Q4 2023 Hawaiian Holdings Inc Earnings Call
Greetings and welcome to the Hawaiian Holdings, Inc, fourth quarter and full year 2023 financial results call. At this time all participants are in a listen only mode. A 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 I'll now turn the conference over to you.
Marci Margarita: Marci Margarita.
Marci Margarita: May begin.
Thank you sure Molly Hello, everyone and welcome to Hawaiian Holdings fourth quarter and full year of 2023 results Conference call here with me in Honolulu are Peter Ingram, President and Chief Executive Officer, Bret Overby, Chief revenue Officer, and Sean Okinawa, Chief Financial Officer. We also have several other members of our management team in attendance.
Marci Margarita: Q&A.
Marci Margarita: Peter will provide an overview of our performance I'll discuss revenue and Shannon will discuss costs in the balance sheet.
Marci Margarita: At the end of the prepared remarks, we will open the call up for questions.
Speaker Change: 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 they'll release. It is available on the Investor Relations page of our website Hawaiian Airlines Dot com.
Speaker Change: During our call today will refer at times to adjusted or non-GAAP numbers and metrics are detailed.
Speaker Change: A reconciliation of GAAP to non-GAAP numbers.
Metrics can be found at the end of today's press release posted on the Investor Relations page of our website.
Speaker Change: As a reminder, the following prepared remarks contain forward looking statements include 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.
Operator: Greetings. Welcome to the Hawaiian Holdings, Inc. fourth quarter and At this time, all participants are on a listen. A question and answer session will follow the formal presentation, anyone to require assistance and Andrew DeNardis. Thanks for tuning in. We'll see you next time.
Speaker Change: These statements are subject to risks uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them.
Speaker Change: We refer you to Hawaiian <unk> recent filings with the SEC for a more detailed discussion of other factors that could cause actual results to differ materially from those projected in any forward looking statements. These.
Operator: I'll now turn the conference over to you... Thank you, Shamali. Hello, everyone, and welcome to Hawaiian Holdings' fourth quarter and full year 2023 results conference call. Here with me in Honolulu are Peter Ingram, President and Chief Executive Officer, Brent Overbeek, Chief Revenue Officer, and Shannon Okinaka, Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A. Peter will provide an overview of our performance, Brent will discuss revenue, and Shannon will discuss costs on the balance sheet. At the end of the prepared remarks, we will open the call to questions.
Speaker Change: These include the most recent annual report form <unk> filed on Form 10-K, as well as subsequent reports filed on forms 10-Q and 8-K.
Now I'll turn the call over to Peter.
Peter: Hello, Marci Hello, everyone and thank you for joining us today.
Well 2023, certainly had its challenges we accomplished an extraordinary amount, including the realization of foundational investments in the business.
Peter: I want to give a big mahalo to all our team members.
Speaker Change: Through their dedication compassion and hard work, we continue to deliver to our guests the hospitality that is the hallmark of our brand.
Operator: By now, everyone should have access to the press release that went out at about 4 o'clock Eastern Time today. If you have not received the release, it is available on the Investor Relations page of our website, hawaiianairlines.com. During our call today, we will refer from time to 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 the Investor Relations page of our website.
Speaker Change: We wrapped up the year with FAA approval of Star link on the <unk> hundred 21.
And are kicking off 2024 by taking delivery of our first 787 in the next few days.
Speaker Change: It's more about each of these milestones in a few moments.
Speaker Change: Before that I want to touch on the merger announced at the end of the year.
Speaker Change: We've provided exhaustive detail on this topic in public filings. So we're not going to dwell on it on this call.
Operator: As a reminder, the following prepared remarks contain four forward-looking statements, including statements about our future plans and potential future finance and operating performance. Management may also make additional forward-looking statements in response to your question. These statements are subject to risk and uncertainties and do not guarantee future performance, and therefore undue reliance should not be placed upon them. We refer you to Hawaiian Forest's recent findings in 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 statement. These include the most recent ADDA report followed on Form 10-K, as well as subsequent reports followed on Forms 10-Q and 8-K.
Speaker Change: On December <unk>, we announced that will be joining Alaska Airlines and a new kind of combination for the U S industry, becoming a single airline with two distinct brands.
Speaker Change: We are confident that this combination is the best way to help us meet the needs of Hawaii.
Speaker Change: And the other communities we serve.
Speaker Change: We strongly believe that this merger is pro consumer and pro competitive.
Over the next several months as we proceed through the regulatory review process.
Speaker Change: <unk> focused on the task at hand, running an outstanding airline and advancing our priorities which are.
Peter R. Ingram: I will now turn the call over to Peter. Mahalo, Marci. Aloha, everyone, and thank you for joining us today. Well, 2023 certainly had its challenges. We accomplished an extraordinary amount, including the realization of foundational investments in the business. I want to give a big mahalo to all our team members.
Speaker Change: Delivering industry, leading operational performance and enhancing the guest experience.
Speaker Change: Fully integrating recent investments into our business.
Speaker Change: Focusing on long term financial sustainability and.
Speaker Change: And taking care of the people in places that we serve.
Peter R. Ingram: Through their dedication, compassion, and hard work, we continue to deliver to our guests the hospitality that is the hallmark of our brand. We wrapped up the year with FAA approval of Starlink on the A321 and are kicking off 2024 by taking delivery of our first 787 in the next few days. I'll talk more about each of these milestones in a few moments, but before that, I want to touch on the merger announced at the end of the year. We've provided exhaustive detail on this topic in public filings, so we're not going to dwell on it on this call.
Speaker Change: We have immense confidence so we can compete on our own but the acquisition by Alaska is an even better outcome for consumers employees and the communities of our home state of Hawaii.
Speaker Change: I'll go over a few highlights of our 2023 results in 2020 for outlook on which Brent and Shannon will expand in more detail.
Speaker Change: On last quarter's call, we spoke extensively about the impact of the Maui wildfires.
Speaker Change: In spite of this strategy event and the ensuing reduction in travel to Maui.
Speaker Change: Our total revenue for 2023 was up year over year due to the strength in our non Maui domestic markets and the continuing recovery of international travel to Hawaii.
Peter R. Ingram: On December 3, we announced that we'll be joining Alaska Airlines in a new kind of combination for the U.S. industry, becoming a single airline with two distinct brands. We are confident that this combination is the best way to help us meet the needs of Hawaii and the other communities we serve. We strongly believe that this merger is pro-consumer and pro-competitive.
Speaker Change: The return of visitors to Maui remained steady and consistent with our expectations, which is important.
Speaker Change: Maui is not only our second largest hub.
Speaker Change: But as it is home to many of our employees and we remain committed to supporting the island and its residents and the ongoing recovery.
Peter R. Ingram: Over the next several months, as we proceed through the regulatory review process, we're staying focused on the task at hand, running an outstanding airline and advancing our priorities, which are, delivering industry-leading operational performance and enhancing the guest experience, fully integrating recent investments into our business, focusing on long-term financial sustainability and taking care of the people and places we serve. We have immense confidence that we can compete on our own, but the acquisition by Alaska is an even better outcome for consumers, employees, and the communities of our home state of Hawaii. I'll go over a few highlights of our 2023 results and 2024 outlook, on which Brent and Shannon will expand in more detail. In last quarter's call, we spoke extensively about the impact of the Maui wildfires. In spite of this tragic event and the ensuing reduction in travel to Maui, our total revenue for 2023 was up year over year due to the strength in our non-Maui domestic markets and the continuing recovery of international travel to Hawaii. The return of visitors to Maui remains steady and consistent with our expectations, which is important.
On the U S mainland to Hawaii network revenue performance from our non Maui routes remains solid.
Speaker Change: Our international markets ex Japan continued to perform well in spite of unfavorable exchange rates for visitors to the U S.
Speaker Change: In particular, our flights to ensure and has been producing strong results.
Speaker Change: Japan traffic is improving albeit more gradually than we would like.
As we mentioned on our last call there's been a snapback of industry capacity in the Japan, Hawaii market.
Speaker Change: As slot usage requirements were reinstated.
Speaker Change: And that has taken load factors off the highs recorded in August.
On the neighbor Island front, we continue to see overwhelming consumer preference for our brand over southwest as indicated by our substantially higher load factor and RASM.
