* Third quarter net income of $7.8 million * Operating revenue increased 3% to $230 million * Unit operating costs (excluding fuel) down 0.4%
HONOLULU, Nov. 1 /PRNewswire-FirstCall/ -- Hawaiian Holdings, Inc. (Amex: HA; PCX) ("Holdings" or "the Company"), parent company of Hawaiian Airlines, Inc. ("Hawaiian"), today reported consolidated net income for the three months ended September 30, 2006 of $7.8 million, or $0.16 per basic and diluted share, on total operating revenue of $229.8 million.
Mark Dunkerley, President and Chief Executive Officer, commented, "This quarter was our first full quarter facing the new competition in our Interisland market and a quarter in which there was also excess capacity in our Transpacific markets. Heavy promotional activity and discounting by our competitors have taken their toll but we are encouraged that, despite the intensity of this competition, Hawaiian had a profitable quarter. The high price of fuel has offset the significant start we have made in our efforts to cut our costs. The management of the company continues to take measures to pare back our costs and to sharpen our marketing and believes that we are positioned for long-term success in all of our key markets."
Mr. Dunkerley continued, "During the third quarter, the first of the aircraft we acquired earlier this year began service, and the remaining three planes are expected to enter service by the end of 2006. Encouragingly, at the end of September, fuel prices began to turn in our favor, which will provide some welcome relief if the current price levels hold."
Hawaiian emerged from bankruptcy on June 2, 2005. Effective April 1, 2003, following Hawaiian's bankruptcy filing, through June 1, 2005, Holdings deconsolidated Hawaiian and accounted for its interest in Hawaiian using the cost method of accounting. As a result, the consolidated financial results of Holdings during that period do not include Hawaiian's financial results. Holdings generated no revenue from January 1, 2005 through June 1, 2005, and its operating expenses consisted primarily of professional fees related to Hawaiian's bankruptcy case and maintaining Holdings' status as a public company. Hawaiian's emergence from bankruptcy was accounted for as a business combination, the acquisition of Hawaiian by Holdings.
Consolidated/Combined Holdings and Hawaiian Results
Because Hawaiian's emergence from bankruptcy was accounted for as a business combination, the assets and liabilities of Hawaiian were adjusted to their fair values as of June 2, 2005, and the results of operations of Hawaiian are included in the Company's consolidated results from that date forward. In order to clarify some of the complex accounting resulting from Holdings' reacquisition of Hawaiian upon Hawaiian's emergence from bankruptcy and provide readers with a basis for comparison with the financial results of Hawaiian during its bankruptcy, the following discussion compares the consolidated financial results for the quarters ended September 30, 2006 and 2005, and the consolidated financial results to the combined financial results of Holdings and Hawaiian for the nine months ended September 30, 2006 and 2005. The combined financial results are not, however, defined within U.S. generally accepted accounting principles (GAAP) and therefore should not be considered in isolation or as a substitute for the equivalent measure defined by GAAP.
The consolidated results of operations for the third quarter and the nine months ended September 30, 2006 were affected by the application of purchase accounting as follows: 3 Months Ended 9 Months Ended September 30, September 30, 2006 2005 2006 2005 (in millions) Operating Revenue - Decrease in operating revenue: Passenger - Elimination of deferred revenue from sales of miles in frequent flyer program $(0.7) $(4.2) $(5.1) $(6.2) Operating Expenses - Increase/(decrease) in operating expenses: Wages and benefits - elimination of unrecognized actuarial losses -- (2.3) -- (3.0) Aircraft and other rent - amortization of favorable and unfavorable operating leases 0.5 0.5 1.3 0.6 Maintenance materials and repairs - amortization of favorable aircraft maintenance contracts 0.3 1.1 1.0 1.3 Depreciation and amortization 3.9 4.1 11.7 5.2 Total net increase in operating expenses 4.7 3.4 14.0 4.1 Operating Income - Decrease in operating income (5.4) (7.6) (19.1) (10.3) Nonoperating Income (Expense): Interest expense - amortization of debt discount due to recognizing certain debt at fair value (0.2) (0.2) (0.5) (0.3) Interest income - accretion due to recognizing aircraft maintenance and lease security deposits at fair value 0.3 0.4 1.0 0.5 Net increase in nonoperating income 0.1 0.2 0.5 0.2 Net Change in Income (Loss) Before Income Taxes $(5.3) $(7.4) $(18.6) $(10.1)
The Company reported operating income of $12.7 million in the third quarter of 2006 compared to $17.9 million in third quarter of 2005. Third quarter 2006 operating revenue was $229.8 million, a 2.5% increase compared to operating revenue in the third quarter 2005. Passenger revenue represented approximately 91% of operating revenue in the third quarters of both 2006 and 2005. Passenger yield (passenger revenue per revenue passenger mile) in the third quarter of 2006 increased 5.4% to 12.00 cents from 11.38 cents in the third quarter 2005. Despite intense competition and industry capacity increases in Hawaiian's key markets, operating revenue per available seat mile (RASM) increased 1.6% to 11.18 cents in the third quarter of 2006 from 11.00 cents in the third quarter 2005.
Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Selected Statistical Data 3 Months Ended 9 Months Ended September 30, September 30, 2006(*) 2005(*) Change 2006(*) 2005(**) Change Scheduled Operations: Revenue passenger miles (RPM) (a) 1,738.4 1,796.6 -3.2% 5,025.7 4,887.0 2.8% Available seat miles (ASM) (a) 2,017.7 1,998.2 1.0% 5,787.9 5,623.2 2.9% Passenger revenue per RPM 12.00 cents 11.38 cents 5.4% 11.95 cents 11.42 cents 4.6% Passenger load factor (RPM/ASM) 86.2% 89.9% -4.1% 86.8% 86.9% -0.1% Total Operations: Operating Revenue per ASM (RASM) 11.18 cents 11.00 cents 1.6% 11.22 cents 10.65 cents 5.4% Operating Cost per ASM (CASM) 10.56 cents 10.12 cents 4.3% 10.93 cents 10.23 cents 6.8% CASM ex-fuel 7.40 cents 7.43 cents -0.4% 7.86 cents 7.78 cents 1.0% Adjusted CASM ex-fuel (b) 7.17 cents 7.27 cents -1.4% 7.62 cents 7.71 cents -1.2% (*) Consolidated (**) Combined (a) In millions. (b) Adjusted for net effect of purchase accounting.
Total operating expenses for the third quarter increased 5.3% to $217.1 million and operating cost per available seat mile (CASM) increased 4.3% to 10.56 cents versus the same period a year ago. CASM excluding fuel and the non-cash adjustments related to purchase accounting declined 1.4% to 7.17 cents in the third quarter of 2006 versus 7.27 cents in the prior year's quarter.
Higher operating expenses were primarily the result of a $10.3 million, or 18.8%, increase in aircraft fuel costs to $65.1 million. Hawaiian's average cost per gallon of jet fuel rose 19% to $2.24 (including taxes, delivery and hedging gains) for the third quarter of 2006. Aircraft fuel represented 30.0% of operating expenses in the third quarter 2006 compared to 26.6% in the same quarter of 2005. Despite an increase in block hours operated for each of the 717 and 767 fleets, total fuel consumed declined by approximately one percent period-over-period in the third quarter of 2006 as a result of ongoing initiatives to improve fuel efficiency.
Maintenance, materials and repairs expense increased $3.6 million to $17.1 million primarily as a result of higher engine maintenance expenses incurred under power-by-the-hour (PBH) agreements and an increase in airframe overhaul activity for the 767 aircraft. The PBH increases are attributable to the inclusion of additional engines under PBH agreements, an overall increase in block hours operated and higher rates per hour.
The increases in operating expenses were partially offset by lower wages and benefits expenses in the quarter which declined by 5.6% to $52.2 million. The decline includes a favorable liability adjustment for workers' compensation insurance expenses. Effective January 1, 2006, the Company adopted SFAS No. 123(R) which resulted in the recognition of $1.3 million of share-based compensation expense for the third quarter of 2006.
Nonoperating income for the third quarter of 2006 totaled $0.6 million compared to nonoperating income of $4.8 million in the third quarter of 2005. Nonoperating income during the third quarter of 2005 included a $7.8 million mark-to-market gain in jet fuel forward contracts which did not qualify for hedge accounting prior to September 2005.
