Q3 2022 Hawaiian Holdings Inc Earnings Call
Greetings and welcome to the Hawaiian Holdings third quarter 2022 financial results earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press.
Zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Marcy Merida managing director of Investor Relations. Thank you you may begin.
Thank you Maria Hello, everyone and welcome to Hawaiian Holdings third quarter 2022 results Conference call here with me in Honolulu are Peter Ingram, President and Chief Executive Officer.
Overby, Chief revenue Officer, and Shannon <unk>, Chief Financial Officer. We also have several other members of our management team our attendance for the Q&A.
Peter will provide an overview of our performance Frank will discuss revenue and Shannon will discuss costs in the balance sheet at.
At the end of the prepared remarks, we will open the call up for questions.
Now everyone should have access to the press release that went out at about four o'clock Eastern time today. If you have not received the release. It is available on the Investor Relations page of our website Hawaiian Airlines Dot com.
During our call today 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 also make additional forward looking statements in response to your questions.
Statements are subject to risks and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them we.
We refer you to Hawaiian Holdings' recent filings with the SEC for 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.
And forms 10-Q, 8-K, I will now turn the call over to Peter.
Hello, Marci and welcome to the team Hello, everyone and thank you for joining us today.
Demand for travel to from and within Hawaii remains strong.
Leisure travel has led the global recovery and I expect this to continue.
I know the markets are focused on an uncertain economic outlook, but demand across our network is showing no signs of weakness.
Consumers continue to place a high priority on leisure travel.
Operationally, we had a solid summer relative to some of the challenges elsewhere in the industry.
Relative to our own high standards, we are not yet where we want to be.
On the positive side, our completion rate from Memorial day to Labor day was 99, 9%.
On time performance was under a bit more pressure haul Barbara exacerbated by some changes to air traffic arrival protocols here in Honolulu, and more recently runway construction work that is pressuring the on time performance of our neighbor Island flights.
These factors have dampened our operational performance in October , but our ops team is working hard to overcome these challenges.
Demand for travel between Hawaii, and the U S. Mainland has been fully recovered for some time.
And the peak summer period did not disappoint at all.
Greg will take you through the details later in the call.
Outside of Japan, We have also seen a strong recovery on our international routes overcoming the strength of the U S dollar and demonstrating that the robust desire for leisure travel is not a uniquely American phenomena.
Sydney in particular has seen notable demand strength.
Well, Japan demand is not all the way back we have seen some positive and important developments in recent weeks spa.
Specifically on October 11th.
Japan remove most of the pandemic travel restrictions, which are artificially suppressed demand in.
Including most importantly.
Testing requirements for international arrivals and the hard cap on the number of international arriving passengers.
We anticipate a solid recovery in Japan, Hawaii travel in the coming months.
But mindful of the cautious nature of the Japanese public and the continuing weakness of the Japanese yen relative to the U S. Dollar we are choosing to add capacity back gradually.
Graham will take you through the details of our scheduled recovery plans and what we are seeing in terms of demand recovery since the removal of travel restrictions has been announced.
Let me now turn to developments across our neighbor Island network.
As a reminder, prior to the pandemic our neighbor island routes accounted for a little over 20% of our passenger revenue.
A substantial contribution, albeit smaller than our North America and international flying.
But the percentage revenue contribution from these routes understates their importance to our business.
The origin of our company almost 93 years ago was flying between the islands of Hawaii and.
And we have been the primary provider of inter island transportation ever since.
In addition to serving as the inner Island highway system for the state.
These operations provide essential connection capacity for our long haul flights, enabling our North America and international operations to function at the scale, we provide despite limited connecting capacity outside of Hawaii.
Over the past nine decades, we have absorbed competitive challenges on various fronts and throughout we have prevailed.
In large part due to our singular focus on serving the needs of Hawaii travelers better than any competitor.
During the third quarter.
<unk> recent competitor added capacity and initiated unusually aggressive pricing.
