Q2 2020 Hawaiian Holdings Inc Earnings Call
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Greetings and welcome to the Hawaiian Holdings, Inc. second quarter 2020 financial results call.
Hi, I'm all participants are named listen only mode.
First question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
I know this conference is being recorded it is now my pleasure to introduce your host a lot of James managing director of Investor Relations. Thank you you may begin.
Thank you Michelle Hello, everyone and welcome to Hawaiian Holdings' second quarter 2020 results conference call here with me in Honolulu, or Peter and grow our President and Chief Executive Officer, Brett overview, our senior Vice President of revenue management network planning and Shannon Okinaka, Our Chief Financial Officer. We also have several other men.
Most of our management team in attendance for the Q1 day.
Peter will provide an overview of the impact of cobot 19 on our business and our vision for the future.
That will provide an update on our commercial performance and trends and Shannon will provide an update on our cash and liquidity.
At the end of the prepared remarks, we will open up the call for questions.
By now everyone should have access to the press release I went out at about four o'clock Eastern time today. If you have not received the release. It is available on the Investor Relations page of our website Hawaiian Airlines dotcom.
During our call today, we will refer at time to adjusted or non-GAAP numbers and metrics a detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today's press release posted on the Investor Relations page of our website.
As a reminder, the following prepared remarks contain forward looking statements, including statements about our future plans and potential future financial and operating performance management May also make additional forward looking statements in response to your questions.
These statements are subject to risks and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them.
We refer you to Hawaiian holdings recent filings with the FCC for a more detailed discussions of 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.
Well the 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.
As you have seen in our press release today, the second quarter was an incredibly challenging period for our company and for the entire industry as we continue to face see unprecedented demand destruction due to the cope with 19 pandemic.
In our home state of Hawaii, We had a 14 day corn team in place for incoming travelers throughout the quarter.
Leading us to operate a fraction of schedule that we had planned at the beginning of the year.
The human toll of the virus was also driven home last week.
The passing of one of our long time flight attendants.
Jeff Curcumin, drawing doro Honda in 1986 and over the past three decades had become well known to is implied colleagues for his passion for discovering new places.
People and cultures.
Just terrific sense of humor enact for easy conversation.
And just carrying hurt.
[noise] human body, the values of Aloha and multi element that we hold dear.
He will not be forgot.
We're also reminded this past weekend that even as cobot 19 as rendered much of our operation government.
Mother, Nature's volatility is still in effect as Hurricane Douglas made a passed by the island Jay.
[noise] Hurricane season is a regular feature of living in the Middle <unk> Pacific Ocean, but this one was a bit unusual for us to prepare for given that much of our fleet has been parked in honolulu, rather than spread throughout our network on a daily basis.
In anticipation we moved the majority of our long haul aircraft to the West Coast and most of our neighbor Island fleet Colonno, which was further away from the direct path from Douglas.
Fortunately for us that's most destructive wins associated with the storm stayed off shore to the north and all of the islands of Hawaii were spared the direct yet.
Throughout this unparallel period, our team has been nothing short of remarkable.
We've worked and are working collaboratively with the unions that represent our frontline employees to establish voluntary leave options and more recently voluntary separation in early retirement programs to mitigate the need for involuntary reductions to rightsize our workforce.
Our employees have been active in our communities supporting food drives for people, who is economic well being has been overwhelmed by the crisis delivering food to the elderly and in firm and revitalizing local schools among many other initiatives.
My pride in being a part of this wonderful team has never been greater.
In the second quarter.
We stabilized our operation to sustain our business submits the short term pressures of nearly zero revenue and very limited flight activity.
We closed the quarter with a comfortable cash position.
Albeit short of our estimate as a result of a delay in certain of our planned aircraft financing activities.
I am pleased that subsequent to the end of the second quarter, we have closed to sale leaseback transactions raising $114 million.
And our presently commencing a WTC transaction.
Through which we expect to raise another approximately 262 million.
Upon many successful conclusion of this transaction cash and liquid assets will exceed $1 billion.
Beyond these transactions.
We expect to have access to a 364 million dollar loan through the care Zach loan program.
And we will have preserved the buffer of unencumbered aircraft. Following these transactions.
Well much remains uncertain about the months ahead.
We are confident that strong financial position, we had entering this crisis has left us in good shape to manage through this ongoing uncertainty.
And positions us to rebuild.
As demand begins to recover in earnest.
The most impactful constraint on demand for our business. Currently is the 14 day quarantine for Hawaii travelers. So let me take a moment to review how this has evolved through the second quarter enough to today.
I'll start with the simpler part of the story, which is the effect of the quarantine on our neighbor Island business.
This particular element of the Governor's quarantine order went into place on April 1st them was lifted on June 16.
As you would expect we've seen some recovery in demand since the lifting which has provided us the opportunity to restore more of our prior schedule.
Brent will provide more details on the magnitude of demand recovery in our schedule in a few moments.
The 14 day quarantine on incoming arrivals to the state which went into place on March 26 remains in place.
In late June Hawaii's Governor announced the plant lift.
Inverse for travelers, who are paying a negative cobot 19 test within 72 hours of arrival.
As case count increased in recent weeks, both in Hawaii and in our key visitor markets on the mainland.
This August 1st date was pushed back to September Onest.
We remain engaged with state and county officials at specific protocols for the testing requirements are being established.
On the surface pre testing as an elegant solution to preserve Hawaii's low cobot incidents.
While simultaneously stimulating our home state devastated economy.
There are many details that remain uncertain, however that will affect the ability of potential travelers to access tests and the corresponding level up demand we can expect.
Certainly the ability to avoid quarantine will open up some of the demand that is currently suppressed.
But there remains a high degree of uncertainty about the magnitude of demand recovery.
A priority for US is for the state to finalize details about applicable pes and approved providers. So we can provide this information to potential gas seeking clarity about what is required to unlock the Hawaii vacation they are looking for.
Before I leave the subject of Quarantines I should note that while Hawaii's restrictions have a single greatest impact on our ability to realize demand.
Were also affected by quarantine restrictions in the international markets. We traditionally served.
Brett will discuss this more in his remarks.
Pivoting from dealing with the immediate circumstances. We have also spent significant effort planning for our emergence from the crisis.
Well, we don't know the pace of the return to demand for travel to Hawaii, We know that it will occur.
But we also know that will take years not months to get back to pre cobot 19 levels.
With an uncertain demand recovery time line, our primary planning scenario focuses on being a smaller airline by about 15% to 25% next summer compared to 2019 levels.
With this in mine, we're taking steps to rightsize our company for this new baseline, allowing us to build back the business over time from the smaller base.
Key to managing this is adjusting our staffing level and on that front, we're working through each work group and engaging with Union representatives where applicable.
Voluntary separation packages have already been offered to our administrative employees.
An early retirement options have been offered to pilots.
Plans for other groups our end work.
Our goal is to do reduce the workforce through voluntary means to the extent feasible.
But we acknowledge the gold that it is likely we will need to proceed with in voluntary separations as well.
We expect to issue worn out notifications to our employees, who are risk of being impacted by voluntary by involuntary furloughs in the coming days.
Having to shrink the company that our team has worked so painstakingly to build is heartbreaking.
But it is essential to preserve the viability.
Competitiveness and success of our business over the long term.
We will manage through this and emerge strongly.
We've also continued to have productive discussions with Boeing to replace our 787 order.
Well not finalized we do not expect to put the first 278 sevens into service until 2022 or 2023.
As I think about the future I know that demand for travel to Hawaii will return.
Well the technology like zoom and the emerging prominence of remote work may have a longer lasting impact on business travel the beauty of Hawaii can only be fully experienced in person.
As the virus has brought under control and the economy stabilizes and eventually recovers demand for leisure travel will return to its long term growth growth trend.
Our positioning as a premium leisure airline is ideal to be successful in this environment.
