UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018March 31, 2019
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-31443
HAWAIIAN HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
| | |
Delaware | | 71-0879698 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification No.) |
|
| | |
3375 Koapaka Street, Suite G-350 | | |
Honolulu, HI | | 96819 |
(Address of Principal Executive Offices) | | (Zip Code) |
(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
| | | | |
Securities registered pursuant to Section 12(b) of the Act: | | |
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
Common Stock ($0.01 par value) | | HA | | NASDAQ Stock Market, LLC |
| | | | (NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act: None | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer x | | Accelerated filer o |
Non-accelerated filer o | | Smaller reporting company o |
(Do not check if a smaller reporting company) | | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
As of July 20, 2018, 50,737,816April 19, 2019, 48,044,924 shares of the registrant’s common stock were outstanding.
Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended June 30, 2018March 31, 2019
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 (a) | | 2018 | | 2017 (a) |
| | (unaudited) |
Operating Revenue: | | |
| | |
| | | | |
Passenger | | $ | 655,162 |
| | $ | 624,006 |
| | $ | 1,266,762 |
| | $ | 1,187,758 |
|
Other | | 60,285 |
| | 46,110 |
| | 114,097 |
| | 88,567 |
|
Total | | 715,447 |
| | 670,116 |
| | 1,380,859 |
| | 1,276,325 |
|
Operating Expenses: | | |
| | |
| | | | |
Wages and benefits | | 171,555 |
| | 154,660 |
| | 340,264 |
| | 305,713 |
|
Aircraft fuel, including taxes and delivery | | 153,026 |
| | 102,774 |
| | 286,472 |
| | 206,312 |
|
Maintenance, materials and repairs | | 60,970 |
| | 52,566 |
| | 119,111 |
| | 111,970 |
|
Aircraft and passenger servicing | | 38,626 |
| | 35,636 |
| | 75,144 |
| | 69,926 |
|
Aircraft rent | | 29,865 |
| | 34,553 |
| | 61,765 |
| | 67,688 |
|
Commissions and other selling | | 31,853 |
| | 32,162 |
| | 63,778 |
| | 61,804 |
|
Other rentals and landing fees | | 31,184 |
| | 27,438 |
| | 61,999 |
| | 55,774 |
|
Depreciation and amortization | | 32,919 |
| | 27,872 |
| | 65,164 |
| | 55,340 |
|
Purchased services | | 31,474 |
| | 28,055 |
| | 62,595 |
| | 54,692 |
|
Contract terminations expense | | — |
| | — |
| | 35,322 |
| | — |
|
Special items | | — |
| | 4,771 |
| | — |
| | 23,450 |
|
Other | | 41,047 |
| | 32,789 |
| | 80,052 |
| | 64,786 |
|
Total | | 622,519 |
| | 533,276 |
| | 1,251,666 |
| | 1,077,455 |
|
Operating Income | | 92,928 |
| | 136,840 |
| | 129,193 |
| | 198,870 |
|
Nonoperating Income (Expense): | | |
| | |
| | | | |
Interest expense and amortization of debt discounts and issuance costs | | (7,627 | ) | | (7,711 | ) | | (16,182 | ) | | (15,714 | ) |
Gains (losses) on fuel derivatives | | 18,952 |
| | (4,712 | ) | | 23,569 |
| | (13,510 | ) |
Interest income | | 1,931 |
| | 1,467 |
| | 3,405 |
| | 2,619 |
|
Capitalized interest | | 2,355 |
| | 2,082 |
| | 4,593 |
| | 3,842 |
|
Other, net | | (2,752 | ) | | (4,317 | ) | | (1,696 | ) | | (6,240 | ) |
Total | | 12,859 |
| | (13,191 | ) | | 13,689 |
| | (29,003 | ) |
Income Before Income Taxes | | 105,787 |
| | 123,649 |
| | 142,882 |
| | 169,867 |
|
Income tax expense | | 26,307 |
| | 46,755 |
| | 34,860 |
| | 59,327 |
|
Net Income | | $ | 79,480 |
| | $ | 76,894 |
| | $ | 108,022 |
| | $ | 110,540 |
|
Net Income Per Common Stock Share: | | |
| | |
| | | | |
Basic | | $ | 1.57 |
| | $ | 1.43 |
| | $ | 2.12 |
| | $ | 2.06 |
|
Diluted | | $ | 1.56 |
| | $ | 1.43 |
| | $ | 2.12 |
| | $ | 2.05 |
|
Weighted Average Number of Common Stock Shares Outstanding: | | | | | | | | |
Basic | | 50,776 |
| | 53,626 |
| | 50,915 |
| | 53,595 |
|
Diluted | | 50,878 |
| | 53,914 |
| | 51,038 |
| | 53,948 |
|
Cash Dividends Declared Per Common Stock Share | | $ | 0.12 |
| | $ | — |
| | $ | 0.24 |
| | $ | — |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to Consolidated Financial Statements contained in Part I, Item 1 of this report for additional information. |
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | (unaudited) |
Operating Revenue: | | |
| | |
|
Passenger | | $ | 601,304 |
| | $ | 611,600 |
|
Other | | 55,447 |
| | 53,812 |
|
Total | | 656,751 |
| | 665,412 |
|
Operating Expenses: | | |
| | |
|
Wages and benefits | | 175,065 |
| | 168,709 |
|
Aircraft fuel, including taxes and delivery | | 126,104 |
| | 133,446 |
|
Maintenance, materials and repairs | | 63,045 |
| | 58,141 |
|
Aircraft and passenger servicing | | 38,900 |
| | 36,518 |
|
Depreciation and amortization | | 38,151 |
| | 32,245 |
|
Aircraft rent | | 30,396 |
| | 31,900 |
|
Commissions and other selling | | 30,836 |
| | 31,925 |
|
Other rentals and landing fees | | 31,046 |
| | 30,815 |
|
Purchased services | | 32,453 |
| | 31,121 |
|
Contract terminations expense | | — |
| | 35,322 |
|
Other | | 38,079 |
| | 39,005 |
|
Total | | 604,075 |
| | 629,147 |
|
Operating Income | | 52,676 |
| | 36,265 |
|
Nonoperating Income (Expense): | | |
| | |
|
Interest expense and amortization of debt discounts and issuance costs | | (7,530 | ) | | (8,555 | ) |
Gains (losses) on fuel derivatives | | 570 |
| | 4,617 |
|
Interest income | | 2,983 |
| | 1,474 |
|
Capitalized interest | | 1,285 |
| | 2,238 |
|
Other, net | | (1,025 | ) | | 1,056 |
|
Total | | (3,717 | ) | | 830 |
|
Income Before Income Taxes | | 48,959 |
| | 37,095 |
|
Income tax expense | | 12,601 |
| | 8,553 |
|
Net Income | | $ | 36,358 |
| | $ | 28,542 |
|
Net Income Per Common Stock Share: | | |
| | |
|
Basic | | $ | 0.75 |
| | $ | 0.56 |
|
Diluted | | $ | 0.75 |
| | $ | 0.56 |
|
Weighted Average Number of Common Stock Shares Outstanding: | | | | |
Basic | | 48,392 |
| | 51,055 |
|
Diluted | | 48,429 |
| | 51,199 |
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
|
| | | | | | | | |
| | Three Months Ended June 30, |
| | 2018 | | 2017 (a) |
| | (unaudited) |
Net Income | | $ | 79,480 |
| | $ | 76,894 |
|
Other comprehensive income, net: | | |
| | |
|
Net change related to employee benefit plans, net of tax expense of $166 and $897 for 2018 and 2017, respectively | | 514 |
| | 1,390 |
|
Net change in derivative instruments, net of tax expense of $2,999 and $768 for 2018 and 2017, respectively | | 9,263 |
| | 1,261 |
|
Net change in available-for-sale investments, net of tax expense of $54 and $20 for 2018 and 2017, respectively | | 167 |
| | 32 |
|
Total other comprehensive income | | 9,944 |
| | 2,683 |
|
Total Comprehensive Income | | $ | 89,424 |
| | $ | 79,577 |
|
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2018 | | 2017 (a) |
| | (unaudited) |
Net Income | | $ | 108,022 |
| | $ | 110,540 |
|
Other comprehensive income (loss), net: | | |
| | |
|
Net change related to employee benefit plans, net of tax expense of $332 and $1,794 for 2018 and 2017, respectively | | 1,027 |
| | 2,858 |
|
Net change in derivative instruments, net of tax expense of $654 and net of tax benefit of $3,557 for 2018 and 2017, respectively | | 2,019 |
| | (5,836 | ) |
Net change in available-for-sale investments, net of tax benefit of $95 and net of tax expense of $72 for 2018 and 2017, respectively | | (293 | ) | | 118 |
|
Total other comprehensive income (loss) | | 2,753 |
| | (2,860 | ) |
Total Comprehensive Income | | $ | 110,775 |
| | $ | 107,680 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to Consolidated Financial Statements contained in Part I, Item 1 of this report for additional information. |
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | (unaudited) |
Net Income | | $ | 36,358 |
| | $ | 28,542 |
|
Other comprehensive income (loss), net: | | |
| | |
|
Net change related to employee benefit plans, net of tax expense of $135 and $166 for 2019 and 2018, respectively | | 576 |
| | 513 |
|
Net change in derivative instruments, net of tax expense of $374 and net of tax benefit of $2,345 for 2019 and 2018, respectively | | 1,145 |
| | (7,244 | ) |
Net change in available-for-sale investments, net of tax expense of $175 and net of tax benefit of $149 for 2019 and 2018, respectively | | 540 |
| | (460 | ) |
Total other comprehensive income (loss) | | 2,261 |
| | (7,191 | ) |
Total Comprehensive Income | | $ | 38,619 |
| | $ | 21,351 |
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
|
| | | | | | | | |
| | June 30, 2018 | | December 31, 2017 (a) |
| | (unaudited) |
ASSETS | | |
| | |
|
Current Assets: | | |
| | |
|
Cash and cash equivalents | | $ | 333,791 |
| | $ | 190,953 |
|
Restricted cash | | 1,000 |
| | 1,000 |
|
Short-term investments | | 259,313 |
| | 269,297 |
|
Accounts receivable, net | | 111,493 |
| | 140,279 |
|
Spare parts and supplies, net | | 36,387 |
| | 35,361 |
|
Prepaid expenses and other | | 99,315 |
| | 79,186 |
|
Total | | 841,299 |
| | 716,076 |
|
Property and equipment, less accumulated depreciation and amortization of $611,642 and $558,548 as of June 30, 2018 and December 31, 2017, respectively | | 2,086,955 |
| | 1,842,263 |
|
Other Assets: | | |
| | |
|
Long-term prepayments and other | | 183,276 |
| | 193,632 |
|
Intangible assets, less accumulated amortization of $22,080 and $21,561 as of June 30, 2018 and December 31, 2017, respectively | | 14,668 |
| | 15,187 |
|
Goodwill | | 106,663 |
| | 106,663 |
|
Total Assets | | $ | 3,232,861 |
| | $ | 2,873,821 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | |
|
Current Liabilities: | | |
| | |
|
Accounts payable | | $ | 153,262 |
| | $ | 140,805 |
|
Air traffic liability | | 712,069 |
| | 589,093 |
|
Other accrued liabilities | | 144,003 |
| | 147,593 |
|
Current maturities of long-term debt and capital lease obligations | | 113,526 |
| | 59,470 |
|
Total | | 1,122,860 |
| | 936,961 |
|
Long-Term Debt and Capital Lease Obligations | | 578,453 |
| | 511,201 |
|
Other Liabilities and Deferred Credits: | | |
| | |
|
Accumulated pension and other post-retirement benefit obligations | | 218,426 |
| | 220,788 |
|
Other liabilities and deferred credits | | 257,911 |
| | 225,605 |
|
Deferred tax liability, net | | 135,164 |
| | 134,141 |
|
Total | | 611,501 |
| | 580,534 |
|
Commitments and Contingencies | |
|
| |
|
|
Shareholders’ Equity: | | |
| | |
|
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of June 30, 2018 and December 31, 2017 | | — |
| | — |
|
Common stock, $0.01 par value per share, 50,735,132 and 51,173,453 shares outstanding as of June 30, 2018 and December 31, 2017, respectively | | 507 |
| | 512 |
|
Capital in excess of par value | | 125,871 |
| | 126,743 |
|
Accumulated income | | 866,180 |
| | 793,134 |
|
Accumulated other comprehensive loss, net | | (72,511 | ) | | (75,264 | ) |
Total | | 920,047 |
| | 845,125 |
|
Total Liabilities and Shareholders’ Equity | | $ | 3,232,861 |
| | $ | 2,873,821 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). |
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | (unaudited) |
ASSETS | | |
| | |
|
Current Assets: | | |
| | |
|
Cash and cash equivalents | | $ | 365,100 |
| | $ | 268,577 |
|
Short-term investments | | 166,817 |
| | 232,241 |
|
Accounts receivable, net | | 110,658 |
| | 111,834 |
|
Spare parts and supplies, net | | 36,461 |
| | 33,942 |
|
Prepaid expenses and other | | 60,553 |
| | 58,573 |
|
Total | | 739,589 |
| | 705,167 |
|
Property and equipment, less accumulated depreciation and amortization of $678,428 and $663,461 as of March 31, 2019 and December 31, 2018, respectively | | 2,109,857 |
| | 2,185,111 |
|
Other Assets: | | |
| | |
|
Operating lease right-of-use assets | | 613,103 |
| | — |
|
Long-term prepayments and other | | 171,013 |
| | 185,556 |
|
Intangible assets, less accumulated amortization of $19,199 and $18,939 as of March 31, 2019 and December 31, 2018, respectively | | 13,889 |
| | 14,149 |
|
Goodwill | | 106,663 |
| | 106,663 |
|
Total Assets | | $ | 3,754,114 |
| | $ | 3,196,646 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | |
|
Current Liabilities: | | |
| | |
|
Accounts payable | | $ | 145,067 |
| | $ | 143,146 |
|
Air traffic liability and current frequent flyer deferred revenue | | 691,010 |
| | 603,736 |
|
Other accrued liabilities | | 130,746 |
| | 158,154 |
|
Current maturities of long-term debt and finance lease obligations | | 93,483 |
| | 101,097 |
|
Current maturities of operating leases | | 90,481 |
| | — |
|
Total | | 1,150,787 |
| | 1,006,133 |
|
Long-Term Debt and Finance Lease Obligations | | 519,105 |
| | 608,684 |
|
Other Liabilities and Deferred Credits: | | |
| | |
|
Noncurrent operating leases | | 480,979 |
| | — |
|
Accumulated pension and other post-retirement benefit obligations | | 180,232 |
| | 182,620 |
|
Other liabilities and deferred credits | | 107,497 |
| | 119,826 |
|
Noncurrent frequent flyer deferred revenue | | 170,149 |
| | 163,619 |
|
Deferred tax liability, net | | 170,305 |
| | 167,770 |
|
Total | | 1,109,162 |
| | 633,835 |
|
Commitments and Contingencies | |
|
| |
|
|
Shareholders’ Equity: | | |
| | |
|
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of March 31, 2019 and December 31, 2018 | | — |
| | — |
|
Common stock, $0.01 par value per share, 48,202,199 and 48,540,280 shares outstanding as of March 31, 2019 and December 31, 2018, respectively | | 482 |
| | 485 |
|
Capital in excess of par value | | 128,891 |
| | 128,448 |
|
Accumulated income | | 936,566 |
| | 912,201 |
|
Accumulated other comprehensive loss, net | | (90,879 | ) | | (93,140 | ) |
Total | | 975,060 |
| | 947,994 |
|
Total Liabilities and Shareholders’ Equity | | $ | 3,754,114 |
| | $ | 3,196,646 |
|
See Note 2accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements contained of Shareholders' Equity
(in Part I, Item 1thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2019 | | Common Stock(*) | | Special Preferred Stock(**) | | Capital In Excess of Par Value | | Accumulated Income | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | (unaudited) |
Balance at December 31, 2018 | | $ | 485 |
| | $ | — |
| | $ | 128,448 |
| | $ | 912,201 |
| | $ | (93,140 | ) | | $ | 947,994 |
|
Net Income | | — |
| | — |
| | — |
| | 36,358 |
| | — |
| | 36,358 |
|
Dividends declared on common stock ($0.12 per share) | | — |
| | — |
| | — |
| | (5,811 | ) | | — |
| | (5,811 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 2,261 |
| | 2,261 |
|
Issuance of 65,517 shares of common stock, net of shares withheld for taxes | | 1 |
| | — |
| | (983 | ) | | — |
| | — |
| | (982 | ) |
Repurchase and retirement of 403,598 shares common stock | | (4 | ) | | — |
| | — |
| | (11,082 | ) | | — |
| | (11,086 | ) |
Share-based compensation expense | | — |
| | — |
| | 1,426 |
| | — |
| | — |
| | 1,426 |
|
Cumulative effect of accounting change (ASU 2016-02), net of tax | | — |
| | — |
| | — |
| | 4,900 |
| | — |
| | 4,900 |
|
Balance at March 31, 2019 | | $ | 482 |
| | $ | — |
| | $ | 128,891 |
| | $ | 936,566 |
| | $ | (90,879 | ) | | $ | 975,060 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2018 | | Common Stock(*) | | Special Preferred Stock(**) | | Capital In Excess of Par Value | | Accumulated Income | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | (unaudited) |
Balance at December 31, 2017 | | $ | 512 |
| | $ | — |
| | $ | 126,743 |
| | $ | 793,134 |
| | $ | (75,264 | ) | | $ | 845,125 |
|
Net Income | | — |
| | — |
| | — |
| | 28,542 |
| | — |
| | 28,542 |
|
Dividends declared on common stock ($0.12 per share) | | — |
| | — |
| | — |
| | (6,145 | ) | | — |
| | (6,145 | ) |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (7,191 | ) | | (7,191 | ) |
Issuance of 146,923 shares of common stock, net of shares withheld for taxes | | 1 |
| | — |
| | (3,230 | ) | | — |
| | — |
| | (3,229 | ) |
Repurchase and retirement of 548,861 shares common stock | | (5 | ) | | — |
| | — |
| | (20,238 | ) | | — |
| | (20,243 | ) |
Share-based compensation expense | | — |
| | — |
| | 1,355 |
| | — |
| | — |
| | 1,355 |
|
Balance at March 31, 2018 | | $ | 508 |
| | $ | — |
| | $ | 124,868 |
| | $ | 795,293 |
| | $ | (82,455 | ) | | $ | 838,214 |
|
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of this report for additional information.March 31, 2019 and December 31, 2018.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2019 and December 31, 2018.
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
| | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2019 | | 2018 |
| | (unaudited) | | (unaudited) |
Net cash provided by Operating Activities | | $ | 373,761 |
| | $ | 335,440 |
| | $ | 150,680 |
| | $ | 225,545 |
|
Cash flows from Investing Activities: | | |
| | |
| | |
| | |
|
Additions to property and equipment, including pre-delivery payments | | (258,112 | ) | | (96,278 | ) | | (74,261 | ) | | (110,897 | ) |
Proceeds from disposition of property and equipment | | 987 |
| | 33,511 |
| |
Proceeds from the disposition of aircraft related equipment | | | 2,780 |
| | — |
|
Purchases of investments | | (110,092 | ) | | (107,533 | ) | | (71,454 | ) | | (30,386 | ) |
Sales of investments | | 119,236 |
| | 125,881 |
| | 137,286 |
| | 53,984 |
|
Other | | | (6,275 | ) | | — |
|
Net cash used in investing activities | | (247,981 | ) | | (44,419 | ) | | (11,924 | ) | | (87,299 | ) |
Cash flows from Financing Activities: | | |
| | |
| | |
| | |
|
Long-term borrowings | | 86,500 |
| | — |
| |
Repayments of long-term debt and capital lease obligations | | (30,047 | ) | | (30,484 | ) | |
Repayments of long-term debt and finance lease obligations | | | (24,354 | ) | | (20,395 | ) |
Dividend payments | | (12,238 | ) | | — |
| | (5,811 | ) | | (6,145 | ) |
Debt issuance costs | | (889 | ) | | — |
| |
Repurchases of common stock | | (22,745 | ) | | (4,299 | ) | | (11,086 | ) | | (20,243 | ) |
Other | | (3,523 | ) | | (7,535 | ) | | (982 | ) | | (3,231 | ) |
Net cash provided by (used in) financing activities | | 17,058 |
| | (42,318 | ) | |
Net cash used in financing activities | | | (42,233 | ) | | (50,014 | ) |
Net increase in cash and cash equivalents | | 142,838 |
| | 248,703 |
| | 96,523 |
| | 88,232 |
|
Cash, cash equivalents, and restricted cash - Beginning of Period | | 191,953 |
| | 330,991 |
| | 268,577 |
| | 191,953 |
|
Cash, cash equivalents, and restricted cash - End of Period | | $ | 334,791 |
| | $ | 579,694 |
| | $ | 365,100 |
| | $ | 280,185 |
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
1. Business and Basis of Presentation
Hawaiian Holdings, Inc. (the Company, or Holdings) is a holding companyHoldings, we, us and our) and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian).Hawaiian. The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
2. Significant Accounting Policies
Recently Adopted Accounting Pronouncements
In May 2014,February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and created Topic 606 (ASC 606)2016-02, Leases (ASU 2016-02), requiring an entitywhich was subsequently codified within Accounting Standards Codification (ASC) 842, Leases (ASC 842). ASC 842 requires a lessee to recognize a right-of-use asset and a lease liability in the amountstatement of revenuefinancial position for all leases (with the exception of short-term leases) at the lease commencement date and recognize expenses similar to which it expects to be entitled for the transfer of promised goods or services to customers.current ASC 606 replaced most existing revenue recognition guidance in GAAP and840, Leases. ASC 842 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.2018.
The Company elected to adopt the full retrospective transition methodadopted ASC 842 as of January 1, 2018, resulting in2019 using the restatement of the prior periods as of the date oftransition method that provides for a cumulative-effect adjustment to retained earnings upon adoption. The overall decrease in equity asCompany elected the package of January 1, 2016 was $76.0 million nettransition provisions available for expired or existing contracts, which allows the Company to carry-forward our historical assessments of tax, with an offsetting change primarily in Other liabilities(a) whether contracts are, or contain leases, (b) lease classification, and deferred credits. Refer to Note 5 for additional revenue recognition discussion.(c) initial direct costs.
The most significant impact of the standard relates to the accounting for the Company's frequent flyer travel award program. This change, as well as other less significant changes, are described below:
Frequent flyer - The standard requires the Company to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles, effectively eliminating the incremental cost accounting previously applied. ASC 606 resulted in a significant increase to the deferred revenue liability on the Company's balance sheet, as the estimated selling price of the miles significantly exceeds the value previously recorded for incremental cost. The allocated value of miles earned through flights and sold to partners is recognized at the time the free travel or other award is redeemed by the passenger. Previously, the transportation element associated with sold miles was deferred and recognized as passenger revenue over the period when the transportation was expected to be provided (23 months).
