Hawaiian Holdings Inc (HA) 2006 Q3 法說會逐字稿

Good afternoon. My name is Lawana, and I will be your conference operator today. At this time, I want to welcome everyone to the Hawaiian Holdings third quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be question and answer session. [OPERATOR INSTRUCTIONS]

At this time, I would like to turn the call over to Allyson Pooley of Integrated Corporate Relations. Please go ahead, ma'am.

Thank you. Good afternoon and thank you for joining us today to discuss Hawaiian Holdings third quarter 2006 earnings results. On the call today from the Company are Mark Dunkerley, President and Chief Executive Officer, and Peter Ingram, Chief Financial Officer. By now, everyone should have access to the press release, which went out at 1:00 Pacific, 4:00 Eastern time. If you do not have the release, it is available on the Investor Relations portion of Hawaiian's website at www.hawaiianairlines.com.

Before we begin today, we would like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them.

For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements, we refer you to Hawaiian Holdings recent filings with the SEC, including its most recent Annual Report filed on Form 10-K, its recent quarterly reports filed on Form 10-Q, as well as recent reports filed on Form 8-K.

As a point of clarification, at various points during the call, reference will be made to results for both Hawaiian Holdings, also known as Holdings, and Hawaiian Airlines, known as Hawaiian, it's sole operating subsidiary. From April 1st 2003, following Hawaiian's bankruptcy filings through June 1st 2005 the day prior to Hawaiian's emergence from bankruptcy, Holdings deconsolidated Hawaiian and accounted for its interests using cost method accounting.

As a result, the financial results of Holdings during that period do not include Hawaiian's financial results. For comparative purposes, reference will therefore be made to the combined results of Holdings and Hawaiian for the period prior to Hawaiian Airlines emerging from bankruptcy last year, when the Airlines results were then consolidated into Holdings.

With that, I would like to turn the call over to Mark.

Thank you Allyson, and good afternoon and thank you for joining us today. I am going to start by giving the highlights of the quarter, and then address the two key issues that we continue to face in our markets today, and that's of course, intense competition and high fuel costs. Also going to discuss some of the cost control efforts we have made, as well as provide an update on the aircraft that we purchased earlier in the year. Peter is then going to discuss our third quarter financial results in greater detail, then of course, we are going to open up the call to your questions.

The third quarter was the first full quarter of the new interisland competition, and it was also a quarter in which there was excess trans-Pacific capacity, both leading to frenetics from promotions and deep discounting in both of our major markets. Despite this difficult environment, we posted an operating profit of approximately $13 million in our third quarter, versus an operating profit of approximately $18 million last year, and net income was flat year-over-year at 8 million.

Thanks to the hard work of our dedicated employees, we have also maintained our industry leading rankings, in terms of on time performance, baggage handling, and the avoidance of cancellations. Baggage handling ranking is particularly significant these days, given the more stringent security requirements, which are resulting in increase in checked luggage across the industry.

Our customers have recognized our dedication to service with the readers of both Conde Nast Traveler and Travel + Leisure magazines, voting Hawaiian as the best airline serving Hawaii, based on cabin comfort, food, in-flight service, customer service, and value. We believe strongly that our superior service helps us consistently fill our planes fuller than any of our competitors. For the third quarter our load factor was 86.2%. While this was about 4 points lower than our results of a year ago, it remains today at the top of the industry.

Yield Improved to $0.12 versus $0.1138 a year ago, resulting in a RASM increase of almost 2%. Though other airlines have posted more substantial improvements in RASM, they have done so in the face of a benign capacity environment, which contrasts with our experience, both interisland and across the Pacific. The effects of the increased capacity in our markets is particularly noticeable in the shoulder and off-peak months of travel.

In the trans-PAC market, which accounts for over 60% of our passenger revenues, capacity continues to rise, albeit at a somewhat slower pace than it has in recent years. For the first three quarters of the year, we have seen a cumulative 2.4% increase. Admittedly with the expansion of San Diego/Maui service to year round in September, we at Hawaiian are responsible for part of the increase, and our schedule will increase further in the fourth quarter, as the other aircraft we have purchased earlier this air come into service.