I'll now turn the call over to Brent to give you more details on our commercial outlook.
Thank you Peter and Aloha, everyone.
During the second quarter system revenue was down 91.6% year over year.
On a 92.1% decline in capacity.
For the quarter passenger revenue was down 96% year over year with cargo and other revenue down 50, and 48% respectively.
From a low point in April we saw gradual improvements and revenue as we progress throughout the quarter.
In North America, with the 14 day quarantine for travelers coming into the state in place since the end of March we pair down are scheduled to a bare bones level and initially operated only to round trips per day.
Los Angeles, San Francisco to Honolulu.
Demand has returned somewhat as both Hawaii residents and visitors have begun to travel a bit more.
During the second quarter, we hadn't Seattle back to the network.
And have since welcomed Portland, Sacramento in San Diego back in the third quarter.
We were encouraged by the state of Hawaii's announcement on June 24th that provided the option for guest traveling from the mainland to be able to test other quarantine effective August onest.
At that time, we had plans to reenter most of our mainland origin points.
Well, we saw initial increase in bookings for travel, particularly in early August and and ceiling weeks as covert cases on the mainland increased and details about the state's policy were sparse demand and surprisingly decelerated.
We sense adjusted our August scheduled to be similar to the schedule for the second half of July.
And estimate will fly just under 20% of our plans North America scheduled this quarter.
Looking beyond the summer September book load factors about a third of what it was last year.
Well October is about half of last year.
And subsequent months moderately improving throughout the remainder of the year.
Needless to say Theres, a fair amount of uncertainty around those numbers given the status of the quarantine here in Hawaii and the state of the pandemic and our T. origin points.
Consistent with industry trends velocity of bookings has slowed in recent weeks.
For travel in the latter part of the year bookings made during the month of June were roughly a third of last years levels and that has basically been have to over the past several weeks.
Moving over to neighbor Island performance steadily improved throughout the second quarter, and we saw material improvement when that quarantine for travel within the state was lifted in mid June.
Those factors at the beginning of the quarter were running in the mid teens.
If I may increase to the mid to upper Twentys.
And then engine in the mid Fortys on additional capacity add in the back half of the month.
We've ramped up our neighbor island schedule and the latest plan for the third quarter has this finding about half of our 2019 schedule.
Load factors have leveled off and our July load factor will end up similar to Jim's in the mid Fortys figure.
Without reduced schedule, we've been seeing booking volumes run about 40% of historical levels for closer and travel periods.
But that tapers off further out and more closely core correlates to the volume declines we've seen in our long haul markets.
Regarding international.
Our plans for returning service remain uncertain.
Is there a government mandated travel restrictions in effect and most of our international geographies, which in addition to the Hawaii quarantine essentially inhibit domain inhibit demand for traveled to Hawaii.
As this foreign restrictions left we will have the ability to welcome gets back to Hawaii, We're confident that Hawaii will remain attractive destination for those geographies.
Our expectation at this point is that we would re enter Japan, and Korea markets before Australia, and New Zealand.
Overall, and the third quarter, we're planning to operate about 15% of the Asms. We originally planned for at the start of the year.
This estimate assumes we operate the same schedule in September as we have planned for August.
However, we are currently reviewing our schedule on an ongoing basis, and we'll make adjustments to our network to align with the demand environment.
We are ready to bring back more service as demand warrants.
Throughout our network, we've kept our load factors at 70% or less depending on aircraft type two remote physical separation on our aircraft and at the airport.
This policy will remain in place through at least the end of September.
The safety of our employees and guest is a top priority.
And we'll continue to evaluate our policies and make changes that we feel are necessary to ensure their continued safety and gain their confidence in resuming travel.
Our team is working hard to adapt to this new environment constantly adjusting our network.
And our policies to ensure we can succeed and continued to deliver the products and services that are guests value.
And with that I'll turn the call over to Shannon.
Thanks, Ben and thanks, everyone for joining us today.
Today, we reported and adjusted net loss of $174.7 million for the second quarter.
$3.81 per share.
Reflecting the continued impact of covenant on our business.
We closed the quarter with $761 million in cash and short term investments.
Which includes let me see a $263 million Karen I mean, do the payroll support program.
This amount was below our estimate of $1 billion due to the delay of a few financing transactions that took a little longer than expected.
And as Peter mentioned, we recently closed two transactions.
Approximately $114 million.
To the sale lease back two Athree 21 years.
As well and I know you definitely see transaction.
Through which we expect to raise approximately $252 million.
That's above $1 billion.
But definitely PC is that by six Athree 21 meal and to Eightpointthree.
And we expect upright tomorrow morning, and close next week.
In addition to these transactions we have the opportunity to take advantage of the economic elite program through the cares.
Our allocation of economic really program, though.
$364 million and we expect to make the decision about the size of our drawn by the end of third quarter.
The combination of these aircraft financing and the care that.
Provided with access to one of the half billion dollar the liquidity, which puts us in a comfortable position.
Well, we believe this amount that liquidity is sufficient to get us to the worst of this crisis.
Will also help or unencumbered Athree 21, neo aircraft valued at approximately $216 million.
Our air traffic liability at the end of quarter with $554 million.
Which 116 million is related to travel in the third quarter.
We continue to process refunds, which peaked in April and then decline subsequent month throughout the quarter.
In light of our deferrals of 77 PDP.
Well, that's non aircraft capex.
We now expect our capex in the back half of planes wanting to be between nine and $19 million.
Totaling between 103 and $113 million for the full year, which includes our luck.
Anyone Neal that was delivered in the second quarter.
Regarding cash burn.
The second quarter daily cash burn on expenditures.
Moving Karen funding Capex and read by.
$3.3 million as compared to the forecast of $3.6 million that we've provided on our last call.
Going forward, we're modifying the way, we characterize cash burn expectations.
In addition to operating cash outflows and capital expenditures.
Perhaps from figures will include that service and interest payments and the since cash flows from sales and ticket refunds net zero.
It will not include any impact from care that funding or any new financing.
I mean this definition for the third quarter, we expect Abram approximately $3.2 million in cash per day as compared to $3.6 million in the second quarter.
As we shift their intention some short term has concentration and medium term planning.
Our focus is on determining the rightsize our business.
As Peter mentioned, we're in the midst of determining an offering voluntary separation and early retirement options to our workforce to mitigate the need for involuntary option.
Which will be necessary to better match the size of our workforce, but the estimated level operations in the future.
To further manage our spend.
Byron, that's where we have long aircraft.
We're ensuring close collaboration between our operations and network scheduling team.
Our operations in a way to maximize efficiency.
We're uncertain when we will see positive net cash generation.
But it's clear that reaching a positive position will require an improvement in demand conditions.
Well the timeline for demand recovery remains uncertain.
We are focused on rightsizing, our airline to enable us to be competitive and have the flexibility to grow as demand was down.
With our leisure business model.
Our delivery of authentic lime hospitality and focus on the Hawaii toddler, we're confident in our ability to emerge from this crisis and succeed in the long term.
And with that we can open the call for questions.
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Thank you, we'll now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation tell indicate your line is in the question can you make my start to if you'd like some of your question from the Kim.
He grew up and then maybe necessary to pick up your hands that before passing the Sarkies one moment. Please the leap over your question.
Our first question comes from the line of Hunter K with Wolfe Research. Please proceed with your question.
Hi, everybody. Thank you.
Peter are there what are some of the long term consequences or even benefits that you're expecting might be unique.
To Hawaii opposed to other.
Vacation spots fill in say the lower 48 are there any sort of like you know maybe quirky or unintended consequence type things that you guys are expecting or planning for.
Two to three years from now based on this situation.
That's a.
Yeah, that's an interesting question Hunter I don't.
No that I can think of any you know really significant ones I think obviously in the short term. There is there was a lot of.
Economic damage here in a in Hawaii is as so many people are employed by the tourism sector, but the physical plant is.
