Hawaiian Holdings, Inc. (Amex: HA; PCX) today issued a revised version of the release “Hawaiian Holdings Reports Second Quarter 2005 Results” which was originally issued Tuesday, August 16, 2005. The new release, which follows, contains supplemental information and clarifications on fuel hedging and fuel expenses, as well as further purchase accounting adjustments. Additionally, the Company has corrected certain headings in the pro-forma statement of income.
HONOLULU –- Hawaiian Holdings (AMEX and PCX: HA) (“Holdings”) and its wholly owned subsidiary, Hawaiian Airlines, Inc, (“Hawaiian”) the nation's number one on-time carrier for the past 20 consecutive months as reported by the US Department of Transportation, the 16th largest domestic carrier and the leader in the Hawaiian market, reported consolidated financial results for the three months ended June 30, 2005 on August 15, 2005.
As previously announced, Hawaiian emerged from bankruptcy on June 2, 2005. During the period prior to the emergence of bankruptcy, Holdings had no responsibility for the management of Hawaiian. As a result, Holdings' consolidated GAAP three month financial results include Hawaiian financial results only for the period after June 2, 2005, or approximately one month of the quarter. Holdings generated no revenue during the three month period, and its operating expenses consisted primarily of professional fees related to the bankruptcy case and maintaining its status as a public company.
"Our second quarter included an important milestone as we formally emerged from bankruptcy on June 2, 2005. Unfortunately, all of the associated accounting adjustments in our consolidated results made as part of Hawaiian's emergence from bankruptcy obscure how the airline fared during the quarter. Further complicating our results are significant expenses for professionals relating to the bankruptcy and to compliance with SEC reporting obligations which are included in operating income in the second quarter. While we are pleased to be among the very few airlines generating operating profits year-to-date, the increased price of fuel and our industry's inability to recover this added expense through ticket pricing continues to squeeze operating margins," said Mark Dunkerley, Holdings' chief executive officer.
Operating Results
GAAP Results (including 29 days of Hawaiian from June 2-30, 2005)
As reported, Holdings' second quarter GAAP net income was $1.4 million ($0.03 per share) versus a net loss of $2.6 million ($0.09 per share) in the second quarter 2004. Holdings' reported operating revenue in the second quarter 2005 was $69.9 million, which is all attributable to the 29 days that Hawaiian is included in the results. In the second quarter 2004, Holdings did not report any operating revenue as this period did not include the results of Hawaiian. Holdings reported an operating loss of $3.5 million for the second quarter 2005, which is attributable to the 29 days that Hawaiian is included in the results, the operating expenses incurred by Holdings during the second quarter, and several non-cash purchase accounting adjustments that increased operating expenses for the month of June and which will continue to increase operating expenses on an on-going basis(1).
Pro forma Historical Cost Financial Results (90 days; April 1 - June 30, 2004 & 2005) (ignoring the effects of purchase accounting)
Holdings reported second quarter operating revenue of $204.1 million, a 6.8% increase over the $191.2 million reported for the second quarter 2004. Passenger revenue represented 92% of operating revenue in 2004 and 91% in the second quarter of 2005. Charter, cargo and other revenues represent the balance. Total revenue passenger miles (RPMs) in the second quarter increased 7.2% as compared to an 8.2% increase in available seat miles (ASMs), resulting in an 83 basis point decline in load factor to 85.3%. The passenger revenue yield per RPM declined slightly to 11.51 cents, down 0.8% from 11.61 cents in the second quarter 2004. Operating revenue per ASM (RASM) also declined slightly to 10.57 cents in 2005 from 10.71 cents in the second quarter 2004.
Operating expenses for the second quarter, on a pro forma historical cost basis, increased 15.0% to $201.9 million from $175.5 million in the year ago period. The higher expenses were primarily due to a 49.8% increase in aircraft fuel costs including taxes and oil to $47.5 million, or $15.8 million on an absolute dollar basis. As a percentage of revenue, aircraft fuel expense was 23.3% in the second quarter 2005, as compared to 16.6% in 2004 due to a 39.8% increase in the average cost of jet fuel, including taxes to $1.72 per gallon and increased flying. Expense increases during the second quarter of 2005 include an employee wages and benefits increase of $3.6 million in 2005 over 2004 due primarily to $2.9 million of expense related to shares to be issued to Hawaiian's unionized employees pursuant to their collective bargaining agreements, and $5.2 million of other expenses comprised primarily of professional fees, which relate to expenses incurred by Holdings related to Hawaiian's bankruptcy, and expenses associated with preparations relating to Sarbanes Oxley compliance at Hawaiian. Operating cost per ASM (CASM) for the second quarter 2005 increased 6.3% to 10.45 cents, compared to 9.84 cents in the second quarter 2004. Operating costs per ASM excluding fuel for the second quarter of 2005 were 7.99 cents, a 0.9% decrease over the second quarter 2004 operating cost excluding fuel of 8.06 cents. As a result of the higher expenses, operating profit was $2.2 million on a pro-forma historical cost basis versus an operating profit of $15.6 million in 2004.
