Q2 2021 Hawaiian Holdings Inc Earnings Call
[music].
Greetings and welcome to Hawaiian Holdings, Inc. Second quarter 2021 earnings call.
At this time all participants are in a listen only mode a question and answer session.
We will follow the formal presentation and.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
And as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Alanna, James Managing director of Investor Relations. Thank you you may begin.
Hello, everyone and welcome to Hawaiian Holdings second quarter 2021 results conference call here with me in Honolulu are Peter Ingram, Our President and Chief Executive Officer, Brent Overbeck are senior Vice President of revenue management and network planning and Shannon Okinawa, Our Chief Financial Officer.
Thank you the have several other members of our management team and attendance for the Q&A.
Peter will provide an overview of our business, including the continued impact of COVID-19, and an update on our priorities for 2021, Brent will provide an update on our commercial performance and trends and Shannon will provide an update on our cost performance and liquidity at.
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 4 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.
We also had or non-GAAP numbers and metrics of 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.
The adjusted future financial and operating performance management May also make additional forward looking statements and responses 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.
The potential of a more detailed discussion of the factors that could cause actual results to differ materially from those projected and any forward looking statement.
This includes the most recent annual report filed on form 10-K, as well and subsequent reports filed on forms 10-Q and 8-K.
I will now turn the call over to Peter.
Hello, Lana Hello, everyone and thank you as always for joining us today.
During the second quarter, we continued to make strides towards recovery.
The financial results were better than we expected at the beginning of the period and well ahead of what we would have predicted at the beginning of 2021.
Hello, and particularly by strong demand on our U S mainland routes.
International recovery and the Pacific is clearly lagging, but we have every belief the when the rebound occurs there will be robust.
My appreciation goes out as always to our team who continue to do an outstanding job of rebuilding.
From our network and caring for our guests and an ever changing environment.
They embraced our purpose to connect people with the low hot and.
And reflect our values every day in spite of of the challenges facing them.
As passenger volume has returned and we have moved from downsizing to.
Rebuild the ring and many parts of our business.
In fact by the end of the year. It is likely the we will of swung the hiring mode for virtually all major work groups of the company.
It is encouraging to us all to see a path towards growth.
Even as the recovery still have some ways to go and parts of the business.
The higher the pace of recovery remains is different and each of our 3 geographies.
And when we last spoke our North America routes, we are leading the recovery and that remains the case today.
Notably in June our North America traffic exceeded 2019 levels.
This in turn.
Provided conditions for material recovery and non fair revenue categories like extra comfort baggage and Hawaiian miles.
Neighbor Island demand continues to grind back closer to pre pandemic levels, albeit at a slower pace and we have seen from the U S mainland aided.
Aided by the <unk>.
Fixation of travel restrictions.
We remain the carrier of choice for residents and visitors to the islands.
International passenger volumes, Meanwhile, remain and the low to mid single digits relative to pre pandemic levels and lower vaccination rates and Japan South.
The Korea, Australia, and New Zealand have thus far stunted any meaningful prospects for board of reopening.
While we don't expect any significant improvement and these trends to be reflected and in our third quarter results.
There are encouraging signs to note as the pace of vaccination.
Nations has accelerated more recently and both Japan and South Korea in particular.
And while we can't precisely forecast when these trends will be reflected in an inflection in demand the.
Robust newness of the U S. Leisure demand response to reopening continues to inspire our confidence and a vibrant.
And internationally share recovery.
And we are focused on being prepared from an asset and staffing perspective to seize this opportunity when demand rebounds.
And as to the state Safe travels program.
Travel restrictions have been completely eliminated for neighbor island travel as of June 15th.
As of July 8 anyone fully vaccinated in the U S. Traveling on the domestic flight kept and bypass testing and foreign team with proof of vaccination.
And 170% of Hawaii residents have been vaccinated. The governor has indicated that the safe travels program will end.
Like all of you and we're keeping an eye on the spread of the Delta variant and its impact on the geographies we serve.
To date, we've seen no discernible.
<unk> impact on demand that we can attribute to this.
But as we have been throughout the crisis, we are prepared to be nimble.
On July 1 we.
We reinforced our commitment to sustainability with the publication of our second annual corporate Cooley on and report.
Along with many other carriers.
And abated to achieving net zero carbon emissions by 2050.
Unlike the rest of our peers, we are based on an island archipelago, and the middle of the Pacific, which reminds US every day of the importance of really delivering against carbon reduction goals.
And our carbon emissions.
And we are committed substantially from our fleet renewal, particularly the introduction of the <unk> hundred 21 Neo and.
And we expect to see continued benefit with the introduction of the 787 next year.
But there is much more for us to do and the cooler on the report will help to keep us accountable to.
Having been intermediate milestones along the way.
As part of an island community. We also have a profound responsibility to ensure the environmental economic and social well being of this place.
I'm incredibly proud of the contributions we have made.
Through employee volunteerism and corporate.
And to achieving to supporting our communities through this difficult year.
We are engaging in dialogue around some of the challenges facing our community, including managing the impact of tourism and addressing issues of social Justice and equality.
We're also looking inward to ensure our.
Of our own very diverse workforce feels valued and herd and the Hawaiian remains a great place to work and build the career.
As we look out to the second half of 2021, we are prioritizing initiatives that will accelerate our recovery from the pandemic and position.