Speaker Change: We faced a number of challenges outside of our control in 2023 that affected our on time performance, which we know is incredibly important to our guests.
With many of those issues like the Honolulu runway closure now behind us.
We're focusing on getting back to our traditional place as the industry's on time performance later.
Speaker Change: I'm proud that we were back at number one for on time performance for July August and September and ended the year at 83, 5% for the busy month of December.
Peter R. Ingram: Maui is not only our second largest hub, but it is home to many of our employees, and we remain committed to supporting the island and its residents in the ongoing recovery. On the U.S. mainland-to-Hawaii network, revenue performance from our non-Maui routes remains solid. Our international markets ex-Japan continue to perform well, in spite of unfavorable exchange rates for visitors to the U.S. In particular, our flight to Inchon has been producing strong results. Japan's traffic is improving, albeit more gradually than we would like. As we mentioned on our last call, there's been a snapback of industry capacity in the Japan-Hawaii market as slot usage requirements were reinstated, and that has taken load factors off the highs recorded in August. On the neighbor island front, we continue to see overwhelming consumer preference for our brand over Southwest, as indicated by our substantially higher load factor and RAS.
Speaker Change: Although we're not immune to additional challenges, we're moving into a period of relative stability.
Speaker Change: This includes a $3 21, neo engine supply, which we expect to improve by the middle of the second quarter. When we get back engines that have been undergoing overhaul.
Speaker Change: This adds to my confidence that we are going to be able to consistently provide the high standard of operational performance at our guests expect.
Speaker Change: Yeah.
As we kick off 2024, we're delivering on several very important initiatives and integrating them into everyday practice.
Speaker Change: We're deploying technology enhancements for our guests using the capabilities of our new armour day Spss.
Speaker Change: We received FAA approval of the Starlink system on the <unk> hundred 21 in December and are working with Spacex to complete the installation across our <unk> hundred 21 fleet.
Speaker Change: The industry's best Wi Fi connectivity will be available for our guests very soon.
Peter R. Ingram: We faced a number of challenges outside of our control in 2023 that affected our on-time performance, which we know is incredibly important to our guests. With many of those issues, like the Honolulu runway closure, now behind us, we're focusing on getting back to our traditional place as the industry's on-time performance leader. I'm proud that we were back at number one for on-time performance for July, August, and September and ended the year at 83.5% for the busy month of December. Although we're not immune to additional challenges, we're moving into a period of relative stability. This includes A321neo engine supply, which we expect to improve by the middle of the second quarter when we get back engines that have been undergoing overhaul.
Speaker Change: Our plan is to finish deployment across the <unk> hundred 21 fleet by early in <unk>.
Speaker Change: And work is also underway to prepare for the expansion of this service to our <unk>.
Speaker Change: And we're excited about receiving our first 787, which is scheduled for delivery in a few days.
Speaker Change: In about three months, we will be welcoming guests aboard this aircraft with the operation of our first commercial 787 flight.
Speaker Change: We faced enormous external pressure in 2023 with Honolulu runway closures Pratt <unk> Whitney engine.
Speaker Change: Inspections, the Maui wildfires intense competition in our core markets and through it all accomplished a lot.
Speaker Change: Our employees remained focused on caring for our guests and representing our brand is only they can with authentic hospitality and Aloha.
Peter R. Ingram: This adds to my confidence that we are going to be able to consistently provide the high standard of operational performance that our guests expect. As we kick off 2024, we're delivering on several very important initiatives and integrating them into everyday practice. We're deploying technology enhancements for our guests using the capabilities of our new Amadeus PSS. We received FAA approval of the Starlink system on the A321 in December and are working with SpaceX to complete the installation across our A321 fleet.
Speaker Change: What we have not done yet is returned to consistent profitability and.
Speaker Change: And we will not be satisfied until we accomplished this goal as well.
I'm confident that 2024 will be a year of further progress towards sustained profitability.
As the significant investments we've made in the business begin to deliver results.
Speaker Change: We will mark an important anniversary this year celebrating 95 years of continuous service as Hawaii's airline.
Speaker Change: We are confident in the core strength of our brand and business model I believe that our investments will make us an even stronger airline.
Peter R. Ingram: The industry's best Wi-Fi connectivity will be available for our guests very soon. Our plan is to finish deployment across the A321 fleet by early 2Q, and work is also underway to prepare for the expansion of this service to our A330. And we're excited about receiving our first 787, which is scheduled for delivery in a few days. In about three months, we'll be welcoming guests aboard this aircraft with the operation of our first commercial 787 flight. We faced enormous external pressure in 2023 with Honolulu runway closures, Pratt & Whitney engine inspections, the Maui wildfires, and intense competition in our core markets, and through it all, we accomplished a lot. Our employees remain focused on caring for our guests and representing our brand as only they can with authentic hospitality and aloha.
Speaker Change: Let me now turn it over to Brent to go over our commercial performance and outlook in more detail.
Brent: Thank you Peter and Aloha, everyone.
Brent: In the fourth quarter system RASM was in line with our guidance, but down approximately 11% year over year due to slowdown the pace of recovery of Japan outbound traffic, a softer fare environment for travel to Hawaii, and an increase in our longer haul flying.
Brent: Headwinds from Maui wildfires in the challenging comparison period as we lapped 2020 twos high watermark for spoilage and cargo activity were also factors.
Brent: As a consequence of these factors total revenue for the quarter was down approximately 8% compared to the same period in 2022 on 3% more capacity.
Brent: As we shared on our third quarter results call immediately after the fires demand in fares to Maui declined sharply resulting in overall degradation of RASM.
Brent: Since then we've seen sequential improvement in Maui as the fourth quarter progressed.
Peter R. Ingram: What we have not done yet is return to consistent profitability, and we will not be satisfied until we accomplish this goal as well. I'm confident that 2024 will be a year of further progress towards sustained profitability as the significant investments we've made in the business begin to deliver results. We will mark an important anniversary this year, celebrating 95 years of continuous service as Hawaii's airline.
And looking at U S mainland and Maui flights are October average fare was approximately $60 lower than the prior period the prior year with load factor eight points lower.
Brent: By December the average fair gap has narrowed to approximately $30 and the load factor gap was four points.
Brent: The impact of softness in Maui travel demand drove fourth quarter, North America, PRASM to a year over year decline of 16%.
Brent: While a bit David the last relatively clean quarter, we had on a year over year perspective was the second quarter of 2023 when year over year North America PRASM was down about two 5%.
Brent A. Overbeek: We're confident in the core strength of our brand and business model, and believe that our investments will make us an even stronger airline. Let me now turn it over to Brent to go over our commercial performance and outlook in more detail. Thank you, Peter. Aloha, everyone.
Brent: On our neighbor Island routes, we continue to compete and win we saw average fare improved progressively year over year throughout the quarter as we lap a period in 2022, when $39 fares were available on southwest up to the last seat availability.
In December our average fare from the neighbor Island entity reached six reached $60 the highest in 16 months.
Brent A. Overbeek: In the fourth quarter, System RASM was in line with our guidance, but down approximately 11% year-over-year due to a slowdown in the pace of recovery of Japan outbound traffic, a softer fare environment for travel to Hawaii, and an increase in our longer-haul flying, as well as headwinds from the Maui wildfires and the challenging comparison period as we lapped 2022's high watermark for spoilage and cargo We're also back.
Brent: We've maintained our significant lead over southwest in load factor and PRASM.
Brent: The most recent Dot's statistics for the third quarter show us at a 74% load factor and a 28, five PRASM compared to 47% load factor and $13 one PRASM for southwest.
Brent: These results continue to demonstrate that we are the inter island carrier of choice.
Brent: On last quarters call, we mentioned that industry capacity for Japan with returned to its highest point yet compared to 2019.
Brent A. Overbeek: As a consequence of these factors, total revenue for the quarter was down approximately 8% compared to the same period in 2022 on 3% more capacity. Additionally, as we shared on the third quarter results call, immediately after the fires, demand for fares to Maui declined sharply, resulting in overall degradation of RASM. Since then, we've seen sequential improvement in Maui as the fourth quarter progressed. And looking at U.S. mainland and Maui flights, our October average fare was approximately $60 lower than the prior period and the prior year, with a load factor eight points lower. By December, the average fare gap had narrowed to approximately $30, and the load factor gap was 4 points. The impact of softness in Maui travel demand during fourth quarter North America prickled to a year-over-year decline of 16 percent.
