Q4 2022 Hawaiian Holdings Inc Earnings Call

Speaker 2: we'll open the call up for questions. By now, everyone should have access to the press release that went out at about four o'clock Eastern time today. If you have not received the release, it is available on the VISTA Relations webpage or website, Hawaiian Airlines dot com.

Speaker 3: During our call today, we refer at times to adjusted or non-gap numbers and metrics. A detailed reconciliation of gaps, not gap numbers and metrics can be found at the added to the press release, posted on the investor relations page of our website.

Speaker 4: As a reminder, all un-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.

Speaker 5: These statements are subject to risk and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them. Refer you to Hawaiian Holdings recent filings with the FCC for more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statement.

Speaker 6: These include the most recent ad report file in the form 10K, as well as subsequent reports file in forms 10Q and 8K. I will now turn the call over to Peter.

Speaker 7: Mahalo, Marcy. Aloha everyone and thank you for joining us today.

Speaker 8: It's encouraging to be entering a year where COVID restrictions are no longer hovering over our network.

Speaker 9: But we know that we have a lot of work ahead of us as our financial performance remains quite a ways from being fully recovered.

Speaker 10: As we continue to build upon the progress we've made, we've also embarked on a number of significant initiatives that will strengthen our company and make Hawaiian a better airline for our guests, our community, and our shareholders.

Speaker 11: I want to start by thanking our team.

Speaker 12: We've been tested over the past few years by a global pandemic, intense competition, and during the waning weeks of 2022 by Mother Nature.

Speaker 13: Through it all, our team has shown their medal and continued to deliver unrivaled hospitality.

Speaker 14: Our team cares deeply about our company, our guests, and each other.

Speaker 15: And more than anything else, this is what sets us up for success as we move forward.

Speaker 16: Leisure travel, demand remains dropped.

Speaker 17: We've experienced a full recovery in much of our network, most notably in the largest part of our network between the mainland US and Hawaii.

Speaker 18: Low fares in the neighbor island market have stimulated traffic. And we continue to materially outperform our competitor on all these routes.

Speaker 19: Australia, New Zealand and South Korea have all seen strong demand recoveries over the course of 2022.

Speaker 20: Having said that, despite the removal of COVID travel restrictions in October , Japanese travelers have not yet resumed international travel at a pace comparable to pre-pandemic levels, as Brent will discuss in more detail.

Speaker 21: With the timing of Japanese demand recovery still uncertain, we will need to be nimble.

Speaker 22: In recent weeks, we've made adjustments to slow the deployment of capacity to Japan.

Speaker 23: Well, we remain confident that with time, the longstanding affinity of Japanese travelers for Hawaii vacations will manifest.

Speaker 24: We also need to be pragmatic in putting capacity elsewhere if recovery remains slow.

Speaker 25: The natural question for investors is to wonder why it is taking Hawaiian longer to return to profitability than other US airlines.

Speaker 26: On the cost side, our outlook relative to 2019 is comparable to others.

Speaker 27: We are facing cost inflation in a number of categories, including labor.

Speaker 28: I should emphasize that our cost outlook now includes the impact of new contracts for each of our unionized groups since 2020, including the economics of the TA we recently reached with ALPA.

Speaker 29: Where our 2022 results and our near-term outlook diverge from our peers is on revenue.

Speaker 30: not because we are underperforming our competitors on specific routes.

Speaker 31: But because of the characteristics of the markets in which we compete.

Speaker 32: We don't control the timing of demand recovery from Japan.

We only make decisions on one side of the Neighbor Island competitive battle.

And even in North America, the North America to Hawaii market, which is operating profitably, the supply demand environment relative to 2019 is less favorable than in the domestic 48 and transatlantic markets.

As a result, I can't project the timing of a turned profitability as precisely as I would like.

What we can do and what we are doing is to focus on what we do control.

We can focus on operational execution to unlock efficiencies which help offset an inflationary

We can invest in a continuum of initiatives to position our company for sustained success.

And we can work to win competitive battles and maximize revenue generation in each of our markets.

That is our focus.

Everyone in Hawaii is keenly focused on winning in Hawaii.

Last quarter, I talked at length about the competitive situation on our neighbor island routes.

Based on the most recent information available through DOT reporting, we continue to succeed in earning a disproportionate passenger share with higher average fares than our competitors.

And the gap is substantial.

We continue to believe that our place in the community, our product and schedule, our knowledge of the guests, and our fabulous employees give us structural advantages here that will enable us to win.

We are Hawaii's airline.

The current battle continues on the left.

which suppresses near-term financial performance.

We are standing on ground and remain resolute that we will win in the end and immerse stronger on the other side.

