Q4 2020 Hawaiian Holdings Inc Earnings Call

January 26, 2021

[music].

Greetings and welcome to the Hawaiian Holdings incorporated fourth quarter 2020 earnings call.

At this time all participants are in a listen only mode. A brief 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 as a reminder, this conference is being recorded.

Now my pleasure to introduce your host of lot of James. Thank you Ilana you may begin.

The greater Hello, everyone and welcome to Hawaiian Holdings fourth quarter and full year 2020 results call.

Here with me in Honolulu are Peter Ingram, our President and Chief Executive Officer, Brent over the our senior Vice President of revenue management and network planning and Shannon Okey knock on our Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A.

Peter will provide an overview of our business, including the continued impact of COVID-19, and our priorities for 2021, Brent will provide an update on our commercial performance and trends and Shannon will provide an update on our cash burn 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 that went out at about four o'clock Eastern time today. If you have not received the release. It is available on the Investor Relations page of our website Hawaiian Airlines dotcom.

During our call today, we will refer at times to adjusted or non-GAAP numbers and metrics of.

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 of the following prepared remarks contain forward looking statements, including statements about our future plans and potential future financial and operating performance management May also make additional forward looking statements in response to your questions.

These statements are subject to risks and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to Hawaiian holdings recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statement. This includes.

The most recent annual report filed on form 10-K, as well as subsequent reports filed on forms 10-Q and 8-K.

I will now turn the call over to Peter.

Hello, Lana Hello, Hi, everyone and thank you for joining us today.

We're pleased to have turned the page on the challenging and unusual 2020 and are looking forward for better days in 2021.

We're optimistic about the year ahead, but realistic that recovery will not be of straight line.

As you have seen in our press release today, our fourth quarter results were an improvement over the prior two quarters, but.

But we know that we still have a long way to go to return to where we expect to be.

We took steps towards rebuilding our network reduced our cash burn and further enhanced our liquidity.

The quarter featured another extraordinary collaborative team effort as we executed on and continue to evolve our plans in response to the pandemic.

Looking back on 2020 on.

<unk> was the most challenging year in the history of the.

The airline industry.

Extremely proud of the Hawaiian Airlines team the time and again rose to the challenges we faced.

Created innovative solutions to navigate us through unchartered waters and continued to deliver outstanding service and connect our guests with the Aloha.

It is inspiring to be of part of this team.

Our treasury team has continued to be active ensuring that we have the liquidity to weather. The coronavirus crisis. So that we may emerge strong and prepared to compete.

Liquidity raising efforts include an aftermarket equity offering through which we have added $41 million to our balance sheet. So far.

And today's launching of an $800 million financing of our loyalty program and brand assets.

After completing this financing we intend to payback on our initial draw of the cares Act loan index at that facility.

Successful conclusion of these efforts will give us sufficient liquidity to weather the near term financial uncertainties of the pandemic.

Our focus now turns fully to execute commercially and operationally to return to the strong and healthy balance sheet, we had pre pandemic.

Our ongoing efforts to reduce cash burn and ultimately return to cash generation from our operations position us extremely well for the unsettled days ahead.

And the opportunities beyond.

We're also grateful to Congress in the U S Treasury for executing a four month extension to the payroll support program that will support our team members during this difficult time.

Perhaps most importantly during the fourth quarter, we reached an important inflection point in our business with the reopening of Hawaii to tourism on October 15th via the Safe travels program.

Which gives travelers the ability to avoid quarantine with evidence of a negative COVID-19 test.

It was terrific to start welcoming more guests onto our airplanes after two very quiet quarters.

The good news.

Is that the state of Hawaii free travel testing program is substantially achieving its objectives.

Hawaii has been able to begin rebuilding its devastated economy without travel driving a significant surge in cases.

Notably from the time of the October 15th launch of pre travel testing through the end of the year Covid case rates in Hawaii were flat to down slightly even as disease prevalence on the mainland had been escalating.

Since our last call. The program has been expanded to include free travel testing partners in Japan and Canada.

And South Korea is expected to be added soon.

As it became clear the testing was going to be the key to reopening of Hawaii travel for the time being we took steps to make sure. The guests in the markets. We serve would have access to test providers and over the course of the past several months, we have developed the best array of testing options in the industry for our travelers.

Importantly, the key providers that Hawaiian has brought into the safe travels program do not offer medically necessary testing. So their capacity has not been strained by the surge in COVID-19 cases on the U S mainland.

As encouraged as we are by free travel testing it isn't going to bring demand all the way back.

Acquiring the test adds additional expense.

The inconvenience adds friction the travel the validation process at airports is cumbersome and some travelers that were going to continue to avoid venturing out for so long as the viruses amongst us.

Compounding this different rules for different islands in Hawaii creates confusion for travelers.

As do the changes in these rules, which have continued.

These inconsistency coupled with the escalation in cases on the mainland and the and the conclusion of the holiday travel season constrain our expectations for demand in the current quarter.

As for neighbor Island. It is unsurprisingly to us. So we have not seen any substantial uptick in inter island travel with the introduction of the testing program.

To remind you of the chronology of events travel within the islands was subject to a 14 day quarantine from the beginning of April until mid June when quarantine restrictions were lifted without a testing requirement.

That continued until August 11th when the quarantine requirement was re imposed for travel from Oahu as a result of an increase in cases on our most populous island.

When the testing program for long haul of rivals was launched in October of similar program was created for inter island travel.