Brent: Japan fourth quarter industry capacity was just over 90% of 2019 levels.
Brent: Up from about 70% in the third quarter.
Brent: Japan point of sale bookings finished 2023 at around 50% of 2019 levels and we're expecting a modest pace of recovery of demand recovery in the short term given the weakness of the yen and the compounding effect of Hawaii lodging inflation.
Brent: Strength in the U S and other points of sale, including connections beyond Japan that helped to offset the slower return of Japan point of sale traffic.
Brent: But load factors have declined from the third quarter.
Brent: With a sharp increase in industry capacity.
Brent: Japanese consumers retain enduring interest in travel to Hawaii, and we are seeing steady improvement, but the dual effect of the weaker yen and dramatic inflation in the cost of Hawaii hotels. It means that we expect the return of Japanese travelers to be gradual at least.
Brent: Until one of those headwinds changes.
Speaker Change: Last week, we notified the department of transportation that we're returning the route authority and slot for midnight operation that serves haneda to Honolulu, four times, a week and Kona three times a week.
Brent A. Overbeek: Well, a bit dated, the last relatively clean quarter we had on a year-over-year perspective was the second quarter of 2023, when the year-over-year North America prism was down about 2.5%. On our neighboring island routes, we continue to compete and win. We saw average fares improve progressively year over year throughout the quarter as we lapped a period in 2022 when thirty-nine dollar fares were available on Southwest up to the last seat availability. In December, our average fare from the neighboring island entity reached $60, the highest in 16 months.
Speaker Change: While we are bullish long term on Japan to Hawaii, given the short to medium term challenges impacting the market.
Speaker Change: We have elected to reduce our Tokyo to Hawaii footprint back to 18% to 21 trips a week based on seasonality.
Speaker Change: We remain committed to serving demand for Japanese travel to the Big Island through our Honolulu hub.
Speaker Change: The robust connectivity available on our neighbor island flights.
We're still confident in the full recovery in Japan, and will deploy our assets to address demand in this market as the recovery develops.
Speaker Change: And our international network outside of Japan, We continued to see strong performance in Korea with a diverse mix of traffic on that route.
Brent A. Overbeek: We've maintained our significant lead over Southwest in load factor and PRASM. The most recent DOT statistics for the third quarter show us at a 74% load factor and a 28.5 cent prism compared to 47% load factor and 13.1 cent prism for Southwest. These results continue to demonstrate that we are the Inter-Island Carrier of Choice. On last quarter's call, we mentioned that industry capacity for Japan would return to its highest point yet compared to 2019. Japan's fourth quarter industry capacity was just over 90% of 2019 levels, up from about 70% in the third quarter.
Speaker Change: Sydney demand remains strong, but lagged year over year performance in the fourth quarter due to additional industry capacity between North America, and Australia, and a tough comp against the pinned up return of Australia travel demand in the fourth quarter of 2022.
Speaker Change: Although fares are down year over year. They are still well ahead of 2019, indicating better high yielding demand from that market.
Speaker Change: Looking ahead to the first quarter of 2024, we.
Speaker Change: We anticipate continuing improvements in Maui and are confident that demand will continue to recover as we progress throughout the year.
Speaker Change: We believe the worst is behind us.
Speaker Change: For the North America, the Maui market with load factors and average fares progressing towards historical norms realm.
Speaker Change: Relative to the fourth quarter year over year comps, the first quarter will benefit from a more favorable comparable period as we no longer have headwinds from the pandemic related cargo comps an uncharacteristically high ticket spoilage.
Speaker Change: We anticipate improvement in Maui, as well as our Japan market and we see a modest recovery of Japan point of sale demand, though unlike so unlikely to keep pace with the industry capacity increases.
Brent A. Overbeek: Japan point-of-sale bookings finish 2023 at around 50% of 2019 levels, and we're expecting a modest pace of demand recovery in the short term, given the weakness of the yen and the compounding effect of Hawaii lodging inflation. Strength in the U.S. and other points of sale, including connections beyond Japan, have helped offset the slower return of Japanese point-of-sale traffic, but load factors have declined from the third quarter due to the sharp increase in industry capacity. Japanese consumers retain an enduring interest in travel to Hawaii, and we are seeing steady improvement, but the dual effect of the weaker yen and dramatic inflation in the cost of Hawaiian hotels means that we expect the return of Japanese Last week, we notified the Department of Transportation that we are returning the Route Authority and SLOT for a midnight operation that serves Haneda to Honolulu four times a week and Kona three times a week.
Speaker Change: While we expect continued year over year improvement in the first quarter in 2024 and international PRASM. This will be the last quarter with historically low Japan RASM performance on a year over year basis.
Speaker Change: For the network as a whole we expect RASM to be flat.
Speaker Change: For the first for the first quarter year over year on capacity growth of about 4%.
Speaker Change: This reflects moving past the challenging 2022 comparison period and illustrates an improved operating environment with steady recoveries and our Maui and Japan markets.
Which we anticipate will continue to progress over time.
Speaker Change: We have a lot to look forward to in 2024 with the headwinds from <unk> hundred 21 engine issues receding. After the first quarter. The introduction of the 787 in the passenger service and steady improvement in the Maui recovery and progress in our neighbor Island performance as well and with that I'll turn the call over to Shannon.
Thanks Brent.
Shannon: Hello, everyone and thank you for joining us today.
We finished the fourth quarter with an adjusted EBITDA loss of $98 million and an adjusted loss of $2 37 per share.
Shannon: Full year 2023.
Shannon: <unk> and an adjusted EBITDA loss of $169 million.
Brent A. Overbeek: While we are bullish long-term on Japan to Hawaii, given the short- to medium-term challenges impacting the market, we have elected to reduce our Tokyo to Hawaii footprint back to 18 to 21 trips a week, based on seasonality. We remain committed to serving demand for Japanese travel to the Big Island through our Honolulu hub, using the robust connectivity available on our neighbor island flights. We're still confident in the full recovery in Japan, and we'll deploy our assets to address demand in this market as the recovery develops. On our international network outside of Japan, we continue to see strong performance in Korea with a diverse mix of traffic on that route.
Shannon: And adjusted at $6 <unk> per share.
Shannon: Unit costs, excluding fuel nonrecurring costs and direct merger costs came in as anticipated.
Shannon: While these fourth quarter and full year results are in line with the guidance. We provided we're disappointed that we have yet to achieve profitability since the pandemic.
Shannon: Our results were significantly affected by factors outside of our control.
Shannon: Such as the <unk> hundred 21, Neil Groundings due to engine issues.
Shannon: The impact of the Maui, and wildfires and a slower recovery of Japan.
Shannon: We believe that as we move past those factors our strong business model paves the path to return to profitability.
Shannon: The investments we have made and are continuing to make will begin providing financial benefits. This year with a more profound impact in 2025.
Brent A. Overbeek: Sydney demand remains strong, but it lagged year-over-year performance in the fourth quarter due to additional industry capacity between North America and Australia and a tough comp against the pent-up return of Australian travel demand in the fourth quarter of 2022. However, although fares are down year over year, they're still well ahead of 2019, indicating better high-yielding demand from that market. Looking ahead to the first quarter of 2024, we anticipate continuing improvements in Maui and are confident that demand will continue to recover as we progress throughout the year. We believe the worst is behind us for the North America to Maui market, with load factors and average fares progressing towards historical norms. Relative to the fourth quarter's year-over-year comps, the first quarter will benefit from a more favorable, comparable period as we no longer have headwinds from the pandemic-related cargo comps and uncharacteristically high ticket spoilers.
Shannon: We continue to main our strong liquidity position of $1 1 billion, which includes a $235 million undrawn revolver.
Shannon: We expect to close financing concurrently with our first 787 delivery and are in the process of securing financing for the second 77.
Shannon: Which will position our liquidity well as we continue to invest in our business.
Shannon: Prepared to address the maturity of our $1 2 billion loyalty bond in early 2026.
Shannon: Over the next few quarters, we will be ramping up by 77 fleet and flying more <unk> hundred 30 freighters.
Our 2020 for Capex, including aircraft and non aircraft spend.