Also among our key imperative this year is to firmly reestablish an efficient operating rhythm.

2022 was marked by an unprecedented level of hiring and training throughout our organization as we rebuilt our network after the pandemic.

Almost 20% of my over 7000 teammates have joined our company since the beginning of 2022.

Being in rebuilding mode meant that we sometimes accepted ways of working that were not optimally efficient at scale.

For 2023, the focus is on operating more reliably, consistently, and efficiently.

Something that is good for both our guests and our cost structure. Countering inflationary pressure in a number of areas.

Over the past few months, we have not performed to our standards operationally.

The root causes are not a function of our decisions.

But it is our responsibility to overcome external forces and deliver the level of service and reliability our guests expect.

Since October , on-time performance at our Honolulu hub has been undermined by construction on a primary arrivals runway.

and the aircraft that control programs that constrain arrivals into the airport.

These changes have disproportionately affected short-hauled neighbor island flights.

As a consequence,

Our reliability has fallen below our high standards, and we've been forced to make adjustments to our schedule to stabilize operations.

This construction will continue into the second quarter and will continue to challenge our operations for the next few months.

We've adjusted our schedule to add block time and have created schedule recovery buffers on our lines of fly.

As a result of these changes,

and an intense focus on daily reliability by our operations team. We've seen considerable improvement in performance over the past two months.

But even with these changes, it will be a day-to-day battle during the construction period to manage through the capacity constraints in our primary hub. And we will be more susceptible than usual to weather or mechanical disruptions.

A huge mahalo goes out to our teams in the trenches who are working every day to deliver on our customer promise.

We are also not immune to global supply chain challenges.

Since late last year, we have encountered constraints on the availability of A321 pensions.

for which Pratt and Whitney's MRO supply chain has been unable to keep pace.

Most recently, this has resulted in 2 of our 18 A321s being grounded for an extended period, awaiting available serviceable engines.

Here again, we have made adjustments to protect the integrity of our schedules, but not without operational challenges and associated revenue and cost headwinds.

As we deal with these near-term challenges, we remain keenly focused on completing an extensive list of initiatives that will position Hawaiian for long-term success.

Our team is deep in preparation for the launch of freighter operations for Amazon later this year.

Over the next few months, we will also be, we will also complete the insourcing of certain elements of the maintenance programs for our A330 fleet, for which we have relied on a third party for over a decade.

This will improve our cost structure over time and immediately give us more control over fleet reliability and performance.

Well, separate from the Amazon initiative, taking on this insourcing at the same time as we're adding at least 10 freighters to our A330 fleet makes it even more timely.

We're putting mobile technology in the hands of more of our employees to make us more operationally nimble and to allow us to serve our guests better with

And in April , we will go live with our new passenger service system.

Not only does this unshackle us from a core system that has limited our pace of innovation.

It also has served as a catalyst to accelerate transformation of our technology.

streamlining the connections between the PSS and other systems, enabling better use of data, and providing an opportunity to modernize code for our e-commerce platform.

This year, we will begin cycling our long-haul fleet through the installation of Starlink in-flight connectivity, which will position us as a global leader in offering free, fast and frictionless internet to all our guests.

We're also pleased to have reached terms on a 4 year pilot working agreement with ALPA this month.

Since this agreement is currently out for a ratification vote, we won't be commenting on the specific terms of the contract.

But we have reflected the expected economic impact of the agreement and the guidance we are sharing today.

Should our pilots ratify the agreement, we will have reached new contract terms with all of our organized labor groups since 2020.

And none of our contracts will become amendable prior to 2025.

So we have a lot to do in a year with significant challenges in some of our core markets.

While we might wish for these initiatives to be a bit more spread out, you don't always get to choose when the opportunity presents.

And I believe the priorities I just mentioned will be transformational for our company.

2023 promises to be an exciting year, and I'm fortunate to have an unbelievably talented team to tackle the challenges and opportunities.

Let me turn it over now to Brent to go over our commercial performance in more detail.

Thank you Peter. Aloha everyone.

During 2022, we saw robust demand for travel to Hawaii from North America and our international markets, excluding Japan.

and strong performance by our premium and ancillary products.

We saw overall PRASM surpass 2019 due to the strength in these areas.

Our ability to be flexible and adapt our network and schedule to address a

Overall, fourth quarter revenue performance was in line with what we anticipated, despite the operational challenges we faced in the last two weeks of the year.

Although ASMs were down 6% from 2019 due to a slower than expected rebuild in Japan, our system rasm was up versus 2019, demonstrating the continued strength we see in our U.S. mainland to Hawaii routes and international routes excluding Japan.