Passenger revenue - The standard requires the Company to make certain adjustments to its passenger revenue, most notably related to unused tickets, which represents unexercised passenger rights. The Company uses historical information to estimate the proportion of ticket revenue that will expire unused to be recognized at the scheduled flight date. Prior to the adoption of ASC 606, the Company recorded this revenue as the tickets expired unused. As of the adoption date the adjustment due to passenger ticket expiration had the effect of reducing the air traffic liability but did not have a significant effect on revenue recognized. Ticket change fees were previously recognized at the time the fees were assessed; however, under ASC 606, the Company now defers the recognition of ticket change fees as a component of air traffic liability until the related transportation is provided. Further, the Company reclassified revenue items such as checked baggage, charter, ticket change and cancellation fees, in flight revenue, and other incidental sales to passenger revenue (from other operating revenue), as these items do not represent distinct performance obligations separate from the transportation provided to the passenger.
Selling Costs - Under ASC 606, the Company will capitalize selling costs associated with credit card fees, booking fees, and commissions, and recognize the associated expense at the ticketed flight date. Prior to ASC 606, the Company recognized the costs associated with credit card and booking fees as they were incurred.
Restated financial statement information, which reflects the adoption of the ASC 606 is below:
|
| | | | | | | | | | | |
| Three Months Ended June 30, 2017 |
| As Reported | | Adjustments | | As Restated |
| (in thousands) |
Operating Revenue: | | | | | |
Passenger | $ | 593,210 |
| | $ | 30,796 |
| | $ | 624,006 |
|
Other | 82,125 |
| | (36,015 | ) | | 46,110 |
|
Total | $ | 675,335 |
| | $ | (5,219 | ) | | $ | 670,116 |
|
Operating Expenses | 532,786 |
| | 490 |
| | 533,276 |
|
Operating Income | 142,549 |
| | (5,709 | ) | | 136,840 |
|
Nonoperating Income (Expense) | (13,191 | ) | | — |
| | (13,191 | ) |
Income tax expense | 48,925 |
| | (2,170 | ) | | 46,755 |
|
Net Income | $ | 80,433 |
| | $ | (3,539 | ) | | $ | 76,894 |
|
Net Income Per Common Stock Share: | | | | | |
Basic | $ | 1.50 |
| | $ | (0.07 | ) | | $ | 1.43 |
|
Diluted | $ | 1.49 |
| | $ | (0.06 | ) | | $ | 1.43 |
|
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2017 |
| As Reported | | Adjustments | | As Restated |
| (in thousands) |
Operating Revenue: | | | | | |
Passenger | $ | 1,130,800 |
| | $ | 56,958 |
| | $ | 1,187,758 |
|
Other | 158,720 |
| | (70,153 | ) | | 88,567 |
|
Total | $ | 1,289,520 |
| | $ | (13,195 | ) | | $ | 1,276,325 |
|
Operating Expenses | 1,079,677 |
| | (2,222 | ) | | 1,077,455 |
|
Operating Income | 209,843 |
| | (10,973 | ) | | 198,870 |
|
Nonoperating Income (Expense) | (29,003 | ) | | — |
| | (29,003 | ) |
Income tax expense | 63,495 |
| | (4,168 | ) | | 59,327 |
|
Net Income | $ | 117,345 |
| | $ | (6,805 | ) | | $ | 110,540 |
|
Net Income Per Common Stock Share: | | | | | |
Basic | $ | 2.19 |
| | $ | (0.13 | ) | | $ | 2.06 |
|
Diluted | $ | 2.18 |
| | $ | (0.13 | ) | | $ | 2.05 |
|
Select consolidated balance sheet line items, which reflect the adoption of the new standard are as follows:
|
| | | | | | | | | | | |
| December 31, 2017 |
| Balance Sheet |
| As Reported | | Adjustments | | As Restated |
| (in thousands) |
ASSETS | | | | | |
Prepaid expenses and other | $ | 65,196 |
| | $ | 13,990 |
| | $ | 79,186 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
Current Liabilities: | | | | | |
Air traffic liability | 545,362 |
| | 43,731 |
| | 589,093 |
|
Other accrued liabilities | 146,283 |
| | 1,310 |
| | 147,593 |
|
Noncurrent Liabilities: | | | | | |
Other liabilities and deferred credits | 95,636 |
| | 129,969 |
| | 225,605 |
|
Deferred tax liability | 174,344 |
| | (40,203 | ) | | 134,141 |
|
Shareholders' Equity: | | | | | |
Accumulated income | 913,951 |
| | (120,817 | ) | | 793,134 |
|
There was noNew Lease Standard had a significant impact to the Company's net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
Recently Issued Accounting Pronouncements
In February 2018, the FASB issued 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The guidance allows reclassification from accumulated other comprehensive income to retained earnings of stranded taxes resulting from the Tax Cuts and Jobs Act (the Tax Act). In addition, under ASU 2018-02, certain disclosures regarding stranded tax effects are required. ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company continues to evaluate the impact of ASU 2018-02 and the potential effects on the Company's consolidated financial statements.balance sheet due to the recognition of approximately $593.5 million of operating lease liabilities and right-of-use (ROU) assets for operating leases of $635.6 million. Additionally, the Company recognized a $4.9 million (net of tax of $1.6 million) cumulative effect adjustment credit to retained earnings.
The adjustment to retained earnings was driven principally by ASC 842's elimination of the previous build-to-suit lease accounting guidance under ASC 840, Leases, and resulted in the derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period. ASC 842 then required the application of lease accounting to the agreement, which resulted in an operating lease. This resulted in the recognition of a ROU asset, inclusive of building costs incurred by the Company to place the asset into service, of $124.7 million, and a lease liability of $90.8 million.
The unaudited Consolidated Financial Statements as of and for the quarter ended March 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with our historical accounting policy. See Note 9, Leases, for additional information.
In August 2017, the FASB issued ASU 2017-12, Derivatives andTargeted Improvements to Accounting for Hedging Activities (ASU 2017-02), which better aligns a company's risk management activities and financial reporting for hedging relationships and is intended to simplify hedge accounting requirements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is continuing to evaluateadopted this standard during the components and options within ASU 2017-12.
In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), requiring a lessee to recognize in the statementfirst quarter of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires entities to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited.2019. The Company is evaluating the impact the adoption of this standard willdid not have on its consolidated financial statements and believes this ASU will have a significant impact on its consolidated balance sheet but does not expect that the ASU will have a materialan impact on the Company's results of operations or cash flows. The effect of adopting the new standard will be to record right-of-use assets and operating lease obligations for current operating leases on the Company's balance sheet. Management is continuing to assess its current inventory of leases; as of June 30, 2018 the Company had 17 aircraft that are treated as an operating leases. Management has also identified and is evaluating the leases surrounding the terminal operations including hangar space, office space, and IT equipment.Consolidated Financial Statements.
The FASB is in process of finalizing transition relief which will allow entities to continue to apply the guidance in ASC 840, Leases including its disclosure requirements, in the comparative periods presented in the year that a company adopts ASU 2016-02 (ASC 842). Entities that elect this option will record the cumulative effect of adoption on the effective date rather than at the beginning of the earliest comparative period presented. See Note 10 below which discusses our lease obligations as of June 30, 2018.
3. Accumulated Other Comprehensive Income (Loss)
Reclassifications out of accumulated other comprehensive income (loss) by component are as follows:
| | Details about accumulated other comprehensive (income) loss components | | Three months ended June 30, | | Six months ended June 30, | | Affected line items in the statement where net income is presented | | Three months ended March 31, | | Affected line items in the statement where net income is presented |
| 2018 | | 2017 | | 2018 | | 2017 | | | 2019 | | 2018 | |
| | (in thousands) | | | | (in thousands) | | |
Derivatives designated as hedging instruments under ASC 815 | | | | | | | | | | | | | | | | |
Foreign currency derivative losses (gains) | | $ | 884 |
| | $ | (480 | ) | | $ | 2,105 |
| | $ | (1,692 | ) | | Passenger revenue | | $ | (1,587 | ) | | $ | 1,221 |
| | Passenger revenue |
Total before tax | | 884 |
| | (480 | ) | | 2,105 |
| | (1,692 | ) | | | | (1,587 | ) | | 1,221 |
| | |
Tax expense (benefit) | | (216 | ) | | 182 |
| | (515 | ) | | 641 |
| | | | 391 |
| | (299 | ) | | |
Total, net of tax | | $ | 668 |
| | $ | (298 | ) | | $ | 1,590 |
| | $ | (1,051 | ) | | | | $ | (1,196 | ) | | $ | 922 |
| | |
Amortization of defined benefit plan items | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
Actuarial loss | | $ | 624 |
| | $ | 2,228 |
| | $ | 1,248 |
| | $ | 4,456 |
| | Nonoperating Income (Expense), Other, net | | $ | 831 |
| | $ | 624 |
| | Nonoperating Income (Expense), Other, net |
Prior service cost | | 56 |
| | 60 |
| | 112 |
| | 120 |
| | Nonoperating Income (Expense), Other, net | | 56 |
| | 56 |
| | Nonoperating Income (Expense), Other, net |
Total before tax | | 680 |
| | 2,288 |
| | 1,360 |
| | 4,576 |
| | | | 887 |
| | 680 |
| | |
Tax benefit | | (166 | ) | | (898 | ) | | (333 | ) | | (1,765 | ) | | | | (168 | ) | | (167 | ) | | |
Total, net of tax | | $ | 514 |
| | $ | 1,390 |
| | $ | 1,027 |
| | $ | 2,811 |
| | | | $ | 719 |
| | $ | 513 |
| | |
Short-term investments | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
Realized losses (gain) on sales of investments, net | | $ | 26 |
| | $ | (12 | ) | | $ | 31 |
| | $ | (20 | ) | | Nonoperating Income (Expense), Other, net | | $ | (98 | ) | | $ | 5 |
| | Nonoperating Income (Expense), Other, net |
Total before tax | | 26 |
| | (12 | ) | | 31 |
| | (20 | ) | | | | (98 | ) | | 5 |
| | |
Tax expense (benefit) | | (6 | ) | | 5 |
| | (7 | ) | | 8 |
| | | | 24 |
| | (1 | ) | | |
Total, net of tax | | $ | 20 |
| | $ | (7 | ) | | $ | 24 |
| | $ | (12 | ) | | | | $ | (74 | ) | | $ | 4 |
| | |
Total reclassifications for the period | | $ | 1,202 |
| | $ | 1,085 |
| | $ | 2,641 |
| | $ | 1,748 |
| | | | $ | (551 | ) | | $ | 1,439 |
| | |
A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 is as follows:
| | Three months ended June 30, 2018 | | Foreign Currency Derivatives | | Defined Benefit Plan Items | | Short-Term Investments | | Total | |
Three months ended March 31, 2019 | | | Foreign Currency Derivatives | | Defined Benefit Plan Items | | Short-Term Investments | | Total |
| | (in thousands) | | (in thousands) |
Beginning balance | | $ | (5,995 | ) | | $ | (75,440 | ) | | $ | (1,020 | ) | | $ | (82,455 | ) | | $ | 3,317 |
| | $ | (95,855 | ) | | $ | (602 | ) | | $ | (93,140 | ) |
Other comprehensive income before reclassifications, net of tax | | 8,595 |
| | — |
| | 147 |
| | 8,742 |
| |
Other comprehensive income (loss) before reclassifications, net of tax | | | 2,341 |
| | (143 | ) | | 614 |
| | 2,812 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | 668 |
| | 514 |
| | 20 |
| | 1,202 |
| | (1,196 | ) | | 719 |
| | (74 | ) | | (551 | ) |
Net current-period other comprehensive income | | 9,263 |
| | 514 |
| | 167 |
| | 9,944 |
| | 1,145 |
| | 576 |
| | 540 |
| | 2,261 |
|
Ending balance | | $ | 3,268 |
| | $ | (74,926 | ) | | $ | (853 | ) | | $ | (72,511 | ) | | $ | 4,462 |
| | $ | (95,279 | ) | | $ | (62 | ) | | $ | (90,879 | ) |
|
| | | | | | | | | | | | | | | | |
Three months ended June 30, 2017 | | Foreign Currency Derivatives | | Defined Benefit Plan Items | | Short-Term Investments | | Total |
| | (in thousands) |
Beginning balance | | $ | (26 | ) | | $ | (108,734 | ) | | $ | (276 | ) | | $ | (109,036 | ) |
Other comprehensive income before reclassifications, net of tax | | 1,559 |
| | — |
| | 39 |
| | 1,598 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | (298 | ) | | 1,390 |
| | (7 | ) | | 1,085 |
|
Net current-period other comprehensive income | | 1,261 |
| | 1,390 |
| | 32 |
| | 2,683 |
|
Ending balance | | $ | 1,235 |
| | $ | (107,344 | ) | | $ | (244 | ) | | $ | (106,353 | ) |
|
| | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 | | Foreign Currency Derivatives | | Defined Benefit Pension Items | | Short-Term Investments | | Total |
| | (in thousands) |
Beginning balance | | $ | 1,249 |
| | $ | (75,953 | ) | | $ | (560 | ) | | $ | (75,264 | ) |
Other comprehensive income (loss) before reclassifications, net of tax | | 429 |
| | — |
| | (317 | ) | | 112 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | 1,590 |
| | 1,027 |
| | 24 |
| | 2,641 |
|
Net current-period other comprehensive income (loss) | | 2,019 |
| | 1,027 |
| | (293 | ) | | 2,753 |
|
Ending balance | | $ | 3,268 |
| | $ | (74,926 | ) | | $ | (853 | ) | | $ | (72,511 | ) |
| | Six months ended June 30, 2017 | | Foreign Currency Derivatives | | Defined Benefit Pension Items | | Short-Term Investments | | Total | |
Three months ended March 31, 2018 | | | Foreign Currency Derivatives | | Defined Benefit Plan Items | | Short-Term Investments | | Total |
| | (in thousands) | | (in thousands) |
Beginning balance | | $ | 7,071 |
| | $ | (110,202 | ) | | $ | (362 | ) | | $ | (103,493 | ) | | $ | 1,249 |
| | $ | (75,953 | ) | | $ | (560 | ) | | $ | (75,264 | ) |
Other comprehensive income (loss) before reclassifications, net of tax | | (4,785 | ) | | 47 |
| | 130 |
| | (4,608 | ) | |
Other comprehensive loss before reclassifications, net of tax | | | (8,166 | ) | | — |
| | (464 | ) | | (8,630 | ) |
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | (1,051 | ) | | 2,811 |
| | (12 | ) | | 1,748 |
| | 922 |
| | 513 |
| | 4 |
| | 1,439 |
|
Net current-period other comprehensive income (loss) | | (5,836 | ) | | 2,858 |
| | 118 |
| | (2,860 | ) | | (7,244 | ) | | 513 |
| | (460 | ) | | (7,191 | ) |
Ending balance | | $ | 1,235 |
| | $ | (107,344 | ) | | $ | (244 | ) | | $ | (106,353 | ) | | $ | (5,995 | ) | | $ | (75,440 | ) | | $ | (1,020 | ) | | $ | (82,455 | ) |
4. Earnings Per Share
Basic earnings per share, which excludes dilution, is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and six months ended June 30,March 31, 2019 and 2018, and 2017, anti-dilutive shares, which were excluded from the calculation of diluted earnings per share, were immaterial.
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (in thousands, except for per share data) | | (in thousands, except for per share data) |
Numerator: | | |
| | |
| | |
| | |
| | |
| | |
|
Net Income | | $ | 79,480 |
| | $ | 76,894 |
| | $ | 108,022 |
| | $ | 110,540 |
| | $ | 36,358 |
| | $ | 28,542 |
|
Denominator: | | |
| | |
| | |
| | |
| | |
| | |
|
Weighted average common stock shares outstanding - Basic | | 50,776 |
| | 53,626 |
| | 50,915 |
| | 53,595 |
| | 48,392 |
| | 51,055 |
|
Assumed exercise of stock options and awards | | 102 |
| | 288 |
| | 123 |
| | 353 |
| | 37 |
| | 144 |
|
Weighted average common stock shares outstanding - Diluted | | 50,878 |
| | 53,914 |
| | 51,038 |
| | 53,948 |
| | 48,429 |
| | 51,199 |
|
Net Income Per Share | | |
| | |
| | |
| | |
| | |
| | |
|
Basic | | $ | 1.57 |
| | $ | 1.43 |
| | $ | 2.12 |
| | $ | 2.06 |
| | $ | 0.75 |
| | $ | 0.56 |
|
Diluted | | $ | 1.56 |
| | $ | 1.43 |
| | $ | 2.12 |
| | $ | 2.05 |
| | $ | 0.75 |
| | $ | 0.56 |
|
Stock Repurchase Program
In November 2017, the Company's Board of Directors approved a stockthe repurchase program pursuant to which the Company may repurchaseof up to $100 million of its outstanding common stock over a two-year period through December 2019.2019 via the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules and regulations, which was completed in December 2018. In November 2018, the Company's Board of Directors approved a new stock repurchase program pursuant to which the Company may repurchase up to an additional $100 million of its outstanding common stock over a two-year period through December 2020. The stock repurchase program is subject to further modification or termination at any time. The Company will repurchase shares of its common stock subject to prevailing market conditions and may discontinue such repurchases at any time.
The Company spent $2.5$11.1 million and $22.8$20.2 million to repurchase and retire approximately 65404 thousand shares and 614549 thousand shares of the Company's common stock in open market transactions during the three and six months ended June 30,March 31, 2019 and 2018, respectively. As of June 30, 2018,March 31, 2019, the Company had $77.2$86.4 million remaining to spend under its stock repurchase program.
Dividends
During the three months ended March 31, 2018 and June 30,2019, the Company declared a cash dividend of $0.12 per share for stockholders of record as of February 8, 2019, which was paid on February 22, 2019, totaling $5.8 million. During the three months ended March 31, 2018, the Company declared and paid cash dividends of $0.12 per share, totaling $12.2or $6.1 million.
5. Revenue Recognition
The majority of ourthe Company's revenue is derived from transporting passengers on our aircraft. The Company accounts for revenue in accordance with ASC 606, which was adopted on January 1, 2018, using the full retrospective method. See Note 2 for further discussion of the adoption, including the impact on our previously issued financial statements.
The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian
either originate and/or end in the State of Hawai'i. The management of such operations is based on a system-wide approach due
to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian is engaged in only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's operating revenues by geographic region (as defined by the U.S. Department of Transportation) are summarized below:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
Geographic Information | | (in thousands) | | (in thousands) |
Domestic | | $ | 528,476 |
| | $ | 501,724 |
| | $ | 1,020,678 |
| | $ | 952,521 |
| | $ | 477,520 |
| | $ | 492,202 |
|
Pacific | | 186,971 |
| | 168,392 |
| | 360,181 |
| | 323,804 |
| | 179,231 |
| | 173,210 |
|
Total operating revenue | | $ | 715,447 |
| | $ | 670,116 |
| | $ | 1,380,859 |
| | $ | 1,276,325 |
| | $ | 656,751 |
| | $ | 665,412 |
|
Hawaiian attributes operating revenue by geographic region based on the destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which are mobile across geographic markets, and therefore, have not been allocated to specific geographic regions.
Passenger & Other revenue - Generally, the Company’s contracts with customers have two principal performance obligations, which are the promise to provide transportation to the passenger and the frequent flyer miles earned on the flight. In addition, the Company often charges additional fees for items such as baggage and in-flight entertainment. Such items are not capable of being distinct from the transportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of HawaiianMiles awards for flights, is satisfied, and revenue is recognized, as transportation is provided. In some instances, tickets sold by the Company can include a flight segment on another carrier which is referred to as an interline segment. In this situation, the Company acts as an agent for the other carrier and revenue is recognized net of cost in other revenue. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is
provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.
Other operating revenue consists of cargo revenue, ground handling fees, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
Passenger Revenue by Type | | (in thousands) | | (in thousands) |
Passenger revenue, excluding frequent flyer | | $ | 618,406 |
| | $ | 590,527 |
| | $ | 1,196,361 |
| | $ | 1,124,581 |
| | $ | 567,855 |
| | $ | 577,955 |
|
Frequent flyer revenue, transportation component | | 36,756 |
| | 33,479 |
| | 70,401 |
| | 63,177 |
| | 33,449 |
| | 33,645 |
|
Passenger Revenue | | $ | 655,162 |
| | $ | 624,006 |
| | $ | 1,266,762 |
| | $ | 1,187,758 |
| | $ | 601,304 |
| | $ | 611,600 |
|
| | | | | | | | | | | | |
Other revenue (e.g. cargo and other miscellaneous) | | $ | 41,539 |
| | $ | 33,894 |
| | $ | 80,229 |
| | $ | 66,035 |
| |
Other revenue (e.g., cargo and other miscellaneous) | | | $ | 36,231 |
| | $ | 38,690 |
|
Frequent flyer revenue, marketing and brand component | | 18,746 |
| | 12,216 |
| | 33,868 |
| | 22,532 |
| | 19,216 |
| | 15,122 |
|
Other Revenue | | $ | 60,285 |
| | $ | 46,110 |
| | $ | 114,097 |
| | $ | 88,567 |
| | $ | 55,447 |
| | $ | 53,812 |
|
For the three months ended June 30,March 31, 2019 and 2018, and 2017, the Company's total revenue was $715.4$656.8 million and $670.1$665.4 million, respectively. As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Company's Air traffic liability balance as it relates to passenger tickets (excluding frequent flyer) was $536.3$514.9 million and $422.6$427.8 million, respectively, which represents future revenue that is expected to be realized over the next 12 months. During the three months ended June 30,March 31, 2019 and 2018, and 2017, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $293.1$296.9 million and $294.5$260.3 million, respectively. During the six months ended June 30, 2018 and 2017, the amount of revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $332.5 million and $295.9 million, respectively.
Passenger revenue associated with unused tickets, which represent unexercised passenger rights, is recognized in proportion
to the pattern of rights exercised by related passengers (e.g., scheduled departure dates). To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information and applies the trend rate to the current air traffic liability balances for that specific period.
Certain governmental taxes are imposed on the Company's ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. Management has elected (via a practical expedient election) to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer e.g.(e.g., sales, use, value added, and certain excise taxes.taxes). These fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted.
Frequent Flyer Revenue - Hawaiian's frequent flyer travel award program provides a variety of awards to program members based on accumulated mileage. ASC 606 requires the Company to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel or other award is used by the passenger, at which time it is included in passenger revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. The equivalent ticket value (ETV) includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. On a quarterly basis, the Company calculates the equivalent ticket value (ETV)ETV by analyzing the fares of similar tickets for the prior 12 months, considering cabin class and geographic region.
The Company also sells mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities. The marketing and brand performance obligations are effectively provided each time a HawaiianMiles member uses the co-branded credit card and monthly access to customer lists and marketing is provided, which corresponds to the timing of when the Company issues or is obligated to issue the mileage credits to the HawaiianMiles member. Therefore, the Company recognizes revenue for the marketing and brand performance obligations when HawaiianMiles members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with the Company’s performance towardin satisfying the obligation.
During the first quarter of 2018, wethe Company amended ourits partnership with Barclaycard US, Hawaiian's co-branded credit card partner. Management determined that the amendment should be accounted for as a termination of the existing contract and the creation of a new contract under ASC 606 and the relative selling price was determined for each performance obligation of the new
agreement. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for our Barclay's co-branded cardholders. The amended agreement did not change any terms of the original agreement, and includes the following performance obligations: (i) transportation that will ultimately be provided when mileage credits are redeemed (transportation); (ii) the Hawaiian Airlines brand and access to its members lists (collectively, brand performance); (iii) marketing; and (iv) airline benefits to cardholders, including discounts and anniversary travel benefits, baggage waivers and inflight purchase credits. The Company determined the relative fair value of each performance obligation by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the performance obligations based on their relative selling prices.