Corporate <unk> to be even more competitive and our market niche.
We will continue to rebuild our network with a focus on our international network as conditions improve.
We are investing in technology and facilities to seize market opportunities.
And we are doubling down on our commitment to award winning.
The hospitality and service to differentiate ourselves from the competition.
Underscoring all of this is our dedication to our purpose to connect people with Aloha.
And our commitment to our values of myeloma, who will keep up low cohee and polo Keller.
This is a winning formula.
And the positions us for success in 2022 and beyond.
Let me now turn the call over to Brent to provide more details on our commercial performance and outlook.
Thank you Peter Hello, Hi, everyone.
Our second quarter revenue performance was better than expected across all of our.
Geographies.
Total revenue was down 42% compared to the second quarter of 2019 and at the favorable and of our updated guidance on the 30% decline and capacity.
Passenger revenue was down about 45% year over 2 years, while other revenue was down.
Only about 7% driven by continued strong performance and cargo and loyalty.
Our revenue performance.
Performance reflects significant sequential improvement compared to the first quarter of 2021 with quarter over quarter revenue increasing 125%.
Not surprising.
This was driven.
And primarily by the substantial rebound and demand that we experienced in North America.
By the end of the second quarter, our North American capacity and traffic volumes, we're back to 2019 levels.
Albeit at lower average fares given elevated industry capacity.
During the quarter, we launched our Austin, and Honolulu, and seasonal Phoenix Maui routes.
The return of Las Vegas, Maui to our network.
And now have restored all of our pre pandemic.
North America routes.
Our premium products are performing particularly well.
We continue to see strength.
And our front cabin with front cabin PRASM favorable versus 2019, and each of May and June and for the quarter overall.
We expect this trend to continue and the months ahead.
As front cabin and book load factors and average fares are very strong for the remainder of the year.
Extra comfort revenue is also on the positive trajectory improve.
The improving relative to 2019 each month during the quarter.
Our other non fare products are performing well.
We saw a meaningful sequential improvement and bag fee revenue for the quarter and by the end of the quarter, our co brand credit card.
Had reached pre pandemic levels.
Our credit card revenue performance was driven by a continued recovery and spend engagement.
As well as the strong resurgence and travel demand.
<unk> with our best ever consumer offer during the quarter.
We continue to see strong spend and card acquisitions.
<unk>, so far and July.
Looking ahead, we are encouraged by the booking activity we've seen for the second half of the year.
Our book load factor for the third quarter is roughly in line with 2019 and a fourth quarter booking levels are ahead of 2019.
The changes of the safe travel program.
<unk> to allow vaccinated arrivals to bypass testing and quarantine went into effect on July 8th and while it's still early we're not expecting that to drive material acceleration and our third quarter bookings given that demand was already quite strong.
And any event, we view this as a positive development as it reduces both the cost and complexity.
Of of Hawaii vacation for our guests.
And our neighbor Island geography, we continue to build back our network and the second quarter.
And we operated at about 57% of our schedule compared to 2019.
Ramping up to about 70% and the month of June.
We saw travel restrictions and.
Flex of the ease for vaccinated, Hawaii residence and mid May and then ultimately and for all of neighbor Island travel and mid June.
We saw steady progress and demand recovery from both local residents and visitors throughout the quarter and response to the loosening of restrictions.
Leading to the better than expected revenue performance.
Initial order.
Going.
Forward of our near term pace of recovery will be tempered by the increase and direct <unk>.
Neighbor Island, and directed the neighbor island markets and the lack of international connecting traffic.
In spite of these factors we are encouraged by the recovery of our North America North of it sorry.
For the core island market, both on an absolute and relative performance and expect to fly approximately 77% of our 2019 schedule and the third quarter.
And we expect load factors to continue moving and the right direction.
On the International front, we operated just 11% of our network and the second.
Neighborhood.
Looking ahead to the third quarter, we anticipate only marginal improvement and our capacity recovery.
Driven by 1 incremental frequency and South Korea, the reinstatement of our once weekly Tahiti service starting on August 7th and likely some scheduled service to American similar later in the quarter.
And.
Second and we've not seen any easing of travel restrictions and do not expect any changes at least until after the Olympic games and Paralympic games conclude and early September.
As of now we're not planning any incremental frequency and Japan for the third quarter.
But we are preparing for when restrictions.
And <unk>.
As for Australia, and New Zealand, we do not expect to resume operations of the remainder of the year due to their ongoing restrictions.
Overall, despite the ongoing travel restrictions and much of our international markets. We are confident about the level of pent up demand for Hawaii travel.
And as our lift and expect the positive response when restrictions are eased.
Rolling It all up at the system level for the third quarter, we expect capacity will be down between 20% to 23% and the system revenue will be down between 28, and 33% compared to 2019.
Looking further down the road, we've announced our intent to replace our legacy revenue management system with pros RM advantage, which will be a meaningful driver.
Of revenue improvement over the long term.
We have of ways to go to implement the new system.
And expect to begin using it sometime in the first half of 2020.
'twenty 2.
We're excited to implement this world class solution, which will enhance our revenue management and forecasting capabilities and provide long term value to our business.
With that I'll turn the call over the Shannon.
Thanks, Brent and thanks, everyone for joining us today.
And for the.
Second quarter, we reported and adjusted net loss of $73.8 million.
Our $1 and 44 per share.
