ahead of us. So it is great to have this long overdue agreement in place.

And as I said earlier, our entire team has been fantastic as this unprecedented prices for our industry has evolved.

As difficult as this period has been.

I have never been crowder to be a part of this team.

Our employees all my heroes and they give me great confidence that we will have brighter days ahead.

Operator, we're now ready for questions.

Thank you Sir.

Well now begin the question answer session to join the question Q You Me Press Star then one on your telephone keypad.

Well here its own acknowledging or requests.

If you're using a speaker phone.

These pick up your handset or pricing any key.

I would draw your question. Please press Star then too.

I was first question comes from Joseph Denardi of Stifel. Please go ahead.

Yes. Thanks.

Peter can you just talking about maybe to the extent of your conversations with the state in terms of others thinking about.

Restrictions going forward and what what what you think needs to be put in place in order for Ah.

Folks to.

Feel comfortable.

Coming out there, sometimes and thank you.

Yeah, that's a it's something we've been spending a lot of time on.

The.

The discussions are continuing to evolve I think we've we've clearly with the case count as low as it has been recently I think theres pretty broad recognition that some relaxation of restrictions in the community are due and we have.

Started to see some.

Low risk activities opened up.

You know, notably for some of the people in the room with me golf courses began to open up this past weekend and so.

Bit by bit Oh, we are going to start see but seeing things coming back in the weeks ahead.

Air travel is one that that you don't for the reasons I articulated on call is something that people are concerned about particularly as we bring people into the state I think.

We are.

We are probably not very far away from some relaxation of.

The.

Neighbor Island quarantine restrictions for people just traveling on purely neighbor island itinerary, recognizing that that the the Kobin case count is not is not a problem on any of the islands and so I think you know each of the counties is is starting to think about that.

In terms of or some of those some of the longer haul flying which is the the vast majority of our business and is really the core of the tourism in a business that is.

That is the backbone of our economy and the thing that's going to drive employment.

Got to.

Somewhere better than it is right now.

I think I think you know there are.

A number of calls for testing of all incoming travelers, but I think there was a broad realization of that not being feasible in an environment where in in most of this country there isn't an up testing capability.

Specific for cold at 19 testing to even make sure that all the health care providers and first responders have adequate testing and so the notion that.

We're going to be able to scale that up and deliver that for people getting on airplanes in the near term is not feasible. So I think it really is a eight layered and and phased approach and you're one of the models, we've shared with people from our own experiences thinking about.

The response.

From a security perspective, after 911, where it was not one single element of change that was introduced but it was layers of security and protection to make sure that you could get an environment where.

People or overall safe and and comfortable and so you know I mentioned.

Preakness capability and community contact tracing testing not just for air travelers, but for people in the community as a way to make sure but as you reintroduce that's activity you don't get hospitals to the point, where they're overwhelmed and the community is able to deal with it so.

Yeah, that's a.

From a bit of the character of how this discussion has gone what that means in terms of tightening I can't tell you have any specificity yet but that is.

You know, it's not our call to to make ultimately and I think it may there there may be some evolution bye bye.

By geography that.

We see overtime.

That's.

Sort of high level, though I think that's what we're seeing I hope that is responsive to your question.

Yes, that's helpful. And then maybe just I didn't hear a whole lot in terms of structural changes to the sleep on the other side of this and so can you talk little bit about to the extent that you think along all pieces of business comes back later I mean, how much time do you give that before.

To rethink what with the fleet should look like you know in the context of a cash conservation and liquidity. Thank you.

Yeah. So so what we're with respect to our fleet you know one of things as you know that we have done in recent years is we have been addressing the evolution of our fleet on a proactive basis and.

Completed.

The transition out of our aging 767, 300 fleet and added the Athree 21 neo to our.

Our fleet.

Over the last few years, so what that leaves us with particularly on the long haul side of a business is a very a very young fleet and there's nothing that is sort of.

Sitting out there with a natural a retirement date in the next few years. So we can accelerate to to bring capacity down so.

From our standpoint that leads us to a point, where I don't think we aren't necessarily going to reduce fleet further, but obviously if were as were rightsizing capacity one of the libors weaken than uses to reduce utilization of the fleet and manage capacity.

Down in that standpoint.

We're comfortable with the ownership cost structure, but we have on those aircraft as Shannon alluded to we we can use the.