You know largely intact in terms of hotels and and other accommodations. There's some properties that have decided to take advantage of the extent downturn to do do some renovations and that.
That may provide some.
Some additional improvement I would hope that over time people are in the community are going to realize how.
How crucial.
The tourism industry is for the overall state of the economy in Hawaii, and ER and as we begin to to try and recover and recover the the tax base that supports.
The the state government I think people are going to have an interest in in building back tourism, but I think you know a lot of people are really focused near term right now on the health consequences and and surprisingly a little bit to me have have not.
Understood some of the real long term negative effects from both the house health and social issue as well as an economic issue of of an extended period of.
A significant unemployment.
HM Okay.
And then you know when when PSP came around and whatever was March April obviously, it was just take the money and.
Figure. This out later it was there was such a dark time and now we can we kind of know what this is now it kinda know what this virus is we we don't know when it's going to get better, but we kinda know what it is so theres there's been some chatter of around two on PSP is it.
A little bit more complicated now as you think about potentially taking that money. If theres today like you know service requirement attached to it and things like that I know you guys were largely exam from all of that but with the calculus be something like hey, we can get another $300 million to maintain payroll for six months, but it might cost us $375 million Bill.
'cause, it's just going or impede our ability to take fixed costs out. So there for sat as it may be it might not be right decision I know, it's a little bit early to have this conversation potentially but is that a fair way of thinking about it that the calculus to actually taking this money have offered might be little bit more complicated now than it was last time.
Yeah Hunter on on that one I think our view is is very closely aligned with what you've probably heard from from the a portray and and some of the other.
Carriers that have made a comment on this that but it is I think it would be very difficult for us too.
Turned down something that would.
Prevent us or delay at least the need for us to pursue in voluntary reductions for our workforce who.
I'd remind everyone has done absolutely nothing wrong. They didn't cause this crisis there they are victims out, but as a as our investors are victims of it.
So I.
I do think we have to.
Continue to think about making the long term changes because as you said, we do know more now than we then we did back in March and April I think it's it's a lot more clear, but this is going to take longer to build out of back in March and the early part of April there was a lot of.
Talking about the shape Recalibrates I haven't heard anyone talking about a V shaped recovery. If it is this is a a this is the flattest point be part of the B that I have ever seen.
And I think we're we're all you know keen to came together moving forward, but in a world where.
Where are they restrictions on I care was 2.0, we're no different from from what we saw him in the first version of cares I think it is pretty clear that the number of involuntary job losses in the industry would be a lot lower.
In at the end of March than they are likely to be at the end of September.
Thank you.
Thank you. Your question comes from the line Katherine O'brien with Goldman Sachs. Please proceed with your question.
Hey, good afternoon, everyone. Thanks, very much for the time.
Oh sure Ken and I, just got a question on unencumbered asset balance I think I think viewed that as long as I heard correctly.
16 million and unencumbered aircraft after the <unk> E transactions announced today.
And I'm just wondering you know are there other loyalty or other intangible assets that are not included in that balance and and the reason I'm asking is really just against an inside.
The level and what collateral you're looking suppose if you do participate I care as well the program and in.
You know, what you're thinking of getting there.
Hi, good evening for the question for that cares outflow, we've been working with the U.S. Treasury.
Non aircraft collateral.
Secondly, the loyalty program.
And so.
Well that wasn't included in my number for unencumbered assets we are.
Looking at that for financing with the Treasury.
Other than the for 18 to 21 now that I mentioned, we do have other unencumbered assets I think doesn't being a little harder to to finance we have.
14, seven one sub bands as well as our 80 our fleet.
But I I think for for the most part right now on the market perspective, we're really focused on that the 321, yes, and then like in the double agency of the AC Dirty.
Got it and and I got you know in your preliminary conversations with the Treasury I'm I'm, assuming that whatever valuation got on the loyalty would that be sufficient to take the entire allotment under that program.
Yeah, we believe so.
You know I'm, sorry, I didn't answer another part of your question when other intangible assets, we have not yet in the two things like our brand.
You know for valuation or financing, but for the carrying blown specifically, where we've done today, we believe that loyalty program is sufficient.
Great and if I get asked one quick one.
Oh, you know given the fixed cost feature of this business not surprising that you're calling out you know operating costs will not declined in line with capacity in third quarter, but you know could use any color on how operating.
Decline relative capacity in the third quarter will compare to your Twoq you should be expecting to see a relatively smaller gap between operating costs in capacity declines third quarter second quarter.
Ramp cost cutting measures or any other puts and takes there. Thanks, so much for the time.
Hi.
We haven't done.
A lot of analysis, comparing the second quarter, the third quarter in the way that you're asking the question we've been focused on as we ramp up.
Some of our implying a peaceful that some of our flying how to do in the most cost efficient way I'm, sorry analysis has been pretty different than what we've done before.
You know normally when we look Uh huh.
And how to control cost me calculus, a big faster and that calculus is <unk>.
Aircraft ownership Haas and at this point when we look at pulling back.
Our operation aircraft ownership is for the most part of some cost so when we.
Andrew your questions a little difficult because I don't know how much capacity will happen in a third quarter, but what I can tell you is that we are looking at.
Our pop in a different way and that when we bring that are playing we're focused on the cost efficiency.
Of that language is more around labor and maintenance versus aircraft utilization would just like I said played a big factor higher.
In our in our Cogs calculus.
Yes, thanks again.
Thanks.
Thank you. Our next question comes from the line of Michael Linenberg with Deutsche Bank. Please proceed with your question.
Oh, Hey, I'm, Hey, good morning, everyone Q here Shannon the cash burn of 3.2 million for the quarter underlying that it forecast her guide.
Is that the quarantine is lifted on September 1st, presumably and and if it were not to be lifted how does that do you have a sense and how that would actually change I mean, I'm just not sure how much would actually book up in the month to September.
And beyond.
Yeah. Thanks, Thanks, Mike actually because we were I'm, a little hesitant to try and get one the quarantine would be lifted for that cost for a number but we did with we just assume that for the quarter. The cash flows from sale net net out what the refund. So we had just assumed a net zero there.
Our because you're absolutely right that the level of cash inflows from remedies really.
Depend on when that Martinez lifted or if there's some exception with testing and for the negative results.
So my guess is.
Okay and then on that no was it was zero in the June quarter or was it was a negative territory.
It was a negative territory in the June where the second quarter.
Okay, Great and then just Mike.
Mike I might just chime in on that as well and I think Brent alluded to this in his remarks when when we were originally looking at the August 1st State, we had a pretty.
Sizable ramp up in our schedule anticipating the demand some of which began to buck early on but which faded a little bit as we go into September with the opening your moving into a seasonably weaker time of year, we've now essentially.
Loss the entire.
Some are bar potentially one long weekend.
And I think given the the.
Progress of the virus on the mainland and the uptick in cases in yellow you see in markets that are far away from Hawaii, and its quarantine that that booking trends have slowed down well, we're a little bit more tempered on our expectations for what we think September is relative.
To what we thought August might be back six or seven weeks ago.
Wow, that's very helpful. Peter and then just maybe one quick one to you the to know the two new board members are you increasing the size of your board or they replacements and if you are increasing the board why why at this juncture why now.
We have a the two new board members will be increasing the size of our board. We didnt have a one board member leaves the board for personal reasons last year. So we had gone down one now were going up with to.
The reason for adding those board members as we think they're gonna be terrific assets to the board overall, they bring a lot of expertise both in.
The airline industry in the case of Jane heard what knowledge and expertise.
Expertise in terms of technology in a consumer focused industry like Mike Mcnamara and we think they're both welcome additions and look forward to having them onboard.
Great. Thanks, Thanks, everyone.
Thank you. Our next question comes from the line of Joseph Denardi with Stifel. Please proceed with your question.
Yeah, Hey, good evening.
Peter can you just talked I think you mentioned that from Atlantic separately or thinking about capacity summer of next year being maybe 20% less than pre coded can you just talked about.