We closed the quarter with $2.2 billion and cash and short term investments, which includes the receipt of an additional $205 million and PSP.
The spending during the quarter alright.
Our adjusted net debt as of June 30 was $758 million.
And improvement of $255 million compared to the beginning of the quarter driven by cash generation from operations as well as the incremental PSP funding.
It also represents.
And improvement of $220 million when compared to pre pandemic levels at the end of 2019.
For the second quarter, our total operating expenses, excluding special items.
We're down about 23% compared to the same period and 2019 on of 30% decline and capacity.
Which is at the favorable and of our expectations are.
Our solid cost performance for the quarter was driven by favorability across various cost categories as well as of few onetime credits.
These offset slightly higher than expected fuel cost, which was 1 doctor and 89 cents per gallon.
We expect our third quarter total operating costs, excluding special items to be down about 10% to 14% compared to the third quarter of 2019, and 20% to 23% lower capacity.
These figures do not include any assumptions related to our Amendable contrast, with the iam with.
Whom we have recently resumed contract negotiations the.
And I am represents our mechanics and airport employees among others.
The sequential increase and costs quarter over quarter is driven by the variable costs associated with operating of bigger schedule and.
The higher fuel prices.
Higher airport rates and costs related to preparing for the resumption of more international flying So let me focus for a moment on that last item.
As we rebuild our business we're focused on ensuring we have staff readily available, resulting in a higher than normal level of training activity.
Even with the.
The cost we expect our third quarter unit costs ex fuel and special items to be lower than the second.
And if our international business, particularly to Japan, and Korea resumed and the fourth quarter, we expect further unit cost improvement.
Based on current conditions, we are preparing.
The ramp up for the international schedule recovery to begin in the back half of the fourth quarter and continue into early 2022, and we've planned our resourcing for that outcome.
If our international recovery materializes and the fourth quarter, we expect our CASM ex to continue to improve both in absolute terms and relative.
<unk> thousand 19.
And if our international business does not return as planned it is possible that we may have some surplus labor and the near term.
But we believe accepting this risk as appropriate to ensure we are positioned to capitalize on the international leisure demand recovery when it happens.
Looking further ahead.
You have to expect our CASM ex levels to be similar to 2019 once of our operating cash.
Creating comparable levels of capacity, excluding any impact from our 7 and 8.7 and transition costs.
We're forecasting of fuel price per gallon of $2 and for the third quarter, which does not include any impact from.
From fuel hedging at.
At this time, we do not have any fuel hedging in place, but are prepared to resume hedging should market conditions warrant.
Despite the increase and fuel costs, we expect our adjusted EBITDA to improve from negative $29 million and the second quarter 2 of range.
We exited 2000, and the positive $20 million and the third quarter.
We're encouraged that we have line of sight the positive EBITDA generation and we're focused on improving our margins further as demand conditions improved throughout our network.
And as returning to profitability remains of short term focus.
We're also investing.
<unk> and the long term strength of our business.
As Brad mentioned, we're investing and a new revenue management system, which will drive revenue improvements in the years to come and supplementing the continuous enhancement of our distribution product and service.
We also have numerous cost initiatives and progress.
Including the transition.
Of of 707 training to a dedicated simulator and our Honolulu training facility and modernizing technology to gain efficiency and flexibility.
We're also excited about the opening of the new gate complex and Honolulu that will benefit our operations and guest experience.
It is encouraging to have the continued.
<unk> improvement and domestic demand this quarter.
And while the timing of our international recovery is still uncertain and we're excited about what the future holds and we're confident that we're on the road to recovery and our focus is on the long term success of our business.
With that we can of the call for questions.
Thank you, ladies and gentlemen at this time and we will be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad comprehension total and fit your largest was the question queue. You May Press Star 2 if you would like to remove your question from the Q4 participants using speaker equipment and may be necessary to pick up.
Is that before pressing.
Pressing the Starkey and our first question comes from the line of Hunter Kay with Wolfe Research. Please proceed with your question.
Hey, everybody.
Hey, guys doing hey, Andrew.
Hey, Peter I know you've talked about the 707 replacement for a while but.
Is there a scenario where.
It is replaced by and electric aircraft I mean, these <unk> and we keep hearing about share.
All of these different airlines are investing and he would tell us that you can think about it it really fits with Hawaii and better than any of their own I can really think of given the stage length and the weather and how much you've been talking about ESG on this call is there a scenario of the 7.1 and 7 just leap.
And your hand over any other potential C O 2 of any aircraft and go straight to electric.
And so.
The interesting question Hunter.
As we think about it the.
The the.
The neighbor Island.
<unk> really do provide interim.
Interesting application for <unk>.
And for electrification of aircraft because 1 of the challenges debt.
The the.
And the machines that are currently in design are limited on the range and.
We've got a lot of traffic debt.
Flies between.
100 miles of 250 miles and that is certainly the.
And the prospect of replacing that with it.
And with an electric aircraft at some point and the future is a lot more foreseeable then the prospect of replacing an airplane and the ASP of 500.2500 miles across the Pacific Ocean.
To get to the to the West coast from here.
That said.
I think the technology is still a ways off the.
And the EV call equipment that is.
And being envisioned and design today by a number of manufacturers is typically more for.
Urban mobility and it is.
For the 6 passenger applications and when you think about the 6 million people that travel between the neighbor islands each year, we really require.