The transportation performance obligation is deferred and recognized as passenger revenue when the transportation is expected to be provided.
Accounting for frequent flyer revenuemileage sales to co-branded partners involves the use of various techniques to estimate revenue. The Company sells mileage credits to companies participating in the frequent flyer program, who in turn issue those miles to customers based on the volume of spend, making the majority of the transaction price variable. To determine the total estimated transaction price, the Company forecasts future credit card activity using historical information.
The relative selling price is determined using management’s standalone estimated selling price of each performance obligation. The objective of using the estimated selling price based methodology is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, the Company determines the best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, published selling prices, number of miles awarded and number of miles redeemed. The Company estimates the selling price of miles using an ETV adjusted for a fulfillment discount as described above.
Miles expire after 18 months of member account inactivity. The ETV includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile.
The Company's frequent flyer liability is recorded within two balance sheet accounts,in Air traffic liability (short-term) and Other liabilitiescurrent frequent flyer deferred revenue and Noncurrent frequent flyer deferred credits (long-term)revenue in the Company's consolidated balance sheet based on estimated and expected redemption patterns using historical data and analysis. As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Company's contract liability balance was $372.2$339.7 million and $321.9$332.2 million, respectively.
Accounts Receivable - Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. The Company provides an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.
Costs to obtain or fulfill a contract - In order for the Company to provide transportation to our customers we incur fulfillment costs which are generally: booking fees, credit card fees, and commission/selling costs. As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Company's asset balance associated with these costs were $19.9$19.2 million and $16.7$16.3 million, respectively. During the three months ended June 30,March 31, 2019 and 2018, and 2017, expenses related to these costs totaled to $23.8$22.5 million and $24.3 million, respectively. During the six months ended June 30, 2018 and 2017, expenses related to these costs totaled to $47.7 million and $46.8$23.9 million, respectively. To determine the amount to capitalize and expense at the end of each period, the Company uses historical sales data and estimates the amount associated with unflown tickets.
6. Short-Term Investments
Debt securities that are not classified as cash equivalents are classified as available-for-sale investments and are stated as current assets at fair value as these securities are available for use in current operations. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations. Unrealized gains and losses on available-for-sale debtavailable for sale securities are reflected as a component of accumulatedAccumulated other comprehensive income.
loss, net.
The following is a summary of short-term investments held as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
| | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
June 30, 2018 | | (in thousands) | |
March 31, 2019 | | | (in thousands) |
Corporate debt | | $ | 154,333 |
| | $ | 21 |
| | $ | (1,002 | ) | | $ | 153,352 |
| | $ | 101,348 |
| | $ | 231 |
| | $ | (238 | ) | | $ | 101,341 |
|
U.S. government and agency debt | | 55,081 |
| | — |
| | (182 | ) | | 54,899 |
| | 16,043 |
| | — |
| | (17 | ) | | 16,026 |
|
Municipal bonds | | 16,684 |
| | — |
| | (49 | ) | | 16,635 |
| | 9,073 |
| | 1 |
| | (9 | ) | | 9,065 |
|
Certificates of Deposit | | | 23,213 |
| | — |
| | — |
| | 23,213 |
|
Other fixed income securities | | 34,462 |
| | — |
| | (35 | ) | | 34,427 |
| | 17,181 |
| | — |
| | (9 | ) | | 17,172 |
|
Total short-term investments | | $ | 260,560 |
| | $ | 21 |
| | $ | (1,268 | ) | | $ | 259,313 |
| | $ | 166,858 |
| | $ | 232 |
| | $ | (273 | ) | | $ | 166,817 |
|
| | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
December 31, 2017 | | (in thousands) | |
December 31, 2018 | | | (in thousands) |
Corporate debt | | $ | 165,610 |
| | $ | 8 |
| | $ | (535 | ) | | $ | 165,083 |
| | $ | 142,748 |
| | $ | 49 |
| | $ | (695 | ) | | $ | 142,102 |
|
U.S. government and agency debt | | 59,054 |
| | 1 |
| | (215 | ) | | 58,840 |
| | 37,163 |
| | 3 |
| | (59 | ) | | 37,107 |
|
Municipal bonds | | 21,517 |
| | — |
| | (104 | ) | | 21,413 |
| | 9,903 |
| | — |
| | (32 | ) | | 9,871 |
|
Other fixed income securities | | 23,973 |
| | 1 |
| | (13 | ) | | 23,961 |
| | 43,183 |
| | 2 |
| | (24 | ) | | 43,161 |
|
Total short-term investments | | $ | 270,154 |
| | $ | 10 |
| | $ | (867 | ) | | $ | 269,297 |
| | $ | 232,997 |
| | $ | 54 |
| | $ | (810 | ) | | $ | 232,241 |
|
Contractual maturities of short-term investments as of June 30, 2018March 31, 2019 are shown below.
| | | | Under 1 Year | | 1 to 5 Years | | Total | | Under 1 Year | | 1 to 5 Years | | Total |
| | (in thousands) | | (in thousands) |
Corporate debt | | $ | 69,250 |
| | $ | 84,102 |
| | $ | 153,352 |
| | $ | 38,940 |
| | $ | 62,401 |
| | $ | 101,341 |
|
U.S. government and agency debt | | 44,011 |
| | 10,888 |
| | 54,899 |
| | 16,026 |
| | — |
| | 16,026 |
|
Municipal bonds | | 9,643 |
| | 6,992 |
| | 16,635 |
| | 7,235 |
| | 1,830 |
| | 9,065 |
|
Certificates of Deposit | | | 22,210 |
| | 1,003 |
| | 23,213 |
|
Other fixed income securities | | 26,780 |
| | 7,647 |
| | 34,427 |
| | 15,672 |
| | 1,500 |
| | 17,172 |
|
Total short-term investments | | $ | 149,684 |
| | $ | 109,629 |
| | $ | 259,313 |
| | $ | 100,083 |
| | $ | 66,734 |
| | $ | 166,817 |
|
7. Fair Value Measurements
ASC Topic 820, Fair Value Measurement (ASC 820), defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities; and
Level 3 — Unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets or liabilities.
The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:
| | | | Fair Value Measurements as of June 30, 2018 | | Fair Value Measurements as of March 31, 2019 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) | | (in thousands) |
Cash equivalents | | $ | 175,486 |
| | $ | 128,131 |
| | $ | 47,355 |
| | $ | — |
| | $ | 152,947 |
| | $ | 122,825 |
| | $ | 30,122 |
| | $ | — |
|
Restricted cash | | 1,000 |
| | 1,000 |
| | — |
| | — |
| |
Short-term investments | | 259,313 |
| | — |
| | 259,313 |
| | — |
| | 166,817 |
| | — |
| | 166,817 |
| | — |
|
Fuel derivative contracts: | | | | |
| | |
| | |
| |
Crude oil call options | | 28,216 |
| | — |
| | 28,216 |
| | — |
| |
Fuel derivative contracts | | | 5,084 |
| | — |
| | 5,084 |
| | — |
|
Foreign currency derivatives | | 5,674 |
| | — |
| | 5,674 |
| | — |
| | 5,022 |
| | — |
| | 5,022 |
| | — |
|
Total assets measured at fair value | | $ | 469,689 |
| | $ | 129,131 |
| | $ | 340,558 |
| | $ | — |
| | $ | 329,870 |
| | $ | 122,825 |
| | $ | 207,045 |
| | $ | — |
|
Foreign currency derivatives | | 747 |
| | — |
| | 747 |
| | — |
| | 228 |
| | — |
| | 228 |
| | — |
|
Total liabilities measured at fair value | | $ | 747 |
| | $ | — |
| | $ | 747 |
| | $ | — |
| | $ | 228 |
| | $ | — |
| | $ | 228 |
| | $ | — |
|
| | | | Fair Value Measurements as of December 31, 2017 | | Fair Value Measurements as of December 31, 2018 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) | | (in thousands) |
Cash equivalents | | $ | 62,310 |
| | $ | 27,807 |
| | $ | 34,503 |
| | $ | — |
| | $ | 121,154 |
| | $ | 42,175 |
| | $ | 78,979 |
| | $ | — |
|
Restricted cash | | 1,000 |
| | 1,000 |
| | — |
| | — |
| |
Short-term investments | | 269,297 |
| | — |
| | 269,297 |
| | — |
| | 232,241 |
| | — |
| | 232,241 |
| | — |
|
Fuel derivative contracts: | | | | |
| | |
| | |
| |
Crude oil call options | | 20,272 |
| | — |
| | 20,272 |
| | — |
| |
Jet fuel swaps | | 336 |
| | — |
| | 336 |
| | — |
| |
Fuel derivative contracts | | | 1,572 |
| | — |
| | 1,572 |
| | — |
|
Foreign currency derivatives | | 4,300 |
| | — |
| | 4,300 |
| | — |
| | 4,579 |
| | — |
| | 4,579 |
| | — |
|
Total assets measured at fair value | | $ | 357,515 |
| | $ | 28,807 |
| | $ | 328,708 |
| | $ | — |
| | $ | 359,546 |
| | $ | 42,175 |
| | $ | 317,371 |
| | $ | — |
|
Foreign currency derivatives | | 1,713 |
| | — |
| | 1,713 |
| | — |
| | 1,347 |
| | — |
| | 1,347 |
| | — |
|
Total liabilities measured at fair value | | $ | 1,713 |
| | $ | — |
| | $ | 1,713 |
| | $ | — |
| | $ | 1,347 |
| | $ | — |
| | $ | 1,347 |
| | $ | — |
|
Cash equivalents. The Company's levelLevel 1 cash equivalents consist of money market securities and certificates of deposit. The carrying amounts approximate fair value because of the levelshort-term maturity of these assets. The Company's Level 2 cash equivalents consist of U.S. agency bonds, mutual funds, and commercial paper. TheThese instruments classified as level 2 are valued using quoted prices for similar assets in active markets.
Restricted cash. The Company’s restricted cash consists of money market securities.
Short-term investments. Short-term investments include U.S. and foreign government notes and bonds, U.S. agency bonds, variable-rate corporate bonds, asset backed securities, foreign and domestic corporate bonds, municipal bonds, and commercial paper. These instrumentsshown in the table above are classified as available-for-sale. Instruments are valued using quoted prices for similar assets in active markets or other observable inputs.
Fuel derivative contracts. The Company’s fuel derivative contracts consist of crude oil call options, and jet fuel swaps, which are not traded on a public exchange. The fair value of these instruments areis determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves, and measures of volatility among others.
Foreign currency derivatives. The Company’s foreign currency derivatives consist of Japanese Yen and Australian Dollar forward contracts and are valued primarily based upon data available or derived fromreadily observable in public markets.
The table below presents the Company’s debt (excluding obligations under capitalfinance leases and financing obligations) measured at fair value:
| | Fair Value of Debt | June 30, 2018 | | December 31, 2017 | |
March 31, 2019 | | March 31, 2019 | | December 31, 2018 |
Carrying | Carrying | | Fair Value | | Carrying | | Fair Value | Carrying | | Fair Value | | Carrying | | Fair Value |
Amount | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | | Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
(in thousands) | $ | 495,504 |
| | $ | 478,893 |
| | $ | — |
| | $ | — |
| | $ | 478,893 |
| | $ | 433,072 |
| | $ | 444,099 |
| | $ | — |
| | $ | — |
| | $ | 444,099 |
| 448,399 |
| | $ | 448,960 |
| | $ | — |
| | $ | — |
| | $ | 448,960 |
| | $ | 467,760 |
| | $ | 461,805 |
| | $ | — |
| | $ | — |
| | $ | 461,805 |
|
The fair value estimates of the Company’s debt were based on the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar instruments.
The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.
8. Financial Derivative Instruments
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices and foreign currencies.
Fuel Risk Management
The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. During the three and six months ended June 30, 2018,March 31, 2019, the Company primarily used crude oil call options and jet fuel swaps to hedge its aircraft fuel expense. These derivative instruments were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.
The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
Fuel derivative contracts | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (in thousands) | | (in thousands) |
Gains (losses) realized at settlement | | $ | 10,827 |
| | $ | (1,902 | ) | | $ | 16,488 |
| | $ | 687 |
| | $ | (2,844 | ) | | $ | 5,661 |
|
Reversal of prior period unrealized amounts | | (10,748 | ) | | 3,441 |
| | (11,792 | ) | | (4,506 | ) | | 8,181 |
| | (11,792 | ) |
Unrealized gains (losses) that will settle in future periods | | 18,873 |
| | (6,251 | ) | | 18,873 |
| | (9,691 | ) | | (4,767 | ) | | 10,748 |
|
Gains (losses) on fuel derivatives recorded as nonoperating income (expense) | | $ | 18,952 |
| | $ | (4,712 | ) | | $ | 23,569 |
| | $ | (13,510 | ) | | $ | 570 |
| | $ | 4,617 |
|
Foreign Currency Exchange Rate Risk Management
The Company is subject to foreign currency exchange rate risk due to revenues and expenses that are denominated in foreign currencies, with the primary exposures being the Japanese Yen and Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable. As discussed in Note 9 the Company also recently executed Japanese Yen denominated debt agreements.
The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The effective portion of the gain or loss of designated cash flow hedges is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. The effective portion of the foreign currency forward contracts represents the change in fair value of the hedge that offsets the change in the fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized as nonoperating income (expense). Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and any changes in fair value are recognized as other nonoperating income (expense) in the period of change.
The Company believes that its foreign currency forward contracts that are designated as cash flow hedges will continue to be effective in offsetting changes in cash flow attributable to the hedged risk. The Company expects to reclassify a net gain of approximately $3.6$4.8 million into earnings over the next 12 months from AOCI based on the values at June 30, 2018.March 31, 2019.
The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Company's unaudited Consolidated Balance Sheets.
Derivative position as of June 30, 2018March 31, 2019
| | | | Balance Sheet Location | | Notional Amount | | Final Maturity Date | | Gross fair value of assets | | Gross fair value of (liabilities) | | Net derivative position | | Balance Sheet Location | | Notional Amount | | Final Maturity Date | | Gross fair value of assets | | Gross fair value of (liabilities) | | Net derivative position |
| | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) |
Derivatives designated as hedges | | | | | | | | |
| | |
| | |
| | | | | | | | |
| | |
| | |
|
Foreign currency derivatives | | Prepaid expenses and other | | 16,987,750 Japanese Yen 51,428 Australian Dollars | | June 2019 | | 4,600 |
| | (558 | ) | | 4,042 |
| | Prepaid expenses and other | | 15,964,300 Japanese Yen 46,360 Australian Dollars | | March 2020 | | 4,133 |
| | (180 | ) | | 3,953 |
|
| | Long-term prepayments and other | | 4,795,400 Japanese Yen 8,940 Australian Dollars | | June 2020 | | 810 |
| | (185 | ) | | 625 |
| | Long-term prepayments and other | | 4,457,800 Japanese Yen 7,571 Australian Dollars | | March 2021 | | 809 |
| | (31 | ) | | 778 |
|
Derivatives not designated as hedges | | | | | | | | |
| | |
| | | | | | | | | | |
| | |
| | |
Foreign currency derivatives | | Prepaid expenses and other | | 1,216,250 Japanese Yen 4,489 Australian Dollars | | September 2018 | | 264 |
| | (4 | ) | | 260 |
| | Prepaid expenses and other | | 841,550 Japanese Yen 2,304 Australian Dollars | | June 2019 | | 80 |
| | (17 | ) | | 63 |
|
Fuel derivative contracts | | Prepaid expenses and other | | 94,080 gallons | | June 2019 | | 28,216 |
| | — |
| | 28,216 |
| | Prepaid expenses and other | | 95,760 gallons | | March 2020 | | 5,084 |
| | — |
| | 5,084 |
|
Derivative position as of December 31, 20172018
| | | | Balance Sheet Location | | Notional Amount | | Final Maturity Date | | Gross fair value of assets | | Gross fair value of (liabilities) | | Net derivative position | | Balance Sheet Location | | Notional Amount | | Final Maturity Date | | Gross fair value of assets | | Gross fair value of (liabilities) | | Net derivative position |
| | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) |
Derivatives designated as hedges | | | | | | | | |
| | |
| | |
| | | | | | | | |
| | |
| | |
|
Foreign currency derivatives | | Prepaid expenses and other | | 16,732,375 Japanese Yen 47,805 Australian Dollars | | December 2018 | | 3,737 |
| | (1,441 | ) | | 2,296 |
| | Prepaid expenses and other | | 15,933,550 Japanese Yen 48,709 Australian Dollars | | December 2019 | | 3,922 |
| | (915 | ) | | 3,007 |
|
| | Long-term prepayments and other | | 4,666,700 Japanese Yen 9,180 Australian Dollars | | December 2019 | | 546 |
| | (195 | ) | | 351 |
| | Long-term prepayments and other | | 4,491,350 Japanese Yen 9,419 Australian Dollars | | December 2020 | | 633 |
| | (292 | ) | | 341 |
|
Derivatives not designated as hedges | | | | | | | | |
| | |
| | | | | | | | | | |
| | |
| | |
Foreign currency derivatives | | Other accrued liabilities | | 866,150 Japanese Yen 3,148 Australian Dollars | | March 2018 | | 17 |
| | (77 | ) | | (60 | ) | | Other accrued liabilities | | 832,900 Japanese Yen 2,785 Australian Dollars | | March 2019 | | 24 |
| | (140 | ) | | (116 | ) |
Fuel derivative contracts | | Prepaid expenses and other | | 94,332 gallons | | December 2018 | | 20,608 |
| | — |
| | 20,608 |
| | Prepaid expenses and other | | 95,256 gallons | | December 2019 | | 1,572 |
| | — |
| | 1,572 |
|
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Company's unaudited Consolidated Statements of Comprehensive Income.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | (Gain) loss recognized in AOCI on derivatives (effective portion) | | (Gain) loss reclassified from AOCI into income (effective portion) | | (Gain) loss recognized in nonoperating (income) expense (ineffective portion) |
| | Three months ended June 30, | | Three months ended June 30, | | Three months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands) |
Foreign currency derivatives | | $ | (11,378 | ) | | $ | (2,505 | ) | | $ | 884 |
| | $ | (480 | ) | | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | (Gain) loss recognized in AOCI on derivatives (effective portion) | | (Gain) loss reclassified from AOCI into income (effective portion) | | (Gain) loss recognized in nonoperating (income) expense (ineffective portion) |
| | Six months ended June 30, | | Six months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands) |
Foreign currency derivatives | | $ | (569 | ) | | $ | 7,705 |
| | $ | 2,105 |
| | $ | (1,692 | ) | | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | (Gain) loss recognized in AOCI on derivatives (effective portion) | | (Gain) loss reclassified from AOCI into income (effective portion) | | (Gain) loss recognized in nonoperating (income) expense (ineffective portion) |
| | Three months ended March 31, | | Three months ended March 31, | | Three months ended March 31, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | (in thousands) |
Foreign currency derivatives | | $ | (3,106 | ) | | $ | 10,809 |
| | $ | (1,587 | ) | | $ | 1,221 |
| | $ | — |
| | $ | — |
|
Risk and Collateral
Financial derivative instruments expose the Company to possible credit loss in the event the counterparties fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings, (2) limits its exposure to any single counterparty, and (3) regularly monitors the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments, as cash collateral would be provided by the counterparties based on the current market exposure of the derivative.
ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement, or present such amounts on a gross basis. The Company’s accounting policy is to present its derivative assets and liabilities on a net basis, including any collateral posted with the counterparty. The Company had no collateral posted with counterparties as of June 30, 2018March 31, 2019 and December 31, 2017.2018.
The Company is also subject to market risk in the event these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company’s overall exposure.
9. DebtLeases
As discussed in Note 2, the Company adopted ASC 842 as of January 1, 2019, using the modified retrospective approach. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.
The Company leases aircraft, engines, airport terminal facilities, maintenance hangars, commercial real estate, and other property and equipment, among other items. The Company combines lease and nonlease components in calculating the ROU asset and lease liabilities for the aforementioned asset groups. Certain leases include escalation clauses, renewal options, and/or termination options. When lease renewals or termination options are considered to be reasonably certain, such periods are included in the lease term and fixed payments are included in the calculation of the lease liability and ROU asset.
When available, the Company utilizes the rate implicit in the lease to discount lease payments to present value; however, the majority of the Company's leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
Aircraft and Engines
As of June 30, 2018,March 31, 2019, the expected maturitiesCompany leased 19 aircraft, of long-term debtwhich 5 are under finance leases and 14 are under operating leases. These leases have remaining lease terms with terms ranging from approximately 1 year to 11 years. The Company also had 5 engines under operating leases with remaining lease terms ranging from less than 1 year to 8 years. Aircraft and engine finance leases continue to be reported on our consolidated balance sheet, while operating leases were added to the balance sheet with the adoption of the new standard.
Airport Terminal Facilities
The Company's facility leases are primarily for space at airports that it serves, most notably, its operations in the State of Hawai'i. These leases are classified as operating leases and reflect the Company's use of airport terminals, office space, cargo and maintenance facilities. The Company leases space from government agencies that control the use of the airport. The remaining lease terms vary from 1 month to 33 years. At the majority of U.S. airports, the lease rates depend on airport operating costs or the use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability.
Other Commercial Real Estate
The Company leases non-airport facility office space supporting its operations, including its headquarters in Honolulu, Hawaii. These leases are classified as operating and have remaining lease terms ranging between 1 to 8 years.
Maintenance Hangar
In November 2016, the Company entered into a lease agreement with the Department of Transportation of the State of Hawai'i to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a remaining lease term of 33 years. As the hangar was not fully constructed, the Company took responsibility of the construction and was responsible for the remainder of 2018the construction costs of $37.3 million. In accordance with the applicable accounting guidance, specifically as it relates to the Company's involvement in the construction of the hangar, the Company was considered the owner of the asset under construction and previously recognized an additional $73.0 million asset, with a corresponding finance liability, for the next four years,amount previously spent by the lessor.
As discussed in Note 2, ASC 842 eliminated the previous build-to-suit lease accounting guidance and thereafter, wereresulted in the derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period. ASC 842 then required the application of lease accounting to the agreement. The agreement is accounted for as follows (in thousands): an operating lease under ASC 842.
Other Property and Equipment
The Company leases certain IT assets (including data center access, equipment, etc.) and various other non-aircraft equipment. The remaining lease terms range from 1 to 3 years. Certain lease IT assets are embedded within service agreements. The combined lease and nonlease components of those agreements are included in the ROU asset and lease liability.
