At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Schafer, Vice President and Treasurer. Thank you, sir. You may begin.

Thank you, Maria.

Hello, everyone, and welcome to Hawaiian Holdings' Q2 2024 Results Conference Call. Here with me in Honolulu are Peter Ingram, President and Chief Executive Officer Brent Overby, Chief Revenue Officer and Shannon Okonata, Chief Financial Officer. Peter will provide an overview of our performance Brent will discuss revenue and Shannon will discuss costs and the balance sheet. At the end of the prepared remarks, we will open the call up for questions. By now everyone should have access to the press release that went out at about 4 o'clock Eastern Time today. If you have not received the release, it is available on the Investor Relations page of our website hawaiianairlines.com. During our call today, we will refer at times to adjust or non GAAP numbers and metrics. A detailed reconciliation of GAAP to non GAAP numbers and metrics can be found at the end of today's press release posted on the Investor Relations page of our website. As a reminder, the following prepared remarks contain forward looking statements. Including statements about our plans and potential future financial and operating performance. Management may also make additional forward looking statements in response to your questions. These statements are subject to risks and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them.

We refer you to Hawaiian Holdings' recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statement. These include our most recent annual report filed on Form 10 ks. I will now turn the call over to Peter. Mahalo, Jay. Aloha, everyone, and thank you all for joining us today. I want to start with a sincere mahalo to our team for making enormous progress on our key areas of focus [indiscernible] Delivering for our guests realizing returns from our recent investments and caring for the people and place we serve. Even as we look even as we work toward regulatory clearance of our combination with the last Airlines, we are securing a bright sustainable future for Hawaiian Airlines. We also took important steps in recent weeks to raise working capital and provide ample liquidity should the regulatory process be extended. First, we raised around $400,000,000 by financing 10 A321neo aircraft. 2nd, we exchanged our 1.2 $1,000,000,000 loyalty bonds due 2026 for $985,000,000 of new bonds due in 2029 and a partial cash repayment. While we are optimistic that the merger will achieve regulatory clearance in due course, These steps provide a meaningful liquidity runway into 2029.

Shannon will discuss this in more detail. I want to make a brief statement on where we are with the merger. On May 7, 2024 along with the last Airlines, we certified substantial compliance with the DOJ's second request. The certification of substantial compliance triggered the start of a 90 day review period which was set to expire less than a week from now on August 5, 2024. Yesterday, the 2 airlines agreed with the DOJ to extend the review period until 12:0:1 am East [indiscernible] on August 15. We and Alaska have been working cooperatively with the DOJ and expect to continue to do so. Once we have more to share, we will do so in a timely manner. [indiscernible] Brent will talk about our commercial performance in more detail, but I'll highlight a few things Our performance for the Q2 reflects steady demand for travel to Hawaii on the majority of our routes. On the domestic side, were some challenging comps to start the quarter due to Easter shifting into March of this year. But we had a strong close over the last 2 months with good demand late in the booking window. Across our international routes, most notably in Japan, where the yen remains historically weak against the U.

S. Dollar, international point of sale remains below traditional levels. We've backfilled some of this missing Japan point of sale demand by proactive and other international points of sale. With respect to our Neighbor Island business, we continue to move in a positive direction with improvement in average fares, and load factors that demonstrate unambiguously that we are the carrier of choice in the state of Hawaii. While Japan has considerable room for improvement, and Maui demand has not yet fully recovered following last year's tragic wildfires the overall demand we are seeing across our In particular, I'd note that the 3 recently added routes Salt Lake City to Honolulu, and between Sacramento and both Kona and La Jolla have performed very well. The availability of our fleet is critical and we've been challenged over much of the past year and a half with well chronicled shortages of A321neo Engines. I am very pleased to share that our A321 fleet has been at full since the Memorial Day weekend with a full complement of engines. We expect this to remain the case through the rest of the year into 2025. As mentioned on the last call, we now have 2 787s in service.

