HAWAIIAN AIRLINES INVESTOR DAY. December 2, 2015

Transcription

1 HAWAIIAN AIRLINES INVESTOR DAY December 2, 2015

2 Forward-looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company s current views with respect to certain current and future events and financial performance. 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 assumptions relating to the Company s operations and business environment, all of which may cause the Company s actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. These risks and uncertainties include, without limitation, the Company s ability to accurately forecast quarter and year-end results; economic volatility; the price and availability of aircraft fuel; fluctuations in demand for transportation in the markets in which the Company operates; the Company s dependence on tourist travel; foreign currency exchange rate fluctuations; and the Company s ability to implement its growth strategy. The risks, uncertainties and assumptions referred to above that could cause the Company s results to differ materially from the results expressed or implied by such forward-looking statements also include the risks, uncertainties and assumptions discussed from time to time in the Company s public filings and public announcements, including the Company s Annual Report on Form 10-K for the year ended December 31, 2014 and the Company s Quarterly Reports on Form 10-Q, as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. All forward-looking statements included in this document are based on information available to the Company on the date hereof. The Company does not undertake to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof even if experience or future changes make it clear that any projected results expressed or implied herein will not be realized.

3 MARK DUNKERLEY President and Chief Executive Officer

4 Today s agenda 9:00 a.m. 10:45 a.m. 11:15 a.m. 11:30 a.m. Commercial presentation Finance presentation Closing remarks Lunch

5 LOOKING BACK

6 Auckland Beijing New York City Tokyo

7 Auckland Beijing New York City

8 Auckland Beijing New York City Tokyo

9

10 Passenger Revenue % 30% 22% 25% 62% 53% North America Neighbor Island International

11 CURRENT

12 Our financial performance has improved Record earnings Record margins Stronger balance sheet

13

14 $7.10 $7.92 $5.78 $6.74 Jan Jan $9.62 Jan $25.27 $35.31 Jan Jan Jan Nov S&P SMALLCAP 600

15

16

17

18 #1 On-Time

19 NEXT 18 MONTHS

20 Our greatest asset

21 Strengthen competitive position Achieve mastery Grow long-term shareholder value

22 2016 is going to be a better year than 2015.

23 PETER INGRAM Executive Vice President, Chief Commercial Officer

24 Improving trend for domestic unit revenue 9.6% 4.0% 6% 9% 11% 10% 13% 6% 5% -1% -4.7% -2.9% -8.6% -8.1% -1.5% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 PRASM yoy Annual capacity growth Note: Capacity is defined as the industry seats from the West Coast to Hawai i in HA s markets

25 Underlying international market performance improving International PRASM 2014 Market Performance and Network Changes FX Fuel Surcharge 2015

26 but FX and Fuel surcharges offset improvements International PRASM 2014 Market Performance and Network Changes FX Fuel Surcharge 2015

27 FX headwinds weighed on 2015 unit revenue JPY / $ AUD / $ Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov

28 Lower fuel prices led to lower fuel surcharges Japan fuel surcharge Economic fuel cost per gallon 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Jan Mar May Jul Sep Nov

29 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

30 Best fleet for our missions Aircraft: A321neo Quantity: 16 on order delivery starting 2017 Aircraft: A Quantity: 23 Aircraft: B717 Quantity: 18

31 A330 allows us to grow into longer-haul destinations Auckland Beijing Beijing New York City Tokyo

32 Trip Cost A321neo most cost effective aircraft for the West Coast to Hawai i mission A (181 seats) A321neo (189 seats) A (146 seats) 737-9Max (177 seats) (157 seats) 737-8Max (156 seats) Seat Mile Cost Note: Fuel price adjusted to $2.05 per gallon Variable + Ownership Costs

33 Delivery of the A321neos allows for the A330 to be redeployed for longer-haul missions Departures ASMs Block hours 70% 0% Flights of 8 or more hours

34 Neighbor Island network LĪHU E 160 daily flights ~ 90% seat share 2/3 is local traffic HONOLULU MOLOKA I MAUI LĀNA I B717 ATR42 B717 / ATR42 KONA HILO

35 B717 interior retrofits 18 B717 retrofitted to a standard seat count of 128 seats 125 additional seats Equivalent to one additional B717

36 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

37 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

38 BRENT OVERBEEK Vice President - Revenue Management & Network Planning

39 2016: Moderate capacity growth 19% 22% Year-over-Year ASM Growth 14% 2% Up 3% to 5% Up 2.5% to 5.5% E 2016E Composition of Projected 2016 ASM growth 2.5% to 5.5% Upgauge Peak-Period Frequency Increases Off-Peak Frequency Reductions NRT Other