To refresh your memory, we purchased 4 previously owned 767-300 aircraft in the first quarter. These aircraft had been operating in Delta's fleet prior to their bankruptcy. Other the past several months, we have put these aircraft through an extensive overhaul and modification program, in order to prepare them for ETOP, which is Extended over water Operations.

This project has required a massive effort led by our maintenance and engineering team, who performed admirably in keeping the process moving forward. Our efforts have been complicated in recent weeks by delays in achieving FAA certification of certain cabin interior items. In light of these circumstances, we entered the first aircraft into service without the full interior modification, which is a contingency that was always part of our original plan. We have had to slightly delay the expected in service dates for the remaining three aircraft. We still expect to have all of the aircraft in service before the end of the fourth quarter, and we have been able to juggle our schedule to minimize the impact of these delays.

Our interisland business, which generates slightly under 30% of our passenger revenue, has of course been negatively affected by increased capacity and rampant discounting since Mesa's entry into Hawaii in June. Until June, the interisland market was served primarily by us, Aloha Island Air, and a couple of other smaller carriers.

Since the year 2000 the market has experienced a decline in passenger levels, attributable to both the increased direct service from the mainland to outer islands, and also to the expansion of infrastructure on the neighbor islands, which reduces the need for some travel to Honolulu by Hawaii residents. Despite this trend, the interisland market remains a core element of our business, and the strength of our brand and the quality of our service puts us in the strongest position from which to battle Mesa, or for that matter any other competitor.

Industry capacity in our core interisland markets increased 17.5% year-over-year in the third quarter. And I remind you that these markets were hardly underserved prior to this summer. Just as an example, the Honolulu to Maui market features a total of 43 round trip flights in July of '05. With this excess capacity in the market, and given the desire of a new competitor to establish a market position, we have not surprisingly seen substantial price discounting, including 2 separate fare sales featuring the unimaginatively low fare of $19 each way.

Our long held belief that the interisland market is not prone to price stimulation is borne out actually by the early return from Mesa's entry in to the market. The most recent data shows that overall traffic has grown by 4%, which given the very substantial discounting that has taken place, suggests that the price elasticity of the demand in this market is far below 1, a very unusual situation in air travel.

Hawaiian remains in our view the best positioned of the competitors in this market. We have the strongest brand, we have the best fleet, the best service, and the deepest connections within the community of frequent fliers. This all brings us to our lawsuit against Mesa. We have alleged that they have misused confidential information in breach of the confidentiality agreement, which they signed when during our bankruptcy, Mesa indicated an interest in buying Hawaiian.

The Federal Bankruptcy Judge hearing the case recently denied our request for a preliminary injunction, which if he had granted it, would have effectively shut down Mesa's Hawaii operations for 1 year. In his ruling the Judge did find however, that there was evidence of a breach of the contract, and that a Mesa officer had given false statements under oath coloring the credibility of Mesa's sworn testimony. The Judge invited us to pursue the case in a full evidentiary hearing, and we intend to do so. That hearing is currently scheduled for April of next year.

As many of you are probably aware, Aloha has also filed a series of claims against Mesa in recent weeks. We of course plan to monitor that parallel situation in the period ahead. To be clear, we are pursuing our remedies in court, because we believe that Mesa flagrantly violated an agreement to our substantial damage. This does not mean that we have lessened our competitive service, from meeting the challenge of Mesa's entry in the marketplace. The level of competition that Hawaiian faces across its business, rivals or exceeds that of any other airline in the country, in our opinion. We deal with competition from Mesa, as resolutely as we deal with competition from others.

Now let me address the cost side of our business in slightly greater detail. During the third quarter, CASM excluding fuel declined slightly to $0.074, and if we exclude the impact of purchase accounting, CASM declined 1.4% to $0.0717. During the quarter fuel again was our single largest expense component representing 30% of the total.