Bigger.
Aircraft and that but I think.
I think the answer to your question is yes, I can see it but it may be a generation or 2 of replacement removed before we get there its probably the middle of the 2030 before we have and electric aircraft of the appropriate size to be.
Suitable suitably considered as the replace.
Replacement for the 7 months 7 but certainly those are those are the things we're starting to look out a little more and try and understand the landscape and understand the direction that some of the producers of the technology are going.
Okay cool, Thanks, and then that's the.
That's interesting and then on the 70 centers and I know we.
We've also talked about that too but.
I mean do you really need these planes I mean, you could probably I would imagine rockaway without much penalty given boeing's issues, but have you done an analysis on how much opex you might save.
Granted and exchange for more Capex.
Just to switch to and all 330, <unk> hundred 30 wide body fleet I mean is there a scenario where you decided the complexity is just simply not worth it and this new world that we're in.
Hum.
And anytime you go through our fleet transition it it requires.
The period.
<unk> of.
Transition and that adds complexity and it does add a little bit of cost.
But it also.
The <unk>.
Most of.
Advanced generation.
Of new aircraft incredibly fuel efficient and environmentally efficient and.
It is.
Destined to be the flagship of our network, we're still very excited to get it.
And there will be as as you suggest some transition as we go through that.
But that is.
Part of the evolution of.
And I'm working through of fleet transitions, and we're prepared to manage through that as effectively and efficiently as we can.
Got it thank you Peter.
Our next question comes.
Comes from the line of Catherine O'brien with Goldman Sachs. Please proceed with your question.
Hey, good afternoon, everyone and thanks for the time.
Maybe the first 1 for Shannon.
So you know like the rest of the industry and you're holding onto the higher liquidity balances than typical due to COVID-19 very understandable as we look forward.
And next year any thoughts on what would trigger you to deploy that cash and should we assume the first priority will be the use it the pay down debt, including perhaps prepayments or how you're thinking about that.
Yes, Thanks, Katy, Yes, we do amine and all.
Obviously.
Our first focus last year and earlier this year.
Was obtaining.
Obtaining and up liquid EDA to feel comfortable.
You know for the rest of of the the pandemic, however, long the loss and that's where we stand from the cash perspective, you know we are working through.
What we can do with the balance sheet and Delevering and I think I.
There was before.
But we've kind of got 2 buckets of debt. We've got some really really cheap debt that doesn't make sense to pay off early because it's so cheap.
And then we've got the more expensive debt that frankly have some prepayment penalties that may get expense a little expensive to retire early so we're we're working.
Mentioned through that but our bigger challenge.
It is the negative carry.
Associated with the amount of the growth debt because like I said in the prepared remarks, our net debt is actually better than where we were pre pandemic.
And so we're working through different analyses.
And ideas of what we can do to reduce.
Working negative carry.
1 from just the E.
How can we manage the balance sheet, but also.
Looking at areas to invest and we've got tired of lot of ideas and the past and we continue to have a lot of ideas of initiatives with positive ROI. So we're kind of be creative about how they can use the.
Is that both of the balance sheet, but also to position us well for greater profitability.
And when all of our network returns.
I guess I'll ask a quick follow up maybe to the idea of.
Allocating that cash between the balance sheet investing back in the business and we're talking about these ROI projects.
Are those outside of aircrafts investments or are you also looking at potential incremental aircraft investments with the cash of around the balance sheet and I just got 1 more quick follow up after that thanks.
Yes no.
I mean, I think for now at least and the short term we've got our aircraft plans set with the 7 and 8.7 deliveries.
The cash flow, we're looking a little bit more outside of that and bought a bunch of technology and projects. We have some facilities projects, we're working on and we're just.
Looking at different ways of deploying the cash.
Okay got it makes total sense and then I guess and your current bookings are you seeing anything unusual and leisure demand for the fall, perhaps less of the season.
And I'll drop off and some of the shoulder periods or anything interesting further out the Thanksgiving or Christmas break periods. I think you said in the prepared remarks <unk> book load factor is currently running ahead of where you were at this point 2019 would be great to hear of it but first look like to thanks, So much of the time.
Sure. Thanks.
Katy so.
So we have I think when we talked earlier and the year, we had a really compressed booking curve and as we were working through <unk> and <unk> in particular.
It was actually quite compressed.
It is really elongated now and kind of looks in many respects like our historical booking curve and in some cases.
And even out.
Further in advance, we're seeing kind of stronger advanced book outside of 60 day. So.
Real kind of $1.80 from where we were unsurprisingly early in the year in terms of North America.
No I think overall, we continue to kind of evolve in terms of of.
Booking curve and customer demographics of kind of similar to back closer to what we were before so.
The demographics of our customers are getting a little bit older than where they were and the second quarter, where we intended to look a little bit younger and we still continue to see a lot of larger.
Groups in terms of.
But the highest traveling as opposed to individuals and as business traffic and convinced and traffic comes back.
A little bit later than some of the leisure travel and we see more people traveling and larger parties and that is certainly kind of pushed out the booking curve a bit and in terms of the holidays themselves and the fourth quarter of their off.
<unk> to a really good start and we're encouraged.
Both in terms of the main cabin performance, but.
Particularly in the front cabin.
We continue to see really really strong performance over of those holiday periods.
In terms of pricing environment, and there continues to be.
Unsurprisingly, a fair amount of discounting.