40 Due to the solid demand in Japan, we are growing in Tokyo Launching daily Narita- Honolulu service in summer 2016 Japan is the largest source of international visitors to Hawai i Our Haneda-Honolulu route averages >90% load factor With this addition, we will have a 20% seat share in the Japan- Hawai i market

41 HA share of nonstop O&D Strong West Coast position to grow from Nonstop O&D pax share vs. seat share, YE 2Q15 100% Passenger share > seat share SMF-HNL 80% OAK-HNL LAS-HNL PHX-HNL SJC-HNL SAN-HNL 60% SEA-OGG SJC-OGG PDX-HNL OGG-OAK 40% LAX-HNL SEA-HNL SFO-HNL OGG-LAX 20% Passenger share < seat share 0% 0% 20% 40% 60% 80% 100% HA seat share Source: USDOT DB1B, Innovata schedules

42 Outperforming competitors on the West Coast Hawaiian Airlines West Coast PRASM Premium, YE2Q15 LAX SFO OAK SJC SEA LAS PDX SAN PHX HNL OGG * Over 10% 2% to 10% -2% to 2% Below -2% * SFO-OGG 1H15 only Source: Estimates based on USDOT DB1B and T100

43 Successful development of the Maui hub HA West Coast-OGG Daily Seats 1,439 HA PDEW to/via OGG, YE2Q15 Intra-Hawaii connect via OGG West Coast-Hawaii connect via OGG West Coast-OGG nonstop SFO 101 SJC +126% PDX LAS SEA OAK LAX % +83% H15 Source: Innovata schedules, USDOT DB1B

44 A321neos give us flexibility to serve more markets with the right size aircraft O&D PDEW in Top West Coast Markets, YE2Q15 HNL OGG LIH KOA ITO Total LAX SEA SFO OAK SJC LAS SAN PDX PHX SMF HA service year-round HA service seasonal Source: USDOT DB1B

45 A321neos give us flexibility to serve more markets with the right size aircraft O&D PDEW in Top West Coast Markets, YE2Q15 HNL OGG LIH KOA ITO Total LAX SEA SFO A330 still 131 optimal for 12 largest 1064 markets OAK Deepest 149 markets SJC Large 95 cargo markets LAS SAN A321 enables PDX Smaller 83 growth 15 increments 717 PHX Seasonal 53 flexing SMF Balance 29 HNL / OGG 9 service 390 HA service year-round HA service seasonal Source: USDOT DB1B

46 A321neos give us flexibility to serve more markets with the right size aircraft O&D PDEW in Top West Coast Markets, YE2Q15 HNL OGG LIH KOA ITO Total LAX SEA SFO 561 A non-stops 118 to mid-size 131 Maui markets, OAK 321 supported 289 by 135 KOA/LIH/ITO 149 connections SJC LAS SAN PDX PHX SMF Nonstop Connecting flows HA service year-round HA service seasonal Source: USDOT DB1B

47 A321neos give us flexibility to serve more markets with the right size aircraft O&D PDEW in Top West Coast Markets, YE2Q15 HNL OGG LIH KOA ITO Total LAX SEA SFO OAK SJC LAS SAN 398 A321 helps 202 us: PDX Convert 213 seasonal 109 and sub-daily 83 KOA/LIH PHX 244 service 122 to year-round 67 and 53 daily SMF Grow 155 into additional 40 KOA/LIH 29 markets HA service year-round HA service seasonal Source: USDOT DB1B

48 Many Growth Opportunities Remain BEIJING Chengdu SAPPORO TOKYO / NARITA SEOUL TOKYO / HANEDA Nagoya OSAKA Shanghai Guangzhou LIHUE Anchorage Vancouver Edmonton Montreal Calgary Toronto SEATTLE PORTLAND NEW YORK / JFK SACRAMENTO Philadelphia OAKLAND Washington SAN FRANCISCO SAN JOSE Austin LAS VEGAS LOS ANGELES SAN DIEGO PHOENIX Boston Hong Kong Jakarta Bangkok Saigon Singapore HNL KAHULUI KONA 2015 Metropolitan Population POTENTIAL MARKETS PAGO PAGO PAPEETE BRISBANE SYDNEY 1-2M 3-5M 5-10M 10-20M >20M SEASONAL ROUTES EXISTING ROUTES Melbourne AUCKLAND 48

