Hawaiian Airlines (HA) Raises Outlook for Operating Revenue Per ASM

Hawaiian Airlines, Inc., a subsidiary of Hawaiian Holdings, Inc. (NASDAQ: HA), has announced its system-wide traffic statistics for the month and quarter ended March 31, 2017. It also updated its expectations for certain first quarter financial metrics.

SYSTEM-WIDE OPERATIONS1

First Quarter 2017 Outlook

The Company has revised its expectations for the quarter ended March 31, 2017 provided in its Fourth Quarter 2016 Earnings Release on January 24, 2017.

Specifically, the Company raised its expectations for operating revenue per ASM growth due to better than expected load factors and stronger yields primarily in the domestic network, and raised its expectations for gallons of jet fuel consumed.

The Company also raised its expectations for cost per ASM (CASM) excluding fuel and special items for the first quarter ended March 31, 2017 to include the impact of a newly ratified pilot contract and adoption of a new Accounting Standard Update. Excluding the impact of the pilots' contract and the effect of the accounting change, the Company's expectations of CASM excluding fuel and special items would be in line with original guidance.

On March 24, 2017, the Air Line Pilots Association (ALPA) announced the ratification of a new contract between the pilots and the Company. As a result, the Company recognized a charge of $7.5 million of wages and benefits expense relating to a ratification bonus, which is incremental to the $34 million special charge recorded in the fourth quarter of 2016. This represents approximately 2 percentage points of year-over-year increase in CASM excluding fuel and special items.

The Company also expects to record a special charge of approximately $20 million in the first quarter primarily related to a one-time lump sum payment for pilot benefits, which will have no impact on CASM excluding fuel and special items.

In addition, as of January 1, 2017, the Company adopted Accounting Standard Update (ASU) 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost, which impacts employers that sponsor defined benefit pension or other post-retirement benefit plans. Specifically, certain components of pension and other post-retirement expense previously recorded in wages and benefits will be reported as non-operating expense (e.g., net periodic benefit costs, including interest cost, expected return on assets, and amortization of prior service cost). As a result, approximately $20 million of wages and benefits expense will be reclassified to non-operating expense for 2016.

The table below summarizes the reclassified expenses for each quarter of 2016:

Furthermore, $4.7 million of expense previously expected to be in the wages and benefits line will now be included in non-operating expense for the quarter ended March 31, 2017.

The table below summarizes the Company's expectations for the quarter ended March 31, 2017, expressed as an expected percentage change compared to the restated results for the quarter ended March 31, 2016.

The Company believes that providing Cost per ASM excluding fuel and special items provides useful information about the underlying ongoing cost structure of the Company and is consistent with the metrics used by management to measure and monitor the Company's costs. The Company believes that economic fuel expense is the best measure of the effect of fuel prices on the business as it most closely approximates the net cash outflow associated with the purchase of fuel for operations in a period and is consistent with how management manages the business and assesses operating performance. The Company defines economic fuel expense as raw fuel expense plus (gains)/losses realized through actual cash payments to/(receipts from) hedge counterparties for fuel hedge derivatives settled in the period inclusive of costs related to hedging premiums.

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