The fundamental problem. However is that the high cost of the Covid test relative to the total cost of inter island journeys has deterred and we will continue to deter people from making the short trips.

As disease prevalence approaches parity between most of the islands, we hope the state we will see that the cost of this program vastly outweighs the benefits and will permit travel between the islands without warranty and are testing requirements to resume.

Sure.

Overall, we are optimistic about the pre travel testing program for long haul travel in 2021 and believe it provides a way to safely build back tourism, which is essential not only to our company, but to the economic health of our community.

As we look out into 2021 with the free travel testing program in place for long haul travel.

We are maintaining our focus on our three key priorities.

Rebuilding and optimizing our network for the post Covid reality to drive revenue.

Reducing our cash burn.

Strengthening our balance sheet.

In this vein we are excited to add for new routes in the coming months, including the addition of three new mainland gateways to Hawaiian Airlines network.

In an environment, where we expect it will take some time for demand to fully return on our traditional markets. These routes provide an opportunity to broaden our network to cities that have been on our radar for some time with proven demand and the lack of non stop service today.

Coupled with our expectation of restoring service and previously served markets.

We remain on track to operate 75% to 85% of our 2019 capacity in summer 2021.

Near term challenges remain the.

The combination of the seasonal demand trough and the prevalence of the disease and key visitor markets.

We are not expecting improvement in our cash burn for the first quarter.

But this does not reduce our confidence for the remainder of 2021 and beyond.

All of you we are encouraged to see vaccines in distribution and look forward to that being a catalyst to move our industry and the broader economy beyond this incredibly difficult chapter.

In our view.

Free travel testing is step one but vaccination holds the true key to restoring demand closer to historical levels.

Despite a challenging quarter ahead, I am optimistic about our future of Hawaii's carrier of choice with leisure leading the recovery.

As the industry progresses through the phases of recovery the ability to generate superior revenue is going to matter again, and Hawaiian Airlines has a track record of coming out on top and revenue generation in the markets we serve.

The reasons for this.

Our focus product on.

Our unparalleled hospitality and our competitive cost structure remain intact.

We are of the long term structural pieces in place for a successful recovery.

Hawaii will be resilient vacation destination as the world moves beyond this pandemic.

As vaccinations allow the virus to subside the fundamental reasons people want to travel to Hawaii have not changed.

Excess capacity from business markets may be and are on to some of our roots in the near term.

But over the long term, we have a better value proposition in terms of our revenue generating capability and a cost structure, specifically designed for the Hawaii market.

Our structural advantages combined with our ample liquidity position us well for success in the years ahead.

With that I will turn the call over to Brent to give you more details on our commercial outlook.

Thank you Peter Hello, Hi, everyone.

I'd also like to thank the team for their outstanding efforts this quarter.

I have been continually amazed over the past year by the team's ability to adapt for <unk>.

Bonds and collaborate towards solutions in the face of so many uncertainties and challenges.

During the fourth quarter total revenue was down 79% year over year on the 72% decline in capacity.

Passenger revenue was down 86% year over year, while other revenue was down only about 3% driven by continued strong performance in our cargo charter businesses and some year end true ups with our Hawaiian of miles of credit card partner.

Our net sales for the quarter were up were approximately $1 $6 million per day, which was slightly better than our initial forecast.

We were on track to beat our guidance by a higher percentage, but the positive trend paid in December after the changes to the requirements and the free travel testing program and the ryzen Covid cases on the mainland resulted in the dampening of demand.

Sure.

Before I get into our performance by geography ill share an update on the progress we've made with our pre travel testing partners.

We implemented for new testing partners and opened four new testing locations during the quarter.

And now have a total of five partners and seven dedicated testing locations.

We are now testing approximately 60% of our emplane passengers on any given day through partners. Hawaiian Airlines is brought into the pre travel testing program and we anticipate this percentage to continue to increase over time.

Our drive thru test with the Worksite labs remain the least expensive unsubsidized state approved tests on the market.

We know that consumer satisfaction with our exclusive testing partners is considerably higher than most of the other state approved options.

Because of the tighter restrictions for providing test results introduced by the state.

Any of the larger testing providers, who outsource their testing for the commercial labs have been unable to meet the state of 72 hour turnaround requirement.

Making it more difficult for travelers to find tests.

This has validated our strategy of setting of proprietary testing capacity dedicated to our guests and performed by the partners who are not doing any medically necessary testing.

We've had no difficulties, making the states from time limit requirements with our physical testing locations.

Test by mail options still work, but are higher risk because of the potential shipment delays.

We appreciate all of our testing partner employees, who work hard to get our customers tested and one step closer to Hawaii.

We're continuing to learn and adapt and our experienced leaves us optimistic about the program the testing program.

We have the best options for consumers, who are going to continue to ask.

We're going to continue to expand our network of testing options further across our network.

Moving on to our performance by geography.

In North America in the fourth quarter, we brought back service for Las Vegas, Phoenix, San Jose, Oakland, New York, and Boston as well as several North America to Maui routes during the quarter.

We had initially planned to bring back some some.

North America of acquired roots in December but ended up rolling that back after quiet elected to opt out of the pre travel testing program on December 2nd.

In the fourth quarter, we operated 37% of our North America schedule compared to the prior year.

Speaking of 53% in December.

Looking ahead as Peter mentioned, we announced the launch of for New North America routes. This spring.

We will begin non stop service to Honolulu from three new mainland gateways.

