UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
or
 ☐        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)
Delaware71-0879698
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
Delaware71-0879698
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
3375 Koapaka Street,Suite G-350
Honolulu,HI96819
(Address of Principal Executive Offices)(Zip Code)

(808)835-3700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)HANASDAQ 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.  ☒ Yes o☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  ☒ 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,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes ☒ No
 
As of October 18, 2019, 46,591,737July 21, 2020, 45,997,188 shares of the registrant’s common stock were outstanding.




Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended SeptemberJune 30, 20192020
 
Table of Contents
 
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2

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,
 2020201920202019
 (unaudited)
Operating Revenue:  
Passenger$29,762  $653,423  $533,231  $1,254,727  
Other30,242  58,766  85,917  114,213  
Total60,004  712,189  619,148  1,368,940  
Operating Expenses:  
Wages and benefits30,329  180,070  218,583  355,135  
Aircraft fuel, including taxes and delivery7,003  140,600  120,481  266,704  
Maintenance, materials and repairs13,994  58,131  74,403  121,176  
Aircraft and passenger servicing3,036  39,641  41,319  78,541  
Depreciation and amortization39,333  39,527  78,782  77,678  
Aircraft rent23,886  30,843  50,890  61,239  
Commissions and other selling2,927  32,471  29,643  63,307  
Other rentals and landing fees13,677  31,386  43,443  62,432  
Purchased services19,887  32,733  54,128  65,186  
Special items34,014  —  160,918  —  
Other20,882  37,906  63,618  75,985  
Total208,968  623,308  936,208  1,227,383  
Operating Income (Loss)(148,964) 88,881  (317,060) 141,557  
Nonoperating Income (Expense):  
Interest expense and amortization of debt discounts and issuance costs(8,221) (7,300) (15,016) (14,830) 
Gains (losses) on fuel derivatives(184) (3,220) (6,636) (2,650) 
Interest income2,766  3,074  5,786  6,057  
Capitalized interest921  1,257  1,752  2,542  
Other, net1,161  (3,083) 3,465  (4,108) 
Total(3,557) (9,272) (10,649) (12,989) 
Income (Loss) Before Income Taxes(152,521) 79,609  (327,709) 128,568  
Income tax expense (benefit)(45,617) 21,776  (76,433) 34,377  
Net Income (Loss)$(106,904) $57,833  $(251,276) $94,191  
Net Income (Loss) Per Share  
Basic$(2.33) $1.21  $(5.47) $1.96  
Diluted$(2.33) $1.21  $(5.47) $1.96  
Weighted Average Number of Common Stock Shares Outstanding:
Basic45,971  47,854  45,969  48,122  
Diluted45,971  47,889  45,969  48,158  
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
  (unaudited)
Operating Revenue:  
  
    
Passenger $694,263
 $697,232
 $1,948,990
 $1,963,994
Other 60,888
 61,855
 175,101
 175,952
Total 755,151
 759,087
 2,124,091
 2,139,946
Operating Expenses:  
  
    
Wages and benefits 182,862
 176,642
 537,997
 516,906
Aircraft fuel, including taxes and delivery 138,586
 162,932
 405,290
 449,404
Maintenance, materials and repairs 61,363
 57,118
 182,539
 176,229
Aircraft and passenger servicing 41,762
 42,063
 120,303
 117,207
Depreciation and amortization 41,596
 36,373
 119,274
 101,537
Aircraft rent 30,534
 31,768
 91,773
 93,533
Commissions and other selling 33,291
 32,704
 96,598
 96,482
Other rentals and landing fees 33,345
 33,227
 95,777
 95,226
Purchased services 33,120
 32,509
 98,306
 95,104
Contract terminations expense —
 —
 —
 35,322
Other 42,056
 37,925
 118,041
 117,977
Total 638,515
 643,261
 1,865,898
 1,894,927
Operating Income 116,636
 115,826
 258,193
 245,019
Nonoperating Income (Expense):  
  
    
Interest expense and amortization of debt discounts and issuance costs (6,438) (8,446) (21,268) (24,628)
Gains (losses) on fuel derivatives (4,553) 3,495
 (7,203) 27,064
Interest income 3,148
 3,124
 9,205
 6,529
Capitalized interest 1,171
 1,821
 3,713
 6,414
Other, net (1,445) 937
 (5,553) (759)
Total (8,117) 931
 (21,106) 14,620
Income Before Income Taxes 108,519
 116,757
 237,087
 259,639
Income tax expense 28,443
 23,215
 62,820
 58,075
Net Income $80,076
 $93,542
 $174,267
 $201,564
Net Income Per Common Stock Share:  
  
    
Basic $1.70
 $1.85
 $3.65
 $3.97
Diluted $1.70
 $1.84
 $3.64
 $3.96
Weighted Average Number of Common Stock Shares Outstanding:        
Basic 47,119
 50,594
 47,784
 50,807
Diluted 47,236
 50,731
 47,847
 50,935


See accompanying Notes to Consolidated Financial Statements.

3

Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)

 Three Months Ended June 30,
 20202019
 (unaudited)
Net Income (Loss)$(106,904) $57,833  
Other comprehensive loss, net:  
Net change related to employee benefit plans, net of tax expense of $242 and $218 for 2020 and 2019, respectively736  669  
Net change in derivative instruments, net of tax benefit of $795 and $1,186 for 2020 and 2019, respectively(2,419) (3,646) 
Net change in available-for-sale investments, net of tax expense of $350 and $250 for 2020 and 2019, respectively1,065  769  
Total other comprehensive loss(618) (2,208) 
Total Comprehensive Income (Loss)$(107,522) $55,625  

  Three Months Ended September 30,
  2019 2018
  (unaudited)
Net Income $80,076
 $93,542
Other comprehensive income, net:  
  
Net change related to employee benefit plans, net of tax expense of $38 and $146 for 2019 and 2018, respectively 786
 641
Net change in derivative instruments, net of tax expense of $690 and $1,396 for 2019 and 2018, respectively 2,096
 4,292
Net change in available-for-sale investments, net of tax expense of $32 and $53 for 2019 and 2018, respectively 92
 167
Total other comprehensive income 2,974
 5,100
Total Comprehensive Income $83,050
 $98,642
 Six Months Ended June 30,
 20202019
 (unaudited)
Net Income (Loss)$(251,276) $94,191  
Other comprehensive income, net:  
Net change related to employee benefit plans, net of tax expense of $439 and $352 for 2020 and 2019, respectively1,334  1,245  
Net change in derivative instruments, net of tax benefit of $682 and $811 for 2020 and 2019, respectively(2,075) (2,501) 
Net change in available-for-sale investments, net of tax expense of $478 and $425 for 2020 and 2019, respectively1,454  1,309  
Total other comprehensive income713  53  
Total Comprehensive Income (Loss)$(250,563) $94,244  

  Nine Months Ended September 30,
  2019 2018
  (unaudited)
Net Income $174,267
 $201,564
Other comprehensive income, net:  
  
Net change related to employee benefit plans, net of tax expense of $390 and $478 for 2019 and 2018, respectively 2,031
 1,668
Net change in derivative instruments, net of tax benefit of $122 and net of tax expense of $2,050 for 2019 and 2018, respectively (405) 6,311
Net change in available-for-sale investments, net of tax expense of $457 and net of tax benefit of $42 for 2019 and 2018, respectively 1,401
 (126)
Total other comprehensive income 3,027
 7,853
Total Comprehensive Income $177,294
 $209,417


See accompanying Notes to Consolidated Financial Statements.


4

Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
  
September 30, 2019
(unaudited)
 December 31, 2018
ASSETS  
  
Current Assets:  
  
Cash and cash equivalents $512,162
 $268,577
Short-term investments 232,444
 232,241
Accounts receivable, net 145,466
 111,834
Spare parts and supplies, net 37,536
 33,942
Prepaid expenses and other 54,095
 58,573
Total 981,703
 705,167
Property and equipment, less accumulated depreciation and amortization of $738,574 and $663,461 as of September 30, 2019 and December 31, 2018, respectively 2,240,442
 2,185,111
Other Assets:  
  
Operating lease right-of-use assets 583,542
 —
Long-term prepayments and other 138,817
 185,556
Intangible assets, less accumulated amortization of $18,176 and $18,939 as of September 30, 2019 and December 31, 2018, respectively 13,524
 14,149
Goodwill 106,663
 106,663
Total Assets $4,064,691
 $3,196,646
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
Current Liabilities:  
  
Accounts payable $155,362
 $143,146
Air traffic liability and current frequent flyer deferred revenue 651,571
 603,736
Other accrued liabilities 151,566
 158,154
Current maturities of long-term debt and finance lease obligations 77,014
 101,097
Current maturities of operating leases 86,632
 —
Total 1,122,145
 1,006,133
Long-Term Debt and Finance Lease Obligations 704,527
 608,684
Other Liabilities and Deferred Credits:  
  
Noncurrent operating leases 455,765
 —
Accumulated pension and other post-retirement benefit obligations 182,962
 182,620
Other liabilities and deferred credits 99,231
 119,826
Noncurrent frequent flyer deferred revenue 174,474
 163,619
Deferred tax liability, net 258,740
 167,770
Total 1,171,172
 633,835
Commitments and Contingencies 


 


Shareholders’ Equity:  
  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of September 30, 2019 and December 31, 2018 —
 —
Common stock, $0.01 par value per share, 46,744,658 and 48,540,280 shares outstanding as of September 30, 2019 and December 31, 2018, respectively 467
 485
Capital in excess of par value 133,003
 128,448
Accumulated income 1,023,490
 912,201
Accumulated other comprehensive loss, net (90,113) (93,140)
Total 1,066,847
 947,994
Total Liabilities and Shareholders’ Equity $4,064,691
 $3,196,646

June 30, 2020
(unaudited)		December 31, 2019
ASSETS  
Current Assets:  
Cash and cash equivalents$592,520  $373,056  
Short-term investments168,410  245,599  
Accounts receivable, net28,467�� 97,380  
Income taxes receivable92,365  64,192  
Spare parts and supplies, net35,660  37,630  
Prepaid expenses and other45,431  56,849  
Total962,853  874,706  
Property and equipment, less accumulated depreciation and amortization of $823,757 and $762,544 as of June 30, 2020 and December 31, 2019, respectively2,267,826  2,316,772  
Other Assets:  
Operating lease right-of-use assets592,933  632,545  
Long-term prepayments and other159,383  182,438  
Intangible assets, net13,500  13,500  
Goodwill—  106,663  
Total Assets$3,996,495  $4,126,624  
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$101,641  $148,748  
Air traffic liability and current frequent flyer deferred revenue553,554  606,684  
Other accrued liabilities221,881  161,430  
Current maturities of long-term debt, less discount60,079  53,273  
Current maturities of finance lease obligations21,667  21,857  
Current maturities of operating leases78,655  83,224  
Total1,037,477  1,075,216  
Long-Term Debt792,766  547,254  
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations131,631  141,861  
Noncurrent operating leases476,401  514,685  
Accumulated pension and other post-retirement benefit obligations200,411  203,596  
Other liabilities and deferred credits80,350  97,434  
Noncurrent frequent flyer deferred revenue179,740  175,218  
Deferred tax liability, net271,786  289,564  
Total1,340,319  1,422,358  
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, 3 shares issued and outstanding as of June 30, 2020 and December 31, 2019—  —  
Common stock, $0.01 par value per share, 45,996,537 and 46,121,859 shares outstanding as of June 30, 2020 and December 31, 2019, respectively460  461  
Capital in excess of par value143,374  135,651  
Accumulated income785,269  1,049,567  
Accumulated other comprehensive loss, net(103,170) (103,883) 
Total825,933  1,081,796  
Total Liabilities and Shareholders’ Equity$3,996,495  $4,126,624  
See accompanying Notes to Consolidated Financial Statements.

5

Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)		Special
Preferred
Stock(**)		Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2019$461  $—  $135,651  $1,049,567  $(103,883) $1,081,796  
Net Loss—  —  —  (144,372) —  (144,372) 
Dividends declared on common stock ($0.12 per share)—  —  —  (5,514) —  (5,514) 
Other comprehensive income, net—  —  —  —  1,331  1,331  
Issuance of 88,141 shares of common stock, net of shares withheld for taxes1  —  (1,231) —  —  (1,230) 
Repurchase and retirement of 259,910 shares common stock(2) —  —  (7,508) —  (7,510) 
Share-based compensation expense—  —  (135) —  —  (135) 
Balance at March 31, 2020$460  $—  $134,285  $892,173  $(102,552) $924,366  
Net Loss—  —  —  (106,904) —  (106,904) 
Other comprehensive loss, net—  —  —  —  (618) (618) 
Issuance of 46,447 shares of common stock, net of shares withheld for taxes—  —  (83) —  —  (83) 
CARES Act PSP warrant issuance—  —  7,403  —  —  7,403  
Share-based compensation expense—  —  1,769  —  —  1,769  
Balance at June 30, 2020$460  $—  $143,374  $785,269  $(103,170) $825,933  
  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
Net Income —
 —
 —
 57,833
 —
 57,833
Dividends declared on common stock ($0.12 per share) —
 —
 —
 (5,743) —
 (5,743)
Other comprehensive loss —
 —
 —
 —
 (2,208) (2,208)
Issuance of 28,927 shares of common stock, net of shares withheld for taxes —
 —
 (32) —
 —
 (32)
Repurchase and retirement of 725,105 shares common stock (7) —
 —
 (19,597) —
 (19,604)
Share-based compensation expense —
 —
 1,384
 —
 —
 1,384
Balance at June 30, 2019 $475
 $—
 $130,243
 $969,059
 $(93,087) $1,006,690
Net Income —
 —
 —
 80,076
 —
 80,076
Dividends declared on common stock ($0.12 per share) —
 —
 —
 (5,652) —
 (5,652)
Other comprehensive income —
 —
 —
 —
 2,974
 2,974
Issuance of 1,180 shares of common stock, net of shares withheld for taxes —
 —
 (13) —
 —
 (13)
Repurchase and retirement of 762,543 shares common stock (8) —
 —
 (19,993) —
 (20,001)
Share-based compensation expense —
 —
 2,773
 —
 —
 2,773
Balance at September 30, 2019 $467
 $—
 $133,003
 $1,023,490
 $(90,113) $1,066,847

(*) Common Stock—$0.01 par value; 118,000,000 authorized as of SeptemberJune 30, 2020 and December 31, 2019.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of June 30, 2020 and December 31, 2019.

6

Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)		Special
Preferred
Stock(**)		Capital In Excess of Par ValueAccumulated IncomeAccumulated 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, net—  —  —  —  2,261  2,261  
Issuance of 65,517 shares of common stock, net of shares withheld for taxes1  —  (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  
Net Income—  —  —  57,833  —  57,833  
Dividends declared on common stock ($0.12 per share)—  —  —  (5,743) —  (5,743) 
Other comprehensive loss, net—  —  —  —  (2,208) (2,208) 
Issuance of 28,927 shares of common stock, net of shares withheld for taxes—  —  (32) —  —  (32) 
Repurchase and retirement of 725,105 shares common stock(7) —  —  (19,597) —  (19,604) 
Share-based compensation expense—  —  1,384  —  —  1,384  
Balance at June 30, 2019$475  $—  $130,243  $969,059  $(93,087) $1,006,690  

(*) Common Stock—$0.01 par value; 118,000,000 authorized as of June 30, 2019 and December 31, 2018.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of SeptemberJune 30, 2019 and December 31, 2018.

See accompanying Notes to Consolidated Financial Statements.

7

Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
  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
Net Income —
 —
 —
 79,480
 —
 79,480
Dividends declared on common stock ($0.12 per share) —
 —
 —
 (6,093) —
 (6,093)
Other comprehensive income —
 —
 —
 —
 9,944
 9,944
Issuance of 29,006 shares of common stock, net of shares withheld for taxes —
 —
 (296) —
 —
 (296)
Repurchase and retirement of 65,389 shares common stock (1) —
 —
 (2,500) —
 (2,501)
Share-based compensation expense —
 —
 1,299
 —
 —
 1,299
Balance at June 30, 2018 $507
 $—
 $125,871
 $866,180
 $(72,511) $920,047
Net Income —
 —
 —
 93,542
 —
 93,542
Dividends declared on common stock ($0.12 per share) —
 —
 —
 (6,089) —
 (6,089)
Other comprehensive income —
 —
 —
 —
 5,100
 5,100
Issuance of 6,427 shares of common stock, net of shares withheld for taxes —
 —
 (112) —
 —
 (112)
Repurchase and retirement of 780,238 shares common stock (7) —
 —
 (31,142) —
 (31,149)
Share-based compensation expense —
 —
 1,862
 —
 —
 1,862
Balance at September 30, 2018 $500
 $—
 $127,621
 $922,491
 $(67,411) $983,201
(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of September 30, 2018 and December 31, 2017.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of September 30, 2018 and December 31, 2017.

See accompanying Notes to Consolidated Financial Statements.


Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 Nine Months Ended September 30,Six Months Ended June 30,
 2019 2018 20202019
 (unaudited)(unaudited)
Net cash provided by Operating Activities $456,895
 $444,080
Net cash provided by Operating Activities$3,458  $311,212  
Cash flows from Investing Activities:  
  
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments (280,288) (386,098)Additions to property and equipment, including pre-delivery payments(93,956) (151,577) 
Proceeds from the disposition of aircraft related equipment 9,045
 117,143
Proceeds from the disposition of aircraft related equipment—  4,350  
Purchases of investments (265,705) (159,648)Purchases of investments(64,215) (189,929) 
Sales of investments 267,464
 182,816
Sales of investments143,679  225,706  
Other (6,275) —
Other—  (6,275) 
Net cash used in investing activities (275,759) (245,787)Net cash used in investing activities(14,492) (117,725) 
Cash flows from Financing Activities:  
  
Cash flows from Financing Activities:  
Long-term borrowings 227,889
 86,500
Long-term borrowings283,964  —  
Repayments of long-term debt and finance lease obligations (95,356) (53,741)Repayments of long-term debt and finance lease obligations(39,129) (77,471) 
Dividend payments (17,206) (18,327)Dividend payments(5,514) (11,554) 
Debt issuance costs (1,162) (1,108)Debt issuance costs—  (33) 
Repurchases of common stock (50,690) (53,894)Repurchases of common stock(7,510) (30,690) 
Other (1,026) (3,635)Other(1,313) (1,012) 
Net cash provided by (used in) financing activities 62,449
 (44,205)Net cash provided by (used in) financing activities230,498  (120,760) 
Net increase in cash and cash equivalents 243,585
 154,088
Net increase in cash and cash equivalents219,464  72,727  
Cash, cash equivalents, and restricted cash - Beginning of Period 268,577
 191,953
Cash, cash equivalents, and restricted cash - Beginning of Period373,056  268,577  
Cash, cash equivalents, and restricted cash - End of Period $512,162
 $346,041
Cash, cash equivalents, and restricted cash - End of Period$592,520  $341,304  
 
See accompanying Notes to Consolidated Financial Statements.


8

Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. General
Business and Basis of Presentation

Hawaiian Holdings, Inc. (the Company, Holdings, 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. 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,variations in the demand for air travel, 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. Furthermore, the severe impacts of the global coronavirus (COVID 19) pandemic make any comparison to prior or future periods unreliable. 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, 2018.2019.

2. Impact of the COVID-19 Pandemic

Due to the rapid and unprecedented spread of COVID-19, what began with the Company's suspension of service to South Korea and Japan in late February accelerated in March when governments instituted requirements of self-isolation or quarantine for incoming travelers. This was followed by the announcement in March 2020 of a 14-day mandatory quarantine for all travelers to, from and within the State of Hawai‘i. While quarantine requirements have ceased for travel within the State of Hawai‘i, restrictions related to travel to the State of Hawai‘i continued through the second quarter. As a result, travel demand declined precipitously to historically low levels and has remained depressed through the second quarter.

On June 10, 2020, the Governor of Hawai‘i extended the quarantine requirements for passengers traveling to Hawai‘i until at least July 31, 2020, but lifted them for Neighbor Island travel effective June 16, 2020. Following this announcement, the Company saw increases in bookings of Neighbor Island flights in June and have slowly begun rebuilding its Neighbor Island flight schedule commensurate with increases in demand. While the Governor of Hawai‘i announced the near-term possibility of lifting the quarantine requirement for passengers traveling to Hawai‘i upon demonstration of a negative COVID-19 test, on July 13, 2020, the Governor’s office announced that the mandatory quarantine would extend through at least the end of August 2020. The exact timing and pace of the recovery remains uncertain as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, remain closed or are enforcing extended quarantines for most U.S. residents. See Note 6, for a discussion of the recognition of passenger revenue, the Company's air traffic liability and ticket breakage.

In response to the COVID-19 pandemic, the Company implemented various measures to mitigate declining demand through capacity and cost reductions, while managing cash flow and liquidity.

Capacity Reductions. Beginning in the second half of March, the Company experienced a significant decline in demand as COVID-19 spread globally. In response, the Company significantly reduced system capacity to a level that maintained essential services to align capacity with expected demand. During the three and six months ended June 30, 2020, the Company reduced capacity by 92% and 46%, respectively, as compared to the same period in 2019. As a result of our capacity reductions, the Company temporarily parked approximately 38% of its fleet as of June 30, 2020.

Expense Management. In response to the reduction in revenue, the Company has implemented, and will continue to implement cost savings and liquidity measures, including:

•In March 2020, the Company instituted a hiring freeze, except for operationally critical and essential positions.
•Reduced capital expenditures for 2020 and continue to evaluate non-essential, non-aircraft capital expenditures. During the six months ended June 30, 2020, capital expenditures were approximately $94.0 million.
•The Company currently has aircraft deliveries scheduled between 2021 to 2025 and is in discussions regarding the potential deferment of deliveries initially scheduled in 2021.
9

•Offered voluntary unpaid leave and float day purchase programs to each work group, including early retirement options for eligible employees.
•All of the Company’s officers have reduced their base salaries by between 10% and 50% through at least September 30, 2020. Members of the Board of Directors have also temporarily reduced their compensation.
•In July 2020, the Company announced a Voluntary Separation Program (VSEP), which will provide eligible, non-contract employees compensation in exchange for voluntary separation, and is currently in negotiations with labor unions related to voluntary separation packages.

The Company anticipates it may implement further discretionary changes and other cost reduction and liquidity preservation measures as needed to address the volatile and quickly-changing dynamics of passenger demand and changes in revenue, regulatory and public health directives and prevailing government policy and financial market conditions.

Cash Flow and Liquidity Management. Our cash, cash equivalents and short-term investments as of June 30, 2020 was $760.9 million as a result of various actions taken to increase liquidity and strengthen financial position during the six months ended June 30, 2020, including, but not limited to:

•On March 16, 2020, the Company drew down fully from its previously undrawn $235.0 million revolving credit facility. Refer to Note 9 for additional discussion.
•On March 18, 2020, the Company suspended its stock repurchase program and on April 22, 2020, the Company suspended payment of dividends.
•During the three and six months ended June 30, 2020, the Company received $214.2 million in grants and $49.0 million in loans pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) Payroll Support Program (PSP), as discussed in further detail below. As of June 30, 2020, we have approximately $124.2 million remaining in PSP proceeds to be utilized and expects to receive an additional $29.2 million in July 2020.

The Company continues to explore and pursue options to raise additional financing by leveraging its unencumbered assets, which as of June 30, 2020, included 36 aircraft with an estimated fair value of approximately $860.0 million.

In June 2020, the Company entered into a Letter of Intent (LOI) with the U.S. Department of the Treasury (Treasury), and is eligible to receive up to $364 million in loans through the CARES Act Economic Relief Program (ERP), which is expected to be collateralized by the Company's non-aircraft assets. The Company has not yet made a determination as to whether to accept the ERP loans and continues to evaluate the terms of the financing. The Company has until September 30, 2020 to decide if it will accept the ERP loans.

Based on these actions, including recovery assumptions made for the impact of COVID-19, the Company has concluded that it will be able to generate sufficient liquidity to satisfy its obligations and remain in compliance with existing covenants in the Company's financing agreements for more than the next twelve months, prior to giving effect to any additional financing that may occur. The Company's assumptions about future conditions used to estimate liquidity requirements, including the impact of the COVID-19 pandemic and other ongoing impacts to the business, are subject to uncertainty, and actual results could differ from these estimates. The Company will continue to monitor these conditions as new information becomes available, and will update its analyses accordingly.

Valuation of Goodwill and Indefinite-Lived Intangibles

Goodwill and intangible assets with indefinite lives are not amortized. The Company applies a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company assesses the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach.

During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove the Company's stock price to 52-week lows and significantly reduced future cash flow projections. The Company qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of its goodwill and indefinite-lived intangible assets. The Company determined that the estimated fair value of the Company's 1 reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the unaudited Consolidated Balance Sheet, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.

10

Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in the Company's determination of fair value required significant judgments by management. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate for a control premium.

As of June 30, 2020, the Company had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. The Company determined that the fair value of its indefinite-lived intangible assets exceeded its carrying value and was not impaired.

Valuation of Long-Lived Assets

The Company's long-lived assets, consisting principally of aircraft and other non-aircraft equipment, are classified as property and equipment, net on the unaudited Consolidated Balance Sheet, and have a recorded value of approximately $2.3 billion at June 30, 2020. The Company reviews long-lived assets used in operations for impairment when events and circumstances indicate the assets may be impaired.