Maybe why that's the right number how much rigor went went into that I mean, it's generally in the ballpark as what some of your peers are talking about if there's anything more specific that gives you visibility into that and is there or is there a line, which you kind of can't get below in terms of your size or it just becomes too economically expenses.
To shrink below a certain level. Thank you.
Yeah. Thanks, Joe Let me take both parts of that and then Oh may see if.
Brent has any thoughts that after I apply and I would I would say we've looked at it a couple of ways. We don't have there. There was so little information. We have that is specifically gives us insight into demand, particularly with big quarantine order as being in place.
For the past for months now four plus months.
So.
You know we had to look at this a couple of ways part of it was top down just looking at general macro expectations and understanding that there is some some economic that has been damage. Another one is a is a little bit more bottom up and thinking about what.
You know how roots performed before and what has changed and what our expectations for some of them would be and so that does raise some questions about some things that were maybe marginal performers before maybe they're not going to be able to manage marginal anymore on that route may not be.
There or in the case of some of the international markets.
Perspective of those nations and how they're dealing with the crisis tempers, our our our view about when things, there's a timing of when things will.
Come back so it's a little bit more more art than science at this point I think but I think we have tried to be thoughtful about our art.
As to the second part of your question I I think I think you are right.
That there is a pace at which our place I, which it it's.
Too much to really think about shrinking that bar and being able to manage down in and you know that I read some of the commentary. After other carriers have reported this quarter about you know can you bring your cost structure down and be able to operate at a similar.
Per I asked him cost structure, when you're operating smaller it it's counter to the thinking but it means you've really got to go and think about getting some of your some of your real fixed costs out in getting your infrastructure costs out.
In this environment that is a little bit more doable than what we're thinking just in normal times and you know, we always try and do things bottom up but it's hard to.
It's hard to shape, the the instinct that sometimes when you're doing budgets about sort of rolling things forward and just thinking about the changes.
So I think we can do more of that but there is a point that which we built an infrastructure that it is.
It really some sports or revenue base that they can't go down too much more and that was part of our thinking about what we what we need to do in terms of planning for the long term.
Just a last point on that we refer to it as a planning assumption as opposed to a forecast and that is as a specific choice of words, a mean something to us which means we really don't have the level of precision that we would use for something that we would internally referred to as a forecast. So we use that as the planning assumption and it's.
It's something against we will we will measure change going forward.
Yeah, just yet.
Yes.
Go ahead, I don't have a whole lot data other than I think Peter has been listening to what we've been saying two m. over the over the last several months it [laughter].
Got it yeah, no that's helpful. Peter.
Just in the context of of Americans partnership with with jet Blue is there are there any opportunities are ways that you can do something similar to then leverage your neighbor Island network.
If theres going to be a period over the next few years, where maybe there's there's too much capacity on the on the long haul side of your business. Thank you.
Sure. We as you probably know we carried the code of Oh and normal kinds of lease we carried the code of multiple airlines on the neighbor Island, a part of our network, including International Airlines, but also including E job American Delta and United and they.
They utilize that back code different extends but that is.
It's always being for US a really valuable network asset and we would continue to look for ways to take advantage of that the future.
Thank you.
Thanks, Joe.
Thank you. Our next question comes into line of Helane Becker with Cowen. Please proceed with your question.
Thanks, very much operator, hi, everybody and thank you very much for the time this afternoon.
So Peter one of you know the big issues that you were just addressing was the fact that.
There's a lot of damage being done to the economy and in Hawaii and.
Now you're one of the state's largest employers when when you meet with the Governor If you do you mean the governor.
You know what doesn't he understand about keeping the steep close for extended periods of time.
Not trying to you know I don't know deal with Oh.
The virus in it and maybe a different way.
Then keeping everybody out of the state.
Yeah. So yeah I have a in the last four or five months I've spent a lot more time with the governor than than I ever did for this.
I will tell you I I like the governor is a in fairness to him he's very.
Thoughtful about the challenges the the state is facing I think he does understand.
The economic damages on the impact that this is going to have not only on businesses like ours, but.
They be hotels restaurants, and you know what even goes beyond things.
That you would think of it b.
Biggest.
Demand market for the agriculture business and the stages the hotels hotels are.
I'm getting that fresh produce from from local Hawaii Agriculture, then that local agriculture is really not economically set up to compete in export markets are really needs that demand. So.
It is.
It is really a comprehensive impact I would say it is upward a little bit I think our business has obviously been hit dramatically small businesses that operate restaurants or or or retailers that are associated for tourism had been.
Affected dramatically I think for the average working person and a lot of these businesses. The impact has been buffeted a little bit by the fact that the the unemployment insurance has been there although it hasn't always been as reliably.
Delivered but at least it is available including the 600 dollar supplement from the federal government that is expiring so I'm not sure the workers that all those businesses have Uh huh felt it as much of the as the owners of those businesses.
But I do think that the governor.
Understands all that I think he also knows that you know this is a this is a fragile place in some ways in terms of health care capability.
It is a.
There are a lot of multi generational families living together there is a closeness an and I think islands.
And isolated places sometimes have different responses to how you deal with a disease like this I'm just based on the the nature of the way people lived.
And that is not.
That is not to say that it's right or wrong. I think these are very difficult decisions I do think and certainly you know share my views with the governor or that the economic consequences are not something that will be passing may or something that are.
Our very.
Long term and some of this is gonna be difficult for the the state to recover from over the next several years and I think that's something that you know governor regained how their local leaders are gonna have to.
Think about as a graph their decisions going forward.
Thank you very much I really appreciate that and then I have just one for.
For Shannon <unk> do you I don't think you said anything about upcoming maturities and I think you might have one.
Aside from the 364 day alone coming up in the early part of 20 to 22.
And then I'm just wondering if you could.
Mention that [laughter] for lack of it Tonight.
Yeah. Thanks, Helane so for 2020, our total debt service is about 75 million and for 2021, it's just a little over a 100.
Million and that's that's everything all of our debt.
Helane, we didn't take out one of the 364 day alone. So we don't have to worry about refinancing.
That like you've seen from somebody other carriers right you maybe okay about revolver, we drew down on a revolver I'm not right now contractually expires in 2022.
Okay, and then just real quickly I don't think you said, how many warn notice is we're going out could do you do you have that number.
We have a were what we said about the warn notice is that we'll be releasing them in the coming days, we havent, we haven't given a number of yet and I haven't shared a number with our team yet so I wouldn't feel comfortable sharing that number first on this call.
Okay, well that makes sense. Thank you thanks, everybody for your time.
Thank you.
Our next question is a follow up from Joseph Denardi with Stifel. Please proceed with your question.
Oh, Thanks, Shannon can you just maybe quantify that on the sale leaseback, what the lease terms are relative to maybe where the market was prefilled. Thank you.
I know I don't have that since it makes in front of me, but obviously, what I can say is that unfortunately, the terms now are not.
I'm not near where we were last year, when you know below 1% and financing.
So unfortunately, the terms are not quite like that I don't have yeah, but but the <unk> Joe the overall financing on that I, I think and James I'm looking at Jay a shape, where as I say this right now I think the way JNR Treasury team characterize these two sale lease back.
Hi, This is the terms we got.
Were something that would have been into consideration set a year ago. So it really wasn't as onerous as we feared and that's why we we initially started with the reason those two transactions were done on a bit of a serial basis is wells.
We started working through initially or an idea of doing one of those financings. We were we went back into the second deal with the same less or and we thought that would be.
A good source of capital for Us at this moment.
Got it thanks Peter.
Thanks, Joe.
Thank you we reached the end of our question and answer session I'd like to turn the call back over to Mr. Ingram for any closing remarks.
Hello again, everyone for joining us today, we appreciate your continued interest Aloha.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you.
You can have a wonderful day.
