Annual report with a comprehensive overview of the company

10-K
10-K
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________________________
FORM 10-K
(Mark One)
 
 
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission file number 1-31443
HAWAIIAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
71-0879698
(I.R.S. employer
identification no.)
3375 Koapaka Street, Suite G-350,
Honolulu, Hawai'i
(Address of principal executive offices)
 
96819
(Zip code)
Registrant's telephone number, including area code: (808) 835-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock ($0.01 par value)
 
NASDAQ Stock Market, LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer  o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Rule Act 12b-2). Yes o    No x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $1.2 billion, computed by reference to the closing sale price of the Common Stock on the NASDAQ Global Select Market, on June 30, 2015, the last business day of the registrant's most recently completed second fiscal quarter.
As of January 22, 2016, 53,401,439 shares of Common Stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for Annual Meeting of Stockholders to be held on May 18, 2016 will be incorporated by reference into Part III of this Form 10-K.
___________________________________________________________________________________________


Table of Contents

TABLE OF CONTENTS


 
 
Page
PART I
3
ITEM 1.
BUSINESS
3
ITEM 1A.
RISK FACTORS
8
ITEM 1B.
UNRESOLVED STAFF COMMENTS
19
ITEM 2.
PROPERTIES
19
ITEM 3.
LEGAL PROCEEDINGS
21
ITEM 4.
MINE SAFETY DISCLOSURES
21
PART II
22
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
22
ITEM 6.
SELECTED FINANCIAL DATA
24
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
25
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
37
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
39
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
82
ITEM 9A.
CONTROLS AND PROCEDURES
82
ITEM 9B.
OTHER INFORMATION
85
PART III
85
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
85
ITEM 11.
EXECUTIVE COMPENSATION
85
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
85
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
85
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
85
PART IV
85
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
85
SIGNATURES
93

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. Such forward-looking statements include, without limitation: any expectations of operating expenses, deferred revenue, interest rates, income taxes, deferred tax assets, valuation allowance or other financial items; expectations regarding available seat miles, operating revenue per available seat mile and operating cost per available seat mile for the first quarter of 2016; statements regarding factors that may affect our operating results; statements regarding our goals, mission and areas of focus; statements regarding factors that may affect our ability to fund our working capital, capital expenditures or other general purpose needs; statements related to the impact of our low-cost structure on funding our growth strategy and market opportunities; statements regarding our ability to pay taxes with working capital; estimates of fair value measurements; statements related to aircraft maintenance and repair costs and deposits and timing of maintenance activities; statements related to cash flow from operations and seasonality; estimates of required funding of and contributions to our defined benefit pension and disability plan; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; statements regarding the availability and cost of fuel; statements regarding our wages and benefits and labor costs and agreements; statements regarding the implementation, effective date and costs of compliance with regulations promulgated by the FAA, DOT and other regulatory agencies; statements related to airport rent rates and landing fees; statements regarding aircraft rent expense; statements regarding the status of federal and state legislation; statements regarding our total capacity and yields on routes; statements regarding compliance with potential environmental regulations; statements regarding potential dilution of our securities; statements regarding cost liability and deferred revenue estimates related to the frequent flyer program; statements related to our hedging program; statements concerning the impact of, and changes to, accounting principles, policies and estimates; statements regarding our net operating loss carryforwards; statements regarding credit card holdback; statements regarding the availability of financing; statements regarding our capital expenditures; statements regarding potential violations under the our debt or lease obligations; statements regarding our intent to settle the principal amount of our convertible notes in cash; statements regarding our ability to comply with covenants under our financing arrangements; statements regarding our intention to obtain additional debt or lease financing for aircraft deliveries; statements related to capital expenditures impacting future debt levels and pre-delivery payments; statements regarding the expiration of aircraft leases; statements related to risk management, credit risks and air traffic liability; statements related to future U.S. and global economic conditions or performance; statements related to changes in our fleet plan and related cash outlays; statements related to expected delivery of new aircraft and associated costs for spare engines, replacement parts, maintenance, employee training and other implementation activities; statements projecting non-aircraft related capital expenditures; statements related to the effects of any litigation on our operations or business; statements related to the amount of competition on our routes by other domestic and foreign carriers; statements related to continuous investments in technology and systems; and statements as to other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Words such as "expects," "anticipates," "projects," "intends," "plans," "believes," "estimates," variations of such words, and similar expressions are also intended to identify such forward- looking statements. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.
The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include those discussed under the heading "Risk Factors" in Item 1A in this Annual Report on Form 10-K and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof.

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PART I
ITEM 1.    BUSINESS.
Overview
Hawaiian Holdings, Inc. (the Company, Holdings, we, us and our) is a holding company incorporated in the State of Delaware. The Company's primary asset is the sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawai'i and became our indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002. Hawaiian became a Delaware corporation and the Company's direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005.
Our Business
We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the Neighbor Island routes), between the Hawaiian Islands and certain cities in the United States (the North America routes), and between the Hawaiian Islands and the South Pacific, Australia, New Zealand and Asia (the International routes), collectively referred to as our Scheduled Operations. We offer non-stop service to Hawai'i from more U.S. gateway cities (11) than any other airline, and also provide approximately 160 daily flights between the Hawaiian Islands. In addition, we also operate various charter flights.
We are the longest serving airline as well as the largest airline headquartered in the State of Hawai'i, and the 10th largest domestic airline in the United States based on revenue passenger miles (RPMs) reported by the Research and Innovative Technology Administration Bureau of Transportation Services as of October 2015, the latest data available.
At December 31, 2015, our fleet consisted of 18 Boeing 717-200 aircraft for the Neighbor Island routes and eight Boeing 767-300 aircraft and 22 Airbus A330-200 aircraft for the North America, International and charter routes. We also own three ATR42 turboprop aircraft for the "'Ohana by Hawaiian" Neighbor Island service. In 2015, we purchased three ATR72 turboprop aircraft for the expansion of our cargo service.
Our goal is to be the number one destination carrier serving Hawai'i. We are devoted to the travel needs of the residents and visitors of Hawai'i and offer a unique travel experience. We are strongly rooted in the culture and people of Hawai'i and seek to provide quality service to our customers that exemplifies the spirit of aloha.
Outlook
Our mission every year is to grow a profitable airline with a passion for excellence, our customers, our people and the spirit of Hawai'i. In 2016, we will continue to focus on strengthening our competitive position in the markets that we serve primarily by continuing to mature the routes we launched over the past several years, improving our sales distribution channels, maintaining a disciplined approach in controlling our costs, and growing our offering of value-added products and services.
Flight Operations
Our flight operations are based in Honolulu, Hawai'i. At December 31, 2015, we operated 213 scheduled flights with:
Daily service on our North America routes between the State of Hawai'i and Los Angeles, Oakland, Sacramento, San Diego, San Francisco and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington; and scheduled service between the State of Hawai'i and New York City, New York.
Daily service on our Neighbor Island routes among the six major islands of the State of Hawai'i.
Daily service on our International routes between the State of Hawai'i and Sydney, Australia; and Tokyo and Osaka, Japan and scheduled service between the State of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia; Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea; and Beijing, China.
Other ad hoc charters.

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Fuel
Our operations and financial results are significantly affected by the availability and price of jet fuel. The following table sets forth statistics about our aircraft fuel consumption and cost.
Year
Gallons
consumed
 
Total cost,
including taxes
 
Average cost
per gallon
 
Percent of
operating expenses
 
(in thousands)
 
 
 
 
2015
234,183

 
$
417,728

 
$
1.78

 
22.1
%
2014
230,199

 
$
678,253

 
$
2.95

 
32.8
%
2013
226,214

 
$
698,802

 
$
3.09

 
34.6
%
As illustrated by the table above, fuel costs constitute a significant portion of our operating expenses. We purchase aircraft fuel at prevailing market prices, but seek to manage market risk through the execution of a hedging strategy. To manage economic risks associated with fluctuations in aircraft fuel prices, we periodically enter into derivative financial instruments such as heating oil puts and swaps and crude oil call and put options and collars.
Aircraft Maintenance
Our aircraft maintenance programs consist of a series of phased or continuous checks for each aircraft type. These checks are performed at specified intervals measured by calendar months, time flown or by the number of takeoffs and landings, or cycles operated. In addition, we perform inspections, repairs and modifications of our aircraft in response to Federal Aviation Administration (FAA) directives. Checks range from "walk around" inspections before each flight's departure, to major overhauls of the airframes which can take several weeks to complete. Aircraft engines are subject to phased maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certain airframe and engine parts and components are time or cycle controlled, and such parts and components are replaced or refurbished prior to the expiration of their time or cycle limits. We have contracts with third parties to provide certain maintenance on our aircraft and aircraft engines.
Marketing and Ticket Distribution
We utilize various distribution channels including our website, www.hawaiianairlines.com, primarily for our North America and Neighbor Island routes, and travel agencies and wholesale distributors primarily for our International routes.
Our website, now available in English, Japanese, Korean and Chinese, offers our customers information on our flight schedules, information on our HawaiianMiles frequent flyer program, the ability to book reservations on our flights or connecting flights with any of our code-share partners, the status of our flights as well as the ability to purchase hotels, cars and vacation packages. We also publish fares with web-based travel services such as Orbitz, Travelocity, Expedia, Hotwire and Priceline. These comprehensive travel planning websites provide customers with convenient online access to airline, hotel, car rental and other travel services.
Frequent Flyer Program
The HawaiianMiles frequent flyer program was initiated in 1983 to encourage and develop customer loyalty. HawaiianMiles allows passengers to earn mileage credits by flying with us and our partner carriers. In addition, members earn mileage credits for patronage with our other program partners, including credit card issuers, hotels, car rental firms and general merchants, pursuant to our exchange partnership agreements. We also sell mileage credits to other companies participating in the program.
HawaiianMiles members have a choice of various awards based on accumulated mileage credits, with most of the awards being for free air travel on Hawaiian.
HawaiianMiles accounts with no activity (frequent flyer miles earned or redeemed) for 18 months automatically expire (36 months for non-U.S. members). The number of free travel awards used for travel on Hawaiian was approximately 512,000 in 2015. The amount of free travel awards as a percentage of total revenue passengers was approximately 5% in 2015. We believe displacement of revenue passengers is minimal due to our ability to manage frequent flyer seat inventory, and the relatively low ratio of free award usage to total revenue passengers.
Code-Share and Other Alliances
We have marketing alliances with other airlines that provide reciprocal frequent flyer mileage accrual and redemption privileges and code-shares on certain flights (one carrier placing its name and flight numbers, or code, on flights operated by the other carrier). These programs enhance our revenue opportunities by:

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increasing value to our customers by offering easier access to more travel destinations and better mileage accrual/redemption opportunities;
gaining access to more connecting traffic from other airlines; and
providing members of our alliance partners' frequent flyer programs an opportunity to travel on our system while earning mileage credit in the alliance partners' programs.
Our marketing alliances with other airlines as of December 31, 2015 were as follows:
 
Hawaiian Miles
Frequent Flyer
Agreement
 
Other Airline
Frequent Flyer
Agreement
 
Code-share—Hawaiian
Flight # on Flights
Operated by Other
Airline
 
Code-share—Other
Airline Flight # on
Flights Operated by
Hawaiian
Air China
No
 
No
 
Yes
 
Yes
All Nippon Airways (ANA)
Yes
 
Yes
 
Yes
 
Yes
American Airlines (American)
Yes
 
Yes
 
No
 
Yes
China Airlines
Yes
 
Yes
 
Yes
 
Yes
Delta Air Lines (Delta)
No
 
Yes
 
No
 
Yes
JetBlue
Yes
 
Yes
 
Yes
 
No
Korean Air
Yes
 
Yes
 
Yes
 
Yes
United Airlines (United)
No
 
Yes
 
No
 
Yes
Virgin America (Virgin)
Yes
 
Yes
 
Yes
 
No
Virgin Atlantic Airways
Yes
 
Yes
 
No
 
No
Virgin Australia
Yes
 
Yes
 
No
 
Yes
Although these programs and services increase our ability to be more competitive, they also increase our reliance on third parties.
Competition
The airline industry is extremely competitive. We believe that the principal competitive factors in the airline industry are:
Price;
Flight frequency and schedule;
On-time performance and reliability;
Name recognition;
Marketing affiliations;
Frequent flyer benefits;
Customer service;
Aircraft type; and
In-flight services.
North America—We face multiple competitors on our North America routes including major network carriers such as Alaska Airlines, American, United, Delta and Virgin. Various charter companies also provide non scheduled service to Hawai'i mostly under public charter arrangements.
Neighbor Island—Our Neighbor Island competitors consist of regional carriers, which include Island Air, Mokulele Airlines and a number of other "air taxi" companies.
International—Currently, we are the only provider of direct service between Honolulu and each of Sapporo, Japan; Pago Pago, American Samoa; and Papeete, Tahiti. However, we face multiple competitors from both domestic and foreign carriers on our other International routes.