Consistent with our expectations, approximately 25 million of passenger revenue was a tribulus to spoilage from pandemic-era credits that expired at the end of December , a level that we do not expect to see going forward.

The resilience of the leisure market was evident in our domestic travel demand.

U.S. mainland to Hawaii total passenger revenue was up 29% on 9% more capacity compared to the fourth quarter of 2019.

with load factors remaining in the high 80s.

We achieved this revenue growth despite 11% more industry capacity between the U.S. mainland and Hawaii than in 2019.

2022 was also a strong year for international markets outside of Japan.

In July , we resumed service to Auckland and pent up demand to and from New Zealand drove strong rasm gains. On the back half of the year, Korea and Prasim returned to pre-pandemic performance levels, and we continue to experience very strong demand in the Sydney market.

Unlike our other international markets, Japan's ramp-up has been slower than we anticipated when it began reopening.

This difference can be attributed to three primary factors.

First, Japanese consumers have exhibited a degree of conservatism in returning to the long-haul international market, international travel.

Second, the Japanese government is encouraging major domestic travel agencies there to promote domestic travel in lieu of international travel.

And lastly, the weakness of the end has made it more expensive to travel to Hawaii now than it was part of the pandemic.

The relationship of Japanese travelers to Hawaii is a strong one, and Hawaii is still a cherished and aspirational destination, more so than other international destinations.

This drives our belief that the weakness in demand is transitory, and that we will be well positioned to fully serve Japan to Hawaii market when demand returns.

Moving on to the neighbor island, it continues to be a challenging market from a fair perspective.

Our competitor is no longer offering $39 last-seat availability as they were for much of the second half of 2022, but low fares are widely available in the market.

We continue to manage yields above $39 when possible and the low fares have had the near-term effect of stimulating

We continue to offer the best service and schedule in the market, and we are seeing positive signs that are strategies paying off.

The most recent DOT statistics show that for the third quarter, our load factor was 22 points higher than our competitor, and our average fare of roughly $51 was nearly double theirs.

Well, our ticket PROSM of $0.29.3 was well below our historical standards. It vastly exceeded our competitors' 10.6 cent result.

With our premium products, demand remains strong both domestically and internationally. For the fourth quarter, North America premium cabin unit revenue improved over 30% compared to 2019.

In the longer term, we're excited about both expanding our premium offerings with the arrival of our first Boeing 787-900 at the end of 2023.

The 787 fleet will offer 34 lifelapse suites versus the 18 seeds.

are 830s as well on our 830s as well as additional extra comfort seats.

Ancillary revenue remains strong. We saw continued momentum and extra comfort sales.

Our new preferred seat option performed in line with our expectations, and we launched this product for international flights during the second half of 2022 with promising initial results.

Among other successful products, our co-branded credit card had another record quarter and year with spend up over 19% compared to the 4th quarter of 2019.

This program is uniquely designed to reward people who love Hawaii and those who live here.

We've also implemented a new benefit for cardholders, a second free checked bag.

Our cargo team had its best fourth quarter on record, which contributed over $34 million in revenue, driven by strong yields from the international market.

We do anticipate our cargo activity to slow moderately as we head into 2023 as international yields continue to decline.

Additionally, we don't have any.

Charter flying in 2023 for the U.S. Postal Service, as we did for the first three quarters of 2022.

As Peter mentioned, we will face some operational challenges associated with the maintenance of our

With the reduced schedule 2 and from Japan, we have the ability to shift our A330 aircraft to cover A321 routes.

That results in a heavier A330 scheduled into North America for the first quarter than we would normally plan in

Well, that allows us to maintain service and well performing mainland markets. We are not optimized and engaged, and that will have an unfavorable impact on 1st quarter 2023. Brasel.

We continue to work with Pratt & Whitney and anticipate improvement in the quarters ahead.

Our first quarter 2023 capacity is forecast to be approximately 15% higher than the same period in 2022.

Compared to the first quarter of 2022, we plan on operating a slightly lower capacity for North America routes.

Higher in the neighbor islands.

And substantially more international markets where network rebuild was only starting to take shape in early 2022.

The first quarter of 2022 had some unique pandemic related challenges, so we expect the difference versus 2022 to narrow as we progress throughout the

At the end of last year, we saw some softness in North America bookings for travel in the first quarter of 2023, but these have improved over recent weeks and we're encouraged with booking intakes.

even with some fair discounting initiated by other carriers.

We're now forecasting first quarter of the 2023 PRASM to be up approximately 15% compared to the first quarter of 2022.

As with capacity, we expect 2023 PRASM to be closer to 2022 levels in future quarters.