Shannon: We expect it to be in the range of $500 million to $550 million and is primarily comprised of $3 77 scheduled for delivery this year.
Shannon: And PDP is related to future deliveries.
Shannon: Moving to costs. The general themes for 2024 are consistent with 2023.
Shannon: We will continue to see elevated levels of pilot training as we prepare for our fleet growth.
Productivity will be challenged in the first quarter.
Shannon: And aircraft delivery delays, both 780 sevens and freighter aircrafts have slowed our recovery.
Brent A. Overbeek: We anticipate improvement in Maui, as well as in our Japan market, and we see a modest recovery of Japanese point-of-sale demand, though unlikely to keep pace with the industry capacity increase. While we expect continued year-over-year improvement in the first quarter of 2024 in international PRASM, this will be the last quarter with historically low Japanese RASM performance on a year-over-year basis. For the network as a whole, we expect RASM to be flat for the first quarter year over year on capacity growth of about 4%.
Shannon: We will be on the road to normalization in this regard by the end of this year.
Shannon: We also face headwinds from higher airport and labor rates.
Shannon: However, we expect the benefits from our investments to also ramp up throughout the year as we begin our 787 and Amazon flying in earnest and benefit from changes in the new pilot CBA.
Shannon: For the full year, we expect our CASM ex to be up about 1% from the prior year.
Shannon: With about one percentage point, resulting from direct Amazon costs that do not generate assets.
Shannon: Our year over year CASM change reflects the ramp up of our capacity and starts off larger in the first quarter and improve throughout the year.
Shannon L. Okinaka: This reflects moving past a challenging 2022 comparison period and illustrates an improved operating environment with steady recoveries in our Maui and Japan markets, which we anticipate will continue to progress over time. We have a lot to look forward to in 2024, with the headwinds from A321 engine issues receding after the first quarter, the introduction of the 787 into passenger service, and steady improvement in Maui recovery and progress in our neighbor island performance as well. And with that, I'll turn the call over to Shannon. Thanks, Brent. Aloha, everyone, and thank you for joining us today. We finished the fourth quarter with an adjusted EBITDA loss of $98 million and an adjusted loss of $2.37 per share.
Shannon: We expect our first quarter unit costs, excluding fuel and special items to be about 9% higher than the same period in 2023.
Shannon: In addition to labor and benefits, which account for about four points of the increase.
Shannon: A heavier maintenance schedule airport rate increases and Amazon each add about one point of increase.
Shannon: We have been deliberately investing to make us a more profitable resilient company and have the strong balance sheet and financial resources to benefit from those investments over time.
Speaker Change: With that we will open the call for Q&A, we're happy to address any questions you have about our ongoing strategy performance and the outlook for 2024.
Speaker Change: But I'd like to remind everyone that we remain in our proxy solicitation period.
Speaker Change: So all of the information we can share related to the Alaska murder is captured in our definitive proxy filing of January 9th.
Shannon L. Okinaka: Full year 2023 resulted in an adjusted EBITDA loss of $169 million, an adjusted loss of $6.08 per share. Unit costs, excluding fuel, non-recurring costs, and direct murder costs, came in as anticipated. While these fourth-quarter and full-year results are in line with the guidance we provided, we're disappointed that we have yet to achieve profitability since the pandemic. Our results were significantly affected by factors outside of our control, such as the A321neo groundings due to engine issues, the impact of the Maui wildfires, and the slower recovery of Japan. We believe that as we move past those factors, our strong business model paves a path to return to profitability. The investments we have made and are continuing to make will begin providing financial benefits this year, with a more profound impact in 2025. We continue to maintain a strong liquidity position of $1.1 billion, which includes a $235 million undrawn revolver.
Speaker Change: If you have questions about the merger, we're likely to refer you back to that document.
Speaker Change: Operator, please open the line for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We also ask that those that are in queue for Q&A to only ask one question and one follow up to allow others, an acute ample enough time to ask a question.
Speaker Change: Our first question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.
Conor Cunningham: Hi, everyone. Thank you just on the Haneda slot decision could you just provide some additional context. There I think you mentioned that you still expect a full recovery, but if you don't see a steady improvement over the next couple of years like is there another adjustment that needs to be made to that to that network. If things don't have materially improve from here. Thank you.
Yes, let me start on this and then see if Brent has anything he wants to add.
Conor Cunningham: Yes.
I'll just put it in context, we talked.
Shannon L. Okinaka: We expect to close financing concurrently with our first 787 delivery and are in the process of securing financing for the second 787, which will position our liquidity well as we continue to invest in our business and prepare to address the maturity of our $1.2 billion loyalty bond in early 2026. Over the next few quarters, we will be ramping up our 787 fleet and flying more A330 freighters. Our 2024 CapEx, including aircraft and non-aircraft spend, is expected to be in the range of $500 to $550 million and is primarily comprised of 3787 scheduled for delivery this year and PDPs related to future deliveries. Moving to costs, the general themes for 2024 are consistent with 2023 and will continue to see elevated levels of pilot training as we prepare for our fleet growth. While productivity will be challenged in the first quarter, and aircraft delivery delays, both 787s and freighter aircraft, have slowed our recovery.
Speaker Change: A lot.
Speaker Change: The last call about the.
Speaker Change: Slot restrictions going away capacity coming back into the market Japan.
It has been recovering, but it's been very gradual and right now the supply demand situation is a little out of balance.
Speaker Change: We don't see an immediate snapback in that despite.
Speaker Change: The enduring.
Strong affinity that the folks in Japan have for Hawaii.
In particular, one of the things that's been bolstering some of the Japan flying has been.
Speaker Change: Really strong demand from U S point of sale and from other international points of sale, but unfortunately, this particular frequency the midnight slide out of Panera that we fly to Kona three times a week.
Speaker Change: On a level of four times a week it doesn't benefit from that connectivity, there's really no connectivity.
Speaker Change: From U S point of sale on the Kona flight and as we looked at it we thought one was really a unique situation, but we just don't see it returning as strongly enough Brent also mentioned the.
The hotel inflation, which compounds.
Speaker Change: The depreciation of the yen versus the dollar that is most striking and Kona, where we've seen hotel rates now versus 2019 that are up something on the order of 70%.
Speaker Change: From what they were and so it's over 120% more expensive.
Speaker Change: For someone spending yen dispense stay in a hotel in Hawaii Island than it was.
Speaker Change: Four or five years ago and.
Shannon L. Okinaka: We will be on the road to normalization in this regard by the end of this year. However, we also face headwinds from higher airport and labor rates. However, we expect the benefits from our investments to also ramp up throughout the year as we begin our 787 and Amazon flying in earnest and benefit from changes in the new pilot CVA. For the full year, we expect our CASMX to be up about 1% from the prior year, with about 1 percentage point resulting from direct Amazon costs that do not generate ASM. Our year-over-year chasm change reflects the ramp-up of our capacity and starts off larger in the first quarter and improves throughout the year. We expect our first quarter unit costs, excluding fuel and special items, to be about 9% higher than the same period in 2023.
All of that just made us feel that this was the prudent decision at the time, but we really don't see this as the harbinger of other adjustments in Japan, we're very committed to the Japan franchise or other hand out of flying is performing better on the reader route is performing better and where we're going to be planning to stay the course on the <unk>.
Speaker Change: Rest of our Japan network at this time.
Speaker Change: Yes, I think the only thing I would add color is if you recall. We were also awarded an additional haneda frequency that we never really got to operate right before the pandemic. So our overall kind of footprint in Tokyo is pretty close to what we had pre pandemic as opposed to.
Shannon L. Okinaka: In addition to labor and benefits, which account for about four points of the increase, a heavier maintenance schedule, airport rate increases, and Amazon each add about one point of increase. We have been deliberately investing to make us a more profitable, resilient company and have the strong balance sheet and financial resources to benefit from those investments over time. With that, we will open the call for Q&A. We're happy to address any questions you have about our ongoing strategy, performance, and the outlook for 2024. But I'd like to remind everyone that we remain in our proxy solicitation period, so all of the information we can share related to the Alaska murder is captured in our definitive proxy filing of January 9th.
Speaker Change: Adding a fourth daily Tokyo flight so.
Speaker Change: Disappointing to have to make that decision, but it was the right thing to do in itself.