In Orlando in Ontario, as well as non stop service from long Beach to Maui.

The long beach in Ontario routes will allow us to increase our presence in southern California, and provide more convenient options for our guests and communities near those airports.

Austin and Orlando are both growing markets with non stop without nonstop service to Hawaii.

We're excited to expand the breadth of our network, but these new routes and while it may take some time to fully develop these new markets. We're encouraged by the booking activity that we've seen since the announcement.

In the first quarter, we expect to operate just over 70% of our North America schedule compared to 2019.

In the neighbor island market, our performance continued to be curtailed by the inter island quarantine.

As we expected we did not see a positive impact from the implementation of the free travel testing program due to the high cost of the test.

We also rolled back some of our planned capacity increases from the Hawaii due to the Hawaii opt out.

In the fourth quarter, we operated about 41% of our schedule compared to 2019, and we expect the operating about 39% of our 2019 schedule in the first quarter.

Regarding the international we operated at about 5% of our 2019 schedule on the fourth quarter we.

We brought back once a week service to Narita in October by converting one of our cargo only operations to carry the guest as well.

And then in December with pre channel testing partners in place in Japan, We expanded our Japan service to include both Haneda and Osaka as well as increased frequency to Narita.

We have since turned back some of the Japan service for the first quarter as the recent spike in cases in Japan, and tighter government travel restrictions have dampened demand.

While the pre travel testing partners have not been secured yet in South Korea, we still preceded with converting some of our all cargo flights to include passengers in the December and currently expect to maintain that service.

As for Australia, and New Zealand, we do not have plans to resume travel until at least the third quarter of 2021.

For the first quarter, we anticipate operating approximately 12% of our international network compared to 2019.

We will continue to assess the impact on demand from the executive order last week, and we'll make adjustments to our schedule. If we have markets, where the combination of cargo and passenger revenue doesn't make sense for us the sustain that level of service.

Overall in the first quarter of we expect our system capacity to be down about 50% compared to both 2020 and 2019 levels.

This is about 10 points of less than we were planning before the ryzen Covid cases late last year.

Looking further ahead as Peter mentioned, we are maintaining our summer 2021 planning assumption of operating about 75% to 85% of our 2019 capacity at a system level.

We currently anticipate growing back on North America capacity at a greater rate on the system average with North America capacity, reaching about 80% to 100% compared to 2019 levels.

Now switching gears to demand bookings for the first quarter. We're on a positive trend for most of the fourth quarter, increasing from about 15% of 2019 levels prior to September <unk>.

On September 15th announcement regarding the launch of pre travel testing in October to almost 40% in the weeks after October 15th.

But started the slowdown a bit in December as Covid cases increased on the mainland and West coast State governments encourage residents not to travel.

We are currently seeing bookings coming in at about a third of 2019 levels with about 70% of those new bookings coming from cash versus travel credits.

While still early in the booking curve by Covid standards.

Second quarter 2021 intakes of roughly about between the quarter in the third of historical norms.

As progress is made in lowering case loads and public confidence in the vaccine rollout grows we anticipate that the second quarter booking intakes will accelerate.

In terms of net sales for the first quarter, we are forecasting sequential improvement in net sales increasing from approximately $1 6 million per day in the fourth quarter to approximately $2 two to $2 6 million per day in the first quarter.

While the pace of our booking pace has improved moderately we anticipate this will pick up later in the quarter the vaccine distribution improves and guest gained more confidence in planning the travel for later in the year.

Regarding revenue for the first quarter, while a lot can change at this point, we don't expect a material improvement.

And the revenue compared to the fourth quarter.

Overall, we are optimistic about recovery, despite an expectation of challenges in the next few months.

We're excited about the upcoming expansion of our North America network.

We've got a great product strong brand and ideal leisure focused business model, which positions us to recover from this crisis.

And with that I'll turn the call over the Shannon.

Thanks, Brent and thanks, everyone for joining us today.

Alright, just a net loss of $173 million for the fourth quarter Alright.

Alright, $3 and 71 loss per share.

And adjusted net loss of $551 million for the full year 2020, or $11 96 per share reflect the devastating impact of the pandemic on our business.

Our treasury team has been hard at work boosting our liquidity the Clos.

For the quarter with $864 million in cash and short term investments, which.

Which includes the receipt of $41 million.

On the at the market equity offering that we announced at the beginning of December.

Due to the ATM transaction, we've issued a little over $2 1 million share at an average price of $19 79 per share.

As Peter mentioned today, we also announced our intention to refinance our cares act loan with the capital markets transaction backed by our loyalty program and brand assets.

With the estimated proceeds of $800 million.

This new financing will generate significantly higher borrowing capacity than the care of that loan with a lower total cost of capital better payment terms.

And more flexible terms overall.

This financing will put us in a better position as we begin the process of repairing our balance sheet.

Including the new loyalty program financing as well as our $168 million allocation of funds from the PSC extension, we will have an estimated one 8 billion in liquidity, which puts us in a very comfortable position.

This is obviously significantly more than our previously stated $500 million target.

It is necessary on the short term to allow us to focus on the long term at the position us well to go back our business when demand returns.

We will reassess our liquidity targets and deleveraging plans later this year after the financing the transaction and when we have a clearer sense of how demand will return.

We continue to expect lower Capex in 2021, with an estimated range of $50 million to $70 million, which.

<unk> from 77 per engine PDP, as well as technology and facilities projects.