Lease Position as of March 31, 2019
The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheet.
|
| | | |
Remaining months in 2018 | $ | 28,275 |
|
2019 | 81,023 |
|
2020 | 29,545 |
|
2021 | 56,509 |
|
2022 | 63,622 |
|
Thereafter | 236,531 |
|
| $ | 495,505 |
|
|
| | | | | | |
| | | | Three Months Ended March 31, |
| | Classification on the Balance Sheet | | 2019 |
| | | | (in thousands) |
Assets: | | | | |
Operating lease assets | | Operating lease right-of use assets | | $ | 613,103 |
|
Finance lease assets | | Property and equipment, net | | 164,558 |
|
Total lease assets | | | | $ | 777,661 |
|
| | | | |
Liabilities: | | | | |
Current | | | | |
Operating | | Current maturities of operating leases | | $ | 90,481 |
|
Finance | | Current maturities of long-term debt and finance lease obligations | | 21,702 |
|
Noncurrent | | | | |
Operating | | Noncurrent operating leases | | 480,979 |
|
Finance | | Long-Term Debt and Finance Lease Obligations | | 152,403 |
|
Total lease liabilities | | | | $ | 745,565 |
|
| | | | |
Weighted-average remaining lease term | | | | |
Operating leases | | | | 11.1 years |
|
Finance leases | | | | 9.1 years |
|
Weighted-average discount rate | | | | |
Operating leases (1) | | | | 4.97 | % |
Finance leases | | | | 4.74 | % |
(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Lease Costs
During the three months ended March 31, 2019, the total lease costs for finance and operating leases were as follows:
|
| | | | |
| | Three Months Ended March 31, |
| | 2019 |
| | (in thousands) |
Finance lease cost: | | |
Amortization of right-of-use assets | | $ | 6,098 |
|
Interest of lease liabilities | | 2,092 |
|
Operating lease cost (1) | | 29,468 |
|
Short-term lease cost (1) | | 1,988 |
|
Variable lease cost (1) | | 29,986 |
|
Total lease cost | | $ | 69,632 |
|
(1) Expenses are classified within aircraft rent and other rentals and landing fees in the consolidated statements of operations.
During the three months ended June 30, 2018,March 31, 2019, the Company executed Japanese Yen denominated debt agreementscash paid for a total value of $86.5 million, which is collateralized by aircraft. The loans that were executed were each for a term of 12 years at fixed installment coupon rates of 1.01% and 1.05%. The fluctuation in foreign exchange rates at each balance sheet date is reflected within the nonoperating income (expense) line item. The foreign currency gain or loss for three months ended June 30, 2018 was de minimus.
10. Leases
The Company leases aircraft, engines, and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, maintenance facilities, and general offices. Certain leases include escalation clauses and renewal options. When lease renewals are considered to be reasonably assured, the rental payments that will be due during the renewal periods areamounts included in the determinationmeasurement of rent expense over the life of the lease.lease liabilities were as follows:
|
| | | |
| | Three Months Ended March 31, |
| | 2019 |
| | (in thousands) |
Operating cash flows from operating leases | | 28,958 |
|
Operating cash flows from finance leases | | 2,092 |
|
Financing cash flows from finance lease | | 5,622 |
|
Undiscounted Cash Flows
As of June 30, 2018,March 31, 2019, the scheduled future minimum rental payments under operating and capitalfinance leases with non-cancellable basic terms of more than one year were as follows: | | | Capital & Financing Leases | | Operating Leases | Finance Leases | | Operating Leases |
| Aircraft | | Other | | Aircraft | | Other | Aircraft | | Other | | Aircraft | | Other |
| (in thousands) | (in thousands) |
Remaining in 2018 | $ | 9,675 |
| | $ | 3,665 |
| | $ | 53,421 |
| | $ | 3,487 |
| |
2019 | 19,350 |
| | 6,561 |
| | 98,327 |
| | 6,735 |
| |
Remaining in 2019 | | $ | 18,638 |
| | $ | 3,665 |
| | $ | 80,789 |
| | $ | 6,133 |
|
2020 | 19,350 |
| | 4,641 |
| | 82,362 |
| | 6,559 |
| 24,850 |
| | 3,255 |
| | 90,391 |
| | 8,217 |
|
2021 | 19,350 |
| | 4,566 |
| | 66,259 |
| | 6,669 |
| 24,850 |
| | 1,798 |
| | 74,713 |
| | 8,424 |
|
2022 | 19,205 |
| | 4,870 |
| | 60,153 |
| | 6,938 |
| 24,415 |
| | 1,779 |
| | 68,133 |
| | 8,822 |
|
2023 | | 21,370 |
| | 5,019 |
| | 60,022 |
| | 9,029 |
|
Thereafter | 55,666 |
| | 119,862 |
| | 164,993 |
| | 96,147 |
| 75,891 |
| | 7,083 |
| | 156,680 |
| | 194,209 |
|
| 142,596 |
| | 144,165 |
| | $ | 525,515 |
| | $ | 126,535 |
| |
Less amounts representing interest | (24,885 | ) | | (54,188 | ) | | | | | |
Present value of minimum capital lease payments | $ | 117,711 |
| | $ | 89,977 |
| | | | | |
Total minimum lease payments | | 190,014 |
| | 22,599 |
| | 530,728 |
| | 234,834 |
|
Less: amounts representing interest | | (33,224 | ) | | (5,284 | ) | | (77,600 | ) | | (116,502 | ) |
Present value of future minimum lease payments | | $ | 156,790 |
| | $ | 17,315 |
| | $ | 453,128 |
| | $ | 118,332 |
|
Less: current maturities of lease obligations | | (17,817 | ) | | (3,885 | ) | | (87,908 | ) | | (2,573 | ) |
Long-term lease obligations | | $ | 138,973 |
| | $ | 13,430 |
| | $ | 365,220 |
| | $ | 115,759 |
|
11.10. Employee Benefit Plans
The components of net periodic benefit cost for the Company’s defined benefit and other post-retirement plans included the following:
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
Components of Net Period Benefit Cost | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (in thousands) | | (in thousands) |
Service cost | | $ | 1,962 |
| | $ | 3,813 |
| | $ | 3,924 |
| | $ | 7,626 |
| | $ | 2,096 |
| | $ | 1,962 |
|
Other cost: | | | | | | | | | | | | |
Interest cost | | 5,009 |
| | 7,259 |
| | 10,018 |
| | 14,518 |
| | 5,608 |
| | 5,009 |
|
Expected return on plan assets | | (5,588 | ) | | (4,796 | ) | | (11,176 | ) | | (9,592 | ) | | (5,483 | ) | | (5,588 | ) |
Recognized net actuarial loss | | 680 |
| | 2,287 |
| | 1,360 |
| | 4,574 |
| | 887 |
| | 680 |
|
Total other components of the net periodic benefit cost | | 101 |
| | 4,750 |
| | 202 |
| | 9,500 |
| | 1,012 |
| | 101 |
|
Net periodic benefit cost | | $ | 2,063 |
| | $ | 8,563 |
| | $ | 4,126 |
| | $ | 17,126 |
| | $ | 3,108 |
| | $ | 2,063 |
|
Total other components of the net periodic benefit cost are recorded within the nonoperating income (expense), other, net line item.item in the consolidated statements of operations.
During each of the three and six months ended June 30,March 31, 2019 and 2018, the Company made no contributions to its defined benefit and other postretirement plans as the Company iswas not required to, and did not to make any further minimum contributions until 2019 due to the sufficiency of the plans' current position. During the three and six months ended June 30, 2017, the Company contributed $8.0 million and $14.4 million, respectively, to its defined benefit and other post-retirement plans.
In August 2017, the Company completed the termination of the Merged Pension plan by transferring the assets and liabilities to a third-party insurance company. At that time, the Company contributed a total of $18.5 million in cash to fully fund the plan. In March 2017, the Company announced the ratification of a 63-month contract amendment with its pilots as represented by the Air Line Pilots Association (ALPA). In August 2017, the Company made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants.
12.11. Commitments and Contingent Liabilities
Commitments
As of June 30, 2018,March 31, 2019, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
rights for additional aircraft and engines:
| | Aircraft Type | | Firm Orders | | Purchase Rights | | Expected Delivery Dates | | Firm Orders | | Purchase Rights | | Expected Delivery Dates |
A321neo aircraft | | 11 |
| | 9 |
| | Between 2018 and 2020 | | 6 |
| | 3 |
| | Between 2019 and 2020 |
B787-9 aircraft | | | 10 |
| | 10 |
| | Between 2021 and 2025 |
| | | | | | | | | | |
Pratt & Whitney spare engines: | | |
| | |
| | | | |
| | |
| | |
A321neo spare engines | | 3 |
| | 2 |
| | Between 2018 and 2019 | | 1 |
| | 2 |
| | In 2019 |
General Electric GEnx spare engines: | | | |
| | |
| | |
B787-9 spare engines | | | 2 |
| | 2 |
| | Between 2021 and 2025 |
In February 2018, the Company exercised its right to terminate its aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. Refer to Note 1312 below for discussion on the contract termination charge.
In July 2018, the Company executedentered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft.aircraft with scheduled delivery from 2021 to 2025. In October 2018, the Company entered into a definitive agreement for the selection of GEnx engines to power its Boeing 787-9 fleet. The agreement provides for the purchase of 20 GEnx engines, the right to purchase an additional 20 GEnx engines, and the purchase of up to four spare engines. The committed expenditures under these agreements are reflected in the table below. In December 2018, the Company entered into an amendment to the purchase agreement with Boeing, which includes an option for the Company to accelerate delivery of Boeing 787-9 aircraft from 2024 and 2025 to 2023; however, the Company does not currently expect to execute the option to accelerate its planned delivery schedule. The Company also intends to enter into additional related agreements in connection with the Boeing 787-9 purchases, including for the purchasespurchase of aircraft engines, a flight simulator, spare parts and materials, and related services. The expected expenditures for the Boeing 787-9 aircraft and related parts are not reflected in the table below.
Committed capital and operating expenditures include escalation amounts based on estimates. Capital expenditures represent aircraft and aircraft related equipment commitments, and operating expenditures represent all other non-aircraft commitments the Company has entered into. The gross committed expenditures and committed payments for those deliveries as of June 30, 2018March 31, 2019 are detailed below:
| | | | Capital | | Operating | | Total Committed Expenditures | | Aircraft and aircraft related | | Other | | Total Committed Expenditures |
| | (in thousands) | | (in thousands) |
Remaining in 2018 | | $ | 207,042 |
| | $ | 35,568 |
| | $ | 242,610 |
| |
2019 | | 278,254 |
| | 61,857 |
| | 340,111 |
| |
Remaining in 2019 | | | $ | 277,660 |
| | $ | 55,886 |
| | $ | 333,546 |
|
2020 | | 47,978 |
| | 56,483 |
| | 104,461 |
| | 161,854 |
| | 69,729 |
| | 231,583 |
|
2021 | | 5,075 |
| | 51,725 |
| | 56,800 |
| | 313,668 |
| | 66,104 |
| | 379,772 |
|
2022 | | 5,075 |
| | 51,922 |
| | 56,997 |
| | 435,406 |
| | 58,499 |
| | 493,905 |
|
2023 | | | 245,465 |
| | 53,357 |
| | 298,822 |
|
Thereafter | | 38,067 |
| | 216,069 |
| | 254,136 |
| | 477,144 |
| | 164,846 |
| | 641,990 |
|
| | $ | 581,491 |
| | $ | 473,624 |
| | $ | 1,055,115 |
| | $ | 1,911,197 |
| | $ | 468,421 |
| | $ | 2,379,618 |
|
Litigation and Contingencies
The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of any currently pending proceeding will have a material effect on the Company’s operations, business or financial condition.
General Guarantees and Indemnifications
In the normal course of business, the Company enters into numerous aircraft financing and real estate leasing arrangements that have various guarantees included in such contracts. It is common in such lease transactions for the lessee to agree to indemnify the lessor and other related third-parties for tort liabilities that arise out of, or relate to, the lessee’s use of the leased aircraft or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by such parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to the lessee's use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most of the tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot reasonably estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.
Credit Card Holdback
Under the Company’s bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks which are included in restricted cash in the Company’s unaudited Consolidated Balance Sheets, totaled $1.0 million at eachSheets. As of June 30, 2018March 31, 2019 and December 31, 2017.2018, there were no holdbacks held with the Company's credit card processors.
In the event of a material adverse change in the Company's business, the holdback could increase to an amount up to 100% of the outstanding credit card amounts that is unflown (e.g., air traffic liability)liability, excluding frequent flyer deferred revenue), which would also cause an increase in the level of restricted cash. If the Company is unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on the Company's operations, business or financial condition.
13.12. Contract Terminations Expense and Special Items
Contract terminations expense
For the sixthree months ended June 30,March 31, 2018, the Company terminated two contracts which incurred a total of $35.3 million in contract terminations expense. The transactions are described below:
In February 2018, the Company exercised its right to terminate the aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, the Company was obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. The Company recorded a contract terminations expense to reflect a portion of the termination penalty within the Consolidated Statements of Operations.
In January 2018, the Company entered into a transaction with its lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.
Special items
In April 2017, the Company executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft. The lease term for the three aircraft commenced in April 2017 and goes through November 2018, December 2018, and January 2019, respectively. During the three and six months ended June 30, 2017, the Company recorded a loss on sale of aircraft of $4.8 million.
In March 2017, the Company received notice from ALPA that the agreement was ratified by ALPA's members. The agreement became effective April 1, 2017. The agreement included, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. During the six months ended June 30, 2017, the Company expensed $18.7 million principally related to a one-time payment to reduce the Company's future 401K employer contribution for certain pilot groups, which was not recoverable once paid.
14. Income Taxes
The Company’s effective tax rate was 24.9% and 37.8% for the three months ended June 30, 2018 and 2017, respectively and 24.4% and 34.9% for the six months ended June 30, 2018 and 2017, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items. The effective tax rate for the three and six months ended June 30, 2018 also reflects the reduced federal corporate income tax rate as a result of the enactment of the Tax Act in December 2017. Management continues to analyze the different aspects of the Tax Act which could potentially affect the provisional estimates that were recorded at December 31, 2017.
15. Supplemental Cash Flow Information
Non-cash investing and financing activities for the six months ended June 30, 2018 and 2017 were as follows:
|
| | | | | | | |
| Six months ended June 30, |
| 2018 | | 2017 |
| (in thousands) |
Investing and Financing Activities Not Affecting Cash: | | | |
Property and equipment acquired through a capital lease | $ | 64,692 |
| | $ | — |
|
16.13. Condensed Consolidating Financial Information
The following condensed consolidating financial information is presented in accordance with Regulation S-X paragraph 210.3-10 because, in connection with the issuance by two pass-through trusts formed by Hawaiian (which is also referred to in this Note 1613 as Subsidiary Issuer / Guarantor) of pass-through certificates, the Company (which is also referred to in this Note 1613 as Parent Issuer / Guarantor) is fully and unconditionally guaranteeing the payment obligations of Hawaiian, which is a 100% owned subsidiary of the Company, under equipment notes issued by Hawaiian to purchase new aircraft.
The Company's condensed consolidating financial statements are presented in the following tables:
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended June 30, 2018
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Operating Revenue | | $ | — |
| | $ | 713,127 |
| | $ | 2,393 |
| | $ | (73 | ) | | $ | 715,447 |
|
Operating Expenses: | | |
| | |
| | |
| | |
| | |
|
Wages and benefits | | — |
| | 171,555 |
| | — |
| | — |
| | 171,555 |
|
Aircraft fuel, including taxes and delivery | | — |
| | 153,026 |
| | — |
| | — |
| | 153,026 |
|
Maintenance materials and repairs | | — |
| | 59,468 |
| | 1,502 |
| | — |
| | 60,970 |
|
Aircraft and passenger servicing | | — |
| | 38,626 |
| | — |
| | — |
| | 38,626 |
|
Commissions and other selling | | — |
| | 31,863 |
| | 25 |
| | (35 | ) | | 31,853 |
|
Aircraft rent | | — |
| | 29,865 |
| | — |
| | — |
| | 29,865 |
|
Other rentals and landing fees | | — |
| | 30,952 |
| | 232 |
| | — |
| | 31,184 |
|
Depreciation and amortization | | — |
| | 31,902 |
| | 1,017 |
| | — |
| | 32,919 |
|
Purchased services | | (2 | ) | | 31,249 |
| | 242 |
| | (15 | ) | | 31,474 |
|
Other | | 2,099 |
| | 37,435 |
| | 1,536 |
| | (23 | ) | | 41,047 |
|
Total | | 2,097 |
| | 615,941 |
| | 4,554 |
| | (73 | ) | | 622,519 |
|
Operating Income (Loss) | | (2,097 | ) | | 97,186 |
| | (2,161 | ) | | — |
| | 92,928 |
|
Nonoperating Income (Expense): | | |
| | |
| | |
| | |
| | |
|
Undistributed net income of subsidiaries | | 81,099 |
| | — |
| | — |
| | (81,099 | ) | | — |
|
Interest expense and amortization of debt discounts and issuance costs | | (3 | ) | | (7,579 | ) | | (45 | ) | | — |
| | (7,627 | ) |
Interest income | | 51 |
| | 1,880 |
| | — |
| | — |
| | 1,931 |
|
Capitalized interest | | — |
| | 2,355 |
| | — |
| | — |
| | 2,355 |
|
Gains on fuel derivatives | | — |
| | 18,952 |
| | — |
| | — |
| | 18,952 |
|
Other, net | | — |
| | (2,752 | ) | | — |
| | — |
| | (2,752 | ) |
Total | | 81,147 |
| | 12,856 |
| | (45 | ) | | (81,099 | ) | | 12,859 |
|
Income (Loss) Before Income Taxes | | 79,050 |
| | 110,042 |
| | (2,206 | ) | | (81,099 | ) | | 105,787 |
|
Income tax expense (benefit) | | (430 | ) | | 27,201 |
| | (464 | ) | | — |
| | 26,307 |
|
Net Income (Loss) | | $ | 79,480 |
| | $ | 82,841 |
| | $ | (1,742 | ) | | $ | (81,099 | ) | | $ | 79,480 |
|
Comprehensive Income (Loss) | | $ | 89,424 |
| | $ | 92,785 |
| | $ | (1,742 | ) | | $ | (91,043 | ) | | $ | 89,424 |
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended June 30, 2017 (a)March 31, 2019
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Operating Revenue | | $ | — |
| | $ | 668,387 |
| | $ | 1,837 |
| | $ | (108 | ) | | $ | 670,116 |
|
Operating Expenses: | | |
| | |
| | |
| | |
| | |
|
Aircraft fuel, including taxes and delivery | | — |
| | 102,774 |
| | — |
| | — |
| | 102,774 |
|
Wages and benefits | | — |
| | 154,660 |
| | — |
| | — |
| | 154,660 |
|
Aircraft rent | | — |
| | 34,183 |
| | 370 |
| | — |
| | 34,553 |
|
Maintenance materials and repairs | | — |
| | 52,137 |
| | 429 |
| | — |
| | 52,566 |
|
Aircraft and passenger servicing | | — |
| | 35,636 |
| | — |
| | — |
| | 35,636 |
|
Commissions and other selling | | 18 |
| | 32,151 |
| | 19 |
| | (26 | ) | | 32,162 |
|
Depreciation and amortization | | — |
| | 26,919 |
| | 953 |
| | — |
| | 27,872 |
|
Other rentals and landing fees | | — |
| | 27,438 |
| | — |
| | — |
| | 27,438 |
|
Purchased services | | 177 |
| | 27,646 |
| | 247 |
| | (15 | ) | | 28,055 |
|
Special items | | — |
| | 4,771 |
| | — |
| | — |
| | 4,771 |
|
Other | | 1,308 |
| | 31,001 |
| | 547 |
| | (67 | ) | | 32,789 |
|
Total | | 1,503 |
| | 529,316 |
| | 2,565 |
| | (108 | ) | | 533,276 |
|
Operating Income (Loss) | | (1,503 | ) | | 139,071 |
| | (728 | ) | | — |
| | 136,840 |
|
Nonoperating Income (Expense): | | |
| | |
| | |
| | |
| | |
|
Undistributed net income of subsidiaries | | 77,574 |
| | — |
| | — |
| | (77,574 | ) | | — |
|
Interest expense and amortization of debt discounts and issuance costs | | — |
| | (7,711 | ) | | — |
| | — |
| | (7,711 | ) |
Interest income | | 70 |
| | 1,397 |
| | — |
| | — |
| | 1,467 |
|
Capitalized interest | | — |
| | 2,082 |
| | — |
| | — |
| | 2,082 |
|
Losses on fuel derivatives | | — |
| | (4,712 | ) | | — |
| | — |
| | (4,712 | ) |
Other, net | | — |
| | (4,317 | ) | | — |
| | — |
| | (4,317 | ) |
Total | | 77,644 |
| | (13,261 | ) | | — |
| | (77,574 | ) | | (13,191 | ) |
Income (Loss) Before Income Taxes | | 76,141 |
| | 125,810 |
| | (728 | ) | | (77,574 | ) | | 123,649 |
|
Income tax expense (benefit) | | (756 | ) | | 47,511 |
| | — |
| | — |
| | 46,755 |
|
Net Income (Loss) | | $ | 76,897 |
| | $ | 78,299 |
| | $ | (728 | ) | | $ | (77,574 | ) | | $ | 76,894 |
|
Comprehensive Income (Loss) | | $ | 79,577 |
| | $ | 80,985 |
| | $ | (728 | ) | | $ | (80,257 | ) | | $ | 79,577 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to Consolidated Financial Statements contained in Part I, Item 1 of this report for additional information. |
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Operating Revenue | | $ | — |
| | $ | 656,090 |
| | $ | 792 |
| | $ | (131 | ) | | $ | 656,751 |
|
Operating Expenses: | | |
| | |
| | |
| | |
| | |
|
Wages and benefits | | — |
| | 175,065 |
| | — |
| | — |
| | 175,065 |
|
Aircraft fuel, including taxes and delivery | | — |
| | 126,104 |
| | — |
| | — |
| | 126,104 |
|
Maintenance, materials and repairs | | — |
| | 61,802 |
| | 1,243 |
| | — |
| | 63,045 |
|
Aircraft and passenger servicing | | — |
| | 38,900 |
| | — |
| | — |
| | 38,900 |
|
Commissions and other selling | | — |
| | 30,865 |
| | 18 |
| | (47 | ) | | 30,836 |
|
Aircraft rent | | — |
| | 30,367 |