The fact that we do have a young fleet with value when we've got equity in that fleet as a source of liquidity as we're managing through this.

But where we're not out there.

Thinking that we should do you know take some number of aircraft and sell them right now into a weak market I think we would oh, we would more likely manage that through.

Utilization in the near to medium term.

[laughter].

The next question comes from Kentucky <unk> Research. Please go ahead.

Hi, everybody.

Thanks for the time after.

Is that book load factor you talked about in Threeq was actually wasn't that bad it sounded like to me I am I kind of curious when you feel good enough about it being and I know what you said, it's susceptible to change and people cancelling and booking incentives I I get all that but when do you actually feel good enough about it being sticky enough to where you can actually sort of start comfortably relying on it the schedules you.

Actually have to see these people get on the airplane I mean, how much volatility you expecting in that booking number and well how do you know when it's actually real or like I said or just you just wait to see only people get on the plane.

Yeah, Let me let me start on that and then see if maybe Brent has some thoughts on on drop of that but I think the first thing I'm glad you heard the the caveat about it being susceptible to change because that was that was in the prepared remarks for a reason.

I think the first thing we need.

To be able to make that reasonably sticky is to not have a quarantine because florentine as an incredible disincentive for someone who is planning to come for Hawaii for a week spending the entire time in the hotel is not the reason they bought that ticket in the in first place.

So you know without a without a.

Removal of the quarantine the.

None of that is is real.

I think once we do have a removal of the warranty I think there there will be an interest in people.

You know traveling I think as you know as I think as on the one hand, you've got People's concerns.

No.

Getting out and interacting with people.

And you know moving around again, but on the other hand, I think people are tired of being cooped up and to the extent that they've.

They've got the flexibility and the economic Oh wherewithal to do it there they're going to want to travel and.

And Hawaii is going to be.

Appealing place like it always is budget, but even more so now perhaps because this is a place where the effect of this horrible disease, having haven't ravaged it as much.

So I think that is the environment, we're facing it will involve a lot in the next little while and and I. You know I don't think you can expect a summer of.

80 to 90 is load factor like we have in normal times, but I do think there's an opportunity for us to build once we're able to open up again.

Yeah, Hey hundred spread I think heaters.

Peter's comments or as a read them point in terms of.

The most important element will really be head of the timing in terms of relaxation of the quarantine.

We do have a bit more of a base built just given our booking curve relative to other folks I think.

Some of that you know is clearly a risk depending on what happens.

In terms of timing of the current team I think speaking that kind of consumer behavior. We've still seen some interest in terms of bookings in Threeq you more of that is probably started the shift out in the end before Q.

Obviously that subject to change based on.

And what we see a around the timing and any relaxation of the quarantine and I would say, it's the only other thing at this point as its probably the domestic market seems to be holding up a little greater interest under international markets at this point.

And just one last thought I'd add hunger and there's no precise way too to measure this but one of things we've been thinking about on as we discuss it with people in that community, where we're anxious. So we don't open too soon and too fast either.

Because when when the quarantine is removed and we start having more economic activity, we'd like it to stable removed and to continue to have economic activity and not the out do.

Toggle back and forth and restrictions because I think that would.

That would be very destructive to consumer intent and demand. If there was uncertainty about what the conditions were going to be so we want to be thoughtful about this we want the the state and local and federal officials to be thoughtful about how.

They manage this ER and hopefully.

Weaken.

As a community we can work through that balance in the period ahead, you get things to a point, where we have something that more resembles what it was in the past, although I don't think we go back to things like they used to be write off and anytime in the near term.

Right.

Thanks, guys and then you know in the last recession Hawaiian decided that you guys need to do you really diversify the network, which which you did do you see something like that happening. After this recession is over.

Yeah look I think there will be.

There will be a number of things but that this.

Opens up our eyes about adding perhaps in the long term has us I'm thinking about them them differently.

I don't think.

Those you know and and I can I'm not going to give you everything that's rattling through my head as I as I think about that right now, but I, but I would say I don't think those are 2020, 2021 sort of decisions, but I think <unk>.

You know this is something I sure wasn't smart enough to see coming and and that it does caused you to step back and pause and say are there things you could have had in place.

To have a have helped a little bit.

Two band is through something like that and does that change how we think about our business for.