Liquidity, Capital Resources and Fuel Hedging: * As of September 30, 2006, the Company had unrestricted cash and cash equivalents of $162.5 million, and an additional $71.0 million in restricted cash. * For the quarter ended September 30, 2006, net cash provided by operating activities was $10.9 million, compared to $13.0 million for the same period in 2005. * As of October 24, 2006, Hawaiian had entered into jet fuel forward contracts to hedge approximately 39% of its fuel requirements for the fourth quarter of 2006, and 21% and 6%, respectively, for the first and second quarters of 2007. The Company's current jet fuel hedge position is outlined in the table below: Average Jet Percentage of Fuel Contract Quarterly Price Gallons Hedged Consumption per Gallon (thousands) Hedged Fourth Quarter 2006 $1.903 12,290 39% First Quarter 2007 $1.953 6,668 21% Second Quarter 2007 $1.982 2,058 6% Recent Events: * Hawaiian and the International Association of Machinists (IAM) recently reached a ground breaking agreement providing the Company with new latitude for outsourcing reservations and certain back-office functions, including accounting, in exchange for providing the incumbent employees in these areas with protection from layoffs. * Also in July, Hawaiian introduced the Hawaiian Airlines Activities Card, the only airline product of its kind in the Hawaii market. Complementing Hawaiian's established online vacation packaging product, the card allows consumers to pre-pay for leading Hawaii activities at a discount on Hawaiian's website. * In August, Hawaiian Airlines and Harmony Airways jointly announced the launch of a code share agreement and interline electronic ticketing for their mutual customers, enhancing customer service and easing flight connections between Canada and Hawaii. * In August, Travel + Leisure magazine once again recognized Hawaiian Airlines as their carrier of choice for travel to Hawaii as part of the magazine's 2006 World's Best Awards. For the eighth consecutive year, readers of the magazine ranked Hawaiian highest among airlines serving the islands, based on cabin comfort, food, in-flight service, customer service, and value. * In September, Hawaiian put into service the first of four recently acquired B767 aircraft and expanded its daily nonstop San Diego-Maui service from summer flights only to year-round service. The remaining three aircraft are expected to enter service during the fourth quarter. * Also in September, Hawaiian's onboard entertainment programs earned top honors in the category of "Best Entertainment for Main Screen" in the small fleet category (24 or fewer aircraft) at the 18th Annual Avion Awards. Hawaiian was also named first runner-up for "Best Overall Inflight Entertainment" in the small fleet category. * In early October, the U.S. Department of Transportation's monthly Consumer Air Travel Report for August ranked Hawaiian #1 for on-time performance for the 34th consecutive month. Hawaiian was also ranked #1 for baggage handling and #3 for fewest complaints.
Investor Conference Call
Hawaiian Holdings' quarterly earnings conference call is scheduled to begin later today (Wednesday, November 1, 2006) at 5:00 p.m., Eastern Time (USA). The conference call will be broadcast live over the Internet. Investors may listen to the live audio webcast on the investor relations section of the Company's website at www.HawaiianAirlines.com. For those who are not available for the live broadcast, the call will be archived on Hawaiian's investor website.
About Hawaiian Airlines
Hawaiian was the nation's number one carrier for on-time service, fewest flight cancellations and best baggage service reliability in 2005, according to reports by the U.S. Department of Transportation. Consumer travel surveys conducted by Conde Nast Traveler, Travel + Leisure, and Zagat all rank Hawaiian as the top domestic airline serving Hawaii.
Now in its 77th year of continuous service in Hawaii, Hawaiian is the state's biggest and longest-serving airline, and the second largest provider of passenger air service between Hawaii and the U.S. mainland. Hawaiian offers nonstop service to Hawaii from more U.S. gateway cities than any other airline (nine), as well as service to Australia, American Samoa and Tahiti. Hawaiian also provides approximately 100 daily jet flights among the Hawaiian Islands.
Hawaiian Airlines, Inc. is a subsidiary of Hawaiian Holdings, Inc. (Amex: HA; PCX). Additional information is available at HawaiianAirlines.com.
Forward Looking Statements
The foregoing information contains certain forward-looking statements that reflect the Company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment (including, without limitation, risks relating to increased competition, volatility of fuel prices, and the availability of sufficient aircraft), which risks may cause the Company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's filings with the Securities and Exchange Commission.