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Employees
As of December 31, 2015, we had 5,548 active employees, and approximately 84% of our employees were covered by labor agreements with the following organized labor groups:
Employee Group
 
Represented by
 
Number of Employees
 
Agreement amendable on(*)
 
Flight deck crew members
 
Air Line Pilots Association (ALPA)
 
606

 
September 15, 2015
 
Cabin crew members
 
Association of Flight Attendants (AFA)
 
1,704

 
January 1, 2017
 
Maintenance and engineering personnel
 
International Association of Machinists and Aerospace Workers (IAM-M)
 
782

 
April 20, 2014
**
Clerical
 
IAM-C
 
1,518

 
January 1, 2014
**
Flight dispatch personnel
 
Transport Workers Union (TWU)
 
39

 
November 1, 2013
 
(*)    Our relations with our labor organizations are governed by Title II of the Railway Labor Act of 1926, pursuant to which the collective bargaining agreements between us and these organizations do not expire but instead become amendable as of a certain date if either party wishes to modify the terms of the agreement.
(**)    These agreements were amended in January 2016 and become amendable again in January 2021.
Seasonality
Hawai'i is a popular vacation destination for travelers. For that reason, our operations and financial results are subject to substantial seasonal and cyclical volatility, primarily due to leisure and holiday travel patterns. Demand levels are typically weaker in the first quarter of the year with stronger demand periods occurring during June, July, August and December. We may adjust our pricing or the availability of particular fares to obtain an optimal passenger load factor depending on seasonal demand differences.
Customers
Our business is not dependent upon any single customer, or a few customers. The loss of any one customer would not have a material adverse effect on our business.
Regulation
Our business is subject to extensive and evolving federal, state and local laws and regulations. Many governmental agencies regularly examine our operations to monitor compliance with applicable laws and regulations. Governmental authorities can enforce compliance with applicable laws and regulations and obtain injunctions or impose civil or criminal penalties or modify, suspend or revoke our operating certificates in case of violations.
Industry Regulations
We are subject to the regulatory jurisdiction of the U.S. Department of Transportation (DOT) and the Federal Aviation Administration (FAA). The DOT has jurisdiction over international routes and fares for some countries (based upon treaty relations with those countries), consumer protection policies including baggage liability and denied boarding compensation, and unfair competitive practices as set forth in the Airline Deregulation Act of 1978. The FAA has regulatory jurisdiction over flight operations, including equipment, ground facilities, security systems, maintenance and other safety matters. Pursuant to these regulations, we have established, and the FAA has approved, a maintenance program for each type of aircraft we operate that provides for the ongoing maintenance of our aircraft, ranging from frequent routine inspections to major overhauls.
Maintenance Directives
The FAA approves all airline maintenance programs, including modifications to the programs. In addition, the FAA licenses the repair stations and mechanics that perform inspections, repairs and overhauls, as well as the inspectors who monitor the work.
The FAA frequently issues airworthiness directives, often in response to specific incidents or reports by operators or manufacturers, requiring operators of specified equipment types to perform prescribed inspections, repairs or modifications within stated time periods or numbers of cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, wiring requirement for aging aircraft, fuel tank flammability, cargo compartment fire detection/suppression systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements.

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Airport Security
The Aviation and Transportation Security Act (ATSA) mandates that the Transportation Security Administration (TSA) provide for the screening of all passengers and property, including mail, cargo, carry-on and checked baggage, and other articles that will be carried aboard a passenger aircraft. Under the ATSA, substantially all security screeners at airports are federal employees and significant other elements of airline and airport security are now overseen and performed by federal employees, including security managers, law enforcement officers and Federal Air Marshals. The ATSA also provides for increased security on flight decks of aircraft and requires Federal Air Marshals to be present on certain flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, provision of passenger data to U.S. Customs and Border Protection and enhanced background checks.
The TSA also has the authority to impose additional fees on the air carriers, if necessary, to cover additional federal aviation security costs.
Environmental and Employee Safety and Health
We are subject to various laws and government regulations concerning environmental matters and employee safety and health in the U.S. and other countries in which we do business. Many aspects of airlines' operations are subject to increasingly stringent federal, state, local and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation, and Liability Act. Certain of our operations are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The U.S. Environmental Protection Agency (EPA), OSHA, and other federal agencies have been authorized to promulgate regulations that affect our operations. In addition to these federal activities, various states have been delegated certain authority under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to or stricter than federal requirements, such as California.
The EPA is authorized to regulate aircraft emissions and has historically implemented emissions control standards previously adopted by the International Civil Aviation Organization. Our aircraft comply with the existing EPA standards as applicable by engine design date.
We seek to minimize the impact of carbon emissions from our operations through reductions in our fuel consumption and other efforts. We have reduced the fuel needs of our aircraft fleet through the retirement and replacement of certain elements of our fleet and with newer, more fuel efficient aircraft. In addition, we have implemented fuel saving procedures in our flight and ground support operations that further reduce carbon emissions. In 2012, we earned the first-ever aviation based carbon credits, through the reduction of our carbon dioxide emissions with the use of an eco-friendly engine washing technology. We are also supporting efforts to develop alternative fuels and efforts to modernize the air traffic control system in the U.S. as part of our efforts to reduce our emissions and minimize our impact on the environment.
Noise Abatement
Under the Airport Noise and Capacity Act, the DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate and foreign commerce, or the national transportation system. Certain airports, including the major airports at Los Angeles, San Diego, San Francisco, and San Jose, California, Sydney, Australia and Tokyo, Japan, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. Local authorities at other airports could consider adopting similar noise regulations. In some instances, these restrictions have caused curtailments in services or increases in operating costs, and such restrictions could limit our ability to expand our operations.
Civil Reserve Air Fleet Program
The U.S. Department of Defense regulates the Civil Reserve Air Fleet (CRAF) and government charters. We have elected to participate in the CRAF program by agreeing to make aircraft available to the federal government for use by the U.S. military under certain stages of readiness related to national emergencies. The program is a standby arrangement that allows the U.S. Department of Defense U.S. Transportation Command to call on as many as 13 contractually committed Hawaiian aircraft and crews to supplement military airlift capabilities. None of our aircraft are presently mobilized under this program.
Other Regulations
The State of Hawai'i is uniquely dependent upon air transportation. The 2008 shutdowns of air carriers Aloha Airlines and ATA Airlines affected the State of Hawai'i, and its legislature responded by enacting legislation that reflects and attempts to address

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its concerns. For example, House Bill 2250 HD1, Act 1 of the 2008 Special Session, establishes a statutory scheme for the regulation of Hawai'i neighbor island air carriers, provided that federal legislation is enacted to permit its implementation. Congress has not enacted any legislation that would allow this legislation to go into effect.
Additionally, several aspects of airline operations are subject to regulation or oversight by federal agencies other than the FAA and the DOT. Federal antitrust laws are enforced by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by our cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. We and other airlines certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Airline Deregulation Act to certain airline employees who have been furloughed or terminated (other than for cause). The Federal Communications Commission issues licenses and regulates the use of all communications frequencies assigned to us and the other airlines. There is increased focus on consumer protection both on the federal and state level. We cannot predict the cost of such requirements on our operations.
Additional laws and regulations are proposed from time to time, which could significantly increase the cost of airline operations by imposing additional requirements or restrictions. U.S. law restricts the ownership of U.S. airlines to corporations where no more than 25% of the voting stock may be held by non-U.S. citizens and the airline must be under the actual control of U.S. citizens. The President and two thirds of the Board of Directors and other managing officers must also be U.S. citizens. Regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots and authorizations. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. We cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be adopted, if any, or how we will be affected by those changes.
Business Segment Data
We operate in a single industry segment. All required financial segment information can be found in the consolidated financial statements.
Information about Geographic Revenue and Foreign Operations
Information concerning revenues by geographic area is set forth in Note 14 to the consolidated financial statements.
Available Information
General information about us, including the charters for the committees of our Board of Directors, can be found at https://www.hawaiianairlines.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov. Information on our website is not incorporated into this Annual Report on Form 10-K or our other securities filings and is not a part of such filings.
ITEM 1A.    RISK FACTORS.
In addition to the risks identified elsewhere in this report, the following risk factors apply to our business, results of operations and financial conditions:
ECONOMIC RISKS
Our business is affected by global economic volatility.
Our business and results of operations are significantly impacted by general world-wide economic conditions. Demand for discretionary purchases including air travel and vacations to Hawai'i remains unpredictable. Deterioration in demand resulting from economic uncertainty or another recession may result in a reduction in our passenger traffic and/or increased competitive pressure on fares in the markets we serve, resulting in a negative impact to our results of operations and financial condition. We cannot assure that we would be able to offset such revenue reductions by reducing our costs.

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Our business is highly dependent on tourism to, from and amongst the Hawaiian Islands and our financial results could suffer if there is a downturn in tourism levels.
Our principal base of operations is in Hawai'i and our revenue is linked primarily to the number of travelers (mostly tourists) to, from and amongst the Hawaiian Islands. Hawai'i tourism levels are affected by, among other things, the political and economic climate in Hawai'i's main tourism markets, the availability of hotel accommodations, promotional spending by competing destinations, the popularity of Hawai'i as a tourist destination relative to other vacation destinations and other global factors, including natural disasters, safety and security. From time to time, various events and industry specific problems such as labor strikes have had a negative impact on tourism in Hawai'i. The occurrence of natural disasters, such as earthquakes and tsunamis, in Hawai'i or other parts of the world, could also have a material adverse effect on Hawai'i tourism. In addition, the potential or actual occurrence of terrorist attacks, wars, and the threat of other negative world events have had, and may in the future again have, a material adverse effect on Hawai'i tourism. No assurance can be given that the level of passenger traffic to Hawai'i will not decline in the future. A decline in the level of Hawai'i passenger traffic could have a material adverse effect on our results of operations and financial condition.
Our business is exposed to foreign currency exchange rate fluctuations.
Our business is expanding internationally with an increasing percentage of our passenger revenue generated from our International routes. Fluctuations in foreign currencies can significantly affect our results of operations and financial condition. To manage the effects of fluctuating exchange rates, we periodically enter into foreign currency forward contracts. There is no assurance that such agreements will protect us against foreign currency exchange rate fluctuations during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements.
Our business is highly dependent on the price and availability of fuel.
Our results and operations are heavily impacted by the price and availability of jet fuel. While we have benefited recently from lower fuel costs, we cannot assure you that fuel costs will remain low in the future. The cost and availability of jet fuel remain volatile and are subject to political, economic and market factors that are generally outside of our control. Prices may be affected by many factors including, without limitation, the impact of political instability, crude oil production and refining capacity, unexpected changes in the availability of petroleum products due to disruptions at distribution systems or refineries, unpredicted increases in demand due to weather or the pace of global economic growth, inventory reserve levels of crude oil and other petroleum products, the relative fluctuation between the U.S. dollar and other major currencies and the actions of speculators in commodity markets. Because of the effects of these factors on the price and availability of jet fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. Also, due to the competitive nature of the airline industry, there can be no assurance that we will be able to increase our fares or other fees to sufficiently offset increased fuel prices.
We enter into derivative agreements to protect against the volatility of fuel costs. There is no assurance that such agreements will protect us during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements. Also, if fuel prices fall significantly below the levels in existence at the time we enter into our hedging contracts, we may be required to post a significant amount of cash collateral, which could have an impact on the level of our unrestricted cash and cash equivalents and adversely affect our liquidity.
Also, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for further information regarding our exposure to the price of fuel.
COMPETITIVE ENVIRONMENT RISKS
We operate in an extremely competitive environment.
The airline industry is characterized by low profit margins, high fixed costs and significant price competition. We currently compete with other airlines on our Neighbor Island, North America and International routes. The commencement of, or increase in, service on our routes by existing or new carriers could negatively impact our operating results. Many of our competitors on our North America and International routes are larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare war initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Since airline markets have few natural barriers to entry, we also face the threat of new entrants in all of our markets. For example, Virgin launched flights from the West Coast to Hawai'i in the fourth quarter of 2015, and while Southwest Airlines has taken steps to enable it to provide service to Hawai'i in the future, it has yet to formally announce the service.

