Q4 2021 Hawaiian Holdings Inc Earnings Call
Greeting.
Come to the Hawaiian Holdings, Inc. 'twenty, 'twenty, one fourth quarter and full year financial results call.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation.
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Please note this conference is being recorded.
I will now turn the conference over to your host Ashley Keisha Moto managing director of Investor Relations. Thank you you may begin.
Thank you, Alex Hello, everyone and welcome to Hawaiian Holdings fourth quarter, and full year, 2020 One financial results conference call here with me in Honolulu are Peter Ingram, Ingram, President and Chief Executive Officer, Brent Overby, Senior Vice President of revenue management, and network planning and Shannon Okinawa Chief financial <unk>.
We also have several other members of our management team in attendance for the Q&A Peter will provide an overview of our performance and an update on our priorities for 2022, Frank will discuss revenue and Shannon will discuss cost and the balance sheet at the end of their prepared remarks, we will open the call up for questions by now everyone should have.
Access to the press release that went out at about four o'clock. This afternoon eastern time.
You have not received the release it is available on the Investor Relations page of our website Hawaiian Airlines Dot com during our call today, we will refer at times to adjusted or non-GAAP numbers and metrics a detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today's press release posted on the Investor Relations page of our website.
As a reminder, the following prepared remarks contain forward looking statements, including statements about our future plans and potential future financial and operating performance management may make additional forward looking statements. In response to your question. These statements are subject to risks and uncertainties and do not guarantee future performance and therefore.
Undue reliance should not be placed upon them. We refer you to Hawaiian Holdings' recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements. These include the most recent annual report filed on Form 10-K as well as subsequent reports filed on forms 10-Q and eight.
I will now turn the call over to Peter.
Hello, Ashley Hello, everyone and thank you for joining us today.
Since we last spoke in December we ended the quarter largely as expected with strong demand and positive signs of recovery, particularly on the domestic side of our business.
We like other businesses faced operational disruption related to the rapid spread of all micron at the tail end of 2021 and the beginning of 2022.
The outstanding efforts of our team mitigated the worst impact of these challenges, but not without some level of disruption to our guests.
We've made some modest near term adjustments to restore operational integrity and I believe we are now on better footing for the months ahead.
Despite solid results from our domestic business in the second half of the year the recovery of our international business continues to lag.
We remain confident that we will see a substantial recovery in international demand as we pass this latest wave of Covid cases.
As we've said before conditions are aligning to enable a full restoration of our business at scale supported by the availability of vaccinations and therapeutics that were not part of the toolbox early in the pandemic.
For international well continues to limit us our governmental policies regarding travel across borders.
Response to the rapidly transmissible omicron variant is likely delayed relief in this regard by a couple of months.
We arent in control of that but what we can control is our preparation and readiness we.
We are preparing for an increase in international service during the second quarter of the year and a more comprehensive operation in the summer and beyond.
As conditions allow us to realize the underlying demand we know that our exceptional service.
Solid operational performance unique brand and a focus on leisure travel positions us extremely well for sustained success excuse me.
Our team continues to work relentlessly to help our business recover in an ever changing environment and to help strengthen our company for the long term.
Outstanding contributions of our employees have remained the one constant throughout the pandemic.
Mahalo to each of my teammates for their tremendous efforts in 2021, as we made substantial strides towards recovery.
Before I talk more about 2022, I'd like to talk a bit more about the disruptions in our operations over the past month, and what we have done to address them.
Like other airlines, we experienced scheduled disruptions beginning in the waning days of 2021 as the spread of Omicron led to increased absences.
Also unique to us these absences were compounded by some unscheduled downtime with our training equipment, which affected the availability of crew members for our 707 fleet at the end of last year and the beginning of this one.
These factors led to the cancellation of several neighbor island flights and a handful of North America flights in the last several days of 2021 and the early part of January 2022.
To provide more flexibility to our operating teams. We have subsequently made some short term adjustments to our schedule to manage through this period and help us restore operational performance to the levels. Our guests are accustomed to.
Since these changes have been in place we have seen the operations stabilize.
I feel confident that we've put the worst of this disruption behind us.
Our sick calls are declining.
And our training equipment is back online.
Since we last spoke in December our initiatives for 2022 have not changed and I'd like to provide you with some updates.
Back in December we didn't have a clear line of sight into the impact of omicron would have and how governmental policies would react.
In line with much of the country, Hawaii saw record high Covid case counts in January from a highly contagious variant.
Despite the increases in new cases hospitalization rates have been manageable.
Aided by our state's high vaccination rate, Hawaii remained and continues to remain open for tourism with limited changes in the state safety protocols.
This contrast, with our experience with the Delta variant when hospitalization spiked and the policy response was more restrictive.
Consistent with our expectation that cross border travel Liberalisation will be delayed a couple of months because of omicron.
We have pushed the ramp up of our Japan operations from the end of March to the second quarter.
The international travel policy changes, we have seen since the identification of the omicron variant continue to remind us about the road ahead may not be smooth.
But the underlying desire for travel for leisure remains profound and we will be ready to take advantage of pent up demand as it materializes.
I am pleased that we have reached tentative agreements with the iam, which represents our airport cargo and maintenance employees.
These agreements, which are subject to ratification in mid February .
Provide us with pay rate provide for pay rate increases and enhanced benefits.
Our employees deserve to be rewarded competitively and I am proud that this contract when ratified we'll provide that.
I'm also pleased that in an increasingly competitive labor market. The updated pay rates will help us to compete for new hires and to retain our existing employees.
The provisions in these agreements coupled with our commitment to continue investing in technology and process enhancements will yield long term benefits in terms of higher productivity and shared benefit costs beyond 2022.
Along with the agreement we reached in 2020 with the FAA, representing our flight attendants. We will soon have completed labor contracts, representing 70% of our workforce since the beginning of the pandemic.
This is a unique in our industry and reflects our commitment to manage the business for the long term and to collaborate with the unions representing our employees.
We're also advancing our commitment to invest in technology to meet our productivity goals and deliver the best experience for our guests.
We remain on track for the cost and revenue benefits expected in 'twenty two.
As the use of these technology tools continues to mature.
Our new passenger service system is expected to launch in the spring of 2023, which will be a catalyst for the simplification and streamlining of our commercial and guest service processes.
These investments will enable a stream of benefits that will continue to develop over the coming years.
With omicron shifting the outlook for other travel markets, we have not seen a significant change in the competitive capacity environment. Since we last spoke in December .
<unk> of the domestic capacity that shifted to Hawaii remains as the recovery of business in international travel remains slow.
As the recovery continues we expect that the competitive environment will evolve and marginal capacity add domestically will be reevaluated.
Internationally some of the capacity that was marginal pre pandemic may not return.
We are committed to ensuring that we are positioned to capitalize on opportunities as the competitive environment evolves.
As we mentioned back in December our $2 780 Sevens that were scheduled to be delivered in 2022 are delayed and we now expect to receive them no earlier than the first half of 2023.
The capacity from these aircraft has been removed from our full year capacity expectation and some of the expected costs related to readiness activities have now shifted into 2023 with the delay.
I remain optimistic about the trajectory of a recovery. Despite the uncertainty that continues to surround our industry.
Yes, the path isn't linear and some of the progress on the international side has slowed a bit to the right, but we continue to make progress on our plan for 2022.
The trajectory of leisure travel has been interrupted by the pandemic, but the underlying desire for it has not.
Domestically micron as had less of an impact on our business in previous Covid waves and the signs of recovery are already evident international travel will recover with policy changes, even if we cannot precisely forecast the timing and pace.
We will be ready to take advantage of the continuing recovery and are well positioned for success.
With that let me turn the call over to Brent to discuss our 2021 results and the commercial outlook in more detail.
Thank you Peter and Aloha, everyone.
I'd like to take a brief moment to thank all of our teammates for their efforts and dedication in taking care of each other and our guests as we closed out 2021.
Our fourth quarter revenue performance was in line with what we expected in December when we re guided the stronger demand throughout our network with total revenue down 31% from 2019.
As we operated 81% of our capacity compared to the same period.
Passenger revenue was down 34, 8% from 2019, as we operated 109% of our domestic capacity and just 17% of our international capacity compared to 2019.
We had a busy holiday period and didn't see much of an impact from close in cancellations related to omicron, but as expected our yields were lower from elevated competitive capacity in our north American markets.
Non passenger revenue continues to be a bright spot up 27%. This quarter from 2019, driven by strong performance in cargo and revenue from our Hawaiian miles co branded Mastercard with a record quarter of retail sales and strong new account acquisitions.
Despite the challenging operating environment in 2021 leisure travel to Hawaii was resilient as evidenced by strong domestic travel volumes to Hawaii.
Looking ahead to the first quarter, we continue to recover our business and we anticipate that our overall revenue will be down 31% to 35% from 2019.
<unk> deceleration from our results in the fourth quarter with the omicron variant headwind impacting our traffic and schedule.
We anticipate this headwind will be short term as we are starting to see our bookings and cancellations stabilize.
Our international network continues to lag domestic as governmental policies continue to limit us in <unk>.
Our network here remains suspended.
Let me take you through each segment of our business.
In North America, we're seeing the impact of omicron variant with lower net bookings for the first quarter.
We continue to closely monitor bookings and from what we see today the worst of the impact will be in the first quarter as we are seeing upward momentum for bookings in the months ahead.
We expect to fly about 120% of our 2019 scheduled this quarter, which is higher than we anticipate for the rest of the year due to have the network developed in 2019.
We remain very well positioned and based on the latest data from the dose we have further expanded our revenue premium since we last spoke in December .
And they are materially outperforming and our North America markets.
This demonstrates the strength of our North America network, our focus on the Hawaii leisure traveler and our optimally configured aircraft.
In the neighbor Islands, we were planning to operate 80% to 85% of our 2019 neighbor Island capacity.
As we work through the temporary scheduled changes that Peter mentioned, we're now expecting the fire about 75% of our 2019 schedule in the first quarter.
The booking curve for the neighbor islands as close in and with the <unk>, we're seeing some customers choose to stay at home, resulting in lower bookings.
But we are starting to see signs of improvement and remain well positioned and continue to maintain the share of local traffic well in excess of our seat share and a significant load factor premium versus our competitors.
With the evolving news of Omicron, we can't speak with certainty on the pace of recovery in key international markets, particularly Japan.
Let me spend a few moments discussing the published schedules versus our expectations for the planned resumption of service to Japan.
Based on what we know today, we expect to ramp up our service to Japan in the second quarter.
Bit later than we had originally planned.
But that is not yet reflected in our currently published schedule.
We are working through respective governmental processes for the upcoming summer season around slots and route authorities and we will update our published schedules accordingly as that gets resolved.
There could be a further delay to a restoration of our international network as we remain uncertain about when Japan will fully reopen.
While we can't control the price the precise date, when Japan will fully open however, we will be ready to relaunch our international network as soon as policy conditions allow.
We are now expecting to fly about 25% of our 2019 international schedule in the first quarter, which is slightly higher than the fourth quarter, reflecting a full quarter of flights to Sidney that resumed in mid December .
We remain well positioned with the brand and quality of guest experience to capitalize on demand for a Hawaii vacation when it materializes.
Moving to our capacity outlook with omicron shifting our recovery back a bit we anticipate that our overall capacity for the first quarter will be down 10% to 13% from 2019.
On a sequential basis capacity from the fourth quarter of 2021 to the first quarter of 2022 is essentially flat.
For the full year, we now expect capacity be down 3% to up 1% from 2019, driven primarily by the pushback of the resumption of service to Japan in the second quarter the schedule changes in the first quarter.
And the delay of the 787 to 2023.
For 2022, we remain on track to launch a new revenue management system, a new distribution strategy, new travel products and enhancements to existing travel products.
We continue to expect these commercial initiatives to drive incremental benefits of approximately $10 million this year as they ramp towards a steady state values.
We're encouraged that were on the road to recovery. Despite some temporary setbacks domestic.
Domestically, we see upward trajectory of our bookings as omicron has had less of an impact on our business than prior variance.
Internationally, we are well positioned and will be ready for recovery. Once international travel policy allows we have a great product strong brand exceptional team and a winning formula for success with that I'll turn the call over to Shannon.
Thanks, Brian and thanks, everyone for joining us today.
For the fourth quarter, we recorded an adjusted net loss of $70 3 million.
Or $1 37 per share.
While our full year, adjusted net loss of $383 million or $77 55 per share.
Flex the challenges of rebuilding our business, while navigating the volatility of the ongoing pandemic.
Have been bright spots in the recovery specifically the continued robust domestic demand for travel to Hawaii.
In fact, we ended the quarter with a profit for the seasonally busy month of December where we saw strong domestic demand for the holidays, even without the full resumption of international service.
We closed 2021 with $1 $7 billion in cash and short term investments.
And $2 billion in liquidity, including our Undrawn revolver.
Alright, just did net debt as of December 31 was $961 million.
About $18 million lower than pre pandemic levels at the end of 2019.
In the fourth quarter, we opportunistically repaid $161 million of debt for.
For the partial pay down of our highest interest bearing WPC notes, providing important interest expense savings going forward.
And for the full year, we prepaid $441 million.
Future debt obligations, and we made $171 million scheduled debt and lease payments.
And last week, we completed the final scheduled principal payment of $51 million.
For our 2013 double EPC tranche b debt.
As we work our way back to sustained cash generation, we will ensure we have enough cash to navigate the remainder of the crisis and will continue to invest in strengthening our business.
While our current debt profile doesn't provide significant near term economic opportunity opportunities to delever.
We'll be prudent about how we fund our 780 sevens and other capital investment.
And we'll look for more opportunities to use our excess cash to produce positive future returns.
Our fourth quarter non fuel expenses, excluding special items came in a little better than we expected due to favorability across a variety of path of cost categories with some of those costs pushing into the first quarter.
In December we spoke about our expectations for 2022 unit cost.
The reduction of ASM from the delay in the ramp up of our international business.
And the change in our assumption about the timing of our 77 deliveries.
And an expectation that our full year unit cost.
Excluding fuel will now increase three five to seven 5% as compared to 2019.
This excludes the impact of our tentative agreement with the Iam and other collective bargaining agreements that will be amendable. This year.
We expect the iam agreements to add another point to point and a half to the year over three year range when ratified.
As we work through the new contracts and increase our operational agility through recent technology investments over the next few years. We expect these wage increases to be partially offset by increased productivity and other benefits.
Let me walk you through some of the specific changes to our 2022 unit cost expectations as compared to 2019.
Yeah.
With the assumption that the delivery dates of the first $2 77 shipped from the end of 'twenty two to the first half of 'twenty. Three we now expect a half point headwind of incremental expense related to preparing the 77 entry into service.
Delivery dates for the first 270 sevens are not firm and it pushed beyond the first half of 'twenty three we may see some of these costs.
Further out of 'twenty two.
We also expect an additional half point headwind as we reduced ASM due to the delay in the resumption of our international service.
Which would result in some excess staffing from January through April .
This labor will remain relatively fixed in the near term as we stay on target for the recovery of our international network in the second half of the year.
If resumption of our international surface has pushed beyond may we expect an additional cost headwinds of about $2 5 million per month.
The reduction in ASM also impacts the magnitude of the headwinds and tailwind we discussed back in December .
And we now expect our net unit cost headwind of four points from wages and benefits depreciation and amortization aircraft rent and rental and landing fees, which is up half a point from our prior expectation.
For the first quarter, we expect our unit costs, excluding fuel and special items to be up 10% to 13% compared to the first quarter of 2019 on a capacity decrease of the same magnitude.
The expected increases from 2019 are in line with our full year headwinds previously mentioned, but I'll explain the sequential increase in cost in the fourth quarter of 'twenty one to the first quarter of 'twenty two as capacity is about flat quarter over quarter.
The sequential increase in cost is primarily driven by an increase in the number of heavy maintenance events.
Some equipment purchases that were pushed from the fourth quarter to the first quarter.
And then currency of more project related Opex.
We expect our fuel consumption for the first quarter and full year as compared to 2019.
To be down 18% to 21%.
And for five to eight 5% respectively.
And we are forecasting our fuel price per gallon for the first quarter.
To be $2 and 53.
And for the full year to be $2 42.
We have also revised our capital expenditure forecast for 2022 to reflect the delivery delay of our $2 77.
We now expect our capital expenditures in 2022 totaled $105 million to $125 million with about two thirds for aircrafts and the remaining third aircraft spend.
On the non aircraft side, we continue to make investments in technologies that provide us with commercial flexibility our operational efficiencies.
We will also continue to invest in our facilities to improve the experience for both our guests and our employees.
Our first quarter outlook results in an expected EBITDA of negative $150 million to $90 million.
While we are disappointed that the negative headwinds of Amazon have pushed our recovery timeline back a couple of months, we believe the strength of our team and our business model coupled with the resilience of demand for travel to Hawaii, well results and success over the long term.
And with that we can now open up the call for questions.
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Our first question comes from the line of Mike Lindenberg with Deutsche Bank. Please proceed with your question.
Oh, Hey, good afternoon, everyone, Hey, Shannon I wanted to go back on the costs, you said because of the.
Aircraft delays and the pushback in international you now have a four point headwind and I guess, what previously was at 335 point I just want to get some context around that.
Sorry, Mike that might have been confusing that gave a lot of numbers. So the previous guidance for the full year was to be up two 6% and now the guidance is to be up three five to seven 5% and so what you have to do basically is add the half a point from the reduced <unk>.
<unk>.
From the.
Schedule changes and the pushback of international and then we have another half a point.
From the 787 delay.
And then the four points for all of those other things and we had talked about the specifics of those other things in December but now, it's primarily wages and benefits, but there are some gives and takes some of those other categories that result in a four point headwind. Okay. So yes. So just like hear me out here that when I look at your previous guidance relative to capacity and.
Now see youre pulling down your capacity by about three points right and I realize that it's not totally linear from a unit cost perspective, but your unit cost pick up.
Is a bit less and so I actually sort of looked at that and thought.
With that type of capacity pullback.
It wasn't as bad of an increase than I would've anticipated realizing that it's not a linear relationship and so that's why I wasn't I didn't follow and maybe maybe the way that I'm looking at it just isn't the right way to think about it.
No I think that's exactly the right way to think about it.
We are aggressive.
On our cost and we make adjustments to our business as it.
Changes.
Yeah, So I think youre thinking about it right Mike Okay. That's what it looked like it looks like you picked up maybe maybe you saw some other areas where you could get some some cost benefit you were able to sort of capture that in this number.
Jumping on to my second question. This is Brent on on this schedule.
A month ago, you guys were talking about ramping up Australia, and you seem somewhat encouraged and I did see you pull Brisbane from the schedule for the entire year like it's out and I just didn't know if either Australia wasn't ramping up as well or it's because of the delayed airplanes and.
The International route how do you get cut if you weren't going to get the 787 would be British than maybe it was the most marginal of your international.
Am I reading too much into it thank you.
Okay.
We had Mike as we had been kind of working our way through the pandemic.
We were kind of looking at the pace at which international is coming back we looked at the conditions that we thought were going to exist in the marketplace, particularly the international marketplaces that we serve then.
Well we.
Certainly like flying to Brisbane enjoyed that.
We were at the point, where we were ready to move on we don't think the conditions in the short term, we're going to make sense for us.
So.
Wouldn't read anything into that in terms of a short term changes those were things that we were pondering.
Pondering and as we moved our way into 2022, it made sense to move forward with that.
And Mike just put perhaps a finer point on that.
The brisbin decision is not a reflection of.
Are there any level of disappointment with how we've started up in Sydney. It was really something that that we had been evaluating going back before we resume service to Australia.
That's really helpful. Thanks, Thanks, guys. Thank you.
Thank you.
Our next question comes from the line of Helane Becker with Cowen. Please proceed with your question.
Thank you very much operator, hi, everybody and thank you very much for the time I just had a clarifying question for Shannon. When you said negative EBITDA for first quarter. You said minus 158 is that minus one to minus 90 or minus 150 to positive 90.
Minus 150 to minus 90 Helane. Thank you.
Thank you and then my other question is probably for Peter there's a.
Tomorrow morning, the Honolulu City Council is holding a meeting to consider Bill 41 C. D. One, which I guess is the bill that limits.
People are using their houses for Airbnb and so are you thinking about that.
Any is it impactful to your business.
From a risk as you think about resumption of traffic.
From anywhere to Hawaii or is there a shortage of hotel rooms or is there a shortage of places for people to stay our Hudson how should we think about that as impacting your business if at all.
Okay.
Yes. It is something that we do think about certainly the.
In recent years.
With Airbnb and <unk> I think there has been increasing.
Use of whats Rickard referred to as <unk>.
Vacation rentals or <unk>.
Transient accommodations non hotel accommodations.
Lot of <unk>.
Visitors.
Really enjoy the experience of having something different in our hotels in particular I think demand for it has.
Increased relative.
Relative to hotel stays over the course of the pandemic as many people.
Like do you have a space that is a little bit more private with just their own travel.
Traveling party.
It's a subject that has.
Created much debate.
In our community here on Oahu and candidly throughout the.
Hawaiian Islands as.
Residents in many cases would like to see that.
Some restrictions on where.
These vacation rental units can be certified to operate legally and and to prohibit them.
From other residential neighborhoods.
And Bill 41 is the latest of a series of Pisa legislation that we've seen throughout the counties of the state.
I think it's important.
We maintain a place in.
In the <unk>.
Suite of options that are available for visitors for them to take advantage of vacation rentals. We do think it is appropriate to have some restrictions on that as we go forward and.
Actively monitor that discussion and hope that.
The various.
State and county governments that are looking at this strikes the right balance as we ended up seeing this move through the legislative process.
Okay. Thanks, Peter that's very helpful and thanks, everybody for your time.
Thank you. Our next question comes from the line of Conor Cunningham with <unk> Partners. Please proceed with your question.
Hey, everyone. Thank you Hey, Brent you mentioned flying 120% of your North America schedule and.
And that's going to be your high watermark in the first quarter I'm, just trying to parse out what that is so.
What percentage of that is just domestic.
Flights that should've been flying potentially international and then.
Where is that B is where is that being out of this that just a frequency thing in stronger markets and just any help there would be great. Thank you.
Yes.
It's really a function of 2019 and how we grew in 2019, so a lot of our growth was in.
Was in kind of two Q3 Q4 Q of 2019, so as we keep comparing back to that base year.
<unk> in particular.
Looks a little bit odd for example, like Boston didn't start until the second quarter of <unk>.
Of 22019, so it looks like growth on this relative basis, so theres not a lot of material change in the network. There. We've added a few select trips during spring break, but a lot of it is really just the base of 2019 that we compare back to and <unk> being a bit a bit different than the rest of the year.
Okay, So, yes, and I think it is.
The thing is.
Another thing if you think of that sequentially kind of quarter over quarter were pretty flat. So.
From <unk> of 21 to <unk> 22, So if you really think about it is really more of the base movement in 2019 and anything material that we're doing to change things in the first quarter of 'twenty two.
So it's not like you are adding flights.
From assets that should've been somewhere else.
This is just the base.
Okay.
And then some of the other airlines have talked about the <unk>.
Rise of premium leisure in the P&L.
Potential permanent so that new customer.
It's kind of an interesting thing for you guys because I'm just curious if you could speak to like your premium products and how they performed to independent imac and just your general view of this customer I just would think that if that is a sticky person.
It would.
Falls right into your markets. So just curious if you have any thoughts on.
Thank you yes.
Yes, I think it's a great observation Connor and we've certainly seen it here kind of throughout the pandemic and even into the fourth quarter.
Our premium products are doing fantastic I think domestically we were we were PRASM positive in the front cabin.
Despite some of the some of the headwinds we had in the fourth quarter, so demand and some pricing power. There continue to remain really really strong we've seen strong performance in extra comfort as well and so that.
That is that has done well we've been able to.
Have a little more pricing power are there in terms of seeing some improvements in the.
The average selling price into that product. So, yes, I think premium leisure is doing quite well and we are really well positioned to be a winner from that in Hawaii.
I would just add to that.
Alright.
Do not think that this is a phenomenon that occurred.
More coincident with the pandemic, it's actually if you go back and look at our premium cabin trends in 2018 and 2019.
Typically those were outperforming the performance in the main cabin and some of that was because of the great efforts of Brent.
<unk> team and our commercial team more generally in terms of marketing those products better, but but some of it is I think that evolution of the demand and so we're just seeing that continue as we've gone through the pandemic.
Great appreciate it thank you.
Thank you.
Our next question comes from the line of Catherine O'brien with Goldman Sachs. Please proceed with your question.
Hey, good afternoon, everyone. Thanks, so much for the time.
That's one.
Seeing other airlines this earth.
Earnings season point to a worsening RASM trends versus 19.
In the first quarter versus 19 as compared to the fourth quarter of 'twenty one versus 19, if you follow me.
And in your guidance is also pointing to a detail.
RASM performance versus 19, as we head into the first quarter can you just walk us through what's driving that is it the pricing environment changing is it just assumptions that you have to make on January and February .
Lingering omicron impact.
Or.
Obviously, you've had to make some changes to your international it is the switching capacity around quicker and put pressure on RASM, just just would love to hear some of the puts and takes on the pricing and how you're thinking about demand.
Yes, so I think.
Rhyming of Omicron hits.
Chunk of <unk>.
Particularly pronounced in January and February .
We're encouraged that we've kind of seen the bottom in terms of booking trends, but.
We've got we've got a bit of a whole we've got a bigger dig out of in terms of continuing to move into spring break. So the timing of it I think has a real impact in terms of being <unk> and as we said in our prepared remarks, we think <unk> is the most materially impact.
Internationally, there is a pretty material slowdown we've seen some steady progress while still a small portion of our network. We had seen demand in our international network continue to strengthen.
And that way and obviously at the end of the fourth quarter, but going into <unk>, our expectations around passenger revenue.
Have softened quite a bit still quite positive on what we're able to generate in terms of cargo revenue and so that will continue to support the schedule that we've got in place.
On the passenger revenue side that has slowed down and certainly in some of the geographies, particularly Japan and Korea.
That has been maybe a little bit more pronounced.
Then finally I think we enjoyed.
A couple of good holiday periods in the fourth quarter and while not as strong as normally we still had good results in November around Thanksgiving and the holidays and as Shannon mentioned in their prepared remarks.
In terms of generating a profit in December so.
Without a lot of that in January and February .
<unk>.
Ah.
That we've seen things kind of.
Move on from there.
Okay that all makes sense maybe on.
<unk> not surprising and then little bit fewer peak days or less ultra peak days, how do you want to think about it that makes sense.
Maybe just.
Medium term question.
Japan and other parts of Asia.
<unk> with relatively much stricter COVID-19 policies in other geographies grew this year.
It was maybe even 2023 I know you don't have a crystal ball, but are.
Are there any other long haul international markets, you would look to reallocate wide body capacity or could some of those perhaps.
Their way into other domestic opportunities like the one that you took in Austin over the pandemic. Thanks.
Yes, I think it's a little hard to say on the international side, where we're going to be at in terms of regulations, both in Japan and other locales I think we feel like we've got some other opportunities to grow in North America. Another long haul destinations, but we're going to balance those with the available resources that.
We've got and how we manage that planning cycle will be really important as we move forward into the middle really into the summer of 'twenty two.
Yes.
Got it I could sneak one super quick one modeling question for Shannon the one to one five claims on new Labor agreement.
To make sure that's only for the tentative agreement.
Agreement right and then is that the 2022 impact okay, yes to the Ta and then is that the 2022 impact or an annualized impact I know, it's a small difference given will be ratified mid sad that you wanted to be sure. Thanks, so much at all times.
Thanks, Katy, Yes, Youre right that is just for the I T.
Ta.
And the one to one and a half referred to.
<unk>.
2022 versus 2019 impact, but it is a full year.
Impact of that.
Ta.
Okay, great. Thank you.
Okay.
Thank you.
Next question comes from the line of Hunter Keay with Wolfe Research. Please proceed with your question.
Hey, Thank you for the time this is actually Noah Chase top runner.
Peter how do you see your network structure evolving the case to airlines don't actually pull the marshal capacity added in Hawaii or competing international markets as we come out of the recovery and how do you think that actually shapes your passengers passenger revenue breakdown.
Pre COVID-19 stood roughly at 25 75 split between international and domestic.
Okay.
Yes, I think at this point and I'll, let Brian chime in as well if he wants.
We are confident that we're going to see.
Japan recover and so we would expect.
As we move forward into the latter part of this year that we're going to see a similar balance between domestic and international than we've had before we did add a couple of flights domestically. So it may move.
A couple of.
Percentage points, but I don't think we're envisioning a.
A radical shift in and I think frankly over the longer term what is most likely to happen for our long haul capacity, serving Hawaii is that as we have.
Evolve.
Network over the last decade, it's largely going to mirror, where visitors are coming from Hawaii, and so I think over time, if you saw that broader visitor mix shift one direction or the other we would likely shift our network. Similarly.
Got it. Thanks, that's super helpful. And then if I could just sneak one more in are you seeing inflationary pressures that are more apparent in Hawaii than other parts of the U S is that impacting current hiring efforts and how you might expect it'll affect pilot negotiations.
So.
In terms of inflationary pressures.
Split it into.
Labor versus non labor and I would say on the non labor side, there is really nothing that.
Particularly unique about what we're experiencing in Hawaii I think from from an airline perspective.
The part where.
Where we're seeing cost go up more is on our airport.
Cost structure, but thats that I think is less.
A function of stimulus driven inflation in the broader economy and more a function of investments that have been made in airports over the last several years. So that's a that's a headwind that we've all seen coming for for some time.
On the labor side again, I don't think its particularly unique.
<unk>, Hawaii I think we are experiencing some.
Tighter labor markets.
Particularly for.
Job functions like the one in our airports.
Cargo and maintenance organizations and so the increases that are provided in our new iam DLR actually welcome to improve our competitiveness in terms of attracting and retaining that part.
As for your specific question about pilot.
Negotiations Thats, that's an interesting one.
Consider in it is colored by the fact that the negotiating.
Picture is not just our contract becoming amendable this year, but the fact that.
A significantly a significant percentage almost all of the <unk>.
Pilot contracts throughout the industry have either recently opened up or been opened up for.
Some period of time. So there is there is a fair bit of uncertainty and I think that is likely to to shape. Our negotiations as we move forward over the coming months.
Got it thanks for the time.
Thank you. Our next question comes from the line of Dan Mckenzie with Seaport Global. Please proceed with your question.
Hi, Thanks.
The first one is just housecleaning.
A couple of other questions, but on the first one can you remind us of the timing of when the new revenue management system is turned on like what day.
And what the benefit is that you've included in the first quarter revenue outlook.
So Dan it will turn on.
In the kind of the middle of the latter part of the quarter and we are prescribed $0 for the first quarter, just given where we are with the booking curve and working our way through that and the implementation.
We'll be well into.
Well into the booking curve and so.
As we work to.
Get value out of that it's going to be more in the medium term in the latter for the summer in the latter part of the year not not in <unk>.
I see okay.
And then.
On pent up demand I guess, Brent while I have you I'm, just wondering how spring and summer searches.
For travel are comparing to 2019, so not bookings just looking at searches.
Are they trending above 2019 and.
What inflections have you seen.
Grind through the omicron than what <unk> seen recently.
Yes, I think I would characterize as pretty flat.
Certainly in the context of summer Theres been a lot of interest out there around that and so I'd say, we're we're kind of at parity with with 2019.
And spring break I think we're probably pretty close in terms of searches where we're probably.
Or a little bit down in bookings, but that's really just a function of the timing of when <unk> came upon us.
Okay and then.
Kind of another question if I can just squeeze one more in can.
Can you remind us on the percent of scheduled seats that are from business and extra comfort.
And where I'm going with this in the script you mentioned optimally configured aircraft and I think as you compete more and more with southwest have you looked at increasing the number of premium seats. Just given the success that you guys have had on the premium revenue mix, just kind of going back to an earlier question as well.
I don't have the exact percentages in front of me in terms of Kevin split we can have Ashley follow up with you on that.
It is something that.
We periodically look at and we look at how we're best using our real estate onboard the aircraft as Peter had mentioned.
Earlier, we were making strides back in 2018 in 2019, and our and our more premium related products and we will continue to look at that.
Real estate investments in terms of Reconfigurations for first class cabin are pretty expensive.
So the hurdle might be there might be a fair amount higher to go make some changes there to existing aircraft, but certainly as we look forward its something that will.
We'll continue to keep a sharp eye on for existing products.
I'd just follow on to that I'd underscore that the trends there are long term and so if you actually think about how we're laying out our 787 with the next airplane that's entering our fleet.
We have designed our cabin on that airplane with a larger.
Premium section and Thats certainly the.
Reflects the evolution of our thinking over time in terms of where opportunity is from a revenue generating perspective.
Yes, okay. Thanks for the time guys.
Thank you.
Our next question comes from the line of Chris <unk> with Susquehanna International Group. Please proceed with your question.
Hey, good afternoon. Thanks for taking my questions. So just wanted to go back to Dan's question here before.
So yes.
He is looking at it or he asked about searching but if you could give a little bit more color.
With respect to actual bookings I think you just said that they are slightly down and so for March and beyond.
What are you seeing in terms of absolute bookings and then the pace of bookings relative to 2019 or typical seasonality.
So Chris.
As we've worked our way through the latter part of December and early January we had seen things slowdown is.
To a much.
Slower pace, we've seen that kind of get off those bottoms and we're continuing to see improvement.
And.
We anticipate going forward that as cases abate, we will continue to see material acceleration around that.
And just to put that in context, a little bit Chris.
Chris we were.
As we came through the Delta variant.
That had us behind in bookings as cases.
It started declining from that there was an acceleration and then subsequently omicron came and we saw a slowdown again. So there is a real relationship.
<unk> cases, and so it's hard to extrapolate.
But the trends from the last month, even because of the trends from the last month may reflect two two week periods will look very different from one another and I do think we're on.
On the good side of the Omicron curve now.
In the early days of starting to.
To see trailing seven day average case counts go down in that setting us up for a better environment going forward.
Okay, and then for my follow up so Japan or any other markets in the region.
The longer to recover.
For whatever reason, how should we think about the commercial initiatives that you outlined.
There was the impact of the initiatives that you outlined out.
December whether in terms of.
<unk>.
Staging or.
The revenue contribution thanks.
Yes.
I think all of those are.
Obviously highly correlated to how we're doing in the marketplace. So the benefit of our revenue management system goes up when demand is more in line with supply and so yeah, there might be a slight erosion to that but I don't think it's all that material.
Okay. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I will now turn the call over to Peter Ingram for closing remarks.
Mahalo again to everyone for joining us today.
We appreciate your interest and look forward to updating you on our progress again in a few months.
Hello, Hi.
This concludes today's conference and you may disconnect your lines at this time. Thank you.
You for your participation and have a wonderful day.