We look forward to strengthening our international and U.S. mainland to Hawaii markets.

rebuilding our presence in Japan, and continuing to be the airline of choice for neighbor island travel.

2023 does not come without challenges in some of these markets.

But we are equipped.

to be nimble as we review demands and opportunities.

We have a well thought out product lineup for our market, a strong brand, and a team that is second to none.

I'd like to thank our amazing team for their outstanding efforts not just during the quarter, but during the entire year.

We've had some challenging weeks to wrap up the year and it's great to see everyone pull together.

With that, I'll turn the call over to Shannon.

Thanks Brent.

Haoli makahiki hou.

Happy New Year and thank you for joining us today as we walk through our fourth quarter and full year results.

Share our 2023 first quarter and full year outlook. And talk about initiatives that we have on the horizon.

We finished 2022 with an adjusted EBITDA of $25.6 million for the fourth quarter.

And adjusted even the loss of 31.0Million dollars for the full year.

This equates to an adjusted loss of 49 cents per share for the 4th quarter. And $4.08 per share for all of 2022.

These 4th quarter results are slightly better than expected due to the strong demand in North America and certain international markets.

partially offset by the competitive neighborhood market and slower build up in Japan.

Our 4th quarter unit costs, excluding fuel and non-recurring items were up 14.2% compared to 2019, which was in line with our expectations.

As mentioned on the last call, we saw increases in wage rates and airport rent.

And as expected, we also incurred costs related to future growth opportunities.

So, to start up in pilot training costs for our new cargo flying for Amazon and the induction of our 787s later this year.

Regarding the 787s, we recently announced the amendment of our deal with Boeing, which solidified our delivery schedule and increased our order with Boeing from 10 to 12 aircraft.

We're very excited about the delivery of our first 787 aircraft, which is scheduled for the fourth quarter of this year.

Several factors influenced our decision to add two more 787s to the order, including the exceptional revenue generating capability of the larger premium cabin and increase in overall seat count.

In addition, the 787 delivery schedule will provide flexibility in our growth rate as we decide whether to extend or return A330s when leases expire.

Our next four A330 lease expirations occur in 2024.

The finalization of the 787 delivery schedule resulted in just over $70 million of capital expenditures moving from 2022 into 2023.

We now expect 2023 aircraft related topics to be in the range of $290 to $300 million.

In addition, we expect our 2023 non-aircraft related CAPEX to be in the range of 40 to 80M dollars.

which is higher than normal due to preparation for the 787 induction and the in-sourcing of our 833 maintenance.

Our investment in technology and facility initiatives will also be slightly higher than 2022.

Notable facility investments include reconstruction of the security checkpoint at Honolulu Airport for better throughput and guest experience.

And new below the wing work spaces to increase the efficiency of our operations in the new terminal at Honolulu.

Looking at costs going forward, it's clear that our costs will remain structurally higher than pre-pandemic levels, much of which is driven by industry-wide cost inflation.

To address this, we're focused on productivity of both people and assets.

as well as on revenue generating capability.

While we did not expect to be at pre-pandemic levels of productivity this year, we believe that our investments and the recovery of our network position will yield sizable improvement in the future.

And as we start up our new Amazon service and enter the 787 into service.

We'll reach the revenue benefits and grow shareholder value.

For the first quarter, we expect our unit costs, ex-field and special items, to be about flat to the same period in 2022.

And that's low single digits on a percentage basis for the full year compared to 2022.

This includes our estimate for the cost of implementing the new Alpha TA effective March 1st.

The primary drivers behind the increase in unit cost.

our training of our pilots for the Amazon flying and for the new 787 fleet.

Contractual rate increases in our power by the hour agreements.

And a more intensive heavy maintenance schedule for our A321.

2023 is a year in which we are making substantial investment in our fleet, technology and guest experience, which we expect in both our operating costs and capital expenditures.

These initiatives are building blocks to make Hawaiian Airlines a stronger business.

And as we get fast to operational excellence and fight to win in our market.

Our investments in technology and product are going to better enable our frontline team to deliver the aloha and hospitality that is one of our primary competitive advantages.

Having faced the challenges of the last few years, we have renewed energy around innovation to improve our revenue generating capability and manage our costs.

We're excited about our future as we lay the foundation that will set us up for success.

With that, we can open up the call for questions.

Thank you. Ladies and gentlemen, at this time 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. A confirmation tone will indicate your line is in the question queue.

You may press star 2 if you would like to remove your question from the queue.

or participant using speaker equipment, it may be necessary to pick up your hands up before pressing the star key.

Our first question comes from the line of Connor Cunningham with Melias Research. Please proceed with your questions.