Accounting thats available and pervasive and the market as we get into the fall.
And the industry capacity for the quarters up.
100, and I think it's the 125% to 128%.
The third quarter of 2019.
So we have seen some pressure there and North America.
As we.
We go as we get a little further outside of the summer but.
Overall things are holding up pretty well for.
And for the period and over the over the long term there and we think we've got the right formula to compete in terms of good value for our guests and having the right products.
Great. Thank you.
Our next question comes from the line of Conor Cunningham with MK and partners. Please proceed with your question.
Hi, everyone. Thank you for the time.
So curious to get your thoughts and just what your international networks kind of look like in 2022, and it seems like Youre expect Japan, and South Korea to be back and the fourth quarter.
Go ahead, but I know a lot of the stuff that's out of your hands, but just wanted to get your expectations for per sizing of of of that market when and when we think about next year, assuming that things continue to reopen and some of them.
Yeah, Conor it's Peter let me start and then all of I'll turn it over the.
<unk> had a little bit more color.
Our thinking right now is that you know the the and stayed at some point in 2022 of the international portfolio is actually.
And quite similar.
To the pre pandemic international Port.
Portfolio.
All along I think we have.
Viewed or at least for a while we've considered that.
Japan, and Korea are likely to recover first among the 4 major geographies.
And we serve I think we still believe that.
And as Brent said, we expect.
To see some of that coming in in the fourth quarter is the working assumption we have although we won't act on publishing schedules and that reflect until we actually get closer to.
And the realization of the policy changes that are necessary.
Before we can.
We can embark on a recovery and.
And then we expect Australia, and New Zealand to lag and unlikely to have any revenue impact and the back half of this year, but to recover next year, but we really do think that.
And the pent up.
The demand.
That is a very real feature of what we have seen for leisure travel and North America is of great harbinger of what's likely to happen internationally and the fact that we're having to wait a little longer for it.
Really just means that it's that much more pent up by.
And at the time people are able to start traveling again and we know there is a voracious.
Appetite for travel to Hawaii from <unk>.
<unk>, we know that Australians are some of the the most eager and global travelers and the entire of planet and I think the same.
And sort of.
Rebound in and.
And travel desire that we've experienced over the past several months and North America is going to repeat itself. When Hawaii is once again available to international visitors from around the Pacific rim.
Yes.
I would add to Peter's comments is we really do believe and everything that we've kind of seen and heard and the market.
So.
Leisure traffic is going to be back and it may look a little bit different in terms of how it books, but we're really looking forward to that.
In terms of our network overall I think Peter mentioned.
And it will likely be pretty similar to what it was before we're a little bit larger now in North America than where we were and so we will get a little more constrained on aircraft.
And when that happens in 2022, and we will take a a.
A critical out of that as to how we how we play some of those trade offs as well as keeping a keen eye.
Hi.
And some broader market changes that will likely occur and some of the markets that we compete and as is.
Is there is the apt to be some changes there in terms of market participation by some of our competitors and.
And just 1 final thought I'll add.
1 of the other benefits we have when.
When the conditions for recovery of our President is the fact that.
From the standpoint of managing the spread of the virus, Hawaii has done a good job and that has positioned us in good stead as a a safe place to visit for.
For North American visitors as the reopening occurred and I think that will also be important to international travelers as they begin to think about leaving the.
Compounds of their own country later of this year early next.
Okay I appreciate all of the Continental is great and then.
I think Shannon you may have talked about this 1 of them, but I mean, I I may have missed it but just on costs as you read that theres been a lot of discussion about network restart costs and so on throughout this whole quarter from from everyone.
So yeah.
The maintenance expense continues to track like pretty far below not far below book below 2019 levels.
And I would imagine that there is some sort of deferral on the wide bodies of or maybe not but I'm.
And I'm just curious on of potential maintenance bubble of that May happen and how you do start to restart international kind of like what is left that's been deferred and that may need to be made up at a later point.
Yes.
Got it.
Let me, let me start on that 1 I think likely the biggest driver of the maintenance costs being lower is the fact that a lot of our maintenance expense, particularly on the engine side for all of our fleets is based on power by the hour contracts, that's right and so as we as we find less we have lower maintenance costs and that period.
And as we.
Begin to accelerate our flying those maintenance costs come back. So that's probably the biggest driver you've seen and we have not defer.
Deferred a lot of heavy maintenance.
Of course, we.
Have we have most of our airplane.
Our planes are operating now on their normal maintenance cycles, we had a couple of $71.7 that we.
Deferred some checks and we're actually have half of that work back underway to get those aircraft back and the full now but thats not.
Not enormously material.
We are taking advantage of some of the downs downtime of aircraft here over the next several months to get some paint events done, but it's really not.
Huge snapback and costs that we're expecting on the on the maintenance side at this point.
Yes kind of if you remember, we really didn't do any kind of long term.
<unk> parking of aircraft, so theres not a lot of work that needs to be done to bring aircraft that.
Really we maybe put down of <unk> 707, but.
Really not of lot of costs.
To bring it back on the maintenance side as a matter of fact to Peter's point, we took advantage of the downtime.
To do more work on airplanes.
Range that we had been deferring.
Great I appreciate all of the color. Thank you.
Sure.
Our next question comes from the line of Mike Lindenberg with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone, Hey, Peter I wanted to go back to this July 8th.