As part of the Company's response to COVID-19, discussed above, including substantial capacity reductions and the temporary grounding of the majority of its fleet, as well as reduced cash flow projections, the Company identified indicators of impairment of its long-lived assets. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. Based on the Company's evaluation, including consideration of the continuing impact of the COVID-19 pandemic and revised financial projections, it was determined that the net carrying values of the Company's ATR-42 and ATR-72 fleets, and assets held under its commercial real estate subsidiary were not recoverable through the generation of undiscounted future cash flows as of June 30, 2020.

The Company estimated the fair value of its ATR-42 and ATR-72 fleets using a 3rd party valuation, which resulted in a $27.5 million impairment charge. The Company estimated the fair value of the assets held in its commercial real-estate subsidiary using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, resulting in a $3.4 million impairment charge. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates.

In addition, during the three and six months ended June 30, 2020, the Company identified and wrote-off $3.1 million related to software-related projects that were discontinued as a result of the COVID-19 pandemic.

The Company will continue to monitor the duration and extent of the impact of COVID-19 on its business, and will continue to evaluate its current fleet and other long-lived assets for impairment accordingly.

CARES Act

On March 27, 2020, President Trump signed into law the CARES Act, which provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides for, among other things: (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of loans and loan guarantees available for operations under the ERP, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional corporate tax benefits that are further discussed in Note 13.

Payroll Support Program

On April 22, 2020 (PSP Closing Date), the Company entered into a Payroll Support Program agreement (the PSP Agreement) with the Treasury under the CARES Act. In connection with the PSP Agreement, the Company entered into a Warrant Agreement (the Warrant Agreement) with the Treasury, and the Company issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury will provide the Company with financial assistance to be released in installments expected to total approximately $292.5 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, the Company agreed to (i) refrain from conducting involuntary furloughs or
11

reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on the Company. Finally, the Company is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the U.S. Department of Transportation (DOT) and subject to exemptions granted by the DOT to the Company given the absence of demand for such services.

The Note issued by Hawaiian to the Treasury will increase to a total principal sum of approximately $57.8 million as Hawaiian receives installments from the Treasury under the PSP Agreement. The Note has a ten-year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.

As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the Warrant Agreement, the Company agreed to issue to the Treasury a total of 488,477 warrants to purchase shares of the Company’s common stock at an exercise price of $11.82 per share (the Warrants). The Warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company’s option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. Refer to Note 9 for additional discussion.

Economic Relief Program

In June 2020, the Company entered into an LOI with the Treasury, and is eligible to receive up to $364 million in loans under the CARES Act ERP. Conditions of the loan are consistent with the PSP; certain restrictions, however, including prohibition of share repurchases and dividend payments for 12 months after the loan is no longer outstanding. The Company has not yet made a determination on whether to accept the ERP loans and continues to evaluate the terms of the financing. The Company has until September 30, 2020 to decide if it will accept the ERP loans.

3. Significant Accounting Policies
 
Recently Adopted Accounting Pronouncements

In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASU 2016-02), which 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 statement of financial position for all leases (with the exception of short-term leases) at the lease commencement date and recognize expenses similar to the current ASC 840, Leases. ASC 842 is effective for fiscal years, and interim periods beginning after December 15, 2018.

The Company adopted ASC 842 as of January 1, 2019 using the transition method that provides for a cumulative-effect adjustment to retained earnings upon adoption. The Company elected the package of transition provisions available for expired or existing contracts, which allows the Company to carry-forward our historical assessments of (a) whether contracts are, or contain, leases, (b) lease classification, and (c) initial direct costs.

The adoption of the ASC 842 had a significant impact on the Company's consolidated balance sheet due to the recognition of approximately $603.9 million of operating lease liabilities and right-of-use (ROU) assets for operating leases of $649.3 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 three and nine months ended September 30, 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 10, Leases, for additional information.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), 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 was effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard during the first quarter of 2019. The adoption of this standard did not have an impact on the Company's Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASU 2016-13), which requires the use of an "expected loss" model on financial instruments and other commitments to extend credit held by a reporting entity at each


reporting date. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted.estimates over the lifetime of the asset. The Company will adoptadopted ASU 2016-13 effective January 1, 2020. The Company does not expect that the adoption of thethis standard willdid not have a significantmaterial impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (ASU 2017-04), which simplifies the measurement of goodwill as Step 2 of the goodwill impairment test was eliminated. ASU 2017-04 replaces the implied fair value of goodwill method with a methodology that compares the fair value of a reporting unit with its carrying amount. The Company adopted ASU 2017-04 effective January 1, 2020. Refer to Note 2 for discussion of the goodwill impairment recognized during in the first quarter of 2020.
3.
12

4. 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 componentsThree months ended June 30,Six months ended June 30,Affected line items in the statement where net income is presented
2020201920202019
 (in thousands) 
Derivative instruments under ASC 815     
Foreign currency derivative gains, net$(1,961) $(1,749) $(3,075) $(3,336) Passenger revenue
Foreign currency derivative gains, net(1,577) —  (4,363) —  Nonoperating Income (Expense), Other, net
Total before tax(3,538) (1,749) (7,438) (3,336)  
Tax expense875  426  1,840  817   
Total, net of tax$(2,663) $(1,323) $(5,598) $(2,519)  
Amortization of defined benefit plan items     
Actuarial loss$922  $831  $1,844  $1,662  Nonoperating Income (Expense), Other, net
Prior service cost56  56  112  112  Nonoperating Income (Expense), Other, net
Total before tax978  887  1,956  1,774   
Tax benefit(242) (218) (484) (386)  
Total, net of tax$736  $669  $1,472  $1,388   
Short-term investments     
Realized losses (gain) on sales of investments, net$(384) $69  $(371) $(28) Nonoperating Income (Expense), Other, net
Total before tax(384) 69  (371) (28)  
Tax expense (benefit)95  (17) 92  7   
Total, net of tax$(289) $52  $(279) $(21)  
Total reclassifications for the period$(2,216) $(602) $(4,405) $(1,152)  
Details about accumulated other comprehensive (income) loss components Three months ended September 30, Nine months ended September 30, Affected line items in the statement where net income is presented
 2019 2018 2019 2018 
  (in thousands)  
Derivatives designated as hedging instruments under ASC 815          
Foreign currency derivative losses (gains) $(1,095) $(1,080) $(4,431) $1,025
 Passenger revenue
Total before tax (1,095) (1,080) (4,431) 1,025
  
Tax expense (benefit) 271
 265
 1,025
 (250)  
Total, net of tax $(824) $(815) $(3,406) $775
  
Amortization of defined benefit plan items  
  
  
  
  
Actuarial loss $768
 $730
 $2,430
 $1,978
 Nonoperating Income (Expense), Other, net
Prior service cost 56
 56
 168
 168
 Nonoperating Income (Expense), Other, net
Total before tax 824
 786
 2,598
 2,146
  
Tax benefit (38) (145) (424) (478)  
Total, net of tax $786
 $641
 $2,174
 $1,668
  
Short-term investments  
  
  
  
  
Realized losses (gain) on sales of investments, net $(97) $21
 $(126) $52
 Nonoperating Income (Expense), Other, net
Total before tax (97) 21
 (126) 52
  
Tax expense (benefit) 24
 (5) 31
 (12)  
Total, net of tax $(73) $16
 $(95) $40
  
Total reclassifications for the period $(111) $(158) $(1,327) $2,483
  


A roll-forward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 is as follows:

Three months ended June 30, 2020Foreign Currency DerivativesDefined Benefit
Plan Items		Short-Term InvestmentsTotal
 (in thousands)
Beginning balance$3,685  $(107,430) $1,193  $(102,552) 
Other comprehensive income before reclassifications, net of tax244  —  1,354  1,598  
Amounts reclassified from accumulated other comprehensive income (loss), net of tax(2,663) 736  (289) (2,216) 
Net current-period other comprehensive income (loss)(2,419) 736  1,065  (618) 
Ending balance$1,266  $(106,694) $2,258  $(103,170) 
13

Three months ended September 30, 2019 Foreign Currency Derivatives Defined Benefit
Plan Items		 Short-Term Investments Total
Three months ended June 30, 2019Three months ended June 30, 2019Foreign Currency DerivativesDefined Benefit Plan ItemsShort-Term InvestmentsTotal
 (in thousands) (in thousands)
Beginning balance $816
 $(94,610) $707
 $(93,087)Beginning balance$4,462  $(95,279) $(62) $(90,879) 
Other comprehensive income before reclassifications, net of tax 2,920
 —
 165
 3,085
Other comprehensive income (loss) before reclassifications, net of taxOther comprehensive income (loss) before reclassifications, net of tax(2,323) —  717  (1,606) 
Amounts reclassified from accumulated other comprehensive income (loss), net of tax (824) 786
 (73) (111)Amounts reclassified from accumulated other comprehensive income (loss), net of tax(1,323) 669  52  (602) 
Net current-period other comprehensive income 2,096
 786
 92
 2,974
Net current-period other comprehensive income (loss)Net current-period other comprehensive income (loss)(3,646) 669  769  (2,208) 
Ending balance $2,912
 $(93,824) $799
 $(90,113)Ending balance$816  $(94,610) $707  $(93,087) 

Six months ended June 30, 2020Foreign Currency DerivativesDefined Benefit
Plan Items		Short-Term InvestmentsTotal
 (in thousands)
Beginning balance$3,341  $(108,028) $804  $(103,883) 
Other comprehensive income (loss) before reclassifications, net of tax3,523  (138) 1,733  5,118  
Amounts reclassified from accumulated other comprehensive income (loss), net of tax(5,598) 1,472  (279) (4,405) 
Net current-period other comprehensive income (loss)(2,075) 1,334  1,454  713  
Ending balance$1,266  $(106,694) $2,258  $(103,170) 

Six months ended June 30, 2019Foreign Currency DerivativesDefined Benefit Plan ItemsShort-Term InvestmentsTotal
 (in thousands)
Beginning balance$3,317  $(95,855) $(602) $(93,140) 
Other comprehensive income (loss) before reclassifications, net of tax18  (143) 1,330  1,205  
Amounts reclassified from accumulated other comprehensive income (loss), net of tax(2,519) 1,388  (21) (1,152) 
Net current-period other comprehensive income (loss)(2,501) 1,245  1,309  53  
Ending balance$816  $(94,610) $707  $(93,087) 

Three months ended September 30, 2018 Foreign Currency Derivatives Defined Benefit Plan Items Short-Term Investments Total
  (in thousands)
Beginning balance $3,268
 $(74,926) $(853) $(72,511)
Other comprehensive income before reclassifications, net of tax 5,107
 —
 151
 5,258
Amounts reclassified from accumulated other comprehensive income (loss), net of tax (815) 641
 16
 (158)
Net current-period other comprehensive income 4,292
 641
 167
 5,100
Ending balance $7,560
 $(74,285) $(686) $(67,411)


Nine months ended September 30, 2019 Foreign Currency Derivatives Defined Benefit Pension Items Short-Term Investments Total
  (in thousands)
Beginning balance 3,317
 (95,855) (602) (93,140)
Other comprehensive income (loss) before reclassifications, net of tax 3,001
 (143) 1,496
 4,354
Amounts reclassified from accumulated other comprehensive income (loss), net of tax (3,406) 2,174
 (95) (1,327)
Net current-period other comprehensive income (405) 2,031
 1,401
 3,027
Ending balance 2,912
 (93,824) 799
 (90,113)

Nine months ended September 30, 2018 Foreign Currency Derivatives Defined Benefit Plan 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 5,536
 —
 (166) 5,370
Amounts reclassified from accumulated other comprehensive income, net of tax 775
 1,668
 40
 2,483
Net current-period other comprehensive income (loss) 6,311
 1,668
 (126) 7,853
Ending balance 7,560
 (74,285) (686) (67,411)


4.5. Earnings (Loss) Per Share
 
Basic earnings (loss) 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. AntidilutiveFor the three and six months ended June 30, 2020, there were 105,235 and 123,450 potentially dilutive shares, respectively, that were excluded from the computation of diluted earnings per share calculation are not material.weighted average common stock shares outstanding because their effect would have been antidilutive given the Company's net loss. The following table shows the computation of basic and diluted earnings (loss) per share:

14

  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
  (in thousands, except for per share data)
Numerator:  
  
  
  
Net Income $80,076
 $93,542
 $174,267
 $201,564
Denominator:  
  
  
  
Weighted average common stock shares outstanding - Basic 47,119
 50,594
 47,784
 50,807
Assumed exercise of stock options and awards 117
 137
 63
 128
Weighted average common stock shares outstanding - Diluted 47,236
 50,731
 47,847
 50,935
Net Income Per Share  
  
  
  
Basic $1.70
 $1.85
 $3.65
 $3.97
Diluted $1.70
 $1.84
 $3.64
 $3.96

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (in thousands, except for per share data)
Numerator:    
Net Income (Loss)$(106,904) $57,833  $(251,276) $94,191  
Denominator:    
Weighted average common stock shares outstanding - Basic45,971  47,854  45,969  48,122  
Assumed exercise of stock options and awards—  35  —  36  
Weighted average common stock shares outstanding - Diluted45,971  47,889  45,969  48,158  
Net Income (Loss) Per Share    
Basic$(2.33) $1.21  $(5.47) $1.96  
Diluted$(2.33) $1.21  $(5.47) $1.96  

Stock Repurchase Program

In November 2017,2018, the Company's Board of Directors approved the repurchase of up to $100 million of its outstanding common stock over a two-year period through December 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-yeartwo-year period through December 2020. TheOn March 18, 2020, the Company announced the suspension of its stock repurchase program and pursuant to its receipt of financial assistance under the CARES Act, it is subject to modification or terminationrestricted from making any stock repurchases through at any time. Theleast September 30, 2021. Accordingly, the Company will not be making any further repurchases under its current stock repurchase shares of its common stock subject to prevailing market conditions and may discontinue such repurchases at any time.program.

The Company had no stock repurchase activity during the three months ended June 30, 2020. During the three months ended June 30, 2019, the Company spent $20.0 million and $50.7$19.6 million to repurchase and retire approximately 0.8 million shares and 1.9 million725 thousand shares of the Company's common stock in open market transactions duringtransactions. During the three and ninesix months ended SeptemberJune 30, 2020 and 2019, respectively. Thethe Company spent $31.1$7.5 million and $53.9$30.7 million, respectively, to repurchase and retire approximately 0.8260 thousand shares and 1.1 million shares, and 1.4 million sharesrespectively, of the Company's common stock in open market transactions during the three and nine months ended September 30, 2018, respectively. As of September 30, 2019, the Company had $46.8 million remaining to spend under its existing stock repurchase program.transactions.

Dividends

During the threesix months ended SeptemberJune 30, 2019,2020, the Company declared a cash dividend of $0.12 per share for stockholders of record as of August 16, 2019,February 14, 2020, which was paid on August 30, 2019,February 28, 2020, totaling $5.7$5.5 million. DuringThe Company’s receipt of financial assistance under the nine months endedCARES Act precludes the Company from making any further dividend payments through at least September 30, 2019, the Company declared and paid cash dividends of $0.12 per share for each of the three quarters, totaling $17.2 million.2021.

5.6. Revenue Recognition
The majority of the 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.
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 1 significant line of business (i.e., air transportation), management has concluded that it has only 1 segment. The Company's operating revenues by geographic region (as defined by the U.S. Department of Transportation) are summarized below:


  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Geographic Information (in thousands)
Domestic $533,235
 $535,155
 $1,542,480
 $1,555,833
Pacific 221,916
 223,932
 581,611
 584,113
Total operating revenue $755,151
 $759,087
 $2,124,091
 $2,139,946

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 typically charges additional fees for items such as baggage and in-flight entertainment.baggage. 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.
The majority of the Company's passenger revenue is derived from passenger ticket sales. Other revenue is primarily derived from the Company's cargo operations and loyalty program. 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 1 significant line of business (i.e., air transportation), management has concluded that it has only 1 segment. The Company's operating revenues by geographic region (as defined by the DOT) are summarized below:
15

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Geographic Information(in thousands)
Domestic$55,106  $531,725  $457,120  $1,009,245  
Pacific4,898  180,464  162,028  359,695  
Total operating revenue$60,004  $712,189  $619,148  $1,368,940  

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 is mobile across geographic markets, and therefore has not been allocated to specific geographic regions. During the three months ended June 30, 2020 and 2019, North America routes accounted for approximately 57% and 73% of domestic revenue, respectively.
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,
2020201920202019
Passenger Revenue by Type(in thousands)
Passenger revenue, excluding frequent flyer$26,169  $613,574  $500,304  $1,181,429  
Frequent flyer revenue, transportation component3,593  39,849  32,927  73,298  
Passenger Revenue$29,762  $653,423  $533,231  $1,254,727  
Other revenue (e.g., cargo and other miscellaneous)$17,436  $36,571  $51,619  $72,802  
Frequent flyer revenue, marketing and brand component12,806  22,195  34,298  41,411  
Other Revenue$30,242  $58,766  $85,917  $114,213  
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Passenger Revenue by Type (in thousands)
Passenger revenue, excluding frequent flyer $653,424
 $658,886
 $1,834,853
 $1,855,247
Frequent flyer revenue, transportation component 40,839
 38,346
 114,137
 108,747
Passenger Revenue $694,263
 $697,232
 $1,948,990
 $1,963,994
         
Other revenue (e.g., cargo and other miscellaneous) $37,725
 $43,046
 $110,527
 $123,275
Frequent flyer revenue, marketing and brand component 23,163
 18,809
 64,574
 52,677
Other Revenue $60,888
 $61,855
 $175,101
 $175,952

For the three months ended SeptemberJune 30, 20192020 and 2018,2019, the Company's total revenue was $755.2$60.0 million and $759.1$712.2 million, respectively. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company's Air traffic liability balance, as it relates to passenger tickets (excluding frequent flyer)flyer liability), was $472.3$351.5 million and $427.8$426.9 million, respectively, which generally represents future revenue that is expected to be realized over the next 12 months. Prior to the second quarter of 2020, passenger tickets sold and credits issued were generally valid for one year from the date of issuance or flight, as applicable. In April 2020, we announced the waiver of certain change fees and extended ticket validity for up to 24 months. Management assessed the impact of this change and believes that the classification of ATL as a current liability continues to remain appropriate. Management will continue to monitor customers' travel behavior and may adjust its estimates in the future.

During the three months ended SeptemberJune 30, 20192020 and 2018,2019, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $367.5$0.4 million and $323.4 million.$333.9 million, respectively. During the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $422.1$253.6 million and $357.4 million.$389.8 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., sales, use, value


added, and certain excise 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 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 in satisfying the obligation.

During the first quarter of 2018, the Company amended its 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 the Company's Barclay's co-branded cardholders. The amended agreement 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 mileage sales to co-branded partners involves the use of various techniques to estimate revenue. 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 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 in Air traffic liability and current frequent flyer deferred revenue and Noncurrent frequent flyer deferred revenue in the Company's consolidated balance sheetunaudited Consolidated Balance Sheet based on estimated and expected


redemption patterns using historical data and analysis. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company's contractfrequent flyer liability balance was $348.3$375.2 million and $332.2$349.8 million, respectively.
16

June 30, 2020December 31, 2019
(in thousands)
Air traffic liability (current portion of frequent flyer revenue)$195,500  $174,588  
Noncurrent frequent flyer deferred revenue179,740  175,218  
Total frequent flyer liability$375,240  $349,806 ��
Accounts Receivable -
Accounts receivable primarily consist
Frequent flyer program deferred revenue classified as a current liability represents the Company's current estimate 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 lossesrevenue expected to be incurredrecognized in the next 12 months based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.

6. Short-Term Investments
Debt securities that are notprojected redemptions, while the balance classified as cash equivalents are classified as available-for-sale investmentsa noncurrent liability represents the Company's current estimate of revenue expected to be recognized beyond 12 months. Due to the effects of the COVID-19 pandemic, including changes to the Company's ticket validity and are stated as current assets at fair value as these securities are available for use in current operations. Realized gainsexchange policies, management continues to monitor customers' travel behavior and losses on sales of investments are reflected in nonoperating income (expense)may adjust its estimates in the Company's unaudited Consolidated Statements of Operations. Unrealized gains and losses on available for sale securities are reflectedfuture as a component of Accumulated other comprehensive loss, net.additional information becomes available.

The following is a summary of short-term investments held as of September 30, 2019 and December 31, 2018:
  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
September 30, 2019 (in thousands)
Corporate debt $104,849
 $890
 $(8) $105,731
U.S. government and agency debt 70,740
 270
 (51) 70,959
Certificates of Deposit 45,456
 —
 —
 45,456
Other fixed income securities 10,298
 —
 —
 10,298
Total short-term investments $231,343
 $1,160
 $(59) $232,444

  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
December 31, 2018 (in thousands)
Corporate debt $142,748
 $49
 $(695) $142,102
U.S. government and agency debt 37,163
 3
 (59) 37,107
Municipal bonds 9,903
 —
 (32) 9,871
Other fixed income securities 43,183
 2
 (24) 43,161
Total short-term investments $232,997
 $54
 $(810) $232,241

Contractual maturities of short-term investments as of September 30, 2019 are shown below. 
  Under 1 Year 1 to 5 Years Total
  (in thousands)
Corporate debt $25,503
 $80,228
 $105,731
U.S. government and agency debt 31,894
 39,065
 70,959
Certificates of Deposit 45,456
 —
 45,456
Other fixed income securities 10,298
 —
 10,298
Total short-term investments $113,151
 $119,293
 $232,444


7.  Fair Value Measurements
 
ASCAccounting Standards Codification (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 September 30, 2019 Fair Value Measurements as of June 30, 2020
 Total Level 1 Level 2 Level 3 TotalLevel 1Level 2Level 3
 (in thousands) (in thousands)
Cash equivalents $105,802
 $85,078
 $20,724
 $—
Cash equivalents$280,701  $280,701  $—  $—  
Short-term investments 232,444
 —
 232,444
 —
Short-term investments
Corporate debt securitiesCorporate debt securities86,905  —  86,905  —  
U.S. government and agency securitiesU.S. government and agency securities59,285  —  59,285  —  
Other fixed income securitiesOther fixed income securities22,220  —  22,220  —  
Total short-term investmentsTotal short-term investments168,410  —  168,410  —  
Fuel derivative contracts 3,438
 —
 3,438
 —
Fuel derivative contracts337  —  337  —  
Foreign currency derivatives 4,120
 —
 4,120
 —
Foreign currency derivatives1,105  —  1,105  —  
Total assets measured at fair value $345,804
 $85,078
 $260,726
 $—
Total assets measured at fair value$450,553  $280,701  $169,852  $—  
Foreign currency derivatives 919
 —
 919
 —
Foreign currency derivatives113  —  113  —  
Total liabilities measured at fair value $919
 $—
 $919
 $—
Total liabilities measured at fair value$113  $—  $113  $—  
 
  Fair Value Measurements as of December 31, 2018
  Total Level 1 Level 2 Level 3
  (in thousands)
Cash equivalents $121,154
 $42,175
 $78,979
 $—
Short-term investments 232,241
 —
 232,241
 —
Fuel derivative contracts 1,572
 —
 1,572
 —
Foreign currency derivatives 4,579
 —
 4,579
 —
Total assets measured at fair value $359,546
 $42,175
 $317,371
 $—
Foreign currency derivatives 1,347
 —
 1,347
 —
Total liabilities measured at fair value $1,347
 $—
 $1,347
 $—
17

 Fair Value Measurements as of December 31, 2019
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$216,491  $205,943  $10,548  $—  
Short-term investments
Corporate debt securities100,713  —  100,713  —  
U.S. government and agency securities75,481  —  75,481  —  
Other fixed income securities69,405  —  69,405  —  
Total short-term investments245,599  —  245,599  —  
Fuel derivative contracts5,878  —  5,878  —  
Foreign currency derivatives4,424  —  4,424  —  
Total assets measured at fair value$472,392  $205,943  $266,449  $—  
Foreign currency derivatives593  —  593  —  
Total liabilities measured at fair value$593  $—  $593  $—  

Cash equivalents. The Company's Level 1 cash equivalents consist of money market securities and certificates of deposit.securities. The carrying amounts approximate fair value because of the short-term maturity of these assets. The Company's Level 2 cash equivalents consist primarily of U.S. agency bonds, mutual funds, and commercial paper.debt securities. These instruments are valued using quoted prices for similar assets in active markets.

Short-term investments. Short-term investments shown in the table above are classified as available-for-sale. Instruments are valued based on a market approach using industry standard valuation techniques that incorporate inputs such as quoted prices for similar assets, in active markets orinterest rates, benchmark curves, credit ratings, and other observable inputs. As of June 30, 2020, corporate debt securities have remaining maturities of two years or less, U.S. government and agency securities have maturities of approximately two years or less, and other fixed-income securities of one year or less.

Fuel derivative contracts. The Company’s fuel derivative contracts consist of crude oil call options, which are not traded on a public exchange. The fair value of these instruments is 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 readily observable in public markets.