Guest response to our new flagship product has been tremendous including accolades for our new Lehioku suite. Our 3rd A330 freighter has also commenced revenue flying. We've had incredibly strong operational performance on the freighter fleet which we know is important to our customer. We will continue to ramp up operations in the months ahead. The plan is to receive 4 freighters during the remainder of this year and 3 in the Q1 of 2025 to arrive at the initial fleet of 10. Getting the freighter fleet up to critical mass is an essential step to allow us to move beyond the investment phase of this line of business and into steady state. We have now installed StarLink in flight connectivity on all 18 of our Airbus A321neos and received FAA certification for the A330 With this approval in hand, we are now underway with the process of deploying Starlink across our entire A330 fleet with 25% equipped as of the end of last week. Our target is to complete A330 installations by the end of the Q3. [indiscernible] are continuing to see incredible guest response to having fast, free WiFi that just worked and expect this to be a driver of customer choice as awareness grows.

Beyond all these major investments, we never lose sight of the fact that what our guests expect most for us is to deliver safe, reliable and efficient operations. With this in mind, returning to our longstanding position, as the industry leader in on time performance is a key goal. Now that some of the external headwinds that plagued us in 2023 are in the rearview mirror. Year to date through June we are over 80% for on time performance including ranking atop the DOT listing for March. We ended 2Q with a solid 84% for June. Which should similarly rank us near the top of the industry when the DOT stats [indiscernible] In addition, our baggage performance has shown some nice gains this year, thanks to the focus of our team. And understanding that we live in a world where perfection is elusive We've also been continuing to work on initiatives initiatives to manage operational disruptions better improve our call center experience and introducing new self-service [indiscernible] All of these initiatives are intended to advance our return And beyond the accomplishments I've discussed are other important steps we are taking to improve bottom line performance. These include driving additional revenue premium through the optimization of ancillary products, especially with respect to extra comfort and preferred seating, enhancing our premium offerings in the air and on the ground improving employee efficiency, which goes hand in hand with running an industry leading operation, Getting the freighter fleet up to critical math mass to both grow and diversify our revenue And where necessary, adjusting our network and competitive profile.

Again, I want to express how proud I am of the Hawaiian Airlines team. As we navigate through one of the most unique chapters in our 95 year history, this group remains unrelentingly focused on delivering out achieving industry leading operational performance and continuing to adapt our business to a changing With that, I will turn the call over to Brent to go over our commercial Thank you, Peter, and Aloha, everyone. As Peter mentioned, demand remained steady across most of our network in the Q2.

Total revenue was up 3.5% as we flew just over 4% more capacity versus the same period in 2023, System RASM for the 2nd quarter was about 1 percent lower compared to the same period. The same year period. Which was in range with our guidance Diving into our 2nd quarter performance by geography, North America continued to demonstrate solid performance, with good close in demand in the last 2 months of the quarter. Average fares were down slightly compared to the same period in the prior year due largely to a weakened Maui market, which continues to recover. Demand for routes excluding Maui provided stability to our North American entity during the [indiscernible] As Peter mentioned, during the quarter, we added service from Salt Lake City to Honolulu, and Sacramento to Kona and Li Huei, and are encouraged with the performance out of the blocks. Looking ahead to the 3rd quarter, for markets excluding Maui, we are seeing solid demand that is not quite keeping up with industry capacity increases primarily in Honolulu. For the Maui market, we see advanced bookings down slightly, [indiscernible] than during previous years. For the Japan market, Japan point of sale demand remains unchanged from what we shared last call.

With weakness driven by a weaker Japanese yen, high lodging costs in Hawaii. However, we continue to see success in diversifying our traffic by focusing on U. S. Point of sale which is expected to remain strong going into the Q3. And by competing effectively for flow traffic, to and from other cities in Asia. The yen exchange rate remains the biggest headwind in this market though we continue to see strong affinity among Japanese consumers for Hawaii. And for our brand. The rest of our international markets are seeing similar though less pronounced dynamics. Similarly stronger U. S. Point of sale demand, Overall, international RASM continues to be impacted going into the Q3 with lower overall yields and a modest load factor decline. While we can't control the currency environment, we have taken decisive measures to pivot our sales and distribution efforts address the marketplace challenges. Continuing the positive movement last quarter, Neighbor Island has shown improving yields and solid demand. Which are driving year over year unit revenue improvement. We're seeing positive sequential PRASM improvement from the start of the year through the 3rd quarter reflecting the strong performance for the product that we offer. In fact, 2nd quarter had the strongest unit revenue improvement on a year over year basis since the Q2 of 2022.