While lower than previous years, we'll continue to make investments that we expect to generate positive returns and those that provide us the foundation, we need to compete when travel resumes in full force.

For the fourth quarter, our total operating expenses, excluding special items were down about 45% year over year on of 72% decline of capacity, which is up about 15% compared to the third quarter in line with our expectations.

We expect our first quarter total operating costs, excluding special items to increase about 20%, while we increase the ASM almost 70% as compared to the fourth quarter of 2020.

This cost efficiency is primarily a function of an increase in average stage length and fleet mix, which will continue to occur as we restore our operations and add back longer haul wide body flying.

Compared to the first quarter of 2019 that represents a decline of about 30% on about 50% lower capacity.

Our fourth quarter daily cash burn was one 7 million.

Which was favorable to our original forecast of $2 2 million.

Primarily due to a lower level of the operations and thus lower costs and higher net sales.

As a reminder, in addition to net sales and operating cash outflows or cash burn figure also includes debt service.

Interest payments.

Tax refund inflows and Capex and severance payments, but exclude cares act and other financing as we believe this more accurately depicts the cash flow results.

We're currently forecasting cash burn in the first quarter to be two three to $2 7 million per day.

Although that estimate is highly dependent on ticketing for second and third quarter flying which as Brent mentioned is unclear as of now.

The sequential increase from the fourth quarter is primarily associated with the timing of semi annual debt service payments on our WTC debt, which accounts for about $600000 per day.

We expect first quarter net sales to be higher than the fourth quarter by about the same amount as the increase in cash outflows both associated with operating the largest schedule.

These two factors are expected to net each other out resulting in first quarter operating cash flows that are similar to the prior quarter.

Achieving cash breakeven remains an important fall, but we do not expect to get there during the first half of this year.

The key to achieving this milestone is an acceleration in the pace of bookings as the public becomes comfortable traveling again.

As we await more widespread distribution of the vaccine and better control of the pandemic. We will continue our focus on cost discipline, and we'll monitor our cash capacity carefully to ensure we are on the path to positive cash generation.

This has been a difficult year for our company and the industry, but I'm encouraged by what lies ahead.

With our strong liquidity position.

Cost discipline, and resilient leisure focus for ready to rebuild and succeed in the years ahead.

And with that we can open up the call for questions.

Thank you we will now be conducting a question and answer session.

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One moment, while we poll for questions.

Okay.

Thank you our first question comes from Hunter Keay.

Wolfe Research. Please proceed with your question.

Hey, everybody. Thank you very much.

Yeah.

Are the kind of curious of the seven once again talking about the again I realize but.

The COVID-19 extend the useful lives of those aircraft because of the fewer cycles on them or is it going to be.

Does it shorten them because the other operators are accelerating the retirement.

All of the aircraft.

Hey, Andrew its Peter.

I don't know that it's going to have a big difference in how we view of one way or the other as you know we're planning on operating in that fleet through the middle of the decade, our view on that has not changed from when we announced side of that.

I think at the end of 2019, we locked in that decision.

Yes.

I think obviously, we're putting less wear and tear on them right now on fewer cycles. Unfortunately, we'd like to be operating full airplanes at regular frequency.

And that does on the margin extending the life book, but I really don't think that we we're budding up against a very hard cycle limit that was constraining us in 2025.

I think we are comfortable that we've got the service contracts in place with the key providers to to work us through to the the middle of the decade and I'm mindful that the.

The largest operator in the world of this aircraft type is while they have announced their of retiring at the retirement is out in that mid decade period anyway. So I think we're still pretty comfortable with where we sit right there.

If we have a change to our expected life of that airplane, we'll let you know, but right now I think the the middle of the decade is is where our thinking is.

Okay. Thank you Peter and then.

Sort of a quick two part of here. The first one is quick kind of curious Brent what the mix of one of waivers from trip tickets that you sold in the fourth quarter was and then more broadly just kind of curious if youre seeing more people relocate to.

The Hawaii permanently.

Or for getting indications that that might be a phenomenon of the youre expecting over the next year or two.

Yes.

In terms of.

On the kind of customer demographics.

Have seen.

Bit of of change as we've moved.

Through the pandemic, we are seeing a little bit more one way traffic I don't think that is frankly, all of that surprising and I suspect it's quite true across.

Across most geographies frankly as customers are mixing and matching itineraries amongst different carriers.

With probably different levels of frequency in service across a variety of markets and so I don't have the exact number in front of me 100, but we had seen a.

Modest uptick I would say kind of mid single digits to high single digits uptick in terms of the volume of.

The tickets that were selling but I think thats really more indicative of round trip customers, who are just mixing and matching itineraries.

Or the they are booking an outbound and then waiting just because of flights frankly arent as fall for us and our competitors and so they've got more options as to when they book the returns.

Thank you for any kind of anything any structural migration.

Two are from the islands I think it's just really of change in customer buying behavior. When you couple that with the fact that in general customers are staying longer on their vacations as well we've seen.

A modest uptick in people staying.

More than a week or two weeks relative to the previous patterns.

Hunter I would just add to that I think we have heard.

A number of anecdotal stories about as.

People change the way they work on a trend to more working remotely that has been common through the pandemic that that is.

Is creating some opportunities for people to choose where they live via respective of where their employer was based.

I think that is a.

<unk> influence and unclear how long it will be sustained but I don't think its the big sort of structural change and what the demand for for our services is going to be long term I think we are primarily going to be built around serving people who are traveling for leisure for.

