Hawaiian Holdings, Inc.

Greetings and welcome to the Hawaiian Holdings third quarter 2022 financial results earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Marci Morita. Managing Director of Investor Relations. Thank you. You may begin.

Thank you, Maria. Hello, everyone, and welcome to Hawaiian Holdings' third quarter 2022 results conference call. Here with me and Honolulu are Peter Ingram, President and Chief Executive Officer, Brent Overbeek, Chief Revenue Officer, and Shannon Okinaka, Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A. Peter will provide an overview of our performance, Brent will discuss revenue, and Shannon will discuss costs and the balance sheet. At the end of the prepared remarks, we will open the call up for questions. By now, everyone should have access to the press release that went out at about 4 o'clock Eastern time today. If you have not received the release, it is available on the Investor Relations page of our website, hawaiianairlines.com. During our call today, we refer our time to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today's press release, posted on the Investor Relations page of our website. As a reminder, the following prepared remarks contain forward-looking statements, including statements about our future plans and potential future financial and operating performance. Management may also make additional forward-looking statements in response to your questions. These statements are subject to risk and uncertainties and do not guarantee future performance, and therefore undue reliance should not be placed upon them. We refer you to Hawaiian Holdings' recent filings with the SEC for more detailed discussion of the factors that could cause after results to differ materially from those projected in any forward-looking statement. These include the most recent annual report filed on Form 10-K, as well as subsequent reports filed on Forms 10-Q and 8-K. I will now turn the call over to Peter.

Mahalo, Marcy, and welcome to the team. Aloha, everyone, and thank you for joining us today. Demand for travel to, from, and within Hawaii remains strong. Leisure travel has led the global recovery, and I expect this to continue. I know the markets are focused on an uncertain economic outlook, but demand across our network is showing no signs of weakness as consumers continue to place a high priority on leisure travel. Operationally, we had a solid summer relative to some of the challenges elsewhere in the industry. But relative to our own high standards, we are not yet where we want to be. On the positive side, our completion rate from Memorial Day to Labor Day was 99.9%. On-time performance was under a bit more pressure, however, exacerbated by some changes to air traffic arrival protocols here in Honolulu, and more recently, runway construction work that is pressuring the on-time performance of our neighbor island flights. These factors have dampened our operational performance in October, but our ops team is working hard to overcome these challenges. Demand for travel between Hawaii and the U.S. mainland has been fully recovered for some time, and the peak summer period did not disappoint at all. Brent will take you through the details later in the call. Outside of Japan, we have also seen a strong recovery on our international routes, overcoming the strength of the U.S. dollar and demonstrating that the robust desire for leisure travel is not a uniquely American phenomenon. Sydney, in particular, has seen notable demand strength. While Japan demand is not all the way back, we have seen some positive and important developments in recent weeks. Specifically, on October 11th, Japan removed most of the pandemic travel restrictions which have artificially suppressed demand, including most importantly testing requirements for international arrivals and the hard cap on the number of international arriving passengers. We anticipate a solid recovery in Japan-Hawaii travel in the coming months, but mindful of the cautious nature of the Japanese public, and the continuing weakness of the Japanese yen relative to the US dollar, we are choosing to add capacity back gradually. Graham will take you through the details of our scheduled recovery plans and what we are seeing in terms of demand recovery since the removal of travel restrictions has been announced. Let me now turn to developments across our neighbor island network. As a reminder, Prior to the pandemic, our neighbor island routes accounted for a little over 20% of our passenger revenue, a substantial contribution, albeit smaller than our North American international flying. But the percentage revenue contribution from these routes understates their importance to our business. The origin of our company almost 93 years ago was flying between the islands of Hawaii. and we have been the primary provider of inter-island transportation ever since. In addition to serving as the inter-island highway system for the state, these operations provide essential connection capacity for our long-haul flights, enabling our North America and international operations to function at the scale we provide despite limited connecting capacity outside of Hawaii. Over the past nine decades, We have absorbed competitive challenges on various fronts, and throughout, we have prevailed, in large part due to our singular focus on serving the needs of Hawaii travelers better than any competitor. During the third quarter, our most recent competitor added capacity and initiated unusually aggressive pricing, promising to have last-seat availability of $39 fares through the end of the year. These $39 fares include federal taxes, which means that the company receives $26.05 from each ticket sold. These fares, even if 100% of seats are occupied, do not cover the cost of operations. I'll defer from speculating on the strategic logic of this initiative, because ultimately, this is irrelevant. What is relevant to us is how we respond and compete. Let me lay out some fundamental facts. Our cost structure on neighbor island routes is similar to Southwest. We operate smaller 128-seat Boeing 717 aircraft that are uniquely well-suited to short-haul operations. Southwest operates larger 175-seat 737 MAX 8 aircraft designed to serve longer stage lengths. Based on our analysis, Southwest has a small cost advantage on a per seat basis due to the larger aircraft size. On a per operation basis, our costs are measurably lower. When comparing revenue production, the results are not even close. During the second quarter, based on the latest available DOT statistics, we generated a revenue premium of 129% over our competitor on a per available seat mile basis. Our passenger revenue per operation, even with aircraft that have 27% fewer seats, was 73% higher. Part of this revenue premium is derived from sources of revenue that are available to Hawaiian, but that our competitor cannot access. Connecting revenue from our long haul network provides RASM accretive traffic to our neighbor island flights. Code share and interline revenue from other North America and international airlines are available to us, but not our competitor. We have a premium cabin. We have extra comfort seats. $39 main cabin fares cannot close this gap. Confronted with these facts and in light of the importance of our neighbor island operations to other parts of the network, the answer to how we are going to respond is simple. We're going to stand our ground and compete, and we are going to compete aggressively. We have made $39 fares available on our neighbor island flights through the remainder of the year. Not every seat on every flight, but these fares are broadly available. Hawaiian Miles members will receive double miles on neighbor island flights through the end of the year to reward our loyal customers. Our Hawaiian Miles credit card holders now receive two bags free on every flight. We are adding flights to meet the demand for travel. I'm going to be asked to speculate on how the current situation evolves in the months ahead. The simple answer is that I do not know. What I do know is that the appropriate response to this challenge is to compete, so we will lean in. For so long as these deeply discounted fares persist, we will see lower returns from our neighbor island routes. Exactly how long this will last is difficult to predict at this time, but for now it will be a headwind to the recovery of our bottom line. Shifting gears, Let me touch on last week's announcement of our agreement with Amazon. If you didn't hear our investor call last Friday, the recording is available on the investor relations page of our website. Our team is excited by the opportunity that this new initiative will provide to further diversify our revenue and add a new avenue for growth in the coming years. Work is well underway to prepare for our first A330-300 freighter in the second half of 2023. More than ever, we are operating in a dynamic environment. As we put the pandemic in the rearview mirror, we must now deal with inflationary pressure and an uncertain economic outlook. But there is a great deal to feel positive about. Leisure travel demand is incredibly resilient. We've seen this proven in the wake of the pandemic, just as we did amidst the global financial crisis a decade and a half ago. Most of our markets are fully recovered, and the geographies that are lagging are positioned to move forward. Our competitive position is strong in every corner of our network. In the core of our network, we outcompete the largest airlines in the world. And above all else, we continue to have the best team in the business, that has overcome the adversities of the last few years and continues to deliver the outstanding service and hospitality that is our hallmark. I am encouraged by our progress, but not satisfied with where we are. What I am sure about is that we are on the right path. With that, let me turn the call over to Brent to discuss our results and commercial outlook in more detail.