We continue to perform exceptionally well against the competition with a 30 point load factor differential and a PRASM that was roughly twice that of our competitor in the Q1 of the year. Looking at our ancillary performance our Extra Comfort and Preferred Seat revenue has remained strong and was up 18% year over year driven by continued demand and ongoing price optimization.

For the Q3, we expect overall system RASM to be down about 3% year over year on capacity growth of about 7%. We are seeing discounting as well We're seeing more discounting as supply outstrips demand and both North America and in Japan. [indiscernible] Looking at the full year, we are revising our capacity guidance downwards and we now expect primarily due to a shift of our 3rd 787 delivery into the front half of 2025. Overall, I'm encouraged that in the Q3, we expect to have access to our entire A321 fleet. Which will help us optimize deployment of assets on our network also drive reliability. That combined with the rollout of new products like the Lehioku Suite and StarLink should allow us to deliver a highly competitive product and guest experience in the second half of the year.

With that, I'll turn the call over to Shannon.

Thanks, Brent. Aloha, everyone, and thank you for joining us today. We ended the Q2 of the year with an adjusted EBITDA loss of $21,000,000 This resulted in an adjusted loss of $1.37 per share which includes a negative $0.14 impact from the decrease in our effective tax rate to 0% versus the expectation of 10% that we communicated at the beginning of the quarter. Year over year, the 0% effective tax rate impacted adjusted EPS by $0.21 $1 versus last year's tax rate [indiscernible] The results for the quarter also reflect lower fuel cost per gallon than originally expected and a shift in the timing of heavy maintenance costs to the second half of this year which caused us to achieve better CASM ex performance than our original expectation. For the Q3, we expect our unit costs excluding fuel and special items, to be flat versus the same period in 2023, which consists of a number of puts and takes. There's about 2.5 percentage points of increase from the costs of our larger freighter operation which does not generate ASMs and the decrease in maintenance credits recognized in 2023. These increases were offset by about 2 points of labor and benefits improvement and 0.5 points from the timing of heavy maintenance events.

Our financial results call for the Q3 of 2023, I shared that we were carrying about 25% more pilots on our payroll than we did in July 2019 for about the same capacity. By the end of this year, we expect the surplus of pilots per aircraft to be about 14% and decreased to 6% to 7% by the end of 2025 which should reflect a more steady state rate. [indiscernible] During the Q3 of last year, we expected the CASM ex impact of the training bubbles and overall pilot productivity to decrease from $0.26 in the Q4 of 'twenty 3 to $0.14 in the Q4 of 'twenty 4. Excluding the impact of actual Amazon flying, that again does not generate ASMs, We're on track to hit that mark and expect to further reduce the impact to CASM by over half by the end of 2025. For the full year, we are improving our CASM ex guidance from a midpoint of up 2.5% to up 2% despite lower capacity We're focused on managing costs during this financially challenging period even while we make important investments in our business to set a strong foundation for the future. As Brett mentioned, we now expect 1787 delivery to shift from late 2024 to early 2025.

Which decreases our expected full year CapEx to a range of $350,000,000 to $400,000,000 As Peter mentioned, we've taken important steps to bolster our liquidity and moderate our debt maturity schedule that will allow us time to return to sustained profitability. The financing of 10 A321s added about $400,000,000 of liquidity. With the 2787s we have financed this year, we ended the quarter with $1,500,000,000 in liquidity, about twice our pre pandemic target and approximately 50% of our trailing 12 month revenue. As you know, $1,200,000,000 in brand and loyalty program bonds we issued in 20 were due in January 2026. Just last Friday, we completed the exchange of 1 point $194,000,000,000 or about 99.5 percent of the original notes. For an issuance of $985,000,000 in new notes, with an 11% coupon that will become due in April 2029. And a payment of $205,000,000 in principal to existing note holders leaving about $6,000,000 in original notes outstanding. While the new notes have a higher interest rate, we feel this is prudent risk management in the event the merger is delayed. [indiscernible] we are confident in the merits of our merger, we're also managing the business and the balance sheet in case the closing is delayed.