The long term and and those are things once we.

Get a little bit more solid ground under our feet I'm sure we will spend some time.

Talking about.

Thank you.

The next question comes from Helane Becker from Cowen. Please go ahead.

Thanks, very much operator, and thank you very much Peter in China and brand for your time to here's my when I have two questions actually my first question is in the press release, you say that you have 7500 people and then you see that half tuck.

I'll leave is that.

Does that mean that 3700 took the lead aren't does that mean you had 15000 now you have 7500 left.

[laughter] no [laughter] five under <unk>, we have roughly 7500 employees at the company about half of those employees a little more than half of those in play employees have taken some form of voluntary option and those voluntary options.

Range from people, taking you know leaves a range from two weeks at a time to six months at a time. It is it includes crew members, taking reduce schedules that involve a reduction of of hours and.

And.

Not working so it's it's a variety of different things that add up to how will that 7500 people participating.

And you know driving.

Pretty pretty sick nipigon and important savings worse.

Okay and then my other question. It's just an explanation from I guess Shannon on the taxes, where you have.

The tax you're talking about the tax related to the care Sac kinda, so surprised to see that in the first quarter as opposed to the second quarter. So it's kind of wondering if you could just explain that to me.

Right.

So yeah, there there's a lot going on that piece and this is related to income taxes not ticket.

Helane, you're referring to so our effective tax rate, that's really odd I'm. This quarter because feature that if you recall that has really been done.

I'm not going [laughter], it seems like long time ago.

Eliminated.

Slot carried that he could only carry forward.

Sure.

Losses, but with that cares that you can now carrying that so we are paint we when we implemented the.

Previous type assets, we had to lower all of our tax related items to than you had three.

Even call we were more in a 35, 38% <unk> right. Then we went down to like money.

1% dish and now that we're carrying it back to the previous years when he gets the benefit of higher cap rate.

The [noise].

Deferred huh.

How's that.

Thank you evaluate Sally.

On the income taxes not ticket because then it just there is lot of that being able to count being able to headlines.

Right. Okay. Okay. Thanks, Shannon I just didn't in.

Just didn't understand that.

What happened there so I appreciate it and actually.

I'm good but the rest of my questions for now thank you.

Thanks Kelly.

Your next question comes from Catherine O'brien from Goldman Sachs. Please go ahead.

Hi, everyone. Thank you Kim I said time.

So just just a couple of quick ones here on your current widebody fleet you know I understand in can you not in a place to discuss I'm worried about but.

Thoughts on how you're going to redeploy our current wide bodies in your free onions, then that the rebound as men and your international routes Asiapac is more extended isn't the rebound this metric you add.

Yeah, and he's out there I realize you said that you would you know reduced utilization likely rather than retiring aircraft fleet. So just wondering like how are you thinking about incorporating those potentially into your connected network or should we expect to see some of those remain grounded over the medium parent. Thanks.

Yeah. So gudrun you broke up a little bit, but I think question was about how we're thinking about redeploying the wide bodies in particular, the international network doesn't fully rebound and at that is.

That is a good question and I think it is is one for which.

No the answer in the short.

Short to medium term might end up being different than the answer in the longer term and of course in the longer term, we do have more retirement capabilities because as you get out a couple of years, we've got some.

Some lease returns are coming up or at least termination opportunities coming up with would allow us to.

To make different decisions about how many total we want to have I I think you know.

Certainly.

The virtually all of <unk> I think all of our international flying requires us to have the range of the wide body aircraft. So it's all wide body, if we need less for the international piece of the business. There are some places domestically where the demand is deep enough that it it might benefit from that and where we have demand for.

Cargo that that helps but I think were I I can tell you we're gonna be very mindful of not just forcing capacity into markets, where there is not the man I'm just because we have aircraft available until that is where we would we would play the.

The utilization card.

To make sure we're we're matching supply and demand an appropriate basis for whatever market conditions are going to be.

A few months down the road.

Brent doing things to answer that.

No I think that Ah I think that that covers I think you know we've got.

Depending on how things evolve the ability to particularly use hunger was a hub and be able to leverage the cargo capabilities intervention on three thirtys and connecting to our neighbor Island that worked I think give us some.

Unique opportunities should or should the opportunities exist, but but I think.

Consistent with what Peter niche.

