Hawaiian Holdings Inc (HA) 2007 Q4 法說會逐字稿

Good afternoon. Welcome to the Hawaiian Holdings fourth quarter 2007 conference call. At this time, all participants are in listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Wednesday, February 27, 2008. I would now like to turn the conference over to Andrew Greenebaum of ICR.

Thank you. Welcome, everyone, and thank you for joining us today to discuss Hawaiian Holdings fourth quarter and full year 2007 financial results. On the call 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 today at 4:00 Eastern time. If you have not received the release it's available on the Investor Relations page of Hawaiian's website.

Before we begin we'd 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 the most recent annual report filed on Form 10-K, recent quarterly reports filed on Form 10-Q, as well as recent reports filed on Form 8-K. With that I'd like to turn the call over to Hawaiian Holdings President and Chief Executive Officer, Mark Dunkerley.

Thank you, Andrew. Good afternoon and thank you for joining us today. I'm going to start by discussing some of the operating and financial highlights for the fourth quarter and for 2007. I'll then spend a few minutes addressing several key issues affecting our business as we begin the new year. Peter is then going to discuss our financial results in greater detail after which we'll open up the call to your questions.

2007 was another challenging year. The substantial steps forward we took in reducing our controllable costs were largely offset by the rising costs of fuel and the consequences that flow from a tough competitive climate. While we believe that Hawaiian is better positioned today than it was this time last year, and considerably better positioned than it was a couple of years ago, there is still much for us to do. I will detail some of our 2008 initiatives a little later on.

Perhaps the most notable accomplishment of 2007 was our control of costs. Considerable managerial focus was directed towards cost control, and I'm pleased to report that we made significant progress in this area during the year. This effort has included several key initiatives, including an organizational restructuring of our non contract workforce, a comprehensive review of several third-party service agreements, and the outsourcing of much of our back office accounting, reservations, and IT infrastructure. Additionally, our growth during the past year was accomplished without proportionally increasing the overhead in our business which helped further improve our unit cost performance.

The combination of these initiatives allowed us to reduce our cost per available seat mile by 4% year-over-year to $0.1057, while our CASM excluding fuel declined by 7.5% to $0.0741. For the fourth quarter, CASM was down 1.5% year-over-year to $0.1075, while CASM ex-fuel decreased 13.4% to $0.0703. As I mentioned earlier, high fuel costs largely offset the progress made in controlling other cost lines. During the fourth quarter our fuel expenses increased $27 million compared to the same period last year. A 45% increase on capacity growth of 8.5%.

Turning to the revenue side of the income statement, the fourth quarter represented the second consecutive quarter we posted a year-over-year improvement in RASM. This despite the fact that our long-haul flights with lower RASM were major contributors to our growth during the quarter. For the quarter, RASM increased 5.2% to $0.1066. With yield up 4.4% to $0.1131, and the load factor increasing from 85.2% to 86.8%.

Now let me address our two major markets separately beginning with our trans-Pacific market. For the quarter, trans-Pacific revenue continued to represent close to 70% of our overall passenger revenue. Trans-Pac RASM improved year-over-year for the second consecutive quarter with a total year over year increase of 6%. Most of this improvement was yield driven but load factor was also up slightly during the quarter. As a result of our fleet additions over the past year our trans-Pacific capacity increased close to 10% in the fourth quarter and 18% for the full year. While we're pleased to see year-over-year improvements in trans-Pacific revenue performance over the past couple of quarters, we'd note that fuel prices today are about 50% higher than they were at this time last year. It is not unusual for the market to be unable to fully recoup increases in fuel through fare increases, and the current environment is no exception. We are focused on further revenue improvement in light of what's happening with fuel prices.

Looking into 2008, we remain cautious about the economic environment but despite these concerns, we haven't seen any dramatic changes in demand to date. On the capacity front, Hawaiian's trans-Pacific capacity will be close to flat for the full year while advanced schedule information suggests that industry capacity will be up about 4 to 5%. Our inter-Island operations again, accounted for slightly less than one quarter of our passenger revenue during the fourth quarter. On a positive note we posted a double-digit improvement in RASM year-over-year during the fourth quarter. The combination of both modestly higher average fares and a higher load factor.