| | 29 |
| | — |
| | 30,396 |
|
Other rentals and landing fees | | — |
| | 31,019 |
| | 27 |
| | — |
| | 31,046 |
|
Depreciation and amortization | | — |
| | 36,492 |
| | 1,659 |
| | — |
| | 38,151 |
|
Purchased services | | 54 |
| | 32,193 |
| | 222 |
| | (16 | ) | | 32,453 |
|
Other | | 1,842 |
| | 35,856 |
| | 449 |
| | (68 | ) | | 38,079 |
|
Total | | 1,896 |
| | 598,663 |
| | 3,647 |
| | (131 | ) | | 604,075 |
|
Operating Income (Loss) | | (1,896 | ) | | 57,427 |
| | (2,855 | ) | | — |
| | 52,676 |
|
Nonoperating Income (Expense): | | |
| | |
| | |
| | |
| | |
|
Undistributed net income of subsidiaries | | 37,849 |
| | — |
| | — |
| | (37,849 | ) | | — |
|
Interest expense and amortization of debt discounts and issuance costs | | — |
| | (7,514 | ) | | (16 | ) | | — |
| | (7,530 | ) |
Interest income | | 8 |
| | 2,975 |
| | — |
| | — |
| | 2,983 |
|
Capitalized interest | | — |
| | 1,285 |
| | — |
| | — |
| | 1,285 |
|
Gains on fuel derivatives | | — |
| | 570 |
| | — |
| | — |
| | 570 |
|
Other, net | | — |
| | (1,069 | ) | | 44 |
| | — |
| | (1,025 | ) |
Total | | 37,857 |
| | (3,753 | ) | | 28 |
| | (37,849 | ) | | (3,717 | ) |
Income (Loss) Before Income Taxes | | 35,961 |
| | 53,674 |
| | (2,827 | ) | | (37,849 | ) | | 48,959 |
|
Income tax expense (benefit) | | (397 | ) | | 13,591 |
| | (593 | ) | | — |
| | 12,601 |
|
Net Income (Loss) | | $ | 36,358 |
| | $ | 40,083 |
| | $ | (2,234 | ) | | $ | (37,849 | ) | | $ | 36,358 |
|
Comprehensive Income (Loss) | | $ | 38,619 |
| | $ | 42,344 |
| | $ | (2,234 | ) | | $ | (40,110 | ) | | $ | 38,619 |
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
SixThree months ended June 30,March 31, 2018
| | | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) | | (in thousands) |
Operating Revenue | | $ | — |
| | $ | 1,376,539 |
| | $ | 4,520 |
| | $ | (200 | ) | | $ | 1,380,859 |
| | $ | — |
| | $ | 663,412 |
| | $ | 2,127 |
| | $ | (127 | ) | | $ | 665,412 |
|
Operating Expenses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Wages and benefits | | | — |
| | 168,709 |
| | — |
| | — |
| | 168,709 |
|
Aircraft fuel, including taxes and delivery | | — |
| | 286,472 |
| | — |
| | — |
| | 286,472 |
| | — |
| | 133,446 |
| | — |
| | — |
| | 133,446 |
|
Wages and benefits | | — |
| | 340,264 |
| | — |
| | — |
| | 340,264 |
| |
Aircraft rent | | — |
| | 61,765 |
| | — |
| | — |
| | 61,765 |
| |
Maintenance materials and repairs | | — |
| | 116,962 |
| | 2,149 |
| | — |
| | 119,111 |
| |
Maintenance, materials and repairs | | | — |
| | 57,494 |
| | 647 |
| | — |
| | 58,141 |
|
Aircraft and passenger servicing | | — |
| | 75,144 |
| | — |
| | — |
| | 75,144 |
| | — |
| | 36,518 |
| | — |
| | — |
| | 36,518 |
|
Commissions and other selling | | (5 | ) | | 63,821 |
| | 45 |
| | (83 | ) | | 63,778 |
| | (5 | ) | | 31,958 |
| | 20 |
| | (48 | ) | | 31,925 |
|
Aircraft rent | | | — |
| | 31,900 |
| | — |
| | — |
| | 31,900 |
|
Depreciation and amortization | | — |
| | 63,177 |
| | 1,987 |
| | — |
| | 65,164 |
| | — |
| | 31,275 |
| | 970 |
| | — |
| | 32,245 |
|
Other rentals and landing fees | | — |
| | 61,767 |
| | 232 |
| | — |
| | 61,999 |
| | — |
| | 30,815 |
| | — |
| | — |
| | 30,815 |
|
Purchased services | | 88 |
| | 62,117 |
| | 420 |
| | (30 | ) | | 62,595 |
| | 90 |
| | 30,868 |
| | 178 |
| | (15 | ) | | 31,121 |
|
Contract termination expense | | — |
| | 35,322 |
| | — |
| | — |
| | 35,322 |
| |
Contract terminations expense | | | — |
| | 35,322 |
| | — |
| | — |
| | 35,322 |
|
Other | | 3,680 |
| | 74,558 |
| | 1,901 |
| | (87 | ) | | 80,052 |
| | 1,581 |
| | 37,123 |
| | 365 |
| | (64 | ) | | 39,005 |
|
Total | | 3,763 |
| | 1,241,369 |
| | 6,734 |
| | (200 | ) | | 1,251,666 |
| | 1,666 |
| | 625,428 |
| | 2,180 |
| | (127 | ) | | 629,147 |
|
Operating Income (Loss) | | (3,763 | ) | | 135,170 |
| | (2,214 | ) | | — |
| | 129,193 |
| | (1,666 | ) | | 37,984 |
| | (53 | ) | | — |
| | 36,265 |
|
Nonoperating Income (Expense): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Undistributed net income of subsidiaries | | 110,909 |
| | — |
| | — |
| | (110,909 | ) | | — |
| | 29,810 |
| | — |
| | — |
| | (29,810 | ) | | — |
|
Interest expense and amortization of debt discounts and issuance costs | | (3 | ) | | (16,134 | ) | | (45 | ) | | — |
| | (16,182 | ) | | — |
| | (8,555 | ) | | — |
| | — |
| | (8,555 | ) |
Interest income | | 116 |
| | 3,289 |
| | — |
| | — |
| | 3,405 |
| | 65 |
| | 1,409 |
| | — |
| | — |
| | 1,474 |
|
Capitalized interest | | — |
| | 4,593 |
| | — |
| | — |
| | 4,593 |
| | — |
| | 2,238 |
| | — |
| | — |
| | 2,238 |
|
Gains on fuel derivatives | | — |
| | 23,569 |
| | — |
| | — |
| | 23,569 |
| | — |
| | 4,617 |
| | — |
| | — |
| | 4,617 |
|
Other, net | | (4 | ) | | (1,697 | ) | | 5 |
| | — |
| | (1,696 | ) | | (4 | ) | | 1,055 |
| | 5 |
| | — |
| | 1,056 |
|
Total | | 111,018 |
| | 13,620 |
| | (40 | ) | | (110,909 | ) | | 13,689 |
| | 29,871 |
| | 764 |
| | 5 |
| | (29,810 | ) | | 830 |
|
Income (Loss) Before Income Taxes | | 107,255 |
| | 148,790 |
| | (2,254 | ) | | (110,909 | ) | | 142,882 |
| | 28,205 |
| | 38,748 |
| | (48 | ) | | (29,810 | ) | | 37,095 |
|
Income tax expense (benefit) | | (767 | ) | | 36,101 |
| | (474 | ) | | — |
| | 34,860 |
| | (337 | ) | | 8,900 |
| | (10 | ) | | — |
| | 8,553 |
|
Net Income (Loss) | | $ | 108,022 |
| | $ | 112,689 |
| | $ | (1,780 | ) | | $ | (110,909 | ) | | $ | 108,022 |
| | $ | 28,542 |
| | $ | 29,848 |
| | $ | (38 | ) | | $ | (29,810 | ) | | $ | 28,542 |
|
Comprehensive Income (Loss) | | $ | 110,775 |
| | $ | 115,442 |
| | $ | (1,780 | ) | | $ | (113,662 | ) | | $ | 110,775 |
| | $ | 21,351 |
| | $ | 22,657 |
| | $ | (38 | ) | | $ | (22,619 | ) | | $ | 21,351 |
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Six months ended June 30, 2017 (a)
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
Operating Revenue | | $ | — |
| | $ | 1,272,954 |
| | $ | 3,583 |
| | $ | (212 | ) | | $ | 1,276,325 |
|
Operating Expenses: | | |
| | |
| | |
| | |
| | |
|
Aircraft fuel, including taxes and delivery | | — |
| | 206,312 |
| | — |
| | — |
| | 206,312 |
|
Wages and benefits | | — |
| | 305,713 |
| | — |
| | — |
| | 305,713 |
|
Aircraft rent | | — |
| | 67,318 |
| | 370 |
| | — |
| | 67,688 |
|
Maintenance materials and repairs | | — |
| | 109,430 |
| | 2,540 |
| | — |
| | 111,970 |
|
Aircraft and passenger servicing | | — |
| | 69,926 |
| | — |
| | — |
| | 69,926 |
|
Commissions and other selling | | 24 |
| | 61,814 |
| | 38 |
| | (72 | ) | | 61,804 |
|
Depreciation and amortization | | — |
| | 53,436 |
| | 1,904 |
| | — |
| | 55,340 |
|
Other rentals and landing fees | | — |
| | 55,774 |
| | — |
| | — |
| | 55,774 |
|
Purchased services | | 283 |
| | 54,000 |
| | 439 |
| | (30 | ) | | 54,692 |
|
Special items | | — |
| | 23,450 |
| | — |
| | — |
| | 23,450 |
|
Other | | 2,460 |
| | 61,454 |
| | 982 |
| | (110 | ) | | 64,786 |
|
Total | | 2,767 |
| | 1,068,627 |
| | 6,273 |
| | (212 | ) | | 1,077,455 |
|
Operating Income (Loss) | | (2,767 | ) | | 204,327 |
| | (2,690 | ) | | — |
| | 198,870 |
|
Nonoperating Income (Expense): | | |
| | |
| | |
| | |
| | |
|
Undistributed net income of subsidiaries | | 111,306 |
| | — |
| | — |
| | (111,306 | ) | | — |
|
Interest expense and amortization of debt discounts and issuance costs | | — |
| | (15,714 | ) | | — |
| | — |
| | (15,714 | ) |
Interest income | | 140 |
| | 2,479 |
| | — |
| | — |
| | 2,619 |
|
Capitalized interest | | — |
| | 3,842 |
| | — |
| | — |
| | 3,842 |
|
Losses on fuel derivatives | | — |
| | (13,510 | ) | | — |
| | — |
| | (13,510 | ) |
Other, net | | — |
| | (6,240 | ) | | — |
| | — |
| | (6,240 | ) |
Total | | 111,446 |
| | (29,143 | ) | | — |
| | (111,306 | ) | | (29,003 | ) |
Income (Loss) Before Income Taxes | | 108,679 |
| | 175,184 |
| | (2,690 | ) | | (111,306 | ) | | 169,867 |
|
Income tax expense (benefit) | | (1,860 | ) | | 61,187 |
| | — |
| | — |
| | 59,327 |
|
Net Income (Loss) | | $ | 110,539 |
| | $ | 113,997 |
| | $ | (2,690 | ) | | $ | (111,306 | ) | | $ | 110,540 |
|
Comprehensive Income (Loss) | | $ | 107,680 |
| | $ | 111,136 |
| | $ | (2,690 | ) | | $ | (108,446 | ) | | $ | 107,680 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to Consolidated Financial Statements contained in Part I, Item 1 of this report for additional information.
Condensed Consolidating Balance Sheets
June 30, 2018March 31, 2019
| | | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) | | (in thousands) |
ASSETS | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Current assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 19,918 |
| | $ | 306,679 |
| | $ | 7,194 |
| | $ | — |
| | $ | 333,791 |
| | $ | 4,257 |
| | $ | 352,136 |
| | $ | 8,707 |
| | $ | — |
| | $ | 365,100 |
|
Restricted cash | | — |
| | 1,000 |
| | — |
| | — |
| | 1,000 |
| |
Short-term investments | | — |
| | 259,313 |
| | — |
| | — |
| | 259,313 |
| | — |
| | 166,817 |
| | — |
| | — |
| | 166,817 |
|
Accounts receivable, net | | 25 |
| | 110,932 |
| | 784 |
| | (248 | ) | | 111,493 |
| | — |
| | 109,685 |
| | 1,290 |
| | (317 | ) | | 110,658 |
|
Spare parts and supplies, net | | — |
| | 36,387 |
| | — |
| | — |
| | 36,387 |
| | — |
| | 36,461 |
| | — |
| | — |
| | 36,461 |
|
Prepaid expenses and other | | 181 |
| | 99,056 |
| | 78 |
| | — |
| | 99,315 |
| | 301 |
| | 60,022 |
| | 230 |
| | — |
| | 60,553 |
|
Total | | 20,124 |
| | 813,367 |
| | 8,056 |
| | (248 | ) | | 841,299 |
| | 4,558 |
| | 725,121 |
| | 10,227 |
| | (317 | ) | | 739,589 |
|
Property and equipment at cost | | — |
| | 2,610,253 |
| | 88,344 |
| | — |
| | 2,698,597 |
| | — |
| | 2,698,634 |
| | 89,651 |
| | — |
| | 2,788,285 |
|
Less accumulated depreciation and amortization | | — |
| | (598,700 | ) | | (12,942 | ) | | — |
| | (611,642 | ) | | — |
| | (661,647 | ) | | (16,781 | ) | | — |
| | (678,428 | ) |
Property and equipment, net | | — |
| | 2,011,553 |
| | 75,402 |
| | — |
| | 2,086,955 |
| | — |
| | 2,036,987 |
| | 72,870 |
| | — |
| | 2,109,857 |
|
Operating lease right-of-use assets | | | — |
| | 613,103 |
| | — |
| | — |
| | 613,103 |
|
Long-term prepayments and other | | — |
| | 183,013 |
| | 263 |
| | — |
| | 183,276 |
| | — |
| | 170,709 |
| | 304 |
| | — |
| | 171,013 |
|
Deferred tax assets, net | | 33,086 |
| | — |
| | — |
| | (33,086 | ) | | — |
| |
Goodwill and other intangible assets, net | | — |
| | 120,407 |
| | 924 |
| | — |
| | 121,331 |
| | — |
| | 119,975 |
| | 577 |
| | — |
| | 120,552 |
|
Intercompany receivable | | — |
| | 405,270 |
| | — |
| | (405,270 | ) | | — |
| | — |
| | 478,365 |
| | — |
| | (478,365 | ) | | — |
|
Investment in consolidated subsidiaries | | 1,261,977 |
| | — |
| | — |
| | (1,261,977 | ) | | — |
| | 1,438,210 |
| | — |
| | 504 |
| | (1,438,714 | ) | | — |
|
TOTAL ASSETS | | $ | 1,315,187 |
| | $ | 3,533,610 |
| | $ | 84,645 |
| | $ | (1,700,581 | ) | | $ | 3,232,861 |
| | $ | 1,442,768 |
| | $ | 4,144,260 |
| | $ | 84,482 |
| | $ | (1,917,396 | ) | | $ | 3,754,114 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Current liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Accounts payable | | $ | 1,178 |
| | $ | 150,294 |
| | $ | 2,038 |
| | $ | (248 | ) | | $ | 153,262 |
| | $ | 776 |
| | $ | 142,417 |
| | $ | 2,191 |
| | $ | (317 | ) | | $ | 145,067 |
|
Air traffic liability | | — |
| | 707,724 |
| | 4,345 |
| | — |
| | 712,069 |
| | — |
| | 686,165 |
| | 4,845 |
| | — |
| | 691,010 |
|
Other accrued liabilities | | — |
| | 143,728 |
| | 275 |
| | — |
| | 144,003 |
| | — |
| | 130,452 |
| | 294 |
| | — |
| | 130,746 |
|
Current maturities of long-term debt, less discount, and capital lease obligations | | — |
| | 113,496 |
| | 30 |
| | — |
| | 113,526 |
| |
Current maturities of long-term debt, less discount, and finance lease obligations | | | — |
| | 93,479 |
| | 4 |
| | — |
| | 93,483 |
|
Current maturities of operating leases | | | — |
| | 90,481 |
| | — |
| | — |
| | 90,481 |
|
Total | | 1,178 |
| | 1,115,242 |
| | 6,688 |
| | (248 | ) | | 1,122,860 |
| | 776 |
| | 1,142,994 |
| | 7,334 |
| | (317 | ) | | 1,150,787 |
|
Long-term debt and capital lease obligations | | — |
| | 573,831 |
| | 4,622 |
| | — |
| | 578,453 |
| |
Long-term debt and finance lease obligations | | | — |
| | 519,105 |
| | — |
| | — |
| | 519,105 |
|
Intercompany payable | | 393,962 |
| | — |
| | 11,308 |
| | (405,270 | ) | | — |
| | 466,932 |
| | — |
| | 11,433 |
| | (478,365 | ) | | — |
|
Other liabilities and deferred credits: | | |
| | |
| | |
| | |
| | =sum(C32:I32) |
| | |
| | |
| | |
| | |
| | |
Noncurrent operating leases | | | — |
| | 480,979 |
| | — |
| | — |
| | 480,979 |
|
Accumulated pension and other post-retirement benefit obligations | | — |
| | 218,426 |
| | — |
| | — |
| | 218,426 |
| | — |
| | 180,232 |
| | — |
| | — |
| | 180,232 |
|
Other liabilities and deferred credits | | — |
| | 256,798 |
| | 1,113 |
| | — |
| | 257,911 |
| | — |
| | 106,377 |
| | 1,120 |
| | — |
| | 107,497 |
|
Noncurrent frequent flyer deferred revenue | | | — |
| | 170,149 |
| | — |
| | — |
| | 170,149 |
|
Deferred tax liabilities, net | | — |
| | 168,250 |
| | — |
| | (33,086 | ) | | 135,164 |
| | — |
| | 170,305 |
| | — |
| | — |
| | 170,305 |
|
Total | | — |
| | 643,474 |
| | 1,113 |
| | (33,086 | ) | | 611,501 |
| | — |
| | 1,108,042 |
| | 1,120 |
| | — |
| | 1,109,162 |
|
Shareholders’ equity | | 920,047 |
| | 1,201,063 |
| | 60,914 |
| | (1,261,977 | ) | | 920,047 |
| | 975,060 |
| | 1,374,119 |
| | 64,595 |
| | (1,438,714 | ) | | 975,060 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,315,187 |
| | $ | 3,533,610 |
| | $ | 84,645 |
| | $ | (1,700,581 | ) | | $ | 3,232,861 |
| | $ | 1,442,768 |
| | $ | 4,144,260 |
| | $ | 84,482 |
| | $ | (1,917,396 | ) | | $ | 3,754,114 |
|
Condensed Consolidating Balance Sheets
December 31, 2017 (a)2018
|
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
ASSETS | | | | |
| | |
| | |
| | |
|
Current assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 57,405 |
| | $ | 125,861 |
| | $ | 7,687 |
| | $ | — |
| | $ | 190,953 |
|
Restricted cash | | — |
| | 1,000 |
| | — |
| | — |
| | 1,000 |
|
Short-term investments | | — |
| | 269,297 |
| | — |
| | — |
| | 269,297 |
|
Accounts receivable, net | | 25 |
| | 139,008 |
| | 1,455 |
| | (209 | ) | | 140,279 |
|
Spare parts and supplies, net | | — |
| | 35,361 |
| | — |
| | — |
| | 35,361 |
|
Prepaid expenses and other | | 171 |
| | 78,933 |
| | 82 |
| | — |
| | 79,186 |
|
Total | | 57,601 |
| | 649,460 |
| | 9,224 |
| | (209 | ) | | 716,076 |
|
Property and equipment at cost | | — |
| | 2,326,249 |
| | 74,562 |
| | — |
| | 2,400,811 |
|
Less accumulated depreciation and amortization | | — |
| | (546,831 | ) | | (11,717 | ) | | — |
| | (558,548 | ) |
Property and equipment, net | | — |
| | 1,779,418 |
| | 62,845 |
| | — |
| | 1,842,263 |
|
Long-term prepayments and other | | — |
| | 193,449 |
| | 183 |
| | — |
| | 193,632 |
|
Deferred tax assets, net | | 31,845 |
| | — |
| | — |
| | (31,845 | ) | | — |
|
Goodwill and other intangible assets, net | | — |
| | 120,695 |
| | 1,155 |
| | — |
| | 121,850 |
|
Intercompany receivable | | — |
| | 392,791 |
| | — |
| | (392,791 | ) | | — |
|
Investment in consolidated subsidiaries | | 1,137,941 |
| | — |
| | — |
| | (1,137,941 | ) | | — |
|
TOTAL ASSETS | | $ | 1,227,387 |
| | $ | 3,135,813 |
| | $ | 73,407 |
| | $ | (1,562,786 | ) | | $ | 2,873,821 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | |
| | |
| | |
| | |
|
Current liabilities: | | |
| | |
| | |
| | |
| | |
|
Accounts payable | | $ | 622 |
| | $ | 138,818 |
| | $ | 1,574 |
| | $ | (209 | ) | | $ | 140,805 |
|
Air traffic liability | | — |
| | 584,366 |
| | 4,727 |
| | — |
| | 589,093 |
|
Other accrued liabilities | | 32 |
| | 147,211 |
| | 350 |
| | — |
| | 147,593 |
|
Current maturities of long-term debt, less discount, and capital lease obligations | | — |
| | 59,470 |
| | — |
| | — |
| | 59,470 |
|
Total | | 654 |
| | 929,865 |
| | 6,651 |
| | (209 | ) | | 936,961 |
|
Long-term debt and capital lease obligations | | — |
| | 511,201 |
| | — |
| | — |
| | 511,201 |
|
Intercompany payable | | 381,608 |
| | — |
| | 11,183 |
| | (392,791 | ) | | — |
|
Other liabilities and deferred credits: | | |
| | |
| | |
| | |
| | 0 |
|
Accumulated pension and other post-retirement benefit obligations | | — |
| | 220,788 |
| | — |
| | — |
| | 220,788 |
|
Other liabilities and deferred credits | | — |
| | 224,500 |
| | 1,105 |
| | — |
| | 225,605 |
|
Deferred tax liabilities, net | | — |
| | 165,986 |
| | — |
| | (31,845 | ) | | 134,141 |
|
Total | | — |
| | 611,274 |
| | 1,105 |
| | (31,845 | ) | | 580,534 |
|
Shareholders’ equity | | 845,125 |
| | 1,083,473 |
| | 54,468 |
| | (1,137,941 | ) | | 845,125 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,227,387 |
| | $ | 3,135,813 |
| | $ | 73,407 |
| | $ | (1,562,786 | ) | | $ | 2,873,821 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to Consolidated Financial Statements contained in Part I, Item 1 of this report for additional information. |
| | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
ASSETS | | | | |
| | |
| | |
| | |
|
Current assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 5,154 |
| | $ | 255,279 |
| | $ | 8,144 |
| | $ | — |
| | $ | 268,577 |
|
Short-term investments | | — |
| | 232,241 |
| | — |
| | — |
| | 232,241 |
|
Accounts receivable, net | | — |
| | 109,499 |
| | 2,569 |
| | (234 | ) | | 111,834 |
|
Spare parts and supplies, net | | — |
| | 33,942 |
| | — |
| | — |
| | 33,942 |
|
Prepaid expenses and other | | 165 |
| | 58,296 |
| | 112 |
| | — |
| | 58,573 |
|
Total | | 5,319 |
| | 689,257 |
| | 10,825 |
| | (234 | ) | | 705,167 |
|
Property and equipment at cost | | — |
| | 2,756,551 |
| | 92,021 |
| | — |
| | 2,848,572 |
|
Less accumulated depreciation and amortization | | — |
| | (648,111 | ) | | (15,350 | ) | | — |
| | (663,461 | ) |
Property and equipment, net | | — |
| | 2,108,440 |
| | 76,671 |
| | — |
| | 2,185,111 |
|
Long-term prepayments and other | | 62,990 |
| | 185,161 |
| | 899 |
| | (63,494 | ) | | 185,556 |
|
Goodwill and other intangible assets, net | | — |
| | 120,119 |
| | 693 |
| | — |
| | 120,812 |
|
Intercompany receivable | | — |
| | 456,338 |
| | — |
| | (456,338 | ) | | — |
|
Investment in consolidated subsidiaries | | 1,325,380 |
| | — |
| | — |
| | (1,325,380 | ) | | — |
|
TOTAL ASSETS | | $ | 1,393,689 |
| | $ | 3,559,315 |
| | $ | 89,088 |
| | $ | (1,845,446 | ) | | $ | 3,196,646 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | |
| | |
| | |
| | |
|
Current liabilities: | | |
| | |
| | |
| | |
| | |
|
Accounts payable | | $ | 665 |
| | $ | 139,552 |
| | $ | 3,163 |
| | $ | (234 | ) | | $ | 143,146 |
|
Air traffic liability | | — |
| | 598,387 |
| | 5,349 |
| | — |
| | 603,736 |
|
Other accrued liabilities | | — |
| | 157,842 |
| | 312 |
| | — |
| | 158,154 |
|
Current maturities of long-term debt, less discount, and finance lease obligations | | — |
| | 101,052 |
| | 45 |
| | — |
| | 101,097 |
|
Total | | 665 |
| | 996,833 |
| | 8,869 |
| | (234 | ) | | 1,006,133 |
|
Long-term debt and finance lease obligations | | — |
| | 604,089 |
| | 4,595 |
| | — |
| | 608,684 |
|
Intercompany payable | | 445,030 |
| | — |
| | 11,308 |
| | (456,338 | ) | | — |
|
Other liabilities and deferred credits: | | |
| | |
| | |
| | |
| | 0 |
|
Accumulated pension and other post-retirement benefit obligations | | — |
| | 182,620 |
| | — |
| | — |
| | 182,620 |
|
Other liabilities and deferred credits | | — |
| | 118,682 |
| | 1,144 |
| | — |
| | 119,826 |
|
Noncurrent frequent flyer deferred revenue | | — |
| | 163,619 |
| | — |
| | — |
| | 163,619 |
|
Deferred tax liabilities, net | | — |
| | 167,770 |
| | — |
| | — |
| | 167,770 |
|
Total | | — |
| | 632,691 |
| | 1,144 |
| | — |
| | 633,835 |
|
Shareholders’ equity | | 947,994 |
| | 1,325,702 |
| | 63,172 |
| | (1,388,874 | ) | | 947,994 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,393,689 |
| | $ | 3,559,315 |
| | $ | 89,088 |
| | $ | (1,845,446 | ) | | $ | 3,196,646 |
|
Condensed Consolidating Statements of Cash Flows
SixThree months ended June 30, 2018March 31, 2019
| | | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) | | (in thousands) |
Net Cash Provided By (Used In) Operating Activities | | $ | (2,603 | ) | | $ | 375,052 |
| | $ | 1,312 |
| | $ | — |
| | $ | 373,761 |
| | $ | (670 | ) | | $ | 152,752 |
| | $ | (1,402 | ) | | $ | — |
| | $ | 150,680 |
|
Cash Flows From Investing Activities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Net payments to affiliates | | (8,700 | ) | | (8,721 | ) | | — |
| | 17,421 |
| | — |
| | (4,250 | ) | | (20,920 | ) | | — |
| | 25,170 |
| | — |
|
Additions to property and equipment, including pre-delivery deposits | | — |
| | (247,607 | ) | | (10,505 | ) | | — |
| | (258,112 | ) | | — |
| | (71,978 | ) | | (2,283 | ) | | — |
| | (74,261 | ) |
Proceeds from disposition of property and equipment | | — |
| | 987 |
| | — |
| | — |
| | 987 |
| |
Proceeds from the sale and sale leaseback of aircraft and aircraft related equipment | | | — |
| | 2,780 |
| | — |
| | — |
| | 2,780 |
|
Purchases of investments | | — |
| | (110,092 | ) | | — |
| | — |
| | (110,092 | ) | | — |
| | (71,454 | ) | | — |
| | — |
| | (71,454 | ) |
Sales of investments | | — |
| | 119,236 |
| | — |
| | — |
| | 119,236 |
| | — |
| | 137,286 |
| | — |
| | — |
| | 137,286 |
|
Other | | | — |
| | (6,275 | ) | | — |
| | — |
| | (6,275 | ) |
Net cash used in investing activities | | (8,700 | ) | | (246,197 | ) | | (10,505 | ) | | 17,421 |
| | (247,981 | ) | | (4,250 | ) | | (30,561 | ) | | (2,283 | ) | | 25,170 |
| | (11,924 | ) |