The table below presents the Company’s debt (excluding obligations under finance leases) measured at fair value: 


Fair Value of Debt
September 30, 2019 December 31, 2018
Carrying Fair Value Carrying Fair Value
Amount Total Level 1 Level 2 Level 3 Amount Total Level 1 Level 2 Level 3
(in thousands)
$619,798
 $622,125
 $—
 $—
 $622,125
 $467,760
 $461,805
 $—
 $—
 $461,805

Fair Value of Debt
June 30, 2020December 31, 2019
CarryingFair ValueCarryingFair Value
AmountTotalLevel 1Level 2Level 3AmountTotalLevel 1Level 2Level 3
(in thousands)
$868,998  $800,710  $—  $—  $800,710  $610,397  $605,286  $—  $—  $605,286  
 
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.

As discussed in Note 2 above, the Company recognized an impairment charge on its long-lived assets of approximately $30.9 million during the three and six months ended June 30, 2020. The impairment charges were calculated using Level 3 fair value inputs based primarily upon forecasted future cash flows, recent market transactions, published pricing guides and our assessment of existing market conditions based on industry knowledge.
18

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 ninesix months ended SeptemberJune 30, 2019,2020, the Company primarily usedCompany's portfolio comprised of crude oil call options, to hedge its aircraft fuel expense. These derivative instrumentswhich 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,
Fuel derivative contracts2020201920202019
 (in thousands)
Losses realized at settlement$(2,751) $(3,051) $(5,837) $(5,895) 
Reversal of prior period unrealized amounts5,854  4,767  2,488  8,181  
Unrealized losses that will settle in future periods(3,287) (4,936) (3,287) (4,936) 
Losses on fuel derivatives recorded as Nonoperating Expense$(184) $(3,220) $(6,636) $(2,650) 
  Three months ended September 30, Nine months ended September 30,
Fuel derivative contracts 2019 2018 2019 2018
  (in thousands)
Gains (losses) realized at settlement $(3,399) $8,085
 $(9,294) $24,572
Reversal of prior period unrealized amounts 4,936
 (18,873) 8,181
 (11,791)
Unrealized gains (losses) that will settle in future periods (6,090) 14,283
 (6,090) 14,283
Gains (losses) on fuel derivatives recorded as nonoperating income (expense) $(4,553) $3,495
 $(7,203) $27,064


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 to the Japanese Yen and the 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.

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 therefore any changes in fair value are recognized as other nonoperating income (expense) in the period of change.

During the three and six months ended June 30, 2020, the Company de-designated certain hedged transactions with maturity dates through December 2020 as the Company concluded that the cash flows attributable to the hedged risk were no longer probable of occurring. As a result, the Company reclassified approximately $1.6 million and $4.4 million from AOCI to nonoperating income in the period during the three and six months ended June 30, 2020, respectively. Future gains and losses related to these instruments will continue to be recorded in nonoperating expense.
 
The Company believes that its remaining 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 $3.1$1.3 million from AOCI into earnings over the next 12 months from AOCI based on the values of its foreign currency forward contracts at SeptemberJune 30, 2019.2020.
 
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.

19

Derivative position as of SeptemberJune 30, 20192020 
 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 AmountFinal
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        
  
  
Derivatives designated as hedges      
Foreign currency derivatives Prepaid expenses and other 18,172,950 Japanese Yen
45,848 Australian Dollars		 September 2020 3,391
 (539) 2,852
Foreign currency derivativesPrepaid expenses and other3,639,950 Japanese Yen
5,841 Australian Dollars		June 2021518  (87) 431  
 Long-term prepayments and other 5,359,550 Japanese Yen
7,952 Australian Dollars		 September 2021 507
 (60) 447
 Long-term prepayments and other1,859,600 Japanese Yen
1,712 Australian Dollars		February 2022405  (21) 384  
Derivatives not designated as hedges        
  
  Derivatives not designated as hedges     
Foreign currency derivatives Other accrued liabilities 987,100 Japanese Yen
2,095 Australian Dollars		 December 2019 222
 (320) (98)Foreign currency derivativesPrepaid expenses and other947,900 Japanese Yen
1,279 Australian Dollars		December 2020182  (5) 177  
Fuel derivative contracts Prepaid expenses and other 97,860 gallons September 2020 3,438
 —
 3,438
Fuel derivative contractsPrepaid expenses and other58,296 gallonsMarch 2021337  —  337  
 
Derivative position as of December 31, 20182019
  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)
Derivatives designated as hedges        
  
  
Foreign currency derivatives 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 4,491,350 Japanese Yen
9,419 Australian Dollars		 December 2020 633
 (292) 341
Derivatives not designated as hedges        
  
  
Foreign currency derivatives Other accrued liabilities 832,900 Japanese Yen
2,785 Australian Dollars		 March 2019 24
 (140) (116)
Fuel derivative contracts Prepaid expenses and other 95,256 gallons December 2019 1,572
 —
 1,572

Balance Sheet
Location		Notional AmountFinal
Maturity
Date		Gross fair
value of
assets		Gross fair
value of
(liabilities)		Net
derivative
position
  (in thousands) (in thousands)
Derivatives designated as hedges      
Foreign currency derivativesPrepaid expenses and other19,270,650 Japanese Yen
44,468 Australian Dollars		December 20203,787  (358) 3,429  
Long-term prepayments and other5,487,250 Japanese Yen
8,429 Australian Dollars		December 2021618  (193) 425  
Derivatives not designated as hedges     
Foreign currency derivativesOther accrued liabilities694,050 Japanese Yen
2,438 Australian Dollars		March 202019  (42) (23) 
Fuel derivative contractsPrepaid expenses and other97,986 gallonsDecember 20205,878  —  5,878  
 
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 recognized in AOCI on derivativesGain reclassified from AOCI
into income
 Three months ended June 30,Three months ended June 30,
 2020201920202019
(in thousands)
Foreign currency derivatives$3,440  $3,083  $(3,538) $(1,749) 
  (Gain) loss recognized in AOCI on derivatives (Gain) loss reclassified from AOCI
into income
  Three months ended September 30, Three months ended September 30,
  2019 2018 2019 2018
  (in thousands)
Foreign currency derivatives $(3,881) $(6,769) $(1,095) $(1,080)
 Gain recognized in AOCI on derivativesGain reclassified from AOCI
into income
 Six months ended June 30,Six months ended June 30,
 2020201920202019
(in thousands)
Foreign currency derivatives$1,869  $(23) $(7,438) $(3,336) 


  (Gain) loss recognized in AOCI on derivatives (Gain) loss reclassified from AOCI
into income
  Nine months ended September 30, Nine months ended September 30,
  2019 2018 2019 2018
  (in thousands)
Foreign currency derivatives (3,904) (7,338) (4,431) 1,025

Risk and Collateral
 
20

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 assesses 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 0 collateral posted with counterparties as of SeptemberJune 30, 20192020 and December 31, 2018.2019.

The Company is also subject to market risk in the event that 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.  Debt
 
As of SeptemberJune 30, 2019,2020, the expected maturities of long-term debt for the remainder of 20192020 and the next four years, and thereafter, were as follows (in thousands): 
Remaining months in 2020$27,894  
202182,853  
2022325,127  
202355,110  
202453,009  
Thereafter325,005  
 $868,998  
Remaining months in 2019$7,938
202055,611
202182,740
202290,016
202354,998
Thereafter328,495
 $619,798


Revolving Credit Facility
During
In March 2020, the nine months ended September 30, 2019,Company drew down $235.0 million in revolving loans pursuant to its Amended and Restated Credit and Guaranty Agreement (the Credit Agreement) dated December 11, 2018. The Credit Agreement terminates, and all outstanding revolving loans thereunder will be due and payable, on December 11, 2022, unless otherwise extended by the parties. The revolving loans bear a variable interest rate equal to the London interbank offer rate plus a margin of 2.25% per annum. The revolving loans are secured by certain assets of Hawaiian and the Company. The Credit Agreement requires that the Company maintain $300.0 million in liquidity, as defined under the Credit Agreement. In the event that the requirement is not met, or other customary conditions are not satisfied, the due date of the revolving loans may be accelerated.

Payroll Support Program Note

In April 2020, the Company entered into the Note for approximately $57.8 million and agreed to issue to the Treasury a total of 488,477 warrants to purchase shares of the Company's common stock pursuant to the PSP Agreement. During the three months ended June 30, 2020, the Company recorded the value of the Note and the Warrants on a relative fair value basis as $41.6 million of noncurrent debt and $7.4 million in additional paid in capital, respectively. The Company expects to enter into the final $8.8 million installment of the Note and issue the related Warrants in July 2020 in connection with receipt of the final payment pursuant to the PSP Agreement. See Note 2 Japanese Yen denominated debt agreements totaling $227.9 million (¥24.7 billion), which were collateralized through a combinationabove for further discussion of 2 A321neo and 4 A330-200 aircraft with a NBV of approximately $382.7 million. Thethe terms of the loans are 12 years and 5.5 years, at fixed installment coupon rates of 0.76% and 0.65%, respectively, and initially measured and recorded for $89.1 million and $138.7 million, respectively. At each balance sheet date, the Company remeasures the outstanding principal balance at the spot rate for the respective period and records any gain or loss at the current rate within the other nonoperating income (expense) line item. During the three and nine months ended September 30, 2019, the Company recorded foreign currency unrealized losses of $0.7 million and $2.3 million, respectively. During each of the three and nine months ended September 30, 2018, the Company recorded foreign currency unrealized gains of $2.3 million. These amounts include the above referenced debt agreements and the foreign denominated debt agreements entered in 2018.Note.

10.  Leases
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.
The Company's leases do not provide a readily determinable implicit rate; therefore, the Company utilizes an incremental borrowing rate to discount 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 September 30, 2019, the Company leased 19 aircraft, of which 5 are under finance leases and 14 are under operating leases. These leases have remaining lease 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 7 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 (excluding the maintenance hangar discussed below). The Company leases space from government agencies that control the use of the airport. The remaining lease terms vary from 1 month to 30 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, Hawai'i. These leases are classified as operating and have remaining lease terms ranging between 1 to 7 years.
Maintenance Hangar
In November 2016, the Company entered into a lease agreement with the Department of Transportation of the State of Hawai'i (the "Hawai'i Lease") to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a remaining lease term of 32 years. As the hangar was not fully constructed, the Company took responsibility of the construction and was responsible for the remainder of the 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 amount previously spent by the lessor.

As discussed in Note 2, ASC 842 eliminated the previous build-to-suit lease accounting guidance 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. The agreement is accounted for as an operating lease under ASC 842.

In July 2019, the Company entered into an amendment to the Hawai'i Lease with the State of Hawai'i. The amendment resulted in the adjustment of lease rates and was accounted for as a modification under ASC 842. The modification did not result in a change in lease classification. The impact to both the ROU asset and lease liability is reflected in the Lease Position Table below.

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 September 30, 2019
The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheet.


  Classification on the Balance Sheet September 30, 2019
    (in thousands)
Assets:    
Operating lease assets Operating lease right-of use assets $583,542
Finance lease assets Property and equipment, net 160,905
Total lease assets   $744,447
     
Liabilities:    
Current    
Operating Current maturities of operating leases $86,632
Finance Current maturities of long-term debt and finance lease obligations 23,583
Noncurrent    
Operating Noncurrent operating leases 455,765
Finance Long-Term Debt and Finance Lease Obligations 148,140
Total lease liabilities   $714,120
     
Weighted-average remaining lease term    
Operating leases   10.5 years
Finance leases   8.5 years
Weighted-average discount rate    
Operating leases (1)   4.81%
Finance leases   4.68%
(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 and nine months ended September 30, 2019, the total lease costs for finance and operating leases were as follows:
  Three Months Ended September 30, Nine months ended September 30,
  2019
  (in thousands)
Finance lease cost:    
Amortization of right-of-use assets $6,361
 $18,923
Interest of lease liabilities 2,052
 6,265
Operating lease cost (1) 30,035
 89,787
Short-term lease cost (1) 865
 4,181
Variable lease cost (1) 32,979
 93,582
Total lease cost $72,292
 $212,738
(1) Expenses are classified within aircraft rent and other rentals and landing fees in the consolidated statements of operations.
During the three and nine months ended September 30, 2019, the cash paid for amounts included in the measurement of lease liabilities were as follows:


  Three Months Ended September 30, Nine months ended September 30,
  2019
  (in thousands)
Operating cash flows from operating leases 28,479
 87,362
Operating cash flows from finance leases 2,052
 6,265
Financing cash flows from finance lease 5,886
 17,407

Undiscounted Cash Flows
As of September 30, 2019, the scheduled future minimum rental payments under operating and finance leases with non-cancellable basic terms of more than one year were as follows:
 Finance Leases Operating Leases
 Aircraft Other Aircraft Other
 (in thousands)
Remaining in 2019$6,355
 $1,466
 $27,531
 $1,716
202025,433
 5,327
 96,072
 7,570
202125,447
 3,912
 81,750
 7,781
202225,027
 3,578
 71,690
 8,185
202321,997
 5,019
 61,750
 8,398
Thereafter76,237
 7,108
 158,493
 180,972
Total minimum lease payments180,496
 26,410
 497,286
 214,622
Less: amounts representing interest(29,941) (5,242) (68,913) (100,598)
Present value of future minimum lease payments$150,555
 $21,168
 $428,373
 $114,024
Less: current maturities of lease obligations(18,749) (4,834) (84,071) (2,561)
Long-term lease obligations$131,806
 $16,334
 $344,302
 $111,463

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 September 30, Nine months ended September 30,
Components of Net Period Benefit Cost 2019 2018 2019 2018
  (in thousands)
Service cost $2,120
 $2,275
 $6,311
 $6,199
Other cost:        
Interest cost 5,584
 5,145
 16,799
 15,163
Expected return on plan assets (5,487) (5,594) (16,452) (16,770)
Recognized net actuarial loss 824
 786
 2,599
 2,146
Total other components of the net periodic benefit cost 921
 337
 2,946
 539
Net periodic benefit cost $3,041
 $2,612
 $9,257
 $6,738
21

 Three months ended June 30,Six months ended June 30,
Components of Net Period Benefit Cost2020201920202019
 (in thousands)
Service cost$2,667  $2,096  $5,334  $4,192  
Other cost:
Interest cost4,970  5,608  9,939  11,216  
Expected return on plan assets(6,286) (5,483) (12,573) (10,966) 
Recognized net actuarial loss978  887  1,957  1,774  
Total other components of the net periodic benefit cost(338) 1,012  (677) 2,024  
Net periodic benefit cost$2,329  $3,108  $4,657  $6,216  
 
Total other components of the net periodic benefit cost are recorded within the nonoperating income (expense), other, net line item in the consolidated statementsunaudited Consolidated Statements of operations.Operations. During the three and ninesix months ended SeptemberJune 30, 2020 and 2019, the Company was not required to, and did not0t make cash contributions to its defined benefit and other post-retirement plans. During the three and nine months ended September 30, 2018, the

The Company madeis not required to make a discretionarycash contribution of $50.0 million to its defined benefit and other postretirement plans.plan for the remainder of 2020.



12.11. Commitments and Contingent Liabilities
 
Commitments

As of SeptemberJune 30, 2019,2020, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights for additional aircraft and engines:
Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft—  9  N/A
B787-9 aircraft10  10  Between 2021 and 2025
General Electric GEnx spare engines:   
B787-9 spare engines2  2  Between 2021 and 2023
Aircraft Type Firm Orders Purchase Rights Expected Delivery Dates
A321neo aircraft 3
 3
 Between 2019 and 2020
B787-9 aircraft 10
 10
 Between 2021 and 2025
       
Pratt & Whitney spare engines:  
  
  
A321neo spare engines (1) —
 2
 N/A
General Electric GEnx spare engines:  
  
  
B787-9 spare engines 2
 2
 Between 2021 and 2025


(1)During the second quarter of 2019, the Company took delivery of its remaining A321neo spare engine and maintain purchase rights for an additional 2 engines, which expire on December 31, 2019.

In February 2018, the Company exercised its right to terminate its aircraft purchase agreement between the Company and Airbus for 6 Airbus A330-800neo aircraft and the purchase rights for an additional 6 Airbus A330-800neo aircraft. Refer to Note 13 below for discussion on the contract termination charge.

In July 2018, the Company entered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 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 4 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 purchase of spare parts and materials and related services.

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 SeptemberJune 30, 20192020 are detailed below: 
Aircraft and aircraft relatedOtherTotal Committed
Expenditures
 (in thousands)
Remaining in 2020$97,910  $41,359  $139,269  
2021315,781  83,315  399,096  
2022436,659  73,214  509,873  
2023246,996  65,506  312,502  
2024354,120  57,450  411,570  
Thereafter111,502  131,266  242,768  
 $1,562,968  $452,110  $2,015,078  
22

  Aircraft and aircraft related Other Total Committed
Expenditures
  (in thousands)
Remaining in 2019 $113,604
 $20,356
 $133,960
2020 177,700
 76,588
 254,288
2021 313,570
 72,782
 386,352
2022 437,636
 64,917
 502,553
2023 245,612
 59,469
 305,081
Thereafter 469,397
 167,120
 636,517
  $1,757,519
 $461,232
 $2,218,751

During the second quarter of 2019,In July 2020, the Company made scheduled payments of $44.8 million to pay off its debt facility entered into sale-leaseback transactions for the financing2 A321neo aircraft generating total proceeds of its Boeing 717-200 aircraft. As of September 30, 2019, all owned Boeing 717-200 aircraft were unencumbered.approximately $114.0 million.



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 are included in restricted cash in the Company’s unaudited Consolidated Balance Sheets. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, there were 0 holdbacks held with the Company's credit card processors.
 
In the event of a material adverse change in the Company's business, the holdbackcredit card processor could increase holdbacks to an amount up to 100% of the amount of outstanding credit card amountstickets that isare unflown (e.g., airAir traffic liability, excluding frequent flyer deferred revenue), which would also cause an increaseresult in the levela restriction of restricted cash. If the Company iswere 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. Contract Terminations Expense12. Special Items

Contract terminations expenseSpecial items in the unaudited Consolidated Statements of Operations consisted of the following:

Three months ended June 30,Six months ended June 30,
2020201920202019
(in thousands)
Collective bargaining agreement payment (1)
$—  $—  $20,242  $—  
Goodwill impairment (2)
—  —  106,662  —  
Long-lived asset impairment (3)
34,014  —  34,014  —  
Total Special items$34,014  $—  $160,918  $—  
For
(1)In March 2020, the nineCompany reached an agreement in principle with the flight attendants of Hawaiian, represented by the Association of Flight Attendants (the AFA) on a new five-year contract that runs through April 2025. On April 3, 2020, the Company received notice from the AFA that the collective bargaining agreement (CBA) was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flights attendants upon retirement. During the six months ended SeptemberJune 30, 2018,2020, the Company terminated 2 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 6 Airbus A330-800neo aircraft and the purchase rights for an additional 6 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$23.5 million ratification bonus, of which $20.2 million was related to reflectservice prior to January 1, 2020, and was recorded as a portion ofSpecial item in the termination penalty within theunaudited Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of Wages and benefits in the unaudited Consolidated Statements of Operations.

In January 2018,
23

(2)As discussed in Note 2, the Company entered intorecognized a transaction with its lessor to early terminategoodwill impairment charge of $106.7 million during the six months ended June 30, 2020.

(3)As discussed in Note 2, the Company recognized an impairment of long-lived assets of $34.0 million ($0.56 per diluted share) during the three and purchase 3 Boeing 767-300 aircraft leasessix months ended June 30, 2020.

13. Income Taxes

The Company's effective tax rate was 29.9% and concurrently entered into a forward sale agreement27.4% for the same 3 Boeing 767-300 aircraft, including 2 Pratt & Whitney 4060 enginesthree months ended June 30, 2020 and 2019, respectively, and 23.3% and 26.7% for the six months ended June 30, 2020 and 2019, respectively. The effective tax rates represent a blend of federal and state taxes and includes the impact of certain nondeductible items.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic as discussed in Note 2. The CARES Act, among other things, allows for net operating losses (NOLs) incurred in 2018, 2019, and 2020 to be carried back to each aircraft. These aircraftof the five preceding taxable years to generate a refund of previously paid income taxes and eliminates the 80 percent limitation on carried back NOLs.

The effective tax rate for the three and six months ended June 30, 2020 includes the impact of the nondeductible goodwill impairment and reflects a tax benefit resulting from the rate differential from NOLs generated in recent periods, which were previously accounted for as operating leases. In ordercarried back to exit the leaseprior years. The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and purchase the aircraft,estimates the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediatelyhas made, additional regulatory guidance that may be issued, and recognizedactions the Company may take as a contract termination fee. The expensed amount represents the total purchase price amount over fair valueresult of the aircraft purchased as ofCARES Act. The Company will continue to monitor the date ofupdates on guidance issued with respect to the transaction.CARES Act.



14. Supplemental Cash Flow Information

Non-cash investing and financing activities for the nine months ended September 30, 2019 and 2018 were as follows:

  Nine months ended September 30,
  2019 2018
Investing and Financing Activities Not Affecting Cash: (in thousands)
Property and equipment acquired through a finance lease $6,567
 $116,359
Right-of-use assets acquired under operating leases 5,435
 —


15.14. 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 2 pass-through trusts formed by Hawaiian (which is also referred to in this Note 1514 as Subsidiary Issuer / Guarantor) of pass-through certificates, the Company (which is also referred to in this Note 1514 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:


24

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)Loss
Three months ended SeptemberJune 30, 20192020
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Operating Revenue$—  $59,503  $3,343  $(2,842) $60,004  
Operating Expenses:     
Wages and benefits—  30,329  —  —  30,329  
Aircraft fuel, including taxes and delivery—  7,003  —  —  7,003  
Maintenance, materials and repairs—  12,899  1,275  (180) 13,994  
Aircraft and passenger servicing—  3,036  —  —  3,036  
Commissions and other selling—  2,912  15  —  2,927  
Aircraft rent—  23,923  (37) —  23,886  
Other rentals and landing fees—  13,704  —  (27) 13,677  
Depreciation and amortization—  37,355  1,978  —  39,333  
Purchased services60  22,236  232  (2,641) 19,887  
Special items—  3,177  30,837  —  34,014  
Other1,521  18,943  412  6  20,882  
Total1,581  175,517  34,712  (2,842) 208,968  
Operating Loss(1,581) (116,014) (31,369) —  (148,964) 
Nonoperating Income (Expense):     
Undistributed net loss of subsidiaries(105,651) —  —  105,651  —  
Interest expense and amortization of debt discounts and issuance costs—  (8,221) —  —  (8,221) 
Interest income—  2,766  —  —  2,766  
Capitalized interest—  921  —  —  921  
Losses on fuel derivatives—  (184) —  —  (184) 
Other, net(4) 1,165  —  —  1,161  
Total(105,655) (3,553) —  105,651  (3,557) 
Loss Before Income Taxes(107,236) (119,567) (31,369) 105,651  (152,521) 
Income tax benefit(332) (38,697) (6,588) —  (45,617) 
Net Income$(106,904) $(80,870) $(24,781) $105,651  $(106,904) 
Comprehensive Loss$(107,522) $(81,488) $(24,781) $106,269  $(107,522) 

25
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Operating Revenue $—
 $754,608
 $649
 $(106) $755,151
Operating Expenses:  
  
  
  
  
Wages and benefits —
 182,862
 —
 —
 182,862
Aircraft fuel, including taxes and delivery —
 138,586
 —
 —
 138,586
Maintenance, materials and repairs —
 58,056
 3,307
 —
 61,363
Aircraft and passenger servicing —
 41,762
 —
 —
 41,762
Commissions and other selling —
 33,310
 17
 (36) 33,291
Aircraft rent —
 30,365
 169
 —
 30,534
Other rentals and landing fees —
 33,345
 —
 —
 33,345
Depreciation and amortization —
 39,853
 1,743
 —
 41,596
Purchased services 70
 32,803
 263
 (16) 33,120
Other 1,576
 40,099
 435
 (54) 42,056
Total 1,646
 631,041
 5,934
 (106) 638,515
Operating Income (Loss) (1,646) 123,567
 (5,285) —
 116,636
Nonoperating Income (Expense):  
  
  
  
  
Undistributed net income of subsidiaries 81,379
 —
 —
 (81,379) —
Interest expense and amortization of debt discounts and issuance costs —
 (6,438) —
 —
 (6,438)
Interest income 4
 3,144
 —
 —
 3,148
Capitalized interest —
 1,171
 —
 —
 1,171
Losses on fuel derivatives —
 (4,553) —
 —
 (4,553)
Other, net (8) (1,437) —
 —
 (1,445)
Total 81,375
 (8,113) —
 (81,379) (8,117)
Income (Loss) Before Income Taxes 79,729
 115,454
 (5,285) (81,379) 108,519
Income tax expense (benefit) (347) 29,899
 (1,109) —
 28,443
Net Income (Loss) $80,076
 $85,555
 $(4,176) $(81,379) $80,076
Comprehensive Income (Loss) $83,050
 $88,529
 $(4,176) $(84,353) $83,050



Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended SeptemberJune 30, 20182019
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Operating Revenue$—  $711,670  $622  $(103) $712,189  
Operating Expenses:     
Wages and benefits—  180,070  —  —  180,070  
Aircraft fuel, including taxes and delivery—  140,600  —  —  140,600  
Maintenance, materials and repairs—  56,273  1,858  —  58,131  
Aircraft and passenger servicing—  39,641  —  —  39,641  
Commissions and other selling11  32,480  23  (43) 32,471  
Aircraft rent—  30,832  11  —  30,843  
Depreciation and amortization—  37,909  1,618  —  39,527  
Other rentals and landing fees—  31,386  —  —  31,386  
Purchased services70  32,467  211  (15) 32,733  
Other1,296  36,204  451  (45) 37,906  
Total1,377  617,862  4,172  (103) 623,308  
Operating Income (Loss)(1,377) 93,808  (3,550) —  88,881  
Nonoperating Income (Expense):     
Undistributed net income of subsidiaries58,911  —  —  (58,911) —  
Interest expense and amortization of debt discounts and issuance costs—  (7,300) —  —  (7,300) 
Interest income13  3,061  —  —  3,074  
Capitalized interest—  1,257  —  —  1,257  
Losses on fuel derivatives—  (3,220) —  —  (3,220) 
Other, net—  (3,032) (51) —  (3,083) 
Total58,924  (9,234) (51) (58,911) (9,272) 
Income (Loss) Before Income Taxes57,547  84,574  (3,601) (58,911) 79,609  
Income tax expense (benefit)(286) 22,819  (757) —  21,776  
Net Income (Loss)$57,833  $61,755  $(2,844) $(58,911) $57,833  
Comprehensive Income (Loss)$55,625  $59,547  $(2,844) $(56,703) $55,625  
26

  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Operating Revenue $—
 $756,314
 $2,870
 $(97) $759,087
Operating Expenses:  
  
  
  
  
Wages and benefits —
 176,642
 —
 —
 176,642
Aircraft fuel, including taxes and delivery —
 162,932
 —
 —
 162,932
Maintenance, materials and repairs —
 55,818
 1,300
 —
 57,118
Aircraft and passenger servicing —
 42,063
 —
 —
 42,063
Commissions and other selling —
 32,716
 16
 (28) 32,704
Aircraft rent —
 31,782
 (14) —
 31,768
Depreciation and amortization —
 34,849
 1,524
 —
 36,373
Other rentals and landing fees —
 33,146
 81
 —
 33,227
Purchased services 43
 32,298
 183
 (15) 32,509
Other 1,604
 35,955
 420
 (54) 37,925
Total 1,647
 638,201
 3,510
 (97) 643,261
Operating Income (Loss) (1,647) 118,113
 (640) —
 115,826
Nonoperating Income (Expense):  
  
  
  
  
Undistributed net income of subsidiaries 94,810
 —
 —
 (94,810) —
Interest expense and amortization of debt discounts and issuance costs —
 (8,400) (46) —
 (8,446)
Interest income 41
 3,083
 —
 —
 3,124
Capitalized interest —
 1,821
 —
 —
 1,821
Gains on fuel derivatives —
 3,495
 —
 —
 3,495
Other, net —
 936
 1
 —
 937
Total 94,851
 935
 (45) (94,810) 931
Income (Loss) Before Income Taxes 93,204
 119,048
 (685) (94,810) 116,757
Income tax expense (benefit) (338) 23,696
 (143) —
 23,215
Net Income (Loss) $93,542
 $95,352
 $(542) $(94,810) $93,542
Comprehensive Income (Loss) $98,642
 $100,452
 $(542) $(99,910) $98,642
Condensed Consolidating Statements of Operations and Comprehensive Loss
Six months ended June 30, 2020
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Operating Revenue$—  $618,665  $7,233  $(6,750) $619,148  
Operating Expenses:     
Aircraft fuel, including taxes and delivery—  120,481  —  —  120,481  
Wages and benefits—  218,583  —  —  218,583  
Aircraft rent—  50,946  (56) —  50,890  
Maintenance materials and repairs—  71,965  3,172  (734) 74,403  
Aircraft and passenger servicing—  41,319  —  —  41,319  
Commissions and other selling19  29,612  57  (45) 29,643  
Depreciation and amortization—  74,832  3,950  —  78,782  
Other rentals and landing fees—  43,497  —  (54) 43,443  
Purchased services150  59,332  553  (5,907) 54,128  
Special items—  130,081  30,837  —  160,918  
Other2,867  59,675  1,086  (10) 63,618  
Total3,036  900,323  39,599  (6,750) 936,208  
Operating Loss(3,036) (281,658) (32,366) —  (317,060) 
Nonoperating Income (Expense):     
Undistributed net loss of subsidiaries(248,880) —  —  248,880  —  
Interest expense and amortization of debt discounts and issuance costs—  (15,016) —  (15,016) 
Interest income3  5,783  —  —  5,786  
Capitalized interest—  1,752  —  —  1,752  
Losses on fuel derivatives—  (6,636) —  —  (6,636) 
Other, net—  3,470  (5) —  3,465  
Total(248,877) (10,647) (5) 248,880  (10,649) 
Loss Before Income Taxes(251,913) (292,305) (32,371) 248,880  (327,709) 
Income tax benefit(637) (68,998) (6,798) —  (76,433) 
Net Loss$(251,276) $(223,307) $(25,573) $248,880  $(251,276) 
Comprehensive Loss$(250,563) $(222,594) $(25,573) $248,167  $(250,563) 

27


Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
NineSix months ended SeptemberJune 30, 2019
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Operating Revenue$—  $1,367,760  $1,414  $(234) $1,368,940  
Operating Expenses:     
Aircraft fuel, including taxes and delivery—  266,704  —  —  266,704  
Wages and benefits—  355,135  —  —  355,135  
Aircraft rent—  61,199  40  —  61,239  
Maintenance materials and repairs—  118,075  3,101  —  121,176  
Aircraft and passenger servicing—  78,541  —  —  78,541  
Commissions and other selling11  63,345  41  (90) 63,307  
Depreciation and amortization—  74,401  3,277  —  77,678  
Other rentals and landing fees—  62,405  27  —  62,432  
Purchased services124  64,660  433  (31) 65,186  
Other3,138  72,060  900  (113) 75,985  
Total3,273  1,216,525  7,819  (234) 1,227,383  
Operating Income (Loss)(3,273) 151,235  (6,405) —  141,557  
Nonoperating Income (Expense):     
Undistributed net income of subsidiaries96,760  —  —  (96,760) —  
Interest expense and amortization of debt discounts and issuance costs—  (14,814) (16) —  (14,830) 
Interest income21  6,036  —  —  6,057  
Capitalized interest—  2,542  —  —  2,542  
Losses on fuel derivatives—  (2,650) —  —  (2,650) 
Other, net—  (4,101) (7) —  (4,108) 
Total96,781  (12,987) (23) (96,760) (12,989) 
Income (Loss) Before Income Taxes93,508  138,248  (6,428) (96,760) 128,568  
Income tax expense (benefit)(683) 36,410  (1,350) —  34,377  
Net Income (Loss)$94,191  $101,838  $(5,078) $(96,760) $94,191  
Comprehensive Income (Loss)$94,244  $101,891  $(5,078) $(96,813) $94,244  
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Operating Revenue $—
 $2,122,368
 $2,063
 $(340) $2,124,091
Operating Expenses:  
  
  
  
  
Aircraft fuel, including taxes and delivery —
 405,290
 —
 —
 405,290
Wages and benefits —
 537,997
 —
 —
 537,997
Aircraft rent —
 91,564
 209
 —
 91,773
Maintenance materials and repairs —
 176,131
 6,408
 —
 182,539
Aircraft and passenger servicing —
 120,303
 —
 —
 120,303
Commissions and other selling 11
 96,655
 58
 (126) 96,598
Depreciation and amortization —
 114,254
 5,020
 —
 119,274
Other rentals and landing fees —
 95,750
 27
 —
 95,777
Purchased services 194
 97,463
 696
 (47) 98,306
Other 4,714
 112,159
 1,335
 (167) 118,041
Total 4,919
 1,847,566
 13,753
 (340) 1,865,898
Operating Income (Loss) (4,919) 274,802
 (11,690) —
 258,193
Nonoperating Income (Expense):  
  
  
  
  
Undistributed net income of subsidiaries 178,139
 —
 —
 (178,139) —
Interest expense and amortization of debt discounts and issuance costs —
 (21,252) (16) —
 (21,268)
Interest income 25
 9,180
 —
 —
 9,205
Capitalized interest —
 3,713
 —
 —
 3,713
Losses on fuel derivatives —
 (7,203) —
 —
 (7,203)
Other, net (8) (5,538) (7) —
 (5,553)
Total 178,156
 (21,100) (23) (178,139) (21,106)
Income (Loss) Before Income Taxes 173,237
 253,702
 (11,713) (178,139) 237,087
Income tax expense (benefit) (1,030) 66,309
 (2,459) —
 62,820
Net Income (Loss) $174,267
 $187,393
 $(9,254) $(178,139) $174,267
Comprehensive Income (Loss) $177,294
 $190,420
 $(9,254) $(181,166) $177,294


Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Nine months ended September 30, 2018
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Operating Revenue $—
 $2,132,853
 $7,390
 $(297) $2,139,946
Operating Expenses:  
  
  
  
  
Aircraft fuel, including taxes and delivery —
 449,404
 —
 —
 449,404
Wages and benefits —
 516,906
 —
 —
 516,906
Aircraft rent —
 93,547
 (14) —
 93,533
Maintenance materials and repairs —
 172,780
 3,449
 —
 176,229
Aircraft and passenger servicing —
 117,207
 —
 —
 117,207
Commissions and other selling (5) 96,537
 61
 (111) 96,482
Depreciation and amortization —
 98,026
 3,511
 —
 101,537
Other rentals and landing fees —
 94,913
 313
 —
 95,226
Purchased services 131
 94,415
 603
 (45) 95,104
Contract termination expense —
 35,322
 —
 —
 35,322
Other 5,284
 110,513
 2,321
 (141) 117,977
Total 5,410
 1,879,570
 10,244
 (297) 1,894,927
Operating Income (Loss) (5,410) 253,283
 (2,854) —
 245,019
Nonoperating Income (Expense):  
  
  
  
  
Undistributed net income of subsidiaries 205,719
 —
 —
 (205,719) —
Interest expense and amortization of debt discounts and issuance costs (3) (24,534) (91) —
 (24,628)
Interest income 157
 6,372
 —
 —
 6,529
Capitalized interest —
 6,414
 —
 —
 6,414
Gains on fuel derivatives —
 27,064
 —
 —
 27,064
Other, net (4) (761) 6
 —
 (759)
Total 205,869
 14,555
 (85) (205,719) 14,620
Income (Loss) Before Income Taxes 200,459
 267,838
 (2,939) (205,719) 259,639
Income tax expense (benefit) (1,105) 59,797
 (617) —
 58,075
Net Income (Loss) $201,564
 $208,041
 $(2,322) $(205,719) $201,564
Comprehensive Income (Loss) $209,417
 $215,894
 $(2,322) $(213,572) $209,417



28

Condensed Consolidating Balance Sheets
SeptemberJune 30, 20192020
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
ASSETS     
Current assets:     
Cash and cash equivalents$274  $582,748  $9,498  $—  $592,520  
Short-term investments—  168,410  —  —  168,410  
Accounts receivable, net—  28,289  300  (122) 28,467  
Income taxes receivable—  92,365  —  —  92,365  
Spare parts and supplies, net—  35,660  —  —  35,660  
Prepaid expenses and other91  45,266  74  —  45,431  
Total365  952,738  9,872  (122) 962,853  
Property and equipment at cost—  3,023,305  68,278  —  3,091,583  
Less accumulated depreciation and amortization—  (797,193) (26,564) —  (823,757) 
Property and equipment, net—  2,226,112  41,714  —  2,267,826  
Operating lease right-of-use assets—  592,933  —  —  592,933  
Long-term prepayments and other341  158,637  405  —  159,383  
Goodwill and other intangible assets, net—  13,000  500  —  13,500  
Intercompany receivable—  561,095  —  (561,095) —  
Investment in consolidated subsidiaries1,375,911  —  504  (1,376,415) —  
TOTAL ASSETS$1,376,617  $4,504,515  $52,995  $(1,937,632) $3,996,495  
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:     
Accounts payable$871  $98,869  $2,023  $(122) $101,641  
Air traffic liability and current frequent flyer deferred revenue—  547,676  5,878  —  553,554  
Other accrued liabilities—  221,723  158  —  221,881  
Current maturities of long-term debt, less discount—  60,079  —  —  60,079  
Current maturities of finance lease obligations—  21,667  —  —  21,667  
Current maturities of operating leases—  78,655  —  —  78,655  
Total871  1,028,669  8,059  (122) 1,037,477  
Long-term debt—  792,766  —  —  792,766  
Intercompany payable549,813  —  11,282  (561,095) —  
Other liabilities and deferred credits:    
Noncurrent finance lease obligations—  131,631  —  —  131,631  
Noncurrent operating leases—  476,401  —  —  476,401  
Accumulated pension and other post-retirement benefit obligations—  200,411  —  —  200,411  
Other liabilities and deferred credits—  79,247  1,103  —  80,350  
Noncurrent frequent flyer deferred revenue—  179,740  —  —  179,740  
Deferred tax liabilities, net—  271,786  —  —  271,786  
Total—  1,339,216  1,103  —  1,340,319  
Shareholders’ equity825,933  1,343,864  32,551  (1,376,415) 825,933  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,376,617  $4,504,515  $52,995  $(1,937,632) $3,996,495  

29
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
ASSETS  
  
  
  
  
Current assets:  
  
  
  
  
Cash and cash equivalents $1,594
 $502,834
 $7,734
 $—
 $512,162
Short-term investments —
 232,444
 —
 —
 232,444
Accounts receivable, net —
 143,850
 1,848
 (232) 145,466
Spare parts and supplies, net —
 37,536
 —
 —
 37,536
Prepaid expenses and other 168
 53,802
 125
 —
 54,095
Total 1,762
 970,466
 9,707
 (232) 981,703
Property and equipment at cost —
 2,886,141
 92,875
 —
 2,979,016
Less accumulated depreciation and amortization —
 (718,508) (20,066) —
 (738,574)
Property and equipment, net —
 2,167,633
 72,809
 —
 2,240,442
Operating lease right-of-use assets —
 583,542
 —
 —
 583,542
Long-term prepayments and other —
 138,520
 297
 —
 138,817
Goodwill and other intangible assets, net —
 119,687
 500
 —
 120,187
Intercompany receivable —
 532,762
 —
 (532,762) —
Investment in consolidated subsidiaries 1,587,146
 —
 504
 (1,587,650) —
TOTAL ASSETS $1,588,908
 $4,512,610
 $83,817
 $(2,120,644) $4,064,691
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
  
  
  
Current liabilities:  
  
  
  
  
Accounts payable $732
 $150,177
 $4,685
 $(232) $155,362
Air traffic liability —
 647,078
 4,493
 —
 651,571
Other accrued liabilities —
 151,270
 296
 —
 151,566
Current maturities of long-term debt, less discount, and finance lease obligations —
 77,014
 —
 —
 77,014
Current maturities of operating leases —
 86,632
 —
 —
 86,632
Total 732
 1,112,171
 9,474
 (232) 1,122,145
Long-term debt and finance lease obligations —
 704,527
 —
 —
 704,527
Intercompany payable 521,329
 —
 11,433
 (532,762) —
Other liabilities and deferred credits:  
  
  
  
  
Noncurrent operating leases —
 455,765
 —
 —
 455,765
Accumulated pension and other post-retirement benefit obligations —
 182,962
 —
 —
 182,962
Other liabilities and deferred credits —
 98,130
 1,101
 —
 99,231
Noncurrent frequent flyer deferred revenue —
 174,474
 —
 —
 174,474
Deferred tax liabilities, net —
 258,740
 —
 —
 258,740
Total —
 1,170,071
 1,101
 —
 1,171,172
Shareholders’ equity 1,066,847
 1,525,841
 61,809
 (1,587,650) 1,066,847
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,588,908
 $4,512,610
 $83,817
 $(2,120,644) $4,064,691





Condensed Consolidating Balance Sheets
December 31, 20182019
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-Guarantor
Subsidiaries		EliminationsConsolidated
(in thousands)
ASSETS    
Current assets:     
Cash and cash equivalents$1,228  $362,933  $8,895  $—  $373,056  
Short-term investments—  245,599  —  —  245,599  
Accounts receivable, net—  95,141  3,188  (949) 97,380  
Income taxes receivable, net—  64,192  —  —  64,192  
Spare parts and supplies, net—  37,630  —  —  37,630  
Prepaid expenses and other90  56,743  16  —  56,849  
Total1,318  862,238  12,099  (949) 874,706  
Property and equipment at cost—  2,987,222  92,094  —  3,079,316  
Less accumulated depreciation and amortization—  (739,930) (22,614) —  (762,544) 
Property and equipment, net—  2,247,292  69,480  —  2,316,772  
Operating lease right-of-use assets—  632,545  —  —  632,545  
Long-term prepayments and other—  182,051  387  —  182,438  
Goodwill and other intangible assets, net—  119,663  500  —  120,163  
Intercompany receivable—  550,075  —  (550,075) —  
Investment in consolidated subsidiaries1,619,949  —  504  (1,620,453) —  
TOTAL ASSETS$1,621,267  $4,593,864  $82,970  $(2,171,477) $4,126,624  
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:     
Accounts payable$529  $139,764  $9,404  $(949) $148,748  
Air traffic liability and current frequent flyer deferred revenue—  600,851  5,833  —  606,684  
Other accrued liabilities—  161,125  305  —  161,430  
Current maturities of long-term debt, less discount—  53,273  —  —  53,273  
Current maturities of finance lease obligations—  21,857  —  —  21,857  
Current maturities of operating leases—  83,224  —  —  83,224  
Total529  1,060,094  15,542  (949) 1,075,216  
Long-term debt—  547,254  —  —  547,254  
Intercompany payable538,942  —  11,133  (550,075) —  
Other liabilities and deferred credits:    0
Noncurrent finance lease obligations—  141,861  —  —  141,861  
Noncurrent operating leases—  514,685  —  —  514,685  
Accumulated pension and other post-retirement benefit obligations—  203,596  —  —  203,596  
Other liabilities and deferred credits—  96,338  1,096  —  97,434  
Noncurrent frequent flyer deferred revenue—  175,218  —  —  175,218  
Deferred tax liabilities, net—  289,564  —  —  289,564  
Total—  1,421,262  1,096  —  1,422,358  
Shareholders’ equity1,081,796  1,565,254  55,199  (1,620,453) 1,081,796  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,621,267  $4,593,864  $82,970  $(2,171,477) $4,126,624  
  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
30






Condensed Consolidating Statements of Cash Flows
NineSix months ended SeptemberJune 30, 20192020
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-
Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Net Cash Provided By Operating Activities$4,693  $726  $(1,961) $—  $3,458  
Cash Flows From Investing Activities:     
Net payments to affiliates(9,650) (16,961) (66) 26,677  —  
Additions to property and equipment, including pre-delivery deposits—  (86,936) (7,020) —  (93,956) 
Purchases of investments—  (64,215) —  —  (64,215) 
Sales of investments—  143,679  —  —  143,679  
Net cash used in investing activities(9,650) (24,433) (7,086) 26,677  (14,492) 
Cash Flows From Financing Activities:     
Long-term borrowings—  283,964  —  —  283,964  
Repayments of long-term debt and finance lease obligations—  (39,129) —  —  (39,129) 
Dividend payments(5,514) —  —  —  (5,514) 
Net payments from affiliates17,027  —  9,650  (26,677) —  
Repurchases of common stock(7,510) —  —  —  (7,510) 
Other—  (1,313) —  —  (1,313) 
Net cash provided by financing activities4,003  243,522  9,650  (26,677) 230,498  
Net increase (decrease) in cash and cash equivalents(954) 219,815  603  —  219,464  
Cash, cash equivalents, & restricted cash - Beginning of Period1,228  362,933  8,895  —  373,056  
Cash, cash equivalents, & restricted cash - End of Period$274  $582,748  $9,498  $—  $592,520  


31
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-
Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Net Cash Provided By (Used In) Operating Activities $(587) $462,734
 $(5,252) $—
 $456,895
Cash Flows From Investing Activities:  
  
  
  
  
Net payments to affiliates (10,350) (75,273) —
 85,623
 —
Additions to property and equipment, including pre-delivery deposits —
 (274,786) (5,502) —
 (280,288)
Proceeds from the sale and sale leaseback of aircraft and aircraft related equipment —
 9,045
 —
 —
 9,045
Purchases of investments —
 (265,705) —
 —
 (265,705)
Sales of investments —
 267,464
 —
 —
 267,464
Other —
 (6,275) —
 —
 (6,275)
Net cash used in investing activities (10,350) (345,530) (5,502) 85,623
 (275,759)
Cash Flows From Financing Activities:  
  
  
  
  
Long-term borrowings —
 227,889
 —
 —
 227,889
Repayments of long-term debt and finance lease obligations —
 (95,350) (6) —
 (95,356)
Debt issuance costs —
 (1,162) —
 —
 (1,162)
Dividend payments (17,206) —
 —
 —
 (17,206)
Net payments from affiliates 75,273
 —
 10,350
 (85,623) —
Repurchases of common stock (50,690) —
 —
 —
 (50,690)
Other —
 (1,026) —
 —
 (1,026)
Net cash provided by financing activities 7,377
 130,351
 10,344
 (85,623) 62,449
Net increase (decrease) in cash and cash equivalents (3,560) 247,555
 (410) —
 243,585
Cash, cash equivalents, & restricted cash - Beginning of Period 5,154
 255,279
 8,144
 —
 268,577
Cash, cash equivalents, & restricted cash - End of Period $1,594
 $502,834
 $7,734
 $—
 $512,162




Condensed Consolidating Statements of Cash Flows
NineSix months ended SeptemberJune 30, 20182019
 Parent Issuer /
Guarantor		Subsidiary
Issuer /
Guarantor		Non-
Guarantor
Subsidiaries		EliminationsConsolidated
 (in thousands)
Net Cash Provided By (Used In) Operating Activities$(956) $314,741  $(2,573) $—  $311,212  
Cash Flows From Investing Activities:     
Net payments to affiliates(7,600) (49,705) —  57,305  —  
Additions to property and equipment, including pre-delivery deposits—  (147,116) (4,461) —  (151,577) 
Proceeds from the sale and sale leaseback of aircraft and aircraft related equipment—  4,350  —  —  4,350  
Purchases of investments—  (189,929) —  —  (189,929) 
Sales of investments—  225,706  —  —  225,706  
Other—  (6,275) —  —  (6,275) 
Net cash used in investing activities(7,600) (162,969) (4,461) 57,305  (117,725) 
Cash Flows From Financing Activities:     
Repayments of long-term debt and finance lease obligations—  (77,465) (6) —  (77,471) 
Debt issuance costs—  (33) —  —  (33) 
Dividend payments(11,554) —  —  —  (11,554) 
Net payments from affiliates49,705  —  7,600  (57,305) —  
Repurchases of Common Stock(30,690) —  —  —  (30,690) 
Other—  (1,012) —  —  (1,012) 
Net cash provided by (used in) financing activities7,461  (78,510) 7,594  (57,305) (120,760) 
Net increase (decrease) in cash and cash equivalents(1,095) 73,262  560  —  72,727  
Cash, cash equivalents, & restricted cash - Beginning of Period5,154  255,279  8,144  —  268,577  
Cash, cash equivalents, & restricted cash - End of Period$4,059  $328,541  $8,704  $—  $341,304  
  Parent Issuer /
Guarantor		 Subsidiary
Issuer /
Guarantor		 Non-
Guarantor
Subsidiaries		 Eliminations Consolidated
  (in thousands)
Net Cash Provided By (Used In) Operating Activities $(4,236) $446,810
 $1,506
 $—
 $444,080
Cash Flows From Investing Activities:  
  
  
  
  
Net payments to affiliates (11,300) (39,980) —
 51,280
 —
Additions to property and equipment, including pre-delivery deposits —
 (373,099) (12,999) —
 (386,098)
Proceeds from the sale of aircraft and aircraft related equipment —
 117,143
 —
 —
 117,143
Purchases of investments —
 (159,648) —
 —
 (159,648)
Sales of investments —
 182,816
 —
 —
 182,816
Net cash used in investing activities (11,300) (272,768) (12,999) 51,280
 (245,787)
Cash Flows From Financing Activities:  
  
  
  
  
Long-term borrowings —
 86,500
 —
 —
 86,500
Repayments of long-term debt and finance lease obligations —
 (53,734) (7) —
 (53,741)
Debt issuance costs —
 (1,108) —
 —
 (1,108)
Dividend payments (18,327) —
 —
 —
 (18,327)
Net payments from affiliates 39,980
 —
 11,300
 (51,280) —
Repurchases of Common Stock (53,894) —
 —
 —
 (53,894)
Other 78
 (3,713) —
 —
 (3,635)
Net cash provided by (used in) financing activities (32,163) 27,945
 11,293
 (51,280) (44,205)
Net increase (decrease) in cash and cash equivalents (47,699) 201,987
 (200) —
 154,088
Cash, cash equivalents, & restricted cash - Beginning of Period 57,405
 126,861
 7,687
 —
 191,953
Cash, cash equivalents, & restricted cash - End of Period $9,706
 $328,848
 $7,487
 $—
 $346,041



Income Taxes
 
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.