Speaker Change: Given the market and what was going on in the market have felt a little difficult to be growing into it with the slower pace of Japan recovery.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Really helpful. And then maybe just sounds like a true follow up on the capacity outlook.
Speaker Change: As you mentioned, Nick talked about accelerating throughout the year can you just walk through the moving parts are does the GTS flip from a headwind to a tailwind into <unk> and then if you could provide any breakdown between international and domestic I think most of the aircrafts domestic but just any thoughts there could be could be helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: I don't have <unk>, specifically for the GTS, it's probably more neutral as to a bit of a tailwind in capacity growth in <unk> and certainly by the time, we get out to the back half of the year it will be a tailwind.
Operator: If you have questions about the merger, we're likely to refer you back to that document. Operator, please open the line for questions. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the queue.
Speaker Change: 70 Sevens, obviously are a source of growth and if you think about it geographically as you point out it's disproportionately in North America, albeit we've got a little bit of it in the front part of the year as we as we lap some of the Japan, particularly in <unk>, but as we get out of that.
Peter R. Ingram: You may start, too, if you would like to..., participants using speaker equipment; it may be necessary to pick up your, We also ask that those that are in queue for Q&A to only ask one question and one follow-up, to allow others in the queue to have ample enough time to ask. Our first question comes from the line of Conor Cunningham with Emilius: Hi, everyone. Thank you. Just on the Haneda slot decision, could you just provide some additional context there? I think you mentioned that you still expect a full recovery. But, you know, if you don't see a steady improvement over the next couple of years, like, is there another adjustment that needs to be made to that network if things don't materially improve from here? Thank you. Yeah, Connor, let me start on this, then see if Brent has anything he wants to add. You know, I'll just put it in context.
Speaker Change: Adam <unk> and <unk> that will that will become a bit flatter on a year over year basis.
Speaker Change: Okay helpful. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Catherine O'brien with Goldman Sachs Goldman Sachs. Please proceed with your question.
Catherine O'brien: Good afternoon, everyone and thanks, so much for the time.
Catherine O'brien: I just wanted to dig in a little bit more on the inter island nice to hear about the progress there and the average fare.
Catherine O'brien: Was wondering you know how long.
Catherine O'brien: That $60 average fare in December trended into the first quarter.
Catherine O'brien: A good portion of those bookings are close and just from what you've seen so far and then what is the breakeven fair for Inter Island network. Thanks.
Catherine O'brien: We continue to see good progress as we moved into the first quarter and there wasn't any kind of real unique seasonality around that.
Catherine O'brien: And so we're encouraged that as we move through the first quarter, we will continue to see.
Peter R. Ingram: We talked a lot in the last call about the slot restrictions going away and capacity coming back into the market. Japan has been recovering, but it's been very gradual. Right now, the supply and demand situation is a little out of balance, and we don't see an immediate snapback in that despite the enduring strong affinity that the folks in Japan have for Hawaii. And in particular, you know, one of the things that's been bolstering some of the Japanese flying has been really strong demand from U.S. points of sale and from other international points of sale. But unfortunately, this particular frequency, the midnight slide out of Panetta that we fly to Kona three times a week, Honolulu four times a week, doesn't benefit from that connectivity. There's really no connectivity from the U.S. point of sale on the Kona flight.
Catherine O'brien: Improvements in average fare that are.
Catherine O'brien: That are kind of consistent with what we saw.
Towards December there in.
Speaker Change: In terms of a breakeven amount, we're not going to we're not going to disclose that.
Speaker Change: At this point I think we're like I said, we're encouraged with our relative performance and we will continue to strive to get the entity back and improve its contribution to our overall performance as we strive to get back to the network profitability.
Speaker Change: Got it was worth a shot.
Speaker Change: Hum.
Speaker Change: Shannon you mentioned financing for the first seven or eight 7% delivery with closed concurrently with the delivery of that aircraft can you share. What you decided on I think last call you were talking about maybe.
Shannon: Dominate that maybe sell leaseback and does the proposed acquisition by Alaska impact what options you are looking at at all for financing or these are all going to be standalone decisions until the merger is closed thanks. So much.
Shannon: Hi, Thanks Katy.
Shannon: This first one and then we'll be in the form of a finance lease which is closer to a debt finance then it's not.
Shannon: Operating lease.
Peter R. Ingram: And as we looked at it, we thought this one was really a unique situation that we just don't see it returning as strongly enough. Brent also mentioned hotel inflation, which compounds the depreciation of the yen versus the dollar. That is most striking in Kona, where we've seen hotel rates now versus 2019 that are up something on the order of 70 percent from what they were. And so it's over 120 percent more expensive for someone spending yen to stay in a hotel on Hawaii Island than it was four or five years ago. And, you know, all of that just made us feel that this was the prudent decision at the time.
Shannon: And you know.
Shannon: We can meet that.
Shannon: We can largely make our own decisions on financing we have some some consultation requirements with Alaska as we go through.
Shannon: Each financing, but largely we're kind of free to do this as we would normally do it.
Shannon: And so we.
Shannon: I'm pretty close on the second not final so I can't make any announcements about that one today.
Shannon: Just generally looking at market conditions seamlessly where last year.
Speaker Change: Understood. Thanks, so much.
Speaker Change: Our next question comes from the line of Mike Lindenberg with Deutsche Bank. Please proceed with your question.
Mike Linenberg: Oh, Yes. This is maybe a question that Shannon and Peter just.
Mike Linenberg: On the Amazon business, what are we one airplane now or maybe it's too can you just talk about the pacing and at what point.
Peter R. Ingram: But we really don't see this as the harbinger of other adjustments in Japan. We're very committed to the Japan franchise. Our other Panetta flying is performing better.
Mike Linenberg: Does that business become a contribution to the P&L is that a 2025 event is that back half of 2020 for any any additional color on how that business is rolling out.
Brent A. Overbeek: Our Narita route is performing better, and we're going to be planning to stay the course on the rest of our Japan network at this time. Yeah, I think the only thing I would add, Connor, is that, if you recall, we were also awarded an additional Haneda frequency that we never really got to operate right before the pandemic. So, our overall kind of footprint in Tokyo is pretty close to what we had pre-pandemic as opposed to adding a fourth daily Tokyo flight. So, you know, disappointing to have to make that decision, but it was the right thing to do, and it felt, given what was going on in the market, it felt a little difficult to be growing into it with the slower pace of Japan's recovery. Okay, that's really helpful. And then maybe just as a true follow-up on the capacity outlook, you know, as you mentioned, it talks about accelerating throughout the year. Can you just walk through the moving parts?
Yes.
Speaker Change: Thanks for that Mike we are operating one aircraft currently.
Speaker Change: And our team did a really stellar job.
Speaker Change: Albeit with a very small operation, but with only a single airplane to execute it we've had really outstanding operational performance and I think the Amazon team is pleased with how.
Speaker Change: That airplane is integrating into their fleet.
Speaker Change: The plan as it stands right now is for us to ramp up to about six airplanes in operation over the course of this year, which is a little bit slower than what had initially been contemplated and that is not.
Speaker Change: Not a product of our desire or our customers desire, but more a product of the pace at which those airplanes were available from the conversion line.
Speaker Change: And given that.
Speaker Change: As Shannon I think alluded to we see the benefits of that investment ramping up over the course of the year.
Brent A. Overbeek: Does the GTF flip from a headwind to a tailwind in 2Q? And then, if you can provide any breakdown between international and domestic, I think most of your growth is domestic, but just any thoughts there could be helpful. Thank you. Yeah, I don't have 2Q specifically for the GTF.
Speaker Change: Where it should be a positive contributor will be at the tail end of this year or into next year is where we would anticipate that at this point.
Speaker Change: Okay, Great that's helpful and then.
Speaker Change: My second question just to Brian on Inter island, we have seen a pretty meaningful increase in average fares in and you talked about that.
Brent A. Overbeek: It's probably more neutral to a bit of a tailwind for capacity growth in 2Q, and certainly by the time we get out to the back half of the year, it will be a tailwind. 787s obviously are a source of growth, and if you think about it geographically, as you point out, it's disproportionately in North America, albeit we've got a little bit of it in the front part of the year as we lap some of Japan, particularly in 1Q, but as we get out of that, out of 1Q and 2Q, that will become a bit flatter on a year-over-year basis. Okay, that was helpful. Thank you. Yep. Our next question comes from the line of Katherine O'Brien with Golden Sack.