We're focused on improving labor productivity, Adjusting our commercial response to market opportunities, monetizing the events investments we have made I want to reiterate our gratitude to all of the employees at Fluent for the best in this business. And are continuing to manage and operate our business to provide the best service in the industry. And with that, we can open up the call for questions. Thank you. We will now be conducting a question and answer session. Our first question comes from Connor Cunningham, Melius Research. Please proceed with your question.

Hi, everyone. Thank you. I'm just trying to square away the recent announcement to expand West Coast flying this fall. You're talking about unit revenues sequentially declining from 2 to 2Q. Is it just a function of the 787s arriving and you're freeing up other assets and now you want to put them in a different place? Just trying to make sense of that announcement. Thank you.

Sure, Connor. It really is a function of timing. This was kind of year end flying that we had had penciled in and as we were waiting to see what things looked like in terms of the timing of 787 and a few other maintenance events. This was stuff that we had in our hip pocket kind of ready to go. We actually trimmed a bit of that out relative to what our previous plan was. As well just recognizing that some of those days may not be quite as strong as as we had originally forecasted. So it was stuff that is really focused around Thanksgiving and year end holiday stuff that we traditionally do every year and we were going to do this year because it's it's good accretive flying. We were just waiting on details around aircraft availability to get that out in the market and put it out for sale.

Okay. That's helpful.

And then on the recent credit card announcement with Barclays, can you just walk through maybe the changes to that agreement and what that might mean from a economics review? And I don't know if you're willing to talk about this, but when does that agreement extension expire, I should say? Thank you again.

Yes.

Thanks, Connor. I'll take that one. We really aren't putting out a lot of details about the economic changes in that it's a relatively modest term investment. It's a few more years that we are adding on to working with our existing Barclays that we've worked with for for 10 years and we thought it was important to extend that program out for a few more years at this [indiscernible] All right. Thanks.

Our next question comes from Michael Linenberg with Deutsche Bank. Please proceed with your question. Hi there. This is Shannon Doherty on for Mike. I know you mentioned in the script that you're just the network where necessary and preventing your sales and distribution strategy on the international front, Can you go into more details here and just tell us more about what you can do to change your competitive positioning?

Yes.

I mean, I'm not going to provide details of of future things that we haven't announced. But I think if you look at what we've done in recent periods, we did scale back a little bit of our Japan fly earlier this year reflective of the slow recovery in that geography. And where we have increased in recent months, it has been in North America, which is relative [indiscernible] both Brent and I said on the call, we're happy with the performance of the Salt Lake route and the new Sacramento flying we added. So it is really from a network perspective about making those changes to put the flying where it's going to be most remunerative in this economic environment. And then competitively, really a lot of it is continuing to evolve our product, getting Starlink out there is something we've been working on for a while and it's great to be getting there, getting the 7, 8 7 into service. Having a greater proportion of our seat capacity across our airline in premium categories, adding to enhancements to our our ground product. All of these things are really positioning us for how the market is evolving and we're going to continue to make those changes going forward.

That's really helpful. And just as a quick follow-up, on the oversupply commentary in some of your key markets, you comfortable with your capacity growth levels at 7% in the September quarter or you think that you're perhaps growing too much? Like is there room to see more capacity deceleration or perhaps cuts later this year and into next?

Yes, I'll start and then maybe turn it over to Brent, see if he wants to add anything beyond my comments. But I would say right now, we're happy the plan we have going into the back half of the year. I think we want to continue to see how things evolve. We did perform well over the last couple of months as Brent foreshadowed in the guidance for 3Q, we do see things a little bit weaker over year We are over the year in the Q3. And so I think we'll take a wait and see approach, but we're going to be prepared to make adjustments where we think they're next question comes from Dan McKenzie with Seaport Global. Please proceed with your question.

Yes. Hi. Thanks. That was sort of my question. If Japan continues to lag, does it make sense to just to redeploy some of that flying to another international market? And it sounds like you are looking at that looking at that currently and you may make some changes. So I guess just following up on that question related to this, what flexibility do you have to optimize your network while the merger is under review or even worst case litigated. And what I'm wondering is if you are limited and what I'm really getting at is if the network changes that you make would cause Alaska to resubmit their merger synergies? It's something we saw in JetBlue and Spirit, Once they set the network plan, they were sort of locked into regardless of whether it was making money or losing money. I'm just wondering what flexibility you guys have?