32

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; the severity, magnitude, duration and effects of the COVID-19 pandemic; the extent to which the COVID-19 pandemic and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position or achievement of strategic objectives; the duration and scope of government mandates or other limitations of or restrictions on travel; the demand for air travel in the markets in which we operate; the compounding effect of the COVID-19 pandemic on competitive pressures in the markets in which we operate; our dependence on tourism; the impact of the COVID-19 pandemic on our suppliers; the effect of economic downturn and the COVID-19 pandemic on our aircraft contracts and commitments; the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; the terms and effectiveness of cost reduction and liquidity preservation measures taken by us; our ability to continue to generate sufficient cash to operate; changes in our future capital needs; estimations related to our liquidity requirements; our participation under the CARES Act and the terms of relief thereunder; the availability of aircraft fuel, aircraft parts and personnel;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 fourththird quarter of 2019;2020; our expected fleet as of SeptemberJune 30, 2020; service expansion in the fourth quarter of 2019; operations under a joint venture commencing in 2020;2021; 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 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,” “would,” “will,” “might,” “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: the continuing and developing effects of the spread of COVID-19 on our business operations and financial condition; whether our cost-cutting plans related to the COVID-19 pandemic will be effective or sufficient; the duration of government-mandated and other restrictions on travel; the full effect that the quarantine, restrictions on travel and other measures to limit the spread of COVID-19 will have on demand for air travel in the markets in which we operate; fluctuations and the extent of declining demand for air transportation in the markets in which we operate; our dependence on the tourist industry; our ability to generate sufficient cash and manage the cash available to us; our ability to accurately forecast quarterly and annual results; global economic volatility; macroeconomic developments; political and regulatory developments; our dependence on the tourism industry; the price and availability of fuel;fuel, aircraft parts and personnel; foreign currency exchange rate fluctuations; competitive pressures, including the impact of increasing industry capacity between North America and Hawai’i; fluctuations in demand for transportation in the markets in which we operate, including due to the occurrence of natural disasters, such as hurricanes, earthquakes and tsunamis;Hawai‘i; 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 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 under the heading “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and 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, 2018.announcements. All forward-looking statements included in this Quarterly Report on Form 10-Q 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.
33


Our Business

We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the Neighbor Island routes), between the Hawaiian Islands and certain cities in the U.S. mainland (the North America routes and collectively with the Neighbor Island routes, referred to as our Domestic routes), and between the Hawaiian Islands and the South Pacific, Australia, and Asia (the International routes), collectively referred to as our “Scheduled Operations.” In addition, we operate various charter flights. As described below under "Impact of COVID-19," since February 2020, we have temporarily reduced our Scheduled Operations. 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 July 2019,April 2020, the latest available data. As of SeptemberJune 30, 2019,2020, we had 7,3897,418 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.

June 2020 Quarterly Financial HighlightsOverview

•GAAP net incomeloss in the thirdsecond quarter of $80.1$106.9 million, or $1.70$2.33 per diluted share.

GAAP pre-tax margin for Adjusted net loss in the thirdsecond quarter of 14.4%.$174.7 million, or $3.81 per diluted share;

Adjusted net income•Total revenue in the thirdsecond quarter of $81.5was $60.0 million, or $1.72 per diluted share.down 91.6% as compared to the same period in 2019;

•Unrestricted cash, and cash equivalents and short-term investments of $744.6 million.$760.9 million as of June 30, 2020.

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-GAAPNon-GAAP measures.

OutlookImpact of COVID-19

Looking ahead, industryDue to the rapid and unprecedented spread of COVID-19, what began with our suspension of service to South Korea and Japan in late February, accelerated in March when governments began instituting requirements of self-isolation or quarantine for incoming travel. This was followed by the announcement in March 2020 of a 14-day mandatory quarantine for all travelers to, from and within the State of Hawai‘i. While the 14-day quarantine has ceased within the State of Hawai‘i, restrictions related to travel to the state of Hawai‘i continued through the second quarter of 2020. As a result, global travel demand declined precipitously to historically low levels and has remained depressed through the second quarter with our capacity in our Domestic network is expected to remain at historically high levels in 2019. We expect our available seat milesdown by more than 92% and 46% during the three and six months ending December 31, 2019 to range between an increase of 3.0% to 4.5%,ended June 30, 2020, respectively, as compared to the prior year period.same periods in 2019.

On June 10, 2020, the Governor of Hawai‘i extended the quarantine requirements for passengers traveling to Hawai‘i until at least July 31, 2020, but lifted them for Neighbor Island travel effective June 16, 2020. Following this announcement, we saw increases in bookings of Neighbor Island flights in June and have slowly begun rebuilding our Neighbor Island flight schedule commensurate with increases in demand. While demandthe Governor of Hawai‘i announced the near-term possibility of lifting the quarantine requirement for travelpassengers traveling to Hawai'i remains robust,Hawai‘i upon demonstration of a negative COVID-19 test, on July 13, 2020, the competitive environment resultsGovernor’s office announced that the mandatory quarantine would extend through at least the end of August 2020. The exact timing and pace of the recovery remain uncertain as certain markets have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, closed their borders or are enforcing extended quarantines for most U.S. residents. See Note 6 in the Notes to Consolidated Financial Statements for a discussion of the recognition of passenger revenue, our air traffic liability and unused tickets.

In response to the COVID-19 pandemic, we have implemented enhanced safety protocols focusing on our staff and guests, while at the same time working to mitigate the impact on our financial position and operations:

Guest and Employee Experience. We have enhanced cleaning procedures and revised guest-facing procedures in an effort to minimize the risk of transmission of COVID-19. These procedures are in line with current recommendations from leading public health authorities and include:

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•Performance of enhanced aircraft cleaning between flight and during overnight, including recurring electrostatic spraying of all aircraft.
•Frequent cleaning and disinfecting of counters and self-service check-in kiosks in our expectationairports.
•Ensuring hand sanitizers are readily available for guests at airports we service.
•Requiring guests and guest facing employees to wear a face mask or covering, with guests required to keep them on from check-in to deplaning.
•Modifying boarding and deplaning processes and limiting the capacity of operating revenue per available seat mileseats on all aircraft to decline 0.5%approximately 70% of normalized capacity.
•Modifications to 3.5%in-flight service to reduce close interactions between crew members and guests.

Capacity Reductions. In response to the reduced demand as a result of the COVID-19 pandemic, we significantly reduced system capacity late in the first quarter of 2020 to a level that maintained essential services while aligning capacity with expected demand. For the quarter ended June 30, 2020, system capacity was reduced 92% as compared to the same period in 2018.2019. In connection with this reduction, we temporarily parked approximately 38% of our fleet as of June 30, 2020.

Expense Management. In response to the reduction in revenue, we have implemented and will continue to implement, cost savings and liquidity measures, including:

•In March 2020, we instituted a hiring freeze, except for operationally critical and essential positions,
•Reduced 2020 capital expenditures from $220 million to $260 million down to $103 million to $113 million. We expect operating cost per available seat milecontinue to evaluate non-essential, non-aircraft capital expenditures. During the six months ended June 30, 2020, capital expenditures were approximately $94.0 million. We currently have aircraft deliveries scheduled between 2021 to 2025 and are currently in discussion regarding the potential deferment of deliveries initially scheduled in 2021,
•Offered voluntary unpaid leave and float day purchase programs to each work group, including early retirement options for eligible employees,
•Reduced officer base salaries between 10% and 50% through at least September 30, 2020. Members of our Board of Directors have also temporarily reduced their compensation.
•In July 2020, we announced the Voluntary Separation Program (VSEP), which will provide eligible, non-contract employees, compensation in exchange for voluntary separation. We are currently in negotiations with labor unions related to voluntary separation packages

Cash Flow and Liquidity Management. Our cash, cash equivalents and short-term investments as of June 30, 2020 was $760.9 million as a result of various actions taken to increase liquidity and strengthen financial position during the six months ended June 30, 2020, including, but not limited to:

•On March 16, 2020, we drew down fully from our previously undrawn $235.0 million revolving credit facility. Refer to Note 9 in the Notes to Consolidated Financial Statements for additional discussion.
•On March 18, 2020, we suspended our stock repurchase program and on April 22, 2020, we suspended dividend payments,
•During the three and six months ending December 31, 2019 to range between a decrease of 0.1% to 2.5% comparedended June 30, 2020, we received $214.2 million in grants and $49.0 million in PSP loans pursuant to the prior year period. For the twelve-month period ending December 31, 2019,CARES Act. As of June 30, 2020, we have approximately $124.2 million remaining in PSP proceeds to be utilized and expect operating cost per available seat mile to range between a decreasereceive an additional $29.4 million in July 2020.

We continue to explore and pursue options to raise additional financing by leveraging our unencumbered aircraft assets, which as of 2.3%June 30, 2020, had an estimated market value of approximately $860.0 million. In July 2020, we entered into sale and 2.9%.leaseback agreements for two A321neo aircraft generating sales proceeds of approximately $114.0 million.

Partnerships

Together with Japan Airlines (JAL),In June 2020, we filedentered into an application in 2018LOI with the Treasury and are eligible to receive up to $364 million in loans through the ERP. We are evaluating the terms of ERP and have until September 2020 to decide if we will accept the loans.

Based on these actions, including recovery assumptions made for the impact of COVID-19, we have concluded that we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with existing covenants in our financing agreements for the upcoming twelve months, prior to giving effect to any additional financing that may occur. Our assumptions about future conditions used to estimate liquidity requirements, including the impact of the COVID-19 pandemic and other ongoing impacts to the business, are subject to uncertainty, and actual results could significantly differ from these estimates.

CARES Act

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On March 27, 2020, President Trump signed into law the CARES Act, which provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. Departmenteconomy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides, among other things; (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of Transportation (DOT)loans and Japan's Ministryloan guarantees available for operations under the ERP, (c) temporary suspension of Land, Infrastructure, Transportcertain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and Tourism (MLIT) seeking antitrust immunity (ATI)(e) additional Corporate tax benefits that are further discussed in Note 13 in the Notes to create a joint venture that promises significant consumer benefits andConsolidated Financial Statements.

On April 22, 2020 (the PSP Closing Date), Hawaiian entered into the opportunity for service expansion. The partnership was launched in March 2018 with codeshare flights between Japan and Hawai'i. We further enhanced our comprehensive partnership with JALPSP Agreement with the announcementTreasury with respect to the PSP under the CARES Act. In connection with the PSP Agreement, on the PSP Closing Date, we entered into the Warrant Agreement with the Treasury and Hawaiian issued the Note to the Treasury. Pursuant to the PSP Agreement, the Treasury will provide Hawaiian with financial assistance, paid in installments, expected to total approximately $292.5 million, to be used exclusively for the purpose of reciprocal frequent flyercontinuing to pay employee salaries, wages and benefits. Under the PSP Agreement, Hawaiian agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on Hawaiian and us. Finally, Hawaiian is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT; however, we applied for HawaiianMiles and JAL Mileage Bank members, which became effective in October 2018. In September 2019, we received a tentative rulingan exemption from the DOT from certain of the service requirements due to approve our joint venture without ATI. We are preparing a substantive responseimpacts of COVID-19.

The Note issued by Hawaiian to the tentative DOT ruling addressing their areasTreasury will increase to a total principal sum of concern and seeking reconsideration of their preliminary determination regarding ATI. Such filing is due on November 12, 2019. If our revised application results in approval of ATI byapproximately $57.8 million as Hawaiian receives installments from the DOT, we anticipate that operationsTreasury under the joint venture, including allPSP Agreement. The Note has a ten year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the expected benefits thereunder,PSP Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default. As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the Warrant Agreement, we agreed to issue to the Treasury a total of 488,477 warrants at an exercise price of $11.82 per share. The Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. As of June 30, 2020, we received $214.2 million in grants and $49.0 million in loans pursuant to the PSP program.

In June 2020, we entered into an LOI with the Treasury and are eligible to receive up to $364 million in loans through the ERP. Conditions of the loan are consistent with the PSP; however, certain restrictions, including prohibition of share repurchases and dividend payments extend for 12 months after the loan is no longer outstanding. We have not yet made a determination on whether to accept the ERP loans and continues to evaluate the terms of the financing. We have until September 30, 2020 to decide if we will commenceaccept the ERP loans.

Additionally, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Lastly, the CARES Act provides for the carryback of additional net operating losses to 2016 and 2017, which we expect will result in 2020.an annual tax benefit.

Fleet Summary

Due to the ongoing uncertainties of the COVID-19 pandemic on our business, we continue to evaluate our existing fleet structure to optimize capacity with demand, as well as the potential deferment of future aircraft deliveries. As of June 30, 2020, we have temporarily parked 26 aircraft. The table below summarizes our total fleet as of SeptemberJune 30, 20182019 and 2019,2020, respectively and our expected fleet as of SeptemberJune 30, 20202021 (based on existing executed agreements)agreements as of June 30, 2020):
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 June 30, 2019June 30, 2020June 30, 2021
Aircraft TypeLeased (1)Owned (2)TotalLeased (1)Owned (2)TotalLeased (1)Owned (2)Total
A330-20012  12  24  12  12  24  12  12  24  
A321neo (3)2  11  13  2  16  18  2  16  18  
787-9 (4)—  —  —  —  —  —  —  2  2  
717-2005  15  20  5  14  19  5  14  19  
ATR 42-500 (5)—  4  4  —  4  4  —  4  4  
ATR 72-200 (5)—  3  3  —  4  4  —  4  4  
Total19  45  64  19  50  69  19  52  71  


(1) Leased aircraft include aircraft under both finance and operating leases.

(2) Includes unencumbered aircraft as well as those purchased and under various debt financing.
  September 30, 2018 September 30, 2019 September 30, 2020
Aircraft Type Leased (1) Owned Total Leased (1) Owned Total Leased (1) Owned Total
A330-200 12
 12
 24
 12
 12
 24
 12
 12
 24
A321neo 2
 7
 9
 2
 13
 15
 2
 16
 18
767-300 (4) 4
 2
 6
 —
 —
 —
 —
 —
 —
717-200 5
 15
 20
 5
 15
 20
 5
 15
 20
ATR 42-500 (2) —
 4
 4
 —
 4
 4
 —
 4
 4
ATR 72-200 (2)(3) —
 3
 3
 —
 3
 3
 —
 3
 3
Total 23
 43
 66
 19
 47
 66
 19
 50
 69
                   


(1)Leased aircraft include aircraft under both finance and operating leases.

(2)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.

(3)Aircraft are utilized for our cargo operations.

(4)We completed the exit from our Boeing 767-300 aircraft fleet in January 2019.

(3) We took delivery of our final Airbus A321-200 aircraft in the second quarter of 2020.

(4) In July 2018, we entered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft with scheduled delivery from 2021 to 2025. The first aircraft is scheduled for delivery in the first quarter of 2021.

(5) 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. The ATR 42-500 turboprop aircraft are used for passenger operations under a Capacity Purchase Agreement (CPA) with a third-party provider. The ATR 72-200 turboprop aircraft are used for our cargo operations under the aforementioned CPA.

Results of Operations
 
For the three months ended SeptemberJune 30, 2019,2020, we generated a net incomeloss of $80.1$106.9 million, or $1.70$2.33 per diluted share, compared to net income of $93.5$57.8 million, or $1.84$1.21 per diluted share, for the same period in 2018.2019. For the ninesix months ended SeptemberJune 30, 2019,2020, we generated a net incomeloss of $174.3$251.3 million, or $3.64$5.47 per diluted share, compared to net income of $201.6$94.2 million, or $3.96$1.96 per diluted share, for the same period in 2018.2019.

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Selected Consolidated Statistical Data (unaudited)
 Three months ended September 30, Nine months ended September 30, Three months ended June 30, Six months ended June 30,
 2019 2018 2019 2018 2020 2019 2020 2019
 (in thousands, except as otherwise indicated) (in thousands, except as otherwise indicated)
Scheduled Operations (a):  
  
  
  
Scheduled Operations (a):       
Revenue passengers flown 3,066
 3,035
 8,843
 8,943
Revenue passengers flown182   2,957   2,542   5,777  
Revenue passenger miles (RPM) 4,673,734
 4,554,393
 13,288,823
 12,918,174
Revenue passenger miles (RPM)95,084   4,487,362   3,806,558   8,615,090  
Available seat miles (ASM) 5,321,812
 5,347,156
 15,325,559
 15,098,431
Available seat miles (ASM)409,490   5,153,025   5,384,460   10,003,748  
Passenger revenue per RPM (Yield) 
14.85¢ 
15.31¢ 
14.67¢ 
15.20¢Passenger revenue per RPM (Yield)31.30 ¢14.56 ¢14.01 ¢14.56 ¢
Passenger load factor (RPM/ASM) 87.8% 85.2% 86.7% 85.6%Passenger load factor (RPM/ASM)23.2 %87.1 %70.7 %86.1 %
Passenger revenue per ASM (PRASM) 
13.05¢ 
13.04¢ 
12.72¢ 
13.01¢Passenger revenue per ASM (PRASM)7.27 ¢12.68 ¢9.90 ¢12.54 ¢
Total Operations (a):  
  
  
  
Total Operations (a):       
Revenue passengers flown 3,072
 3,039
 8,853
 8,949
Revenue passengers flown182   2,959   2,544   5,781  
RPM 4,679,632
 4,557,706
 13,300,090
 12,921,666
RPM95,084   4,491,974   3,809,858   8,620,459  
ASM 5,331,914
 5,352,976
 15,341,510
 15,104,500
ASM409,490   5,157,677   5,389,019   10,009,598  
Operating revenue per ASM (RASM) 
14.16¢ 
14.18¢ 
13.85¢ 
14.17¢Operating revenue per ASM (RASM)14.65 ¢13.81 ¢11.49 ¢13.68 ¢
Operating cost per ASM (CASM) 
11.98¢ 
12.02¢ 
12.16¢ 
12.55¢Operating cost per ASM (CASM)51.03 ¢12.09 ¢17.37 ¢12.26 ¢
CASM excluding aircraft fuel, loss on sale of aircraft, and contract terminations expense (b) 
9.38¢ 
8.94¢ 
9.53¢ 
9.32¢
CASM excluding aircraft fuel, gain on sale of aircraft, and special items (b)CASM excluding aircraft fuel, gain on sale of aircraft, and special items (b)68.26 ¢9.38 ¢14.22 ¢9.62 ¢
Aircraft fuel expense per ASM (c) 
2.60¢ 
3.05¢ 
2.64¢ 
2.98¢Aircraft fuel expense per ASM (c)1.70 ¢2.73 ¢2.23 ¢2.66 ¢
Revenue block hours operated 56,088
 55,147
 162,556
 155,369
Revenue block hours operated6,496   54,840   59,355   106,466  
Gallons of aircraft fuel consumed 69,749
 72,133
 201,547
 206,032
Gallons of aircraft fuel consumed7,759   67,277   71,580   131,798  
Average cost per gallon of aircraft fuel (c) $1.99
 $2.26
 $2.01
 $2.18
Average cost per gallon of aircraft fuel (c)$0.90   $2.09   $1.68   $2.02  
 
(a)
(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.

(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 ninesix months ended SeptemberJune 30, 2019,2020, operating revenue decreased by $3.9$652.2 million, or 0.5%91.6% and $749.8 million, or 54.8%, as compared to the same period in 2019, driven by decreased passenger and other revenue primarily related to the ongoing impacts of the COVID-19 pandemic and is discussed further below:

Passenger revenue

For the three and six months ended June 30, 2020, passenger revenue decreased by $623.7 million, or 95.4%, and $15.9$721.5 million, or 0.7%57.5%, respectively, as compared to the same periods in 2018, driven primarily by decreased passenger revenue and is discussed further below:

Passenger revenue

For the three and nine months ended September 30, 2019, passenger revenue decreased by $3.0 million, or 0.4%, and $15.0 million, or 0.8%, respectively, as compared to the prior year periods.2019. Details of these changes are reflected in the table below: 
Increase (Decrease) vs. Three Months Ended June 30, 2020
(in thousands)Three months ended June 30, 2020Passenger RevenueYieldRPMsASMsPRASM
Domestic$26,611  (94.6)%77.9 %(97.0)%(88.6)%(57.1)%
International3,151  (98.0) (100.0) (100.0) (100.0) (100.0) 
Total scheduled$29,762  (95.4)%115.0 %(97.9)%(92.1)%(46.2)%
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  Three months ended September 30, 2019 as compared to three months ended September 30, 2018 Nine months ended September 30, 2019 as compared to nine months ended September 30, 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
  (in millions)       (in millions)      
Domestic $(2.3) (5.2)% 5.0 % 2.0 % $(11.2) (6.6)% 6.3 % 5.0 %
International (0.7) 1.7
 (1.9) (5.2) (3.8) 3.2
 (3.9) (5.1)
Total scheduled $(3.0) (3.0)% 2.6 % (0.5)% $(15.0) (3.5)% 2.9 % 1.5 %

Increase (Decrease) vs. Six Months Ended June 30, 2020
(in thousands)Six months ended June 30, 2020Passenger RevenueYieldRPMsASMPRASM
Domestic$393,084  (58.3)%(6.2)%(55.5)%(43.1)%(28.6)%
International140,147  (55.1) 3.2  (56.5) (52.8) (10.0) 
Total scheduled$533,231  (57.5)%(3.8)%(55.8)%(46.2)%(23.1)%

Domestic passenger revenue decreased by $2.3 million during the three months ended SeptemberJune 30, 20192020 decreased 94.6% on a capacity reduction of 88.6% as compared to the same period in 2018. The decrease was primarily driven by a 4.4% decline in average fares, partially offset by a 1.3% increase in total passengers. Domestic2019, while domestic passenger revenue decreased by $11.2 million during the ninesix months ended SeptemberJune 30, 2019,2020 decreased 58.3% on a capacity reduction of 43.1% as compared to the same period in 2018, as capacity reductions on short-haul routes outpaced capacity and passenger growth on longer haul routes combined with a 2.9%2019. The decline in average fares. As a result, RPM increased 6.3%, while yield declined 6.6% duringboth periods was driven by the nine months ended September 30, 2019.ongoing impacts of the COVID-19 pandemic.

On June 10, 2020, the Governor of Hawai‘i lifted the 14-day quarantine requirement for Neighbor Island travel effective June 16, 2020. Following this announcement, we saw increases in bookings of Neighbor Island flights and have slowly begun rebuilding our Neighbor Island flight schedule commensurate with the increase in demand. On July 13, 2020, the Governor announced that Hawai‘i’s 14-day quarantine for travel into the State of Hawai‘i would extend through at least the end of August 2020. The exact timing and pace of the recovery remain uncertain.

International passenger revenue decreased by $0.7 million and $3.8 million during the three and nine months ended SeptemberJune 30, 2019, respectively,2020 decreased 98.0% on a capacity reduction of 100.0% as compared to the same periodsperiod in 20182019. International passenger revenue during the six months ended June 30, 2020 decreased 55.1% on reduceda capacity namelyreduction of 52.8% as compared to the suspensionsame period in 2019. In late March 2020, we suspended all international flights in response to the COVID-19 pandemic. We expect this significantly lower demand environment to continue into the third quarter of 2020, and beyond, with improvement expected to lag behind the domestic recovery once government travel restrictions begin to lift and customer demand starts to return.

In each of our servicemarkets, we continue to Beijing, China in October 2018.monitor travel directives and customer demand and will adjust capacity and flight schedules accordingly.

During the fourth quarter of 2019, we will expand service between Honolulu, Hawai'i and San Francisco, California (October 2019) with an additional daily flight and commence service between Honolulu, Hawai'i and Fukuoka, Japan (November 2019) and Kahului, Hawai'i and Las Vegas, Nevada (December 2019). We also received approval from the U.S. Department of Transportation to provide for an additional slot for service to Haneda Airport in Tokyo, Japan, which will commence in 2020.

In January 2019, we completed the retirement of our Boeing 767-300 fleet, and during the nine months ended September 30, 2019, we took delivery of four A321neo aircraft, bringing our total A321 fleet to fifteen aircraft as of September 30, 2019. We expect to take delivery of an additional two A321neo aircraft during the remainder of 2019 and our eighteenth and final A321neo aircraft in early 2020.

Other Operating Revenue

For the three and ninesix months ended SeptemberJune 30, 2019,2020, Other operating revenue decreased by $1.0$28.5 million and $28.3 million, or 1.6%,48.5% and $0.9 million, or 0.5%24.8%, respectively, as compared to the prior year periods. The decrease was primarilysame periods in 2019, driven by a declinereductions in cargo revenue.and loyalty program revenue as a result of the COVID-19 pandemic. Cargo revenue decreased $11.2 million and $13.1 million during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019 as a result of reduced volumes as a result of the impacts of the COVID-19 pandemic. Loyalty revenue, primarily comprised of brand and marketing performance obligations, fell $12.4 million and $9.6 million, respectively, during the three and six months ended June 30, 2020, as compared to the same periods in 2019, as a result of reduced credit card spend. Other components in Other operating revenue include, but are not limited to, ground handling and other freight services, which collectively, declined during the three and six months ended June 30, 2020 by approximately $4.9 million and $5.6 million, respectively, as compared to the same periods in 2019, as a result of our reduced operations.