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[noise] [noise] greetings and welcome to the Hawaiian Holdings, Inc. second quarter 2020 finance.
As a result, Paul.
All participants are in listen only mode. A brief question and answer session will follow the ball presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded and is now my pleasure to introduce your host a lot of Jane managing director of Investor Relations. Thank you you need.
Again.
Thank you Michelle Hello, everyone and welcome to Hawaiian Holdings' second quarter 2020 results conference call here with me in Honolulu, Our Peter and grow our President and Chief Executive Officer, right over our senior Vice President of revenue Management network planning and Shannon Okinaka, Our Chief Financial Officer. We also have several other members of.
Our management team and attendance for the Q and eight.
Peter will provide an overview of the impact of 19 on our business and our vision for the future Brett will provide an update on our commercial performance and trends and Shannon will provide an update on our cash and liquidity.
At the end of the prepared remarks, we will open up the call for questions.
By now everyone should have access to the press release I went out at about four o'clock eastern time today, if you've not received the release. It is available on the Investor Relations page of our website Hawaiian Airlines dotcom.
During our call today, we will refer at time to adjusted or non-GAAP numbers and metric.
A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today's press release posted on the Investor Relations page of our website.
As a reminder, the following prepared remarks contain forward looking statements, including statements about our future plans and potential future financial and operating performance.
Management May also make additional forward looking statements in response to your question.
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 or a more detailed discussion of the 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.
Well the subsequent reports filed on form 10-Q, an 8-K.
I'll now turn the call over to Peter.
Hello alone Aloha, everyone and thank you for joining us today.
As you have seen in our press release today, the second quarter was an incredibly challenging period for our company and for the entire industry as we continue to face the unprecedented demand destruction due to the cope at 19 pandemic.
In our home state of Hawaii, We had a 14 day quarantine in place for incoming travelers throughout the quarter.
Leading us to operate a fraction of the schedule that we had planned at the beginning of the year.
The human toll of the virus was also driven home last week.
Passing of one of our long time flight attendants.
Jeff Curcumin joined our Honda in 1986 and over the past three decades had become well known to is implied colleagues for his passion for discovering new places.
People and cultures.
Just terrific sense of humor, and knack for easy conversation.
And just carrying heart.
He embodied the values of Aloha and Multnomah that we hold dear.
He will not be forgotten.
We're also reminded this past weekend that even as cobot 19 as rendered much of our operation dormant mother Nature's volatility is still in effect as Hurricane Douglas made a passed by the island chain.
Yeah.
Hurricane season is a regular feature of living in the middle of Pacific Ocean, but this one was a bit unusual for us to prepare for given that much of our fleet has been parked in honolulu, rather than spread throughout our network on a daily basis.
In anticipation we moved the majority of our long haul aircraft to the West Coast and most of our neighbor Island fleet, the Kona, which was further away from the direct path from Douglas.
Fortunately for us that's most destructive wins associated with the storm stayed off shore to the north and all of the islands of Hawaii were spare to direct yet.
Throughout this unparallel period, our team has been nothing short of remarkable.
We've worked and are working collaboratively with the unions that represent our frontline employees to establish voluntary leave options and more recently voluntary separation an early retirement programs to mitigate the need for involuntary reductions to rightsize our workforce.
Our employees have been active in our communities supporting food drives for people, who is economic well being has been overwhelmed by the crisis.
Delivering food to the elderly and firm.
Revitalizing local schools among many other initiatives.
My pride in being a part of this wonderful team has never been greater.
In the second quarter.
We stabilized our operation to sustain our business submits the short term pressures of nearly zero revenue and very limited flight activity.
We closed the quarter with a comfortable cash position, albeit short of our estimate as a result of a delay in certain of our planned aircraft financing activities.
I am pleased that subsequent to the end of the second quarter, we have closed to sale leaseback transactions raising $114 million.
And our presently commencing a WTC transaction.
Through which we expect to raise another approximately 262 million.
Upon the successful conclusion of this transaction cash and liquid assets will exceed $1 billion.
Beyond these transactions.
We expect to have access to a 364 million dollar loan through the care Zach loan program.
And we will have preserved the buffer of unencumbered aircraft. Following these transactions.
Well much remains uncertain about the months ahead.
We are confident that strong financial position, we had entering this crisis has left us in good shape.
To manage through this ongoing uncertainty.
And positions us to rebuild.
As demand begins to recover in earnest.
The most impactful constraint on demand for our business. Currently is the 14 day quarantine for Hawaii travelers. So let me take a moment to review how this has evolved through the second quarter enough to today.
I'll start with the simple what part of the story, which is the effective the quarantine on our neighbor Island business.
This particular element of the Governor's quarantine order went into place on April 1st them was lifted on June 16.
As you would expect we've seen some recovery in demand since the lifting which has provided us the opportunity to restore more of our prior schedule.
Brent will provide you more details on the magnitude of demand recovery on our schedule in a few moments.
The 14 day quarantine on incoming arrivals to the state which went into place on March 26 remains in place.
In late June Hawaii's Governor announced a plant lift.
Inverse for travelers, who are paying a negative cobot 19 test within 72 hours of arrival.
As case count increased in recent weeks, both in Hawaii and in our key visitor markets on the mainland.
This August 1st date was pushed back to September 1st.
We remain engaged with state and county officials at specific protocols for the testing requirements are being established.
On the surface pre testing as an elegant solution to preserve Hawaii's low cobot incidents.
While simultaneously stimulating our home state devastated the economy.
There are many details there remain uncertain, however that will affect the ability of potential travelers to access tests and the corresponding level of demand we can expect.
Certainly the ability to avoid quarantine will open up some of the demand that is currently suppressed.
But there remains a high degree of uncertainty about the magnitude of demand recovery.
A priority for US is for the state to finalize details about applicable test and approved providers. So we can provide this information to potential gas seeking clarity about what is required to unlock Hawaii vacation. They are looking for.
Before I leave the subject of Quarantines I should note that while Hawaii's restrictions have the single greatest impact on our ability to realize demand.
Were also affected by quarantine restrictions in the international markets. We traditionally served.
Brett will discuss this more in his remarks.
Pivoting from dealing with the immediate circumstances. We have also spent significant effort planning for our emergence from the crisis.
Well, we don't know the pace of the return to demand for travel to Hawaii, We know that it will occur.
But we also know that will take years not months to get back to pre cobot 19 levels.
With an uncertain demand recovery timeline, our primary planning scenario focuses on being a smaller airline by about 15% to 25% next summer compared to 2019 levels.
With this in mind, we're taking steps to rightsize our company for this new baseline, allowing us to build back the business over time from the smaller base.
Key to managing this is adjusting our staffing level and on that front. We are working through each work group and engaging with Union representatives where applicable.
Voluntary separation packages have already been offered to our administrative employees.
An early retirement options have been offered to pilots.
Plans for other groups our end work.
Our goal is to do reduce the workforce through voluntary means to the extent feasible.
But we acknowledge the goal that it is likely we will need to proceed with in voluntary separations as well.
We expect to issue worn out notifications to our employees, who are risk of being impacted by voluntary by involuntary furloughs in the coming days.
Having to shrink the company that our team has worked so painstakingly to build is heartbreaking.
But it is essential to preserve the viability.
Competitiveness and success of our business over the long term.
We will manage through this and emerge strongly.
We've also continued to have productive discussions with Boeing to replace our 787 order.
Well not finalized we do not expect to put the first 278 sevens into service until 2022 or 2023.
As I think about the future I know that demand for travel to Hawaii well return.
Well the technology like zoom and the emerging prominence of remote work may have a longer lasting impact on business travel the beauty get Hawaii can only be fully experienced in person.
As the virus has brought under control and the economy stabilizes and eventually recovers demand for leisure travel will return to its long term growth growth trend.
Our positioning as a premium leisure airline is ideal to be successful in this environment.
I'll now turn the call over to Brent to give you more details on our commercial outlook.
