Hawaiian Holdings Reports 2011 Second Quarter Financial Results

Hawaiian Holdings, Inc. (NASDAQ: HA) (“Holdings” or the “Company”), parent company of Hawaiian Airlines, Inc. (“Hawaiian”), today reported consolidated net loss for the three months ended June 30, 2011 of $50.0 million, or $0.99 per basic and diluted share, on total operating revenue of $395.0 million, including the impact of a non-recurring pre-tax lease termination expense of $70.0 million ($42.0 million after-tax) related to the purchase of 15 Boeing 717-200 aircraft previously operated under lease agreements. Excluding the lease termination charge, the Company reported an adjusted net loss of $8.0 million or $0.16 per basic and diluted share for the three months ended June 30, 2011, compared to net income of $9.0 million, or $0.17 per diluted share, on total operating revenue of $315.9 million for the three months ended June 30, 2010.

Reflecting economic fuel expense and excluding the impact of the lease termination costs, the Company reported an adjusted net income of $0.1 million, or $0.00 per basic and diluted share, compared to adjusted net income of $11.0 million, or $0.21 per diluted share, in the prior year period.

Mark Dunkerley, the Company’s president and chief executive officer, commented that “In the second quarter we shared the industry’s frustration of seeing the benefits of strong demand undone by the high cost of fuel. The silver lining to these results is that demand of our US domestic services remains healthy and the recovery in bookings from Japan continues to impress having returned to pre-earthquake levels.”

“A couple of weeks ago we inaugurated daily service between Honolulu and Osaka, our third new international route in the past eight months. These new routes solidify our position as the leading business in Hawaii tourism. We are working to control costs to mitigate the impact of higher oil prices while seeking opportunities to raise revenues further as the second half unfolds,” concluded Mr. Dunkerley.

Second Quarter Financial Results

The Company reported an operating loss of $70.2 million in the second quarter of 2011, compared with operating income of $24.0 million in the prior year period. Reflecting economic fuel expense and excluding non-recurring lease termination expense of $70.0 million related to the purchase of 15 Boeing 717-200 aircraft previously operated under lease agreements, the Company reported adjusted net income of $0.1 million. A proforma net income (loss) and diluted net income (loss) per share reflecting economic fuel expense and the lease termination charges is included in Table 4.

Second quarter 2011 operating revenue was $395.0 million, a 25.0% increase compared with the second quarter of 2010. Capacity for the quarter increased 21.1% year-over-year to 3.0 billion available seat miles (ASMs), resulting in operating revenue per ASM (RASM) of 13.23 cents, up 3.1% from the second quarter a year ago. Passenger yield (passenger revenue per revenue passenger mile) increased 7.2% to 14.12 cents resulting in an increase in passenger revenue per ASM (PRASM) of 5.1% to 11.85 cents. Selected Statistical Data is included in Table 2.

Second quarter operating expenses were $465.2 million, a 59.4% increase compared with the second quarter of 2010. Operating expenses, excluding non-recurring lease termination costs, for the second quarter of 2011 increased 35.4% year-over-year to $395.2 million, resulting in an adjusted operating cost per available seat mile (CASM) of 13.24 cents, up 11.7% versus the same period a year ago. Excluding fuel and the lease termination charges, second quarter CASM increased to 8.70 cents, up 0.5% compared to the same period a year ago. A reconciliation of the GAAP and non-GAAP financial measures is included in Table 6.

Aircraft fuel costs in the second quarter increased 72.3% year-over-year to $135.5 million and represented 29.1% of operating expenses (34.3% of operating expenses excluding lease termination expense). Hawaiian’s average cost per gallon of jet fuel increased 45.9% year-over-year to $3.34 (including taxes and delivery). The financial impact of hedging activities is included in nonoperating income/expenses, and as such is not reflected in fuel expense. Nonoperating expense in the second quarter reflects $10.5 million in net losses from Hawaiian’s fuel hedging activity.