I guess, where the state and a drop testing and the quarantine rules and I guess that was what for all fully vaccinated domestic cash.
The jurors not international.
That's correct, it's for domestic at this point and and.
The distinction there you may.
Recall of Mike if you're following the.
Initially the.
The.
And vaccination exemption was only in place for people, who are vaccinated and Hawaii and then that was extended to anyone in the United States, It's really more of and administrative thing.
And some belief that our vaccinations are better than other people's.
The nations.
It's really a sense of being able to recognize and understand the documentation and and I would certainly hope.
And that the goal of the state government would be to extend that to people vaccinated elsewhere and it's just a matter of.
Them sorting through how they're going to handle that and administratively.
Okay that makes sense.
I'm hopeful that we're close because when you look at the number of the percent of Japanese that are now fully vaccinated and in fact rivals some U S States and I guess and in some cases their.
Vaccinated with with U S vaccines. It just seems odd so it does sound like it through the administrative issue. So is this something that we're very close on.
Or does it feel like it's just because of the administration issues that this could go on for some time.
Yeah.
Well I think 1 of the challenges.
But we face with the international geographies is it's not just the question of what the restrictions are here in Hawaii, which is currently requiring a COVID-19 tests within 72 hours of travel for and international visitor, but it's also the fact that someone returning to Japan would have to have.
And just with the test before they go back and another 1 after all and arrival and and.
And during the period of quarantine at home despite paying for those 3 tests and the course of their travel. So it is it's not just about the Hawaii restrictions.
And.
Which we will try and influence to the extent that we can as appropriate but it's also about the international restrictions and and I think and particularly in the case of Japan as Brent pointed out where we're somewhat focused on.
What happens after the Olympics, because we do know that that has.
The colon.
And something that has really been a focus of Japan.
Japan and getting the preparations in place for that and making sure. They can execute that as safely as possible for their people and thats, probably made them that much more conservative in terms of how they view their policy.
The COVID-19.
Okay. Yeah, no. That's helpful that makes sense and then just a quick 1 for Shannon and churn and the you know the fact that your you are carrying all of these wide bodies, there clearly underutilized and many of the Idaho. What is what is the CASM headwind on the and I know you sort of talk through some numbers earlier, but is there any way can you give us the feel of that like a 5.
The storm and point of CASM headwind I'm, just throwing it out there because of a couple of other carriers talked about the east grounded.
And your utilized international wide bodies, and I know that you are prepared to carry them.
Carry of the people and the aircraft into next year, there's gotta be some from some additional cost there that's pretty sizable.
And.
Sickness of yeah.
Yeah.
Yeah, Thanks, Mike I'm, sorry, no I don't have the number I'm off the top of my head, we do I mean, we what we did during the past year, though is too because we couldn't optimize aircraft.
And yes utilization.
Brent and his team created the schedule to optimize labor costs and and are flying is ramping up we're kind of switching that over now.
And I think Ben had mentioned kind of.
Mid to end of 2022 of depending on how and announced around something we'll have to figure out how the 2.
Rob do you utilize the aircraft from a profitability standpoint.
But I I'm, sorry, I don't have that number.
Right now as far as of 2021 cash.
The impact of the lower.
The aircraft utilization.
Okay, Okay, but thanks for the color. Thank you.
Thanks, Mike.
Our next question comes from the line all the way and Becker with Cowen. Please proceed with your question.
And thanks, very much operator, hi, everybody and thank you very much from the time on.
And you think about.
Growing in North America, or could you just talk about how youre thinking about markets.
That might be available to you.
That makes sense for you to fly to maybe.
The 4 international comes fully back.
Yes.
Talk a little bit about how we're thinking about it and again.
And if Brent wants to add any color.
<unk> top of this.
Obviously, the the beginning of this year and March and April we added some new flying a couple of new cities with Austin, and Orlando and Ontario that had been on our list for consideration for some time.
We were considering.
Color on and we also added extra service and to long beach by adding of Maui connection and that was really.
A follow through of a lot of our $3.21 initiatives over the last several years of adding.
Extra lines on our route map between.
Points that we already serve.
And 1 of the challenge as we think about.
How to take advantage of the aircraft availability, we have and crew availability. We have while we are waiting for the eventual international recovery that we're very enthusiastic about is we.
Serve careful about.
Not adding a lot of new cities for which we're not going to be able to serve them. When we want our aircraft the swing back into.
Mark it's like Tokyo that are obviously core to our fleet and Osaka and soul and.
And so we're trying.
Wanted to balance the.
The desire to take advantage of near term opportunities and chase a little bit of like a bit of incremental revenue and the short term, but not incurring those long term startup costs associated with new cities and so we've done a couple.
But more so I.
I think if we were doing something short term.
And we would probably be thinking more about points that are already on the network.
Yeah, I think it would be kind of potential upgrades to some markets that were 320 ones. We've done some of that this summer and we had a few markets where we were.
And 2 and operating 320 ones, we look at the economic side of it would be sensible to fly from $3 <unk> and they are stead. So we've done that and will continue and just kind of revisit those into the fall as well as what Peter mentioned in terms of connecting existing.
The existing dots more efficiently.
That's really helpful.
We're planning to the other the other question I had was on <unk>.
On the West Coast are I don't think you fly and 10 of airports that are and sort of by pipeline, but are you, having any issues getting fuel and the west coast.