Operating Expense
 
Operating expenses were $638.5$209.0 million and $643.3$623.3 million for the three months ended SeptemberJune 30, 20192020 and 2018, respectively, and $1.9 billion and $1.9 billion for the nine months ended September 30, 2019, and 2018, respectively. Increases (decreases) in operating expenses for the three and ninesix months ended SeptemberJune 30, 2019,2020, as compared to the same period in 2018,2019, are detailed below:
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 Increase / (decrease) for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 Increase / (decrease) for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018Increase / (decrease) for the three months ended June 30, 2020 compared to the three months ended June 30, 2019Increase / (decrease) for the six months ended June 30, 2020 compared to the six months ended June 30, 2019
 $ % $ %$%$%
Operating expenses (in thousands)   (in thousands)  Operating expenses(in thousands)(in thousands)
Wages and benefits $6,220
 3.5 % $21,091
 4.1 %Wages and benefits$(149,741) (83.2)%$(136,552) (38.5)%
Aircraft fuel, including taxes and delivery (24,346) (14.9) (44,114) (9.8)Aircraft fuel, including taxes and delivery(133,597) (95.0) (146,223) (54.8) 
Maintenance, materials and repairs 4,245
 7.4
 6,310
 3.6
Maintenance, materials and repairs(44,137) (75.9) (46,773) (38.6) 
Aircraft and passenger servicing (301) (0.7) 3,096
 2.6
Aircraft and passenger servicing(36,605) (92.3) (37,222) (47.4) 
Commissions and other selling 587
 1.8
 116
 0.1
Commissions and other selling(29,544) (91.0) (33,664) (53.2) 
Aircraft rent (1,234) (3.9) (1,760) (1.9)Aircraft rent(6,957) (22.6) (10,349) (16.9) 
Other rentals and landing fees 118
 0.4
 551
 0.6
Other rentals and landing fees(17,709) (56.4) (18,989) (30.4) 
Depreciation and amortization 5,223
 14.4
 17,737
 17.5
Depreciation and amortization(194) (0.5) 1,104  1.4 ��
Purchased services 611
 1.9
 3,202
 3.4
Purchased services(12,846) (39.2) (11,058) (17.0) 
Contract terminations expense —
 —
 (35,322) (100.0)
Special itemsSpecial items34,014  100.0  160,918  100.0  
Other 4,131
 10.9
 64
 0.1
Other(17,024) (44.9) (12,367) (16.3) 
Total $(4,746) (0.7)% $(29,029) (1.5)%Total$(414,340) (66.5)%$(291,175) (23.7)%
 
Wages and benefits

Wages and benefits expense increaseddecreased by $6.2$149.7 million, or 3.5%,83.2% and $21.1$136.6 million, or 4.1%38.5%, for the three and ninesix months ended SeptemberJune 30, 2019, respectively,2020 as compared to the same periodsprior year period. The decrease was primarily attributed to the recognition of approximately $111.6 million in 2018. The increase wascontra-expense related to the grant portion of PSP funding and is being recorded in proportion to estimated wage and benefits expense over the 6-month period it covers. Additionally, beginning in March 2020, we instituted a hiring freeze, reduced officer salaries between 10% - 50% through September 2020, and instituted various voluntary leave programs. In July 2020, we announced voluntary separation programs primarily for eligible, non-contract employees and offered early retirement packages to our pilots. We are currently in negotiation with our collectively bargained labor groups on voluntary separation packages. As a result, we expect salaries and related costs to decline in the second half of higher salary expense, driven by increased headcount and annual rate increases for certain of our collective bargaining groups in early 2019.2020 as compared to the prior year period.

Aircraft fuel
 
Aircraft fuel expense decreased during the three and ninesix months ended SeptemberJune 30, 2019,2020, as compared to the prior year periods,period, primarily due to a decrease in the average fuel price per gallon combined with a decrease indecreased consumption, as illustrated in the following table: 
 Three months ended September 30, Nine months ended September 30,Three months ended June 30,Six months ended June 30,
 2019 2018 % Change 2019 2018 % Change20202019% Change20202019% Change
 (in thousands, except per-gallon amounts)   (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 $138,586
 $162,932
 (14.9)% $405,290
 $449,404
 (9.8)%Aircraft fuel expense, including taxes and delivery$7,003  $140,600  (95.0)%$120,481  $266,704  (54.8)%
Fuel gallons consumed 69,749
 72,133
 (3.3)% 201,547
 206,032
 (2.2)%Fuel gallons consumed7,759  67,277  (88.5)%71,580  131,798  (45.7)%
Average fuel price per gallon, including taxes and delivery $1.99
 $2.26
 (11.9)% $2.01
 $2.18
 (7.8)%Average fuel price per gallon, including taxes and delivery$0.90  $2.09  (56.9)%$1.68  $2.02  (16.8)%
 
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: 
40


 Three months ended September 30,  Nine months ended September 30,Three months ended June 30, Six months ended June 30,
 2019 2018 % Change 2019 2018 % Change20202019% Change20202019% Change
 (in thousands, except per-gallon amounts)   (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 $138,586
 $162,932
 (14.9)% $405,290
 $449,404
 (9.8)%Aircraft fuel expense, including taxes and delivery$7,003  $140,600  (95.0)%$120,481  $266,704  (54.8)%
Realized losses (gains) on settlement of fuel derivative contracts 3,399

(8,085)
NM

9,294

(24,572) NM
Realized losses on settlement of fuel derivative contractsRealized losses on settlement of fuel derivative contracts2,751  3,051  (9.8)%5,837  5,895  (1.0)%
Economic fuel expense $141,985
 $154,847
 (8.3)% $414,584
 $424,832
 (2.4)%Economic fuel expense$9,754  $143,651  (93.2)%$126,318  $272,599  (53.7)%
Fuel gallons consumed 69,749
 72,133
 (3.3)% 201,547
 206,032
 (2.2)%Fuel gallons consumed7,759  67,277  (88.5)%71,580  131,798  (45.7)%
Economic fuel costs per gallon $2.04
 $2.15
 (5.1)% $2.06
 $2.06
 — %Economic fuel costs per gallon$1.26  $2.14  (41.1)%$1.76  $2.07  (15.0)%
 
See Item 3, "QuantitativeMaintenance, materials and Qualitative Disclosures About Market Risk" for additional discussion of our aircraft fuel costsrepairs

Maintenance, materials and related hedging program.

Depreciation and amortization

Depreciation and amortizationrepairs expense increaseddecreased by $5.2$44.1 million, or 14.4%75.9%, and $17.7$46.8 million, or 17.5%38.6%, for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as compared to the same periods in 2018,2019. The decrease is primarily attributed to reductions in variable-related maintenance costs commensurate with capacity reductions during the periods in response to COVID-19. We expect maintenance, materials and repairs expense to decline in the second half of 2020 versus the comparable prior year period due to the increasecapacity reductions discussed above.

Aircraft and passenger servicing

Aircraft and passenger servicing expense decreased by $36.6 million, or 92.3%, and $37.2 million, or 47.4%, for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. We expect aircraft and passenger servicing expense to decline in the second half of 2020 versus the comparable prior year period due to the capacity reductions discussed above.

Commissions and other selling expenses

Commissions and other selling expenses decreased by $29.5 million, or 91.0%, and $33.7 million, or 53.2%, for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The decrease in commissions and other selling expense during the three and six months ended June 30, 2020 was primarily related to the significant reduction in demand for travel due to the impact of the COVID-19 pandemic. We expect commissions and other selling expenses to decline in the second half of 2020 versus the comparable prior year period due to the capacity reductions discussed above.

Aircraft rent

Aircraft rent expense decreased by $7.0 million, or 22.6%, and $10.3 million, or 16.9% for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The decrease in both periods was primarily attributed to lease extensions entered into for certain of our A330-200 and B717-200 aircraft in the second half of 2019, the results of which were more favorable rates extended over periods ranging between two to eight years. Refer to Note 10 in the Notes to Consolidated Financial Statements in our 2019 Annual Report on Form 10-K filed on February 12, 2020.

Other rentals and landing fees

Other rentals and landing fees decreased by $17.7 million, or 56.4%, and $19.0 million, or 30.4% for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. A portion of our other rentals and landing fees are variable in nature and are dependent on factors such as the number of owned aircraft, specificallydepartures and passengers. The decrease in landing fees and other rents is due to the additionreduction in capacity and number of flights operated during the three and six Airbus A321neo aircraft that were placed into service since Septembermonths ended June 30, 2018.2020. We expect other rentals and landing fees to decline in the second half of 2020 versus the comparable prior year period due to the capacity reductions discussed above.

Contract terminationsPurchased services

Purchased services decreased by $12.8 million, or 39.2%, and $11.1 million, or 17.0% for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The decrease in purchased services expense is primarily related to the significant reduction in demand for travel due to the impact of the COVID-19 pandemic. We expect purchased
41

services expense to decline in the second half of 2020 versus the comparable prior year period due to the capacity reductions discussed above.

Special items

During the ninethree and six months ended SeptemberJune 30, 2018,2020, we terminated two contracts which incurredrecognized approximately $34.0 million and $160.9 million, respectively, comprised of the following:

•In March 2020, we reached an agreement in principle with the flight attendants of Hawaiian, represented by the AFA, on a total of $35.3new five-year contract that runs through April 2025. On April 3, 2020, we received notification from the AFA that the CBA was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flights attendants upon retirement. During the six months ended June 30, 2020, we recorded a $23.5 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. 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),ratification bonus, of which a portion$20.2 million was expensed immediatelyrelated to service prior to January 1, 2020, and recognized this as a contract termination fee.Special item in the unaudited Consolidated Statements of Operations. The expensed amount representsremaining $3.3 million was recorded as a component of wages and benefits in the total purchaseunaudited Consolidated Statements of Operations.

•During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove our stock price amount overto 52-week lows and significantly reduced future cash flow projections. we qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of its goodwill and indefinite-lived intangible assets. We determined that the estimated fair value of the aircraft purchased asour one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the datereporting unit exceeded the amount of goodwill on the unaudited Consolidated Balance Sheet, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.

•During the second quarter of 2020, we recorded Special items of $34.0 million comprised of the transaction.following; (a) an impairment charge of $27.5 million to fair value our ATR-42 and ATR-72 fleets, (b) an impairment charge of $3.4 million to fair value our commercial real estate assets; and (b) an approximately $3.1 million write-off for discontinued software-related projects as a result of the COVID-19 pandemic.

In February 2018, we exercised our right to terminateOther expense

The decrease in other expense is primarily driven by lower volume-related costs resulting from the aircraft purchase agreement with Airbus fordecreased capacity during the three and 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.months ended June 30, 2020. We recorded a contract terminationsexpect other expense to reflect a portiondecline in the second half of 2020 versus the termination penalty within our Consolidated Statements of Operations.comparable prior year period due to the capacity reductions discussed above.

Nonoperating Income (Expense)

Net nonoperating expense increased by $9.0$5.7 million, or 971.9%61.6%, and $35.7$2.3 million, or 244.4%, for18.0% during the three and ninesix months ended SeptemberJune 30, 2019, respectively,2020 as compared to the prior year periods.same periods in 2019. The increase in expense in both periods was primarily attributed to the movement of realized and unrealized gains and losses associated with our fuel and foreign currency derivative program. Forinstruments, which are not designated for hedge accounting under ASC 815 and the threemovement of unrealized gains and nine months ended September 30, 2019, we recorded a net loss of $4.6 million and $7.2 million, respectively, as compared to a net gain of $3.5 million and $27.1 million, respectively, during the same periodslosses on our debt instruments denominated in 2018.foreign currency.

Income Taxes

Our effective tax rate was 26.2%29.9% and 19.9%27.4% for the three months ended SeptemberJune 30, 2020 and 2019, and 2018, respectively, and 26.5% and 22.4%, respectively, for the nine months ended September 30, 2019 and 2018.respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items. In certain interim periods, we may have adjustments to our net deferred tax assets as a result of changes in prior year estimates and tax laws enacted during the period, which will impact theThe effective tax rate for that interim period.the three and six months ended June 30, 2020 includes the impact of the nondeductible goodwill impairment and reflects a tax benefit resulting from the rate differential from NOLs generated in recent periods, which were carried back to prior years.

Liquidity and Capital Resources
Our primary sources of liquidity are:


Our existing cash andCash, cash equivalents and short-term investments of $744.6totaled $760.9 million and our expected cash from operations;
Our 30 unencumbered aircraft as of SeptemberJune 30, 2019 that could be financed, if necessary;2020, compared to $618.7 million as of December 31, 2019. As a result of COVID-19, we have taken, and are continuing to take, actions to increase liquidity and augment our financial position, which include:
Our
•On March 16, 2020, we drew down fully from our previously undrawn $235.0 million revolving credit facility,
•We suspended dividend payments, and the repurchase of, our common stock,
42

•During the three and six months ended June 30, 2020, we received $214.2 million in grants and $49.0 million in loans pursuant to the PSP. As of June 30, 2020, we have approximately $124.2 million remaining in PSP proceeds to be utilized and expect to receive an additional $29.4 million in July 2020.
•In June 2020, we entered into an LOI with no outstanding borrowing. Information about this facility canthe Treasury, and are eligible to receive up to $364 million in loans through the ERP. We are evaluating the terms of ERP and have until September 2020 to decide if we will accept the loans.

We continue to explore and pursue options to raise additional financing by leveraging our unencumbered aircraft, which as of June 30, 2020, included 36 aircraft with an estimated fair value of $860 million.

Our current average estimated daily cash burn for July through September 2020 is approximately $3.2 million per day. This amount includes operating cash outflows, capital expenditures, debt service and interest payments, and assumes offsetting cash inflows and refunds in June 2020 continue through September 2020 in approximately the same amounts.

We cannot assure you that the assumptions used to estimate our liquidity requirements will be found in our Annual Report on Form 10-K for the year ended December 31, 2018.
At September 30, 2019,correct because we had $781.5 million of debthave never previously experienced such an unprecedented event impacting global travel, and finance lease obligations, including $77.0 million classified as a current liabilityconsequence, our ability to predict the impacts of the COVID-19 pandemic is uncertain. In addition, the magnitude and duration of the COVID-19 pandemic is uncertain. However, based on our assumptions and estimates with respect to the temporary suspension of nearly the entirety of our operations, and our financial condition, we believe that the liquidity described in the Consolidated Balance Sheets. preceding paragraphs will be sufficient to fund our liquidity requirements over at least the next twelve months.

As of December 31, 2018,June 30, 2020, our current liabilities exceeded our current assets by approximately $140.4$74.6 million. However, approximately $651.6$553.6 million of our current liabilities are relatedrelate to our advanced ticket sales and frequent flyer deferred revenue, both of which 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 an adverse impact to our cash flows, liquidity, or operations.future travel.

Cash Flows

Net cash provided by operating activities was $456.9$3.5 million and $444.1$311.2 million during the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Operating cash flows are primarily derived from providing air transportation to customers. The vast majority of tickets are purchased in advance of when travel is provided, and in some cases, several months before the anticipated travel date. TheOur operating cash flows during eachthe six months ended June 30, 2020 were largely impacted by the adverse impact of the nine months ended September 30, 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.COVID-19 pandemic on our financial results.
Cash used in investing activities was $275.8$14.5 million and $245.8$117.7 million during the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Investing activities included Capitalcapital expenditures, primarily related to aircraft and other equipment, and the purchases and sales of short-term investments. During the ninesix months ended SeptemberJune 30, 2019,2020, capital expenditures were $280.3approximately $94.0 million, the majority of which relate to aircraft deliveries in the period combined with predelivery payments for future aircraft deliveries, including our Boeing 787-9 aircraft deliveries and the purchase of our last A321neo aircraft in May 2020, as compared with $386.1$151.6 million in capital expenditures during the ninesix months ended SeptemberJune 30, 2018. This was offset by proceeds of $9.0 million and $117.1 million resulting from2019. During the disposition of aircraft and aircraft related equipment during the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019,2020, our purchases and sales of short-term investments resulted in net cash inflow of $1.8$79.5 million as compared to net cash inflow of $23.2$35.8 million during the same period in 2018.2019.
Net cash provided by financing activities was $62.4$230.5 million during the ninesix months ended SeptemberJune 30, 20192020 as compared to net cash used in financing activities of $44.2$120.8 million during the ninesix months ended SeptemberJune 30, 2018. During2019, in part because during the ninesix months ended SeptemberJune 30, 2019,2020, we entered into two Japanese Yen denominated debt financings,drew $235.0 million from our revolving credit facility, as further discussed in Note 9 in Notes to our Consolidated Financial Statements, and received proceeds from long-term borrowings of $227.9 million.Statements. Additionally, in the six months ended June 30, 2020, we repaid $95.4$39.1 million in scheduled debt and finance lease obligations, including a final payment of $39.7 million towards our debt facility originally entered into for the financing of our Boeing 717-200 aircraft,as compared with $53.7 million during the prior year period. We repurchased $50.7 million of our outstanding common stock through authorized share repurchases during the nine months ended September 30, 2019, compared with repurchases of $53.9to $77.5 million during the same period in 2018. We also paid $17.22019. During the six months ended June 30, 2020, we returned $13.0 million in dividends to our shareholders through a combination of share repurchases and dividend payments, as compared to $42.2 million during the nine months ended Septembersame period in 2019.
Covenants
We were in compliance with covenants in our financing agreements at June 30, 2019, compared with $18.3 million in dividends during the nine months ended September 30, 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.2020.

43

Capital Commitments

As of SeptemberJune 30, 2019,2020, 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
A321neo aircraft 3
 3
 Between 2019 and 2020
B787-9 aircraft 10
 10
 Between 2021 and 2025
       
Pratt & Whitney spare engines:  
  
  
A321neo spare engines (1) —
 2
 N/A
General Electric GEnx spare engines:  
  
  
B787-9 spare engines 2
 2
 Between 2021 and 2025
Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft—  9  N/A
B787-9 aircraft1010Between 2021 and 2025
General Electric GEnx spare engines:   
B787-9 spare engines2  2  Between 2021 and 2023

(1)During the second quarter of 2019, we took delivery of our remaining A321neo spare engine and maintain purchase rights for an additional two engines, which expire on December 31, 2019.

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. In October 2018, we entered into an agreement for the selection of GEnx engines to power our Boeing 787-9 fleet. The agreements provide 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 for these 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 2018, our Board of Directors approved a stock repurchase program pursuant to which we maywere authorized to repurchase up to $100 million of our outstanding common stock over a two-year period through December 2020. The stock repurchase program iswas subject to further modification or termination at any time. In March 2020, we indefinitely suspended all repurchases under the approved repurchase plan in connection with our receipt of financial assistance under the CARES Act, which restricts us from repurchasing shares through September 30, 2021. We spent $20.0$7.5 million and $50.7$30.7 million to repurchase and retire approximately 0.80.3 million shares and 1.91.1 million shares of our common stock in open market transactions during the three and ninesix months ended SeptemberJune 30, 2020 and 2019, respectively. We spent $31.1 million and $53.9 million to repurchase and retire approximately 0.8 million shares and 1.4 million shares of our common stock in open market transactions during the three and nine months ended September 30, 2018, respectively. As of September 30, 2019, we had $46.8 million remaining to spend under our stock repurchase program.

During the threesix months ended SeptemberJune 30, 2019,2020, we declared and paid cash dividends of $0.12 per share, totaling $5.7$5.5 million, which was paid on August 30, 2019,February 28, 2020, to stockholders of record as of August 16, 2019. DuringFebruary 14, 2020. Our receipt of financial assistance under the nine months endedCARES Act restricts us from making any dividend payments through at least September 30, 2019, we declared and paid cash dividends of $0.12 per share for each of the three quarters, totaling $17.2 million.2021.

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. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, there were no holdbacks held with our credit card processors.

In the event of a material adverse change in our business, the holdbackscredit card processor could increase holdbacks to an amount up to 100% of the outstanding credit card amountstickets that isare unflown (e.g. air, Air traffic liability)liability, excluding frequent flyer deferred revenue), which would also result in an increase in our required


levelthe restriction of restricted cash. If we arewere 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.operations, business or financial condition.

Pension and Postemployment Benefit Plan Funding

During the three and ninesix months ended SeptemberJune 30, 2020 and 2019, we were not required to, and 2018, we had no requireddid not make contributions to our defined benefit plans and made no such contributions.other postretirement plans. Future funding requirements for our defined benefit and other postretirement plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements and the level and timing of asset returns. Given available funding credits in the defined benefit plan and the financial uncertainties of the COVID-19 pandemic on our business, we do not anticipate any cash contributions to our defined benefit plan during 2020.

44

Contractual Obligations
 
Our estimated contractual obligations as of SeptemberJune 30, 20192020 are summarized in the following table: 
Contractual ObligationsTotalRemaining in 20202021 - 20222023 - 20242025 and
thereafter
 (in thousands)
Debt obligations, including principal and interest (1)$956,189  $35,458  $454,709  $124,998  $341,024  
Finance lease obligations, including principal and interest (2)182,564  14,125  55,098  44,991  68,350  
Operating lease obligations (3) 718,880  51,878  191,870  162,385  312,747  
Aircraft purchase commitments (4)1,562,968  97,910  752,440  601,117  111,501  
Other commitments (5)452,109  41,359  156,529  122,956  131,265  
Projected employee benefit contributions (6)46,000  —  33,700  8,200  4,100  
Total contractual obligations$3,918,710  $240,730  $1,644,346  $1,064,647  $968,987  
Contractual Obligations Total Remaining in 2019 2020 - 2021 2022 - 2023 2024 and
thereafter
  (in thousands)
Debt and finance lease obligations (1) $893,256
 $16,376
 $227,293
 $219,616
 $429,971
Operating leases—aircraft and related equipment (2)  497,286
 27,531
 177,822
 133,440
 158,493
Operating leases—non-aircraft 214,622
 1,717
 15,351
 16,583
 180,971
Purchase commitments - aircraft and aircraft related (3)  1,757,519
 113,604
 491,269
 683,248
 469,398
Purchase commitments - non-aircraft (4)  461,232
 20,356
 149,370
 124,386
 167,120
Projected employee benefit contributions (5)  40,600
 —
 10,800
 17,800
 12,000
Total contractual obligations $3,864,515
 $179,584
 $1,071,905
 $1,195,073
 $1,417,953

(1) Represents scheduled and estimated interest payments under our long-term debt based on interest rates specified in the applicable debt agreements. Principal and interest payments for debt denominated in Japanese Yen is estimated using the spot rate as of June 30, 2020.

(1)Amounts reflect finance lease obligations for one Airbus A330-200 aircraft, two Boeing 717-200 aircraft, two Airbus A321neo aircraft, one Airbus A330 flight simulator, and aircraft and IT related equipment.
(2) Amounts reflect finance lease obligations for one Airbus A330-200 aircraft, one Boeing 717-200 aircraft, two Airbus A321neo aircraft, one Airbus A330 flight simulator, and aircraft and IT related equipment.

(2)Amounts reflect leases for eleven Airbus A330-200 aircraft and three Boeing 717-200 aircraft.
(3) Amounts reflect leases for eleven Airbus A330-200 aircraft, four Boeing 717-200 aircraft, and office space.

(3)Amounts include our firm commitments for aircraft and aircraft related equipment.
(4) Amounts include our firm commitments for aircraft and aircraft related 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.
(5) Amounts include commitments for services provided by third parties for aircraft maintenance, IT, capacity purchases, and reservations. 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.

(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.
(6) 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.

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:

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•During the three and six months ended June 30, 2020, the effective tax rate included a $9.2 million and $23.4 million, respectively, tax benefit resulting from the rate differential between the prevailing tax rate of 21% during the years that generated the net operating losses and the previous tax rate of 35% that was in effect during the years to which net operating losses were carried back as a result of the enactment of the CARES Act. This benefit is attributed to the enactment of the CARES Act and we believe that exclusion of this tax benefit provides investors comparability of results between periods.
•During the three and six months ended June 30, 2020, we recognized $111.6 million in contra-expense related to grant proceeds from the PSP. The grant proceeds are recognized in proportion to estimated wages and benefits expense over the period the PSP covers. We expect to utilize all proceeds from the PSP by the end of 2020.
•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.
•Changes in fair value of foreign currency 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 foreign currency 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 ninethree and six months ended SeptemberJune 30, 2019, we recorded a gain on disposal for Boeing 767-300 aircraft equipment of $0.9 million and $1.9 million, respectively, in conjunction with the retirement of our Boeing 767-300 fleet. During each of the three and nine months ended September 30, 2018, we also recorded a loss on the sale of two Boeing 767-300 aircraft covered under a forward sale agreement of $1.8 million.
•Unrealized loss (gain) on foreign debt is based on the fluctuation in exchanges rates and the measurement of foreign-denominated debt to our functional currency. 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.
Special Items

•On April 3, 2020, we received notification from the AFA that the CBA was ratified by its members. The ratified CBA provided for, among other things, a ratification payment, payable over twelve months. During the ninesix months ended SeptemberJune 30, 2018,2020, 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$23.5 million (net of all deposits)ratification bonus, of which a portion$20.2 million related to service prior to January 1, 2020, and was expensed immediately and recognizedrecorded as a lease termination fee. The expensed amount representsSpecial Item in the total purchase price over fair valueunaudited Consolidated Statements of Operations.
•During the aircraft purchasedthree months ended March 31, 2020, we recognized a goodwill impairment charge of $106.7 million, recorded as a Special Item. Refer to Note 2 in the Notes to Consolidated Financial Statements for additional discussion.
•During the three and six months ended June 30, 2020, we recognized a charge of $34.0 million associated with the dateimpairment of certain of our long-lived assets. Refer to Note 2 in the transaction.Notes to the Consolidated Financial Statements for additional discussion.
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  Three months ended September 30, Nine months ended September 30,
  2019 2018 2019 2018
  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 $80,076
 $1.70
 $93,542
 $1.84
 $174,267
 $3.64
 $201,564
 $3.96
Adjusted for:                
Changes in fair value of derivative contracts 1,154
 0.02
 4,590
 0.09
 (2,091) (0.04) (2,492) (0.05)
Loss (gain) on sale of aircraft equipment —
 —
 1,844
 0.04
 (1,948) (0.04) 1,844
 0.04
Unrealized loss (gain) on foreign debt 717
 0.01
 (2,267) (0.04) 2,254
 0.05
 (2,331) (0.05)
Contract terminations expense —
 —
 —
 —
 —
 —
 35,322
 0.69
Tax effect of adjustments (490) (0.01) (1,042) (0.02) 473
 0.01
 (8,086) (0.16)
Adjusted Net Income $81,457
 $1.72
 $96,667
 $1.91
 $172,955
 $3.62
 $225,821
 $4.43
 Three months ended June 30,Six months ended June 30,
 2020201920202019
 TotalDiluted Net Loss Per ShareTotalDiluted Net Income Per ShareTotalDiluted Net Loss Per ShareTotalDiluted Net Income Per Share
(in thousands, except for per share data)
GAAP Net Income (Loss), as reported$(106,904) $(2.33) $57,833  $1.21  $(251,276) $(5.47) $94,191  $1.96  
Adjusted for:
CARES Act - carryback of additional NOLs(9,238) (0.20) —  —  (23,394) (0.51) —  —  
CARES Act grant recognition(111,560) (2.43) —  —  (111,560) (2.43) —  —  
Changes in fair value of fuel derivative contracts(2,567) (0.06) 169  —  799  0.02  (3,245) (0.07) 
Gain on sale of aircraft equipment—  —  (851) (0.02) —  —  (1,948) (0.04) 
Unrealized loss (gain) on foreign debt1,679  0.04  2,167  0.05  2,422  0.05  1,537  0.03  
Unrealized loss (gain) on non-designated fx positions612  0.01  —  —  (200) —  —  —  
Special items34,014  0.74  —  —  160,918  3.50  —  —  
Tax effect of adjustments19,253  0.42  (386) (0.01) 13,430  0.29  951  0.02  
Adjusted Net Income (Loss)$(174,711) $(3.81) $58,932  $1.23  $(208,861) $(4.55) $91,486  $1.90  

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.