A new stuff, maybe one quick follow up to that one and then I have the second one but when do those lease terminations on wide bodies start to I'm.

All right to happen.

We've got some starting in 2022.

I believe okay great.

And then.

Maybe just on your on your Antapite liability you know it seems like over the past from airlines in person. So far most has been noting that very little of their March quarter, and Hcl will be subject to further cash refund looking on the majority that's left for for future traveled going to.

Wind up its boucher is that similar for Hawaiian or is there something we should be keeping in mind just back your apparently large percentage of tickets sold internationally and you know just being that the majority of those important point of sale. Thanks.

Got it so so.

<unk>.

I don't know exactly what what it looks like for other carriers. So I'll just speak to Oh, what ours is the being the biggest susceptibility of that to to refund is when we when we cancel flying and don't have a re accommodation option for people.

Oil and and you know our our policy is that that when we.

We do not operate the flight, we provide a refund weather and and if I guess.

More to call us back having having change their own and then we subsequently or cancel the flight. Our policy is that we will respond and so to the extent in particular that the quarantine the order or extend out further and it doesn't make sense for us too.

Right.

As much of our schedule than we have some exposure to.

The future refunds.

And then and Brent and their teams are spending kind of time on this so so loved the to see if they have any other comments add to that.

Yeah, I I was just out a little bit you know you look at our network structure versus some of the other carrier. There are many routes that we buy one per day, which makes it really difficult to accommodate people. When we have like corn team restrictions. If you have you know.

So like why you know around that that slide 510 times. A day you can read is a significant portion of that capacity still being able to.

We had comedy passenger so I would just they you know do our size in our network and our frequencies it becomes a little harder to come yet comedy and again, we are balancing you know our cash need within each of our yet because.

You know we need if people don't want to come back to us when that aren't king and that's it.

Yeah, and we did we have done things as as Sharon mentioned in her remarks, as well to provide more flexibility for people, who do want to travel with this in the future. So extending the time period over what you can use.

Youre credits gives people a little bit more flexibility uncertainty and some of those have been.

Successful, so where we're certainly mindful of it more managing it is as best we again.

I understand that makes sense. Thank you.

Sure.

The next question comes from Mike Linenberg from Deutsche Bank. Please go ahead.

Oh, Hey, everyone, Hey, Peter the comments that you made about sort of re phasing in the introduction of the 787 up can you talk about just you know because I know you haven't put out your K, yet, but what predelivery deposits. You currently have with Boeing and I know Shannon I think even mentioned that 787.

PD piece, where part of your Capex for this year, what's what's the magnitude of that.

I don't know that they beat Q will have a specific number that you're going to be able to to see on that it's.

It's a material number and this is as we look at the things.

That.

You know single decisions.

That have a.

HM.

Very material impact on our cash flow over the next.

12 to 24 months. This is the biggest single one we can manage so it yeah, that's what I'd right.

We're not doing this for a couple of dollars when we do want those airplanes absolutely for the long term.

I would just like we continue to included in our model until we know that is progressing with filling our enough.

Be able to take it out so most of our motto that's not all have that he'd be selling there which is why reported Atlanta.

Okay. No. That's that's Super helpful. Then just my second question and maybe this is Peter and maybe even brand I you know I sort of think back you know in times past when when we hit a demand crisis.

It was always tougher for an airline like Hawaiian where it was just the narrow bodies were neighbor island and wide bodies, where you know long haul and you know Hawaii West coast and yet here, we are facing a significant falloff in demand and yet you have the perfect vehicle here, the Athree 21 meal, which would be a great airplane as you ramp up back into service.

Except for potentially one issue, which is you know this whole social distancing mandate and I'm still trying to square, whether or not an athree 21, neo from Hawaii to the West Coast is a more cost effective way to get there based on where demand is and yet.

Incorporating the aspects of social distancing you know I eat how many people can you actually sit on a small narrow body and trying to separate them out whether it's one per Roe or two per Roe versus a wide body and so I'm sure you're going through that analysis right now about what's the right airplane in a perfect a normal garden variety recession hands down.

And you would want to use the Athree 21, now as you started to rebuild your schedule, but now it just doesn't seem clear to me. So I'm just I'm curious sort of your thoughts on that.

Anything thanks appreciate taking the time.

Yeah. It it's been interesting question I I think you know.