Speaker Change: With that increase did we see any sort of meaningful falloff in demand or what is the market just miss priced a year ago and I guess, the consumer got an unsustainably good benefit.
Brian: I would say load factors have held up.
Really well and if we're seeing any kind of impact on load factor, it's minimal and certainly these changes have been kind of revenue positive, particularly if you look at kind of elasticity closer into departure.
Brian: Net that's been.
Operator: Um, just was wondering, you know, how that $60... Corder, I really the are and then. We continue to see good progress as we moved into the first quarter, and there wasn't any kind of real unique seasonality around that. And so we're encouraged that as we move through the first quarter, we'll continue to see improvements in average fare that are kind of consistent with what we saw towards December there. So in terms of a break-even amount, we're not going to disclose that at this point. I think we're, like I said, encouraged with our relative performance, and we'll continue to strive to get the entity back and improve its contribution to our overall performance as we strive to get back to network profitability. And then...
Brian: Been accretive to unit revenue.
Brian: Great.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: Our next question comes from the line of Helane Becker with TD Cowen. Please proceed with your question.
Helane Becker: Oh, thanks, very much operator, hi team.
Helane Becker: Tim about the GTR.
Helane Becker: This shoe.
Helane Becker: And I'm hearing that that 250 to 300 day on the ground to get the engine repair. It is starting to extend over 400 games and I'm wondering if you've heard something similar or if you are nimble.
Helane Becker: Better positioned to get the aircraft out sooner, especially given your answer to Congress question about.
Helane Becker: Second half seeing improvement.
Brent A. Overbeek: I have one for you, Shannon. You mentioned financing for the first 787 delivery would close concurrently with the delivery of that aircraft. Can you share what you decided on? I think the last call you were talking about, Yen Dominate Debt, maybe Shelley Speck.
Helane Becker: Yeah Helane.
Speaker Change: Not aware of.
Speaker Change: An expansion at this point in the the overall span of shop visits, but I would point out.
Helane Becker: But whenever you hear those numbers you have to put it in the context of its a range and it really is a function when.
Shannon L. Okinaka: And does the proposed acquisition by Alaska impact what options you're looking at at all for financing, or are these all going to be... Hi, thanks, Katie. Yeah, this first one is going to be in the form of a finance lease, which is closer to debt finance, and it's not an, you know, operating lease. And, you know, we can make. We can largely make our own decisions on financing. We have some consultation requirements with Alaska as we go through each financing, but largely, we're kind of free to do this as we would normally do it.
When the engine comes off wing and goes into the overhaul shop of the scope of work that is required in there I think in terms of.
The volume of engines that have to go through there probably is a greater waiting time before they actually get on to the shop floor and get operated on and I think thats factored into the expectations.
Helane Becker: From our specific situation.
Helane Becker: If you recall.
Helane Becker: Even before the powder metal issue became.
Helane Becker: The subject of the day last July.
We had had a number of removals for other reasons and so we've had a number of.
Helane Becker: Engines that have already been in the overhaul process and part of what is.
Helane Becker: Helping our outlook on a relative basis.
Helane Becker: In the next little while is that some of those engine start to come out of the overhaul shops that have been in there.
Shannon L. Okinaka: And so we are pretty close to the second, not final, so I can't make any announcements about that one today. But we are just generally looking at market conditions, same as we were last year. Our next question comes from the line of Mike Linenberg with Deutsche. Oh yeah, this is maybe a question for Shannon and Peter. Just on the Amazon business, what are we, one airplane now, or maybe it's two? Can you just talk about the pacing and at what point does that business become a contribution to the P&L? Is that a 2025 event?
Helane Becker: Since the early part of last year before we even got into having.
Helane Becker: Removals for the powdered metal inspection so.
Helane Becker: It's a moving picture.
Helane Becker: And there is still uncertainty and a number of things one of the things we have to factor into our forecast is unexpected engine removals and they're always hard to forecast by the nature of being unexpected.
Helane Becker: But we feel relatively better about where we are right now we're working closely.
With Pratt and Whitney to keep our finger on the pulse of that and make sure of that.
Peter R. Ingram: Is that back in the second half of 2024? Any additional color on how that business is rolling out? Thanks. Yeah, thanks for that, Mike. We are operating one aircraft currently, and our team did a really stellar job. We've, albeit with a very small operation, but with only a single airplane to execute it, had really outstanding operational performance. And I think the Amazon team is pleased with how that airplane is integrating into their fleet.
Helane Becker: Whatever expectations, we have can be built into our schedule. So we are.
Helane Becker: We're giving a reliable aircraft availability of forecast Brent before his team goes and lays out the network plan going forward.
Speaker Change: Got it that's very helpful. Thank you and then I have two other questions Theyre really short one is can you say as you were talking about financing the 77%, but your cost of capital is.
Speaker Change: And the other question is can you.
Peter R. Ingram: The plan as it stands right now is for us to ramp up to about six airplanes in operation over the course of this year, which is a little bit slower than what had initially been contemplated, and that is not a product of our desire or our customers' desire, but more a product of the pace at which those airplanes are available from the conversion line. And given that, you know, as Shannon alluded to, we see the benefits of that investment ramping up over the course of the year, where it should be a positive contributor will be at the tail end of this year into next year, which is where we would anticipate it at this point. Okay, great. That's helpful.
Speaker Change: Talk a little bit about how you're thinking of.
Speaker Change: If you've seen in the forward schedules.
Speaker Change: Any sign that southwest is pulling some of the <unk>.
Speaker Change: Our island capacity out.
Rerouting, those aircrafts to Red eyes.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, I think at this point yet.
Speaker Change: We're not completely done with the financing it'll be concurrent with the delivery. So I can probably provide you more information when were when its all final.
Speaker Change: On the exact cost of capital.
Speaker Change: Okay.
Speaker Change: In terms of competitive schedules, we haven't seen any recent activity.
Speaker Change: In terms of neighbor island or.
Peter R. Ingram: And then my second question, just to Brent, on InterIsland, we have seen a pretty meaningful increase in average fares, and you talked about that. With that increase, did we see any sort of meaningful fall off in demand? Or was the market just mispriced a year ago, and I guess the consumer got an unsustainably good benefit?
Speaker Change: Conversion from daytime flying to Red eye flying.
Okay, alright, well well look for it.
Thanks Kim.
Speaker Change: Thanks Helane.
Speaker Change: That's correct.
Speaker Change: Our next question comes from the line of Dan Mckenzie with Seaport Global. Please proceed with your question.
Daniel J. McKenzie: Oh, hey, thanks.
Brent A. Overbeek: I would say load factors have held up really well, and if we're seeing any kind of impact on load factor, it's minimal. And certainly, these changes have been kind of revenue positive, particularly if you look at kind of the elasticity closer into departure. These have net net been accretive to unit revenue.
Peter going back to the script about the.
Daniel J. McKenzie: The commentary around the number of pilots undergoing training in the GTS issues.
What efficiency metrics are you focused on and I guess, where are you at today, where do you want those metrics to be in 2025.
Daniel J. McKenzie: And I guess, what I'm really trying to get at here is the embedded inefficiency. That's in the cost structure today that eventually goes away next year. So 2020 for going to the I think the messaging that this is really a transition year that should give way to a much better 2025.
Brent A. Overbeek: Great. Thank you. Thanks, Mike. Our next question comes from the line of Helane Becker with T.D. Cowan.
Dan Mckenzie: Yeah.
Speaker Change: Yeah and in terms of efficiency metrics, there's obviously a wide variety of.
Speaker Change: The things that we look at in terms of aircraft utilization and tune in terms of four.
Operator: Oh, thanks very much, Alfredo. Hi, team. Um, so I have a question about the GTF. I'm hearing that the 250 to 300 days on the ground to get the engines repaired are starting to extend to over 400 days, and I'm wondering if you've heard something similar or if you are in a better position to get the aircraft out sooner, especially given your answer to Conor's question about, you know, the second half seeing improvement. Yeah, Helane, I'm not aware at this point in the overall span of shop visits, but I would point out that whenever you hear those numbers, you have to put them in the context of it's a range, and it really is a function when the engine comes off the wing and goes into the overhaul shop for the scope of work that is required there.