Five to eight days as we have been for.

A great number of years.

Great. Thanks.

Thanks.

Thank you our next question.

Comes from cash.

Helane Becker with Cowen. Please proceed with your question.

For a much operator, hi, everybody. Thank you for the time.

And so I have a different kind of related question you know back.

For Covid started pre pandemic.

There was from pushback among the residents of various islands.

On tourism and on.

Wondering.

How about seeing balance now with the lack of tourism is there more support for our people.

More we missed.

We met for our livelihood. So we hope you come back to that or is it more of the same.

Hi, Helane.

I think it's a bit of a mixed bag candidly I think there is.

A sentiment that is fairly common in Hawaii that as tourism has increased from seven or 8 million visitors a year to over 10 million of year on the last couple of years that there is a concern about that volume being too much of putting pressure on.

On the.

Parks, and and natural resources, and adding to some crowding and I think there is a segment of our population that absolutely has joined the fact.

Things have been less crowded for the past several months, particularly that segment of the population whose.

Employment and.

And.

Financial well being is not dependent on the visitor industry.

But yeah.

You know what if there was ever any doubt we have certainly true during this pandemic that the.

The overall economy here in Hawaii is absolutely at this moment in history and for the foreseeable future reliant on a healthy and vibrant visitor industry and we are.

The trouble to see the number of of small businesses and restaurants, and entrepreneurs and retailers and certainly the hotel operators who are on <unk>.

Dramatically affected by the economic consequences, and I think our community needs to be mindful of that as well. So long term I think the answer to that is we need to find a good healthy balance and figure out how we have a healthy vibrant visitor.

The industry.

That is welcoming to our guests and provides the economic opportunities that that we all desire in the community, but look at ways to make sure. We're taking care of the cherish natural resources, we have in maintaining our our oceans on our lands end.

And providing that balance.

That gives us a basis for sustainability in the long term.

Thanks, Peter that's very helpful can I just follow up with Shannon on the one question on the loyalty.

The all Youre doing today can you play with the loan to value is on that.

No royalty on the occupants of I just didn't read them.

Listening to you talk.

Yeah, Yeah, sorry, Helane athlete. So we'll probably we'll give you more of that information when we're done. So we're just launching the transaction today, we'll spend the next couple of days marketing and well priced and has the final terms probably on Friday toward the end of the week.

And so we will provide more of those details with that.

But the Hawaiian ECB.

There'll be some information in the the operate operating memorandum with regards to the the.

The valuation so I think the information is available for the people there.

Okay, that's fine I'll check it out for the call it Super Thank you.

Okay.

Thanks Helane.

Thank you. Our next question comes from Catherine O'brien with Goldman Sachs. Please proceed with your question.

Good afternoon, everyone and thanks, so much for the time.

Okay.

Hey, thanks.

Got it.

One of the early here I know, even leisure booking curve for quite a bit shorter than they normally would be with every all of the volatility around the COVID-19, but can you give on some early indication on how bookings are looking for the summer peak and maybe you know how that changed from Dr.

Over Fifteens, and then kind of like last related question is that.

How much of the end of quarter pick up are you baking in tier <unk> daily net sales forecast is related to hopefully of pick up in the center of bookings as we get the vaccine out there, but mark and I have one more quick follow up for Shannon that's right.

Sure.

So the second quarter booking trends for kind of following similar to what we've talked about in the <unk> in that.

There were quite sparse prior to the September announcement, it's got a bit of a pickup with.

The announcement around testing and a little bit more of a pickup probably a little bit less than what we had seen in for travel on <unk>, but things are moving along.

Okay.

We anticipated that to continue the progress as we move throughout the latter part of the year that slowed down a bit and we were back down to between a quarter and the third.

Of what we had been.

Of our historical kind of booking levels, if we track that back to the.

For 2019.

Over the last.

Over the last few weeks I would say we've seen the.

A modest uptick in that but there's a lot of moving parts of that and I certainly don't want to call. It a trend at this point.

Is there a fair amount of moving things, but we've seen a little bit more progress on.

In terms of our the historical comps.

And cannibalize the other question.

Oh, Yes, and then just on how.

How your one <unk> net sales for cat envision those ranting the bookings ramping from here.

Yes, so we will yes.

We will continue to see progress as we move throughout the quarter I think.

Our anticipation is that we had kind of bottomed out in terms of bookings on the front part of the quarter and we will continue to see the progress as we move throughout the quarter.

And Katy I might just add I think.

You mentioned, it and Brent mentioned that Theres, obviously been a lot of compression of the booking curve.

I think the environment, where that booking curve will start to stretch out again is really as we see.

Demand come more in line with capacity and people really starting to think about.

Non wanting to get their vacation plans on their books, but to also being concerned that that capacity is not always going to be there and if you want to get today's pricing you've got to have that urgency around booking it now.

I think that'll happen at some point this year, we're really not in our first quarter net sales guidance projecting that that happens by the.

At the end of this quarter, but I think that will be of catalyst for an acceleration at some point as we move through this year.

Got it very clear and then one one for Shannon how should we think about capex over the next couple of years I know you guys man, we can agree with Boeing last quarter to defer the 77 I think you've only got.

One coming towards the end of 2022, but how does it how does the capex ramp from kind of the very minimal level of today.

2022, three at that time.

Great and then thanks for all the time.

Yes, Thanks, Katy we ask.

Well.

Half, 277% delivered in 2022.