Promising to have last seat availability up $39 through the end of the year.
These $39 fares include federal taxes.
Which means that the company received $26 and <unk> from each ticket sold.
These fares, even if a 100% of seats are occupied do not cover the cost of operations.
I'll defer from speculating on the strategic logic of this initiative because ultimately this is irrelevant.
What is relevant to us is how we respond and compete.
Let me lay out some fundamental facts.
Our cost structure on neighbor island routes as similar to southwest.
We operate smaller 128, Boeing 707, aircrafts that are uniquely well suited to short haul operations.
Southwest operates larger 175 seat 737, Max eight aircraft designed to serve longer stage lengths.
Based on our analysis southwest has a small cost advantage on a per seat basis due to the larger aircraft size.
On a per operation basis, our costs are measurably lower.
When comparing revenue production.
The results are not even close.
During the second quarter based on the latest available Dot's statistics, we generated a revenue premium of 129% over our competitor on a per available seat mile basis.
Our passenger revenue per operation.
Even with the aircraft that have 27% fewer seats with 73% higher.
Part of this revenue premium is derived from sources of revenue that are available to Hawaiian but that our competitor cannot access.
Connecting revenue from our long haul network provides RASM accretive traffic to our neighbor island flights.
Codeshare and interline revenue from other North America, and International Airlines that are available to us, but not our competitor.
We have a premium cabin.
We have extra comfort seats.
$39 main cabin fares cannot close this gap.
Confronted with these facts and in light of the importance of our neighbor Island operations to other parts of the network.
The answer to how we're going to respond is simple.
To stand our ground and compete and we're going to compete aggressively.
We have made $39 fares available on our neighbor island flights through the remainder of the year.
Not every seat on every flight.
These fares are broadly available.
Hawaiian miles members will receive double miles on neighbor island flights through the end of the year to reward our loyal customers.
Hawaiian miles credit card holders now received two bags free on every flight.
We are adding flights to meet the demand for travel.
I'm going to be asked to speculate on how the current situation evolves in the months ahead.
The simple answer is that I do not know.
What I do know is that the appropriate response to this challenge is to compete so we will lean in.
For so long as these deeply discounted fares persist.
We will see lower returns from our neighbor Island routes.
Exactly how long this will last it's difficult to predict at this time.
For now it will be a headwind to the recovery of our bottom line.
Shifting gears.
Let me touch on last week's announcement of our agreement with Amazon.
If you Didnt hear our Investor call last Friday, the recording is available on the Investor Relations page of our website.
Our team is excited by the opportunity that this new initiative will provide to further diversify our revenue and add a new avenue for growth in the coming years.
Work is well underway to prepare for our first a $3 3300 freighter in the second half of 2023.
More than ever we are operating in a dynamic environment.
As we put the pandemic in the rearview mirror, we must now deal with inflationary pressure and an uncertain economic outlook.
But there is a great deal to feel positive about.
Leisure travel demand is incredibly resilient.
We've seen this proven in the wake of the pandemic.
Just as we did amidst the global financial crisis, a decade and a half ago.
Most of our markets are fully recovered.
In the geographies that are lagging are positioned to move forward.
Our competitive position is strong in every corner of our network.
In the core of our network, we Outcompete the largest airlines in the world.
And above all else, we continue to have the best team in the business that has overcome the adversity over the last few years and continues to deliver the outstanding service and hospitality that is our hallmark.
I am encouraged by our progress, but not satisfied with where we are.
What I'm sure about is that we are on the right path.
With that let me turn the call over to Brent to discuss our results in commercial outlook in more detail.
Thank you Peter and Aloha, everyone overall.
Overall, our third quarter revenue performance came in as expected.
Turns about inflation, a recession do not appear to have impacted consumer demand in the quarter.
Passenger every passenger revenue was down just four 5% from 2019.
We operated 113% of our domestic capacity.
And just 52% of our international capacity compared to 2019.