Hey everyone, thank you for the time. I'm just going to the one queue, Rasmguide, and I'm a little confused on what's happening there. You talked a little bit about higher utilization, kind of impacting the results there, or the outlook there.

But just when I think quarter over quarter, it implies a pretty massive step down versus historical trends. I was just wondering if you could maybe, you know,

provide a little color on what's kind of happening there, and then why you expect it to snap back in the remaining quarters after. Thank you.

Well, I mean, we guided Connor to year over year and not over the quarter. I do think we've got some different moving pieces as you look through. We talked through some of the changes in spoilage in particular as you move through the quarter.

And like I mentioned, we saw a little bit of softness in the front part of the quarter, particularly in North America, in addition to some of those upages.

So it's basically a function of just like a larger spoilage in one queue and then it kind of normalizing.

For like high level take on a sequential quarter over quarter basis. We see that from from 4 Q to 1 Q, but from a year over year perspective, it'll be a little bit different. Yeah.

Okay, all right, that makes sense. And then just your cost cadence is going to be probably a little bit different than some of your other peers. I realize that you have the pilot contract in your numbers, but I was wondering if you could just provide a little color around the Amazon cost build there. I would imagine it's much more second half weighted, but.

I'm just trying to figure out the lumpiness that's going to happen through 2023. Thank you.

Thanks Connor, this is Shannon, I'll start. Yeah, we do have it. We haven't broken this piece out. We do have a good amount of pilot training going on right now and it's kind of combined with the preparation for 787s as well because we, of course, have one pilot training plan, which includes getting ready for both.

So that is definitely in our 1st quarter costs and our guidance as we move throughout the year. I don't that that training kind of stays. At that rate, but we will be to your point, adding in more costs as we get ready and get closer to.

flying for Amazon. You know, once we are, you know, actually flying the airplanes and we can specifically identify cost related to the Amazon flying. I'll try to point that out. But for right now, it is somewhat intermingled with all of the other things that we're planning for. Thank you.

Amazon, you know, once we are, you know, actually flying the airplanes and we can specifically identify costs related to the Amazon flying, I'll try to point that out, but for right now it is somewhat intermingled with all of the other things that we're planning for. Okay, thank you.

Our next question comes from the line of Julian Baker with the Dowling Company. Please receive a question.

Thanks very much operator. Hi everybody.

Peter, you said a number that I want to double check.

How many people did you say you've hired in the last year?

I said about 20%, just a hair under 20% of our employees on payroll today have joined the company since the beginning of 2022.

Right, right. So that's, you only have about what, 7,7500. So that's a significant amount.

of new talent that's been trained in the last few one year. So when do you think they hit?

their productivity levels that contribute to the bottom line.

I think for a lot of the groups, Hullane, you get the productivity fairly quickly. You're always wanting to do more training, probably over the course of part of the year last year. If you think about our airports organization, we would have people who were trained on certain functions, but they weren't.

Story in that part of the business with flight attendants for us, we're fully staffed to be able to operate a, not only the schedule we're operating today, we're not planning on having any material hiring a flight attendance this year. Although we had a lot last year. There is just really a question of having the ASMs back, which is to a certain extent, a function of

getting our wide bodies flying to Japan, getting the A321s back in the operation at full force would be helpful and sort of flying the full capacity that we have. So in terms of, that's what really is the one limiting factor on efficiency there.

And then as Shannon was alluding to with regards to pilots, we still have a lot of training this year, and we did a lot of training last year. So, and as we, you know, work to position through so that we have the right staffing for the initial tranche of the freighter aircraft.

and work to move people through the training cycles to get equipped for the 787s coming on later this year. We'll still have some...

Unproductive time in terms of pilots spending time in training, rather than flying revenue block hours for us and that is going to continue really throughout this year and probably start to level out some next year. But as we're in growth mode with the freighters, we'll still.

that he rejected the initial...

alliance that you had put forth. Would you consider circling back around and applying for an alliance again or JV or however you want to term it? With Japan Air to sort of in the short term anyway improve those results?

Yeah, so, you know, we've continued our commercial relationship with Japan Airlines, and we still work closely with them on code share and interline and some frequent flyer reciprocity.

We're doing that without the antitrust immunity protection that you get from an approved antitrust immunized joint venture with DOT. So that constrains a little bit how much we can optimize that relationship and how closely we can work with.

for the time being, that is our plan going forward. It's continue working on that way. We still have the opportunity to go back to DOT at some point and we spent some time in 2020 when the ATI application was turned down.

trying to understand the concerns the DOT had and obviously if the time came when we wanted to reapply, we would hopefully be in a good position to be able to address those and structure the partnership in a way that we can do to help

But it made sense in terms of how DOT looks at it. So no immediate plans to go and make a filing there, but it is still something that we have the ability to go back and take another look at again.