At the very late in the year, but we will put them in service in 'twenty three.

Twice the MISO the depreciation with the start.

Early 'twenty three.

<unk> 23 is a bit more moderate with Willie I think know 77 deliveries.

That year.

We've.

Decreased our non aircraft Capex this year.

Beth.

And that.

Over the next couple of years, we'll just have to look to see what the environment looks like at the time, we didn't decrease it.

Down to zero.

I think about half of our guide here of the aircraft related and I'll, let maybe a little more than half of non aircraft related so we're still continuing to invest in technology and facilities.

Facilities related projects. So I think that's the piece of that Ken can vary over the next few years.

If we find really good opportunities and if.

Depending on what cash flow looks like well invest more in those areas.

If not we'll just keep it may be about this level, but that one will have the kind of watch as time passes.

With the Boeing deal I think it is important to say we didn't we didn't just pushed back of the early ones and then bunch everything up we really shifted back the entire delivery stream of little bit. So we've we've got the original sort of cadence and balance around that as we go forward from the time, we start taking deliveries.

Got it thank you again.

Yes.

Okay.

Thank you. Our next question comes from Mike Lindenberg with Deutsche Bank. Please proceed with your question.

Hey.

Good morning, everyone on maybe it's right around newness.

If one of my time right.

Hey, Brian I have a question for you on the ramp up.

Mentioned about 85% to 100% North American capacity by the summer.

I mean sort of where we sit today and we look at the various headlines and kind of how things are trending.

It does feel somewhat aggressive and I'm just curious if as you look out to the forward schedules and you sort of try to anticipate.

The moves by your competitors that maybe there is an opportunity for for you to gain some share here I mean, you guys are all about Hawaii.

It's what you are all about.

Say you want to strike when the iron is hot so I'm just curious how much of that is driving that that move to get back to basically 2019 levels.

And I don't know the next three four months.

Yes.

We're obviously really focused on demand coming back on the pace at which that comes back and we will manage our capacity commensurate with that and so we.

We believe we will start to see some more strengthening of that as we move through.

This quarter and into the second quarter.

And we think we've made some adjustments to <unk>, where that wasn't the case, but I don't I don't view it as us looking at to aggressively grow our market share in the summer, we anticipate the market coming back.

The stronger and that will be of timing at this point of where we see it coming back in so.

That's why we set our plans at this point, Okay fair enough fair enough and then just second question to chat and Shannon you talked about the the $800 million debt deal is basically taking up the government loan I am curious how you sort of think about the two.

On the PSP, one and the extension the stub the stub.

<unk> for the government I mean, I realize I think it's five years at 1%. So it's obviously very attractive financing its relatively small do you include that as well to get out from under the some of the government or does it just because of the attractiveness of the financing of the terms you know maybe you keep that small piece, where you were you indicating that you are taking out all of the government.

Net.

No I was just referring to the cares act loan for the for the reason you. Just you just stated I think the most expensive part of the loan component of the PSP for the warrants and those are already issued.

So.

It really doesn't make sense to take those.

The PPA those but we're going to have to look at all of the items on the table really look at our balance sheet.

And get creative about deleveraging and look at things like pension because remember Q a lot of our debt is that.

Yen denominated debt, which again has very very low coupon.

So we're going to focus on deleveraging, but we're probably going to have to pretty creative about how we do it but we do have some.

Does the natural maturities of our double ATC that are coming up we'll look at paying on the revolver.

But this is some of the planning activity that we're going to do once the transaction is done on over the summer.

Okay, great. Thanks, Thanks for that Shannon thanks, everyone.

Thanks, Mike.

Yes.

Thank you. Our next question comes from Bert Susan with Stifel. Please proceed with your question.

Hey, good afternoon, thanks for the time.

So sort of the sort.

As a follow up to Mike's question there can.

Can you talk about what you see of the stages of recovery for North America.

How are you currently planning around Covid testing requirements.

And maybe one of the knock on effects for neighbor Island.

Yeah, Let me, let me start on that and then.

See if Brent has any comments to add.

I think youll stage, one for travel to Hawaii is the free travel testing, which allows people to get out of the blocks and so we're in that and it's working well and we want to make it work better we want to make the testing as seamless as possible.

Where we really project.

Demand picking up further is really going to track along with the pace of <unk>.

Vaccination delivery and the more vaccination can delivery can be accelerated we think the better that is for demand for Hawaii in the airline demand in general.

One because I think communities like ours will.

We will be less concerned about the spread of the disease, putting pressure on the health care system because of that pressure will have been relieved by people being inoculated.

And two because people are venturing out more and if you look at some of our demographics right now even with the small number of travelers. We have one of the areas. That's really taken a hit is people over the age of 60 or 65, who are more vulnerable to the effects of the disease and so on.

I think as those folks get vaccinated they move into the potential traveler pool and now we're looking for demand from a from a bigger pool of potential guests again, so we think that is.

Is really the importantly, the track and then the final thing I think I would add is we've got to be mindful of what the government restrictions on and at some point, we would hope that governments here in Hawaii and elsewhere would be mindful about the fact that of ass risks are going down some of the restrictions.

And impediments to travel that have been put in place for public health reasons are removed and they don't linger longer than they need to be to absolutely protect the public health.

Yes, I think I think for us the only thing I would follow on and it's obviously closely tied to the rollout of the vaccine is just the incidence of cases in general on the mainland as that abates, whether it'd be through.

Through vaccine or through.