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CASM and CASM-excluding aircraft fuel, gain on sale of aircraft and equipment, and contract terminations expensespecial items, are summarized in the table below: 
 Three months ended September 30, Nine months ended September 30, Three months ended June 30,Six months ended June 30,
 2019 2018 2019 2018 2020201920202019
 (in thousands, except as otherwise indicated) (in thousands, except as otherwise indicated)
GAAP Operating Expenses $638,515
 $643,261
 $1,865,898
 $1,894,927
GAAP Operating Expenses$208,968  $623,308  $936,208  $1,227,383  
Adjusted for:        Adjusted for:
Aircraft fuel, including taxes and delivery (138,586) (162,932) (405,290) (449,404)Aircraft fuel, including taxes and delivery(7,003) (140,600) (120,481) (266,704) 
Gain (loss) on sale of aircraft and equipment —
 (1,844) 1,948
 (1,844)
Contract terminations expense —
 —
 —
 (35,322)
CARES Act PSP grant recognitionCARES Act PSP grant recognition111,560  —  111,560  —  
Gain on sale of aircraft and equipmentGain on sale of aircraft and equipment—  851  —  1,948  
Special itemsSpecial items(34,014) —  (160,918) —  
Adjusted Operating Expenses $499,929
 $478,485
 $1,462,556
 $1,408,357
Adjusted Operating Expenses$279,511  $483,559  $766,369  $962,627  
Available Seat Miles 5,331,914
 5,352,976
 15,341,510
 15,104,500
Available Seat Miles409,490  5,157,677  5,389,019  10,009,598  
CASM - GAAP 
11.98¢ 
12.02¢ 
12.16¢ 
12.55¢CASM - GAAP51.03 ¢12.09 ¢17.37 ¢12.26 ¢
Adjusted for:        Adjusted for:
Aircraft fuel, including taxes and delivery (2.60) (3.05) (2.64) (2.98)Aircraft fuel, including taxes and delivery(1.70) (2.73) (2.23) (2.66) 
Gain (loss) on sale of aircraft and equipment —
 (0.03) 0.01
 (0.01)
Contract terminations expense —
 —
 —
 (0.24)
CARES Act PSP grant recognitionCARES Act PSP grant recognition27.24  —  2.07  —  
Gain on sale of aircraft and equipmentGain on sale of aircraft and equipment—  0.02  —  0.02  
Special itemsSpecial items(8.31) —  (2.99) —  
Adjusted CASM 
9.38¢ 
8.94¢ 
9.53¢ 
9.32¢Adjusted CASM68.26 ¢9.38 ¢14.22 ¢9.62 ¢
 
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.GAAP. 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, thereThere have been no material changes to our critical accounting policies during the three months ended SeptemberJune 30, 2019.2020, except as discussed below. For more information on our critical accounting policies, see Part II, Item 7.7 "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, 2018.2019.

LeasesGoodwill and Indefinite-lived Intangible Assets

In 2016,Goodwill and intangible assets with indefinite lives are not amortized. We apply a fair value-based impairment test to the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This ASUcarrying value of goodwill and subsequently issued amendments require leases with durations greaterindefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach.

During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove our stock price to 52-week lows and significantly reduced future cash flow projections. We qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of our goodwill and indefinite-lived intangible assets. We determined that the estimated fair value of our one reporting unit was less than twelve months to be recognizedits carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the consolidated balance sheet. We adopted ASC 842 asunaudited Consolidated Balance Sheet, leading to the recognition of January 1, 2019a goodwill impairment charge of $106.7 million in the first quarter of 2020.

Fair value was determined using the modified retrospectivea combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. Prior yearThe valuation methodology
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and underlying financial statements were not recast under the new standard. We elected the packageinformation included in our determination of transition provisions available for expired or existing contracts, which allowed us to carry-forwardfair value required significant judgments by management. The principal assumptions used in our historical assessmentsdiscounted cash flow analysis consisted of (a) whether contractsthe long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which we operates.

As of June 30, 2020, we had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. We determined that the fair value of our indefinite-lived intangible assets exceeded their carrying value and was not impaired.

Long-Lived Assets

Our long-lived assets, consisting principally of aircraft and other non-aircraft equipment, are or contain leases, (b) lease classification, and (c) initial direct costs. We leaseclassified as property and equipment, under financenet on the unaudited Consolidated Balance Sheet, and operating lease,have a recorded value of approximately $2.3 billion at June 30, 2020. We review long-lived assets used in operations for impairment when events and circumstances indicate the assets may be impaired.

Based on our evaluation, including aircraft and related engines, real property, airport and terminal facilities, maintenance facilities, and general offices. We do 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 calculationconsideration of the lease liabilitycontinuing impact of the COVID-19 pandemic and ROU asset.

When available,revised financial projections, we utilizeidentified indicators of impairment related to our long-lived assets. To determine whether impairment exists for aircraft used in operations, assets are grouped at the rate implicit infleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. Based on our evaluation, it was determined that the lease to discount lease payments to present value; however, allnet carrying values of our leases doATR-42 and ATR-72 fleets and assets held under our commercial real estate subsidiary, were not providerecoverable through the generation of future undiscounted cash flows as of June 30, 2020.

We estimated the fair value of our ATR-42 and ATR-72 fleets using a readily determinable implicit rate. Therefore,third party valuation, which takes into consideration market pricing information, amongst other factors, and resulted in a $27.5 million impairment charge. We estimated the fair value of our commercial real-estate entity using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and resulted in a $3.4 million impairment charge. The principal assumptions used in our discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which we estimate our incremental borrowing rate to discount lease payments based on information available at lease commencement. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.operates.



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. WeThere 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 22% of our operating expenses for each of the three and nine months ended September 30, 2019, respectively, and 25% and 24% of our operating expenses for the three and nine months ended September 30, 2018, respectively. Approximately 71% of our fuel was based on Singapore jet fuel prices, approximately 25% was based on U.S. West Coast jet fuel prices, and approximately 4% 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 September 30, 2019, we hedged approximately 50% of our projected fuel requirements for the remainder of 2019 with crude oil call options. As of September 30, 2019, the fair value of these fuel derivative agreements reflected a net asset of $3.4 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 2019, for every one cent increase in the cost of a gallon of jet fuel, our fuel expense would increase by approximately $0.7 million.

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 significantbeen no material changes in market conditions could affectrisk from the information provided in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk", in our decisions. For more discussion, see Note 8 to our Consolidated Financial Statements.2019 Annual Report on Form 10-K.

Interest Rates
We have exposure to market risk associated with changes in interest rates related to our pre-tax earnings and cash flows associated with our interest-bearing cash equivalent accounts and short-term investments. Based on the balances of our cash and cash equivalents, and short-term investments as of September 30, 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 9 to our Consolidated Financial Statements. At September 30, 2019, we had $781.5 million of fixed-rate debt including finance lease obligations, facility agreements for aircraft purchases, and the outstanding notes related to the aircraft purchase financing. As of September 30, 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 by $5.3 million as of September 30, 2019.

Foreign Currency
We have exposure to market risk associated with changes in foreign currency exchange rates because we generate sales, incur expenses, and have debt denominated and paid in foreign currencies, predominantly in Japanese Yen and to a lesser extent, the Australian 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 September 30, 2019, the fair value of our foreign currency forwards reflected a net asset of $3.2 million in the consolidated balance sheet.
Based on forecasted transactions in foreign currency, a 10% depreciation in the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a decrease in annual net income, net of the impact of foreign currency hedges, of approximately $25.3 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")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 SeptemberJune 30, 20192020 to provide reasonable assurance that the information required to be disclosed by the Companyus in reports it fileswe file 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

ThereDuring the three and six months ended June 30, 2020, 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 September 30, 2019 whichthat materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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.


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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.
 
BUSINESS RISKS

The global COVID-19 pandemic has had and is expected to continue to have a material adverse impact on our operations and financial performance. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely affect our business operations, liquidity, financial performance, results of operations, financial position or the achievement of our strategic objectives.

Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused, and is expected to continue to cause, the global slowdown of economic activity (including the decrease in demand for goods and services), and significant volatility in and disruption to financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel, transport and our workforce); the impact of the pandemic and actions taken in response to it on global and regional economies and travel; the availability of federal, state, or local funding programs; general economic uncertainty in global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.

The COVID-19 pandemic has subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:

•Financial risks: In response to the COVID-19 pandemic, we have experienced a significant decrease in demand for air travel and reduced load capacity on flights currently operated. For the three months ended June 30, 2020, our revenue was $60.0 million, down $652.2 million from the same period in 2019. As of June 30, 2020, our cash, cash equivalents and short term investments were $760.9 million. Our current average estimated daily cash burn for July through September 2020 is approximately $3.2 million per day. This amount includes operating cash outflows, capital expenditures, debt service and interest payments, and assumes that offsetting cash inflows and refunds in June 2020 continue through September 2020 in approximately the same amounts. Our average daily cash burn for the quarter ended June 30, 2020 following the methodology above was $3.6 million. Despite our efforts to preserve cash and reduce our cash burn, we can give no assurance that we will be successful in these efforts, and continued cash burn and sustained reduction in demand for air travel will have a material adverse impact on our business operations, financial performance and results of operations.

•Operations- and customer-related risks: Across our business, we are facing increased operational challenges, including low demand for air travel, significant reductions in our flight schedule, decreased passenger traffic on our current routes, high-volume customer service requests for refunds and cancellations, the need to protect employee and customer health and safety, site shutdowns, workplace disruptions, need for contract modifications and cancellations, and other restrictions on business operations and the movement of people, including a 14-day quarantine requirement for all travelers to the state of Hawai‘i and certain measures being taken on flights to minimize transmission of COVID-19. We have implemented enhanced safety measures to protect the health and safety of our passengers and employees, and may be required, or determine, to take additional safety measures to minimize the transmission of COVID-19 that may further impact our operations and results of operations. Additionally, our current planning scenario for recovery from the pandemic assumes a 15-25% reduction in our anticipated flight schedule for the summer of 2021 and related reductions in headcount, including the use of voluntary reduction options to mitigate involuntary reductions. These and similar factors related directly and indirectly to the COVID-19 pandemic adversely impact our business. We expect that the longer the period of economic disruption continues, the more material the adverse impact will be on our business operations, financial performance and results of operations.

•Liquidity- and funding-related risks: While we are seeking support under the CARES Act and have fully drawn our committed credit line, a prolonged period of generating lower cash from operations could adversely affect our financial
51

condition and the achievement of our strategic objectives. Additionally, our credit rating was recently downgraded by ratings agencies and there can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding, which could adversely affect our business, financial position and results of operations. For example, we estimate that our unencumbered aircraft have a current market value of approximately $860 million for financing purposes, and we may seek to raise additional capital through aircraft financings in the future. In light of current market conditions, any such financings are likely to reflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our recent aircraft financings.

•Legal and regulatory risks: While we are endeavoring to take all reasonable precautions and instituting numerous health and safety measures to protect our guests and our employees, there can be no assurance that guests will not be exposed to COVID-19 while traveling, or that our employees will not be exposed to COVID-19 while working. Should such exposure be determined to have been caused while traveling or working, notwithstanding the steps we take to protect our guests and employees, we may be subject to civil lawsuits or employee grievances that give rise to legal liability.Furthermore, while the airline industry is committed to the safety of our guests and employees and has taken and will continue to take all necessary precautions, there can be no assurance that federal legislation or federal regulation will not be enacted that increase our costs or increase our exposure to claims of non-compliance.

At this time, we are also not able to predict whether the COVID-19 pandemic will result in permanent changes to our customers’ behavior, with such changes including but not limited to a lasting or permanent reduction in leisure travel and more broadly a general reluctance to travel by consumers, each of which could have a material impact on our business. Currently, the COVID-19 pandemic has produced several trends with recent travelers, each possibly having an effect on future operations:

•Travelers have indicated they are wary of airports and commercial aircraft, where they may view the risk of contagion as increased; and

•Travelers may be dissuaded from flying due to possible enhanced COVID-19-related screening measures which are being implemented across multiple markets we serve.

The COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect. The COVID-19 pandemic may also exacerbate other risks described in this “Risk Factors” section, including, but not limited to, our dependence on Hawaiian leisure travel, our competitiveness, demand for air travel generally and our services specifically, shifting consumer preferences and our substantial outstanding indebtedness.

ECONOMIC RISKS

Our business is affected by global economic volatility, including the current economic downturn precipitated by the COVID-19 pandemic.

Our business and results of operations are significantly impacted by general world-wide economic conditions, including the current economic downturn related to the COVID-19 pandemic. Demand for discretionary air travel and vacations to, from and within the Hawaiian Islands has declined and remains unpredictable, which has negatively impacted our results of operations and financial condition. Our business depends on the demand for air travel to, from and within the Hawaiian Islands. Further deterioration or instability in demand resulting from travel restrictions, ongoing economic uncertainty or further recession may result in sustained reduction in our passenger traffic and/or increased competitive pressure on fares in the markets we serve, which could continue to negatively impact our results of operations and financial condition. There can be no assurance that we will be able to offset such revenue reductions by reducing our costs or seeking relief through the CARES Act or other potential financing arrangements or other programs or opportunities.

Our business is highly dependent on tourism to, from, and amongst the Hawaiian Islands and our financial results have been impacted and may continue to be impacted by the current and any future downturn in tourism levels.

Our principal base of operations is in Hawai‘i and our revenue is linked primarily to the number of travelers (mainly tourists) to, from and amongst the Hawaiian Islands. As a result of the COVID-19 pandemic and government mandates related to travel and business operations, we have experienced a significant decline in the demand for travel to, from and amongst the Hawaiian Islands. On March 21, 2020, the State of Hawai‘i implemented a 14-day quarantine applicable to passengers traveling to Hawai‘i or between the Hawaiian Islands. While restrictions related to travel between the Hawaiian Islands were removed on
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June 16, 2020, restrictions on travel to Hawai‘i have been extended until at least through the end of August 2020. While the Governor of Hawai‘i has mentioned the possibility of lifting quarantine restrictions for passengers traveling to Hawai‘i who can demonstrate that they have tested negative for COVID-19 prior to travelling to Hawai‘i, there is no certainty whether and when such restrictions will be eliminated. These measures, which may be lifted and reinstated as the infection rates of COVID-19 change, deter travel and have a significant impact on our business operations.

Additionally, Hawai‘i tourism levels are generally affected by the economic and political climate impacting air travel and tourism markets, including the availability of hotel accommodations, the popularity of tourist destinations relative to other vacation destinations, and other global factors including health crises, natural disasters, safety, and security. As a result of the COVID-19 pandemic, there has been a significant decline in air travel due to government mandates and general public health concerns. Additionally, tourism has declined as various public events, attractions and venues have been closed or cancelled. We cannot predict when these closures will end and cancellations diminish or when tourism levels will recover. Additionally, from time to time, various events and industry-specific problems such as labor strikes have had a negative impact on tourism generally or in Hawai‘i specifically. The occurrence of natural disasters, such as hurricanes, earthquakes, volcanic eruptions, and tsunamis, in Hawai‘i or other parts of the world, could also have an adverse effect or compound the existing adverse effect of the COVID-19 pandemic on tourism. In addition, the potential or actual occurrence of terrorist attacks, wars, and/or the threat of other negative world events have had, and may in the future have, a material adverse effect on or compound the current effect of the COVID-19 pandemic on tourism.

Our business is highly dependent on the price and availability of fuel.

Our results and operations are heavily impacted by the price and availability of jet fuel. The cost and availability of jet fuel remains volatile and is subject to political, economic, and market factors that are generally outside of our control. Prices may be affected by many factors including, without limitation, the impact of political instability, crude oil production and refining capacity, unexpected changes in the availability of petroleum products due to disruptions to distribution systems or refineries, unpredicted increases in demand due to weather or the pace of global economic growth, inventory reserve levels of crude oil and other petroleum products, the relative fluctuation between the U.S. dollar and other major currencies, and the actions of speculators in commodity markets. The cost of jet fuel has been especially volatile recently due to the negative impact of the COVID-19 pandemic on the demand for oil. Because of the effects of these factors on the price and availability of jet fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. Also, due to the competitive nature of the airline industry, there can be no assurance that we will be able to increase our fares or other fees to sufficiently offset any increase in fuel prices.

While we enter into derivative agreements to protect against the volatility of fuel costs, uncertainty related to the demand for air travel makes it difficult to accurately forecast our future fuel consumption, and as a result, we are unable to predict the effectiveness of hedging as a means of managing increases in the cost of fuel in the future.

See Part I, Item 1A., “Risk Factors”7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for further information regarding our exposure to foreign currency exchange rates.

Our business is exposed to foreign currency exchange rate fluctuations.

Prior to the COVID-19 pandemic, our business had been expanding internationally with an increasing percentage of our passenger revenue generated from our International routes. The fluctuation of the U.S. dollar relative to foreign currencies can significantly affect our results of operations and financial condition. To manage the effects of fluctuating exchange rates, we periodically enter into foreign currency forward contracts and execute payment of expenditures in those locations in local currency. We entered into Japanese Yen denominated debt agreements totaling $227.9 million and $86.5 million in 2019 and 2018, respectively. If our business is able to expand internationally, there is no assurance that these agreements will protect us against foreign currency exchange rate fluctuations during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements.

See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for further information regarding our exposure to foreign currency exchange rates.

LIQUIDITY RISKS

Our financial liquidity could be adversely affected by credit market conditions.

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Our business requires access to capital markets to finance equipment purchases, including aircraft, and to provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with Boeing to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions, including related to the current COVID-19 pandemic, may adversely affect the availability of financing or may result in unfavorable terms and conditions.

Our current unencumbered aircraft can be financed to increase our liquidity, but such financings may be subject to unfavorable terms. We estimate that our unencumbered aircraft has a current market value of approximately $860 million for financing purposes, and we may seek to raise additional capital through aircraft financings in the future. In light of current market conditions, any such financings are likely to reflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our recent aircraft financings.

Additionally, our credit rating was recently downgraded by ratings agencies and there can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.

We can offer no assurance that financing we may need in the future will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition may be adversely affected.

Our debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.

As of June 30, 2020, we had $811.3 million in outstanding commercial debt, excluding funds borrowed under the PSP. Our debt and related covenants could:

•require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
•place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
•adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general purpose needs.

These agreements require us to meet certain covenants. If we breach any of these covenants we could be in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under other credit facilities.

Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.

We have entered into loan agreements with the U.S. Treasury pursuant to the CARES Act that have certain operating and other restrictions.

As a condition of receiving grants and loans under the PSP under the CARES Act, we agreed to, among other things: refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit executive compensation through March 24, 2022; suspend payment of dividends and stock repurchases through September 30, 2021; and comply with certain reporting requirements. We are also required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT and subject to exemptions granted to us by the DOT given the absence of demand for such services. The restrictions placed on us as part of our participation in the PSP under the CARES Act, including restrictions on use of funds, staffing, pay reduction, stock buy-backs and dividends may negatively affect our financial and business operations.
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Furthermore, we entered into an LOI with the Treasury pursuant to which we are eligible to receive up to $364 million in ERP loans through the CARES Act. If we receive such a loan, we will be subject to restrictions as a condition of receiving the loan, including maintenance of March 2020 employment levels through September 2020, a prohibition on stock buybacks and dividends until a year after repayment, limitations on executive compensation until a year after repayment and an obligation to maintain our March 2020 routes (to the extent not exempted by the DOT) until March 2022. These restrictions may affect our financial and business operations.

We are required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.

Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover chargebacks or other disputed charges that may occur. As of June 30, 2020, there were no holdbacks by our credit card processors.

In the event of a material adverse change in our business, the holdback could incrementally increase to an amount up to 100% of the applicable credit card activity for all unflown flights, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.

COMPETITIVE ENVIRONMENT RISKS

We operate in an extremely competitive environment.

The airline industry is characterized by low profit margins, high fixed costs, and significant price competition. We compete with other airlines on all of our Domestic and International routes. The commencement of, or increase in, service on our routes by existing or new carriers at competitive prices could negatively impact our operating results. Most of our competitors are much larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare competition initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Additionally, our competitors have been and may continue to be more successful in navigating the challenges related to COVID-19, including, having easier access to additional capital and more favorable lending terms, which could impact our ability to compete successfully in the future. Since airline markets have few natural barriers to entry, we also face the constant threat of new entrants in all of our markets.

Additional capacity to or within Hawai‘i, whether from network carriers or low-cost carriers, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, including in light of industry-wide reductions in air travel due to the COVID-19 pandemic, which could have a material adverse effect on our results of operations and financial condition.

The concentration of our business within Hawai‘i, and between Hawai‘i and the U.S. mainland, provides little diversification of our revenue and could be exacerbated by the effects of the COVID-19 pandemic.

During the six months ended June 30, 2020, approximately 74% of our passenger revenue was generated from our Domestic routes. Most of our competitors, particularly major network carriers with whom we compete on North American routes, enjoy greater geographical diversification of their passenger revenue. As Domestic routes account for a detailed discussionsignificantly higher proportion of our revenue than they do for most of our competitors, a proportionately higher decline in demand for our domestic routes generally due to the COVID-19 pandemic is likely to have a relatively greater adverse effect on our financial results than on those of our competitors. Additionally, reductions in the level of demand for travel to, from, and within Hawai‘i, such as those caused by government restrictions on travel to and business operations within Hawai`i, including the 14-day quarantine order previously in place for travelers within Hawai‘i and currently in place for travelers to Hawai‘i, has reduced the revenue we are able to generate from our routes and adversely affected our financial results. Sustained reduction in our Domestic routes and continued industry capacity of major network carriers on routes to, from and within Hawai‘i is likely to continue to adversely affect our financial results.

Our business is affected by the competitive advantages held by network carriers in the North America market.

During the six months ended June 30, 2020, approximately 54% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska Airlines,
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American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, all of whom have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enables them to attract higher customer traffic levels as compared to us.

In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (e.g. with JetBlue) to provide customers access to and from North American destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers depending on the economic strength of the hub city and the size of the customer group that frequents the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a built-in market. Passengers in the North American market, for the most part, do not originate in Honolulu, but on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.

Our Neighbor Island routes are affected by increased capacity provided by our competitors.

During the six months ended June 30, 2020, approximately 20% of our passenger revenue was generated from our Neighbor Island routes. Prior to the COVID-19 pandemic, certain of our competitors increased capacity to and within Hawai‘i by introducing new routes and increasing the frequency of existing routes from North America to Hawai‘i and by the introduction of additional flights within the neighbor islands. We are unable to predict competitor capacity related to air travel to Hawai‘i or between the neighbor islands, including any impact that the COVID-19 pandemic may have on such capacity. Any increased competitor capacity that decreases our share of traffic to Hawai‘i or between the neighbor islands could ultimately have a material adverse effect on our results of operations and financial condition.

Our International routes are affected by competition from domestic and foreign carriers.

During the six months ended June 30, 2020, approximately 26% of our passenger revenue was generated from our International routes. When our operations are not constrained by restrictions related to the COVID-19 pandemic, our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.

Many of our domestic competitors are members of airline alliances, which provide customers access to each participating airline’s international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances, our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. To mitigate this risk, factorswe rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.

Many of our foreign competitors are network carriers that benefit from network feed to support international routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our international flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai‘i, but rather internationally, in these foreign carriers’ home bases. We also rely on our code-share agreements and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.

INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS

If we do not maintain the privacy and security of personal information or other information relating to our customers or others, or fail to comply with applicable U.S. and foreign privacy, data protection, or data security laws or security standards imposed by our commercial partners, our reputation could be damaged, we could incur substantial additional costs, and we could become subject to litigation or regulatory penalties.

We receive, retain, transmit and otherwise process personal information and other information about our customers and other individuals, including our employees and contractors, and we are subject to increasing legislative, regulatory and customer focus on privacy, data protection, and data security both domestically and internationally. Numerous laws and regulations in the U.S. and in various other jurisdictions in which we operate relate to privacy, data protection, and security, including laws and regulations regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers and other individuals. The scope of these laws and regulations is changing, subject to
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differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other obligations of ours.

A number of our commercial partners, including credit card companies, have imposed data security standards or other obligations relating to privacy, data protection, or data security upon us. We strive to comply with applicable laws, regulations, policies, and contractual and other legal obligations relating to privacy, data protection, and data security. However, these legal, contractual, and other obligations may be interpreted and applied in new ways and/or in manners that are inconsistent, and may conflict with other rules or practices. Data privacy, data protection, and data security are active areas, with laws and regulations in these areas being frequently proposed, enacted, and amended, and existing laws and regulations subject to differing and evolving interpretations. New laws and regulations in these areas likely will be enacted.

Any failure or perceived failure by us to comply with laws or regulations, our privacy or data protection policies, or other privacy-, data protection-, or information security-related obligations to customers, or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in governmental investigations and enforcement actions, governmental or private litigation, other liability, our loss of the ability to process credit card transactions, or us becoming subject to higher costs for such transactions, or public statements critical of us by consumer advocacy groups, competitors, the media or others that could cause our current or prospective customers to lose trust in us, any of which could have an adverse effect on our business. Additionally, if third-party business partners that we work with, such as vendors, violate applicable laws, our applicable policies or other privacy-, data protection-, or security-related obligations, such violations may also put our customers’ or others’ information at risk and could in turn have an adverse effect on our business. Governmental agencies may also request or take customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.

We will continue our efforts to comply with new and increasing privacy, data protection, and information security obligations; however, it is possible that such obligations may require us to expend additional resources, and may be difficult or impossible for us to meet. Any failure to comply with applicable U.S. or foreign privacy, data protection, or data security laws or regulations, any privacy or security standards imposed by our commercial partners, or any other obligations we are or may become subject to relating to privacy, data protection, or information security, or any allegation or assertion relating to any of the foregoing may result in claims, regulatory investigations and proceedings, private litigation and proceedings, and other liability, all of which may adversely affect our reputation, business, results of operations and financial condition.

Our actual or perceived failure to protect customer information or other personal information or confidential information could result in harm to our business.

Our business and operations involve the storage, transmission and processing of information about our customers, our employees and contractors, our business partners, and others, as well as our own confidential information. We may become the target of cyber-attacks by third parties seeking unauthorized access to any of these types of information or to disrupt our business or operations. Computer malware, viruses, fraudulent sales of frequent flier miles, and general hacking have become more prevalent in our industry. While we have taken steps to protect customer information and other confidential information that we have access to, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We and our third-party service providers may be unable to anticipate attempted security breaches and to implement adequate preventative measures, and our security measures or those of our third-party service providers could be breached, we could suffer data loss, unauthorized access to or use of the systems or networks used in our business and operations, and unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ information. We may also experience security breaches or other incidents that may remain undetected for an extended period. Further, third parties may also conduct attacks designed to disrupt or deny access to the systems and networks used in our business and operations.

Actual or perceived security breaches or other security incidents could result in unauthorized use of or access to systems and networks, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ information, and may lead to litigation, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, and may adversely affect our revenues and operating results. Additionally, our service providers may suffer security breaches or other incidents that may compromise data stored or processed for us that may give rise to any of the foregoing.

Any such actual or perceived security breach or other incident may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and eliminate vulnerabilities, and to prevent future security
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breaches or incidents, as well as significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, costs in connection with payment card replacement, and other liabilities. Certain breaches affecting payment card information or the environment in which such information is processed may also result in a loss of our ability to process credit cards or increased costs associated with doing so. We have incurred and expect to incur ongoing expenditures in an effort to prevent information security breaches and other security incidents.

We cannot be certain that our insurance coverage will be adequate for information security liabilities actually incurred or to cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We are increasingly dependent on technology and automated systems to operate our business.

We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com, and other IT systems, many of which must be able to accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial transactions. Any substantial, extended, or repeated failures of these systems could negatively affect our customer service, compromise the security of customer information or other information stored on, transmitted by, or otherwise processed by these systems, result in the loss of important data, loss of revenue and increased costs, and generally harm our business. Additionally, loss of key talent required to maintain and advance these systems could have a material impact on our operations. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity incursions, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, our business could be adversely impacted. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition.condition that may result from system interruptions or system failures.


We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.

There are a limited number of qualified employees and personnel in the airline and information technology industry, especially within the Hawai‘i market. Due to these limitations, we have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, and the distribution and sale of airline seats. Our reliance on outside vendors may continue to increase in the future.

The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, including those related the impacts of the COVID-19 pandemic on their businesses, are likely to reduce our revenues, increase expenses, and/or prevent us from operating our flights and providing other services to our customers. Additionally, our business and financial performance would be materially harmed if our customers believe that our services are unreliable or unsatisfactory.

LABOR RELATIONS AND RELATED COSTS RISKS

We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline’s results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that may require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.

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In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, and dispatchers. We cannot ensure that future agreements with our employees’ labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. For example, in April 2020, the flight attendants of Hawaiian, represented by the Association of Flight Attendants, ratified an amended collective bargaining agreement, which among other things, includes a ratification payment, increased medical cost sharing, pay scale increases, and a one-time medical savings contribution to eligible flights attendants upon retirement.

Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.

We believe that our future success is dependent on the knowledge and expertise of our key executives and highly qualified management, technical, and other personnel. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future, including in light of the restrictions on executive compensation imposed on us under the CARES Act. Any inability to retain our key executives, or other senior technical personnel, or attract and retain additional qualified executives, could have a negative impact on our operations.

In addition, as we continue to expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract a sufficient number of qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel, we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.

STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network strategy could harm our business.
Our route and network strategy (how we determine to deploy our fleet) includes initiatives to increase revenue, decrease costs, mature our network, and improve distribution of our sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. As a result of the COVID-19 pandemic and related decline in air travel and safety protocols we have taken in response to the COVID-19 pandemic that reduce our maximum load capacity, we are not likely to be able to utilize and fill current capacity or any additional capacity provided by any additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-effective manner at the levels previously anticipated. As a result, we are unlikely to be able to meaningfully develop and grow our new and existing markets in the near term, which may adversely affect our business and operations for an indeterminant time period. In addition, if we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.

Our reputation and financial results could be harmed in the event of adverse publicity, including the event of an aircraft accident or incident.

Our customer base is broad and our business activities have significant prominence, particularly in Hawai‘i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, third-party aircraft components or other events or circumstances affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.

Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft or aircraft parts, and its consequential temporary or permanent loss of revenue, but also significant claims of injured passengers and others. We are required by the DOT to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with an accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.

Airline Industry, Regulation and Related Costs Risks

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The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, which could harm our financial condition and results of operations.

Due to the substantial fixed costs associated with operating an airline, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried, and when applicable, the aggregate effect of decreasing flights scheduled, causes a corresponding decrease in revenue that is likely to result in a disproportionately greater decrease in profits. Therefore, the reduction in airline passenger traffic as a result of the COVID-19 pandemic and any future reductions as a result of the following or other factors, which are largely outside of our control, will likely harm our business, financial condition, and results of operations:

•decline in general economic conditions;
•continued threat of terrorist attacks and conflicts overseas;
•actual or threatened war and political instability;
•increased security measures or breaches in security;
•adverse weather and natural disasters;
•changes in consumer preferences, perceptions, or spending patterns;
•increased costs related to security and safety measures,
•decreased passenger load capacity as a result of the blocking of seats on aircraft as part of our safety protocols undertaken in response to the COVID-19 pandemic;
•increased fares as a result of increases in fuel costs;
•outbreaks of contagious diseases or fear of contagion; and
•congestion or major construction at airports and actual or potential disruptions in the air traffic control system.

Our results of operations are and may continue to be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of the COVID-19 pandemic or any unexpected events, including those identified above.

Our financial results and operations may be negatively affected by the State of Hawai‘i’s airport modernization plan.

The State of Hawai‘i has begun to implement a modernization plan encompassing the airports we serve within the State. Our landing fees and airport rent rates have increased to fund the modernization program. Additionally, we expect the costs for our Neighbor Island operations to increase more than the costs related to our North America and International operations due to phased adjustments of the airports’ funding mechanism. Consequently, costs related to the modernization program will have a greater impact on our operations as compared to our competitors, most of whom do not have significant Neighbor Island operations. We can offer no assurance that we will be successful in offsetting these cost increases through other cost reductions or increases in our revenue and, therefore, can offer no assurance that our future financial results will not be negatively affected by them.

Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the State of Hawai‘i.

We must be able to maintain and/or obtain adequate gates, maintenance capacity, office space, operations areas, and ticketing facilities at the airports within the State of Hawai‘i to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial performance.

Our business is subject to substantial seasonal and cyclical volatility.

Our results of operations reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. As Hawai‘i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during June, July, August and December and considerably weaker at other times of the year. Due to the widespread impact of the COVID-19 pandemic on the demand for air travel generally and travel to and within Hawai‘i specifically, we have seen a significant decline in demand for air travel for June 2020 and bookings for July 2020 as compared to prior years. Because of fluctuations in our results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.

Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.
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Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, financial condition and results of operations, and on the airline industry in general.

The airline industry is subject to extensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.

Airlines are subject to extensive regulatory requirements that result in significant costs. New, and modifications to existing, laws, regulations, taxes and airport rates, and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations, restrict operations or reduce revenue. The Federal Aviation Administration (“FAA”) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections, and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates, would have a material adverse impact on our operations.

We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further, we cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.

In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, U.S. Customs and Border Protection (“CBP”) and the Transportation Security Administration (“TSA”)). Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may continue to do so in the future.

Federal budget constraints or federally imposed furloughs due to budget negotiation deadlocks may adversely affect our industry, business, results of operations and financial position.

Many of our airline operations are regulated by governmental agencies, including the FAA, the DOT, the CBP, the TSA, and others. If the federal government operations were to experience issues in reaching budgetary consensus in the future resulting in mandatory furloughs and/or other budget constraints, or if a government shutdown were to continue for an extended period of time, our business and results of operations could be materially negatively impacted. The travel behaviors of the flying public could also be affected, which may materially adversely impact our industry and our business.

The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.

Many aspects of airlines’ operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.

Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. We are monitoring and evaluating the potential impact of such legislative and regulatory developments.

In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to
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conclude that emissions from commercial aircraft cause significant harm to the atmosphere or have a greater impact on climate change than other industries.

Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject.

The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws and regulations to which we are subject, both domestically and internationally. Compliance with the laws and regulations of foreign jurisdictions and the restrictions on operations that these laws, regulations or other government actions may impose could significantly increase the cost of airline operations or reduce revenue. For example, various jurisdictions have imposed or are currently imposing restrictions that impede or restrict travel in response to the COVID-19 pandemic and a number of our destinations in Asia have been revising their privacy and consumer laws and regulations. For example, various non-U.S. jurisdictions that we serve have implemented restrictions on the entry of travelers during the COVID-19 pandemic. Limitations placed on our business as a result of these or other laws and regulations or failure to comply with evolving laws or regulations could result in significant penalties, criminal charges, costs to defend ourselves in a foreign jurisdiction, restrictions on operations and reputational damage. In addition, we operate flights on international routes regulated by treaties and related agreements between the U.S. and foreign governments, which are subject to change as they may be amended from time to time. Modifications of these arrangements could result in an inability to obtain or retain take-off or landing slots for our routes, route authorization and necessary facilities. Any limitations, additions or modifications to government treaties, agreements, regulations, laws or policies related to our international routes could have a material adverse impact on our financial position and results of operations.

We may be party to litigation or regulatory action in the normal course of business or otherwise, which could have an adverse effect on our operations and financial results.

From time to time, we are a party to or otherwise involved in legal or regulatory proceedings, claims, government inspections, investigations or other legal matters, both domestically and in foreign jurisdictions, including proceedings related to the COVID-19 pandemic. For example, due to cancelled or rescheduled flights in connection with the COVID-19 pandemic, several U.S. airlines, including us, have been subject to class action complaints citing violation of state consumer statutes for allegedly failing or refusing to refund passenger tickets on cancelled flights. We believe we have meritorious defenses and intend to vigorously contest the claims. Resolving or defending legal matters, however, can take months or years. The duration of such matters can be unpredictable with many variables that we do not control including adverse party or government responses. Litigation and regulatory proceedings are subject to significant uncertainty and may be expensive, time-consuming and disruptive to our operations. In addition, an adverse resolution of a lawsuit, regulatory matter, investigation or other proceeding could have a material adverse effect on our financial condition and results of operations. We may be required to change or restrict our operations or be subject to injunctive relief, significant compensatory damages, punitive damages, penalties, fines or disgorgement of profits, none of which may be covered by insurance. We may have to pay out settlements that also may not be covered by insurance. There can be no assurance that any of these payments or actions will not be material. In addition, publicity of ongoing legal and regulatory matters may adversely affect our reputation.

Our insurance costs are susceptible to significant increases, and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.

We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers’ compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or that we will not bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition. While we have not yet seen an increase in our insurance premiums on account of the COVID-19 pandemic, we may experience increases as our policies become eligible for renewal.

Extended interruptions or disruptions in service have and could continue to have a material adverse impact on our operations.

Our financial results have been and may continue to be adversely affected by factors outside our control, including, but not limited to, flight cancellations, significant delays in operations, and facility disruptions, such as those caused by the current
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COVID-19 pandemic. Our principal base of operations is in Hawai‘i and a significant interruption or disruption in service has had and may continue to have a serious impact on our business and results of operations. In addition to international health crises, such as the COVID-19 pandemic, natural disasters, such as hurricanes, earthquakes and tsunamis, may impact the demand for transportation in the markets in which we operate.

FLEET AND FLEET-RELATED RISKS
We are dependent on our limited number of suppliers for aircraft, aircraft engines and parts.

We are dependent on a limited number of suppliers (e.g. Airbus, Boeing, Rolls Royce, Pratt & Whitney) for aircraft, aircraft engines, and aircraft-related items. We are vulnerable to malfunction, failure or other problems associated with the supply and performance of these aircraft and parts and/or related operational disruptions, such as those caused by the COVID-19 pandemic. We do not yet know the full impact of operational disruptions of our suppliers and believe that such disruptions could result in reputational harm, increased parts and maintenance costs, and adverse effects on our financial position and results of operations.

Our agreements to purchase Boeing 787-9 aircraft represent significant future financial commitments and operating costs.
As of June 30, 2020, we had the following firm order commitments and purchase rights for additional aircraft:

Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft—  9N/A
B787-9 aircraft1010Between 2021 and 2025

We have made substantial pre-delivery payments for aircraft under existing purchase agreements and are required to continue these pre-delivery payments as well as make payments for the balance of the purchase price through delivery of each aircraft. Due to the current impacts of the COVID-19 pandemic, we are reevaluating these contracts. There can be no assurance, however, that we will be able to modify these contracts, reschedule the scheduled delivery dates for these aircraft, or take similar actions to the extent we seek to do so. These commitments substantially increase our future capital spending requirements and may require us to increase our level of debt in future years. We are continuing to evaluate our options to finance these orders. There can be no assurance that we will be able to obtain such financing on favorable terms, or at all.

Delays in scheduled aircraft deliveries or other loss of fleet capacity may adversely impact our operations and financial results.

The success of our business depends on, among other things, the ability to effectively operate a certain number and type of aircraft. As noted above, we are uncertain about the future of our contractual commitments to purchase additional aircraft for our fleet. Our inability to purchase and introduce new aircraft into our fleet could negatively impact our business, operations and financial performance. Even if we proceed with some or all of our contractual commitments to purchase additional aircraft, delays in scheduled aircraft, due to the COVID-19 pandemic or other circumstances, or our failure to integrate newly purchased aircraft into our fleet as planned may require us to utilize our existing fleet longer than expected. Such extensions may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs.

We may never realize the full value of our long-lived assets such as aircraft and non-aircraft equipment, resulting in impairment and other related charges that may negatively impact our financial position and results of operations.

Economic and intrinsic triggers, which include the effects of the COVID-19 pandemic, extreme fuel price volatility, an uncertain economic and credit environment, unfavorable trends in historical or forecasted results of operations and cash flows, as well as other uncertainties, may cause us to record material impairments of our long-lived assets. Additionally, we could be subject to impairment charges in the future that could have an adverse effect on our financial position and results of operations in future periods. The risk of future material impairments has grown significantly as result of the effects of the COVID-19 pandemic on our business.

During the fiscal quarter ended March 31, 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove down our stock price to 52-week lows and significantly reduced our cash flows. We determined that the estimated fair value of our business was less than its carrying value. The deficit between the fair value and the carrying value of the assets exceeded the amount of goodwill on our financial statements and, therefore, we recognized a goodwill impairment charge of $106.7 million during the three months ended March 31, 2020.
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As part of our response to COVID-19, discussed above, including substantial capacity reductions and the temporary grounding of the majority of its fleet, as well as reduced cash flow projections, we identified indicators of impairment of our long-lived assets. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. Based on our evaluation, including consideration of the continuing impact of the COVID-19 pandemic and revised financial projections, it was determined that the net carrying values of our ATR-42 and ATR-72 fleets and assets held under our commercial real estate subsidiary, were not recoverable through the generation of undiscounted future cash flows as of June 30, 2020.

We estimated the fair value of our ATR-42 and ATR-72 fleets using a third-party valuation, which resulted in a $27.5 million impairment charge. We estimated the fair value of the assets held in our commercial real-estate subsidiary using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, resulting in a $3.4 million impairment charge. The principal assumptions used in our discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to us and the industry in which we operate.

In addition, during the three and six months ended June 30, 2020, we identified and wrote-off $3.1 million related to software-related projects that were discontinued as a result of the COVID-19 pandemic.

COMMON STOCK RISKS

Our share price is subject to fluctuations.

The market price of our stock is influenced by many factors, many of which are outside of our control, and include the following:

•operating results and financial condition;
•changes in the competitive environment in which we operate;
•fuel price volatility including the availability of fuel;
•announcements concerning our competitors including bankruptcy filings, mergers, restructurings or acquisitions by other airlines;
•increases or changes in government regulation;
•general and industry specific market conditions;
•changes in financial estimates or recommendations by securities analysts; and
•sales of our common stock or other actions by investors with significant shareholdings.

In recent years the stock market has experienced volatile price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may affect the price of our common stock.

In the past, securities class action litigation has often been instituted against a company following periods of volatility in its stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of our common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.

Certain provisions of our certificate of incorporation and bylaws may delay or prevent a change of control, which could materially adversely affect the price of our common stock.

Our certificate of incorporation and bylaws contain provisions that may make it difficult to remove our Board of Directors and management, and may discourage or delay a change of control, which could materially and adversely affect the price of our common stock. These provisions include, among others:

•the ability of our Board of Directors to issue, without further action by the stockholders, series of undesignated preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control;
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•advance notice procedures for stockholder proposals to be considered at stockholders’ meetings and for nominations of candidates for election to our Board of Directors;
•the ability of our Board of Directors to fill vacancies on the board;
•a prohibition against stockholders taking action by written consent;
•a prohibition against stockholders calling special meetings of stockholders; and
•super-majority voting requirements to modify or amend specified provisions of our certificate of incorporation.

Our certificate of incorporation includes a provision limiting voting and ownership by non-U.S. citizens and our bylaws include a provision specifying an exclusive forum for stockholder disputes.

To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our certificate of incorporation restricts voting of shares of our common stock by non-U.S. citizens. Our certificate of incorporation provides that the failure of non-U.S. citizens to register their shares on a separate stock record, which we refer to as the “foreign stock record,” would result in a suspension of their voting rights in the event that the aggregate foreign ownership of the outstanding common stock exceeds the foreign ownership restrictions imposed by federal law.

Our certificate of incorporation further provides that no shares of our common stock will be registered on the foreign stock record if the amount so registered would exceed the foreign ownership restrictions imposed by federal law. If it is determined that the amount registered in the foreign stock record exceeds the foreign ownership restrictions imposed by federal law, shares will be removed from the foreign stock record in reverse chronological order based on the date of registration therein, until the number of shares registered therein does not exceed the foreign ownership restrictions imposed by federal law. As of December 31, 2019, we believe we were in compliance with the foreign ownership rules.

Our by-laws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, any other state or federal court located in the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws (as each may be amended or restated from time to time); or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the Securities Act). Accordingly, stockholders may be limited in the forum in which they are able to pursue legal actions against us.

We cannot guarantee the repurchase of our common stock pursuant to our share repurchase program or continue to pay dividends on our common stock for the foreseeable future.

We have reached an agreement with the Treasury for financial relief under the CARES Act. Under the terms of this relief we will be required to suspend payment of dividends and refrain from engaging in stock repurchases through September 30, 2021. We announced on March 18, 2020 that we suspended stock repurchases under our previously announced repurchase program, which expires December 31, 2020. As such, we do not anticipate any future repurchases under our currently approved repurchase program and we cannot provide any assurance that we will initiate any repurchase program again in the future. Additionally, although we have historically issued quarterly dividends, we cannot provide any assurance that we will declare dividends in the future, even after the restrictions related to the CARES Act are no longer applicable, based on our operating results, financial condition, capital requirements, and general business conditions.

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ITEM 2.                                               UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table displays information with respectOn March 18, 2020, we announced the suspension of our repurchase program and pursuant to our receipt of financial assistance under the CARES Act, we are prevented from executing stock repurchases of shares of our commonthrough September 30, 2021. We had no stock repurchase activity during the three months ended SeptemberJune 30, 2019:2020.

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)
July 1, 2019 - July 31, 2019 251,433
 $27.56
 251,433
  
August 1, 2019 - August 31, 2019 276,574
 25.06
 276,574
  
September 1, 2019 - September 30, 2019 234,536
 26.18
 234,536
  
Total 762,543
   762,543
 $46.8

(i)In November 2018, our Board of Directors approved the repurchase of up to an additional $100 million of our outstanding common stock through December 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.By-laws amendments

On July 27, 2020, our Board of Directors approved our amended and restated by-laws (the “Amended and Restated By-Laws”) to provide for a new Article 13. The Amended and Restated By-Laws provide that unless we consent otherwise, the federal district courts of the United States of America shall be the exclusive forum for any litigation asserting a claim under the Securities Act. An identical amendment was adopted by the Board of Directors of Hawaiian with respect to its by-laws.

The foregoing description of the Amended and Restated By-Laws does not purport to be complete, and is qualified in its entirety by reference to the full text of the Amended and Restated By-Laws, a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Director appointments

On July 27, 2020, our Board of Directors appointed C. Jayne Hrdlicka and Michael E. McNamara to the Board of Directors, each to hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation, disqualification or removal.

There are no arrangements or understandings between either of Ms. Hrdlicka or Mr. McNamara and any other person pursuant to which either Ms. Hrdlicka or Mr. McNamara was selected as a director. In addition, there were no transactions in which Ms. Hrdlicka or Mr. McNamara has an interest that would require disclosure under Item 404(a) of Regulation S-K.

Each of Ms. Hrdlicka and Mr. McNamara will receive compensation for his or her service pursuant to our non-employee director compensation policy as described in our definitive proxy statement filed with the SEC on March 30, 2020. This includes an annual cash retainer of $70,000 plus $1,500 for each meeting of the Board of Directors that he or she attends in person and $750 for each meeting he or she attends telephonically, in each case, for meetings attended in excess of eight meetings (whether in-person or via telephone) during the twelve-month period beginning June 1 of each year.

Additionally, each of Ms. Hrdlicka and Mr. McNamara will receive; (1) an annual automatic RSU grant on the date of his or her appointment equal in number to the RSUs granted to each of our non-employee directors at the prior annual meeting of stockholders (the "Prior Annual Meeting") multiplied by a fraction with a numerator equal to 365 minus the number of days completed since the Prior Annual Meeting and a denominator equal to 365, with the number of RSUs determined rounded to the nearest whole share, vesting 100% on the day prior to the next annual meeting of stockholders, and (2) an annual automatic equity award on the date of each annual meeting of stockholders equal to the number of RSUs determined by dividing $100,000 by the trailing volume-weighted average price of our common stock over the 30 consecutive trading days prior to the date of grant, vesting 100% on the day prior to next year's annual meeting of stockholders. Additionally, Mr. McNamara and Ms. Hrdlicka and each of the their immediate families and parents will be eligible for certain travel privileges.

Each of Ms. Hrdlicka and Mr. McNamara will be entitled to the protections of our director indemnification agreement.



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ITEM 6.                                               EXHIBITS.
Exhibit No.Description
Exhibit No.3.1Description
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Valuation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data Files (formatted as inline XBRL and contained in Exhibit 101)

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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:October 22, 2019July 28, 2020By:/s/ Shannon L. Okinaka
Shannon L. Okinaka
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)


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