Yes. We'll look across the room at my General Counsel and invite him to correct any errors in how I say this. But there are some limitations on what we can do during the period up to close, but we are also very mindful of the fact that we are we are 2 independent airlines today and we need to compete independently. And so when we talk about decisions from a network or pricing standpoint, those are entirely within the control of Hawaiian Airlines to to do up to and until deal is closed.

So potentially if it's litigated, you'd still be limited, is that correct?

No, in terms of what we do from a network deployment and a pricing perspective, it is entirely in Hawaiian Airlines purview up to until the close.

Got it. Okay. All right. Second question here, Starlight is something that you guys have obviously talked a lot about. Wondering if you can put some numbers around what it means exactly to the income statement. And then separately, I'm curious what percent of total revenue is premium revenue? And I guess the reason I'm asking, I'm just wondering how we should think about this segment as we look ahead?

Yes. Let me start on the first part about StarLink and then maybe turn it over to to my commercial colleagues. And what I would say is It is the financial impact of StarLink in the long term is going to be hard to measure. Right now, we're in the very early period. We've only had deployed on the A321s. For a few months We've we're as I said in my remarks, we're deploying it on the A330 fleet. As we speak with about 25% of the fleet done. What we can measure right now is guest satisfaction on the flights that are StarLink equipped shows a meaningful improvement We think as people become more aware of it on our airplanes, that is going to be a driver of of consumer demand for us and will be revenue enhancing But it's going to be hard to measure. We are not charging for the product on our airplanes. And so you're going to have to to try and measure over time how it's driving preference and what that impact has on demand for our flight [indiscernible] really accelerate over time as we get to a period where people are more aware of it, where it's deployed across virtually all of our fleet and we'll be getting to that point by the end of the the Q3, we expect to have it deployed across our 2 largest long haul fleets.

And so we'll really start getting into a period where we see that going forward.

Yes. I don't have at my fingertips kind of the Q3 breakdown in terms of front cabin ex Comfort and Main Cabin, we can certainly have IR team follow-up with you on that, Dan. I will say that we have seen greater resiliency and greater strength in those first two products than we have in main cabins. So Extra Comfort demand remains strong. We highlighted our discussion our ability to to manage that more effectively and more dynamically and we're seeing that certainly result in some price increases there, as well as the front cabin continues to remain really, really strong. And I'm encouraged by the performance there. Peter mentioned, we talked a little bit earlier about the Lehioka suite. And while it's only on 2 airplanes right now, really encouraging performance on how it's doing despite almost doubling capacity on those flights in terms of premium capacity, how it's performing has been really encouraging on the blocks.

Very good. Thanks so much for the time you guys.

Thanks, Sam.

Our next question comes from Tom Fitzgerald TD Securities. Please proceed with your question.

Hi, everyone. Thanks so much for the time. Would you mind just resetting everybody with kind of like as a stand alone what you think the longer term run rate for CASM ex will be over the next couple of years and like what kind of how you're thinking about hiring and then where you see pockets for operating leverage outside labor costs?

Hi, Tom. Welcome to the call. We really haven't We really haven't given long term forward looking guidance on TASM ex. And to be honest, some of that depends on our fleet plans, which we're still working through some of the delivery schedules of the 787s. With Boeing and what I can tell you is that we are highly focused on moderate CASM changes. So we've got a lot of initiatives. And I talked about the biggest one or the biggest driver right now, I think, of CASM Improvement, which is the pilot productivity And there's more as well in other categories of labor, but really that's probably our our biggest effort, but we do have a number of initiatives that in a standalone company, really it's just to help us keep that TASM changed flat to a very modest improvement. Definitely try to manage it to not increase more than inflation. I think we're in a good spot from a labor contract position having all of our labor contracts not in no labor contracts in Section 6 All of our labor contracts right now are closed. And so think that puts us in a good position, sets us up well.

And we're really just focused now on work rules and productivity.

Analysis on the crew side. So a lot of initiatives. We'll continue investing as well in technology. From both a guest facing perspective as well as as productivity and analysis perspective.