Yes, great, thanks. All hugely helpful as usual. Thanks, Peter. All right, thanks, Wayne.

Our next question comes in the line of Catherine O'Brien with Goldman Sachs. Please receive any questions.

Hey, good afternoon everyone. Good to be back this quarter. So I just wanted to circle back on the first quarter revenue outlook, if you'll allow me. A quick clarification first. Brent, was your comment that 1Q passenger revenue will be up 15% but trend towards flat, was that on your total system or is that just North America to Hawaii routes?

That was system prasm.

Okay, got it. And then looking back historically, load factors usually are pretty flattish between fourth quarter and first quarter. So if we assume the same for this year, maybe that's wrong, maybe that's right, but that means yields are down year over year versus last year and we had that pretty material Omicron impact.

Is that just like more competitive interisland or is there a stage length impact we should be thinking about given the international impact?

Yeah, I mean, there is a really big.

one Q year-over-year change on the international side. Our international capacity is up

I believe almost 70% in terms of 1Q. So I it's a really difficult kind of transition from a comp perspective, Katie, and I think that a lot of that will smooth out as we get into Q and beyond.

It makes a lot of sense. And then, you know, Peter, I know this wasn't very firm guidance, but last quarter you spoke to a low single and mid-tingle digit growth on a floor basis versus 2019, just like in the Q&A, so understandably not super firm. But your guidance today points to, you know, very slightly down, maybe up 2% of doing that math, right?

Can you just walk us through the underlying change versus your prior expectations? You know, is that just all Japan offset by the new Cook Island flight or is there pulled out anywhere else in the network maybe given some of the competitive situations? Thanks so much for the time.

Yeah, so a lot of that is certainly driven by Japan slowing the pace of our return to service there. I think in an ideal situation, ideal circumstance, if we were flying Japan less intensely, we might have

been a little bit more aggressive than we are planning right now in terms of redeploying capacity to other more productive markets and to a certain extent, that's a function of the aircraft availability that I alluded to with our 321s not being as available as we would like and having a little bit of uncertainty there. If that uncertainty can be

alleviated, that would give us an opportunity to make a couple of ads at least seasonally elsewhere in the network. And then of course, if we saw rapid change in Japan, we'd love to come back there a little more quickly. But that's most of what has changed since we talked about the numbers three months ago.

reasons why Japanese markets have been weak, that Japanese consumers are exhibiting conservatism, Japanese governments promoting domestic travel over international, Japanese yen being weaker. So could you kind of just give us a high level view, your view of the Japanese leisure market? You know, for example, why are Japanese consumers being more conservative than before?

What will change that? When do you expect the government to start promoting international travel, that kind of thing, just your high level view of that market.

Yeah, sure, Hilary, maybe I can just sort of reiterate and emphasize some of the things that Brent talked about. I do think some of this is a national temperament issue and Japan was

one of the more conservative places in the world in terms of dealing with the pandemic and maintaining a fairly high level of caution. That was frankly contrary to how some restrictive policies were.

were considered by the population in the United States, there was a lot more acceptance and even a certain amount of popularity of the level of restrictions. So, I think it is perhaps not entirely surprising that it is.

taking a little bit more time to embrace traveling internationally.

Folks in Japan have been traveling for leisure domestically, and some of that has been stimulated by some incentive programs to try and encourage domestic tourism as an economic stimulus opportunity. And you're frankly the existence, ongoing existence of those.

talked about the exchange rate where the yen has depreciated relative to the dollar, which hurts the spending power of Japanese coming to the United States. So I think the middle one of those, the travel incentives for domestic travel,

probably normalizes fairly quickly over time. The general sentiment towards travel and comfort is going to be a gradual thing. And your guess is as good as mine on how the currency exchange is going to be.

goes going forward, but the good news is there, we're at least in a better place than we were. We were as high as 150 yen to the dollar a few months ago. Now it's been back more in the plus or minus from 130 range. So that's that's still higher than when it was before.

One thing I'll just point out and I'm, you know, our crystal ball has not been very reliable when it comes to predicting the return of Japan travel. And so we're hesitant to stick our necks out and point to a specific date. But there is one bit of policy news that was announced this week.

treated like much more severe diseases. And that goes into place in May and will help, you know, contribute. I don't think it's going to be a silver bullet, but I think it contributes to that evolution of the sentiment and more comfort around.

Getting back into the rhythm of international travel. Got it, thank you. That's really that was really insightful. Thank you very much. And then just 1 more question, you know, you deferred delivery of 10 Boeing aircraft with delivery expected to start in the 4th quarter. So, you know, if you continue to express experience to me from the OEM.

Will that impact your plan schedule this year? And do you have any contingency plans in case we continue to see delivery delays from Boeing or bus and engine manufacturers? Maybe perhaps leasing or any other contingency plans where you think you're in good shape and come to that full plan.

Yeah, so, you know, we reset the delivery schedule with with Boeing with the, the new agreement. We don't have any 787 contribution in 2023 in our plan. We expect to take the 1st airplane before the end of the year and have it in service in early 24.

Given the freshness of the delivery forecast on which that deal, which is basically right now about a month old, I think we've got a pretty good level of confidence about Boeing's ability to deliver on that and we do expect to get.

a couple of 787s in service in the early part of next year. We don't have any other deliveries. We're expecting this year, aside from the A330 freighters, which is contingent on getting them out of the...

Out of the transition program from a passenger airplane to a freighter airplane, which is a responsibility of our partner on that. And then the other area where I've talked a couple times about some risk to aircraft availability is not so much around aircraft deliveries, but it's it's the supply chain.

Our next question comes from the line of Dan McKenzie with Seaport Global. Please proceed with your question.

Well, hi, thanks for the time here. So going back to the script investing in the continuum of initiatives, starting with, I guess, premium revenue. I'm just wondering if you can help us understand what capabilities you're gaining in 2023 versus what you are doing in 2022.

So, you know, the limitations that go away and the percent of the revenue picture that the improvements are touching here.

So, I don't think the Amadeus switch gives us materially different capabilities in terms of managing front cabin as we look into 23. I do think the things that will continue to benefit from obviously we've executed very well on the revenue management side. That's a capability we'll continue to have going forward.

We'll have an annualization of our preferred seeds products that we launched last year that will hit its kind of long-term run rate and a lot of the initiatives that we had around extra comfort and seeing optimization. We think some of those have some more growth as we look into 2023.

I see. Okay. Next question here. I think if I heard you correctly, it sounds like the three biggest drags on the business are slower recovery to Japan, the inter-island dynamic, and then the airport challenges at Honolulu. And I'm just wondering if you can just help us understand just how big a drag these three components are.

And so I guess if one of these were to flip, you know, what could that really mean? And then finally, the suboptimal schedule at Honolulu, how many points of revenue is that overhang that's embedded into the first quarter guide here? Anger.

I just say Dan, the first two of those, the the neighbor island competitive dynamic and the slower recovery in Japan, they're much more impactful in terms of the near term financial performance than the operating challenges at Honolulu.

We've been able to make adjustments to the schedule to stabilize the operation without having to send a material amount of capacity and particularly.

As we get beyond the construction period, we think that will that will become even more stable, but it's not costing us economically so much as it is sort of challenging our teams on a day to day basis.

changes in place.

I would say in addition to the two big revenue dynamics that are in place, neighbor island and Japan, the other thing that does constrain us a little bit is, is the aircraft availability? And do we have as many airplanes as we want to fly our fly and serve demand, particularly in the peak time of the year in the summer?

if we don't have aircraft fly.

I see. Okay. Thanks for the time you guys.

Yeah, thanks then. Our next question comes from the line of Andrew D'Dora with Thank You America.

Thanks, Dan. Our next question comes from the line of Andrew DeDora with Bank of America. Please proceed with your question.

Good afternoon, everyone. Brent, first question for you. In your prepare remarks, you spoke a bit about some modest softness in mainland Hawaii, I believe. What do you think that is and how are you seeing, what are you seeing out of your competitors, how are they behaving on that route as everyone tries to survive for the strong leaders?

I will say we saw booking slow a little bit early on in the year. We saw some promotional fares that got a little more aggressive than what we had seen in some of the stroller periods for the fall. However, since we've really come back from the new year, I am pretty encouraged with some of the progress we've seen on the traffic front and we've seen some real positive builds.

We've seen some of the levels of discounting a bait versus where they were early on the year. So I think we're trending in the right direction.

Thank you. Shannon, I think you said that you include the pilot contract as of March 1st. Did I hear that correctly? Given that it's partial quarter, give us a sense of what the quarterly labor impact is through 2023? Sure, thanks, Andrew. Yep, you did hear that correct. It's um...

The pilots do ratify the agreement. It'll be effective. The race will be effective March 1st, which is why we've included it from there. So the effect of the contract, which is more than just rates, but for the 1st quarter, I think we've added a little over half a point. For the impact to the 1st quarter, I think for the full year, it's a little over wanted to have point.

from the the alpha contract and again that feels 10 months of the year not 12.

Right, okay. I know it's hard to forecast an exact inflection in earnings power here, but until you get there, how should we think about potential cash burn here over the next several quarters?

Okay, I know it's hard to forecast an exact inflection in earnings power here, but until you get there, how should we think about potential cash burn here over the next several quarters? Yeah, I think.

I think it is a little difficult to forecast given, you know, we're hopeful that Japan comes back quicker. I think in the short term, we are just going to be more conservative about how we use our cash.

to conserve cash. We still have quite a bit of cash in our bank that we're going to use to invest in long-term initiatives. Yeah and you know just to add on to that I think we need to act with urgency to improve our financial condition but it's important that we don't panic.

And, you know, if you go through how we're performing competitively in each of the geographies, we are performing well head to head against our competitors, in some cases very, very well. So we don't want to

panic, we don't want to stop investing, but we have to be and we're comfortable with our liquidity position, but we have to be mindful of the need to act prudently and make good decisions going forward and that's what you can expect from us in the period ahead.

Great, thank you. Thanks, Andrew. Our next question comes on the line of Chris Stapulopulos with Susquehanna International Group. Please proceed with your question.

Good afternoon, everyone. So, Peter appreciate all the direct comments here and.

on the revenue initiatives here. So you have some here with your IT, I think your passenger service system, your premium cam is we have Amazon, I believe, slated for the back half of this year. Could you talk a little bit about what's going on outside of Japan, Australia, New Zealand, and South Korea?

And then also on the competitive landscape. You know, there was a promo that went out today. It's still it looks like the 39 dollar fares for inner island are still out there. And there was a 1 way fair here for 2.

255 or so so when you mentioned on the inner island piece and you talk about average fares being hired key reports And that you feel confident about your position How long are you willing to to hold the fares here? And if you could kind of just put some as we think about some of the rest revenue initiatives out here and if you could you know, perhaps frame that piece but also

Some of these other sales sale promotions that we see here. Thank you. Yeah, maybe just sort of start on some of the revenue initiatives and I think Brent touched on a number of these earlier, but, you know, over the last. A year or so we've, we've implemented a new. Uh,

revenue management system and they're still upside in terms of being able to generate performance from that. We've enhanced our capabilities around the pricing of our preferred seats and our extra comfort seats to allow us to be much more dynamic in terms of how we price.

by the day of week by specific seats on the airplane that are more desirable. And we've saw a lot of progress over the course of the last year in terms of generating returns from that. But I don't think anyone on our team would argue that we've...

We've squeezed that real-ass drop of opportunity out of that yet. Some of those things have not been, they were initially rolled out primarily on our North American network and so there's opportunity to further roll out things like preferred seats internationally, which French said we've just begun.

So, you know, there's a variety of things that we're continuing to work on and, you know, a long list beyond that. In terms of the PSS itself, it really doesn't on day one turn on new revenue generating capabilities. I think where the payoff is is...

Longer term, as we modernize the systems that underlie our technology, it just makes it easier for us to adapt and evolve and develop new products and get them into market on a more timely basis. So I think it is.

There's not sort of a flip the switch sort of benefit on the revenue side that comes from that, but I do think there is a broader improvement of capabilities that comes with that. And then turning to the second part of your question of...

You know, how we're going to compete you're right at the 39 dollar fares are still out there. It's not every seat 7 days a week anymore, but it is generally 4 days a week of 39 and a little bit higher on the weekends and pretty broadly available, although not last seat availability.

And the fact of the matter is we have to continue to compete. We do have better schedule and service and great reliability and great employees. But we all know that you've got to be cost competitive and you've got to be price competitive in this business. So we're going to continue to compete and we ultimately.

Know that we're going to be successful. Okay. Apologies. There was a lot in that 1st question just on the other international point of sale markets. If you could give a little bit color on what you're seeing there. Thank you.

Yeah, so I think certainly Australia and New Zealand have had a really, really strong winter strength out of those points of sale, but also really good strength both from volumes and fares for US point of sale. We've also seen

pretty well also. So I think overall, you know, we're pretty encouraged with how those are going. Is there additional runway there? Certainly, we'd like we think so.

And again, I would say front cabin has been exceptionally strong, particularly in the South Pacific where we've had a real ability to capture, demand it at materially higher fairs.

front cabin has been exceptionally strong, particularly in the South Pacific, where we've had a real ability to capture demand at materially higher fares. Okay, thank you.

If there are no further questions in the queue, I'd like to hand the call over to Peter Ingram for closing remarks.

We have a lot of important work in the period ahead, and I am very fortunate to be a part of a terrific team. Together, we're going to face our challenges head on and seize the many, many opportunities that are ahead of us. We appreciate your interest and look forward to updating you on our progress again in a few months. Aloha. 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.