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Furthermore, large network carriers have significantly reduced their costs and adjusted their routes to compete with low-cost carriers (LCC) in their existing markets by diverting resources to long-haul markets such as Hawai'i, where LCC competition has been less severe. Additional capacity to Hawai'i, whether from network carriers or LCCs, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, which could have a material adverse effect on our results of operations and financial condition.
Airline bankruptcy restructuring, strategic combinations or industry consolidation could have an impact on our competitive environment.
Many of our competitors have dramatically reduced operating costs through a combination of bankruptcy restructuring, industry consolidation and vendor and labor negotiations to increase market strength. Several domestic airlines were able to reduce labor costs, restructure debt and lease agreements and implement other financial improvements through the bankruptcy process. In addition, certain of our competitors have merged (for example, the American Airlines and US Airways merger in December 2013) to create larger and more financially sound airlines.
Through consolidation, carriers have the opportunity to achieve cost reductions by eliminating redundancy in their networks and operating structures. With reduced costs, these competitors are more capable of operating profitably in an environment of reduced fares and may, as a result, increase service in our primary markets or reduce fares to attract additional customers. Because airline customers are price sensitive, we cannot ensure that we will be able to attract a sufficient number of customers at sufficiently high fare levels to generate profitability, or that we will be able to reduce our operating costs sufficiently to remain competitive with these other airlines.
The concentration of our business in Hawai'i, and between Hawai'i and the U.S. mainland, provides little diversification of our revenue.
During fiscal year 2015, approximately 75% of our passenger revenue was generated from air transportation between the Hawaiian Islands and the U.S. mainland, and amongst the Hawaiian Islands. Many of our competitors, particularly major network carriers with whom we compete on our North America routes, enjoy greater geographical diversification of their revenue. A reduction in the level of demand for travel within Hawai'i, or to Hawai'i from the U.S. mainland, or an increase in the level of industry capacity on these routes may reduce the revenue we are able to generate and adversely affect our financial results. As these routes account for a significantly higher proportion of our revenue than they do for many of our competitors, such a reduction would have a relatively greater adverse effect on our financial results.
Our business is affected by the competitive advantages held by network carriers in the North America market.
During fiscal year 2015, over 50% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska, American, Delta and United that have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enable them to attract higher customer traffic levels as compared to us.
In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (jetBlue, Virgin, America Airlines, etc.) to provide customers access to and from North America destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers, depending on the economic strength of the hub city and the size of the customer group that frequent the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a built-in market. Passengers in the North America market, for the most part, do not originate in Honolulu, but rather on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.
Our Neighbor Island routes are affected by increased capacity provided by our competitors.
During fiscal year 2015, approximately 25% of our passenger revenue was generated from our Neighbor Island routes. Although we enjoy a strong competitive position on the Neighbor Island service, our competitors have increased capacity to Hawai'i either by introducing new routes or increasing the frequency of existing routes from North America to the Neighbor Islands. This additional capacity provided by our competitors has the effect of decreasing our share of traffic on our Neighbor Island routes, which could have a material adverse effect on our results of operations and financial condition.

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Our International routes are affected by competition from domestic and foreign carriers.
During fiscal year 2015, approximately 20% of our revenue was generated from our International routes. Our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.
Many of our domestic competitors have joined airline alliances, which provide customers access to each participating airline's international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. We currently do not participate in a world-wide airline alliance or any joint ventures, which may negatively impact our market share and operations as capacity provided by our competitors increase. To mitigate this risk, we rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.
Many of our foreign competitors are network carriers that benefit from network feed to support International routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our International flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai'i, but rather internationally, in these foreign markets' home base. We also rely on our code-share agreements and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.
INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS
If we do not maintain the privacy and security of customer-related information or fail to comply with applicable U.S. and foreign privacy or data security regulations or security standards imposed by our commercial partners, we could damage our reputation, incur substantial additional costs and become subject to litigation or regulatory penalties.
We receive, retain, and transmit certain personal information about our customers and we are subject to increasing legislative, regulatory and customer focus on privacy issues and data security. A number of our commercial partners, including credit card companies, have imposed data security standards that we are obligated to meet and these standards continue to evolve. We will continue our efforts to meet new and increasing privacy and security standards; however, it is possible that such new standards may prove difficult to meet and require us to expend additional resources.  Additionally, any compromise of our technology systems could result in the loss, disclosure, misappropriation of or access to our customers’, employees’ or business partners’ information. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information. Any significant data breach or our failure to comply with applicable U.S. and foreign privacy or data security regulations or security standards imposed by our commercial partners may adversely affect our reputation, business, results of operations and financial condition and may require that we expend significant additional resources related to the security of information systems.
We are increasingly dependent on technology and automated systems to operate our business.
We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com, and other systems, all of which must be able to accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial related transactions. Any substantial or repeated failures of these systems could negatively affect our customer service, compromise the security of customer information, result in the loss of important data, loss of revenue and increased costs, and generally harm our business. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity threats, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, our business could be adversely impacted.

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We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.
We have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training and the distribution and sale of airline seats. As part of our cost-control efforts, our reliance on outside vendors has increased and may continue to do so in the future.
The failure of any of our third-party service providers to adequately perform our service obligations, or other interruptions of services, may reduce our revenues, increase expenses, and prevent us from operating our flights and providing other services to our customers. In addition, our business and financial performance could be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
LABOR RELATIONS AND RELATED COSTS RISKS
We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline's results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.
In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants and dispatchers. We cannot ensure that future agreements with our employees' labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. If we are unable to reach an agreement with any unionized work group, we may be subject to future work interruptions and/or stoppages, which may hamper or halt operations.
Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.
We are dependent on the knowledge and expertise of our key executives. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future. Any inability to retain our key executives, or attract and retain additional qualified executives, could have a negative impact on our operations.
In addition, as we continue to expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.
A higher than normal number of pilot retirements could adversely affect us.
We currently have a large number of pilots eligible for retirement. Among other things, the extension of pilot careers facilitated by the FAA’s 2007 modification of the mandatory retirement age from age 60 to age 65 has now been fully implemented, resulting in large numbers of pilots in the industry approaching the revised mandatory retirement age. If pilot retirements were to exceed normal levels in the future, and we are not able to replace these pilots in a timely fashion, it may adversely affect our operations.
STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network maturation strategy could harm our business.
Our route maturation strategy includes initiatives to increase revenue, decrease costs, mature our network, and improve our distribution sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. If we are unable to utilize and fill increased capacity provided by additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-

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effective manner, we may be unable to successfully develop and grow our existing markets, which may adversely affect our business and operations.
We continue to strive toward aggressive cost-containment goals which are an important part of our business strategy to offer the best value to passengers through competitive fares while maintaining acceptable profit margins and return on capital. We believe a lower cost structure will better position us to fund our strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.
Our reputation and financial results could be harmed in the event of adverse publicity, including the event of an aircraft accident or incident.
Our customer base is broad and our business activities have significant prominence, particularly in Hawai'i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, or other events affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.
Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss of revenue, but also significant potential claims of injured passengers and others. We are required by the U.S. Department of Transportation (DOT) to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with the accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.
AIRLINE INDUSTRY, REGULATION AND RELATED COSTS RISKS
The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, including delays, cancellations and other conditions, which could harm our financial condition and results of operations.
The airline industry has historically operated on low gross profit margins as a result of a high percentage of fixed costs. Due to these fixed costs, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried would cause a corresponding decrease in revenue (if not offset by higher fares), and it may result in a disproportionately greater decrease in profits. Therefore, any general reduction in airline passenger traffic as a result of any of the following or other factors, which are largely outside of our control, could harm our business, financial condition and results of operations:
decline in general economic conditions;
continued threat of terrorist attacks and conflicts overseas;
actual or threatened war and political instability;
increased security measures or breaches in security;
adverse weather and natural disasters;
changes in consumer preferences, perceptions or spending patterns;
increased costs related to security and safety measures;
increased fares as a result of increases in fuel costs;
outbreak of contagious diseases or fear of contagion; and
congestion at airports and actual or potential disruptions in the air traffic control system.

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Our results from operations may be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of any of these unexpected factors should they arise.
Our financial results and operations may be negatively affected by the State of Hawai'i's airport modernization plan.
The State of Hawai'i has begun to implement a modernization plan encompassing the airports we serve within the State. Our landing fees and airport rent rates have increased to fund the modernization program. Additionally, we expect the costs for our Neighbor Island operations to increase more than the costs related to our North America and International operations due to phased adjustments to the airport's funding mechanism. Therefore, costs related to the modernization program will have a greater impact on our operations as compared to our competitors, who do not have significant Neighbor Island operations. We can offer no assurance that we will be successful in offsetting these cost increases through other cost reductions or increases in our revenue and, therefore, can offer no assurance that our future financial results will not be negatively affected by them.
The construction work that is performed in connection with the State's modernization plan has temporarily narrowed the taxilanes used by our aircraft to depart and arrive at our assigned terminal at Honolulu International Airport. The temporary narrowing of the taxilanes has congested the aircraft traffic in these areas, which has resulted in the delay of the departure and arrival of our aircraft. Significant delays and potential displacement resulting from the State's modernization plan may have a negative impact on our operations and on-time performance.
Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the State of Hawai'i.
We must be able to maintain and/or obtain adequate gates, office space, operations area and ticketing facilities at the airports within the State of Hawai'i to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial performance.
Our business is subject to substantial seasonal and cyclical volatility.
Our results of operations will reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. As Hawai'i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during June, July, August and December and considerably weaker at other times of the year. Because of fluctuations in our results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.
Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, financial condition and results of operations and on the airline industry in general.
The airline industry is subject to extensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.
Airlines are subject to extensive regulatory requirements that result in significant costs. Additional laws, regulations, taxes and airport rates and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenue. For example, the ATSA, which became law in November 2001, mandates the federalization of certain airport security procedures and imposes additional security requirements on airlines. The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates would have a material adverse impact on our operations.
We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further we cannot guarantee that we will be able to obtain or

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maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.
In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, etc.). For example, spending restrictions due to federal sequestration of air traffic controllers in the United States subject to furlough may lead to a reduction in air traffic control services. A reduction in such services could have a material adverse effect on our results of operations.
Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may do so again in the future.
The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.
Many aspects of airlines' operations are subject to increasingly stringent federal, state, local and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.
Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. As a result, we may become subject to taxes, charges or additional requirements to obtain permits or purchase allowances or emission credits for greenhouse gas emissions in various jurisdictions, which could result in taxation or permitting requirements from multiple jurisdictions for the same operations.
Cap and trade restrictions have also been proposed in Congress. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. In particular, the EPA has found that greenhouse gases threaten the public health and welfare, which could result in regulation of greenhouse gas emissions from aircraft. In the event that legislation or regulation is enacted in the U.S. or in the event similar legislation or regulation is enacted in jurisdictions where we operate or where we may operate in the future, it could adversely affect operations and result in significant costs for us and the airline industry. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. Under these systems, certain credits may be available to reduce the costs of permits in order to mitigate the impact of such regulations on consumers, but we cannot predict whether we or the airline industry in general will have access to offsets or credits. We are monitoring and evaluating the potential impact of such legislative and regulatory developments.
In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs that could result from fuel suppliers passing on increased costs that they incur under such a system. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the upper atmosphere or have a greater impact on climate change than other industries.
Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related increase in laws to which we are subject.
The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws to which we are subject, both domestically and internationally. In addition, operations in non-U.S. jurisdictions are in many cases subject to the laws of those jurisdictions rather than U.S. law. Laws in some jurisdictions differ in significant respects from those in the United States, and these differences can affect our ability to react to changes in our business. Further, enforcement of laws in some jurisdictions can be inconsistent and unpredictable, which can affect our ability to enforce our rights and to undertake activities that we believe are beneficial to our business.
Our insurance costs are susceptible to significant increases and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.