Okay. Thanks. That's really helpful. And then just as a follow-up, one of your peers who has a contract with Amazon, they recently renegotiated the contract just to reflect the fact that just all the wage inflation on the pilot side. Is that at all something that's in that you guys have an option to do? Just kind of wanted to think about like what the what the operating margins could be for the cargo business as it ramps next year? Thanks again.

Yes. Our focus right now with the Amazon contract is to continue to build the fleet up to steady state. I think the contract you are mentioning that was amended was a little bit had been established some period of time before ours. So we're we're not in that mode at this point in time, but we're going to continue to work with our partner to build this business going forward.

Tom, another thing I'll mention, kind of piggybacking off of the timing that Peter mentioned, because of that timing difference, we had more knowledge of where pilot contracts were going while we were negotiating with Amazon. And we're therefore able to model some of that out throughout our negotiation process. Our next question comes from Chris Ducker with Susquehanna. Please proceed with your question.

Hi, everyone.

One question for me. So Peter, just if we could put a finer point here on your the international of sale market. So Starting with Japan, Moving to Australia, New Zealand and South Korea, what are some of the levers you can pull here with respect to capacity and yields to offset the weakness here? And And what are some of the I guess as you on your internal forecast and projections around markets like Japan where I get a lot of questions on when things might sort of normalize. What are some of the data points that you look out [indiscernible] the yen and some of the more basic macro points investors might consider? Thanks. Yes. I'll start and then again hand it over to Brent to see if he's got more to add. I would just say each of the the geographies is a little bit different. We saw different recoveries over the last couple of years with Japan which traditionally been our largest being the last to recover and the one that so far has had candidly the shallowest recovery. I think that is attributable to the most extreme deterioration of their currency versus the U. S.

Dollar. While we've seen deterioration in the Australian dollar and the New Zealand dollar. It hasn't been to the same extent that the yen has depreciated. And so as Brent and I both talked about, that's pushed us to put more focus on on U. S. And other Asia point of sale over Japan. That is traffic that we really haven't had to go looking for before because there was such deep and strong demand from Japan point of sale, but that filled the vast majority of our airplanes. But we've we've really put a focus on that particularly over the last I'd say 3 to 6 months to drive that even further. Network wise, capacity deployment decisions, we will always look at where there are opportunities to to vary demand, but being mindful of fact that in some of the places, Haneda in particular, we have slots that are on a use it or lose it basis. And if we did make a decision there, that becomes a very long term decision, not a short term capacity decision. And then Australia and New Zealand, I'll just sort of look at together, but they're we've can fluctuate capacity a little bit seasonally and you saw us do that in New Zealand this [indiscernible] pulling capacity out in the weaker time of the year actually with withdrawing from the market during the weaker period of the year and turning that into seasonal flight.

There's also an opportunity in both those where we can be pretty competitive in a lot of U. S. Connecting origin and destination markets [indiscernible] really driving the U. S. Point of sale, which has been a bigger part of those markets traditionally. And that balance has shifted even more that way now. So a variety of factors, there's also, of course, things we do on the marketing and distribution front, but we want to make sure people are aware of our brand and we're getting not only our fair share, but as as high a share as possible that we can get. So it's really executing and making sure that we're we're doing all the right things from a commercial perspective drive the best outcome for the economic environment we're faced with. [indiscernible] Peter hit on all the highlights. I think the only thing I would really add is in the context of some of that U. S. Point of sale demand to Australia and New Zealand that's business that we kind of had seen before and we can grow that particularly in a strong outbound market We've actually even tapped into a lot of that going into Japan and Korea as well.

And frankly, with historical load factors where they were, that wasn't traffic we needed to be pursuing, but it is traffic that we're seeing particularly in some of the secondary gateways where we offer a pretty compelling product, maybe a slightly longer relapse time than connecting over Seattle or Los Angeles or San Francisco. But pretty close in a lot of markets and we're seeing we're seeing some uptake in those markets as we continue to deploy more efforts from across the commercial team find out new sources of traffic in the new world that we live in.

Okay.

Thank you.

We have now reached the end of our question and answer session. I would now like to turn the floor back over to Peter Ingram for closing comments.

Mahalo again for joining us today. We're excited about the opportunities ahead of us in 2024 We appreciate your continued interest in Hawaiian Airlines. Aloha.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. [indiscernible]