The average cost per gallon in the third quarter increased to $2.24, which is a 19% increase from the already high levels of a year ago. As you know, towards the end of September fuel prices began declining, and have remained below the summer peak levels. Additionally we have established additional hedge positions as prices have eased, which Peter is going to address in greater detail a little later in this call.

Of course we continue to focus on our nonfuel related costs as well. First we are committed to achieving productivity improvement within the confines of our current contractual arrangements. We recently signed a Letter of Agreement with the IAM, covering our unionized growth agents, and certain back-office staff, including accounting, and that agreement allows us to outsource these activities, in exchange for providing protection from layoffs to the incumbent employees in the areas affected.

We have moved quickly to make use of the outsourcing flexibility, and just four months since the agreement with the IAM was reached, we have issued RFPs covering our res and back office accounting functions, we are presently reviewing the responses, with the goal of having outsourced activities in these areas operational in the first half of 2007.

We have also continued to examine our third party spending to identify savings. These efforts have led to a refitting of several of our airport service contracts at our West Coast stations. We are at varying stages of other elements of this project, and anticipate incorporating additional savings into our plans for 2007.

Before I turn the call over to Peter, I wanted to address just one other subject, that is the negotiations with one of our lessors, Awas, which has call options on 7 of our 767 aircraft. The call dates range from the spring of '07 to the spring of '08, and Awas must give us 6 months notice, if they intend to exercise any of their options. We have been in discussions with Awas over a period of months, and these discussions have gained momentum in recent weeks, as we have entered the window during which Awas could serve notice of its intention to call the first 2 aircraft. While the outcome of these discussions is uncertain, we would characterize them, the current discussions as constructive.

We would note however that part of the reasoning behind our acquisition of four ex-Delta aircraft this year, was to provide us with some flexibility, in the event that some of the Awas aircraft are indeed returned at the end of these negotiations to the lessor.

In summary, I would like to say again that we are pleased to have reported a positive operating and net earnings for the third quarter, in the face of high fuel prices and intensified competition in both of our core markets. We would like to thank our dedicated employees for their tireless efforts towards customer service and cost containment. We do recognize however, that the challenges we face continue, and we remain resolutely focused on efforts to improve revenues, and further control costs, to bolster our competitiveness, in the light of these difficult market conditions.

Now I will turn the call over to Peter for the further financial discussion.

Thanks Mark. Let me start with the significant income statement items, and then spend a couple of minutes on the balance sheet. First looking at revenue, operating revenue for the quarter increased 2.5% year-over-year to 229.8 million. RASM improved 1.6% on a 3.8 decline in load factor, and a 5.4% improvement in yield.

Despite the capacity increases in the trans-Pacific market that Mark alluded to earlier, our trans-Pacific yield improved 9.8% year-over-year, offsetting a 15.6% decline in the interisland yield brought on by the substantial price discounting that we have seen in this market.

As we have discussed in previous conference calls the interisland market is less than 30% of our overall passenger revenue. While we consider it a core element of our product offering, it is comforting in times of destructive price discounting like we have seen recently, to have relatively more of our eggs in the trans-Pacific basket.

Turning to expenses, our operating expenses increased by 5.3% in the quarter, on a 1% capacity increase, so cost per sea mile was up 4.3%. Excluding fuel, CASM declined slightly to $0.074, and as Mark said, if we adjust for the impact of expenses related to purchase accounting following our emergence from bankruptcy, our CASM declined by 1.4% period over period.

Before I discuss the individual expense items, I will elaborate a bit more on our cost containment efforts. As Mark mentioned, we are exploring outsourcing and we are also reviewing a wide array of our third party contracts. During the third quarter, we reviewed our West Coast ground handling contracts, including a renegotiation of various ground services arrangements at several airports, which will result in savings in excess of $1 million in 2007.

Additionally we are approaching the annual renewal of our held on liability insurance arrangements, and anticipate that the additional capital in the insurance markets relative to last year, will provide some meaningful savings in 2007 in these areas. Other key areas remain under review and discussion, and we have got discussions with vendors ongoing, but at this point I don't have any more details to offer you with regards to those other cost elements.