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We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability and workers' compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or that we will not bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition.
Following the terrorist attacks on September 11, 2001, our insurance costs increased significantly and the availability of third-party war risk (terrorism) insurance decreased significantly. We have obtained third-party war risk (terrorism) insurance through a special program administered by the FAA. An extension of such authority will require legislation by the U.S. Congress. Should the government discontinue this coverage, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. If we are unable to obtain adequate third-party war risk (terrorism) insurance, our business could be materially and adversely affected.
FLEET AND FLEET-RELATED RISKS
We are dependent on a limited number of suppliers for aircraft, aircraft engines and parts.
We are dependent on Airbus S.A.S. (Airbus) and The Boeing Company (Boeing) as our primary suppliers of aircraft and aircraft-related items. As a result, we are vulnerable to any problems associated with the supply of those aircraft and parts which could result in increased parts and maintenance costs in future years.
Our agreements to purchase Airbus A321neo aircraft and A330-800neo aircraft represent significant future financial commitments and operating costs.
As of December 31, 2015, we had the following firm order commitments and purchase rights for aircraft:
Aircraft Type
Firm
Orders
 
Purchase
Rights
 
Expected Delivery Dates
A321neo aircraft
16

 
9

 
Between 2017 and 2020
A330-800neo aircraft
6

 
6

 
Between 2019 and 2021
We have made substantial pre-delivery payments for Airbus aircraft under existing purchase agreements and are required to continue these pre-delivery payments as well as payments for the balance of the purchase price through delivery of each aircraft. These commitments substantially increase our future capital spending requirements and may require us to increase our level of debt in future years. There can be no assurance that we will be able to raise capital to finance these requirements or that such financing can be obtained on favorable terms, or at all.
Delays in scheduled aircraft deliveries or other loss of fleet capacity may adversely impact our operations and financial results.
The success of our business depends on, among other things, the ability to effectively operate a certain number and type of aircraft. As mentioned above, we have contractual commitments to purchase and integrate Airbus aircraft into our fleet. If for any reason we are unable to secure deliveries of the Airbus aircraft on contractually scheduled delivery dates and successfully introduce these aircraft into our fleet, then our business, operations and financial performance could be negatively impacted. Our failure to integrate newly purchased Airbus aircraft into our fleet as planned may require us to seek extensions on our existing leased aircraft. Such extensions may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs.
We may never realize the full value of our long-lived assets, resulting in impairment write-offs that may negatively impact our financial position and results of operations.
Economic and intrinsic triggers, which include extreme fuel price volatility, an uncertain economic and credit environment, unfavorable trends in historical or forecasted results of operations and cash flows, as well as other uncertainties, may cause us to record a material impairment over our long-lived assets. For example, the value of our aircraft may be affected by changes

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in supply and demand for these aircraft in future periods. A material impairment charge could have an adverse effect on our financial position and results of operations in future periods.
COMMON STOCK RISKS
Our share price is subject to fluctuations and stockholders could have difficulty trading shares.
The market price of our stock is influenced by many factors, a number of which are outside of our control, and include the following:
operating results and financial condition;
changes in the competitive environment in which we operate;
fuel price volatility including the availability of fuel;
announcements concerning our competitors including bankruptcy filings, mergers, restructurings or acquisitions by other airlines;
increases or changes in government regulation;
general and industry specific market conditions;
changes in financial estimates or recommendations by securities analysts; and
sales of our common stock or other actions by investors with significant shareholdings.
In recent years the stock market has experienced volatile price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions may affect the price of our common stock.
In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company's stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of the shares of common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.
LIQUIDITY RISKS
See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding our liquidity.
Our financial liquidity could be adversely affected by credit market conditions.
Our business requires access to capital markets to finance equipment purchases, including aircraft, and to provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with Airbus to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions may adversely affect the availability of financing or may result in unfavorable terms and conditions. We can offer no assurance that the financing we need will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition will be adversely affected.
Our substantial debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.
As of December 31, 2015, we had $677 million in outstanding debt. Our substantial debt and related covenants could:
expose us to general adverse economic and industry conditions;

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require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general purpose needs.
The terms of certain of our financing agreements restrict our ability to, among other things, incur additional indebtedness, issue preferred stock or pay dividends.
These agreements also require us to meet certain financial covenants. If we breach any of these covenants it could result in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under our credit facilities.
Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.
We could be required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks totaled $5.0 million as of December 31, 2015. In the event of a material adverse change in our business, the holdback could incrementally increase to an amount up to 100% of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.
Our obligations for funding our defined benefit pension plans are significant and are affected by factors beyond our control.
We sponsor three defined benefit pension plans, as well as a separate plan to administer pilots' disability benefits. As of December 31, 2015, the unfunded pension and disability obligation related to these plans was $201 million. The timing and amount of funding requirements depend upon a number of factors, including labor negotiations and changes to pension plan benefits as well as factors outside our control, such as the number and demographic data of qualified retiring employees, asset returns, interest rates and changes in pension laws. These factors, along with the impact of results that can vary significantly from estimates, may significantly impact our funding requirements and have an adverse effect on our financial condition.
Our ability to use our net operating loss (NOL) carryforwards to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of our common stock.
Our ability to use our NOL carryforwards may be limited if we experience an "ownership change" as defined in Section 382 (Section 382) of the Internal Revenue Code of 1986, as amended. An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation's stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change.

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There is no assurance that we will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate our ability to use our NOL carryforwards. Potential future transactions involving the sale or issuance of our common stock, including the issuance of our common stock for cash and the acquisition or disposition of such stock by a stockholder owning 5% or more of our common stock, or a combination of such transactions, may increase the possibility that we will experience a future ownership change under Section 382.
Under Section 382, a future ownership change could subject us to additional annual limitations that apply to the amount of pre-ownership change NOL carryforwards that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a corporation's stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may under certain circumstances be increased by built-in gains (for example, the amount by which the fair market value of an asset exceeds our adjusted basis) in the assets held by us at the time of the ownership change. This limitation could cause our U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would be, and could cause all or a portion of our NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax purposes.
ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.    PROPERTIES.
Aircraft
The table below summarizes our total fleet as of December 31, 2014, 2015 and expected 2016 (based on existing agreements):
 
December 31, 2014
 
December 31, 2015
 
December 31, 2016
 
Seating Capacity (Per Aircraft)
 
Simple Average Age (In Years)
Aircraft Type
Leased (4)
 
Owned
 
Total
 
Leased (4)
 
Owned
 
Total
 
Leased (4)
 
Owned
 
Total
 
 
A330-200(1)
7

 
12

 
19

 
10

 
12

 
22

 
11

 
12

 
23

 
294
 
2.9
767-300(2)
6

 
4

 
10

 
4

 
4

 
8

 
4

 
3

 
7

 
252 - 264
 
16.8
717-200
3

 
15

 
18

 
3

 
15

 
18

 
3

 
15

 
18

 
128
 
14.0
ATR turboprop(3)

 
3

 
3

 

 
6

 
6

 

 
6

 
6

 
48
 
17.0
Total
16

 
34

 
50

 
17

 
37

 
54

 
18

 
36

 
54

 
 
 
 

(1)
During 2015, we took delivery and placed into revenue service three Airbus A330-200 aircraft for service on our North America and International routes. These aircraft were financed through purchase assignment and lease transactions. The increase in the number of leased aircraft in 2016 is due to the planned delivery of an aircraft financed through a six-year lease agreement. See Note 13 for further details.

(2)
During 2015, we returned two Boeing 767-300 aircraft at the end of their lease term. The decrease in the number of owned Boeing 767-300 aircraft from 2015 to 2016 is due to the planned retirement of an aircraft at the end of its useful life.

(3)
The ATR turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly-owned subsidiary of the Company.

(4)
Leased aircraft include both aircraft under capital and operating leases. See Note 9 to the consolidated financial statements for further discussion regarding our aircraft leases.

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At December 31, 2015, we had firm aircraft orders as detailed below:
Delivery Year
A321neo Aircraft(1)
 
A330-800neo Aircraft(2)
 
Total
2017
3

 

 
3

2018
6

 

 
6

2019
6

 
2

 
8

2020
1

 
2

 
3

2021

 
2

 
2

 
16

 
6

 
22


(1)
In 2013, Hawaiian executed a purchase agreement for the purchase of 16 new Airbus A321neo aircraft scheduled for delivery between 2017 and 2020. The A321neo narrow-body aircraft will be used to complement Hawaiian's existing fleet of wide-body aircraft for travel to and from the West Coast on its North America routes.

(2)
In 2014, Hawaiian entered into an amendment (the Purchase Agreement Amendment) to the Airbus A330/A350XWB Purchase Agreement to convert its order for six firm A350XWB-800 aircraft with an additional six purchase rights into an order for six firm A330-800neo aircraft with an additional six purchase rights. The Purchase Agreement Amendment provides for delivery, subject to certain flexibility rights, of six A330-800neo aircraft starting in 2019. These fuel efficient, long-range aircraft will complement our existing fleet of wide-body, twin aisle aircraft used for long-haul flying on our North America and International routes.

Hawaiian has purchase rights for an additional nine A321neo aircraft and six A330-800neo aircraft and can utilize these rights subject to production availability. Of the remaining Boeing 767-300 leased aircraft, one will expire by the end of 2017. See Note 9 to the consolidated financial statements for additional information regarding our aircraft lease agreements.
Ground Facilities
Our principal terminal facilities, cargo facilities and hangar and maintenance facilities are located at the Honolulu International Airport (HNL). The majority of the facilities at HNL are leased on a month-to-month basis. We are also charged for the use of terminal facilities at the four major Neighbor Island airports owned by the State of Hawai'i. Some terminal facilities, including gates and holding rooms, are considered by the State of Hawai'i to be common areas and thus are not exclusively controlled by us. Other facilities, including station managers' offices, Premier Club lounges and operations support space, are considered exclusive-use space by the State of Hawai'i.    

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The table below sets forth the airport locations we utilize pursuant to various agreements as of December 31, 2015:
Name of Airport
Location
Phoenix Sky Harbor International Airport
 
Phoenix
 
Arizona
Los Angeles International Airport
 
Los Angeles
 
California
Oakland International Airport
 
Oakland
 
California
Sacramento International Airport
 
Sacramento
 
California
San Diego International Airport
 
San Diego
 
California
San Francisco International Airport
 
San Francisco
 
California
Norman Y. Mineta San Jose International Airport
 
San Jose
 
California
Hilo International Airport
 
Hilo
 
Hawai'i
Honolulu International Airport
 
Honolulu
 
Hawai'i
Kahului Airport
 
Kahului
 
Hawai'i
Kapalua Airport
 
Lahaina
 
Hawai'i
Kona International Airport
 
Kona
 
Hawai'i
Lana'i Airport
 
Lana'i
 
Hawai'i
Lihu'e Airport
 
Lihu'e
 
Hawai'i
Moloka'i Airport
 
Moloka'i
 
Hawai'i
McCarran International Airport
 
Las Vegas
 
Nevada
John F. Kennedy International Airport
 
New York
 
New York
Portland International Airport
 
Portland
 
Oregon
Seattle-Tacoma International Airport
 
Seattle
 
Washington
Pago Pago International Airport
 
Pago Pago
 
American Samoa
Faa'a International Airport
 
Papeete
 
Tahiti
Brisbane International Airport
 
Brisbane
 
Australia
Sydney International Airport
 
Sydney
 
Australia
Auckland Airport
 
Auckland
 
New Zealand
Kansai International Airport
 
Osaka
 
Japan
Haneda International Airport
 
Tokyo
 
Japan
New Chitose International Airport
 
Sapporo
 
Japan
Incheon International Airport
 
Seoul
 
South Korea
Beijing Capital International Airport
 
Beijing
 
China
Our corporate headquarters are located in leased premises adjacent to the Honolulu International Airport.
ITEM 3.    LEGAL PROCEEDINGS.
We are subject to legal proceedings arising in the normal course of our operations. We do not anticipate that the disposition of any currently pending proceeding will have a material effect on our operations, business or financial condition.
ITEM 4.    MINE SAFETY DISCLOSURES.
Not applicable.

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Table of Contents

PART II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Stock Market, LLC (NASDAQ) under the symbol "HA." The following table sets forth the range of high and low sales prices of our common stock as reported on the NASDAQ for the periods indicated.
 