Yields in the third quarter on our U S mainland to Hawaii routes were 9% higher than the third quarter of 2019.
Our revenue management team using our new revenue management system did a fantastic job of improving yield for these markets.
Well, it's only been six months since we cut over to a new RM system. The team is adapting well the technology is clearly superior and we have more that we can do in this space going forward.
In the neighbor islands, selling fares introduced in the market are clearly below historical levels and below any of the markets served by the big four U S carriers.
But it is stimulating demand and confirming our conviction that consumers favor our product.
As Peter mentioned, we are contending with a $39 fare throughout the end of the year, but we are managing yields above that base level, where it makes sense to do so.
Further evidence at Hawaiian being the preferred product in the market.
Hello fares have some of our neighbor island routes up 10, plus load factor points versus 2019, especially in markets that have a high percentage of local traffic.
Underscoring this strictly in state travel guests with local ZIP codes exceeded 2019 levels in September despite a smaller schedule.
The recovery continued to be strong for international markets, Excluding Japan.
Obviously, the policies of the Japanese government continued to dampen that market throughout the third quarter.
In our markets outside of Japan, However, average fares for the quarter were up 31% compared to 2019, which drove a ticket PRASM improvement of 25% on the strong fare.
The strong fair performance all despite the strength of the U S dollar.
Sydney in particular had a resounding recovery with PRASM improvement of over 50% versus 2019.
An ongoing theme our premium products continue to perform very well with <unk>.
Continued strong demand for our front cabin with North America premium cabin, PRASM up 34% compared to 2019 for the quarter.
Extra comfort revenue remained strong and the sale of preferred seats, which we introduced this past spring continues to meet or exceed our expectations.
Total ancillary revenue, including seats bags cargo and other products continues to perform very well.
Our co branded credit card program achieved another record quarter with revenue up 15% versus 2019.
Net retail sales were up 13% and new accounts were up 18% versus 2019, both records for the program.
Acquisition and spend remains strong showing no signs of weakening.
The cargo team delivered its highest third quarter revenue ever.
Up over 62% compared to the third quarter of 2019.
Yields yields remained strong up 73% compared to the third quarter of 2019 with the strongest demands from the Asia Pacific region.
Looking forward, we are pleased by both domestic and international bookings and are expecting a continuation of strong demand for travel to Hawaii.
For the fourth quarter, we anticipate overall revenue to be up about three 5% from 2019.
Breaking this down further by geography in North America, we continued to see strong demand and anticipate our load factor will exceed fourth quarter 2019 levels.
We anticipate our fourth quarter PRASM for North America to be about 18% higher than the same quarter of 2019.
Which includes a mid single digit tailwind from the spoilage revisions Shannon referenced last quarter.
The calendar works it works against US this year with an early Thanksgiving and Christmas on the Sunday. Nevertheless, we are positioned for a strong finish to the year in this region.
We expect to fly a similar scheduled for the third quarter at about 9% more flying than our fourth quarter 2019 schedule.
And while the industry capacity to Hawaii is still elevated relative to 2019, we're continuing to see moderation through the fall and into the winter.
We remain well positioned and based on the latest data from the <unk> T. We continue to materially outperform our competitors on PRASM in North America.
Demonstrates the strength of our North America network.
Our focus on the Hawaii premium lesion leisure traveler.
Our award winning service and our optimally configured aircraft.
In the neighbor Islands, we expect to fly about 80% of our 2019 capacity in the fourth quarter.
And we're competing well and continue to maintain a share of local traffic.
Well in excess of our seat share, earning a sizable load factor premium as well as meaningful yield premium compared to our competitor.
However, the deeply discounted fares book pressured industry PRASM.
Internationally.
<unk> is continuing to build nicely through the end of the year in Auckland in Incheon or building a bit more slowly, but there are clear signs of recovery has taken hold in those markets and fears are holding up very well.
As Peter mentioned the cap on daily arrivals to Japan was lifted on October 11th.