Or just better management of it we're going to see demand start to pick up commensurate with that.

And restrictions out of those geographies as well start to diminish and so well.

While it's difficult to divorce those two I think I think it's equally as important in terms of of <unk>.

Managing this decade slowed down as well.

Thanks, Peter Brett that's helpful. Just one follow up for Shannon.

What percent of ASM is do you think you need the reach to get back to 2019, CASM ex levels and do you think of them stay.

Stage is going to be a big headwind as it were.

Replace some of that international temporarily thanks for the time.

Yes, thanks for.

Not providing any CASM guidance at this time.

Over time, we know that there's going to be some positive and negative factors that are going to affect our cost structure.

So not really prepared to give any timeframe just now, but we will remain disciplined about costs and.

It is our goal we will be cost competitive in the markets that we serve.

Thank you Doug.

Yeah.

Thanks Mark.

Okay.

Yeah.

Thank you. Our next question comes from Dan Mckenzie with Seaport Global Securities. Please proceed with your question.

Hey, Thanks for the time couple of questions here, I guess first off to what extent.

Are you involved with the travel passport and what are the countries that you fly to you pardon me of the countries that you fly to telling you about the the concept. So is this something that Japan, and South Korea are potentially looking at.

Yes.

Thanks, Dan It is something I think having a centralized clearing house to the extent that there is a standard the people can rally around and I think as a way to manage some of this better I'm actually going to ask all of the Manas, who is our SVP of marketing communications has been doing a lot of idle.

Lot of involvement in this regard to maybe give some of his thoughts on it yes. Thanks.

Obviously quite <unk>.

Interested in this area and it's something that we've been engaging with both with.

The government and some of our international markets, who I think are beginning to explore that but also with the state of Hawaii, which obviously has its own restrictions and we're <unk>.

The here to figure out how we can.

Work to reduce friction in the travel experience to make it as easy as possible.

On the standards of sell emerging as a lot of technology out there we're engaged with all of the providers and over time, what we think of it is most important to have interoperable standards.

Some of the different technology solution. So that it is as easy as possible to travel between those so we're continuing to work with on both the state of Hawaii and.

And in the international markets that we serve to understand the implications for our guests.

Okay any sense for a line of sight with respect to when you might know whether or not this would actually come into play or.

What is there some kind of time frame for <unk>.

Resolution of rollout of the of the technology.

I think there are things that are in pilot at the moment, but I don't know that we have a specific timeline for for.

For Windows technologies, with the rollout and they're obviously dependent on the actions of the state and the national government that are involved.

I see Okay, and then I guess second question here just following up on an earlier question I think you referenced the 65 and older demographic of course, you know their first up here to get the shots.

Does Hawaiian potentially just get a bigger component of its revenue from that demographic versus peers, I guess I'm just trying to get a sense of how material that that part of the revenue picture is.

Dan.

It's hard for us to say I mean I think.

I think Hawaii.

As the destination in general may attract a little bit more of that demographic.

I have I have no reason to believe that the.

Amongst the early.

The airline serving Hawaii.

Track day, a different age demographic than any other carrier.

I see okay. Thanks for the time guys.

Sure. Thanks, Dan.

Thank you. Our next question comes from Steve O'hara with Sidoti. Please proceed with your question.

Hi, good afternoon, thanks for taking the question.

Hey, Steve.

Hi, just maybe on the.

Circling back kind of on Mikes question with the first quarter.

Can you just.

What was the capacity growth kind of <unk>.

Sequentially and then.

Is there is the new routes, that's driving that is it kind of the need to build back.

The the network kind of in anticipation of the summer.

The competitive factors.

So it's really kind of two tranches there Steve.

The first is really a lot of what I'll call January and into the front part of March is really just an extension of the latter part of our.

Our back half of December schedule. So.

A lot of that was flying that we had initiated kind of mid month, there and leading into the holidays. We've made some minor puts and takes on some of that.

As we moved into the quarter, but that schedule is relatively flat. It grows a bit in mid March then when we start to welcome some of the new cities into the network and so March we'll have a bit more capacity than the than the other months.

Yeah.

Okay.

And then on the.

The total liquidity the.

Is the $1 8 billion on you mentioned is that after.

The repay the government loans or is that kind of prior to that.

Is the and how does that compare to kind of the expectation I think the expectation was year end of about $1 billion.

Yeah, Hi, Steve Yeah, It does contemplate.

Paying the government alone right now that that loan, we only do that $45 million for its pretty small.

And that compares to so youre, just comparing the $800 million.

The loyalty financing with the potential of $622 million of cares Act loans.

Okay. Okay.

And then I mean in terms of.

I know you guys don't do a lot of.

The corporate accounts or.

<unk>.

Your.

Main business, but I mean.

Are you guys seeing in terms of I mean, it seems like you're fairly confident that there is of <unk>.

Good amount of pent up demand out there.

You need to be talking about the.

Type of schedule that you are.

Youre looking at of potentially looking at in.

The summer when is the.

Kind of a decision on that what does that have to be made in terms of.

If you're starting to see things that.

Don't look like that's going to happen or will.

Early can you kind of maybe.

Hit the gas or the brake.

Yeah.

Steve.

Some very nimble over the last 10 of 11 months in terms of of managing our schedule we'd like to.

Get into a cadence of actually projecting the schedule out a little bit further as we get a little bit more.

<unk> of of the demand on the recovery so that our guests have the opportunity to have a little bit more time to plan. So we're capable of making.