High
 
Low
2015
 

 
 

Fourth Quarter
$
40.13

 
$
23.77

Third Quarter
26.00

 
19.87

Second Quarter
26.10

 
20.75

First Quarter
27.66

 
18.01

2014
 

 
 

Fourth Quarter
$
26.66

 
$
12.52

Third Quarter
16.08

 
12.67

Second Quarter
16.49

 
12.35

First Quarter
14.75

 
9.46

Holders
There were 994 stockholders of record of our common stock as of January 22, 2016, which does not reflect those shares held beneficially or those shares held in "street" name.
Dividends and Other Restrictions
We paid no dividends in 2015 or 2014. Restrictions contained in our financing agreements and certain of our aircraft lease agreements limit our ability to pay dividends on our common stock. We do not anticipate paying periodic cash dividends on our common stock for the foreseeable future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."
United States law prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier or controlling a U.S. air carrier. Our certificate of incorporation prohibits the ownership or control of more than 25% (to be increased or decreased from time to time, as permitted under the laws of the U.S.) of our issued and outstanding voting capital stock by persons who are not "citizens of the U.S." As of December 31, 2015, we believe we are in compliance with the law as it relates to voting stock held by non-U.S. citizens.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table displays information with respect to our repurchases of shares of our common stock during the three months ended December 31, 2015:
Period
 
Total number of shares purchased (i)
 
Average price paid per share (ii)
 
Total number of shares purchased as part of publicly announced plans or programs (i)
 
Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (i)
October 1, 2015 - October 31, 2015
 
103,444

 
$
24.32

 
103,444

 

November 1, 2015 - November 30, 2015
 

 

 

 

December 1, 2015 - December 31, 2015
 

 

 

 

Total
 
103,444

 
 
 
103,444

 
$
60


(i)
On April 23, 2015, we announced that our Board of Directors approved a stock repurchase program under which we may purchase up to $100 million of our outstanding common stock over a two-year period ending on April 24, 2017 through the open market, established plans or privately negotiated transactions in accordance with applicable securities laws, rules and regulations. The stock repurchase program is subject to modification or termination at any time.

(ii)
Weighted average price paid per share is calculated on a settlement basis and excludes commission.

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Stockholder Return Performance Graph
The following graph compares cumulative total stockholder return on our common stock, the S&P 500 Index and the AMEX Airline Index from January 1, 2011 to December 31, 2015. The comparison assumes $100 was invested on January 1, 2011 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes. We have paid no dividends on our common stock.
The stock performance depicted in the graph above is not to be relied upon as indicative of future performance. The stock performance graph shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the same by reference, nor shall it be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA.
The Selected Financial Data should be read in conjunction with our accompanying audited consolidated financial statements and the notes related thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" below.
Hawaiian Holdings, Inc.
Selected Financial Data
 
Year ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(in thousands, except per share data)
Summary of Operations:
 

 
 

 
 

 
 

 
 

Operating revenue
$
2,317,467

 
$
2,314,879

 
$
2,155,865

 
$
1,962,353

 
$
1,650,459

Operating expenses
1,891,364

 
2,069,747

 
2,022,118

 
1,832,955

 
1,630,176

Operating income
426,103

 
245,132

 
133,747

 
129,398

 
20,283

Net Income (Loss)
182,646

 
68,926

 
51,854

 
52,237

 
(2,649
)
Net Income (Loss) Per Common Stock Share:
 

 
 

 
 

 
 

 
 

Basic
$
3.38

 
$
1.29

 
$
1.00

 
$
1.04

 
$
(0.05
)
Diluted
2.98

 
1.10

 
0.98

 
1.01

 
(0.05
)
Balance Sheet Items as of December 31:
 

 
 

 
 

 
 

 
 

Total assets
$
2,509,710

 
$
2,602,528

 
$
2,164,261

 
$
1,865,824

 
$
1,487,529

Long-term debt, less discount, and capital lease obligations, excluding current maturities (a)
694,678

 
893,288

 
744,286

 
553,009

 
424,436



(a)
In 2015, we extinguished $123.9 million of existing debt under four secured financing agreements, which were originally scheduled to mature in 2018, 2023 and 2024. We also repurchased and converted $70.8 million in principal of our Convertible Notes. In 2014, we received proceeds of $368.4 million in connection with the EETC financing for the purchase of five Airbus A330-200 aircraft. In 2013, we borrowed $132.0 million to finance a portion of the purchase price of two Airbus A330-200 aircraft, and received proceeds of $76.1 million in connection with the EETC financing for the purchase of one Airbus A330-200 aircraft. In 2012, we borrowed $133.0 million to finance a portion of the purchase price of two Airbus A330-200 aircraft and took delivery of three aircraft (two Boeing 717 aircraft and one Airbus A330-200 aircraft) under capital leases. In 2011, we issued $86.25 million principal amount of convertible notes due March 2016 and used the proceeds to pay off our outstanding secured revolving credit facility, borrowed $192.8 million through secured loan agreements to finance a portion of the purchase price of 15 Boeing 717-200 aircraft and borrowed $132.0 million to finance a portion of the purchase price of two Airbus A330-200 aircraft. See further discussion at Note 8 to the consolidated financial statements.

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Table of Contents

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the Company and its operations. This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections of future events. However, our actual results could differ materially from those discussed herein as a result of the risks that we face, including but not limited to those risks stated in "Risk Factors." See "Cautionary Note Regarding Forward-Looking Statements," above. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report.
Year in Review
2015 Financial Highlights
Operating income grew to $426 million compared to $245 million in the prior-year period.

Pre-tax income grew to $296 million compared to $113 million in the prior-year period.

GAAP net income of $183 million or $2.98 per diluted share compared to $69 million or $1.10 per diluted share in the prior-year period.

Adjusted net income of $189 million or $3.09 per diluted share compared to $97 million or $1.55 per share in the prior-year period.

Unrestricted cash and cash equivalents and short-term investments of $560 million compared to $524 million in the prior year period.

Extinguished $124 million of debt instruments that were originally scheduled to mature in 2018 through 2024.

Repurchased and converted $71 million in principal of convertible notes.
See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
Outlook
We expect our financial performance to improve in the first quarter of 2016 compared to the same quarter in 2015 as a result of favorable fuel prices. We expect available seat miles during the first quarter of 2016 to increase by 2.5% to 4.5% from the same prior year period. With the continued strengthening of the U.S. dollar, a decrease in fuel surcharges on our international routes, and an increase in industry capacity on our North America routes, operating revenue per available seat mile could increase or decrease by up to 1.5% from the same prior year period. We expect operating cost per available seat mile, excluding fuel, for the first quarter of 2016 to increase by 3% to 6% from the same prior year period due to the recent ratification of our labor agreements and an increase in the expected number of maintenance events.

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Selected Consolidated Statistical Data
Below are the operating statistics we use to measure our operating performance.
 
Year ended December 31,
 
2015
 
2014
 
2013
 
(in thousands, except as otherwise indicated)
Scheduled Operations (a) :
 

 
 

 
 

Revenue passengers flown
10,665

 
10,191

 
9,929

Revenue passenger miles (RPM)
14,450,564

 
13,910,804

 
13,658,072

Available seat miles (ASM)
17,710,309

 
17,062,264

 
16,761,761

Passenger revenue per RPM (Yield)

14.02
¢
 

14.70
¢
 

14.22
¢
Passenger load factor (RPM/ASM)
81.6
%
 
81.5
%
 
81.5
%
Passenger revenue per ASM (PRASM)

11.44
¢
 

11.99
¢
 

11.59
¢
Total Operations (a) :
 

 
 

 
 

Revenue passengers flown
10,673

 
10,195

 
9,936

RPM
14,462,191

 
13,921,147

 
13,677,645

ASM
17,726,322

 
17,073,630

 
16,785,827

Operating revenue per ASM (RASM)

13.07
¢
 

13.56
¢
 

12.84
¢
Operating cost per ASM (CASM)

10.67
¢
 

12.12
¢
 

12.05
¢
CASM excluding aircraft fuel (b)

8.31
¢
 

8.15
¢
 

7.88
¢
Aircraft fuel expense per ASM (c)

2.36
¢
 

3.97
¢
 

4.17
¢
Revenue block hours operated
173,546

 
166,362

 
161,965

Gallons of jet fuel consumed
234,183

 
230,199

 
226,214

Average cost per gallon of jet fuel (actual) (c)
$
1.78

 
$
2.95

 
$
3.09

(a)
Includes the operations of our contract carrier under a capacity purchase agreement.
(b)
Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
(c)
Includes applicable taxes and fees.
Operating Revenue
Our revenue is derived primarily from transporting passengers on our aircraft. Revenue is recognized when either the transportation is provided or when the related ticket expires unused. We measure capacity in terms of available seat miles, which represent the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing passenger revenue by RPMs. We strive to increase passenger revenue primarily by increasing our yield per flight or by filling a higher proportion of available seats, which produces higher operating revenue per available seat mile. Other revenue primarily consists of baggage fees, cargo revenue, incidental services revenue, ticket change and cancellation fees, sale of frequent flyer miles, inflight revenue, contract services and charter services revenue.
Operating revenue was $2.32 billion, $2.31 billion and $2.16 billion for the years ended December 31, 2015, 2014 and 2013. The increase in operating revenue in 2014 from 2013 was driven primarily by an increase in passenger revenue.

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2015 vs. 2014
Passenger Revenue
Passenger revenue was $2.03 billion and $2.05 billion for the years ended December 31, 2015 and 2014, respectively. Details of these changes are described in the table below:
 
Year Ended December 31, 2015 as compared to December 31, 2014
 
Change in scheduled passenger revenue
 
Change in
Yield
 
Change in
RPM
 
Change in
ASM
 
(in millions)
 
 
 
 
 
 
North America
$
52.9

 
(2.6
)%
 
8.0
 %
 
9.4
 %
Neighbor Island
16.2

 
1.0

 
2.3

 
4.4

International
(88.5
)
 
(12.8
)
 
(4.0
)
 
(6.0
)
Total scheduled
$
(19.4
)
 
(4.6
)%
 
3.9
 %
 
3.8
 %
North America revenue increased by $52.9 million in 2015, as compared to 2014, primarily due to capacity increases on our North America routes, driven by the annualized impact of service introduced in 2014. This was slightly offset by a decrease in the yield generated from these routes, which was a result of the increase in industry capacity compared to the prior period.
Neighbor Island revenue increased by $16.2 million in 2015, as compared to 2014, due to the introduction of a new cabin configuration to our fleet of 717-200 aircraft and the launch of our turboprop operations in March 2014.
International revenue decreased by $88.5 million in 2015, as compared to 2014, due to decreased yield and capacity. The continued strengthening of the U.S. dollar combined with lower fuel surcharges resulted in decreased average fares for our International routes compared to the prior period. Decreased capacity was driven by changes we made to our network in 2014, including the suspension of our route from Honolulu to Taipei, Taiwan (March 2014) and Honolulu to Fukuoka, Japan (June 2014).
Other Operating Revenue
Other operating revenue increased by $22.0 million, or 8.2%, in 2015, as compared to 2014, due to $11.2 million generated by increased sales of frequent flyer miles under our co-branded credit card agreement, as compared to the prior year period. Additionally, a 9% increase in the number of passengers flown on our North America routes resulted in a $7.5 million increase in ancillary revenue compared to the prior year period.

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Table of Contents

Operating Expenses
The largest components of our operating expenses are wages and benefits provided to our employees, aircraft fuel (including taxes and delivery) and aircraft maintenance materials and repairs. Increases (decreases) in operating expenses are detailed below.
 