Speaker Change: Cruise in particular, you mentioned pilots, we will really focus on that.
The number of productive block hours relative to the hours, we pay for and of course training is.
Speaker Change: Training is a big part of that because while it is a central and we certainly have to do it every time, we bring a new pilot on or are we shift someone to a a new fleet or seat.
Speaker Change: Not producing.
Speaker Change: Block hours that generate ASM that generate revenue so.
Speaker Change: We're in a position this year over the last couple of years, we've had an incredible amount of training and I think this has been a theme throughout the industry as.
Speaker Change: Airlines are dealt with.
Speaker Change: Some turnover in the ranks and a lot of hiring and of course with us bringing on a couple of new fleet types over a several month timeframe.
Operator: I think in terms of the volume of engines that have to go through, there probably is a greater waiting time before they actually get onto the shop floor and get operated on, and I think that's factored into the expectations. From our specific situation, if you recall, even before the powder metal issue became the subject of the day last July, we had had a number of removals for other reasons, and so we've had a number of engines that have already been in the overhaul process, and part of what is helping our outlook on a relative basis in the next little while is that some of those engines start to come out of the overhaul shop that have been in there since the early part of last year before we even got into having removals for the powdered metal inspections, so it's a moving picture, and there's still uncertainty in a number of things.
Speaker Change: That.
Speaker Change: That as Shannon said in her commentary that training level remains elevated, but it's actually not higher year over year, we're into a slower pace of hiring now and a slower pace of movement and so it does become more manageable and we see more productivity improvements as we go through the back part of the year.
Speaker Change: <unk>.
Speaker Change: So I'll.
Shannon: I'll add a little bit more there Dan last quarter, we talked about that percentage of efficiency compared to 2019 and.
Shannon: We believed our exit point this year was going to be I think it was around 10% to 11% greater than 2019 as far as excess pilot.
Shannon: Push out.
Shannon: Of course with the delivery delays this year, we're not expecting we had to change our expectation for the exit rate and improve over this year, but we don't expect to get to that level, maybe until the middle of 2025, when we have about that equivalent.
Peter R. Ingram: One of the things we have to factor into our forecast is unexpected engine removals, and they're always hard to forecast by the nature of being unexpected, but we feel relatively better about where we are right now. We're working closely with Pratt & Whitney to keep our finger on the pulse of that and make sure that whatever expectations we have can be built into our schedule, so we're giving a reliable aircraft availability forecast to Brent before his team goes and lays out the network plan going forward. I got it. That's really helpful. Thank you. And then I have two other questions. They're really short.
Lying after all the delivery delays, we don't believe that that's the steady state. We believe we can get more improvement even off of that but.
Shannon: We're looking at about a six month delay to get to that point that we talked about last quarter.
Speaker Change: Oh I see okay.
Speaker Change: And then a separate question here and this is kind of a.
Speaker Change: A question I've been asking all the airlines here is about the shift to the cloud. So I guess I'm curious first as Hawaiian shifting to the cloud I guess first off or if you've already started how far along are you at this point.
Speaker Change: And I'm just curious if you can provide some perspective around the cost to make the switch or what the savings might look like once that transition is completed.
Peter R. Ingram: One is, can you say, as you're talking about financing the 787s, what your cost of capital is? And the other question is, can you talk a little bit about how you're thinking of, or if you've seen in the forward schedules, any sign that Southwest is pulling some of the interisland capacity out and kind of rerouting those aircraft to red eyes back to the U.S.? Yeah, Helane, I think at this point yet, we're not completely done with the financing; it'll be concurrent with the delivery. So, I can probably provide you more information when we're when it's all finalized on the exact cost of capital. Okay. That's fair.
Speaker Change: Yeah, I'll take that one Dan we don't have our our I T experts here in the room with us but.
Speaker Change: But I I think the way we have focused on this is.
Speaker Change: Not to think about the evolution of our tech.
Speaker Change: Technology stack as being something that is.
Speaker Change: That is immediate and were trying to cut overall at once but as.
Speaker Change: As systems.
Speaker Change: Evolve and as we bring on new systems in different part of the business. We are always focused on moving to more modern architectures and that means moving too.
Shannon L. Okinaka: In terms of competitive schedules, we haven't seen any recent activity in terms of neighbor islands or conversion from daytime flying to red eye flying. Okay. All right. Well, we'll look for it. All right. Thanks, James. Thank you for your help.
And a lot of case cloud based applications. There are a number of areas, where we use software as a system as well and so the storage is on things like that is not only cloud base, but it is.
Operator: Thanks, Helane. Our next question comes from the line of Dan McKenzie with Seaport Global. Peter, going back to the script about the commentary around the number of pilots undergoing training and the GTF issues, what efficiency metrics are you focused on? And, I guess, where are you today? Where do you want those metrics to be in 2025? And I guess, you know, what I'm really trying to get at here is the embedded inefficiency that's in the cost structure today that eventually goes away next year. So, 2024 going forward, I think the messaging that this is really a transition year that should give way to a much better 2025. Yeah, in terms of efficiency metrics, there's obviously a wide variety of things that we look at, you know, in terms of aircraft utilization, in terms of, you know, for crews in particular, you mentioned pilots, we really focus on the number of productive block hours relative to the hours we pay for. And of course, training is a big part of that, because, well, it is essential, and we certainly have to do it every time we bring It's not producing block hours that generate ASMs that generate revenue.
Speaker Change: Provided by our vendors so.
Speaker Change: It really for US is is more of an evolution than a revolution and something that we are continually continuing to pursue as we modernize the technology stack around the whole business.
Speaker Change: I see okay. So and if we were to look at it today what percent of the I T is switched over and where would you expect that to be say in three years or five years longer term.
Speaker Change: I don't have a percentage that I want to be quoted on today, Dan, but maybe we can follow up with.
Speaker Change: With you offline on that one.
Speaker Change: I see okay. Thanks, so much for the time you guys.
Speaker Change: Thanks, Dan.
Speaker Change: Our next question comes from the line of Chris <unk> with Susquehanna International.
Chris: Please proceed with your question.
Chris: Okay. Thank you operator.
Chris: Peter if you.
Chris: You cited.
Chris: The headwinds around FX and lodging inflation as it relates to Japan.
Chris: Japan does take longer than expected to return.
Peter: For whatever reason could you walk us through how we should think about your other international point of sale markets and potentially some of the levers you could pull to two <unk>.
Peter R. Ingram: So we're in a position this year, you know, over the last couple years, we've had an incredible amount of training. And I think this has been a theme throughout the industry as airlines have dealt with some turnover in the ranks and a lot of hiring, and of course, with us bringing on a couple of new fleet types over a several month time frame.
Peter: Offset.
Peter: Pat.
Longer ramp up thanks.
Peter: Yes.
Speaker Change: I'll start and then.
Speaker Change: Again see if Brent wants to add anything to this.
Pat: In terms of our our overall.
Peter R. Ingram: That, as Shannon said in her commentary, that training level remains elevated, but it's actually not higher year over year. We're into a slower pace of hiring now and a slower pace of movement, and so it does become more manageable, and we see more productivity improvements as we go through the back part of the year. So, I'll add a little bit more there.
Pat: <unk> footprint in Japan post this adjustment will have.
Pat: Three Tokyo flights.
We'll have our Osaka flight and we have a lesson daily frequency.
Pat: Two to.
To Fukuoka, so each of those flights is.
Pat: About an aircraft worth of flying so so call it about four and a half airplanes worth of flying that are.
Shannon L. Okinaka: Dan, you know, last quarter, we talked about that percent of efficiency compared to 2019, and we believed our exit point this year was going to be, I think it was around 10 to 11% greater than 2019, as far as excess pilots per shell. Of course, with the delivery delays this year, we're not expecting – we had to change our expectations for the exit rate. It improved this year, but we don't expect to get to that level, maybe until the middle of 2025, when we have about that equivalent of flying after all the delivery delays. We don't believe that that's the steady state.
I am dedicated to Japan.
Pat: Going into the summer.
Pat: There's really nothing in terms of.
Pat: The international markets that rivals the importance of Japan to Hawaii, It really is.