Let me discuss a few of the specific expense items for the quarter. As you know, our income statement continues to be affected by purchase accounting. And as we detailed in the press release, our net income in the quarter was reduced by $5.3 million, due to the accounting differences following our emergence from bankruptcy and the reconsolidation of airlines into Holdings, compared to a $7.4 million impact last year. $4.7 million of this quarter's impact is in the operating expense lines, with the remainder being on the revenue side, or in nonoperating expenses.

Of the operating expense piece, the largest item relates to Depreciation & Amortization expense, as we amortize certain of the intangible assets established through purchase accounting. Although the year-over-year variance here is negligible, now that we have passed the anniversary of Hawaiian Airlines emergence from bankruptcy, this is a significant noncash expense that is going to be reflected in our income statement for several years.

Moving on to the fuel line, fuel expenses rose to $65 million in the quarter, an increase of $10 million, or 19%. Our average cost per gallon in the quarter was $2.24, inclusive of delivery costs, taxes, and hedge impacts, and that is a 19% increase versus last year's third quarter. So essentially, all of our fuel variance is accounted for by changes in price. We do continue to bear fruit from our fuel conservation initiatives, although we operated more block hours year-over-year in the third quarter on both the 717 and 767 fleets, our overall fuel consumption declined by roughly 1%.

We estimate that the reductions in our fuel burn accounted for about $2 million in savings during the quarter, and in addition to that, hedge gains reduced our overall fuel expenses by a little less than $1 million. As Mark mentioned, with the recent drop in fuel prices, we have added to our hedges, so I will spend a few seconds discussing hedging, including both our current position, and our general philosophy with regard to hedging.

At the time of our last conference call, we had approximately 48% of our third quarter consumption hedged, minimal hedges in place for the fourth quarter, and no hedge position for 2007 or beyond. As of the end of last week, we have hedged 39% of our consumption for the fourth quarter, at an average contract price of $1.90. Additionally, we have hedged 21% and 6% respectively of our consumption for the first and second quarters of next year, at an average price of $1.95 and $1.98 respectfully.

Our philosophy with regard to fuel hedging, is to target entering each quarter with about 40% of our expected consumption hedged. We would also generally aim to have about 20% of consumption hedged for the following quarter, and 5 to 10% of consumption hedged for the subsequent quarters, so we are currently about right on target with this plan. Our goal essentially is to average in a hedge position in advance of the quarter, thereby limiting to an extent the impact of volatility in any given quarter's spot prices on our financial results.

But in applying this philosophy however we allow ourselves some room to deviate from a mechanical forward purchase program, based on market conditions. For example, based on the difference between forward prices and spot market, we may either accelerate or decelerate forward purchases. During much of this year, the severe upward slope of the forward curve, caused us to reduce our hedging activities. Since early September however, as spot prices declined, and the forward curve has flattened moderately, we resumed hedging on an accelerated basis and established the current hedge position that I just outlines.

Offsetting some of the increase in fuel expense was a 5.6% decline in wages and benefits. Part of this improvement is a nonrecurring adjustment to our workers compensation liability, resulting from favorable loss development on previous years claims, without which our salaries and benefits line would have increased slightly, although at a slower rate than our block hour increase. Additionally with the adoption of FAS-123R at the beginning of 2006, we had approximately $1.3 million of stock-based compensation in the quarter, which is about $700,000 higher than it would have been under the previous accounting rules.

On our maintenance lines, we had had a 3.6 million year-over-year increase related to a couple of items. First is the higher cost incurred under Power-By-the-Hour maintenance contracts, and these are really the result of three factors that we have discussed before, the inclusion of more engines in our Power-By-the-Hour programs relative to last year, contractual rate increases under our contracts, and increased utilization of our fleet. In addition, the maintenance lines were affected by a little bit more airframe overhaul activity on our 767 fleet in the third quarter relative to last year.

Our nonoperating income for the quarter was about $600,000, which is down from a number of close to 5 million last year. And I'll remind you that last year's third quarter numbers reflected substantial mark to market gains on jet fuel forward contracts, for which we did not as of, until September of last year, qualify for hedge accounting. We ended the quarter with $162.5 million of unrestricted cash, and with our debt restructuring completed earlier this year, our total debt balance as of September 30th was about $138 million. In addition, we had $71 million of restricted cash, which consists almost entirely of cash held as collateral for credit card sales.