Cash Flows From Financing Activities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Long-term borrowings | | — |
| | 86,500 |
| | — |
| | — |
| | 86,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Repayments of long-term debt and capital lease obligations | | — |
| | (30,047 | ) | | — |
| | — |
| | (30,047 | ) | |
Repayments of long-term debt and finance lease obligations | | | — |
| | (24,352 | ) | | (2 | ) | | — |
| | (24,354 | ) |
Debt issuance costs | | — |
| | (889 | ) | | — |
| | — |
| | (889 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Dividend payments | | (12,238 | ) | | — |
| | — |
| | — |
| | (12,238 | ) | | (5,811 | ) | | — |
| | — |
| | — |
| | (5,811 | ) |
Net payments from affiliates | | 8,721 |
| | — |
| | 8,700 |
| | (17,421 | ) | | — |
| | 20,920 |
| | — |
| | 4,250 |
| | (25,170 | ) | | — |
|
Repurchases of common stock | | (22,745 | ) | | — |
| | — |
| | — |
| | (22,745 | ) | | (11,086 | ) | | — |
| | — |
| | — |
| | (11,086 | ) |
Other | | 78 |
| | (3,601 | ) | | — |
| | — |
| | (3,523 | ) | | — |
| | (982 | ) | | — |
| | — |
| | (982 | ) |
Net cash provided by (used in) financing activities | | (26,184 | ) | | 51,963 |
| | 8,700 |
| | (17,421 | ) | | 17,058 |
| | 4,023 |
| | (25,334 | ) | | 4,248 |
| | (25,170 | ) | | (42,233 | ) |
Net increase (decrease) in cash and cash equivalents | | (37,487 | ) | | 180,818 |
| | (493 | ) | | — |
| | 142,838 |
| | (897 | ) | | 96,857 |
| | 563 |
| | — |
| | 96,523 |
|
Cash, cash equivalents, & restricted cash - Beginning of Period | | 57,405 |
| | 126,861 |
| | 7,687 |
| | — |
| | 191,953 |
| | 5,154 |
| | 255,279 |
| | 8,144 |
| | — |
| | 268,577 |
|
Cash, cash equivalents, & restricted cash - End of Period | | $ | 19,918 |
| | $ | 307,679 |
| | $ | 7,194 |
| | $ | — |
| | $ | 334,791 |
| | $ | 4,257 |
| | $ | 352,136 |
| | $ | 8,707 |
| | $ | — |
| | $ | 365,100 |
|
Condensed Consolidating Statements of Cash Flows
SixThree months ended June 30, 2017March 31, 2018
| | | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | | Parent Issuer / Guarantor | | Subsidiary Issuer / Guarantor | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) | | (in thousands) |
Net Cash Provided By (Used In) Operating Activities | | $ | (2,498 | ) | | $ | 339,242 |
| | $ | (1,304 | ) | | $ | — |
| | $ | 335,440 |
| | $ | (931 | ) | | $ | 224,935 |
| | $ | 1,541 |
| | $ | — |
| | $ | 225,545 |
|
Cash Flows From Investing Activities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Net payments to affiliates | | — |
| | (7,960 | ) | | — |
| | 7,960 |
| | — |
| | (6,500 | ) | | (6,000 | ) | | — |
| | 12,500 |
| | — |
|
Additions to property and equipment, including pre-delivery deposits | | — |
| | (94,250 | ) | | (2,028 | ) | | — |
| | (96,278 | ) | | — |
| | (102,595 | ) | | (8,302 | ) | | — |
| | (110,897 | ) |
Proceeds from disposition of property and equipment | | — |
| | 33,511 |
| | — |
| | — |
| | 33,511 |
| |
Purchases of investments | | — |
| | (107,533 | ) | | — |
| | — |
| | (107,533 | ) | | — |
| | (30,386 | ) | | — |
| | — |
| | (30,386 | ) |
Sales of investments | | — |
| | 125,881 |
| | — |
| | — |
| | 125,881 |
| | — |
| | 53,984 |
| | — |
| | — |
| | 53,984 |
|
Net cash used in investing activities | | — |
| | (50,351 | ) | | (2,028 | ) | | 7,960 |
| | (44,419 | ) | | (6,500 | ) | | (84,997 | ) | | (8,302 | ) | | 12,500 |
| | (87,299 | ) |
Cash Flows From Financing Activities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Repayments of long-term debt and capital lease obligations | | — |
| | (30,484 | ) | | — |
| | — |
| | (30,484 | ) | |
Repayments of long-term debt and finance lease obligations | | | — |
| | (20,395 | ) | | — |
| | — |
| | (20,395 | ) |
Dividend payments | | | (6,145 | ) | | — |
| | — |
| | — |
| | (6,145 | ) |
Net payments from affiliates | | 7,960 |
| | — |
| | — |
| | (7,960 | ) | | — |
| | 6,000 |
| | — |
| | 6,500 |
| | (12,500 | ) | | — |
|
Repurchases of Common Stock | | (4,299 | ) | | — |
| | — |
| | — |
| | (4,299 | ) | | (20,243 | ) | | — |
| | — |
| | — |
| | (20,243 | ) |
Other | | 86 |
| | (7,621 | ) | | — |
| | — |
| | (7,535 | ) | | 78 |
| | (3,309 | ) | | — |
| | — |
| | (3,231 | ) |
Net cash provided by (used in) financing activities | | 3,747 |
| | (38,105 | ) | | — |
| | (7,960 | ) | | (42,318 | ) | | (20,310 | ) | | (23,704 | ) | | 6,500 |
| | (12,500 | ) | | (50,014 | ) |
Net increase (decrease) in cash and cash equivalents | | 1,249 |
| | 250,786 |
| | (3,332 | ) | | — |
| | 248,703 |
| | (27,741 | ) | | 116,234 |
| | (261 | ) | | — |
| | 88,232 |
|
Cash, cash equivalents, & restricted cash - Beginning of Period | | 67,629 |
| | 254,985 |
| | 8,377 |
| | — |
| | 330,991 |
| | 57,405 |
| | 126,861 |
| | 7,687 |
| | — |
| | 191,953 |
|
Cash, cash equivalents, & restricted cash - End of Period | | $ | 68,878 |
| | $ | 505,771 |
| | $ | 5,045 |
| | $ | — |
| | $ | 579,694 |
| | $ | 29,664 |
| | $ | 243,095 |
| | $ | 7,426 |
| | $ | — |
| | $ | 280,185 |
|
Income Taxes
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. Such forward-looking statements include, without limitation, statements related to our financial statements and results of operations; any expectations of operating expenses, deferred revenue, interest rates, tax rates, income taxes, deferred tax assets, valuation allowances or other financial items; expectations regarding industry capacity, our operating performance, available seat miles, operating revenue per available seat mile and operating cost per available seat mile for the thirdsecond quarter of 2018;2019; our expected fleet as of June 30, 2019;March 31, 2020; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; the availability of financing; statements regarding our intention to pay quarterly dividends and the amounts thereof, if any; statements regarding our ability and intention to repurchase our shares; changes in our fleet plan and related cash outlays; committed capital expenditures; expected cash payments related to our post-retirement plan obligations; estimated financial charges; expected delivery of new aircraft;aircraft and engines; the impact of accounting standards on our financial statements; the effects of any litigation on our operations or business; the effects of our fuel and currency risk hedging policies; the fair value and expected maturity of our debt obligations; our estimated contractual obligations; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Words such as “expects,” “anticipates,” “projects,” “intends,” “plans,” “believes,” “estimates,” “could,” “may,” 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 our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.
Factors that could affect such forward-looking statements include, but are not limited to: our ability to accurately forecast quarterly and annual results; global economic volatility; macroeconomic developments; political developments; our dependence on the tourism industry; the price and availability of fuel; foreign currency exchange rate fluctuations; our competitive environment,pressures, including the potential impact of increasing industry capacity between North America and Hawai’i;
fluctuations in demand for transportation in the markets in which we operate;operate, including due to the occurrence of natural disasters, such as hurricanes, earthquakes and tsunamis; maintenance of privacy and security of customer-related information and compliance with applicable federal and foreign privacy or data security regulations or standards; our dependence on technology and automated systems; our reliance on third-party contractors; satisfactory labor relations; our ability to attract and retain qualified personnel and key executives; successful implementation of growth strategy and cost reduction goals; adverse publicity; risks related to the airline industry; our ability to obtain and maintain adequate facilities and infrastructure; seasonal and cyclical volatility; the effect of applicable state, federal and foreign laws and regulations; increases in insurance costs or reductions in coverage; the limited number of suppliers for aircraft, aircraft engines and parts; our existing aircraft purchase agreements; delays in aircraft or engine deliveries or other loss of fleet capacity; our ability to continue to generate sufficient cash flow to support the payment of a quarterly dividend; changes in our future capital needs; fluctuations in our share price; our financial liquidity; and our financial liquidity.ability to implement our growth strategy. The risks, uncertainties, and assumptions referred to above that could cause our 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 our public filings and public announcements, including, but not limited to, our risk factors set out in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018. All forward-looking statements included in this Report are based on information available to us as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this quarterly report. The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Our Business
We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the “Neighbor Island”Neighbor Island routes), between the Hawaiian Islands and certain cities in the U.S. mainland (the “North America”North America routes and collectively with the Neighbor Island routes, referred to as our “Domestic”Domestic routes), and between the Hawaiian Islands and the South Pacific, Australia, and Asia (the “International”International routes), collectively referred to as our “Scheduled Operations.” In addition, we operate various charter flights. We are the largest airline headquartered in the State of Hawai‘i and the tenth largest domestic airline in the United States based on revenue passenger miles reported by the Research and Innovative Technology Administration Bureau of Transportation Statistics for the month of April 2018,January 2019, the latest available data. As of June 30, 2018March 31, 2019, we had 7,1427,299 active employees.
General information about us is available at https://www.hawaiianairlines.com. Information contained on our website is not incorporated by reference into, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q unless expressly noted. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any
amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission.
Financial Highlights
GAAP net income in the secondfirst quarter of $79.5$36.4 million, or $1.56$0.75 per diluted share.
Adjusted net income in the secondfirst quarter of $73.3$32.6 million, or $1.44$0.67 per diluted share.
Pre-tax margin for the secondfirst quarter of 14.8%7.5%.
Unrestricted cash and cash equivalents and short-term investments of $593.1$531.9 million.
See “Results of Operations” below for further discussion of changes in revenue and operating expense. See “Non-GAAP Financial Measures” below for our reconciliation of non-GAAP measures.
Outlook
Looking ahead, industry capacity increases in North America and certain parts of our InternationalDomestic network areis expected to continue through the third quarter of 2018.remain at historically high levels in 2019. We expect our available seat miles during the three months ending SeptemberJune 30, 20182019 to increase by 7.5%1.5% to 9.5% from3.5% compared to the prior year period, while we expectperiod. While demand for travel to Hawai'i remains robust, the competitive environment results in our expectation of operating revenue per available seat mile to be down 1.5%decline 2.0% to up 1.5%.5.0% as compared to the same period in 2018. We expect operating cost per available seat mile during the three months ending SeptemberJune 30, 20182019 to increase by 6.8%be down 2.2% to 10.3%up 0.3% compared to the prior year period. For the twelve-month period ending December 31, 2019, we expect operating cost per available seat mile to be down 0.7% to up 2.9%.
For the three-months ending June 30, 2019, we expect our corporate federal tax rate will result in an all-in book tax rate ranging between 25% to 27%.
Partnerships
Together with Japan Airlines, we filed an application in 2018 with the U.S. Department of Transportation (DOT) and Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLIT) seeking antitrust immunity (ATI) to create a joint venture that promises significant consumer benefits and the opportunity for service expansion. We enhanced our comprehensive partnership with Japan Airlines with the announcement of reciprocal frequent flyer benefits for HawaiianMiles and JAL Mileage Bank members, which became effective in October 2018. The joint venture will build upon the board codeshare partnership the two carriers initiatedand enhanced program was launched in March 2018.2018 with codeshare flights between Japan and Hawai'i. In April 2019, The Company received notification from the DOT that its ATI application was deemed substantially completed; however, we have not yet received approval, and we do not anticipate operations commencing under the joint venture until late 2019 or early 2020.
Fleet Summary
In July 2018, we announced the execution of a purchaseentered into an agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft. We expect those aircraft to be delivered starting in 2021 and, thus, they are not reflected in the table below. The table below summarizes our total fleet as of June 30, 2017March 31, 2018 and 20182019, and expected fleet as of June 30, 2019March 31, 2020 (based on existing executed agreements):
| | | | June 30, 2017 | | June 30, 2018 | | June 30, 2019 | | March 31, 2018 | | March 31, 2019 | | March 31, 2020 |
Aircraft Type | | Leased (2) | | Owned | | Total | | Leased (2) | | Owned | | Total | | Leased (2) | | Owned | | Total | | Leased (2) | | Owned | | Total | | Leased (2) | | Owned | | Total | | Leased (2) | | Owned | | Total |
A330-200(1) | | 11 |
| | 12 |
| | 23 |
| | 11 |
| | 13 |
| | 24 |
| | 11 |
| | 13 |
| | 24 |
| | 11 |
| | 13 |
| | 24 |
| | 12 |
| | 12 |
| | 24 |
| | 12 |
| | 12 |
| | 24 |
|
A321neo | | — |
| | — |
| | — |
| | 1 |
| | 5 |
| | 6 |
| | 2 |
| | 12 |
| | 14 |
| | — |
| | 2 |
| | 2 |
| | 2 |
| | 10 |
| | 12 |
| | 2 |
| | 16 |
| | 18 |
|
767-300(5) | | 4 |
| | 4 |
| | 8 |
| | 4 |
| | 4 |
| | 8 |
| | — |
| | — |
| | — |
| | 4 |
| | 4 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
717-200 | | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
|
ATR 42-500 (1)(3) | | — |
| | 3 |
| | 3 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
| | 4 |
|
ATR 72-200 (3)(4) | | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
|
Total | | 20 |
| | 37 |
| | 57 |
| | 21 |
| | 44 |
| | 65 |
| | 18 |
| | 47 |
| | 65 |
| | 20 |
| | 40 |
| | 60 |
| | 19 |
| | 44 |
| | 63 |
| | 19 |
| | 50 |
| | 69 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | In July 2018, we entered into a sale and leaseback transaction for one of our A330-200 aircraft. |
| |
(2) | Leased aircraft include aircraft under both finance and operating leases. |
| |
(3) | The ATR 42-500 turboprop and ATR 72-200 turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly-owned subsidiary of the Company. |
| |
(2)(4) | LeasedAircraft are utilized for our cargo operations. |
| |
(5) | We completed the exit from our B767-300 aircraft include aircraft under both capital and operating leases.fleet in January 2019. |
(3) The ATR 72-200 turboprop aircraft are used for our cargo operations.
Results of Operations
For the three months ended June 30, 2018,March 31, 2019, we generated net income of $79.5$36.4 million, or $1.56$0.75 per diluted share, compared to net income of $76.9$28.5 million, or $1.43$0.56 per diluted share, for the same period in 2017. For the six months ended June 30, 2018, we generated net income of $108.0 million, or $2.12 per diluted share, compared to net income of $110.5 million, or $2.05 per diluted share, for the same period in 2017. During the first quarter of 2018, we extended our partnership with Barclaycard US, Hawaiian's co-branded credit card partner. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for our cardholders.2018.
Selected Consolidated Statistical Data (unaudited)
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (in thousands, except as otherwise indicated) | | (in thousands, except as otherwise indicated) |
Scheduled Operations (a) : | | |
| | |
| | |
| | |
| |
Scheduled Operations (a): | | | |
| | |
|
Revenue passengers flown | | 3,018 |
| | 2,885 |
| | 5,909 |
| | 5,588 |
| | 2,821 |
| | 2,891 |
|
Revenue passenger miles (RPM) | | 4,333,125 |
| | 4,099,122 |
| | 8,363,783 |
| | 7,896,847 |
| | 4,127,729 |
| | 4,030,657 |
|
Available seat miles (ASM) | | 5,019,962 |
| | 4,735,335 |
| | 9,751,275 |
| | 9,256,433 |
| | 4,850,723 |
| | 4,731,314 |
|
Passenger revenue per RPM (Yield) | |
| 15.12 | ¢ | |
| 15.22 | ¢ | |
| 15.15 | ¢ | |
| 15.04 | ¢ | |
| 14.57 | ¢ | |
| 15.17 | ¢ |
Passenger load factor (RPM/ASM) | | 86.3 | % | | 86.6 | % | | 85.8 | % | | 85.3 | % | | 85.1 | % | | 85.2 | % |
Passenger revenue per ASM (PRASM) | |
| 13.05 | ¢ | |
| 13.18 | ¢ | |
| 12.99 | ¢ | |
| 12.83 | ¢ | |
| 12.40 | ¢ | |
| 12.93 | ¢ |
Total Operations (a) : | | |
| | |
| | |
| | |
| | |
| | |
|
Revenue passengers flown | | 3,018 |
| | 2,886 |
| | 5,910 |
| | 5,590 |
| | 2,823 |
| | 2,892 |
|
RPM | | 4,333,178 |
| | 4,099,261 |
| | 8,363,961 |
| | 7,897,754 |
| | 4,128,485 |
| | 4,030,783 |
|
ASM | | 5,020,026 |
| | 4,735,491 |
| | 9,751,523 |
| | 9,257,844 |
| | 4,851,921 |
| | 4,731,498 |
|
Operating revenue per ASM (RASM) | |
| 14.25 | ¢ | |
| 14.15 | ¢ | |
| 14.16 | ¢ | |
| 13.79 | ¢ | |
| 13.54 | ¢ | |
| 14.06 | ¢ |
Operating cost per ASM (CASM) | |
| 12.40 | ¢ | |
| 11.26 | ¢ | |
| 12.84 | ¢ | |
| 11.64 | ¢ | |
| 12.45 | ¢ | |
| 13.30 | ¢ |
CASM excluding aircraft fuel, contract terminations expense, and special items (b) | |
| 9.35 | ¢ | |
| 8.99 | ¢ | |
| 9.54 | ¢ | |
| 9.16 | ¢ | |
CASM excluding aircraft fuel, loss on sale of aircraft, and contract terminations expense (b) | | |
| 9.87 | ¢ | |
| 9.73 | ¢ |
Aircraft fuel expense per ASM (c) | |
| 3.05 | ¢ | |
| 2.17 | ¢ | |
| 2.94 | ¢ | |
| 2.23 | ¢ | |
| 2.60 | ¢ | |
| 2.82 | ¢ |
Revenue block hours operated | | 51,477 |
| | 47,569 |
| | 100,223 |
| | 92,574 |
| | 51,627 |
| | 48,747 |
|
Gallons of aircraft fuel consumed | | 68,627 |
| | 64,506 |
| | 133,906 |
| | 126,244 |
| | 64,521 |
| | 65,279 |
|
Average cost per gallon of aircraft fuel (actual) (c) | | $ | 2.23 |
| | $ | 1.59 |
| | $ | 2.14 |
| | $ | 1.63 |
| | $ | 1.95 |
| | $ | 2.04 |
|
| |
(a) | Includes the operations of our contract carrier under a capacity purchase agreement. |
| |
(b) | Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See “Non-GAAP Financial Measures” below for a reconciliation of non-GAAP measures. |
| |
(c) | Includes applicable taxes and fees. |
Operating Revenue
During the three and six months ended June 30, 2018,March 31, 2019, operating revenue increaseddecreased by $45.3$8.7 million, or 6.8%1.3%, and $104.5 million, or 8.2%, respectively, as compared to the prior year periods,period, driven by increaseddecreased passenger revenue and is discussed further below:
Passenger revenue
For the three and six months ended June 30, 2018,March 31, 2019, passenger revenue increaseddecreased by $31.2$10.3 million, or 5.0%1.7%, and $79.0 million, or 6.7%, respectively, as compared to the prior year periods.period. Details of these changes are described in the table below:
| | | | Three months ended June 30, 2018 as compared to three months ended June 30, 2017 | | Six months ended June 30, 2018 as compared to six months ended June 30, 2017 | | Three months ended March 31, 2019 as compared to three months ended March 31, 2018 |
| | Change in scheduled passenger revenue | | Change in Yield | | Change in RPM | | Change in ASM | | Change in scheduled passenger revenue | | Change in Yield | | Change in RPM | | Change in ASM | | Change in scheduled passenger revenue | | Change in Yield | | Change in RPM | | Change in ASM |
| | (in millions) | | | | | | | | (in millions) | | | | | | | | (in millions) | | | | | | |
Domestic | | $ | 14.1 |
| | (3.4 | )% | | 6.5 | % | | 8.3 | % | | $ | 48.0 |
| | (1.2 | )% | | 6.6 | % | | 8.4 | % | | $ | (10.9 | ) | | (8.0 | )% | | 6.0 | % | | 5.0 | % |
International | | 17.1 |
| | 7.6 |
| | 4.0 |
| | 1.9 |
| | 31.0 |
| | 6.1 |
| | 4.6 |
| | — |
| | 0.6 |
| | 5.2 |
| | (4.6 | ) | | (2.2 | ) |
Total scheduled | | $ | 31.2 |
| | (0.7 | )% | | 5.7 | % | | 6.0 | % | | $ | 79.0 |
| | 0.7 | % | | 5.9 | % | | 5.3 | % | | $ | (10.3 | ) | | (4.0 | )% | | 2.4 | % | | 2.5 | % |
Domestic
For revenue decreased by $10.9 million driven primarily by a 2.3% decrease in total passengers flown and a 2.4% decline in average fares. The decline in passengers flown was attributed to capacity reductions on certain of our shorter haul routes, which outpaced growth on longer haul routes. Passenger yield declined as a result of reduced average fares on both our shorter haul and longer haul domestic routes, respectively, combined with a higher proportion of longer haul (typically lower yield) flying in the quarter ended March 31, 2019. International revenue increased $0.6 million during the three and six months ended June 30, 2018, revenue on our domestic routes increased by $14.1 million, or 2.9%, and $48.0 million, or 5.3%, respectively,March 31, 2019 as compared to the prior year periods. The increase was due to an increasesame period in overall passengers flown in our North America routes of 7.4% and 7.1% for the three and six months ended June 30, 2018, respectively, partially offset by a slight decrease in average fare prices. During the year2018.