We're not alone and having introduced policies and procedures to provide a little bit more distance for people on the airplane when they're traveling right now, but right now that is obviously an easier thing to do went across the industry.

People are carrying the load factors that we are.

Absolutely I'm familiar with and in recent history, certainly I I do think.

You know our expectation is that long term.

Some of the distancing is not.

Particularly sustainable I, maybe I'm not creative enough in thinking about different models, but I I'm pretty decent, but Matt and I kind of understand if we had an industry that had a 10%.

Pre tax profit margins roughly at you know a time period, when we were operating load factors in.

The high Eightys that if you just you know without fares going way way up and moving to demand curve, you've got to have pretty full airplanes to Atlanta sustainable industry I'm not that math works for Hawaiian Airlines are not worked for.

Every airline, but that we compete with so.

I think we've got a separate a little bit some of the things that are going in place.

Right now well, while the you know entire world is in the throws of this crisis and what we evolved to as communities throughout the country and throughout the world are able to get the spread of this disease under control and we can start to relax some of the.

Restrictions that we're putting in place and various aspects of our lives.

Okay very helpful.

Thanks, everyone.

Thanks, Mike.

The next question comes from Steve O'hara from Sidoti and company. Please go ahead.

Hi, good afternoon, thanks for taking the question.

Hi, just curious.

Maybe you no longer term if you think about.

You know the industry overall I'm.

Assuming demand comes back you know.

Slowly, but you know maybe steadily.

I mean.

You know what do you in terms of is the competitive landscape and maybe the.

Capacity that's out there.

I mean would your.

Give a feeling as to the size of the industry, maybe versus what you might think normally in terms of capacity or.

Do you think you know.

I mean, I would think there'll be some change in.

Service levels from markets that Youre maybe.

Non essential to.

Somebody corporations.

Route structure business, but I'm just.

Kind of curious are you thinking about it longer term.

Yeah, I'll I'll make a couple of observations and then see if anyone else in the room wants to do.

To try and then.

I think making a making a spot estimate on the.

The percentage change in the size of the industry with all of the uncertainty right now is sort of fraught with payroll I think and that's why we're we're modeling out a variety of scenarios. So we understand how will you responded or different scenarios, but we just don't have enough certainty right now just say.

It's going to be X percent smaller than it was and I think that pertains to the markets, we serve as well as a as air travel markets more generally.

I do think that in terms of the competitive environment in you know two from and within the Hawaii.

My view has not really change from what I'm you know I would have told you six months ago that you always we were we have spent time.

Good old days, when we talked about competition as opposed to how we're doing to raise liquidity you know I wouldn't told you six months ago. When I did tell you six months ago that I didn't expect any of our competitors to just abandoned.

Flying to Hawaii, I thought it would be part of their networks and they would continue to compete and and I still feel the same way about bad I think it is just a question of what amount of flying is going to make sense in the environment that we're competing as I raised that because that's a little bit different.

And 2008 2009, when we were responding to the global financial crisis. When there were a couple of.

Ups carrier, serving Hawaii at that time, but seats flying altogether in the span of about a one week and that meant that you know there was little adjustment needed by the other participants in this particular part of the market in fact in 2008 Hawaiian Airlines was one.

On a few carriers in the world, but actually grew at a time that the overall airline industry was in pretty severe contraction mode.

So I don't think given the strength of the carriers that we have a in the markets whether it's our U.S. carriers are international carriers that we're going to see something like that where there's a wholesale.

Withdrawal from the market, but I think people are gonna have to adjust as the demand is going to be different but how different I don't know yet but people are gonna have to adjust to a different environment.

Okay No that's that's very helpful.

And then maybe just going back.

Back to Shannon's question, or I'm, sorry, Shannon's commentary on liquidity.

Was that including some action by Boeing or was that excluding.

That I wasn't sure if that was.

What she said.

Yeah, I think you're referring to my comments about ending the second quarter with a billion dollars in cash.

If that Keith Steve It doesn't include any action labeling I I've taken.

Contractual obligation.

The second.

Okay, all right. Thank you very much.

[noise] <unk>.

It was the question answer session I would now like to tend to conference back over to Mr. Thier Ingram for any closing remarks.

Hello, guys to everyone for joining us today, we appreciate your interest.

Aloha.

This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.