Changes for the year ended December 31, 2015 as compared to December 31, 2014
 
$
 
%
 
(in thousands)
 
 
Operating expense:
 

 
 

Aircraft fuel, including taxes and delivery
$
(260,525
)
 
(38.4
)%
Wages and benefits
52,060

 
11.6

Aircraft rent
9,231

 
8.7

Maintenance materials and repairs
(971
)
 
(0.4
)
Aircraft and passenger servicing
(5,331
)
 
(4.3
)
Commissions and other selling
(2,772
)
 
(2.3
)
Depreciation and amortization
9,207

 
9.6

Other rentals and landing fees
7,153

 
8.1

Purchased services
8,452

 
11.5

Other
5,113

 
4.7

Total
$
(178,383
)
 
(8.6
)%
The price and availability of aircraft fuel is extremely volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. Decreases in aircraft fuel expense are illustrated in the following table:
 
Year Ended December 31,
 
 
 
2015
 
2014
 
% Change
 
(in thousands, except per-gallon amounts)
 
 
Aircraft fuel expense, including taxes and delivery
$
417,728

 
$
678,253

 
(38.4
)%
Fuel gallons consumed
234,183

 
230,199

 
1.7
 %
Average fuel price per gallon, including taxes and delivery
$
1.78

 
$
2.95

 
(39.7
)%
The decrease in fuel expense from 2014 to 2015 is primarily due to a decrease in the average fuel price per gallon, partially offset by increased fuel consumption due to the additional aircraft in the fleet (three additional A330-200 offset by the return of two B767-300 aircraft at the end of its lease term).
We believe economic fuel expense is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations in a period and is consistent with how management manages our business and assesses our operating performance. We define economic fuel expense as raw fuel expense plus (gains)/losses realized through actual cash payments to/(receipts from) hedge counterparties for fuel derivatives settled in the period inclusive of costs related to hedging premiums. Economic fuel expense is calculated as follows:
 
Year Ended December 31,
 
 
 
2015
 
2014
 
% Change
 
(in thousands, except per-gallon amounts)
 
 
Aircraft fuel expense, including taxes and delivery
$
417,728

 
$
678,253

 
(38.4
)%
Realized losses on settlement of fuel derivative contracts
60,946

 
20,365

 
199.3
 %
Economic fuel expense
$
478,674

 
$
698,618

 
(31.5
)%
Fuel gallons consumed
234,183

 
230,199

 
1.7
 %
Economic fuel costs per gallon
$
2.04

 
$
3.03

 
(32.7
)%
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for additional discussion of our jet fuel costs and related derivative program.

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Table of Contents

Wages and benefits expense increased by $52.1 million, or 11.6%, in 2015 as compared to 2014, due to increased pension and postretirement benefit expenses and increased profit-sharing expense resulting from our improved financial performance as compared to the prior period.
Aircraft rent expense increased by $9.2 million, or 8.7%, in 2015 as compared to 2014, primarily due to the addition of three A330-200 aircraft under operating leases (one each in February 2015, May 2015, and October 2015), offset by the return of two Boeing 767-300 aircraft (one each in May 2015 and October 2015).
Depreciation and amortization expense increased by $9.2 million, or 9.6%, in 2015 as compared to 2014, primarily due to the annualized effect of owned aircraft added to the fleet in the prior year period.
Other rentals and landing fees expense increased by $7.2 million, or 8.1%, in 2015 as compared to 2014, primarily due to increased rates and landing frequencies.
Purchased services expense increased by $8.5 million, or 11.5%, in 2015 as compared to 2014, due to costs incurred in connection with our turboprop operations and increased IT infrastructure costs.
Nonoperating Expense
Net nonoperating expense decreased by $1.3 million in 2015, as compared to 2014, primarily due to reduced debt levels which resulted in an $8.6 million reduction in interest expense as compared to the prior year period. Also our fuel hedge portfolio generated losses of $59.9 million in the current period compared to losses of $63.5 million in the prior year period. These reductions in nonoperating expense were partially offset by an $8.2 million increase in losses generated from the early extinguishment of long-term debt.
2014 vs. 2013
Passenger Revenue
Passenger revenue was $2.05 billion and $1.94 billion for the years ended December 31, 2014 and 2013, respectively. Details of these changes are described in the table below:
 
Year Ended December 31, 2014 as compared to December 31, 2013
 
Change in scheduled passenger revenue
 
Change in
Yield
 
Change in
RPM
 
Change in
ASM
 
(in millions)
 
 
 
 
 
 
North America
$
111.4

 
5.1
%
 
6.9
%
 
10.2
%
Neighbor Island
35.7

 
6.0

 
1.8

 
3.7

International
(44.8
)
 
(0.8
)
 
(6.9
)
 
(10.4
)
Total scheduled
$
102.3

 
3.4
%
 
1.9
%
 
1.8
%
North America revenue increased by $111.4 million in 2014, as compared to 2013, due to an increase in the number of revenue passengers flown and the yield generated on these routes. The increase in the number of revenue passengers was driven by an increase in capacity provided by the addition of new Airbus A330-200 aircraft delivered during the year, the initiation of new routes from Honolulu to Oakland, California (January 2014) and from Maui to Los Angeles (May 2014) and San Francisco, California (November 2014), the reintroduction of the Honolulu to San Jose, California service (May 2014), and the introduction of our summer service from both Lihu'e, Kaua'i and Kona, Hawai'i Island to Oakland and Los Angeles, California.
Neighbor Island revenue increased by $35.7 million, in 2014, as compared to 2013, due to our turboprop operations which launched in March 2014, the impact of improved traffic mix, and a slight increase in average fares.
International revenue decreased by $44.8 million in 2014, as compared to 2013, due to a decrease in our international capacity which was a result of changes to our network during the year. These changes consisted of the suspension of our routes from Honolulu to Manila, Philippines (August 2013) and from Honolulu to Fukuoka, Japan (June 2014). Also, the continued strengthening of the U.S. Dollar resulted in decreased average fares from 2013.
Other Operating Revenue
Other operating revenue increased by $56.8 million, or 26.7%, in 2014, as compared to 2013, due to $29.1 million generated by increased sales of frequent flyer miles under our new co-branded credit card agreement and $13.1 million driven by an increase in the volume of cargo transported, as compared to the prior year period. The increase in volume was the result of additional cargo capacity and improved revenue generation on our existing routes.

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Operating Expenses
Increases (decreases) in operating expenses are detailed below.
 
Changes for the year ended December 31, 2014 as compared to December 31, 2013
 
$
 
%
 
(in thousands)
 
 
Operating expense:
 

 
 

Aircraft fuel, including taxes and delivery
$
(20,549
)
 
(2.9
)%
Wages and benefits
20,008

 
4.7

Aircraft rent
(2,112
)
 
(1.9
)
Maintenance materials and repairs
22,232

 
10.9

Aircraft and passenger servicing
2,145

 
1.8

Commissions and other selling
(3,382
)
 
(2.7
)
Depreciation and amortization
13,324

 
16.0

Other rentals and landing fees
6,585

 
8.1

Purchased services
9,744

 
15.3

Other
(366
)
 
(0.3
)
Total
$
47,629

 
2.4
 %
Decreases in aircraft fuel expense are illustrated in the following table:
 
Year Ended December 31,
 
 
 
2014
 
2013
 
% Change
 
(in thousands, except per-gallon amounts)
 
 
Aircraft fuel expense, including taxes and delivery
$
678,253

 
$
698,802

 
(2.9
)%
Fuel gallons consumed
230,199

 
226,214

 
1.8
 %
Average fuel price per gallon, including taxes and delivery
$
2.95

 
$
3.09

 
(4.5
)%
The decrease in fuel expense from 2013 to 2014 is primarily due to a decrease in the average fuel price per gallon, partially offset by increased fuel consumption due to the additional aircraft in the fleet (five additional A330-200 offset by the retirement of two B767-300 aircraft).
Economic fuel expense is calculated as follows:
 
Year Ended December 31,
 
 
 
2014
 
2013
 
% Change
 
(in thousands, except per-gallon amounts)
 
 
Aircraft fuel expense, including taxes and delivery
$
678,253

 
$
698,802

 
(2.9
)%
Realized losses on settlement of fuel derivative contracts
20,365

 
14,018

 
45.3
 %
Economic fuel expense
$
698,618

 
$
712,820

 
(2.0
)%
Fuel gallons consumed
230,199

 
226,214

 
1.8
 %
Economic fuel costs per gallon
$
3.03

 
$
3.15

 
(3.8
)%
Wages and benefits expense increased by $20.0 million, or 4.7%, in 2014, as compared to 2013, due to a 2.5% increase in the number of employees as we continue to expand our operations with additional aircraft. Our profit-sharing expense also increased in 2014, which was driven by our improved financial performance from 2013.
Maintenance materials and repairs expense increased by $22.2 million, or 10.9%, in 2014, as compared to 2013, primarily due to the increase in the number and utilization of Airbus A330-200 aircraft in our fleet, partially offset by a decrease in the number and utilization of Boeing 767-300 aircraft in our fleet.
Depreciation and amortization expense increased by $13.3 million, or 16.0%, in 2014, as compared to 2013, primarily due to the increase in the number of owned aircraft (five A330-200 aircraft offset by the retirement of two B767-300 aircraft).

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Other rentals and landing fees expense increased by $6.6 million, or 8.1%, in 2014 as compared to 2013, primarily due to increased rates and landing frequencies.
Purchased services expense increased by $9.7 million, or 15.3%, in 2014 as compared to 2013, primarily due to costs incurred in connection with our turboprop operations that began in March 2014.
Nonoperating Expense
Net nonoperating expense increased by $84.3 million in 2014, as compared to 2013, primarily due to our fuel hedge portfolio generating losses of $63.5 million in the current period compared to losses of $5.3 million in the prior year period. The strengthening of the US dollar resulted in foreign exchange loss of $8.7 million in the current period compared to a loss of $4.4 million in the prior period. The interest expense incurred in connection with the equipment notes under the EETC financing also contributed to the increase in nonoperating expense for the period.
Income Tax Expense
We recorded income tax expense of $113.0 million, $44.5 million and $34.6 million during the years ended December 31, 2015, 2014, and 2013, respectively. In 2015, 2014 and 2013, we had an effective tax rate of 38.2%, 39.2% and 40.0%, respectively.
See Note 10 to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Our liquidity is dependent on the cash we generate from operating activities, our existing cash resources and our debt financing arrangements. As of December 31, 2015, we had $281.5 million in cash and cash equivalents and $278.5 million in short-term investments, representing an increase of $35.8 million from December 31, 2014. As of December 31, 2015 and 2014, our restricted cash balance of $5.0 million and $6.6 million, respectively, primarily consisted of cash held as collateral by entities that process our credit card transactions for advanced ticket sales.
We have been able to generate sufficient funds from our operations to meet our working capital requirements and typically finance our aircraft through secured debt and lease financings. At December 31, 2015, Hawaiian had $772.1 million of debt and capital lease obligations, including $77.5 million classified as a current liability in the Consolidated Balance Sheets. As of December 31, 2015, our current liabilities exceeded our current assets by approximately $28.8 million. However, approximately $430.8 million of our current liabilities are related to our advanced ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel within the next 12 months and not actual cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.
We also have access to a secured revolving credit and letter of credit facility (the Revolving Credit Facility) in an amount of up to $175 million, maturing in November 2017. As of December 31, 2015 we had no outstanding borrowings under the Revolving Credit Facility.
Cash Flows
Net cash provided by operating activities was $476.0 million, $300.4 million and $243.3 million in 2015, 2014 and 2013, respectively. The increase in 2015 was primarily due to the increased net income before deferred income tax expense, which does not impact our cash flows because our net operating loss carryforwards were used to satisfy this income tax obligation. The increase in 2014 was primarily due to increased net income before the expense associated with unrealized loss positions on our fuel derivative contracts, which do not immediately impact our cash flows from operating activities because the losses were unrealized as of December 31, 2014.
Net cash used in investing activities was $35.3 million, $686.8 million and $327.8 million for 2015, 2014 and 2013, respectively. The decrease in 2015 was due to acquisition of fewer aircraft during the year, which resulted in a $323.4 million reduction in capital expenditures. We also received $101.7 million from the purchase assignment and leaseback of three Airbus A330-200 aircraft during the year, and reduced our net purchases of investments by $240.2 million in 2015. The increase in 2014 was due to the $261.5 million in net purchases of investments, and the acquisition of five Airbus A330-200 aircraft during the year.
Net cash used in financing activities was $423.3 million for 2015 and net cash provided by financing activities was $227.1 million and $102.0 million for 2014 and 2013, respectively. The increase in cash used in financing activities in 2015 was due to the lack of long-term borrowings during the year, the early repayment of long-term debt, and the repurchase of convertible notes and common stock. This was partially offset by the net settlement of the convertible note call options and warrants. The