In April 2019, we expanded our operations and now have direct routes that gocommenced our new five-times-a-week service between Maui, HawaiiHonolulu, Hawai'i and Portland, Oregon (January 2018), Kona, HawaiiBoston, Massachusetts and Los Angeles,our new daily service between Kahului, Hawai'i and Sacramento, California. During the first quarter of 2019, we announced the expansion of service between San Francisco, California (March 2018), Lihue, Hawaii and Los Angeles, California (May 2017), Honolulu, Hawaii and Long Beach, California (May 2018), and Maui, Hawaii and San Diego, California (June 2018).Hawai'i with additional daily flights commencing in October 2019.
InternationalIn January 2019, we completed the retirement of our B767 fleet and took delivery of one A321neo aircraft, bringing our total A321 fleet to twelve as of March 31, 2019. We expect to take delivery of an additional five A321neo aircraft during the remainder of 2019 and our eighteenth and final A321neo aircraft in early 2020.
ForOther Operating Revenue
Other operating revenue increased $1.6 million, or 3.0%, during the three and six months ended June 30, 2018, revenue on our international routes increased by $17.1 million, or 11.9%, and $31.0 million, or 10.9%, respectively,March 31, 2019, as compared to the prior year periods. Duringsame period in 2018, primarily generated through an increase in loyalty program revenue of $4.1 million related to brand usage associated with our co-brand credit card partnership with Barclays, which was amended in the three months ended June 30, 2018, the overall passengers flown increasedfirst quarter of 2018. This was offset by 4.1% and average fares increased by 8.0% as compared to the prior year period. During the six months ended June 30, 2018, the overall passengers flow increased by 4.5% and average fares increased by 7.8% as compared to the prior year period.decreases in other revenue, including our cargo operations.
Operating Expense
Operating expenses were $622.5$604.1 million and $533.3$629.1 million for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, and $1,251.7 million and $1,077.5 million for the six months ended June 30, 2018 and 2017, respectively. Increases (decreases) in operating expenses for the three and six months ended June 30, 2018,March 31, 2019, as compared to the prior year periods,period, are detailed below:
| | | | Increase / (decrease) for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 | | Increase / (decrease) for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 | | Increase / (decrease) for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 |
| | $ | | % | | $ | | % | | $ | | % |
Operating expenses | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Wages and benefits | | $ | 16,895 |
| | 10.9 | % | | $ | 34,551 |
| | 11.3 | % | | $ | 6,356 |
| | 3.8 | % |
Aircraft fuel, including taxes and delivery | | 50,252 |
| | 48.9 |
| | 80,160 |
| | 38.9 |
| | (7,342 | ) | | (5.5 | ) |
Maintenance, materials and repairs | | 8,404 |
| | 16.0 |
| | 7,141 |
| | 6.4 |
| | 4,904 |
| | 8.4 |
|
Aircraft and passenger servicing | | 2,990 |
| | 8.4 |
| | 5,218 |
| | 7.5 |
| | 2,382 |
| | 6.5 |
|
Commissions and other selling | | (309 | ) | | (1.0 | ) | | 1,974 |
| | 3.2 |
| | (1,089 | ) | | (3.4 | ) |
Aircraft rent | | (4,688 | ) | | (13.6 | ) | | (5,923 | ) | | (8.8 | ) | | (1,504 | ) | | (4.7 | ) |
Other rentals and landing fees | | 3,746 |
| | 13.7 |
| | 6,225 |
| | 11.2 |
| | 231 |
| | 0.7 |
|
Depreciation and amortization | | 5,047 |
| | 18.1 |
| | 9,824 |
| | 17.8 |
| | 5,906 |
| | 18.3 |
|
Purchased services | | 3,419 |
| | 12.2 |
| | 7,903 |
| | 14.5 |
| | 1,332 |
| | 4.3 |
|
Contract terminations expense | | — |
| | — |
| | 35,322 |
| | 100.0 |
| | (35,322 | ) | | (100.0 | ) |
Special items | | (4,771 | ) | | (100.0 | ) | | (23,450 | ) | | (100.0 | ) | |
Other | | 8,258 |
| | 25.2 |
| | 15,266 |
| | 23.6 |
| | (926 | ) | | (2.4 | ) |
Total | | $ | 89,243 |
| | 16.7 | % | | $ | 174,211 |
| | 16.2 | % | | $ | (25,072 | ) | | (4.0 | )% |
Wages and benefits
Wages and benefits expense increased by $16.9$6.4 million, or 10.9%, and $34.6 million, or 11.3%3.8%, for the three and six months ended June 30, 2018, respectivelyMarch 31, 2019 as compared to the prior year periods.period. The wagesincrease was a result of higher salary expense, driven by increased headcount and benefitsannual rate increases for our pilots increased by $8.6 million and $18.7 million, respectively for the three and six months ended June 30, 2018 due to an increase in pilot headcount related to the inductioncertain of our Airbus A321neo fleet. In addition, employee benefits expenses, which includes health insurance costs, increased by $3.9 million and $7.5 million for the three and six months ended June 30, 2018, respectively. We have also increased the number of flight crew personnel and training events which relate to the induction of our Airbus A321neo fleet. Overall employee headcount increased 12.4% from June 30, 2017 to June 30, 2018.collective bargaining groups.
Aircraft fuel
Aircraft fuel expense increaseddecreased during the three and six months ended June 30, 2018,March 31, 2019, as compared to the prior year period, primarily due to the increasea decrease in the average fuel price per gallon and an increasea decrease in consumption as illustrated in the following table:
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change |
| | (in thousands, except per-gallon amounts) | | | | (in thousands, except per-gallon amounts) | | | | (in thousands, except per-gallon amounts) | | |
Aircraft fuel expense, including taxes and delivery | | $ | 153,026 |
| | $ | 102,774 |
| | 48.9 | % | | $ | 286,472 |
| | $ | 206,312 |
| | 38.9 | % | | $ | 126,104 |
| | $ | 133,446 |
| | (5.5 | )% |
Fuel gallons consumed | | 68,627 |
| | 64,506 |
| | 6.4 | % | | 133,906 |
| | 126,244 |
| | 6.1 | % | | 64,521 |
| | 65,279 |
| | (1.2 | )% |
Average fuel price per gallon, including taxes and delivery | | $ | 2.23 |
| | $ | 1.59 |
| | 40.3 | % | | $ | 2.14 |
| | $ | 1.63 |
| | 31.3 | % | | $ | 1.95 |
| | $ | 2.04 |
| | (4.4 | )% |
We believe economic fuel expense is a good measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations in a period and is consistent with how our management manages our business and assesses our operating performance. We define economic fuel expense as raw fuel expense plus (gains)/losses realized through actual cash payments to/(receipts from) hedge counterparties for fuel derivatives settled in the period, inclusive of costs related to hedging premiums. Economic fuel expense is calculated as follows:
|
| | | | | | | | | | | |
| | Three months ended March 31, |
| | 2019 | | 2018 | | % Change |
| | (in thousands, except per-gallon amounts) | | |
Aircraft fuel expense, including taxes and delivery | | $ | 126,104 |
| | $ | 133,446 |
| | (5.5 | )% |
Realized losses (gains) on settlement of fuel derivative contracts | | 2,844 |
|
| (5,661 | ) |
| NM |
|
Economic fuel expense | | $ | 128,948 |
| | $ | 127,785 |
| | 0.9 | % |
Fuel gallons consumed | | 64,521 |
| | 65,279 |
| | (1.2 | )% |
Economic fuel costs per gallon | | $ | 2.00 |
| | $ | 1.96 |
| | 2.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change |
| | (in thousands, except per-gallon amounts) | | | | (in thousands, except per-gallon amounts) | | |
Aircraft fuel expense, including taxes and delivery | | $ | 153,026 |
| | $ | 102,774 |
| | 48.9 | % | | $ | 286,472 |
| | $ | 206,312 |
| | 38.9 | % |
Realized losses (gains) on settlement of fuel derivative contracts | | (10,827 | ) |
| 1,902 |
|
| (669.2 | )% |
| (16,488 | ) |
| (687 | ) | | 2,300.0 | % |
Economic fuel expense | | $ | 142,199 |
| | $ | 104,676 |
| | 35.8 | % | | $ | 269,984 |
| | $ | 205,625 |
| | 31.3 | % |
Fuel gallons consumed | | 68,627 |
| | 64,506 |
| | 6.4 | % | | 133,906 |
| | 126,244 |
| | 6.1 | % |
Economic fuel costs per gallon | | $ | 2.07 |
| | $ | 1.62 |
| | 27.8 | % | | $ | 2.02 |
| | $ | 1.63 |
| | 23.9 | % |
See Item 3, "Quantitative and Qualitative Disclosures About Market Risk" for additional discussion of our aircraft fuel costs and related hedging program.
Aircraft rentDepreciation and amortization
Aircraft rentDepreciation and amortization expense decreasedincreased by $4.7 million, or 13.6% and $5.9 million, or 8.8%18.3%, for the three and six months ended June 30, 2018, respectivelyMarch 31, 2019 as compared to the prior year periods. As described belowperiod, due to the increase in the number of owned aircraft, specifically the addition of eight Airbus A321neo aircraft we took delivery of and placed in service, including those under finance lease, since March 31, 2018.
Contract terminations expense during
During the first quarterthree months ended March 31, 2018, we terminated two contracts which incurred a total of $35.3 million in expense. The transactions are described below:
In January 2018, we entered into a transaction with a lessor to early terminate three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. AsThese aircraft were previously accounted for as operating leases. In order to exit the leases and purchase the aircraft, we now own these aircraft, the amount of aircraft rent expense has been reduced.
Depreciation and amortization
Depreciation and amortization expense increased by $5.0 million, or 18.1%, and $9.8 million, or 17.8%, for the three and six months ended June 30, 2018, respectively, as comparedagreed to the prior year periods, due to the increase in the number of owned aircraft, specifically the addition of an Airbus A330-200, five Airbus A321neo aircraft, as well as the three Boeing 767-300's in our fleet.
Contract terminations expense
During the six months ended June 30, 2018, we terminated two contracts which incurredpay a total of $35.3$67.1 million in expense.(net of all deposits), of which a portion was expensed immediately and recognized as a contract termination fee. The transactions are described below:expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.
In February 2018, we exercised our right to terminate the aircraft purchase agreement with Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, we were obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. We recorded a contract terminations expense to reflect a portion of the termination penalty within our Consolidated Statements of Operations.
In January 2018, we entered into a transaction with a lessor to early terminate three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, we agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.
Special items
In April 2017, we executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft. The lease term for the three aircraft commenced in April 2017 and goes through November 2018, December 2018, and January 2019, respectively. During the three and six months ended June 30, 2017, we recorded a loss on sale of aircraft of $4.8 million.
In March 2017, we received notice from ALPA that the contract agreement was ratified by ALPA's members. The agreement became effective April 1, 2017. The agreement included, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. During the six months ended June 30, 2017, we expensed $18.7 million principally
related to a one-time payment to reduce our future 401K employer contribution for certain pilot groups, which was not recoverable once paid.
Other expenses
Other expenses increased by $8.3 million, or 25.2%, and $15.3 million or 23.6%, for the three and six months ended June 30, 2018, respectively, as compared to the prior year periods. During the period, there was an increase in personnel related expenses for our crew members (e.g. meals, lodging, etc.) due to the increased flying. Other components of our Other expense line item include, but are not limited to: communication costs, professional and technical fees, insurance costs, legal fees, and other miscellaneous expenses.
Nonoperating Income (Expense)
Net nonoperating expense decreasedincreased by $26.1$4.5 million, or 197.5%547.8%, and $42.7 million, or 147.2% for the three and six months ended June 30, 2018, respectively,March 31, 2019, as compared to the prior year periods.period. The decreaseincrease in expense was dueattributed to a $23.7 million and $37.1$0.6 million gain on fuel derivatives for the three and six months ended June 30, 2018, respectively. As describedMarch 31, 2019 as compared to a $4.6 million gain in Note 9 to our Consolidated Financial Statements, during the quarter we originated debt denominated in a foreign currency. The fluctuation in foreign exchange rates at each balance sheet date is reflected within the nonoperating income (expense) line item. The foreign currency fluctuation for the three months ended June 30, 2018 was not material.prior year period.
Income Taxes
Our effective tax rate was 24.9%25.7% and 37.8%23.1% for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively and 24.4% and 34.9% for the six months ended June 30, 2018 and 2017, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items. The effective tax rate for the three and six months ended June 30, 2018 also reflects the reduced federal corporate income tax rate as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Act) in December 2017. We continue to analyze the different aspects of the Tax Act which could potentially affect the provisional estimates that were recorded at December 31, 2017. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed later in 2018.
Liquidity and Capital Resources
Our primary sources of liquidity are:
Our liquidity is dependent on the cash we generate from operating activities and our debt financing arrangements. As of June 30, 2018, we had $333.8 million inexisting cash and cash equivalents and $259.3 million in short-term investments an increase of $132.9$531.9 million, and our expected cash from operations;
Our 21 unencumbered aircraft as of March 31, 2019 that could be financed, if necessary; and
Our $235.0 million revolving credit facility with no outstanding borrowing. Information about this facility can be found in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
We have been able to generate sufficient funds from our operations to meet our working capital requirements and finance our aircraft acquisitions through secured debt and lease financings. At June 30, 2018,March 31, 2019, we had approximately $692.0$612.6 million of debt and capitalfinance lease obligations, including approximately $113.5$93.5 million classified as a current liability in our unauditedthe Consolidated Balance Sheets. See the Contractual Obligations table below for a descriptionAs of December 31, 2018, our current liabilities exceeded our current assets by approximately $411.2 million. However, approximately $691.0 million of our estimated contractual obligations ascurrent liabilities are related to our advanced ticket sales and frequent flyer deferred revenue, both of June 30, 2018.
We alsowhich largely represent revenue to be recognized for travel within the next 12 months and not actual cash outlays. The deficit in working capital does not have accessan adverse impact to a secured revolving credit and letter of credit facility of $225 million, maturing in December 2019. As of June 30, 2018, we had no outstanding borrowings under the revolving credit facility. During the three months ended June 30, 2018, we executed multiple foreign-denominated debt agreements for a total principal value of $86.5 million, which is collateralized by aircraft.our cash flows, liquidity, or operations.
Cash Flows
Net cash provided by operating activities was $373.8$150.7 million forand $225.5 million during the sixthree months ended June 30,March 31, 2019 and 2018, respectively. Operating cash flows are primarily duederived from providing air transportation to $108.0 millioncustomers. The
vast majority of tickets are purchased in net income, increaseadvance of $123.0 millionwhen travel is provided, and in airsome cases, several months before the anticipated travel date. The operating cash flows during each of the three months ended March 31, 2019 and 2018 were impacted by changes in Air traffic liability and current frequent flyer deferred revenue, Accounts receivables and Other asset and liabilities, net.
Cash used in investing activities was $11.9 million and $87.3 million during the three months ended March 31, 2019 and 2018, respectively. Investing activities included Capital expenditures, primarily related to aircraft and other equipment, and the purchases and sales of short-term investments. During the three months ended March 31, 2019, Capital expenditures were $74.3 million, the majority of which were payments for a decrease of $21.7A321neo aircraft delivery in the period as compared with $110.9 million in accounts receivables.
Capital expenditures during three months ended March 31, 2018. During three months ended March 31, 2019, our purchases and sales of short-term investments resulted in net cash inflow of $65.8 million as compared to net cash outflows of $23.6 million during the same period in 2018.
Net cash used in investing activities was $248.0 million for the six months ended June 30, 2018 due to purchases of property and equipment, specifically the purchase of three Airbus A321neo's along with progress payments on flight equipment during the year.
Net cash provided by financing activities was $17.1$42.2 million forand $50.0 million during the sixthree months ended June 30,March 31, 2019 and 2018, due torespectively. During the origination of $86.5three months ended March 31, 2019, we repaid $24.4 million in debt offset by $22.8and finance lease obligations, compared with $20.4 million during the same period in 2018. We repurchased $11.1 million of our outstanding common stock through authorized share repurchases during three months ended March 31, 2019, compared with repurchases of our common stock$20.2 million during the same period in the period, $30.12018. We also paid $5.8 million in repayments of our long-term debt and lease obligations, and $12.2dividends to shareholders during the three months ended March 31, 2019, compared with $6.1 million in dividend paymentsdividends during the year.
three months ended March 31, 2018. Although we currently intend to continue paying dividends on a quarterly basis for the foreseeable future, our Board of Directors may change the timing, amount, and payment of dividends on the basis of the results of operations, financial condition, cash requirements, future prospects, and other factors deemed relevant by our Board of Directors.
Capital Commitments
As of June 30, 2018,March 31, 2019, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
| | Aircraft Type | | Firm Orders | | Purchase Rights | | Expected Delivery Dates | | Firm Orders | | Purchase Rights | | Expected Delivery Dates |
A321neo aircraft | | 11 |
| | 9 |
| | Between 2018 and 2020 | | 6 |
| | 3 |
| | Between 2019 and 2020 |
B787-9 aircraft | | | 10 |
| | 10 |
| | Between 2021 and 2025 |
| | | | | | | | | | |
Pratt & Whitney spare engines: | | |
| | |
| | | | |
| | |
| | |
A321neo spare engines | | 3 |
| | 2 |
| | Between 2018 and 2019 | | 1 |
| | 2 |
| | In 2019 |
General Electric GEnx spare engines: | | | |
| | |
| | |
B787-9 spare engines | | | 2 |
| | 2 |
| | Between 2021 and 2025 |
In the first quarter of 2018, we exercised our right to terminate theour aircraft purchase agreement between us andwith Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. In July 2018, we executed a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft. We also intendIn October 2018, we entered into an agreement for the selection of GEnx engines to enter into additional related agreements in connection with thepower our Boeing 787-9 purchases, includingfleet. The agreements provide for the purchasespurchase of aircraft20 GEnx engines, a flight simulator,the right to purchase an additional 20 GEnx engines and the purchase of up to four spare parts and materials and related services.
Committedengines. The committed expenditures for these aircraft (excluding the Boeing 787-9's), engines and related flight equipment approximates $207 million for the remainder of 2018, $278 million in 2019, $48 million in 2020, $5 million in 2021, $5 million in 2022 and $38 million thereafter.agreements are reflected within our Contractual Obligations Table.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure additional financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. We are also currently exploring various financing alternatives, and while we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms, or at all. The inability to secure such financing could have an impact on our ability to fulfill our existing purchase commitments and a material adverse effect on our operations.
Stock Repurchase Program and Dividends
In November 2017,2018, our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $100 million of our outstanding common stock over a two-year period through December 2019.2020. The stock repurchase program is subject to further modification or termination at any time. We spent $2.5$11.1 million and $22.8$20.2 million to repurchase and retire approximately 65404 thousand shares and 614549 thousand shares of the Company's common stock in open market transactions during the three and six months ended June 30,March 31, 2019 and 2018, respectively. As of June 30, 2018,March 31, 2019, we had $77.2$86.4 million remaining to spend under our stock repurchase program.
During the three months ended June 30, 2018,March 31, 2019, we declared and paid cash dividends of $0.12 per share, or $6.1$5.8 million, which was paid on May 25, 2018,February 22, 2019, to stockholders of record as of May 11, 2018.February 8, 2019.
Credit Card Holdbacks
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our unaudited Consolidated Balance Sheets set forth in our unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q, totaled $1.0 million as10-Q. As of each of June 30, 2018March 31, 2019 and December 31, 2017.2018, there were no holdbacks held with our credit card processors.
In the event of a material adverse change in our business, the holdbacks could increase to an amount up to 100% of the outstanding credit card amounts that is unflown (e.g. air traffic liability), which would also result in an increase in our required level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on our operations.