And we've seen a positive inflection in demand following the announcement.
But intend to take a measured approach to restoring capacity to pre pandemic levels.
Japan, Hawaii traffic typically has an extended booking curve and certain prominent travel retailers continue to focus on domestic leisure travel taking advantage of government incentives.
Our current plan is to restore capacity throughout the next couple of quarters with a full Japan schedule in place by the second quarter of 2023.
Thus our capacity, Japan will likely aligned with the broader industry capacity plans.
Okay.
Moving to our capacity outlook, we anticipate our overall capacity for the fourth quarter to be down approximately five 5% from 2019 levels.
Our full year capacity down.
Approximately 92% from 2019.
Which is slightly lower than we forecasted last quarter, reflecting the adjustments towards Japan schedule.
To summarize we continued to see strong demand and we expect our fourth quarter load factor to be close to 2019 levels premium cabin PRASM improvements to continue to accelerate to historical highs and extra comfort revenue to exceed 2019 levels.
Internationally with travel restrictions removed in all of our destinations we expect demand will continue to build.
We have the right products for our markets, our strong brand and exceptional team and a winning formula for success and with that I'll turn the call over to Shannon.
Thanks, Brent and thanks, everyone for joining us today.
We filed an 8-K yesterday this closing that will be restating, the first and second quarter GAAP results.
Due to an adjustment to reclassify approximately $19 4 million.
Unrealized losses from other comprehensive income to the income statement.
As these losses are unrealized this change will have no impact on adjusted results.
Now, let me provide an update on the balance sheet, our balance sheet remains healthy and we have ample liquidity.
Closed the quarter with $1 $7 billion in total liquidity.
Inclusive of cash short term investments and Undrawn revolver.
Adjusted net debt was $1 billion, which continues to be near 2019 levels.
As I mentioned last quarter high fuel prices and.
Uncertain economy and lower in Thailand.
To maintaining strong liquidity for the coming quarters.
Turning to the P&L.
This is the quarter with an adjusted EBITDA of 47 9 million.
These results were as expected with higher fuel costs and a challenging in China fare environment.
Offset by the strong North America and international demand environment.
On the cost side, our third quarter non fuel costs, excluding nonrecurring items.
<unk> totaled $512 million.
With unit costs, excluding fuel and special items up 10% compared to 2019.
Consistent with our expectation.
Fuel costs rose in the third quarter to $3 54 per gallon.
Recently, one 2% from our July guidance.
For the fourth quarter, we expect our unit costs.
Excluding fuel and special items to be up about 14% compared to the fourth quarter of 2019.
<unk> decreased five 5%.
As with previous quarters. This quarter biggest drivers are market driven increases primarily in wage rates and airport rent.
We're also incurring costs to prepare for future growth, including pilot training and other startup costs related to our new cargo flying for Amazon as well as the future induction of 787.
While these costs present near term headwinds.
Our investment, which lay the foundation for substantial future benefits.
Additionally, we continue to invest heavily in technology.
<unk>, which will be realized in increased revenue and labor productivity.
For the full year, we continue to expect unit costs, excluding fuel and special items to be up approximately 13% compared to 2019 on a capacity decrease of about 9%.
We also expect our fourth quarter adjusted EBITDA to be approximately $15 million.
Our capital expenditure forecast for 2022.
Approximately $130 million, which is a little higher than our previous guidance due to an increase in technology spend.
About $70 million of the remaining Capex is related to pre delivery payments for 787.
Some or all of which has the possibility of moving into 2023.
We continue to partner with Boeing to determine a final delivery schedule.
We've also updated.
Guidance on our full year fuel price in consumption and our tax rate in the 8-K that was released today.
As we look out into the remainder of 2022, we're confident that we are well along the road to recovery and our focus is on the long term success of our business.
To ensure our delivery of outstanding service and hospitality and remain committed to invest not only in our daily operations in areas such as training flight operations and.
Security, but also for our future as we grow.
<unk> become Alaska Airlines for a more diversified business.
In addition to running a solid passenger business. We're excited to begin our new venture with Amazon as we take advantage of our core strength.
Operating a solid airline and delivering authentic Hawaiian hospitality.
And with that we can open up the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone Keith Your line is in the question queue. You May Press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Michael Lindenberg with Deutsche Bank. Please proceed with your question.
Oh, Hey, good morning, everyone. Shannon I just wanted to go back to you talked about the cost guide and you talked about pressures startup cost tied to Amazon pilot training tied to the 787.
Are some of those are they are they are going to be capitalized or expensed as incurred or are you going to call them out as special items when when they hit the P&L.
How are they going to be treated I'm, just curious as we think about the CASM trajectory over the next year or two.
Yes, Thanks, Mike.
As far as some of our Amazon accounting we haven't.
Quite got to the final determination.
The startup costs. So I think I can provide you more information on that in January as far as how we will treat the Amazon startup costs.
So.
I think for now, especially with things like pilot training, it's kind of hard to two.
Piece out what level of penetrating and specifically for Amazon are 77 or our own passenger growth.
That's going to be a little bit hard for me to quantify next year I think we'll just have to build that into our cost guidance as we as we move forward.
Okay, Great and then.
Peter listening to your commentary about inter island competition in some of the comments the follow up comments by Brian you sort of list through each of the key elements there.
Where the competitor may be either I mean, you know that market better than anybody like you said you've been serving it for 90 years pricing below cost.
Pricing at a loss potentially you start checking off the boxes there it looks like that.
We may have a case here.
Predatory pricing here is that is that is that where we're going here.
I know the Justice Department as it.
It seems like there are a lot more focused on where they think there is potential harm they seem to be looking at everything is is that maybe going on here because as best as you can tell when you look at the numbers and the fares and you have access we all have access you can get that data better than anybody.
It doesn't look like the competitive there is actually pricing to generate any sort of profit is.
As Mike sort of thinking writer where are you on this.
I'll leave the legal questions too.
So someone else, Mike, but what I will say is.
Ill fares of $26 and <unk> do not cover the total cost from operations as I said in my prepared remarks.
Okay fair enough.
Thanks for answering my questions.
Our next question comes from Chris.
Steph I'll tell us with Susquehanna. Please proceed with your question.
Good afternoon, so so Peter.
Assume with your decision to stay in to compete on the inter island competition that perhaps.
Some or all of these flights or are operating at a cash loss and I know you said that you don't want to speculate I want this competitors and gain might be but.
Is there perhaps some <unk>.
Lower yielding traffic here that you would perhaps be willing to walk away from should this persist.
Longer than expected thanks.
So.
Let me start and see if.
Frank or Shannan has anything to add.
There are certainly.
Some.
The operating costs that are non cash most notable one obviously is.
Depreciation and some of the aircraft ownership and in our case.
Our aircraft are.
<unk> already.
Substantially.
Appreciate it and the cost of ownership is.
Is very low on our fleet.
Most of the costs are cash I would say it.
It is the case, though that.
There is a lot of things that are.
Sometimes challenging to attribute to a specific flight and the way we look at the.
The cost structure, but.
Yeah.
The.
What I would say about the price structure, that's in there right now.
If you look at.
<unk>.
Our pricing is elsewhere in the country and markets under.
250 miles you won't see pricing in the local market anywhere close to.
What we're seeing here so.
<unk> highly unusual and I don't think is sustainable for the long term.
In terms of whether we would walk away from some.
Some low yielding traffic.
I think thats.
And Brent may have something to add to this but I think some of that is difficult to do because.
People see the bears all of the time our.
Some of our best regular corporate accounts access to $39 a barrel.
In a different environment, though.
Those yields on that traffic might be different but I don't think we have any intention of walking away from.
Those sorts of customers that are important just in the current environment when you've got such pervasive.
Ours, they are going to permeate the entire revenue structure.
Yes.
Peter mentioned, we are aggressively competing for traffic, we think that is the right.
Long term answer to do in terms of protecting our customer base.
But we are managing up on those windows, where there are opportunities to sell up and so whether they be holidays, whether it be the peak business times. There are some pockets, where we can manage that but we feel overall, we need to compete aggressively and.
And defend our market.
And give customers choice that they've shown clearly prefer us.
Okay, and then Shannon Peter given what Youre seeing with respect to this inter island competition, the removal of travel restrictions and any startup costs from Amazon. How are you thinking about capacity and CASM X for next year. Thank you.
So we're not prepared yet to give CASM X guidance for the full year.
But what if we think about our cost and generally two or three bucket.
Some of our just business as usual.
And that's what we're talking about those market.
<unk>.
Okay.
Increases like labor.
Steel is going to do what feels going to do we're going to see that across the industry.
But to the point, we've been making we do have a bunch of investment class.
Includes things outside of Amazon and 77, we are investing in a new PSS that's going to continue in 2023.
We're still as we ramp up our <unk> in the first half of the year, we're still below 2019 levels with anthem, which also pressures in at cost, but at this point, we think it's.
Really important for us to continue investing in the business.
Ctrip, because we know those assets will come back.
And just to add to that on the.
Capacity outlook for next year, when chairman's, referring to ASM as being below 19. It is really in the early part of the year as we're ramping up.
Our expectation and it's you can see it reflected in the <unk>.
Schedule update that's out there now for Japan and recovery is a schedule that we expect to fly at this point, which is different than some of the scheduled out over the last two years those things have been very dynamic and we would expect as we get beyond that ramp, but we do have.
Paucity up above.
Above.
It was in 2019, probably for the full year, it's somewhere in the.
Low to mid single digits level.
Okay. Thank you.
Our next question comes from Andrew <unk> with Bank of America. Please proceed with your question.
Hi, good afternoon, everyone.
Peter you went through all the inter island dynamics very thoroughly.
You spoke about the slow ramp up in Japan.
Yes.
You're seeing pretty decent sequential revenue improvement <unk> to <unk>, just wondering where are you seeing much of this offsetting strength coming from is it. Good holiday just just curious where youre seeing that strength. Thanks.
Yes, so thanks Andrew.
It really North America is a nice sequential improvement.
While the calendar is working against us a little bit in the latter part of the quarter.
The front part of the quarter looks really really strong in North America and so we are we're encouraged with what we're seeing.
In terms of average fare improvements really in both cabins and so that as we've seen that coming out of the summer and that continues to accelerate into.
Really into October and November and December while the calendar is working against it still looks like it'll be a pretty good month. So some improvement clearly in Japan as it as it comes up from the depths of where it was at but really I would say North America is powering a disproportionate amount of that and again more on the average fare side and a little bit on the load.
Factor side.
Got it Peter.
Peter I apologize I wasn't able to be on the.
Call on Friday.
When we think about kind of this Amazon deal should we really think about this as a cost plus contract. So that the margins on this look relatively low versus the actual revenues brought in and just curious just in terms of the revenues that will you will book does this include a lot of the pass through items such as.
Such as fuel and certain maintenance items items or am I wrong on that thought process.
Yes, we will on the how we're going to account for those pass through items, which.
Most significant of which is fuel I think thats one of the things we're going to be.
Sorting out now that we have a broader.
Population of people that were allowed to talk to about this.
But.
But those items are clearly pass through the.
The bulk of the revenue that we think of as at risk revenue is going to be in the form of a per block hour operated.
Revenue that we book and a per departure revenue that we book and it's up to us to make sure that Bob revenue exceeds.
The costs, we incur primarily from.
The crew and maintenance of those aircrafts, so the biggest sort of elements of the cost.
Sure so.
It is.
In that sense.
It is.
There is an element of cost plus but those the per block hour on the per departure rate is established in the contract that we negotiated with Amazon. There is a mechanism for adjustment over time based on <unk>.
Particular drivers.
But our ability to generate the margin is really going to be a function of how we manage our cost below that and frankly, our success is not only hinging on that but it's our ability to satisfy our customer by operating absolutely reliably on.
On a very consistent basis.
Got it thank you.
Our next question comes from Dan Mckenzie with Seaport Global. Please proceed with your question.
Hey, good morning, Thanks, guys.
Over the years you seem to have always found a way to backfill lost revenue. So if anyone can pull a rabbit out of a had its you given the network wins over the past decade.
And so I guess as we think about back filling the loss revenue given the new competitive dynamic.
Amazon seems to be a start once up and running later next year.
But on the <unk>.
Partner side going back to the <unk> JV that failed to win antitrust immunity does it make sense to revisit other international opportunities that are out there or how should we think about other tricks that could be up your sleeve to backfill some of this lost revenue.
Look on the international side I think the biggest opportunity is to get to a full recovery of Japan and while we.
Our planning.
To approach that.
Methodically over the coming months, we do think that.
The historical importance of Japan.
Travel to Hawaii is should not be understated and it really is the the largest international opportunity.
We're going to continue to look for other places that.
Our service would be in demand I think Brent and the network planning team have a variety of things.
In mind for future growth as we have aircraft available, particularly as we get to the point, where the 780 sevens.
Start arriving in we free up some some flexibility in that regard so.
We absolutely think there's still runway.
Runway for growth we are we remain.
Primarily a.
Our passenger business, we're going to execute the Amazon com.
Contract very well, but it doesn't detract from our focus on running the passenger operations on looking for opportunities to grow it as we move forward.
Okay.
And then second question here.
Going back to the Amazon opportunity.
One follow up question that I had was just simply on the warrants.
And I'm just wondering if you can elaborate on the thought process for warrants equivalent to 18, I think it was 18% of the company not more than 20%.
But why was that why is that sort of the right level of ownership or the right amount for for you to grant them in and is it possible that.
That could potentially be upsized at some point.
Okay.
Like everything else.
This was a subject of a negotiation and a back and forth over several months with with.
Amazon.
And ultimately we came to a total package on the contract that.
That we think is.
A.
Worthwhile endeavor for our company and we're excited about it moving forward.
Just to correct one number.
You said, there it's not 18%.
It's 15%.
Fully diluted shares effect.
Okay, nine 4 million shares.
Yeah understood, Okay, alright, well.
Thanks for that appreciate the time.
Sure. Thank you.
Our next question comes from Ken <unk> with Cowen. Please proceed with your question.
How does this quinones for Helane.
So just thinking about the loosening of travel restrictions in Japan.
Just thought at the time was when those restrictions came off who could start to see more capacity schedule getting allocated to Japan, but.
It seems since then the capacity has pulled back a bit even most recently this week getting pulled back all the way into February assuming.
So maybe just thinking about the four coverage of that market into one each 23 are you seeing that recovery.
What's giving you confidence in that being the point, where we're going to start seeing this capacity come back online.
Okay.
We had.
We worked our way through and we are waiting on some some governmental approvals around our ability to operate a smaller schedule and protect some of our slots and so some of that had taken awhile.
Which caused us to publish the schedule a little bit later than frankly, we would have liked.
But yes as you can see we've got we've got kind of a published ramp up now through.
Really through the end of this quarter, a little extra holiday flying back down and then we'll kind of gradually right now bring back more service in the first quarter.
As we talked about we think there is a longer booking curve here.
Japanese residents comfort and travel is going to take a little bit longer.
Than it has in other geographies.
Our focus on traveling abroad, I think is going to take a little while but where we think thats about the sweet spot where folks will start coming back and we will see stronger.
Golden week and travel really at the end of the first quarter into the second quarter and we plan on matching our capacity concurrent with that and just to.