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increase in 2014 was due to the receipt of $368.4 million in proceeds from the EETC financing, partially offset by $54.2 million of debt extinguishment in October 2014 and repurchase of $15.1 million of convertible notes.
Covenants under our Financing Arrangements
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our Consolidated Balance Sheets, totaled $5.0 million as of December 31, 2015 and 2014.
In the event of a material adverse change in the business, the holdback could increase to an amount up to 100% of the applicable credit card air traffic liability, which would also result in an increase in the required level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on our operations.
Pension and Other Postretirement Benefit Plan Funding
As of December 31, 2015, the excess of the projected benefit obligations over the fair value of plan assets was approximately $375.8 million. We contributed $20.4 million, $8.9 million and $18.7 million, to our defined benefit pension plans and disability plan during 2015, 2014 and 2013, respectively. Future funding requirements for our defined benefit and other postretirement plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements and the level and timing of asset returns. In 2016, our minimum required contribution to our defined benefit pension plans and disability plan is $5.3 million.
Income Tax Net Operating Loss Carryforwards
We have net operating loss (NOL) carryforwards for federal and state income tax purposes of $288.2 million as of December 31, 2015. The tax benefit of the NOL carryforwards as of December 31, 2015 is $38.3 million, substantially all of which will not begin to expire until 2031. We believe we will have sufficient working capital to pay income taxes as they become due.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) retained a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in the first three categories that we believe may have a current or future material effect on our financial condition, liquidity or results of operations. We do have obligations arising out of variable interests in unconsolidated entities related to certain aircraft leases. To the extent our leases and related guarantees are with a separate legal entity other than a governmental entity, we are not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease, and the lease does not include a residual value guarantee, fixed price purchase option or similar feature.
Contractual Obligations
Our estimated contractual obligations as of December 31, 2015 are summarized in the following table:
Contractual Obligations
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
 
(in thousands)
Debt and capital lease obligations(1)
$
969,318

 
$
116,531

 
$
216,053

 
$
190,032

 
$
446,702

Operating leases—aircraft and related equipment(2)
785,079

 
112,647

 
213,943

 
190,749

 
267,740

Operating leases—non-aircraft
44,574

 
5,247

 
9,050

 
8,220

 
22,057

Purchase commitments—Capital(3)
1,625,220

 
85,349

 
618,122

 
713,581

 
208,168

Purchase commitments—Operating(4)
589,336

 
66,654

 
124,218

 
110,964

 
287,500

Projected employee benefit contributions(5)
43,600

 
5,500

 
38,100

 

 

Total contractual obligations
$
4,057,127

 
$
391,928

 
$
1,219,486

 
$
1,213,546

 
$
1,232,167

(1)
Amounts represent contractual amounts due, including interest. Interest on variable-rate debt was estimated using rates in effect as of December 31, 2015. Amount reflects capital lease obligations for one Airbus A330-200 aircraft, two Boeing 717 aircraft, one A330 flight simulator and aircraft related equipment.

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(2)
Amounts reflect leases for nine Airbus A330-200 aircraft, four Boeing 767 aircraft, one Boeing 717 aircraft, three turboprop aircraft and aircraft-related equipment as of December 31, 2015.

(3)
Amounts include our firm commitments for aircraft and aircraft related equipment.

(4)
Amounts include commitments for services provided by third-parties for aircraft maintenance for our Airbus fleet, capacity purchases, accounting, IT and reservations. Total contractual obligations do not include long-term contracts where the commitment is variable in nature (with no minimum guarantee), such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.

(5)
Amounts include our estimated contributions to our pension plans (based on actuarially determined estimates) and our pilots' disability plan. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns and the impact of future legislation. We are currently unable to estimate the projected contributions beyond 2018.
Capital Commitments
As of December 31, 2015, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
Aircraft Type
Firm
Orders
 
Purchase
Rights
 
Expected Delivery Dates
A321neo aircraft
16

 
9

 
Between 2017 and 2020
A330-800neo aircraft
6

 
6

 
Between 2019 and 2021
Pratt & Whitney spare engines:
 
 
 
 
 
A321neo spare engines
2

 

 
Between 2017 and 2018
Rolls-Royce spare engines:
 

 
 

 
 
A330-800neo spare engines
2

 

 
Between 2019 and 2020
Committed expenditures for these aircraft, engines and related flight equipment are approximately $85 million in 2016, $221 million in 2017, $397 million in 2018, $484 million in 2019, and $230 million in 2020.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. We can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.
Non-GAAP Financial Measures
We believe the disclosure of non-GAAP financial measures is useful information to readers of our financial statements because:
We believe it is the basis by which we are evaluated by industry analysts and investors;
These measures are often used in management and board of directors decision making analysis;
It improves a reader's ability to compare our results to those of other airlines; and
It is consistent with how we present information in our quarterly earnings press releases.
See table below for reconciliation between GAAP consolidated net income to adjusted consolidated net income, including per share amounts (in thousands unless otherwise indicated). The adjustments are described below:
Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This line item includes the unrealized amounts of fuel derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. Excluding the impact of these derivative adjustments allows investors to better analyze our operational performance and compare our results to other airlines in the periods presented below
Loss on extinguishment of debt, net of tax, is excluded to allow investors to better analyze our core operational performance and compare our results to other airlines in the periods presented below.

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Year Ended December 31,
 
2015
 
2014
 
2013
 
Net Income
 
Diluted Net Income Per Share
 
Net Income
 
Diluted Net Income Per Share
 
Net Income
 
Diluted Net Income Per Share
As reported—GAAP
$
182,646

 
$
2.98

 
$
68,926

 
$
1.10

 
$
51,854

 
$
0.98

Add: changes in fair value of derivative contracts, net of tax
(609
)
 
(0.01
)
 
25,864

 
0.41

 
(5,210
)
 
(0.10
)
Add: loss on extinguishment of debt, net of tax
7,235

 
0.12

 
2,331

 
0.04

 

 

Adjusted net income
$
189,272

 
$
3.09

 
$
97,121

 
$
1.55

 
$
46,644

 
$
0.88

Operating Costs per Available Seat Mile (CASM)
We have listed separately in the table below our fuel costs per ASM and our non-GAAP unit costs, excluding fuel. These amounts are included in CASM, but for internal purposes we consistently use unit cost metrics that exclude fuel and non-recurring items (if applicable) to measure and monitor our costs.
CASM and CASM, excluding fuel, are summarized in the table below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
GAAP operating expenses
$
1,891,364

 
$
2,069,747

 
$
2,022,118

Less: aircraft fuel, including taxes and delivery
(417,728
)
 
(678,253
)
 
(698,802
)
Adjusted operating expenses—excluding aircraft fuel
$
1,473,636

 
$
1,391,494

 
$
1,323,316

Available Seat Miles
17,726,322

 
17,073,630

 
16,785,827

CASM—GAAP

10.67
¢
 

12.12
¢
 

12.05
¢
Less: aircraft fuel
(2.36
)
 
(3.97
)
 
(4.17
)
CASM—excluding aircraft fuel

8.31
¢
 

8.15
¢
 

7.88
¢
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties, and that potentially result in materially different results under different assumptions and conditions.
Frequent Flyer Accounting
HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. We utilize the incremental cost method of accounting for free travel awards earned by passengers issued from the HawaiianMiles program through flight activity. This method utilizes a number of estimates including the incremental cost per mile and breakage. We record a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on other airlines. We estimate the incremental cost of travel awards based on periodic studies of actual costs and apply these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental costs include the cost of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical expirations.
We also sell mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representing the transportation that will ultimately be provided when the mileage credits are redeemed and the other elements consisting of marketing related activities that we conduct with the participating company.

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In 2013, Hawaiian entered into a co-branded credit card agreement, which provides for the sale of frequent flyer miles to Barclays Bank Delaware (Barclays) which began in 2014. The agreement was a new multiple element arrangement subject to Accounting Standards Update 2009-13, Multiple Deliverable Revenue Arrangements — A consensus of the FASB Emerging Issues Task Force (ASU 2009-13), which was effective for new and materially modified revenue arrangements entered into by the Company after January 1, 2011.  ASU 2009-13 requires the allocation of the overall consideration received to each deliverable using the estimated selling price.  The objective of using estimated selling price based methodology is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis.
The following four deliverables or elements were identified in the agreement: (i) travel miles; (ii) use of the Hawaiian brand and access to member lists; (iii) advertising elements; and (iv) other airline benefits including checked baggage services and travel discounts.  We determined the relative fair value of each element by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the deliverables based on their relative selling prices.  The transportation element is deferred and recognized as passenger revenue over the period when the transportation is expected to be provided (24 months).  The other elements are generally recognized as other revenue when earned.
In the previous co-branded credit card agreement, the estimated fair value of the transportation element was deferred and recognized as passenger revenue over the period the transportation was expected to be provided.  Amounts received in excess of the transportation’s estimated fair value were recognized immediately as other revenue.
Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company, then transferred into a member's HawaiianMiles account for immediate redemption of free travel awards. For those transactions, revenue is recognized over the period during which the mileage is projected to be used for travel (five months).
On an annual basis, we review the deferral period and deferral rate for mileage credits sold to participating companies (except for miles sold under our co-branded credit card agreement), as well as the breakage rate assumption for free travel awards earned in connection with the purchase of passenger tickets. The cost components of the incremental cost assumption are reviewed on a quarterly basis.
Pension and Other Postretirement and Postemployment Benefits
The calculation of pension and other postretirement and postemployment benefit expenses and its corresponding liabilities require the use of significant assumptions, including the assumed discount rate, the expected long-term rate of return on plan assets, expected mortality rates of the plan participants, and the expected health care cost trend rate. Changes in these assumptions will impact the expense and liability amounts, and future actual experience may differ from these assumptions. The significant assumptions as of December 31, 2015 are as follows:
Pension:
 

 
 
Discount rate to determine projected benefit obligation
4.56
%
 
 
Expected return on plan assets
6.89
%
 
+
Postretirement:
 

 
 
Discount rate to determine projected benefit obligation
4.72
%
 
 
Expected return on plan assets
N/A

 
 
Expected health care cost trend rate:
 

 
 
Initial
8.25
%
 
 
Ultimate
4.75
%
 
 
Years to reach ultimate trend rate
7

 
 
Disability:
 

 
 
Discount rate to determine projected benefit obligation
4.61
%
 
 
Expected return on plan assets
5.40
%
 
+
N/A Not Applicable
+
Expected return on plan assets used to determine the net periodic benefit expense for 2016 is 6.69% for the pension plans and 5.37% for the disability plan.

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The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans' assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to sufficiently diversify assets so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. We believe that our long-term asset allocation on average will approximate the targeted allocation. We periodically review our actual asset allocation and rebalance the pension plan's investments to our targeted allocation when considered appropriate. Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return will have the following effects on our estimated 2016 pension and disability benefit expense:
 
100 Basis Point Decrease
 
(in millions)
Increase in estimated 2016 pension expense
$
2.5

Increase in estimated 2016 disability benefit expense
0.2

We determine the appropriate discount rate for each of our plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The pension and other postretirement benefit liabilities and future expense both increase as the discount rate is reduced. Lowering the discount rate would have the following effects:
 
100 Basis Point Decrease
 
(in millions)
Increase in pension obligation as of December 31, 2015
$
55.9

Increase in other postretirement benefit obligation as of December 31, 2015
41.4

Increase in estimated 2016 pension expense
2.8

Increase in estimated 2016 other postretirement benefit expense
6.0

The health care cost trend rate is based upon an evaluation of the Company's historical trends and experience taking into account current and expected market conditions. Changes in the assumed health care cost trend rate would have the following annual effects:
 
100 Basis Point Increase
 
(in millions)
Increase in other postretirement benefit obligation as of December 31, 2015
$
36.9

Increase in estimated 2016 other postretirement benefit expense
7.4

 
100 Basis Point Decrease
 
(in millions)
Decrease in other postretirement benefit obligation as of December 31, 2015
$
28.8

Decrease in estimated 2016 other postretirement benefit expense
4.8

Aircraft Maintenance and Repair Costs
On a quarterly basis we complete a forecast of maintenance costs for the next scheduled event on applicable leased aircraft and compare these estimates to our forecasted nonrefundable deposits to identify costs not expected to be recoverable. Any costs not expected to be recoverable are considered to be not substantially and contractually related to maintenance of the leased asset. Therefore, we bifurcate and expense the proportionate share that is estimated to not be recoverable from existing and future nonrefundable deposits. In determining whether it is probable that maintenance deposits will be used to fund the cost of the maintenance events, we conduct the following analysis:
We evaluate the aircraft's condition, including the airframe, the engines, the auxiliary power unit and the landing gear.
We then project future usage of the aircraft during the term of the lease based on our business and fleet plan.
We estimate the cost of performing the next scheduled maintenance event. These estimates are based on the experience of our maintenance personnel and available industry data, including historical fleet operating statistic reports published by the aircraft and engine manufacturers.