Before I turn the call over to the operator, I would like to touch on the pension legislation changes passed by Congress this this summer, and our capital spending. Under the new Pension Law, we estimate that our required contributions for 2007 will be 10.2 million, which is about $2.8 million less than they would have been in absence of the legislative change. As you might be aware, the aspects of the law dealing with airlines, treat frozen pension plans differently from those that continue to accrue benefits. And for your reference, we have three pensions plans, the largest of which is our pilot plan, which is not a frozen plan.

There continues to be discussion in in Washington about measures to equalize the treatment for all airline pension plans, and we support those discussions, if the legislation was altered in this regard, our minimum requirements would be further reduced.

On the Cap Ex front, year-to-date we have spent about $62 million, and we expect our full year capital spending to come in around 93 million. The bulk of this spending relates to the purchase and modification of the four ex-Delta 767-300s. Excluding this aircraft spending, our Cap Ex for 2006 will come in below $20 million, which is not materially different from what we would anticipate for 2007, although we are still in the process of finalizing our capital plans for next year.

With that I will turn the call back over to the operator, and we will spend a few minutes fielding any questions you might have.

[OPERATOR INSTRUCTIONS] We will pause for just a moment to compile the Q&A roster. Your first question comes from Nick Capuano, Imperial Capital.

Yes guys, thanks a lot. First question on the, how much of the workers comp benefit is one-time. As we look at your wages and benefits line, how much is that one-time versus ongoing? Peter please.

Yes, that is, it's about a little more than a $5 million adjustment to our liability, which is generally, I think you would consider it one-time, on the other hand, I think it is reflective of some of the improvements we have made in reducing workers compensation expense.

So while this is a one-time adjustment to the liability, I think it is a one-time adjustment that comes about because of some progress we have made in limiting our expense, which obviously will help us on a going forward basis.

Okay, great. If you could just maybe speak more, add some more color around the interisland competitive dynamics, have you seen any, have there been any recent changes, has there been any recent different policies or actions by your competitors, if you could just go into some more qualitative detail, on if you see it evolving at all, or does it look like it has been pretty much steady state?

I would say, although it is hard to add more color to the description of what is going on interisland as of recently, but I will try. I think we are, it is early days yet in the competition, the change in the dynamics with the new competition. I think from our perspective, we would say that we have been pleased to be able to hold on to our customer base.

We are extremely grateful to our employees for continuing to deliver great customer service, and I would simply point out that from the information that is publicly available at the moment, which is principally the load factor of the new competitor on a monthly basis, we have seen pretty aggressive price discounting in the marketplace.

That price discounting has had the following effects. One is it's clearly taken yields down, and you will see in our quarterly results when they are published, those numbers. It has also failed to improve the load factors of the new entrants. So we see a situation as I mentioned in my comments, where price elasticity in demand just isn't there. We are not seeing the stimulation, we are seeing prices come down in the market, but we are holding our own.

And just on capacity, I mean, a nice performance improvement on the yield, given the capacity in the trans-PAC market. What percentage of the increase are you exactly, and if you have any incremental thoughts on what the outlook is for 2007, if there is any view, if you have any view on what we might be looking at for capacity in the market then?

Okay, let me answer the second question first. We have started looking forward into next year. There are a number of schedules that have in our view, probably not yet been published.

I think our expectation is that capacity increases will be in the sort of low-single digits, but I would stress that that really is a guesstimate at this point, because we haven't seen the schedules being applied by everybody else for the whole summer. Sorry Nick, your first question again?

Just in terms of the incremental capacity, what are you responsible for, relative to I think the 2.4% incremental capacity that you discussed?

We are responsible for, I'm looking at some numbers on two pieces of paper here, which, why don't we, I've got the numbers here. Why don't we take some other calls?

I'll circle back, thank you very much. Good quarter.

Thanks Nick.