Point of clarification Quinn, we arent.
Reducing our capacity from the level, we're flying we actually increased our schedule.
August .
To get to more of a full <unk>.
Close to a full daily service between Honolulu, and each of Narita, Osaka and Haneda.
There is no reduction from that what is reflected in the schedule reductions is a slower pace.
Growth in our forward schedules as opposed to what reduction from where we are today and we do anticipate over the course of the fourth quarter, having some more of that capacity to Japan come back as we move through the period and then again more in the first quarter.
Right got it that makes sense. Thank you.
And so moving onto your Amazon business that you guys are doing.
Doing with them when you're thinking about how youre going to be sourcing as pilots and how you are going to fill that capacity if for whatever reason there was some constraints on the pilot hiring would you think about.
Constraining some of your international capacity, especially to Japan, if that market isn't fully recovered yet and moving some to the Amazon business.
Okay.
We've got an extremely high level of confidence that we're going to be able to to procure source. All the pilots that we we need we've got a very compelling.
Proposition to aspiring pilots at our Hawaiian Airlines, if you look at our fleet composition today.
On the passenger side with 24 of our 61 aircraft being wide body aircraft, we've already got a higher proportion of <unk>.
Wide body.
Aircraft in the fleet, which are the higher paying positions.
Then any of the U S carriers, including Big three network carriers on top of that we've got a commitment for 10 more wide bodies from Amazon and we've got an order for 10 more.
<unk> bodies in turned in the form of our firm 787 order.
<unk> career earnings potential is really pretty attractive for pilots.
So we're confident in our ability to.
Two.
Find pilots available there are we're continue to hire every month and more confident in our ability to work through the training that we need to make sure that we're ready to serve our customer when we start flying in the back half of next year.
Got it alright, thanks for the time.
Thank you.
Our next question comes from Chris Scott.
Susquehanna. Please proceed with your question.
Hey, Thank you for the follow up Peter just going back to the <unk>.
Amazon business. So just want to clarify there are no volume commitments.
And then b.
So do these rates set on a per flight segment basis or at the start of the year.
If Amazon starts to move the schedule around with.
With respect to seasonality in peak and therefore block hours, how do you manage your firs per flight.
Margins. Thank you.
Yes, so I'll start on that and then I'll, maybe hand, it over to Jim Landers.
Who you guys made on the call on Friday, and who is in here again with us today.
There are no.
Specific volume levels.
Flying that need to be maintained in the contract.
But there are significant incentives.
Two.
To manage utilization higher on the aircraft and therefore provide a predictable.
Level of flying and that is just when you think about it these will be the biggest and the newest aircraft in the Amazon Air fleet across a variety of carriers.
They are incentivized to.
Cover the fixed costs of those efficiently by <unk>.
Scheduling them regularly and keeping them going and probably keeping them going generally on those data.
Longer haul in highest demand parts of their network.
We're going to work closely with them on managing that schedule overtime, they really do value.
Flexibility to make the adjustments they need to serve their customers, but they wanted to do that in a way that puts the carriers that are operating for them in a position to be successful as well and so we'll work with them over time to make sure. We can execute on that Jim anything you would add.
Yes, I would just say that we're in our early days of working through the details of the relationship but clearly in the cyclicality of the of the year of the shopping year, where there may be peaks and valleys. We can look to optimize the aircraft utilization through maintenance events and optimizing the white space.
Other ways to make sure that we're getting the best out of the aircraft, but to Peter's point on being their new flagship and largest aircraft, we expect a high degree of utilization.
Yes.
Okay. Thank you.
There are no further questions at this time I would now like to turn the floor back over to Mr. Grimes for closing comments.
Yes.
Alright, Mahalo again, and thank you all for joining us today.
Let me also again, thank our team for meeting the challenges of a competitive marketplace and continuing to deliver the warm hospitality that sets <unk> apart from others.
I look forward to updating you on our progress again in a few months.
Hello.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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