The Company believes that economic fuel expense is the best measure of the effect of fuel prices on its business as it most closely approximates the net cash outflow associated with the purchase of fuel for its operations in a period. The Company defines economic fuel expense as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled during the period. For the three months ended June 30, 2011, economic fuel expense was $132.4 million ($3.26 per gallon), compared with $79.8 million ($2.33 per gallon) in the prior year period. An analysis of economic fuel expense for the three months ended June 30, 2011 and 2010 and pro-forma net income and diluted net income per share reflecting economic fuel expense is included in Tables 3 and 4.

Second quarter 2011 nonoperating expense totaled $12.4 million, compared with nonoperating expense of $8.1 million in the second quarter of 2010. During the second quarter of 2011, the Company recognized a nonoperating loss totaling $10.5 million related to fuel hedging activities compared with a nonoperating loss of $4.8 million during the prior year period. During the second quarter of 2011, fuel hedging losses reflect $3.1 million of realized gains on derivative contracts settling in the quarter, the reversal of $5.5 million of previously recorded gains on these same contracts, and $8.0 million in unrealized losses related to fuel derivative contracts settling in future periods.

Liquidity, Capital Resources and Fuel Hedging

During the second quarter of 2011, the Company purchased its existing fleet of 15 previously leased Boeing 717-200 aircraft in a refinancing transaction that is expected to reduce its fleet costs over the long term. The Company incurred a $70.0 million non-recurring lease termination expense in the second quarter of 2011 as a result of this transaction.

During the second quarter of 2011, the Company also executed financing agreements for a portion of the purchase prices of the Airbus A330-200 aircraft delivered in April 2011 and the upcoming deliveries of three Airbus A330-200 aircraft currently scheduled for the fourth quarter of 2011, and the first and second quarters of 2012.

As of June 30, 2011, the Company had:

Unrestricted cash and cash equivalents of $303.5 million, and $5.2 million in restricted cash.
Available borrowing capacity of $65.4 million under Hawaiian’s Revolving Credit Facility.
Outstanding long-term debt and capital lease obligations of $409.0 million consisting of the following:
$67.6 million outstanding under the Convertible Senior Notes
$83.2 million outstanding under floating rate notes issued in conjunction with the acquisition of three Boeing 767-300 ER aircraft in December 2006
$192.8 million secured loan agreements for a portion of the purchase price for the 15 Boeing 717-200 aircraft previously leased in June 2011
$65.0 million secured loan agreement for a portion of the purchase price of the Airbus A330-200 aircraft delivered in April 2011
$0.4 million of capital lease obligations
A summary of the Company’s fuel derivatives contracts as of July 15, 2011 is included as Table 5.

Hawaiian Airlines Recent Highlights

Led the U.S. airline industry in March, April and May 2011, ranking #1 nationally for on-time performance and fewest cancellations, as reported by the U.S. Department of Transportation Air Travel Consumer Report.

Launched daily nonstop service between Honolulu and Osaka, Japan to Kansai International Airport on July 12, 2011; its third new route to Asia in eight months.

Purchased its existing fleet of 15 Boeing 717-200 aircraft through a refinancing transaction.
Announced expansion of Hawaiian’s interisland service between Honolulu and Kahului, Lihue, Hilo and Kona during peak travel periods through the addition of 3 Boeing 717-200 aircraft to the fleet in September, October and November 2011 through lease agreements.

Added a fourth Airbus A330-200 aircraft to the fleet in April 2011.

Increased capacity on Hawaiian’s daily non-stop route to Tokyo’s Haneda Airport with the transition from its 264-seat Boeing 767-300 aircraft to the 294-seat Airbus A330-200 aircraft in July 2011.

Appointed Tom Wessner as Vice President of Strategic Procurement and Andrew Watterson as Vice President of Planning and Revenue Management. Shannon Okinaka was promoted to Vice President – Controller.