Thank you Peter and Aloha, everyone.
During the second quarter system revenue was down 91.6% year over year.
On a 92.1% decline and capacity.
For the quarter passenger revenue was down 96% year over year with cargo and other revenue down 50, and 48% respectively.
From a low point in April we saw gradual improvements in revenue as we progress throughout the quarter.
In North America, with the 14 day quarantine for travelers coming into the state in place since the end of March we pair down are scheduled to a bare bones level and initially operated only to round trips per day.
Los Angeles, San Francisco to Honolulu.
Demand has returned somewhat as both Hawaii residence and visitors have begun to travel a bit more.
During the second quarter, we hadn't Seattle back to the network.
And if since welcomed Portland, Sacramento in San Diego back in the third quarter.
We were encouraged by the state of Hawaii's announcement on June 24th that provided the option for guests traveling from the mainland to be able to test out the quarantine effective August onest.
At that time, we had plans to reenter most of our mainland origin points.
Well, we saw initial increase in bookings for travel, particularly in early August and the ensuing weeks as covert cases on the mainland increased and details about the state's policy were sparse demand and surprisingly decelerated.
We sense adjusted or August scheduled to be similar to the schedule for the second half of July.
And estimate will fly just under 20% of our plans North America scheduled this quarter.
Looking beyond the summer September book load factor is about a third of what it was last year.
Well October is about half of last year.
And subsequent months moderately improving throughout the remainder of the year.
Needless to say Theres, a fair amount of uncertainty around those numbers given the status of the quarantine here in Hawaii and the state of the pandemic in our key origin points.
Consistent with industry trends velocity of bookings has slowed in recent weeks.
For travel in the latter part of the year bookings made during the month of June were roughly a third of last years levels and that has basically been have to over the past several weeks.
Moving over to neighbor Island performance steadily improved throughout the second quarter and we saw material improvement when the quarantine for travel within the state was lifted in mid June.
Load factors at the beginning of the quarter were running in the mid teens.
By May increase to the mid to upper Twentys.
And then engine in the mid Fortys on additional capacity add in the back half of the month.
We've ramped up our neighbor island schedule and the latest plan for the third quarter has this finding about half of our 2019 schedule.
Load factors have leveled off and our July load factor will end up similar to gens in the mid Fortys figure.
With a reduced schedule, we've been seeing booking volumes run about 40% of historical levels for closer and travel periods.
But that tapers off further out and more closely correlated to the volume declines we've seen in our long haul markets.
Regarding international.
Our plans for returning service remain uncertain.
Is there a government mandated travel restrictions in effect and most of our international geographies, which in addition to the Hawaii quarantine essentially inhibit domain inhibit demand for traveled to Hawaii.
As this foreign restrictions left we will have the ability to welcome gets back to Hawaii, We're confident that Hawaii will remain attractive destination for those geographies.
Our expectation at this point is that we would re enter Japan, and Korea markets before Australia, and New Zealand.
Overall, and the third quarter, we're planning to operate about 15% of the Asms. We originally planned for at the start of the year.
This estimate assumes we operate the same schedule in September as we have planned for August.
However, we are currently reviewing our schedule on an ongoing basis, and we'll make adjustments to our network to align with the demand environment.
We are ready to bring back more service as demand warrants.
Throughout our network, we've kept our load factors at 70% or less depending on aircraft type to remote physical separation on our aircraft and at the airport.
This policy will remain in place through at least the end of September.
The safety of our employees and guests is a top priority.
And we'll continue to evaluate our policies and make changes that we feel are necessary to ensure their continued safety and gain their confidence in resuming travel.
Our team is working hard to adapt to this new environment constantly adjusting our network.
And our policies to ensure we can succeed and continued to deliver the products and services that are guests value.
And with that I'll turn the call over the Shannon.
Thanks, Ben and thanks, everyone for joining us today.
Today, we reported an adjusted net loss of $174.7 million for the second quarter.
Our $3.81 per share.
Reflecting the continued impact of covenants on our business.
We closed the quarter was $761 million in cash and short term investments.
Which includes let me see a $263 million terrorism funding through the payroll okay.
This amount was below our estimate of $1 billion due to the delay of financing transactions that took a little longer than expected.
And as Peter mentioned, we recently closed two transactions.
Approximately $114 million.
To the sale lease back two Athree hundred 21 years.
As well announce it definitely see transaction.
Through which we expect to raise approximately $252 million, which will put us above $1 billion.
Definitely PC is that right.
Great Cleveland meal, and two Athree hundred Thirtys.
And we expect the price Tomorrow morning, and close next week.
In addition to these transactions we have the opportunity to take advantage of the economic lead program through the cares.
Our allocation of ethanol Mcneeley program loan.
$364 million and we expect to make the decision about the size of our undrawn by the end of the third quarter.
The combination of these aircraft financing and the cash flow provided with access to one of the half billion dollars in liquidity, which puts us in a comfortable position.
While we believe this amount that liquidity is sufficient to get us to the worst of this crisis.
We will also help or unencumbered athree 21, neo aircraft valued at approximately $216 million.
Our air traffic liability at the end of quarter with $554 million.
Which 160 million is related to travel in the third quarter.
Continue to process redesign, which peaked in April and then decline.
Throughout the quarter.
In light of our deferrals of 77, GDP as well as non aircraft Capex.
We now expect our capex in the back half a point to be between nine and $19 million.
Totaling between 103, and wondering just $13 million for the full year, which includes our lab.
Anyone Neal that was delivered in the second quarter.
Regarding cash burn.
The second quarter daily cash burn on expenditures.
Moving Karen funding Capex, and refund was $3.3 million as compared to the forecast of $3.6 million that we provided on our last call.
Going forward, we're modifying the way, we characterize cash burn expectations.
In addition to operating cash outflows and capital expenditures.
From figures will include debt service and interest payments and cash flows from sales and that does era.
It will not include any impact from care that funding or any new financing.
And at this definition.
Third quarter, we expect to burn approximately $3.2 million in cash per day as compared to $3.6 million in the second quarter.
As we shift their attention from short term cash conservation and medium term planning.
Focuses on determining the rightsize our business.
As Peter mentioned, when the mid determining an offering voluntary separation and early retirement options to our workforce.
Mitigate the need for involuntary option.
You will be necessary to better match the size of our workforce with the estimated level operations in the future.
To further manage our Ben.
Environment, where we are long aircraft.
We're ensuring close collaboration between our operations and network scheduling team.
Our operations in a way to maximize efficiency.
Well I'm, sorry, 10, when we will see positive net cash generation.
But it's clear that reaching a positive position will require an improvement in demand conditions.
Well the timeline for demand recovery remains uncertain.
We are focused on rightsizing, our airline to enable us to be competitive and have the flexibility to grow as demand was down.
With our leisure business model.
Our delivery of authentic wind hospitality and focus on the white toddler, we're confident in our ability to emerge from this crisis and succeed in the long term.
And with that we can open the call question.
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Thank you we will now be conducting a question and answer question. If he would like to ask a question. Please press star one on your telephone keypad confirmations online indicate your line is in the question Q you may start to if you'd like to one of your question from the Q.
[laughter] speaker up and then maybe necessary to pick up your hands that before passing the Starkey one moment. Please only pool for your question.
Our first question comes from the line of Hunter K with Wolfe Research. Please proceed with your question.
Hi, everybody. Thank you.
Peter are there what are some of the long term consequences or even benefits that you're expecting might be unique.
To Hawaii as opposed to other.
Vacation spots in say the lower 48 are there any sort of like you know maybe quirky or unintended consequence type things that you guys are expecting you're planning for.
Two to three years from now based on the situation.
That's a.
That's an interesting question Hunter I don't.
No that I can think of any.
Really significant ones I think obviously in the short term there is there was a lot of.
Economic damage here in a in Hawaii is as so many people are employed by the tourism sector, but the physical plant is.