Your next question comes from Jason Kremer of Caris & Company.

Good afternoon.

Hi Jason, how's it going?

Great. Just you guys had great yields this quarter, and I was wondering if you see that as being able to hold those going forward, or you know, just being versus Mesa you still held your yield at above historical levels. Do you think that is possible going forward?

Well, you know, we are not going to really give guidance in terms of yields going forward. I think what we would point out is, that we have a situation in which we have a lot of excess capacity, both, and this isn't just an interisland issue, this is interisland and trans-PAC, I think where we are pretty pleased is that in the face of that, our yield management people make what we consider to be pretty good decisions, so I think it is challenging for us to keep RASM growth there. But that is a challenge that our yield management people have got to find a way of solving.

Okay, great.

One thing Jason, I would add to that going forward, is that as we expand our long haul capacity in the fourth quarter, and going into 2007, that is going to, the long haul flying by it's nature have lower yields, so you will see as that becomes a greater proportion of our traffic, that will have a dampening effect on the system yield. Of course that is offset by the fact that the long haul flying is also typically lower CASM.

So you have a mix issue. The lower CASM, lower yielding part of our business is going to grow, relative to the higher yielding, and higher custom part of our business. And that will have an effect on averages, even if everything else stays the same.

Okay, great. I guess secondly I was just wondering what, if you guys had any impact in the fourth quarter for the earthquakes, due to flight cancellations, or do you see this causing you to drop out of the top service ratings?

Well, first of all, let me say that in financial terms we don't think that the earthquake had any material impact on us. Operationally for the day it had had some quite significant operational impact, and time will tell, whether it will cause us to drop out of the top rank, in terms of the on time performance rankings. It might, but obviously, hopefully it won't.

All right. Well, yes, hopefully you guys still stay up there. It's not your fault there was an earthquake.

Yes, you know, frankly there is going to come a time when we, on any given month aren't the service leader. I think what is going to be important when that unhappy day comes, is for everybody to, I hope recognize that both internally and externally, that we have a quality of service that we are going to maintain, and it won't be so much about us slipping, it will be about other people, sort of catching us up for one month.

We are 34 months and counting right now, and I think one month of somebody else succeeding doesn't actually diminish the accomplishment of our operations team over the last three years.

Okay. Thanks, that is all I had, great quarter.

Thank you. We have by the way, Nick the answer to your question, it was flashed to me, it's 50%. So 50% of the increase in the overall market was accounted for by us.

[OPERATOR INSTRUCTIONS] Your next question comes from Robin [Bloor], WIG LP.

Hey guys, how you doing?

Good thanks. And you?

I'm well. Nice quarter, especially regarding catching fuel costs at the peak, and the interisland competition that you had. My question was more on the operating expense side relating to fuel. Where is fuel quoted in Singapore right now by the gallon?

I think it's just a little below, 1.80 is the price I've seen this week, maybe in the 1.77 range.

If I remember from a previous call, you guys said that for every $0.01 decrease in your fuel cost, it was about 1.3 million to the operating profit line?

Yes, for the 2006 average that's $1.2 million, and as we are fully up to the capacity we will have by the end of the fourth quarter and into 2007, that is going to be $1.4 million in expense for every $0.01 in our fuel, fuel prices.

Okay. So if we are looking at the peak at 2.24, and you're talking $1.80, maybe hedge on 40% of it to a $1.90, we are talking 50 plus million in additional operating profit.

Let me just clarify, the 2.24 reflects the cost of delivery, and taxes, and other things. So on top of the spot price, you have to add roughly $0.16 a gallon to those numbers.

Okay. Got it. Great. That's it, thank you.

Thanks Robin.

Your next question comes from Matt [Satay], First Capital Alliance.

Great quarter, thank you.

Thank you.

I had a couple questions. What would you prescribe to why your competitors have not been successful in taking market share despite heavy fare discounting? Is there some advantage besides saying we have good service, or is there something you would say it's difficult to replicate by a competitor, and it's something that's sustainable?

I think the core reason is because they have fundamentally misunderstood the dynamics of the marketplace. This is simply not one of of the typical markets you would find on the mainland, where you would enjoy a stimulation where by throwing low fares out there, you get a such a wave of additional traffic, that there is plenty to go round.

I think the most interesting development in the marketplace, since [go] came in, is that in spite of some pretty extraordinary discounting, we have some market growth, which I think for the month of July was tabulated in the newspaper, and grew some 3 to 4% in total. That is almost unheard of in the air transportation market.

Is suggests that the price elasticity demand is close to zero in this marketplace. So I think the first part, in answering your question, I think two points. One is there just isn't more traffic to go around. Then the second point is, you know, when you are competing against somebody like Hawaiian Airlines, and the effort that we have put into delivering quality service, and having a frequent flyer base that we have taken care of for years, fortunately many of our customers have answered the question of going to fly on go with the statement, why would we.

Okay. Thank you.

We have a follow up question from the line of Robin Bloor, WIG LP.

Hi. Quick question, based upon the current quarter, I should say last quarter versus this quarter, are there any other expenses, other from fuel, that would radically change in the current quarter, that we could just say, that if we took the change in the fuel prices, we could come up with a rough estimate of what this current quarter should look like?

Be careful not to get into guidance here, so --

Not in terms of guidance, I am not asking you to tell me what the quarter is. I am saying what other adjustments would we have to make, to enable us to come up with what we think it should be?

That sounds like a question for you, not me Robin.

No.

There is nothing off the top of my head that I can think of, that is in the immediate horizon on expenses that is particularly unusual, that would merit some sort of an immediate disclosure to the market, about what we are expecting in the fourth quarter. I think we are, we would not clearly expect the benefits adjustment that we had in the third quarter, but you know, aside from that, I can't think of anything in particular.

I guess one potential exception to that would be the ongoing discussions, that Mark mentioned, with one of our lessors regarding the call options on our leases, and given that that call option is certainly viewed by the lessor as an asset for which they would like to extract some value, and given that the 767-300 ER is a desirable aircraft, it is not inconceivable that that may result in some increase in our aircraft ownership expenses for those airplanes.

That's going to be six months out though, right?

The call option is effective 6 months from giving us notice. But we are in negotiations with them. The terms of the negotiations may settle all of that.

Okay. Fair enough. How is the fourth quarter, as far as seasonality goes with respect to the rest of the quarters?

I'm sort of hemming and hawing a little bit. It used to be sort of a pretty average quarter because it has got Christmas in it, which is in some respects a great period of time, because you very strong traffic, intensity rather directional traffic. Most of the people want to come to Hawaii, lesser numbers want to flee from Hawaii. So you tend to have reasonably strong holiday periods. October is generally a shoulder month, not a weak month.

But I would, I would caution that by saying that I think over time, we are beginning to see a flattening of seasonality in this business. So more people who can take more time off throughout the year, and see it now lessening as a factor in our business.

Great, I appreciate it. And then the last question I had, had more to do with capacity on the interisland market, and it is more hypothetical. What would happen if either you got an injunction against Mesa, or one other, I'm not saying you or anybody else, but one of the carriers dropped out? How quickly would capacity rationalize?

Well, I think you have hit the right issue, the issue really is, is as we have always maintained the number of seats in the marketplace, it is not really the number of competitors. So the suit that we filed against Mesa has two elements to it. We have asked for damages and injunctive relief. It is possible that we would get one, both, or none, of what we have requested.

In the event that either Mesa or one of the other carriers simply stop flying, then you get pretty instant change to the capacity environment. That would be decisions for others to make. We are certainly not for one second suggesting that Hawaiian would be amongst that number, in fact, we are suggesting strongly to the contrary.

Great, appreciate it.

And at this time, we have no further audio questions. Are there any closing remarks?

No, I think that's it. Thank you very much for taking the time-out of your busy schedules to listen to our conference call. Thank you for taking the time to follow our Company, and hopefully before long, we will be talking to you again with altogether better news.

Thank you. This concludes today's Hawaiian Holdings third quarter 2006 earnings results conference call. You may now disconnect.