Pension and Postemployment Benefit Plan Funding
During the three and six months ended June 30,March 31, 2019 and 2018, we did not contributehad no required contributions to our defined benefit and other post-retirement plans. During the three and six months ended June 30, 2017, we contributed $8.0 million and $14.4 million, respectively, to our defined benefit and other post-retirement plans. Future funding requirements for our defined benefit plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements and the level and timing of asset returns.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions and/or conditions.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties that potentially result in materially different results under different assumptions and conditions. For a detailed discussion of the application of our critical accounting policies, see Note 2 herein, "Significant Accounting Policies," and the section, titled “Critical Accounting Policies and Estimates,” and Note 1, “Summary of Significant Accounting Policies,” to our Consolidated Financial Statements for the year ended December 31, 2017, each included in our Annual Report on Form 10-K, Updates to those policies since the issuance of our 2017 Annual Report are below.
We adopted ASC 606 as of January 1, 2018, utilizing the full retrospective option. The adoption of the standard has had a significant impact on our financial statements and our critical accounting policies. See Note 2 and Note 5 to our Consolidated Financial Statements above for additional information including estimated quantification of the overall effect. A summary of our significant critical accounting policies as it pertains to the adoption is below.
Revenue Recognition
HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. ASC 606 requires us to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel or other award is used by the passenger, at which time it is included in passenger revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. On a quarterly basis, we calculate the equivalent ticket value (ETV) by analyzing the fares of similar tickets for the prior 12 months, considering cabin class and geographic region.
We also sell mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities. The marketing and brand performance obligations are effectively provided each time a HawaiianMiles member uses the co-branded credit card and monthly access to customer lists and marketing is provided, which corresponds to the timing of when we issue or are obligated to issue the mileage credits to the HawaiianMiles member. Therefore, we recognize revenue for the brand performance obligation when HawaiianMiles members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with our performance toward satisfying the obligation.
Accounting for frequent flyer revenue involves the use of various techniques to estimate revenue. We sell mileage credits to companies participating in the frequent flyer program, who in turn issue those miles to customers based on the volume of spend making the majority of the transaction price variable. To determine the total estimated transaction price, we forecast future credit card activity based on historical data.
The relative selling price is determined using management’s estimated standalone selling price of each performance obligation. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a standalone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, published selling prices, number of miles awarded and number of miles redeemed. We estimate the selling price of miles using an ETV adjusted for a fulfillment discount as described above.
Miles expire after 18 months of member account inactivity. The ETV includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. We review our breakage estimates annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). Our estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile.
Passenger revenue
Passenger revenue associated with unused tickets, which represent unexercised passenger rights, is recognized in proportion to
the pattern of rights exercised by related passengers (e.g. scheduled departure dates). To calculate the portion to be recognized
as revenue in the period, we utilize historical information and apply the trend rate to the current air traffic liability balances for that specific period.
Contractual Obligations
Our estimated contractual obligations as of June 30, 2018March 31, 2019 are summarized in the following table:
| | Contractual Obligations | | Total | | Remaining in 2018 | | 2019 - 2020 | | 2021 - 2022 | | 2023 and thereafter | | Total | | Remaining in 2019 | | 2020 - 2021 | | 2022 - 2023 | | 2024 and thereafter |
| | (in thousands) | | (in thousands) |
Debt and capital lease obligations (1) | | $ | 867,242 |
| | $ | 51,604 |
| | $ | 190,365 |
| | $ | 189,849 |
| | $ | 435,424 |
| |
Debt and finance lease obligations (1) | | | $ | 727,782 |
| | $ | 92,905 |
| | $ | 166,718 |
| | $ | 161,430 |
| | $ | 306,729 |
|
Operating leases—aircraft and related equipment (2) | | 525,515 |
| | 53,421 |
| | 180,689 |
| | 126,412 |
| | 164,993 |
| | 530,729 |
| | 80,789 |
| | 165,105 |
| | 128,155 |
| | 156,680 |
|
Operating leases—non-aircraft | | 126,533 |
| | 3,487 |
| | 13,293 |
| | 13,606 |
| | 96,147 |
| | 234,834 |
| | 6,133 |
| | 16,641 |
| | 17,851 |
| | 194,209 |
|
Purchase commitments - Capital (3) | | 581,490 |
| | 207,042 |
| | 326,232 |
| | 10,151 |
| | 38,065 |
| |
Purchase commitments - Operating (4) | | 473,624 |
| | 35,568 |
| | 118,340 |
| | 103,648 |
| | 216,068 |
| |
Purchase commitments - aircraft and aircraft related (3) | | | 1,911,197 |
| | 277,660 |
| | 475,522 |
| | 680,872 |
| | 477,143 |
|
Purchase commitments - non-aircraft (4) | | | 468,420 |
| | 55,886 |
| | 135,833 |
| | 111,856 |
| | 164,845 |
|
Projected employee benefit contributions (5) | | 34,890 |
| | — |
| | 34,890 |
| | — |
| | — |
| | 40,600 |
| | — |
| | 10,800 |
| | 17,800 |
| | 12,000 |
|
Total contractual obligations | | $ | 2,609,294 |
| | $ | 351,122 |
| | $ | 863,809 |
| | $ | 443,666 |
| | $ | 950,697 |
| | $ | 3,913,562 |
| | $ | 513,373 |
| | $ | 970,619 |
| | $ | 1,117,964 |
| | $ | 1,311,606 |
|
| |
(1) | Amounts reflect capitalfinance lease obligations for one Airbus A330-200 aircraft, two Boeing 717-200 aircraft, onetwo Airbus A321neo aircraft, one Airbus A330 flight simulator, and aircraft and IT related equipment. |
| |
(2) | Amounts reflect leases for teneleven Airbus A330-200 aircraft four Boeing 767-300 aircraft,and three Boeing 717-200 aircraft, and one Airbus A321neo aircraft. |
| |
(3) | Amounts include our firm commitments for aircraft and aircraft related equipment (which excludes the Boeing 787-9's).equipment. |
| |
(4) | Amounts include commitments for services provided by third-parties for aircraft maintenance for our Airbus fleet, accounting, IT, capacity purchases, and the estimated rental payments for a cargo and maintenance hangar. Total contractual obligations do not include long-term contracts where the commitment is variable in nature (with no minimum guarantee), such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions. |
other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.
| |
(5) | Amounts include our estimated minimum contributions to our pension plans (based on actuarially determined estimates) and contributions to our pilots’ disability plan. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns and the impact of future legislation. We are currently unable to estimate the projected contributions beyond 2020. |
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the applicable rules of the SEC.
Non-GAAP Financial Measures
We believe the disclosure of non-GAAP financial measures is useful information to readers of our financial statements because:
We believe it is the basis by which we are evaluated by many industry analysts and investors;
These measures are often used in management and board of directors decision making analysis;
It improves a reader’s ability to compare our results to those of other airlines; and
It is consistent with how we present information in our quarterly earnings press releases.
See table below for reconciliation between GAAP consolidated net income to adjusted consolidated net income, including per share amounts (in thousands unless otherwise indicated). The adjustments are described below:
Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This line item includes the unrealized amounts of fuel derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. We believe that excluding the impact of these derivative adjustments helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
During the three months ended March 31, 2019, we recorded a gain on disposal for Boeing 767-300 aircraft equipment of $1.1 million in conjunction with the retirement of our Boeing 767-300 fleet.
Unrealized loss (gain) on foreign debt is based on fluctuations in foreign exchanges rates related to foreign-denominated debt agreements we executed during the three months ended June 30, 2018. We believe that excluding the impact of these amounts helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
On April 1, 2017, our agreement with the Airline Pilots Association covering our pilots for a term of 63 months became effective. The agreement includes, among various other benefits, a pay adjustment and ratification bonus computed based on previous service. During the three months ended March 31, 2017, we expensed $18.7 million principally related to a one-time payment to reduce our future 401K employer contribution for certain pilot groups, which is not recoverable once paid. The loss on sale of aircraft was a result of a sale-leaseback transaction covering three Boeing 767 aircraft as part of the planned exit from our Boeing 767 fleet, which resulted in a non-cash loss of $4.8 million.
For the six months ended June 30, 2018, we terminated two contracts which incurred a total of $35.3 million in contract terminations expense. In February 2018, we exercised our right to terminate the purchase agreement with Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. We recorded a contract terminations expense to reflect a portion of the termination penalty. In January 2018, we entered into a transaction with our lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the leases and purchase the aircraft, we agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a lease termination fee. The expensed amount represents the total purchase price over fair value of the aircraft purchased as of the date of the transaction.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | Total | | Diluted Per Share | | Total | | Diluted Per Share | | Total | | Diluted Per Share | | Total | | Diluted Per Share |
| | (in thousands, except for per share data) |
GAAP net income, as reported | | $ | 79,480 |
| | $ | 1.56 |
| | $ | 76,894 |
| | $ | 1.43 |
| | $ | 108,022 |
| | $ | 2.12 |
| | $ | 110,540 |
| | $ | 2.05 |
|
Add: changes in fair value of derivative contracts | | (8,125 | ) | | (0.16 | ) | | 2,810 |
| | 0.05 |
| | (7,081 | ) | | (0.14 | ) | | 14,197 |
| | 0.26 |
|
Add: unrealized loss (gain) on foreign debt | | (64 | ) | | — |
| | — |
| | — |
| | (64 | ) | | — |
| | — |
| | — |
|
Add: contract terminations expense | | — |
| | — |
| | — |
| | — |
| | 35,322 |
| | $ | 0.69 |
| | — |
| | $ | — |
|
Add: special items | | — |
| | — |
| | 4,771 |
| | 0.09 |
| | — |
| | — |
| | 23,450 |
| | 0.43 |
|
Deduct: tax effect of adjustments | | 2,047 |
| | 0.04 |
| | (2,764 | ) | | (0.05 | ) | | (7,045 | ) | | (0.14 | ) | | (13,764 | ) | | (0.26 | ) |
Adjusted net income | | $ | 73,338 |
| | $ | 1.44 |
| | $ | 81,711 |
| | $ | 1.52 |
| | $ | 129,154 |
| | $ | 2.53 |
| | $ | 134,423 |
| | $ | 2.48 |
|
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2019 | | 2018 |
| | Total | | Diluted Per Share | | Total | | Diluted Per Share |
| | (in thousands, except for per share data) |
GAAP Net Income, as reported | | $ | 36,358 |
| | $ | 0.75 |
| | $ | 28,542 |
| | $ | 0.56 |
|
Adjusted for: | | | | | | | | |
Changes in fair value of derivative contracts | | (3,414 | ) | | (0.07 | ) | | 1,044 |
| | 0.02 |
|
Loss (gain) on sale of aircraft equipment | | (1,097 | ) | | (0.02 | ) | | — |
| | — |
|
Unrealized loss (gain) on foreign debt | | (630 | ) | | (0.01 | ) | | — |
| | — |
|
Contract terminations expense | | — |
| | — |
| | 35,322 |
| | 0.69 |
|
Tax effect of adjustments | | 1,337 |
| | 0.02 |
| | (9,092 | ) | | (0.18 | ) |
Adjusted Net Income | | $ | 32,554 |
| | $ | 0.67 |
| | $ | 55,816 |
| | $ | 1.09 |
|
Operating Costs per Available Seat Mile (CASM)
We have listed separately in the table below our fuel costs per ASM and our non-GAAP unit costs, excluding fuel and special items. These amounts are included in CASM, but for internal purposes we consistently use unit cost metrics that exclude fuel and special items (if applicable) to measure and monitor our costs.
CASM and CASM-excluding aircraft fuel, gain on sale of aircraft equipment and contract terminations expense and special items, are summarized in the table below:
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands, except as otherwise indicated) |
GAAP operating expenses | | $ | 622,519 |
| | $ | 533,276 |
| | $ | 1,251,666 |
| | $ | 1,077,455 |
|
Less: aircraft fuel, including taxes and delivery | | (153,026 | ) | | (102,774 | ) | | (286,472 | ) | | (206,312 | ) |
Less: contract terminations expense | | $ | — |
| | $ | — |
| | $ | (35,322 | ) | | $ | — |
|
Less: special items | | $ | — |
| | $ | (4,771 | ) | | $ | — |
| | $ | (23,450 | ) |
Adjusted operating expenses - excluding aircraft fuel, contract terminations expense, and special items | | $ | 469,493 |
| | $ | 425,731 |
| | $ | 929,872 |
| | $ | 847,693 |
|
Available Seat Miles | | 5,020,026 |
| | 4,735,491 |
| | 9,751,523 |
| | 9,257,844 |
|
CASM - GAAP | |
| 12.40 | ¢ | |
| 11.26 | ¢ | |
| 12.84 | ¢ | |
| 11.64 | ¢ |
Less: aircraft fuel | | (3.05 | ) | | (2.17 | ) | | (2.94 | ) | | (2.23 | ) |
Less: contract terminations expense | | — |
| | — |
| | (0.36 | ) | | — |
|
Less: special items | | — |
| | (0.10 | ) | | — |
| | (0.25 | ) |
CASM - excluding aircraft fuel, contract terminations expense, and special items | |
| 9.35 | ¢ | |
| 8.99 | ¢ | |
| 9.54 | ¢ | |
| 9.16 | ¢ |
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2019 | | 2018 |
| | (in thousands, except as otherwise indicated) |
GAAP Operating Expenses | | $ | 604,075 |
| | $ | 629,147 |
|
Adjusted for: | | | | |
Aircraft fuel, including taxes and delivery | | (126,104 | ) | | (133,446 | ) |
Gain on sale of aircraft and equipment | | 1,097 |
| | — |
|
Contract terminations expense | | — |
| | (35,322 | ) |
Adjusted Operating Expenses | | $ | 479,068 |
| | $ | 460,379 |
|
Available Seat Miles | | 4,851,921 |
| | 4,731,498 |
|
CASM - GAAP | |
| 12.45 | ¢ | |
| 13.30 | ¢ |
Adjusted for: | | | | |
Aircraft fuel, including taxes and delivery | | (2.60 | ) | | (2.82 | ) |
Gain on sale of aircraft and equipment | | 0.02 |
| | — |
|
Contract terminations expense | | — |
| | (0.75 | ) |
Adjusted CASM | |
| 9.87 | ¢ | |
| 9.73 | ¢ |
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions and/or conditions.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties that potentially result in materially different results under different assumptions and conditions. With the exception of the items noted below, there have been no material changes to our critical accounting policies during the three months ended March 31, 2019. For more information on our critical accounting policies, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2018.
Leases
In 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This ASU and subsequently issued amendments require leases with durations greater than twelve months to be recognized on the consolidated balance sheet. The Company adopted ASC 842 as of January 1, 2019. We adopted the new standard using the modified retrospective approach. Prior year financial statements were not recast under the new standard. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carry-forward our historical assessments of (a) whether contracts are, or contain leases, (b) lease classification, and (c) initial direct costs. The Company leases property and equipment under finance and operating lease, including aircraft and related engines, real property, airport and terminal facilities, maintenance facilities, and general offices. The Company does not separate lease and nonlease components of contracts. Certain leases include escalation clauses, renewal options, and/or termination options. When lease renewals or termination options are considered to be reasonably assured, such periods are included in the lease term and fixed payments are included in the calculation of the lease liability and ROU asset.
When available, the Company utilizes the rate implicit in the lease to discount lease payments to present value; however, the majority of our leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to certain market risks, including commodity price risk (e.g., aircraft fuel prices), interest rate risk and foreign currency risk. We have market-sensitive instruments in the form of financial derivatives used to offset our exposure to aircraft fuel price increases and financial hedge instruments used to hedge our exposure to foreign currency exchange risk. The adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented below do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we might undertake to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel Costs
Aircraft fuel costs constitute a significant portion of our operating expense. Fuel costs represented 25% and 23%21% of our operating expenses for the three and six months ended June 30, 2018, respectively, and 19% for each of the three and six months ended June 30, 2017.March 31, 2019 and 2018. Approximately 72%69% of our fuel was based on Singapore jet fuel prices, 25%approximately 30% was based on U.S. West Coast jet fuel prices, and 3%approximately 1% was based on other jet fuel prices. We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. As of March 31, 2019, we hedged approximately 42% of our projected fuel requirements for the remainder of 2019 with crude oil call options. As of March 31, 2019, the fair value of these fuel derivative agreements reflected a net asset of $5.1 million, which is recorded as a prepaid expense and other asset in our unaudited Consolidated Balance Sheet. Based on the amount of fuel expected to be consumed for the remainder of 2018,2019, for every one cent increase in the cost of a gallon of jet fuel, our fuel expense would increase by approximately $0.7$2.1 million.
We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. During the three and six months ended June 30, 2018, our fuel hedge program primarily consisted of crude oil call options and jet fuel swaps. Swaps provide for a settlement in our favor in the event the prices exceed a predetermined contractual level and are unfavorable in the event prices fall below a predetermined contractual level. With call options, we are hedged against spikes in crude oil prices and during a period of decline in crude oil prices we only forfeit cash previously paid for hedge premiums.
As of June 30, 2018, we hedged approximately 47% of our projected fuel requirements for the remainder of 2018 with crude oil call options. As of June 30, 2018, the fair value of these fuel derivative agreements reflected a net asset of $28.2 million, which is recorded as a prepaid expense and other asset in our unaudited Consolidated Balance Sheet.
We expect to continue our program of offsetting some of our exposure to future changes in the price of jet fuel with a combination of fixed forward pricing contracts, swaps, calls, collars and other option-based structures. We do not hold or issue derivative financial instruments for trading purposes.
We continue to believe that our fuel derivative program is an important part of our strategy to reduce our exposure to volatile fuel prices. We expect to continue to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions. For more discussion, see Note 8 to our Consolidated Financial Statements.
Interest Rates
ChangesWe have exposure to market risk associated with changes in market interest rates have a direct and corresponding effect onrelated to our pre-tax earnings and cash flows associated with our interest-bearing cash accounts.equivalent accounts and short-term investments. Based on the balances of our cash and cash equivalents, and restricted cashshort-term investments as of June 30, 2018,March 31, 2019, a change in interest rates is unlikely to have a material impact on our results of operations.
Our variable-rate debt agreements include the revolving credit facility and secured loan agreements, the terms of which are discussed in Note 8 to our Consolidated Financial Statements. At June 30, 2018,March 31, 2019, we had $698.5$612.6 million of fixed-rate debt including capitalfinance lease obligations, facility agreements for aircraft purchases, and the outstanding equipment notes related to our 2013 EETCthe aircraft purchase financing. Market risk forAs of March 31, 2019, we had no variable-rate debt. A 10% increase in average annual interest rates would have decreased the estimated fair value of our fixed-rate long-term debt is estimated as the potential increase in fair value resulting from a hypothetical 10% decrease in interest rates, and amounted to approximately $8.9by $7.1 million as of June 30, 2018.March 31, 2019.
Foreign Currency
We have debt, generate revenues, and incur expenses in foreign currencies. Changesexposure to market risk associated with changes in foreign currency exchange rates impact our results of operations through changesbecause we generate sales, incur expenses, and have debt denominated and paid in the dollar value of foreign currency-denominated operating revenues and expenses. Our most significant foreign currency exposures are the Japanese Yen and Australian Dollar. Based on expected remaining 2018 revenues and expenses denominatedcurrencies, predominantly in Japanese Yen and to a lesser extent, the Australian Dollars,Dollar.
To mitigate the exchange rate risk, we transact our international sales and expenditures in the same foreign currency, to the extent practical. Additionally, our Japanese Yen denominated debt serves as a natural hedge against the volatility of exchange rates against cash inflows. We also have an established foreign currency derivative program, where we periodically enter into foreign currency forward contracts. At March 31, 2019, the fair value of our foreign currency forwards reflected a net asset of $4.8 million ($4.0 million and $0.8 million recorded in Prepaid expenses and other (short-term) and Long-term prepayments and other (long-term), respectively) in the consolidated balance sheet.
Based on forecasted transactions in foreign currency, a 10% strengtheningdepreciation in value of the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a decrease in operatingannual net income, net of the impact of foreign currency hedges, of approximately $17.9 million and $4.6 million, respectively, which excludes the offset of the hedges discussed below. This potential impact to the results of our operation is driven by the inherent nature of our international operations, which requires us to accept a large volume of sales transactions denominated in foreign currencies while few expense transactions are settled in foreign currencies. This disparity is the primary factor in our exposure to foreign currencies.
As of June 30, 2018, the fair value of our foreign currency forward contracts reflected a net asset of $4.3 million and $0.6 million recorded in Prepaid expenses and other (short-term) and Long-term prepayments and other (long-term), respectively, in our unaudited Consolidated Balance Sheets.
As we have foreign-denominated debt, the amount of debt owed will be impacted by the fluctuations in Japanese Yen. A 10% decrease in the value of the U.S. dollar, relative to the Japanese Yen, would result in a increase of our losses by approximately $9.6$14.5 million.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which have been designed to permit us to effectively identify and timely disclose important information. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2018March 31, 2019 to provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
ThereExcept as set forth below, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2018March 31, 2019 which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the three months ended March 31, 2019, we implemented changes to our processes in response to the adoption of ASC 842 that became effective January 1, 2019. This resulted in a material change to our process for accounting for and reporting of leases. The operating effectiveness of these changes will be evaluated as part of our annual assessment of the effectiveness of internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any litigation that is expected to have a significant effect on our operations or business.
ITEM 1A. RISK FACTORS.
See Part I, Item 1A., “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 for a detailed discussion of the risk factors affecting our business, results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table displays information with respect to our repurchases of shares of our common stock during the three months ended June 30, 2018:March 31, 2019:
|
| | | | | | | | | | | | | | |
Period | | Total number of shares purchased (i) | | Average price paid per share (ii) | | Total number of shares purchased as part of publicly announced plans or programs (i) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (i) |
April 1, 2018 - April 30, 2018 | | — |
| | $ | — |
| | — |
| | |
May 1, 2018 - May 31, 2018 | | — |
| | — |
| | — |
| | |
June 1, 2018 - June 30, 2018 | | 65,389 |
| | 38.23 |
| | 65,389 |
| | |
Total | | 65,389 |
| | | | 65,389 |
| | $ | 77.2 |
|
|
| | | | | | | | | | | | | | |
Period | | Total number of shares purchased (i) | | Average price paid per share (ii) | | Total number of shares purchased as part of publicly announced plans or programs (i) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (i) |
January 1, 2019 - January 31, 2019 | | 170,471 |
| | $ | 29.33 |
| | 170,471 |
| | |
February 1, 2019 - February 28, 2019 | | 13,386 |
| | 31.12 |
| | 13,386 |
| | |
March 1, 2019 - March 31, 2019 | | 219,741 |
| | 25.80 |
| | 219,741 |
| | |
Total | | 403,598 |
| | | | 403,598 |
| | $ | 86.4 |
|
| |
(ii) | In November 2017,2018, our Board of Directors approved a stockthe repurchase program pursuantof up to which the Company may repurchase up toan additional $100 million of our outstanding common stock over a two-year period through December 2019.2020. The stock repurchase program is subject to further modification or termination at any time. |
| |
(ii) | Weighted average price paid per share is calculated on a settlement basis and excludes commission. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
|
| | |
Exhibit No. | | Description |
| | |
12 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Valuation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | |
| | HAWAIIAN HOLDINGS, INC. |
| | | |
| | | |
Date: | July 25, 2018April 24, 2019 | By: | /s/ Shannon L. Okinaka |
| | | Shannon L. Okinaka |
| | | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |