Q1 2023 Hawaiian Holdings Inc Earnings Call
Greetings and welcome to the Hawaiian Holdings, Inc. First quarter 2023 financial results call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host RC Morita, managing director of Investor Relations. Thank you Marci you may begin.
Thank you Camilla Hello, everyone and welcome to Hawaiian Holdings first quarter 2023 results conference call.
With me in Honolulu are Peter Ingram, President and Chief Executive Officer, Brett <unk>, Chief revenue Officer, and Shannon Okinawa, Chief Financial Officer. We also have several other members of our management team and the tenants for the Q&A.
Peter will provide an overview of our performance Britt will discuss revenue and Shannon will discuss costs in the balance sheet at the end of the 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 eastern time today.
Have not received the release it is available on the best of relations page of our website Hawaiian Airlines Dot com.
During our call today, we were for a time 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 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.
Payments 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 reports on Form 10-K.
I will now turn the call over to Peter.
Malo Mercy Hello, everyone and thank you for joining us today.
2023 is off to an encouraging start.
Many of the challenges we have discussed on previous calls remain but leisure demand and the substantial majority of our markets remains strong and we outperformed our revenue guidance in the first quarter.
At the same time, we continue to execute against a wide variety of important initiatives. This year that are going to position us extremely well for the years to call.
Last week, we made the transition of our passenger service system to Amadeus as all pay up platform.
This is the largest technology project in the history of our company and hundreds of people work for more than a year to make it happen.
The core PSS transition went smoothly.
We did experienced issues in some of the Hawaiian Airlines systems that connect to it, particularly our website and kiosk check in.
Those systems have been stabilized since the end of last week, but in the three days immediately following the cutover, we faced crowded airport lobbies and were unable to take the normal volume of bookings on our website.
We expect a small one time impact on revenue and <unk> as a result about which Brent will offer some thoughts.
As you would expect I wish the transition has gone flawlessly, but in spite of the challenges I was inspired to see how our team and partners pulled together to take care of our guests and solve the problems.
What's most important to me is that first we are taking care of our guests with empathy and care and second where we go from here.
Right now we are focused on ensuring that the systems, we have implemented our stable of them working as planned and that we are addressing any lingering transition issues.
Beyond that is where the real benefits of this investment will be realized as we begin to build a new digital experiences and revenue generating products on top of this fundamentally cylinder technology Foundation.
In less than a week, we will complete another important project to in source substantial elements of our <unk> hundred 30 maintenance from a third party, reducing our steady state expenses, giving our team greater control of our day to day operation and allowing us to scale our costs more effectively as we grow the fleet with the.
Amazon <unk> hundred 30 freighters.
Beyond these two significant initiatives are is much more ahead of this year.
One of our key themes. This year is delivering on our commitments a nod to the fact that as we move forward from a disruptive couple of years, we continue to invest in our future and several of these initiatives are coming to fruition. This year.
It's good to be off to a positive start.
Brent will talk about our commercial performance in more detail, but I'll hit a couple of highlights.
Demand in the largest part of our network from the U S mainland to Hawaii remains strong.
First quarter performance met our expectations and we are well set up for two Q and the summer.
Australia, New Zealand and South Korea can taking you to see solid demand in the first quarter of the year.
The neighbor Island network, we continue to face a pricing environment that delays have returned to profitability on these roads.
We are closely monitoring D O D reported yield and load factor information as it becomes available and month. After month. It shows that we are resoundingly outperforming southwest on both fronts.
Peter Island pricing pressure abated somewhat sequentially in <unk>.
But remember this is on the heels of five plus months of our competitor offering last seat availability of $39 fares inclusive up taxes on every flight.
Demand recovery of outbound, Japan travel remains slow we've.
We've seen some green shoots in recent weeks, but our Japan routes remain far from a complete recovery.
With the extension of slot flexibility for a few more months, we are going to fly less Japan capacity in the summer than we anticipated when building our 2023 plants.
Some capacity will be shifted to the more rewarding U S mainland market this summer, but not as much as we would prefer as we're still plagued with limitations on our $83 21 Neo fleet capacity as a result of our engine suppliers inability to meet spare engine commitments.
Amidst an overtaxed engine overhaul of supply chain.
At the moment, we have five aircrafts grounded awaiting engines relative to an overall fleet of 18.