Largely intact in terms of hotels and other accommodations. There's some properties that have decided to take advantage of the extent downturn to do do some renovations on that.
That may provide some.
Some additional improvement.
I would hope that overtime.
People are in the community are going to realize how.
How crucial.
The tourism industry is for the overall state of the economy in Hawaii, and and as we begin to to try and recover and recover the the tax base that supports the the state government.
I think people are going to have an interest in in building back tourism, but I think you know a lot of people are really focused near term right now on health consequences, and ER and surprisingly a little bit to me have.
Have not.
Understood some of the real long term negative effects from both the health health and social issue as well as an economic issue of of an extended period of.
Significant unemployment.
HM Okay.
And then you know when when PSP came around and whenever was March April obviously, it was just take the money and.
Figure. This out later it was there was such a dark time and now we can we kind of know what this is now kind of know what this virus is we we don't know when it's going to get better, but we kind of know what it is so theres there's been some chatter of around two on PSP is it.
A little bit more complicated now as you think about potentially taking that money if theres today like service requirements attached to it and things like that and you guys were larger exempt from one of that but with the calculus be something like Hey, we can get another $300 million to maintain payroll for six months, but it might cost us $375 million, but.
'cause it just get or impede our ability to take fixed costs out. So therefore sat as it may be it might not be right decision I know, it's a little bit early to have this conversation potentially but is that a fair way of thinking about it that the calculus to actually taking this money if offered might be little bit more complicated now than it was last time.
Yeah, a 101 on that one I think our view is is very closely aligned with what you've probably heard from from the eight or a ends and some of the other.
Carriers that have made a comment on this that that is I think it would be very difficult for us too.
Turned down something that would.
Prevent us or delay at least the need for us to pursue and voluntary reductions for our workforce who.
I'd remind everyone has done an absolutely nothing wrong. They didn't cause this crisis there they are victims of but as I as our investors are victims of it.
So I.
I do think we have to.
Continue to think about making the long term changes because as you said, we do know more now than we then we did back in March and April I think it's it's a lot more clear, but this is going to take longer to build out of.
Back in.
March and the early part of April there was a lot of talking about V shape recoveries I haven't heard anyone talking about a V shaped recovery. If it is this is a a this is the flattish pointy part of the B that I have ever seen.
And I think we're we're all you know keen to a keen to get moving forward, but in a world where where they restrictions on.
Hi, cares 2.0, we're no different from from what we saw it and in the first version of cares I think it is pretty clear that the number of involuntary job losses in the industry would be a lot lower in at the end of March than they are.
Are likely to be at the end of September.
Thank you.
Thank you question I'm trying to line Katherine O'brien with Goldman. Please proceed with your question.
Hey, good afternoon, everyone. Thanks, very much from the time.
Sure Dan and I, just got a question on.
The balance I think I think that is on the heard correctly.
16 million and unencumbered aircraft after the he transaction.
Today.
And I'm just wondering are there other loyalty or other intangible assets that are not included in that balance in and the reason I'm asking is really just to get some insight.
The level and what collateral you're looking.
Hey, I care program and in.
What you're thinking of getting there. Thanks.
Hi, good evening for the question.
Karen that loan we've been working with the U.S Treasury.
On non aircraft.
Lateral so specifically the loyalty program.
And so.
Well that wasn't included in my number for I encumbered assets we are.
Looking at that for financing with the Treasury.
Other than the four acres Cleveland now that I mentioned, we do you have other unencumbered assets I think those would be a little harder to finance we have.
14, seven months of and as well as our PR Lee.
But I think for for the most hard right now on the market perspective, we're really focused on that but 321, yeah and then like in the delay to see the 18 30.
Got it and I got you know in your preliminary conversations with the Treasury and I'm, assuming that whatever valuation got on the loyalty would that be sufficient.
Tire allotment under that program.
Yeah, we believe so.
You know I'm, sorry, I Didnt answer another part of your question with other.
Intangible assets, we have not yet to things like our brand.
You know for valuation or financing, but for the current loan specifically, where we've done today, we believe that loyalty program is sufficient.
Great and if I get asked one quick one.
Given the cost because this business not surprising that you're calling out operating costs will not declined in line capacity in third quarter, but could you give any color on how operating.
Decline relative capacity in a third quarter will compare to your Twoq you should be expecting to see a relatively smaller gap chief operating costs in capacity declines in third quarter.
At quarter end.
As you ramp cost cutting measures or any other puts and takes there. Thanks, so much for the time.
Hi.
We haven't done.
A lot of analysis, comparing the second quarter, the third quarter in the way that you're asking the question we've been focused on.
But.
Some of our flying at least pull that some of our flying how to do it in the most cost efficient way.
So our analysis has been pretty different than what we've done before.
You know normally when we look at hi.
And how to control cost I mean calculus, a big factor in that calculus is.
Aircraft ownership Haas and at this point when we look at pulling back.
Our operation.
Aircraft ownership for the most part of some cost.
So when we.
And to your questions a little difficult because I don't know how much capacity will have in a third quarter, but what I can tell you is that we are looking at.
Our cost in a different way in that when we bring that are playing we're focused on that occupancy.
About playing which is more around labor and maintenance versus aircraft utilization was just like is it played a big factor.
Higher.
In our in our pod calculus.
Yes, Thanks Ittai again.
Thanks.
Thank you. Our next question comes from the line of Michael Linenberg with Deutsche Bank. Please proceed with your question.
Oh, Hey, I'm, Hey, good morning, everyone.
Q here Shannon the cash burn of 3.2 million for the quarter underlying that forecast or guide.
Is that the corn team is lifted on September onest, presumably and if it were not to be lifted how does that do you have a sense and how that would actually change I mean, I'm just not sure how much would actually book up in the month of September.
And beyond.
Yeah. Thanks, Thanks, Mike actually because.
We were a little hesitant to try and get one the quarantine would be lifted for that passed for a number of what we did with we just assume that for the quarter cash flows from sale net net out what the refund. So we had just assumed a net zero.
There because you're absolutely right that the level of cash inflows from EMEA is really does depend on when that Argentina's listed or if there's some exception with testing and putting negative results on so I guess.
Okay, and then on that know when he was zero in the June quarter or was it wasn't negative territory.
It was a negative territory in the Gen, where the second quarter.
Okay, Great and then just Mike.
Mike I make just chime in on that as well and I think Brent alluded to this in his remarks when when we were originally looking up the August 1st date, we had pretty.
Sizable ramp up in our schedule anticipating the demand some of which.
Began to Buck early on but which faded a little bit as we go into September.
With the opening your moving into a seasonably weaker time of year, we've now essentially loss the entire.
Some our bar potentially one long weekend.
And I think given the the sort of progress of the virus on the mainland and the uptick in cases and Joe you see in markets that are far away from Hawaii, and its quarantine that booking trends have slowed down well look we're a little bit more.
Tempered on our expectations for what we think September is relative to what we thought August might be back.
Six or seven weeks ago.
That's very helpful. Peter and then just maybe one quick one to you on the to know the two new board members are you increasing the size of your board are they replacements and if you are increasing the board why why at this juncture why now.
We have a that the two new board members will be increasing the size of our board. We didnt have a one board member.
The board for personal reasons last year. So we had gone down one now were going up with two the reason for adding those board members as we think they're going to be.
Terrific assets to the board overall, they bring a lot of expertise, but both in.
The airline industry and the case of Jane hard luck and.
Expertise in terms of technology in a consumer focused or industry like Mike Mcnamara and we think they're both welcome additions and look forward to having them onboard.
Great. Thanks, Thanks, everyone.
Thank you. Our next question comes from the line as Joseph Denardi with Stifel. Please proceed with your question.
Hey, good evening.
Peter can you just talked I think you mentioned that from Atlantic separately or thinking about capacity summer of next year being maybe 20% less than pre coded can you just talked about.