49 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

50 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

51 AVI MANNIS Senior Vice President - Marketing

52 The right cabins for our future network A330 Long-haul A321 NEO Mid-haul B717 Neighbor Island 278 seats Investing in a new fully lieflat premium product 28 more Extra Comfort seats due to its success In-seat IFE product to compete with international competitors Highly competitive leisure product in all cabins 189 seats Ideal configuration for the 5-6 hour mission Balance between density and ability to upsell High ratio of Extra Comfort seating to meet demand from West Coast markets Streaming IFE 128 seats New interiors add a row and harmonize seat-count across the fleet Ideally suited for minute flights

53 Compelling business case for new A330 premium product Significant yield premium for lie-flat product on leisure routes >8 hrs Our competitors are increasingly operating lie-flat products on their long-haul wide-body services And more of our A330 fleet will be serving these routes 70% Analysis suggests a 20-40% premium for lie-flats vs. recliner seats on comparable routes Varies by route and competitor % Under 8 Hours

54 We designed a fully lie-flat product uniquely suited to our leisure mission High density, with options for shared or private experience Materials and industrial design evoke a sense of Hawai i Tablet-based IFE designed into the seat minimizes weight and obsolescence Lie-flat bed with simple actuation to minimize weight and maintenance Highly customized product first to market with this seat platform

55 And a unique brand statement

56 Success of the Extra Comfort seat product > 80% paid utilization in North America Improving international distribution Outstanding ROI

57 A321-NEO cabins will be ideally configured for their mission Bringing our award-winning wide-body guest service to the A321-NEO 189 seats (16F / 45 PY / 128 Y) Comfortable seats and living space in the main cabin Streaming IFE no seat-back screens Cabin aesthetics that extend our unique design language

58 B717 cabin renovations have been well-received by consumers Customer satisfaction survey, Aircraft Comfort and Condition Aircraft modifications will be complete by the end of % increase Dense configuration has been well received by our customers Old seats New seats

59 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

60 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

61 VICKI NAKATA Vice President Loyalty & Travel Products

62 Building on our recent cargo success Cargo revenue (in millions) $79.5 $ TTM Sep Growing our neighbor island cargo business: New service with ATR72 freighters in 2016 Lowest operating cost Seamless connections

63 Growing sales of value-added products Value-added revenue per passenger $21.91 $19.72 $14.69 Averaging $3.5M/month* Growth will come from additional inventory, pricing optimization, and new distribution channels TTM Sep 2015 Other Baggage Sales of HawaiianMiles Extra Comfort / Preferred Seat Sales >10% credit card portfolio growth >20% growth in credit card spend Note: Other includes ticket fees, first class upgrades, vacation commissions and on-board sales * Includes Extra Comfort and Preferred Seat revenue

64 Improved website conversion of vacation packages Dynamic offers in the booking path Exclusive hotel deals 25% better conversion Enables cross-sell of other products

65 Better merchandising of seat upgrades

66 Testing new products and sales touch points

67 New products in the pipeline

68 FLEET EVOLUTION NETWORK EVOLUTION ANCILLARY / OTHER PRODUCT EVOLUTION PRODUCT EVOLUTION

69 Conclusion Ideal fleet positioning Network opportunities in North America and International Optimizing our product for our guests throughout the network Pursuing ancillary revenue

70 Mahalo.

71 SHANNON OKINAKA Executive Vice President, Chief Financial Officer

72 Improving financial performance

73 Record financial performance in 2015 Adjusted Earnings per share Adjusted Pre-Tax Margin $ % $0.87 $0.85 $1.06 $0.88 $ % 4.6% 4.6% 3.6% 6.9% TTM Sep TTM Sep 2015

74 We are generating returns on our investments Pre-Tax ROIC 25.0% 15.6% TTM Sep 2015

75 Controlling our costs 8.83 CASM ex-fuel (in cents) Up in the low 8.70 single digit range CASM ex-fuel yoy headwinds 0.5% 1.0% Space Rent Maintenance 1.0% Wages E2016E Note<1>: 2015E is based on the mid-point of FY15 CASM ex-fuel guidance of up 1% - 3% Note<2>: 2011 represents CASM ex-fuel and lease terminations expense of $70.0M

76 Lower fuel costs provide a tailwind Economic Fuel Cost per gallon Heating Oil Hedge Position $3.13 $3.20 $3.15 $3.03 % Hedged Price $2.31 $ $2.10 $ $1.75 4Q15 60% $2.12 1Q16 49% $1.85 2Q16 36% $1.80 3Q16 22% $ E2016E 4Q16 10% $1.70 Note<1>: 2015E and 2016E economic fuel cost per gallon estimates are based on the forward fuel curve as of November 18, Note<2>: Based on the Company s hedge portfolio as of November 18, 2015

77 Strengthening our balance sheet

78 : Borrowed to fund heavy Capex Sources of cash $600M Uses of cash Return to shareholders 1% $1,184M Investments in the business 99% Net Debt Increase Cash Flow from Ops