We expect to return one of these aircraft to service later this week with another one returning about a week after that if the current plan holds.
We're working with Pratt and Whitney to find a way beyond this situation, but in the meantime, some of the <unk> that are flying to Japan are back filling service on routes that we would prefer to operate with a 320 ones.
And we've been less aggressive in scheduling something or capacity overall than we otherwise would've been.
While I'm on the subject of operational challenges, let me provide an update on the impact of runway construction in Honolulu on our reliability.
Since October Honolulu Airport has operated with that would access to its primary of rifles runway.
The project, which has experienced delays is currently scheduled to be completed before the end of may by which time, we will have effectively seen seven months of impairment to the airports peak hour capacity.
Air traffic control protocols to manage the disruption has had a severe negative impact on our neighbor Island operation.
For the past several months, we have commonly seen our seven 107 is held on the ground with extended waits for approval from air traffic control to depart.
In the most recent period this has been a daily phenomenon.
These delays and Cascade through the day for subsequent flight scheduled for the delayed aircraft.
We have made adjustments to adding buffer to our operation putting slack time in the schedule to provide opportunities to recover a lineup flying after ATC delays.
This initially yielded some promising improvement to reliability, but in recent weeks with the return of daylight savings time schedules, we have seen performance deteriorate again.
Unfortunately, there is no quick fix here and we expect the challenges to persist until the construction project concludes.
I know this has an impact on our guests who depend on reliable and a island service and for their jobs and personal lives.
And we're absolutely committed to getting back to our historically industry, leading on time performance.
Yeah.
On a more positive note we were pleased to see the ratification of our new pilot contract in February .
The new terms went into effect on March 2nd.
This contract recognizes the contributions of our pilots to our company and reflects the evolution of the industry's labor economics.
The pilot contract follows the ratification of deals with our other collective bargaining units over the course of 'twenty 'twenty and 2021.
As we sit here today it will be 2025 before we have a contract becoming amendable for any work group.
Given the more unsettled state of bargaining at some of our competitors, we feel very well positioned in this important area.
We also remain focused on our environmental commitments, we've published a roadmap, which details our plan to achieve net zero greenhouse gas emissions by 2050 <unk>.
Including commitments to considerable progress in the 'twenty thirties.
And to help put that plan into action, we've announced an agreement with biofuel company Djibo to purchase 50 million gallons of sustainable aviation fuel over five years.
The availability of SaaS is essential to reducing our carbon footprint and we will continue to invest in meaningful partnerships to help develop this nascent and its industry.
Earlier, I mentioned that 2023 is a year for Hawaiian to deliver on our commitments the.
The PSS transition and our <unk> hundred 30 maintenance in sourcing are significant milestones let.
Let me take a moment to talk about some of the other initiatives that have seen progress.
We have a more clear picture now than at any time in the past few years on the timetable for introducing 787 to our fleet with the first delivery scheduled for the fourth quarter of this year and.
In a planned entry into service state in <unk> 24.
The fleet will grow to four by the end of 2024.
Planning and training have already kicked into gear and we don't expect any impact from the recent brief interruption of Boeing 787 deliveries.
We also continue to make progress toward commencing freighter flying for Amazon.
Revenue flights will begin in the fourth quarter and planning is on track.
As a reminder, we will ramp up to 10 freighter aircraft in the operation over the course of 2024.
As you can tell 2023 is shaping up as a very busy year.
We arent, yet where we want to be from the standpoint of financial recovery.
There is much to be excited about as we progress into the middle months of 2023.
Our team is doing a great job as they always do taking care of our guests and making sure that we compete to win in the markets we serve.
Let me turn it over to Brent to go over our commercial performance and outlook in more detail.
Thank you Peter Aloha, everyone.
As Peter mentioned leisure demand remained strong for most of our markets in the first quarter.
Total revenue was up just over 28% as we operated a little over 15% more capacity versus the same period in 2022.
With that said the impact of the omicron virus in the first quarter of 2022 makes it an eight and typical atypical comparison.
Reference total revenue is shy of 2019 by a little less than 7% on.
Just over 1% more capacity.
[laughter] system RASM was up just over 11% year over year for the first quarter, which is better than the high end of our guidance range.
The outperformance underpins the strength, we're seeing in North America, and the rebuild in our international markets.
Tempered by the low fare environment and the neighbor Island market.
North America continues to do well and we're encouraged by booking volumes that we saw from late March through mid April .
For the first quarter, a 10 point improvement in load factor drove revenue for North America up approximately 20% year over year.
Despite operating a touch less capacity compared to the same period in 2022.
Neighbor Island revenue performance continued to be challenged by low fares, our competitors no longer offering $39 last seat availability.
They were for most of the second half of last year. However, low fares remained broadly available in the market.
Helane was founded to serve the inter island market and a 93 year commitment to the market in Hawaii remains unchanged.
We offer the best service.
And schedule in the market and.
And consumers continue to choose our product as demonstrated by the most recent dot's statistics.
Which show we have a unit revenue that was almost three times, our competitor and a load factor that was almost 30 points higher.
The steady return of demand in our international markets resulted in better than expected performance in the first quarter due largely to the strength in our Auckland Sydney routes.
Strong traffic gains for U S point of sale demand led the way for international routes.
Passenger revenue for international market, including Japan is up almost 300% for the first quarter of this year compared to 2022, keeping in mind that the New Zealand Korea, and Japan travel restrictions were being relaxed in the first quarter of 2022.
For reference compared to 2019.
For the same period, our passenger revenue was down 32% driven by the slow recovery of Japan.
Japan continues to lag the recovery of the other markets. We're seeing strong performance from U S point of sale and steady improvement from Japan point of sale.
Slight relief in hand that are through July enables us to shift <unk> hundred 30 aircraft to other markets. So we can capture the demand there.
However, as Peter mentioned, we faced operational challenges with our <unk> hundred 21 engines that prevent us from optimizing our schedule.
There are many markets, where we would ideally like to fly and <unk> hundred 21, but are now compelled to find <unk> hundred 30 <unk>.
Current shortage of available.
For service <unk> hundred 20 ones.
To add to the operational inefficiencies, we're experiencing due to fewer <unk> hundred 20 ones in service.
The runway construction in Honolulu, and air traffic control protocols.
Further challenged our operation.
With the numerous delays imposed on us in Honolulu, We've added block time, and additional turn time to a place, which ultimately results in lower efficiency.
We're hopeful that the timeline for the project stays on track and we can return to our historical levels of dependability and efficiency in the latter portion of the second quarter.
Our premium product demand remains strong across the system and RASM for these products is still near record highs.
Ancillary products remain an important and growing source of revenue and we're continually looking for further opportunities to optimize revenue from our seating products.
<unk> credit card had another record for the first quarter with revenue up almost 11%.
Compared to the same period in 2022.
Yeah.
Our cargo team had a strong quarter from a historical perspective, but off from the record highs of 2022.
First quarter revenues were down just over 25% year over year as international yields softened from their 2020 to peak and we didn't fly any charters for the U S Postal service.
However, compared to 2019 first quarter revenue was up 16%.
As Peter mentioned, while much of our PSS transition was the success, we did encounter issues with booking through our website at the end of last week.
Hawaiian Airlines Dot com as our primary distribution channel and in 2022, it represented approximately 60% of our revenue.
The website performance issues are stabilized however, with the extended outage last week, we believe that we will have roughly a $4 million to $6 million drag on revenue in the second quarter.
Now, let me give you a bit more background about each of our geographies as we entered the second quarter.
In North America, our capacity is down a few percentage points year over year, primarily driven from our exit from the Orlando market.
Advanced bookings remain.
Both above 2022, and 2019 levels and we anticipate fare levels end up similar to last year.
The vast majority of our capacity growth is coming from international our longest stage length entity, where our capacity is up almost 145%.
Compared to the second quarter of 2022.
This is a function of methodically ramping capacity across Japan, and New Zealand as travel restrictions were starting to abate last year.
Not surprisingly advanced bookings look strong year on a year over year basis, but we still have a ways to go to get back to our historical levels.
Finally, as I mentioned earlier, we are clearly outperforming our competitor in the neighbor Island market.
But it remains a challenging revenue environment.
Our capacity is up about 8% year over year and industry capacity is up 18% year over year.
For the second quarter of last year was the recent high point for average fares in this entity. So at this point it looks like it will be our most difficult year over year comp.
Current published capacity levels look to moderate on a year over year basis, as we head into the back half of the year.
Adding all that up we think system ticket revenue will be a few points short of our capacity growth or year over year capacity growth of roughly 12%.
However, as I as we mentioned in previous quarters, we do have some year over year headwinds impacting our overall RASM comparisons.
Most notably spoilage has turned to a more normal historical level, but creates a three five point headwind year over year.
We also have a few other aspects of our business, where we've had a significant change.
This year, we didn't find any dedicated mail flights for the postal service.
Largely exited our third party ground handling business and.
And it will be a much and we will have much smaller amount of charter flying for the department of defense.
Together these changes create.
Just over an additional two five points of RASM headwind.
In total we think RASM will be down about 10% year over year.
We know we have more work to do but we're staying the course on strengthening our international markets tapping into demand from our U S mainland to Hawaii markets addressing the market needs of Japan, and staying on top of our neighbor Island travel.
As we get past the external factors affecting our operational efficiency will continue delivering on our commitments and with that I'll turn the call over to Shannon.
Thanks Pat.
Hello, everyone and thank you for joining us today.
We ended the first quarter of this year with an adjusted EBITDA loss of $85 million.
Which equate to an adjusted loss of $2 17 per share.
These results are consistent with our expectations at the beginning of the quarter.
Costs, excluding fuel were also generally in line with our expectations for the first quarter.
While we have not quantified the full financial impact of the operational issues that Peter discussed one significant area of impact within our fuel consumption, which ended higher than expected.
Although the fleet changes did not have an impact on overall capacity it change in our mix deteriorated, our fuel efficiency, causing about half of the ovarian versus our original expectation.
The other half of the variance was primarily due to increased taxi times and block hours, resulting from airports and air traffic control gesture.
We have considered these impacted our guidance going forward.
As Peter mentioned, we're very pleased that our pilots have ratified a four year contract.
Well the contracts provide for immediate wage increases effective at the beginning of March the company gained important scheduling and workload flexibility that will help us manage the business more efficiently.
The salary increases contributed to just over half a point to CASM ex for the first quarter and the impact to full year 2023 is estimated to add a little under two points of CASM ex.
For adjusted reporting purposes, we excluded the impact of the signing bonus and one time increase in vacation liability as they were not related to first quarter performance and would be anomalous in a period over period comparison.
While we're on the topic of nonrecurring items in the first quarter. We received a one time interest payments of about $5 million.
Related to a federal tax refund.
And recognized a $10 million gain from the sale of commercial real estate that we owned both of which were excluded from our adjusted results.
We also adjusted out of credit, resulting from the reversal of an accrued liability due to the accounting for the termination of our <unk> hundred 30 maintenance contract.
For the second quarter, we expect our unit cost ex fuel and special items to be about one 5% higher than the same period in 2022.
Primarily driven by about two percentage points from the indicators for the new pilot contract.
And about one point.
From heavier buying of our HSA east to the West Coast DC AK 'twenty one on availability.
Offset by about a point and a half benefit from spreading our fixed cost over a larger capacity and.
Half a point from fewer heavy maintenance events in the quarter.
We're committed to staying within our full year CASM ex guidance range of up to 5% versus 2022.
The full year range reflects larger year over year changes in the second half of the year, partially due to timing of maintenance events and the timing of airport related rate increases.
We've talked a bit about the operational challenges, we experienced and will continue to experience.
All of which puts pressure on our unit cost.
Despite these pressures, we're finding ways to mitigate cost increases, including efficiencies related to staffing and training and optimized workarounds for <unk> hundred 21 engine delays as well as part of the new runway construction.
Just a quick note on the balance sheet.
As we plan for the delivery of our first 77.
Although we are comfortable using cash to pay for the delivery of this year, we are evaluating the market to assess the viability of various financing options.
With that said I'm pleased that we have the flexibility to pay cash if desire to keep leverage and interest costs down.
We remain focused on what we can control to return to profitability.
NAV against short term challenges, we're also investing in our future to reduce costs.
Increased efficiency and to enhance our revenue generating capability.
Confident that the investments that we're making this year will provide value to our guests.
Please and shareholders when operating in a steady state.
With that we can open up the call for questions.
Thank you.
We will now be conducting a question and answer session.
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Moment, please while we poll for questions.
Thank you.
And our first question is from Helane Becker with Cowen <unk> Company. Please proceed with your question.
Thanks, very much operator, hi, everybody and thank you very much for the time this afternoon.
On the issue with the runway Peter I think you said that it took longer than expected or it's taking longer than expected, which kind of is not surprising given the management of it of the airport in the past, but do you know if you are a competitor and inter island flying has the same issues that you have.
<unk>.
Yeah. Thanks.
The project was originally scheduled I believe to be done more on a February timeframe. So it's run.
A couple of months late at this point.
It is the case that.
Flights are being held in the neighbor islands for both carriers.
It is also the case that we have a greater density of flights and the hours of day when the.
The air traffic control disruptions.
Typically go into place and the fact that our competitors are also.
We'll often have those airplanes depart the island later on whereas ours are flying back and forth between the islands. All made means I think the impact has been more profound gotten us, but we don't have any indication that air traffic control is particularly.
This favoring Hawaii departures, they are particularly disfavoring the short haul departures in favor of getting the long haul aircraft that are coming in from the mainland and the late morning on the ground.
As opposed to having them circle and so thats why the neighbor Island impact it takes a disproportion of our neighbor Island network takes a disproportionate impact.
Got it that makes perfect sense and then just for my follow up I didn't really touch comments on Japan other than its re opened can you talk at all about how forward bookings are shaping up.
For the summer months, maybe thank.
Thank you.
Sure Helane.
So we are seeing.
We'd seen some continued improvement in Japan point of sale not.
Not back to historical levels that we had and certainly our capacity levels reflect that but we are seeing some signs of improvement and I think if we look over the last four to six weeks, we've seen some steady progress and not exceptional but some steady progress in Japan point of sale.
We continue to see really strong U S point of sale Traffics are both Hawaii, originally traffic and traffic from the mainland that continues to look really strong. Unfortunately, it's a relatively small portion of our overall traffic mix.
So as we look at load factors were not going to be up to our historical levels, but we continue to see kind of sequential progress month over month as we as we move from the first quarter into the second and then progressed through the second quarter.
Okay. Thank you very much.
Thanks Helane.
Thank you. Our next question is from Conor Cunningham with Melius Research. Please proceed with your question.
Hi, everyone. Thank you.
Peter I don't know if you gave this or if it's just not relevant anymore, but on 2023 capacity guidance I mean, theres a lot of moving parts from all of the issues that you kind of talked about.
The 90, 512, and a half growth that you had previously put out there still relevant today and if not maybe you can talk about.
What are the pull downs are happening all the moving pieces that may make up your outlook for 'twenty three thank you.
Peter I'll start this is Shannon, yes, we did not update our full year ASM guidance. So we still believe that our range as you know in that nine five to 12, 5% for full year capacity.
We do have it is a different mix of what we have.
At the beginning of the year, but we are intending to.
<unk> moved some of that Japan capacity over to North America as as Brian discussed.
Yes, no I think we are.
At this point, we're confident that we're still in range will continue to keep an eye on.
As the <unk> hundred 21 situation progresses, we have expectation that.
That's going to improve as we get through the latter part of this quarter and into the third quarter.
And then we'll also keep a keen eye on Japan, and I think both of those could influence it but at this point, we're comfortable with where we're at and certainly within range.
The guidance that we got there.
Okay. Thank you and then Shannon.
Shannon I know you said you don't know the exact impact to these operational issues and some of the engine problems and whatnot.
When we think about that I know that youre, saying that you expect to be in the full year range, but.
It just seems like a lot that's going on.
Why wouldn't we expect to be at the high end of the range are you finding one for one offset as you move forward as it just through the productivity and so on I'm, just trying to get a sense for where things shake out there. Thank you.
Yeah. Thanks Connor.
<unk> put.
Put out the guidance at the beginning of the year.
We had a number of management issues initiatives in mind, and we had frankly also put in some.
Some fast they're far more management initiatives were being really aggressive this year about finding.
<unk> six <unk>.
I think we're doing a really good job so far which is why we.
We feel pretty comfortable with that.
Full year range.
I don't I wouldn't say that at this point I expect to be on one side or other of that range, but.
It's mostly what we're finding looking for it's mostly labor efficiencies.
At this point and we had so many estimates at the beginning of the year for for different initiatives. So say like we didn't know exactly.
The <unk> 30.
In sourcing.
Rollout from a cost perspective in order to finding ways to be more efficient than some of our.
Patients are estimates at the beginning of the year. So those are the areas that we're really focused on is some of the investments that we're making as well as labor inefficiency.
Okay. Thank you.
Yeah.
Thank you. Our next question is from Catherine O'brien with Goldman Sachs. Please proceed with your question.
Hey, everyone. Thanks for the time.
Maybe this is like a really silly question, that's going to have to Google awkward answer, but you know you guys had talked about a U S point of sale in Japan, improving one of your competitors mentioned that last month at a conference is there anything you guys could do from a marketing perspective to maybe try to capture some more of that U S point of sale than your normal mix or.
The slot timings in Japan, not work for that or maybe the connecting fair math doesn't work versus direct.
I just was curious if there's anything you could do to kind of like shift and maybe maybe carrying more of that U S point of sale the typical or.
Silly analysts idea.
[laughter] no.
I appreciate the perspective and you can send your resume over Katie and you can will it come join us anytime you want.
No we have made a concerted effort to.
To make sure that we've got connectivity from North America to Hawaii, Obviously, we do we do well out of Hawaii point of sale.
North America point of sale business is really what we've been able to tap into a bit more.
The challenge, we really got is just circuity given how far south we are it is more inefficient for our guests to who do want to come to connect through here. So our total elapsed time is a little bit longer than others, but we have been able to find some opportunities to go out and take some traffic that isn't a normal source of our traffic base.
We will continue.
So look at that both from the pricing revenue management perspective, but also on the marketing side in terms of being able to promote that and so we've done a fair amount of that already which has helped us get to this point and we will continue to look for additional opportunities to do that it gets a little bit tighter.
Summer, obviously is Japan load factors pick up a bit more than is in our North America load factors.
Creep up as well closer to the 90% level it gets a little bit more difficult to squeeze some of that stuff onboard, but well continue to look for troughs and opportunities to take advantage of that and just add to that for a bit.
Bryan nailed that the circuity of connecting over Honolulu puts a natural constraint on the demand we get from the U S. Mainland. The other point of U S point of sale that is as valuable to US but is also limited is Hawaii point of sale.
And I.
I think as most of us in this room.
Go out around our community, we probably all know a number of people who have told US recently that they took their family to Hawaii to Japan on spring break and is incredibly common around here, but unfortunately, theres only one 4 million people in Hawaii and that constrains the.
Size of that market as well so it's.
It's really performing well, particularly in those seasonal periods, we'll probably see a little bit more of that over the summer time period as well.
When kids are out of school again, but.
There are.
The mental natural limits to how big U S point of sale is going to be for us on the Japan business.
Got it that makes a lot of sense, and then maybe one for shannon or or or Peter I wanted to jump into but.
Capex starts to ramp up again this year with the first of your 12 787 closer to year end and then again in the coming years.
How are you thinking about financing. These deliveries I know you said during the prepared remarks that you'd be comfortable using cash to finance this year's delivery, possibly but what about next year I think in the 10-K of about $500 million in aircraft Capex and the Clintons table.
Over the next 24 and 25 just want make sure that that's the right ballpark last year. So I appreciate the time. Thanks, so much.
Sure. Let me, let me start I think Shannon did touch on that a little bit that we're in a position where certainly for the initial aircraft we can.
Finance it off our balance sheet.
I think as we.
Think about it there is always a buffet or financing options that are available.
To us we're in a position right now having done the the loyalty and brand financing a couple of years ago, where we really don't have that much aircraft debt on our balance sheet right now relative to the size and value of our fleet. So so.
We think we've got the flexibility to pick our spot a little bit in terms of the.
The timing the market and when we want to go out and certainly we have we have very valuable assets with.
Probably this will be the most popular modern generation wide body aircraft coming into our fleet and already having the most popular narrow body aircraft in our fleet.
Okay.
But I don't really have much to add I mean, we <unk>.
We just started going out into the market. So we haven't gotten.
A lot back yet, but we will evaluate them and I feel comfortable with where we are today.
Our main focus is getting back to profitability generating cash and then we'll consider you know.
What our options are for next year, but right now I think we've got the cash we've got highly financeable assets in the 70 $703 21. So I think we're in a good position right now.
And does that 500 million the right number for 'twenty four 'twenty five for the 10-K.
It should be in the 10-K, but I will check and get back to Katie.
No there were some mismatches of like deliveries contractual versus like management estimates. This was wondering thanks. So much for all the time I appreciate it.
Sure.
Thank you. Our next question is from Michael Lindenberg with Deutsche Bank. Please proceed with your question.
Hey.
Good afternoon, everyone.
Good morning, I'm trying to figure out the time zones here.
Good morning, Peter.
Have you.
At all I attempted to put a cost to Hawaiian around the ground at <unk> hundred 21, Neo is the GTS issue and I know this goes just beyond the airplanes I mean, you're obviously paying.
Rentals are financing costs, you have <unk> hundred <unk> flying in markets that should be <unk> hundred 21. Neo is you probably have excess pilots who are sitting around it's hard for them to bounce between airplane types.
This is going to be a meaningful revenue and cost impact that is growing.
What any sense on just even rough numbers on what this what this headwind is to Hawaiian.
I don't have it.
<unk> number that I wanted to throw one out at that point I think you've touched on a number of the categories where it has.
<unk> <unk>.
Financially.
Certainly when we're not flying those aircraft, they're not burning fuel and were not paying for.
By the hour fees, but we do have.
A.
A quorum of $3 21 train pilots that is sized for a larger fleet than the one that we've been operating the last couple of months, putting the <unk> III 30 end markets has has impacted us.
Greater it.
It could because there they are in markets, where demand is a little bit more limited and usually we're putting them when they go into 321 markets or going into markets, where the cargo carrying capacity of that aircraft doesn't yield us any revenue benefit which.
<unk> is different than if you are flying to Los Angeles or a.
Korea.
So it is.
I should point out we do have some contractual penalties.
That are part of the contract when we do not have.
The appropriate level of spare aircraft available what I will say quite definitively is that those penalties fall far short of covering the financial impact of not having the aircraft and we would much prefer to receive zero penalties because we've got the contractual level of spare <unk>.
<unk> availability.
Okay. Okay. Thanks for that comprehensive answer and then I guess my second question to Brian .
On your RASM guide for the quarter and I realize there's a lot of moving parts here.
But if I look at your fuel price assumption versus what it was a year ago, it's roughly it looks like about $1 30 per gallon how much of that maybe.
Maybe reflects fuel surcharges I know some of them are explicit in some markets like Japan summer may be more implicit just part of the fare structure, if that down eight and a half to down 11 five.
Percent.
A couple of points, maybe driven too big because of the fuel surcharges any any color on that would be great. Thank you.
So as you pointed out in Japan, it's certainly much more explicit and in Korea.
Yes.
Probably closer to Japan in any of our other entities in terms of it being explicitly in there.
And kind of beyond that it is really kind of overall market pricing supply and demand and so.
At this point I wouldn't attribute anything kind of specifically the fuel surcharges other than.
What what market demands and what the industry is able to bear based on that level of supply right now okay fair enough. Thank you.
Okay.
Our next question is from Dan Mckenzie with Seaport Global.
Please proceed with your question.
Oh, Hey, thanks, good morning, guys.
I guess following up on Mikes first question.
It's really hard to quantify all the inefficiencies it.
It sounds really rough, but could we add a minimum at least say that in the second quarter, you would be profitable, but for these inefficiencies without actually quantifying it.
Yeah.
I don't think I want to speculate on that debt.
I see okay, well I just thought I would try it just seems like a lot that's all.
Okay. So.
Next question here with Amazon's pulling up in the fourth quarter I'm guessing, you'll probably beginning to get some line of sight on what the metrics might look like so departures cost and potentially what the financial target potentially.
Potentially what the financial target is with respect to margins and that's where if you can.
Just shed some insight on what those metrics might look like at this point.
Yes, I think in terms of this year, Dan it's going to have a very limited impact. It's really it's the it's a cost drag this year as we incur some expenses in spooling up.
Four coming into service and then we have.
A couple of airplanes.
Entering service before the end of the year, but really for a partial fourth quarter rent back so.
It will really be more of a 2024 story before we have something meaningful to talk about and we're not we have not yet.
Put out some.
Revenue or.
Or cost guidance related to that that'll be something we think about as we go through in the latter part of the year, Dan What I'll add is we have it.
Their operating costs.
The fourth quarter of Amazon work in our full year guidance.
That cost piece is baked in obviously, we didn't give revenue guidance for the full year, but the cost is it takes that to our guidance.
Okay, and then maybe just squeeze one more in here.
I'm just wondering if you could unpack the revenue outlook for the second quarter, a little bit more.
So you guys always guide conservatively, but just setting that aside.
The inter island impacted Japan impact, but I am wondering to what extent if any there is you know the tech slowdown might be having on on leisure demand to Hawaii I know, it's it's it's okay today, but I'm just wondering if it is is this another shoe that could potentially drop that we have to worry about or am I just trying to split demand.
By too much here.
I would say, maybe youre trying to split it by too much Dan I think if we look across North America right. Now we were above where we were in 2019 in term of advanced bookings were above where we were last year.
We've had a pretty encouraging.
Oral weeks kind of leading in and I feel pretty good both in terms of where we're at from an advanced booking perspective for <unk> and <unk> as well, so I'm not seeing any kind of macro signs of it in there are some geographies in the bay areas, maybe a little more strained than others, but.
Certainly I think we will see overall demand levels to be quite strong but.
Nothing nothing material jumps out.
In terms of what we're looking at.
Yeah very good okay perfect. Thanks, so much you guys.
Yeah.
Thank you.
Question is from Chris <unk> with Susquehanna. Please proceed with your question.
Good morning, everyone. Thanks for taking my question.
Shannon I think on the last call.
You said that <unk> through year end crowds and we'd be closer to.
FY 'twenty two and if we look at the guide here for <unk> three points of headwind from spoilage No postal service.
It doesn't sound like you're doing ground handling and theres something else. So a lot of moving pieces with $39 fare wars tapering off.
Yes.
Could you give us some color on how.
How we should think about the cadence of CASM ex second half.
But also just.
Color on kind of core yields here because in the past you've always talked about this RASM.
Premium off of the U S West Coast and there's there's a lot of moving pieces here. So just would like to hear.
Your view on what you see with respect to core yields or I guess, perhaps the competitive landscape.
Thank you.
Hi, Chris.
Start a little bit with the CASM side.
I'll pass it over to Frank to talk about PRASM.
But so for CASM, yes, we're going to stay with our full year, 1% to 5%.
Range up in the first half was a little on the lower side and the second half is a little on the higher side to get that average and there's a lot of it just timing on the cost side of when our maintenance events.
Are happening and.
Our airport rate increases happened on July 1st I will take effect on July one, which pushes up that.
Half CASM versus the first half.
But we are going to.
Keep that full year guide of 1% to 5% for CASM.
Maybe just some of the Hilton yes. So.
Christopher we're not going to give a revenue guide we haven't historically kind of got it out for full year revenue. This early in the year, we're not going to not going to do that some of the headwinds you mentioned structurally.
Are there or abate as we get later in the year, depending on those individual attributes but.
Some of them will be there in <unk> and I think the tape.
Taper off a little bit as we get towards the end of the year. If we look at kind of overall, what's kind of going on in the marketplace. Like I mentioned I think we feel pretty good about where we are North America advanced book average fares lifted.
Assistant with kind of 2019 ish levels in some cases up some cases down but overall in the same neighborhood and then.
International Excluding Japan continues to book strong we're encouraged with that again really strong U S point of sale demand there and then with Japan, and we're continuing to see things rebound from a traffic perspective as that comes back.
At slightly lower fares, but.
But overall, we're encouraged with the trajectory we're seeing in Japan.
Okay. Thank you for the color and my follow up Peter.
With the $39 fare war seemingly over curious to hear your voice.
I'm a postmortem view on this but what did you learn and do you believe that.
Southwest products here.
Is resonating with travelers.
Ya.
Well I think what we've learned from the southwest experienced in the neighbor island market. So far is that.
Travelers and Hawaii prefer Hawaiian Airlines, and that's been reflected and consistently higher.
Load factor superior revenue generation.
We're focused on continuing to.
Compete whether it is $39 fares or other levels of fares going forward and we think we're well positioned to <unk>.
Succeed for the various reasons, we've noted overtime.
Okay. Thank you.
Thanks, Chris.
There are no further questions at this time I would like to turn the floor back over to Peter Ingram, President and CEO for closing comments.
Hello, again to everyone for joining us today amidst the challenges facing our business our team continues to deliver meaningful accomplishments, which positions us for a bright future.
We appreciate your interest and look forward to updating you on our progress in the months ahead.
Hello.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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