Maybe why that's the right number how much rigor went went into that I mean, it's generally in the ballpark as what some of your peers are talking about if theres anything more specific that gives you visibility into that and is there or is there a line, which you kind of can't get below in terms of your size or it just becomes too economically expenses.
To shrink below a certain level. Thank you.
Yeah. Thanks, Joe Let me take both parts of that and then I'll may see if.
Brent has any thoughts that after I applying.
I would I would say we've looked at it a couple of ways. We don't have there. There was so little information. We have that is specifically gives us insight into demand, particularly with big quarantine order as being in place for the past four months now four plus months.
So.
You know we had to look at this a couple of ways part of it was top down just looking at general macro expectations and understanding that there is some.
Some economic that has been damage. Another one is is a little bit more.
Bottom up and thinking about what.
You know how roots performed before and what has changed and what our expectations for some of them would be and so that does raise some questions about some things that were maybe marginal performers before maybe they're not going to be able to manage marginal anymore on that that route may not be there.
Or in the case of some of the international markets.
The perspective.
Of those nations and how they're dealing with the crisis tempers, our our our view about when things, there's a timing of when things will.
Come back so it's a little bit more more art than science at this point I think but I think we have tried to be.
Thoughtful about our art.
As to the second part of your question I I think I think you are right.
That there is a pace at which our place I, which it it's.
Too much to really think about shrinking that bar and being able to manage down and and you know that I read some of the commentary. After other carriers have reported this quarter about can you bring your cost structure down and be able to operate at a similar.
Per a SM cost structure, when you're operating smaller its counter to the thinking but it means you've really got to go and think about getting some of your some of your real fixed costs out in getting your infrastructure costs out.
In this environment that is a little bit more doable than what we're thinking just in normal times and you know, we always try and do things bottom up but it's hard to.
It's hard to shape, the the instinct that sometimes when you're doing budgets about sort of rolling things forward and just thinking about the changes.
So I think we can do more of that but there is a point that which weve built an infrastructure that is.
It really so far to revenue base that that can't go down too much more and that was part of our thinking about what we what we need to do in terms of planning for the long term.
I just the last point on that we refer to it as a planning assumption as opposed to a forecast and that is as a specific choice of words, a mean something to us which means we really don't have the level of precision that we would use for something that we would internally referred to as a forecast. So we use it as a planning assumption and it's.
It's something against we will we will measure change going forward.
Yeah just.
Yes.
Go ahead, I don't have a whole lot that other than I think Peter has been listening to what we've been saying two m. over the over the last several months said.
Got it yes, no that's helpful. Peter.
Just in the context of of Americans partnership with with jet Blue is there are there any opportunities are ways that you can.
Do something similar to then leverage your neighbor Island network.
If theres going to be a period over the next few years, where maybe there's there's too much capacity on the on the long haul side of your business. Thank you.
Sure we.
As you probably know we carried that code of.
In normal times at least we carried the code of multiple airlines on the neighbor Island part of our network, including International Airlines would also including E job American Delta and United and they they utilize that that code different extends but that is.
It's always being for US a really valuable network asset and we would continue to look for ways to take advantage in the future.
Thank you.
Thanks, Joe.
Thank you. Our next question comes in the line of Helane Becker with Cowen. Please proceed with your question.
Thanks, very much operator, hi, everybody and thank you very much for the time this afternoon.
So Peter one of you know the big issues that you were just addressing was the fact that.
There's a lot of damage being done to the economy and in Hawaii and.
You know you're one of the state's largest employers when when you.
With the Governor if you do you mean the governor.
What does that mean, he understand about keeping the steep close for extended periods of time.
And not trying to you know I don't know deal with the.
The virus in it and maybe a different way.
Then keeping everybody out of state.
Yes, so yeah I have.
The last four or five months I've spent a lot more time with the governor than.
Then I ever did before this I will tell you I I think.
The governor is a in fairness to him he's very.
Thoughtful about the challenges of the the state is.
Facing I think he does understand.
The economic damages on the impact that this is going to have not only on businesses like ours, but.
They be hotels restaurants, and you know what even goes beyond things.
That you would think of it the.
Biggest.
Demand market for the agriculture business and the stages the hotels hotels aren't.
Getting fresh produce from.
From local Hawaii, Agriculture, then that local agriculture is really not.
Economically set up to compete in export markets are really needs that demand. So.
It is.
It is really a comprehensive impact I would say it is buffered a little bit I think our business has obviously been hit dramatically.
Small businesses that operate restaurants or or or retailers that are associated for tourism had been affected dramatically I think.
For the average working person and a lot of these businesses the impact has been buffeted a little bit by the fact that the the unemployment insurance has been there although it hasn't always been as.
Reliably delivered but at least it is available including the 600 dollar supplement from the federal government that is expiring so I'm not sure the workers that all those businesses have.
Hi, I felt that as much of the as the owners of those businesses.
But I do think that the governor.
Understands all that I think he also knows that you know this is a this is a fragile plates in some ways in terms of health care capability.
It is a.
There are a lot of multi generational families living together, there is a closeness and and I think islands.
And isolated places sometimes have different responses to how you deal with disease like this.
Just based on the nature of the way people live.
And that is not.
That is not to say that it's right or wrong. I think these are very difficult decisions I do think and certainly share my views with the governor that the economic consequences are not something that will be passing they are something that are.
Our very.
Long term and some of this is gonna be difficult for the the state.
To recover from over the next several years and I think that's something that you know governor you gay and other local leaders are going to have to.
Think about as a drop their decisions going forward.
Thank you very much I really appreciate that and then I have just one for.
For Shannon <unk> do you I don't think you said anything about upcoming maturities and I think you might have one.
Aside from the 364 day alone coming up in the early part of 20 to 22.
And I'm just wondering if you could.
I mentioned that [laughter] for lack of it Tonight.
Yeah. Thanks Helane.
So for 2020, our total debt service is about 75 million for 2021, it's just a little over 100.
Million and that's that's everything all of our debt.
Helane, we didnt take out one of the 364 day alone. So we don't have to worry about refinancing.
That like you've seen from some of the other carriers right you may be okay about revolver, we drew down on our revolver I'm not right now contractually expires in 2022.
Okay, and then just real quickly I don't think you said, how many warn notice is we're going out could do you do you have that number.
We have a were what we said about the warn notice is that we'll be releasing them in the coming days, we havent, we haven't given a number of yet and I haven't shared a number with our team yet so I wouldn't feel comfortable sharing that number first on this call.
Okay, well that makes sense. Thank you thanks, everybody for your time.
Thank you.
Our next question is a follow up from Joseph Denardi with Stifel. Please proceed with your question.
Oh, Thanks, Shannon can you just maybe quantify the on the sale leaseback, what the lease terms are relative to maybe where the market was pretty good. Thank you.
Hi, Joe I don't have incentive income on I mean.
Obviously, what I can say is that unfortunately, the terms now are not.
Not near where we were last year, when you know below 1% yen financing.
So unfortunately, the terms are not quite like that.
I don't have yeah, but but the.
Joe the overall financing on that I, I think and James I'm looking at Jay a shape, where as I say this right now I think the way JNR Treasury team characterize these two sale leasebacks is the terms we got.
We're or.
Something that would have been into consideration set a year ago. So it really wasn't.
As onerous as we feared and that's why we we initially started with the reason those two transactions were done on a bit of a serial basis is whereas we started working through initially or an idea of doing one of those financings. We were we went back into the second deal with.
The same less or and we thought that would be a good source of capital for us at this moment.
Got it thanks Peter.
Thanks, Joe.
Thank you we reached the end of our question and answer session I'd like to turn the call back over to Mr. Ingram for any closing remarks.
Hello again, everyone for joining us today, we appreciate your continued interest Aloha.
Thank you. This concludes today's teleconference. You may disconnect your lines at the time. Thank you for your participation and have a wonderful day.