The pro forma historical cost financial results are included in an effort to clarify some of the complex accounting required as a result of Hawaiian's emergence from bankruptcy and provide readers with a basis for comparison with the financial information of Hawaiian previously available during the bankruptcy proceeding. Such results are not, however, defined in GAAP and therefore should not be considered in isolation, or as a substitute for, the equivalent measure defined in U.S. GAAP. The following table presents a reconciliation of the pro-forma historical cost financial results to the related measure defined in U.S. GAAP for the specified periods.
Recent Events:
- Mark Dunkerley, President & Chief Operating Officer of Hawaiian during the bankruptcy, was named President and Chief Executive Officer of both Holdings and Hawaiian.
- Hawaiian has announced it is commencing daily non-stop service between San Jose California and Honolulu on September 29, 2005.
- On August 15, 2005, Holdings filed its quarterly report on Form 10-Q, and a Form 8-K/A, the amended version of the Form 8-K original filed June 7, 2005 which contains the financial disclosure related to Hawaiian's emergence from bankruptcy and its re-consolidation with Holdings.
Liquidity and Financing Transactions:
- As of June 30, the Company had cash and cash equivalents of $140.6 million, as well as $56.8 million of restricted cash.
- As previously stated as part of Hawaiian's exit financing the Company issued $60 million of subordinated convertible notes, and $50 million in two $25 million term loans. In addition the Company has a $25 million un-drawn revolving credit facility, $8.7 million of which currently supports outstanding letters of credit.
- In connection with the commitment and funding of the subordinated notes the purchasers were given five-year warrants to purchase 6.9 million shares of Holdings common stock at $7.20 per share.
Fuel Hedging:
- In May 2005, Hawaiian converted its fuel hedging program to one based on jet fuel, as compared to its previous program which was based on heating oil. Hawaiian believes the jet fuel hedges more appropriately offset its fuel costs.
- As of June 30, 2005, Hawaiian had hedged 48 million gallons of jet fuel at an average economic price of $1.68, or approximately 40% of its needs for the coming 12-month period. Because Hawaiian did not have the proper documentation in place to qualify its fixed price jet fuel contracts as hedges under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” the fair value of the hedges as of June 30, 2005 of $10.1 million is included in other assets and the increase in value since June 2, 2005 has been recognized in other nonoperating income.
About Hawaiian Airlines
Hawaiian Airlines, the nation's number one on-time carrier, is recognized as one of the best airlines in America. Readers of two prominent national travel magazines, Conde Nast Traveler and Travel + Leisure, have both rated Hawaiian as the top domestic airline serving Hawaii in their most recent rankings.
Celebrating its 76th year of continuous service, Hawaiian is Hawaii'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. Hawaiian also provides approximately 100 daily jet flights among the Hawaiian Islands, as well as service to Australia, American Samoa and Tahiti.
Hawaiian Airlines, Inc. is a subsidiary of Hawaiian Holdings, Inc. (AMEX and PCX: HA). From May 2003, when a bankruptcy trustee was appointed, until Hawaiian Airlines' recent emergence from Chapter 11 in June 2005, Hawaiian Holdings had no responsibility for the management of Hawaiian Airlines and had limited access to information concerning the airline. Additional information about the Hawaiian Airlines is available at www.HawaiianAirlines.com.
(1) As more fully discussed in consolidated financial statements of Holdings for the second quarter, Hawaiian's emergence from bankruptcy was accounted for as a business combination, the acquisition of Hawaiian by Holdings. As a result, the assets and liabilites of Hawaiian were adjusted to their fair values as of June 2, 2005, and the results of operations of Hawaiian are included in the consolidated results from that point forward. The adjustments to record Hawaiian's assets and liabilities at fair value result in significant additional deprecation and amortization expense on an on-going basis.
2nd Quarter 2005 - Balance Sheet (PDF)