We're not having any issues of at this point with.
The full supply.
Yeah, Okay. Yeah, and then thank you would and then my last question is related to of haunted by Hawaii Hawaiian.
And I saw the 9 million ton maybe Shannon. This is for you I saw the $9 million.
Charge.
And the $2.6 million dollar impact.
From the termination of the CPA agreement.
Is there any meaningful revenue impact, we should think about as we.
You think about modeling first quarter of next year, which is far away I know, but just sort of thinking about the impact on revenue from from the shutdown of that.
And if it's not the whole and I'm going to.
Pass it over to Brian to talk about the revenue impact, but really we haven't been playing by the.
And for for a while yet.
And well, Ohio as an important part from a network perspective to be able to connect all the major islands within the chain.
It was not a significant portion of our overall neighbor island.
Revenue portfolio, and we had and.
And what amounted to.
The call it.
About 700, ATR round trips a day total between the.
And the markets.
Of.
The lanai and Molokai too to Honolulu, So from a revenue modeling perspective, I wouldn't expect a material impact to that going forward.
Okay. Thank you thanks, everybody have a nice rest of your day.
Thanks Helane.
Our next question.
And a lot of Joseph de Nardi with Stifel. Please proceed with your question.
Thanks very much.
Good afternoon to all year.
Shannon can you just talk to kind of when you think you get capacity whenever that is capacity back to 2019 levels, where you see CASM.
Comes from falling.
Yes, Thanks, Joe.
We obviously, we've had cost moving in different directions, but as we've modeled it.
Once we get back to 2019 capacity and in the normal operating mode.
We expect our CASM ex to be alright.
The mix similar same 2019 and <unk>.
Well, we haven't quite finished doing is.
Our modeling and figuring out our exact 77 and transition plans.
And so that part hasn't been factored in but we expect our our CASM to be at 2019 levels 1 of our capacities.
Is it the same.
Okay great.
And then maybe a question for Peter of Brent.
And I would imagine that the vast majority of your credit card holders are either.
The client residents or moving on the west coast and not much on the international side.
When you all do route profitability and allocate earnings from that to the routes I mean, how impactful of the variable is that in terms of.
Helping domestic or North America profitability and kind of hurting how profitable the international side is for you all.
Yeah.
Sure I'll, let me, let me start on that and and we've also got Avi Madison and the room and he may want to add some comments or brand, but youre right.
Our portfolio our primary credit card portfolio is.
As a U S Inc.
Credit card and so the the main geographies are the Western U S.
And and Hawaii for the residents of folks and those programs.
We have when we we do actually have a credit card debt we issue.
The issue that is issued and Japan, which we have of co brand relationship. It is a it is a much much smaller.
Endeavor than are our domestic credit card.
And the sort of speaking more broadly than just credit card, we have more frequent flyer members members travel on our.
Our.
And are either intra and inter island flights or our flights of the U S. Mainland and then we do on our international flight and as we assess the revenue performance and the.
Profitability performance of those routes.
And to the extent that people are using.
<unk> awards on.
And those flights there was the revenue allocation that we make to account for that so it's just.
In essence, you can think of it as.
Revenue is still getting attributed to those routes, but with a different form of payment.
And then cash.
Okay, and maybe just another and on co brand and Peter I think you said.
And by the end of the quarter spend was back to where it was or better than it was in 2019 I would guess that the <unk> spend on the card is still meaningfully lower and.
And maybe that has to do with the with changes and customers.
Okay and patterns, but.
Can you just speak to that and how big is <unk> typically on the portfolio and.
And what does that suggest for I don't know the.
Spend on the card once <unk> actually comes back thank you.
Yes, we definitely when we looked at the spend on the card it was.
Spend fairly dramatically different at times last year, and I think things of largely normalize, but all of the year, probably closer to that on a day to day basis and I am Yes, I think we are seeing the category mix start to normalize spend overall is looking very good and acquisition is looking very good. So certainly we saw shifts and in.
And the mix over the last year, but we see it kind of moving as we're seeing a lot of our other customer behavior moving back where it was.
Thank you.
Sure. Thanks, Joe.
Our next question comes from the line of Chris <unk> with Susquehanna International Group. Please proceed with your question.
Good afternoon, everyone and thanks for taking my question.
Peter could you give some more color on the.
Various revenue and product initiatives that you alluded to and you're on.
The opening remarks.
The.
You are talking about some of the.
The things we're doing.
And the customer side I think some of it is on the facilities front.
We are continuing to make sure we improve our guest experience, particularly in Hawaii, We've got the new gates and we expect to come on and the next.
A couple of months that are going to change our experience we're going to be.
In the next several months, we're going to be.
And relocating.
2.
New gates, and Los Angeles that will free up some opportunities and provide some benefits for our travelers.
Next.
We've made changes.
2.
Eliminate the exploration of miles and our loyalty program, we're continuing to work on a number of of innovation and some of which we haven't announced with in terms of our.
And our <unk>.
Product and portfolio of around.
<unk> around tickets and so.
There is a variety of things not all of which we have publicly disclosed yet and this wouldn't be the right forum to do that but I think it is broadly under the focus of wanting to make sure. We are a great airline from the perspective of.
Hotspots.
<unk> and service and putting the guest at the center of everything that.
And that we do because we do think.
But that is a key differentiator and we've got the right products and service to to win the Hawaii traveler.