79 Decreasing our debt (YTD 3Q15) $1,050M $661M $806M $914M YTD Sep 2015 Convertible Note Repurchase $68M $462M Principal debt payments $68M $189M Total $136M Q15 Q315 Interest savings of $4M

80 Equity repurchases (YTD 3Q15) TOTAL Convertible Note Equity Repurchase $103M Share Repurchases $38M Total Equity Repurchases $141M Represents ~7% of our outstanding market cap

81 Savings from equity repurchases Convertible Notes Share Buyback Total Value of repurchase at 9/30/15 $259M $40M $299M Cash expended (216)M (38)M (254)M Unrealized savings at 9/30/15 $43M $2M $45M $45M in unrealized benefits -81-

82 Lower share count in 2016 increases EPS Share buyback Convertible note repurchases Warrant unwind Adjusted EPS YTD 9/30/15 $2.62 $0.06 $0.06 $0.25 $2.25 Diluted EPS Tailwinds from the full year effects of: Warrant unwind Convertible note repurchase Share buyback 16% or 37 cent improvement to pro forma EPS

83 Capital Allocation

84 Liquidity Cash* / TTM Revenue 34% 30% 2014 TTM Sep 2015 Generating more excess cash with the current favorable operating environment Growing liquidity even with debt retirement and share repurchases 10% above our target is ~$200M Liquidity Target of 23 25% * Cash = cash, cash equivalents, short term investments and $175M availability under the revolving credit facility

85 Leverage Met the leverage target we set last year Continue to de-lever through debt retirement Adjusted Debt / Adjusted EBITDAR 4.2x 3.1x 2014 TTM Sep 2015 Optimize our capitalization and minimize cost of capital Note: Aircraft Rent is capitalized at 7x.

86 : Cash flow funds multiple uses Sources of cash Return to shareholders Uses of Cash ( ) $600M Investments in the business $1,184M Return to shareholders ( ) Projected Net Debt Increase Cash Flow from Ops Net Debt Reduction Investments in the business

87 Funding our 16 A321neo deliveries Cash available for.. Financing required for only.

88 Anticipated additional debt retirement TOTAL Early debt retirement $150M Contractual principal debt payments $80M $230M Results in Interest expense savings of ~$5 - $10M

89 Anticipated additional pension plan contributions Pension and other postretirement liability $209M $199M Detail of pension liability $161M Benefits Reducing our pension liability leads to: - Lower $199M future contributions - Decreases future pension expense $30M $8M - Decreases PBGC premiums 3Q15 Pension liability OPEB

90 Pathway to long-term value Strong financial performance Strengthen balance sheet Optimize cost of capital SHAREHOLDER VALUE Increase enterprise value

91 Creating long-term value Improving financial performance Strengthening balance sheet Capital allocation

92 Mahalo.

93 MARK DUNKERLEY President and Chief Executive Officer

94 2016 is going to be a better year than 2015 Strengthen competitive position Achieve mastery Grow long-term value for our shareholders

95 Mahalo.

96 Non-GAAP Reconciliations NON-GAAP RECONCILIATIONS ($ in thousands) FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 TTM Sep 2015 Net Income (Loss), GAAP $110,255 $(2,649) $53,237 $51,854 $68,926 $48,834 Add: lease termination expense, net of tax - 42, Add: loss on extinguishment of debt, net of tax , Add: changes in fair value of fuel derivatives, net of tax 3,859 3,859 2,375 (5,210) 25,864 (11,519) Add: non-recurring tax benefits (62,546) Adjusted Net Income, Non-GAAP $45,405 $43,218 $55,612 $46,644 $97,121 $37,493 NON-GAAP RECONCILIATIONS ($ in thousands, except CASM data) FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 GAAP Operating Expenses $1,218,815 $1,630,176 $1,832,955 $2,022,118 $2,069,747 Less: aircraft fuel, including taxes and delivery (322,999) (513,284) (631,741) (698,802) (678,253) Less: lease termination expense - (70,014) Adjusted operating expenses - excluding aircraft fuel and lease termination $895,816 $1,046,878 $1,201,214 $1,323,316 $1,391,494 Available Seat Miles 10,150,659 12,039,933 14,687,472 16,785,827 17,073,630 CASM - GAAP (in cents) Less: aircraft fuel and lease termination expense (in cents) (3.18) (4.84) (4.30) (4.16) (3.97) CASM Excluding Fuel and lease termination expense (in cents) The Company evaluates its financial performance utilizing various GAAP and non-gaap financial measures, including operating income and CASM. Pursuant to Regulation G, the Company has included the following reconciliation of reported non-gaap financial measures to comparable financial measures reported on a GAAP basis. The Company believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management s performance excluding the effects of a significant cost item over which management has limited influence.