Adjustments.

Within a couple of months or even inside that if we need to but it would be our intention to try and get at least two to three months out. So we have the sufficient booking window so that.

People can plan until the weekend build our plan and our staffing and be as efficient and we can be about providing that capacity.

Okay, Alright, thank you very much for the time.

Sure.

Thanks.

Steve and I, thank everyone for the questions today.

I just want to say mahalo to everyone for joining us today. We appreciate your interest and look forward to talking to you again Aloha.

Okay.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation of a wonderful day.

[music].

Greetings and welcome to the Hawaiian Holdings incorporated fourth quarter 2020 earnings call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation the fan.

The one should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

It's now my pleasure to introduce your host a lot of the thank you Ilana you may begin.

Thanks for greater Hello, everyone and welcome to Hawaiian Holdings fourth quarter and full year 2020 of results call.

Here with me in Honolulu are Peter Ingram, our President and Chief Executive Officer, Brent over at the senior Vice President of revenue management and network planning and Shannon Okey knock on our Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A.

Peter will provide an overview of our business, including the continued impact of COVID-19, and our priorities for 2021 for.

I will provide an update on our commercial performance and trends and Shannon will provide an update on our cash burn on liquidity.

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

During our call today, we will refer at times to adjusted or non-GAAP numbers and metrics.

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

The most recent annual report filed on form 10-K, as well as subsequent reports filed on forms 10-Q and 8-K.

I will now turn the call over to Peter.

Hello, Hello, Hi, everyone and thank you for joining us today.

We're pleased to have turned the page on the challenging and unusual 2020 and are looking forward for better days in 2021.

We're optimistic about the year ahead, but realistic the recovery will not be of straight line.

As you have seen in our press release today, our fourth quarter results were an improvement over the prior two quarters, but.

But we know that we still have a long way to go to return to where we expect to be.

We took steps towards rebuilding our network reduced our cash burn and further enhanced our liquidity.

The quarter featured another extraordinary collaborative team effort as we executed on and continue to evolve our plans in response to the pandemic.

Looking back on 2020 on.

The one was the most challenging year in the history of the.

The airline industry.

Extremely proud of the Hawaiian Airlines team the time on again rose to the challenges we faced.

Created innovative solutions to navigate us through unchartered waters and continued to deliver outstanding service and connect our guests with the Aloha.

It is inspiring to be of part of this team.

Our treasury team has continued to be active ensuring that we have the liquidity to weather. The coronavirus crisis. So that we may emerge strong and prepared to compete.

Liquidity raising efforts include an aftermarket equity offering through which we have added $41 million to our balance sheet. So far.

And today's launching of an $800 million financing of our loyalty program and brand assets.

After completing this financing we intend to payback on our initial draw of the cares Act loan index at that facility.

Successful conclusion of these efforts will give us sufficient liquidity to weather the near term financial uncertainties of the pandemic.

Our focus now turns fully to execute commercially and operationally to return to the strong and healthy balance sheet, we had pre pandemic.

Our ongoing efforts to reduce cash burn and ultimately return to cash generation from our operations position us extremely well for the unsettled days ahead and the opportunities beyond.

We are also grateful to Congress and the U S Treasury for executing a four month extension to the payroll support program that will support our team members during this difficult time.

Perhaps most importantly during the fourth quarter, we reached an important inflection point in our business with the reopening of Hawaii tourism on October 15th via the Safe travels program.

Which gives travelers the ability to avoid quarantine with evidence of a negative COVID-19 test.

It was terrific to start welcoming more gas onto our airplanes after two very quiet quarters.

The good news.

Is that the state of Hawaii free travel testing program is substantially achieving its objectives.

Hawaii has been able to begin rebuilding its devastated economy without travel driving a significant surge in cases.

Notably for.

From the time of the October 15th launch of pre travel testing through the end of the year Covid case rates in Hawaii were flat to down slightly even as disease prevalence on the mainland had been escalating.

Since our last call. The program has been expanded to include pre travel testing partners in Japan and Canada.

In South Korea is expected to be added soon.

As encouraged as we are by pre travel testing it isn't going to bring demand all the way back.

Acquiring the test adds additional expense.

Compounding this different rules for different islands in Hawaii creates confusion for travelers.

As do the changes in these rules, which have continued.

These inconsistency coupled with the escalation in cases on the mainland and the and the conclusion of the holiday travel season constrain our expectations for demand in the current quarter.

As for neighbor Island. It is unsurprisingly to us that we have not seen any substantial uptick in inter island travel with the introduction of the testing program.

To remind you of the chronology of events traveled within the islands was subject to a 14 day quarantine from the beginning of April until mid June.

When quarantine restrictions were lifted without a testing requirement.

Now that continued until August 11th when the quarantine requirement was reimposed for travel from Oahu as a result of an increase in cases on our most populous island.

When the testing program for long haul of rivals was launched in October of similar program was created for inter island travel.

As we look out into 2021 with the free travel testing program in place for long haul travel.

We are maintaining our focus on our three key priorities.

Rebuilding and optimizing our network for the post Covid reality to drive revenue.

Reducing our cash burn.

And strengthening our balance sheet.

In this vein we are excited to add for new routes in the coming months, including the addition of three new mainland gateways to Hawaiian Airlines network.

Coupled with our expectation of restoring service and previously served markets.

We remain on track to operate 75% to 85% of our 2019 capacity in summer 2021.

Near term challenges remain.