Okay. Thank you and then Sharon you mentioned.
<unk> you might be temporarily oversee overstock and the second half if demand doesn't pick up as expected.
Could you help us frame, which labor or head count categories that would come from and then also how should we think about labor productivity and full recovery.
Specifically ASM per FTE.
Relative to 2019.
The full ASM base relative to 2019.
Could you run the network.
The 2 or 3 or perhaps 5%.
<unk> per ASM. Thanks.
Hi, great. Thanks, Chris.
Yes the.
And from the.
And the attention on near term surplus of labor of international It doesn't come back it's primarily pilot and.
And they've got a long training.
Horizon, So we need to kind of plan that out months in advance of when we think we need them. So we don't really hit the mark and that late fourth quarter time period.
And put it.
Hudson.
The surplus pilots.
And we've been managing some of that with all of our labor groups throughout the pandemic through the short term voluntary leaves and things like that and we've been pretty successful. So we're not that concerned we think as we get closer to.
And we think when international comes back we can try and mitigate some of that surplus.
And the long term perspective, obviously.
You know what.
We're very focused on labor productivity.
And I don't know how of and exact comparison and my head on and what labor productivity will be when we're.
Now fully back in operation with the capacity versus where we are now.
We've.
Implemented a lot of initiatives.
The technology Wise, just process improvement wise and also with our unions and our contract negotiations of.
Obviously, you know rates labor rates continue to go up and then.
And we want to pay people what.
Fair a fair wage.
But we also are working very heavily with the unions on efficiency and productivity and things like crew complement.
So that and that's the way we fight.
Or mitigate against the inflationary pressures of the.
The the wage rates and so I'm really sorry, I don't I don't have a number of comparison for you, but I think from a productivity standpoint, we're definitely going to be more productive going forward than than where we are now and.
And Chris just to just to clarify a little bit where we are right now I would say.
And frankly, I'm going to talk about everyone. Besides pilots and pilots.
And everyone. Besides pilots I would not characterize where we are as overstaffed right. Now we are able to fine tune it fairly well and in fact on our ground operations, we're definitely and hiring mode.
With with pilots.
<unk>.
We are where we are is really spending a disproportionate amount right now on training to get people positioned and the right seat and fleet for the recovery. So.
It's over Overstaff, just probably the wrong way to characterize it it's a little bit more of a disproportionate.
The net emphasis on training, which doesn't generate as much revenue as flying but it's still very important as part of making sure we're prepared to be and the right place when the revenue opportunities are there and 2022.
Okay. Thanks for the time.
Sure.
And.
Our next question comes from the line of Dan Mckenzie with Seaport Global Securities. Please proceed with your question.
Oh, Hey, guys. Thanks for the time of a couple of questions here.
If you can just remind us.
Pre pandemic, how far along or how far down the road you got with basic economy, and how far down the road you got.
And with premium revenue and I guess, where I'm going with that as we spool up and 2022 is there more upside and those initiatives.
So yes, so we hit we had rolled out basic economy and and <unk>.
America.
Caustic markets.
And really in North America in the latter part of 2019, so that was.
That was kind of the spooling in.
And as we were working our way through.
The start of the pandemic, there and <unk> and that's fully implemented.
And we continue to work on that.
Product and we continue to kind of understand and we're now in the place to where we can continue to understand how that's how customer behavior is changing around that product. How do we can optimize and change that and what does that mean going forward. So I'm I'm encouraged with what we're seeing there. It's an important tool that we've got to.
And to compete and the market.
And I've given some of the price points that we've seen out there and we will continue to work and optimize it.
And as you mentioned on the premium side, that's of great differentiator for us and that's part of the business, where we've seen a lot of strength and frankly, the team had invested a fair amount of and firm.
A fair amount of.
Particularly from the time.
Even before the pandemic on how do we continue to see improved performance there.
Talked about the previous Investor days, we went and really high paid first class.
Load factors, certainly well well above the industry and well above our competitors.
And how do we.
For you to kind of push the envelope really more on improving yields and the cabin because frankly, we just don't have that much extra space given our existing layouts and so I'm really encouraged with the foundation of the team's laid over the last.
18 months and we're starting to reap some of the benefits of the all of that and.
And the second half of this year.
Okay. So I guess I don't quite understand how far along and you've got on the premium. The story. If we're just using baseball innings. Here did you is it sort of the second inning and the premium story of the fifth inning, I guess I'm just trying to get a sense of what upside there is and where I'm going with with both of these questions.
It continues.
And whether the thought is these are initiatives that can potentially partially backfill or fully backfill some of the the competitive challenges you may be seeing elsewhere across the network.
So I would say on a relative basis basic is probably closer.
His earlier part of the game and on the premium side I think we're probably in the middle innings, and we've done some things to really and <unk>.
The performance there, but I think there is certainly more of that we can do as.
As we think about that and and as we think about products like extra comfort and optimization of that product I think we're.
Sure.
We've got a long ways to go to be able to improve that as well so.
I would say overall in terms of of premium we're probably in the.
Closer to the middle innings there.
Okay. Thanks for the time you guys.
That concludes our.
A question and answer session and I'd like to hand, it back to Peter Ingram for closing remarks.
All of them again to everyone for joining us today. We appreciate your interest and look forward to updating you on our progress again and a few months Aloha.
Yes.
Sure.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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