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We compare the forecasted maintenance deposits to be paid at the time of the next scheduled maintenance event to the estimated cost of the next scheduled maintenance event. Those costs not expected to be recoverable are considered to be not substantially and contractually related to maintenance of the leased asset.
We prospectively account for any changes in estimates.
Our assessment of the recoverability of our maintenance deposits is subject to change in the event that key estimates and assumptions change over time. Those key estimates and assumptions include our fleet plan and the projected total cost and, to a lesser extent, anticipated timing of the major maintenance activities covered by the maintenance reserves.
Based on current market conditions, we believe that further significant changes in our fleet plan are unlikely. Furthermore, based on historical trends and future projections, including those published by the manufacturers of our aircraft and engines, we believe it is unlikely that future maintenance costs for our aircraft will decline to such an extent that the maintenance deposits currently recorded on our Consolidated Balance Sheets would not be used to fund the cost of future maintenance events and, therefore, not be recoverable.
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to certain market risks, including commodity price risk (i.e. jet fuel prices), interest rate risk and foreign currency risk. We have market-sensitive instruments in the form of variable-rate debt and financial derivatives used to offset Hawaiian's exposure to jet fuel price increases, and financial hedge instruments used to hedge Hawaiian's exposure to variable interest rate risk and foreign currency exchange risk. The adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we might undertake to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel Costs
Aircraft fuel costs constitute a significant portion of our operating expense. Fuel costs represented 22% of our operating expenses for the year ended December 31, 2015. Approximately 70% of our fuel is based on Singapore jet fuel prices and 30% is based on U.S. West Coast jet fuel prices. Based on gallons expected to be consumed in 2016, for every one cent increase in the cost of a gallon of jet fuel, our fuel expense would increase by approximately $2.4 million, excluding the results of our fuel hedge program.
We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. During 2015, our fuel hedge program primarily consisted of heating oil puts and swaps. Put option contracts provide for a settlement in favor of the holder in the event the prices fall below a predetermined contractual level during a particular time period. Swaps provide for a settlement in our favor in the event the prices exceed a predetermined contractual level and are unfavorable in the event prices fall below a predetermined contractual level.
As of December 31, 2015, we hedged approximately 35% of our projected fuel requirements for 2016 with heating oil puts and swaps. As of December 31, 2015, the fair value of these fuel derivative agreements reflected a net liability of $39.5 million that is recorded in other accrued liabilities in the Consolidated Balance Sheets.
We expect to continue our program of offsetting some of our exposure to future changes in the price of jet fuel with a combination of fixed forward pricing contracts, swaps, puts and other option-based structures.
We do not hold or issue derivative financial instruments for trading purposes.
Interest Rates
Our results of operations are affected by fluctuations in interest rates due to our variable-rate debt and interest income earned on our cash deposits. Our variable-rate debt agreements include the Revolving Credit Facility and secured loan agreements, the terms of which are discussed in Note 8 to our consolidated financial statements.
At December 31, 2015, we had $51.0 million of variable-rate debt indexed to the following interest rate:
Index
Rate
Three-month LIBOR
0.54
%
Changes in market interest rates have a direct and corresponding effect on our pre-tax earnings and cash flows associated with our variable-rate debt and interest-bearing cash accounts. Based on the balances of our cash and cash equivalents, restricted

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cash, short-term investments, and variable-rate debt as of December 31, 2015, a change in interest rates is unlikely to have a material impact on our results of operations.
At December 31, 2015, we had $721 million of fixed-rate debt including aircraft capital lease obligations, a convertible note, facility agreements for aircraft purchases, and the outstanding equipment notes related to the EETC financing. Market risk for fixed-rate long-term debt is estimated as the potential increase in fair value resulting from a hypothetical 10% decrease in market rates, and amounted to approximately $15 million as of December 31, 2015.
In April 2013, we issued variable-rate debt to finance a portion of the purchase price of another Airbus A330-200 aircraft. The interest rate associated with this debt is based on a market index rate that resets every three months. To limit our exposure to significant increases in the applicable market index rates for this debt, we entered into a forward starting interest swap agreement, which had an immaterial impact on our financial statements.
Foreign Currency
We generate revenues and incur expenses in foreign currencies. Changes in foreign currency exchange rates impact our results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Our most significant foreign currency exposures are the Japanese Yen and Australian Dollar. Based on expected 2016 revenues and expenses denominated in Japanese Yen and Australian Dollars, a 10% strengthening in value of the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a decrease in operating income of approximately $18 million and $9 million, respectively, which excludes the offset of the hedges discussed below. This potential impact to the results of our operation is driven by the inherent nature of our international operations, which requires us to accept a large volume of sales transactions denominated in foreign currencies while few expense transactions are settled in foreign currencies. This disparity is the primary factor in our exposure to foreign currency exchange rates.
As of December 31, 2015, the fair value of our foreign currency forwards reflected a net asset of $5.9 million that is recorded in prepaid expenses and other, and $0.4 million recorded in other liabilities and deferred credits reflected in the Consolidated Balance Sheets.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
 
Page
Hawaiian Holdings, Inc.
 
Report of Independent Registered Public Accounting Firm
40
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013
41
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013
42
Consolidated Balance Sheets as of December 31, 2015 and 2014
43
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2015, 2014 and 2013
44
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
45
Notes to Consolidated Financial Statements
46

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Hawaiian Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Hawaiian Holdings, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hawaiian Holdings, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hawaiian Holdings, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 8, 2016, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP  
 
 

Honolulu, Hawai'i
February 8, 2016

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Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2015, 2014 and 2013
 
2015
 
2014
 
2013
 
(in thousands, except per share data)
Operating Revenue:
 

 
 

 
 

Passenger
$
2,025,610

 
$
2,045,052

 
$
1,942,829

Other
291,857

 
269,827

 
213,036

Total
2,317,467

 
2,314,879

 
2,155,865

Operating Expenses:
 
 
 

 
 

Aircraft fuel, including taxes and delivery
417,728

 
678,253

 
698,802

Wages and benefits
499,506

 
447,446

 
427,438

Aircraft rent
115,653

 
106,422

 
108,534

Maintenance materials and repairs
224,648

 
225,619

 
203,387

Aircraft and passenger servicing
117,449

 
122,780

 
120,635

Commissions and other selling
119,746

 
122,518

 
125,900

Depreciation and amortization
105,581

 
96,374

 
83,050

Other rentals and landing fees
95,055

 
87,902

 
81,317

Purchased services
81,838

 
73,386

 
63,642

Other
114,160

 
109,047

 
109,413

Total
1,891,364

 
2,069,747

 
2,022,118

Operating Income
426,103

 
245,132

 
133,747

Nonoperating Income (Expense):
 
 
 

 
 

Interest expense and amortization of debt discounts and issuance costs
(55,678
)
 
(64,240
)
 
(50,453
)
Interest income
2,811

 
1,684

 
639

Capitalized interest
3,261

 
8,024

 
12,625

Losses on fuel derivatives
(59,931
)
 
(63,471
)
 
(5,334
)
Loss on extinguishment of debt
(12,058
)
 
(3,885
)
 

Other, net
(8,820
)
 
(9,797
)
 
(4,814
)
Total
(130,415
)
 
(131,685
)
 
(47,337
)
Income Before Income Taxes
295,688

 
113,447

 
86,410

Income tax expense
113,042

 
44,521

 
34,556

Net Income
$
182,646

 
$
68,926

 
$
51,854

Net Income Per Common Stock Share:
 
 
 

 
 

Basic
$
3.38

 
$
1.29

 
$
1.00

Diluted
$
2.98

 
$
1.10

 
$
0.98

Weighted Average Number of Common Stock Shares Outstanding:
 
 
 

 
 

Basic
54,031

 
53,591

 
52,099

Diluted
61,256

 
62,822

 
53,155

See accompanying Notes to Consolidated Financial Statements.


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Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years ended December 31, 2015, 2014 and 2013
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(in thousands)
Net Income
$
182,646

 
$
68,926

 
$
51,854

Other comprehensive income (loss), net:
 

 
 

 
 

Net change related to employee benefit plans, net of tax expense of $18,826 for 2015, tax benefit of $50,968 for 2014 and tax expense of $38,886 for 2013
31,655

 
(83,461
)
 
61,995

Net change in derivative instruments, net of tax benefit of $4,866 for 2015, tax expense of $2,188 and $5,696 for 2014 and 2013, respectively
(8,002
)
 
3,589

 
9,373

Net change in available-for-sale investments, net of tax benefit of $72 and $154 for 2015 and 2014, respectively
(118
)
 
(254
)
 

Total other comprehensive income (loss)
23,535

 
(80,126
)
 
71,368

Total Comprehensive Income (Loss)
$
206,181

 
$
(11,200
)
 
$
123,222

See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2015 and 2014
 
2015
 
2014
 
(in thousands, except share data)
ASSETS
 
 
 

Current Assets:
 
 
 

Cash and cash equivalents
$
281,502

 
$
264,087

Restricted cash
5,000

 
6,566

Short-term investments
278,545

 
260,121

Accounts receivable, net
81,723

 
80,737

Spare parts and supplies, net
19,164

 
18,011

Prepaid expenses and other
75,050

 
53,382

Total
740,984

 
682,904

Property and equipment, net
 
 
 

Flight equipment
1,737,435

 
1,741,444

Pre-delivery deposits on flight equipment
21,467

 
97,685

Other property and equipment
226,350

 
201,871

 
1,985,252

 
2,041,000

Less accumulated depreciation and amortization
(432,510
)
 
(367,507
)
Total
1,552,742

 
1,673,493

Other Assets:
 
 
 

Long-term prepayments and other
90,661

 
96,225

Intangible assets, net
18,660

 
21,300

Goodwill
106,663

 
106,663

Total Assets
$
2,509,710

 
$
2,580,585

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 

Current Liabilities:
 
 
 

Accounts payable
$
101,310

 
$
97,260

Air traffic liability
430,766

 
424,336

Other accrued liabilities
160,258

 
141,919

Current maturities of long-term debt, less discount, and capital lease obligations
77,466

 
156,349

Total
769,800

 
819,864

Long-Term Debt and Capital Lease Obligations
694,678

 
893,288

Other Liabilities and Deferred Credits:
 
 
 

Accumulated pension and other postretirement benefit obligations
372,700

 
407,864

Other liabilities and deferred credits
89,845

 
72,650

Deferred tax liability, net
136,625

 
19,686

Total
599,170

 
500,200

Commitments and Contingent Liabilities


 


Shareholders' Equity:
 
 
 

Special preferred stock, $0.01 par value per share, three shares issued and outstanding at December 31, 2015 and 2014

 

Common stock, $0.01 par value per share, 53,401,439 and 54,455,568 shares issued and outstanding as of December 31, 2015 and 2014, respectively. 
534

 
545

Capital in excess of par value
124,091

 
251,432

Accumulated income
420,714

 
238,068

Accumulated other comprehensive loss, net
(99,277
)
 
(122,812
)
Total
446,062

 
367,233

Total Liabilities and Shareholders' Equity
$
2,509,710

 
$
2,580,585

See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31, 2015, 2014 and 2013
 
Common
Stock(*)
 
Special
Preferred
Stock(**)
 
Capital In Excess of Par Value
 
Accumulated Income
 
Accumulated Other Comprehensive Loss
 
Total
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
514

 
$

 
$
264,854

 
$
117,288

 
$
(114,054
)
 
$
268,602

Net Income

 

 

 
51,854

 

 
51,854

Other comprehensive income

 

 

 

 
71,368

 
71,368

Issuance of 983,151 shares of common stock related to stock awards
10

 

 
979

 

 

 
989

Share-based compensation expense

 

 
4,573

 

 

 
4,573

Excess tax benefits from stock issuance

 

 
(522
)
 

 

 
(522
)
Balance at December 31, 2013
$
524

 
$

 
$
269,884

 
$
169,142

 
$
(42,686
)
 
$
396,864

Net Income

 

 

 
68,926

 

 
68,926

Other comprehensive loss

 

 

 

 
(80,126
)
 
(80,126
)
Issuance of 2,032,486 shares of common stock related to stock awards
21