(Financial Tables Follow) Hawaiian Holdings, Inc. Consolidated Balance Sheets (in thousands) September 30, December 31, 2006 2005 (unaudited) ASSETS Current Assets: Cash and cash equivalents $162,487 $153,388 Restricted cash 71,021 53,420 Accounts receivable, net of allowance for doubtful accounts of $500 and $912 as of September 30, 2006 and December 31, 2005, respectively 35,729 35,278 Spare parts and supplies, net 14,623 14,578 Deferred tax assets 11,062 9,269 Prepaid expenses and other 26,881 21,673 Total 321,803 287,606 Property and equipment, less accumulated depreciation and amortization of $13,532 and $5,751 as of September 30, 2006 and December 31, 2005, respectively 105,682 51,277 Other Assets: Long-term prepayments and other 27,892 29,253 Intangible assets, net of accumulated amortization of $31,815 and $13,936 as of September 30, 2006 and December 31, 2005, respectively 173,327 191,205 Goodwill 104,231 107,179 Total Assets $732,935 $666,520 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $38,926 $39,089 Air traffic liability 207,806 162,638 Other accrued liabilities 38,631 62,969 Current maturities of long-term debt and capital lease obligations 14,848 13,064 Total 300,211 277,760 Long-Term Debt and Capital Lease Obligations 123,819 77,576 Other Liabilities and Deferred Credits: Accumulated pension and other postretirement benefit obligations 196,591 196,831 Other liabilities and deferred credits 65,740 57,017 Deferred income taxes 11,062 9,269 Total 273,393 263,117 Commitments and Contingent Liabilities Shareholders' Equity: Special preferred stock -- -- Common stock 466 453 Capital in excess of par value 209,424 203,479 Accumulated deficit (174,638) (143,721) Accumulated other comprehensive income (loss): Income (loss) on hedge instruments 260 (12,144) Total 35,512 48,067 Total Liabilities and Shareholders' Equity $732,935 $666,520 Hawaiian Holdings, Inc. Consolidated Statements of Operations (in thousands, except for per share data) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006(*) 2005(*) 2006(*) 2005(**) Operating Revenue: Passenger $208,660 $204,537 $600,405 $268,417 Cargo 7,884 8,264 23,802 10,833 Charter 2,512 2,450 6,737 3,135 Other 10,713 8,835 30,821 11,623 Total 229,769 224,086 661,765 294,008 Operating Expenses: Aircraft fuel, including taxes and oil 65,096 54,811 181,274 71,580 Wages and benefits 52,243 55,313 166,469 77,890 Aircraft rent 27,268 26,349 81,790 35,211 Maintenance materials and repairs 17,130 13,549 52,164 17,547 Depreciation and amortization 7,156 7,006 20,881 9,015 Other rentals and landing fees 6,393 6,290 18,458 8,183 Sales commissions 2,238 1,912 6,321 2,470 Other 39,549 40,920 117,290 59,813 Total 217,073 206,150 644,647 281,709 Operating Income 12,696 17,936 17,118 12,299 Nonoperating Income (Expense): Interest and amortization of debt discounts and issuance costs (3,886) (5,004) (12,354) (6,107) Losses due to redemption, prepayment, extinguishment and modification of long-term debt (1,030) -- (32,134) -- Interest income 3,518 1,879 8,984 2,387 Capitalized interest 1,344 -- 2,603 -- Other, net 683 7,916 (5,069) 13,452 Total 629 4,791 (37,970) 9,732 Income (Loss) Before Income Taxes 13,325 22,727 (20,852) 22,031 Income tax expense 5,565 14,894 10,065 14,894 Net Income (Loss) $7,760 $7,833 $(30,917) $7,137 Net income (Loss) Per Common Stock Share: Basic $0.16 $0.17 $(0.66) $0.19 Diluted $0.16 $0.16 $(0.66) $0.18 Weighted Average Number of Common Stock Shares Outstanding: Basic 47,171 44,898 47,141 37,019 Diluted 47,251 58,999 47,141 51,120 (*) Includes the consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. for the entire period presented. (**) Includes the results of operations of Hawaiian Holdings, Inc. for the period January 1, 2005 through June 1, 2005, and the consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. for the period June 2, 2005 through September 30, 2005. Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Statements of Operations (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006(*) 2005(*) 2006(*) 2005(**) Operating Revenue: Passenger $208,660 $204,537 $600,405 $558,257 Cargo 7,884 8,264 23,802 22,602 Charter 2,512 2,450 6,737 9,050 Other 10,713 8,835 30,821 25,248 Total 229,769 224,086 661,765 615,157 Operating Expenses: Aircraft fuel, including taxes and oil 65,096 54,811 181,274 141,367 Wages and benefits 52,243 55,313 166,469 170,673 Aircraft rent 27,268 26,349 81,790 79,080 Maintenance materials and repairs 17,130 13,549 52,164 41,562 Depreciation and amortization 7,156 7,006 20,881 12,783 Other rentals and landing fees 6,393 6,290 18,458 17,820 Sales commissions 2,238 1,912 6,321 5,047 Other 39,549 40,920 117,290 122,459 Total 217,073 206,150 644,647 590,791 Operating Income 12,696 17,936 17,118 24,366 Nonoperating Income (Expense): Reorganization items, net -- -- -- 887 Interest and amortization of debt discount and issuance costs (3,886) (5,004) (12,354) (6,571) Losses due to redemption, prepayment, extinguishment and modification of long-term debt (1,030) -- (32,134) -- Interest income 3,518 1,879 8,984 2,387 Capitalized interest 1,344 -- 2,603 -- Other, net 683 7,916 (5,069) 16,826 Total 629 4,791 (37,970) 13,529 Income (Loss) Before Income Taxes 13,325 22,727 (20,852) 37,895 Income tax expense 5,565 14,894 10,065 33,466 Net Income (Loss) $7,760 $7,833 $(30,917) $4,429 (*) Consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. (**) Combined results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Hawaiian Holdings, Inc. Reconciliation of GAAP to Adjusted Historical Cost Financial Results (in millions, except for CASM data) (unaudited) 3 Months Ended 9 Months Ended September 30, September 30, 2006(*) 2005(*) 2006(*) 2005(**) GAAP operating expenses $217.1 $206.2 $644.6 $281.8 Hawaiian expenses - pre June 2, 2005 (a) -- -- -- 309.0 Combined Holdings and Airlines operating expenses 217.1 206.2 644.6 590.8 Aircraft fuel, including taxes and oil 65.1 54.8 181.3 141.4 Adjusted operating expenses 152.0 151.4 463.3 449.4 Add (subtract) effects of purchase accounting: Wages & benefits (b) -- 2.3 -- 3.0 Aircraft and other rental expense, net (c) (0.5) (0.5) (1.3) (0.6) Maintenance materials and repairs (d) (0.3) (1.1) (1.0) (1.3) Depreciation and amortization (e) (3.9) (4.1) (11.7) (5.2) Adjusted Historical Cost operating expenses, ex-fuel $147.3 $148.0 $449.3 $445.3 Available Seat Miles 2,054.7 2,037.1 5,895.7 5,777.9 CASM 10.56 cents 10.12 cents 10.93 cents 10.23 cents Less aircraft fuel (3.17) (2.69) (3.08) (2.45) CASM - ex-fuel 7.40 7.43 7.86 7.78 Impact of purchase accounting adjustments (0.23) (0.17) (0.24) (0.07) CASM - Adjusted for historical cost, ex-fuel 7.17 cents 7.27 cents 7.62 cents 7.71 cents Footnotes: (*) Consolidated (**) Combined (a) Effective April 1, 2003, the Company deconsolidated Hawaiian until the Company reacquired and reconsolidated Hawaiian on June 2, 2005. The reconsolidation of Hawaiian was accounted for as a business combination with Hawaiian's assets and liabilities being adjusted to their fair values as of June 2, 2005. Hawaiian's results of operations for the period April 1, 2003 through June 1, 2005 were not included in Holdings' results of operations. (b) The Company recorded the accumulated pension and other postretirement benefit obligations of Hawaiian at their fair values as of June 2, 2005, resulting in the elimination of actuarial losses and the related amortization of such losses as a component of pension expense. (c) The increase in aircraft and other rental expense is due to recording the Company's operating leases to their fair values as of June 2, 2005. (d) The Company recorded an intangible asset for certain aircraft maintenance contracts with contractual rates less than current market rates for similar services at June 2, 2005. (e) Adjustment to reflect the impact on depreciation and amortization expense due to the amortization of intangible assets and certain property and equipment recorded to its fair value at June 2, 2005.
SOURCE Hawaiian Holdings, Inc.
CONTACT: Peter Ingram, CFO of Hawaiian Airlines, +1-808-835-3030,
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Hawaiian Holdings, Inc.; or Media, Keoni Wagner, VP Public Affairs of Hawaiian
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