97 Pre-tax margin NON-GAAP RECONCILIATIONS ($ in thousands) FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 TTM Sep 2015 Income Before Income Taxes, as reported $ 81,989 $(1,082) $85,786 $86,410 $113,447 $252,638 Add: changes in fair value of fuel derivatives (3,840) 6,432 3,958 (8,684) 43,106 7,147 Add: loss on extinguishment of debt ,885 11,181 Add: lease termination expense - 70, Adjusted Income Before Income Taxes, Non-GAAP $78,149 $75,364 $89,744 $77,726 $160,438 $270,966 Revenue $1,310,093 $1,650,459 $1,962,353 $2,155,865 $2,314,879 $2,318,152 NON-GAAP RECONCILIATIONS ($ in thousands) FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 TTM Sep 2015 Pre-Tax Margin, as reported 6.3% (0.1)% 4.4% 4.0% 4.9% 10.9% Add: changes in fair value of fuel derivatives, net of tax (0.3)% 0.4% 0.2% (0.4)% 1.9% 0.3% Add: loss on extinguishment of debt, net of tax % 0.5% Add: lease termination expense, net of tax - 4.3% Pre-Tax Margin, adjusted 6.0% 4.6% 4.6% 3.6% 6.9% 11.7%

98 Leverage NON-GAAP RECONCILIATIONS ($ in thousands) FY 2015 TTM 3Q2015 Debt and capital lease obligations 1,049, ,413 Plus: Aircraft leases capitalized at 7x last 12 months aircraft rent 744, ,312 Adjusted debt and capital lease obligations 1,794,591 1,712,805 Income Before Income Taxes 113, ,638 Add back: Interest and amortization of debt expense 64, Depreciation and amortization 96, ,192 Rent Expense 106, ,056 EBITDAR 380, ,757 Adjustments: Add: changes in fair value of derivative contracts 43,106 7,147 Add: Loss on extinguishment of debt 3,885 11,181 Adjusted EBITDAR 427, ,085 Leverage Ratio 4.2x 3.1x The Company evaluates its financial performance utilizing various GAAP and non-gaap financial measures, including operating income and CASM. Pursuant to Regulation G, the Company has included the following reconciliation of reported non-gaap financial measures to comparable financial measures reported on a GAAP basis. The Company believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management s performance excluding the effects of a significant cost item over which management has limited influence.

99 Return on Invested Capital HAWAIIAN AIRLINES RETURN ON INVESTED CAPITAL (ROIC) WORKING CAPITAL CASH METHODOLOGY 1 (in 000s) Q2015 TTM Operating Income $91,278 $20,283 $129,400 $133,745 $245,132 $348,080 Add Back One-Time Charges $0 $70,014 $0 $0 $0 $0 Operating Income Less One-Time Charges $91,278 $90,297 $129,400 $133,745 $245,132 $348,080 Add Back Aircraft Rent Expense for Operating Leases $112,721 $112,883 $98,784 $108,535 $106,422 $111,236 Add Depreciation for Operating Lease Add Back 2 ($28,406) ($28,446) ($24,894) ($27,351) ($26,818) ($28,032) Add Return on Invested Cash $197 $248 $294 $323 $347 $349 Adjusted Operating Income $175,790 $174,981 $203,585 $215,253 $325,083 $431,634 After Tax Adjusted Operating Income $108,990 $101,489 $122,130 $129,131 $195,050 $258,937 Average Total Debt and Capital Leases $225,170 $341,899 $616,704 $735,676 $1,017,084 $1,071,477 Common Equity $199,368 $286,499 $249,384 $302,141 $407,234 $378,703 Average Capitalized Operating Leases 3 $789,047 $790,180 $691,486 $759,747 $744,957 $778,653 Remove Average Excess Cash ($90,295) ($64,407) ($115,173) ($122,710) ($179,626) ($209,288) Average Invested Capital $1,123,290 $1,354,171 $1,442,401 $1,674,855 $1,989,649 $1,965,544 Pre-Tax ROIC 15.6% 12.9% 14.1% 12.9% 16.3% 22.0% After-Tax ROIC 9.7% 7.5% 8.5% 7.7% 9.8% 13.2% Notes: 1 All unrestricted cash removed from invested capital, except for working capital required to operate the business, defined as unrestricted cash equal to 15% of TTM total revenue 2 Assumes 25 years useful life of aircraft and 10% salvage value 3 Average capitalized operating leases equals TTM rent multiplied by 7 99