Pat: Far and away the most significant source of international visitors to to our state so.
Pat: I think.
Pat: In the hypothetical which we don't envision where we were.
Pat: Looking to deploy some of that capacity elsewhere. It is probably into the.
Pat: The larger domestic market, but.
Pat: Again at this point.
Pat: That is as we said earlier is novel, we're foreseeing we've got some other sources of revenue in terms of U S point of sale and international points of sale the benefit.
Shannon L. Okinaka: We believe we can get more improvement even off of that, but we've got – we're looking at about a six-month delay to get to that point that we talked about last quarter. I see, okay. And then a separate question here, and this is kind of a question I've been asking all the airlines here, is about the shift to the cloud. So I guess I'm curious first, is Hawaiian shifting to the cloud? Or, if they've already started, how far along are they at this point. And I'm just curious, you know, if you can provide some perspective around the cost to make the switch or what the savings might look like once that transition is completed. Yeah, I'll take that one, Dan.
Pat: The other flights that we have into two Japan and so.
Pat: Right now we expect there to be a a gradual ramp up we will certainly be cheering for some appreciation of the yen, which would be helpful. But obviously, we cant count on that we've got a forecast based on what we know today.
Pat: But that's that's our plan going forward as we sit here today, yes.
Yes, I think the only thing I would add is we've made good progress on increasing traffic.
Pat: Beyond Japan into other points of Asia will continue to pursue that I think that is a market, where we've matured a lot, but there's still some more opportunity there.
Peter R. Ingram: We don't have our IT experts here in the room with us. But, but I think the way we have focused on this is not to think about the evolution of our, you know, technology stack as being something that is immediate, and we're trying to switch over all at once. But as systems evolve, and as we bring in new systems in different parts of the business, we are always focused on moving to more modern architectures. And that means moving to, in a lot of cases, cloud-based applications. There are a number of areas where we use software as an system as well.
Excuse me and likewise I think we've got.
Pat: The opportunity to continue to grow traffic.
Pat: Traffic connecting from the mainland to Japan, as we've seen strong U S point of sale.
Pat: And some business that traditionally we didn't pursue but we've been more active in pursuing that as well as obviously.
Pat: Hawaii point of origin traffic heading to Japan. So I think we've done a good job in those spaces, where we haven't.
Pat: Traditionally had to search for as much traffic, but I think we will continue to look for ways to continue to grow that business.
Peter R. Ingram: And so the storage for things like that is not only cloud-based, but it is provided by our vendors. So, for us, it is more of an evolution than a revolution and something that we are continuing to pursue as we modernize the technology stack around the whole business. I see, okay, so if we were to look at it today, what percent of the IT is switched over, and where would you expect that to be, say, in three years or, you know, five years from now? I don't have a percentage that I want to be quoted on today, Dan, but maybe we can follow up with you offline on that one. I see. Okay. Thanks so much for the time, you guys. Thanks, Seth.
Speaker Change: Okay and as a follow up if you could just break down the moving pieces of the capacity guidance.
Pat: For 2024 stage gauge and departures. Thank you.
Pat: Chris will have marci follow up after the call because we don't have the detail on that for 2024.
Speaker Change: Okay. Thanks.
And our next question comes from the line of Catherine O'brien with Goldman Sachs. Please proceed with your question.
Catherine O'brien: Hey, everyone. Thanks, so much for the follow up I appreciate it.
Catherine O'brien: Maybe just one more for you Brent you've called out the international PRASM comps get harder to <unk>.
Catherine O'brien: Does that mean that you expect year over year International PRASM performance.
Operator: Our next question comes from the line... Thanks, guys. Okay, thank you, operator.
Catherine O'brien: Worse in Q2 versus <unk> as it stands.
Catherine O'brien: If that's the case do you expect North America, and neighbor Island, PRASM chocolate that or should we expect that system PRASM year over year in the second quarter, it's essentially tougher than <unk>, just given those tough international comp. Thanks, so much for the extra time.
Peter R. Ingram: So, Peter, if you know you cited headwinds around FX and lodging inflation as it relates to Japan, if Japan does take longer than expected to return. For whatever reason, could you walk us through, you know, how we should think about your other international point-of-sale markets and potentially some of the levers that you could pull to offset that longer ramping? Yeah, I'll start and then, again, see if Brent wants to add anything to this. You know, in terms of our overall footprint in Japan, post this adjustment, we'll have three Tokyo flights, we'll have our Osaka flight, and we have a less than daily frequency to Fukuoka. So each of those flights is about an aircraft's worth of flying.
Speaker Change: Yeah, I don't think we're at a point, where we're ready to guide to <unk>.
Speaker Change: <unk> Katy so.
Speaker Change: I just wanted to point out that yes, Japan gets a little harder comp as we head out and certainly we had the ramp up.
Speaker Change: That improves as we got out of <unk> last year. So.
We will give specific entity guidance either for <unk>.
Speaker Change: But I think international will be more likely to see kind of more flattish.
Peter R. Ingram: So call it about four and a half airplanes worth of flying that are dedicated to Japan going into the summer. There's really nothing in terms of international markets that rivals the importance of Japan to Hawaii. It really is, far and away, the most significant source of international visitors to our state.
Unit revenue as we as we add a little more as the industry has little capacity back there in.
Speaker Change: And <unk> and beyond as opposed to some of the improvements that we'll still see in the first quarter.
Speaker Change: Got it thanks, so much.
Speaker Change: Okay.
Speaker Change: And we have reached the end of our question and answer session I'll now turn the call back over to President and CEO, Peter Ingram for closing remarks.
Peter R. Ingram: So I think in the hypothetical, which we don't envision where we were, you know, looking to deploy some of that capacity elsewhere, it is probably into the larger domestic market. But again, at this point, that is, as we said earlier, is not what we're foreseeing. We've got some other sources of revenue in terms of U.S. point of sale and international points of sale to benefit the other flights that we have into Japan. And so, you know, right now, we expect there to be a gradual ramp-up. We will certainly be cheering for some appreciation of the yen, which would be helpful, but obviously, we can't count on that.
Peter R. Ingram: Hello, again for joining us today, we're excited about the opportunities ahead of us in 2024, as we integrate the initiatives over the past couple of years into our day to day operations.
Peter R. Ingram: Forward to sharing our progress with you again in a few months Aloha.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: [music].
Brent A. Overbeek: We've got a forecast based on what we know today, but that's our plan going forward as we sit here today. Yeah, I think the only thing I would add is, you know, we've made good progress on increasing traffic beyond Japan into other points of Asia. We'll continue to pursue that. I think that is a market where we've matured a lot, but there's still some more opportunity there.
Speaker Change: Okay.
Brent A. Overbeek: And likewise, I think we've got the opportunity to continue to grow traffic connecting from the mainland to Japan as we've seen strong U.S. point of sale and some business that traditionally we didn't pursue, but we've been more active in pursuing that, as well as, obviously, Hawaii point of origin traffic heading to Japan. So, I think we've done a good job in those spaces where we haven't traditionally had to search for as much traffic, but I think we'll continue to look for ways to continue to grow that business. Okay, and as a follow-up, if you could just break down the moving pieces of the capacity guide for 2024 stage gauge and departure. Chris, we'll have Marcy follow up after the call because we don't have the details on that for 2024. Okay, thank you.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Operator: And our next question comes from the line of Katherine O'Brien and others. Thank you. Thank you. Yeah, I don't think we're at a point where we're ready to guide to 2Q, Katie. So I just wanted to point out that, yeah, Japan gets a little harder comp as we head out, and certainly we had the ramp-up that improved as we got out of 1Q last year. So, you know, we will not give specific entity guidance for 2Q, but I think international will be more likely to see kind of more flattish unit revenue as we add a little more, as the industry adds a little capacity back there in 2Q and beyond, as opposed to some of the improvements that we'll still see in the first.
Brent A. Overbeek: And we have reached the end of our question and answer session. And I'll now turn it over to you, Dr. Donofrio, and CEO Peter Ingram. Mahalo again for joining us today. We're excited about the opportunities ahead of us in 2024 as we integrate the initiatives of the past couple years into our day-to-day operations. I look forward to sharing our progress with you again in a few months. Aloha. This concludes today's conference, and you may disconnect your line at this time.