During 2007, we posted higher inter-Island load factors in every month relative to the corresponding month in 2006. Despite the intense competition in the marketplace. Nonetheless, the inter-Island market continues to suffer from excess capacity and destructive pricing that began with Mesa's entry into the market in mid-2006. As we look forward over the coming months we can't project any dramatic changes to the competitive environment in the inter-Island market in 2008.

It's now been almost 21 months since Mesa's entry into the inter-Island market. Although the impact on our financial results has been substantial it's worth noting the success we have had in not only maintaining but actually growing our traffic. We attribute this to our employees consistently delivering the best product in the market, our unmatched on-time performance, the best fleet, the best frequent flyer program, and our consistent commitment to the local market.

As I'm sure most of you are already aware, within a few hours of our third quarter earnings call, the Bankruptcy Court in Hawaii issued a decision in favor of Hawaiian in the case involving Mesa. We had alleged that Mesa improperly retained and used Hawaiian's proprietary information in violation of a confidentiality agreement executed between the parties when Hawaiian was in bankruptcy and was seeking investment. In that decision the court awarded $80 million for damages incurred up to October 30, as well as the cost of litigation and reasonable attorneys' fees which were subsequently established at $3.9 million. Although it may be some time before we see the money from the judgment and the judgment is still subject to appeal, Mesa has deposited a $19 million bond with the Bankruptcy Court on November 21, of last year.

The legal process is now moving into the appeals phase. In December the Bankruptcy Court held a hearing on Mesa's motion for a new trial, a motion which was denied. The next step in the process is for an appeal to be heard in U.S. District Court in Honolulu with various briefs to be filed with the courts over the next few months and a hearing to be held in May of this year. I'm told that the full process for appeal in the district court can be expected to take eight months to a year. If further appeal is desired by either party the case would be raised with the 9th Circuit Court of Appeals.

As you can imagine we were extremely pleased with the ruling that Mesa should compensate Hawaiian for the considerable damages we have incurred as a result of their actions. The ruling was a triumph for fair competition and ethical behavior.

Thanking the employees of the Company is normal fare in calls such as this but I would like to take a moment to explain how truly special Hawaiian's employees are and why this is so important to our prospects. I suspect that everyone on this call is aware how the quality of airline service in the United States has declined over the course of the last several years. Not only have the hard specs of airline service, such as food, been mercilessly cut, but the soft aspects of service, the interactions between customers and airline employees have also suffered. Thanks to the hard work and diligence of our employees, the experience at Hawaiian Airlines stands in stark contrast to that of the industry as a whole. We can measure much of this through operational statistics. Hawaiian remains atop the punctuality statistics for the fourth straight year and atop the baggage statistics for the second straight year. We rank third in terms of avoiding involuntary bumping despite having the industry's highest load factor. Despite the late arrival of our additional 767 aircraft early in the year we ended up second best at avoiding cancellations.

Much less easy to measure but equally important is the quality of the soft service skills that our employees deliver each and every day. In this regard our employees are without peer. They are the best in the industry. The depth of their dedication and the strength of our product has allowed the management team to pursue a long list of cost saving and revenue raising initiatives confident in the knowledge that if anything doesn't work out entirely perfectly at first our employees are there to help recover the situation. So my thanks to our employees is truly heartfelt and our investors should understand that they are a great deal of the value of our business.

Now as I promised at the beginning of the call I'd like to discuss some of our recent announcements and how they relate to our future. To support our long-term growth opportunities earlier this month we signed a definitive purchase agreement with Airbus to acquire 12 new long-range wide-body aircraft and secure purchase rights for an additional 12 aircraft. This transaction was originally announced based on a memorandum of understanding we signed in November. Specifically, we're acquiring six wide-body A330-200 aircraft and six A350-XWB-800 aircraft, and purchase rights for an additional six of each aircraft type.

This is the first step in a phase fleet plan that will replace our current wide-body fleet of 18 aircraft, expand our long-range fleet and enable us to open new routes to more distant markets on a nonstop basis from Hawaii. With this agreement in place we'll also look at opportunities to lease additional aircraft to provide for growth and replacement of aircraft with leases expiring before our new deliveries commence. Our fleet plan underscores our goal of continued growth by adding routes to Asia, Australasia and additional parts of North America. For the foreseeable future, the center of gravity of our business will be in the Western United States to Hawaii for trans-Pacific markets. But over time these fleet additions will afford us the opportunity to further diversify our revenue sources with additional markets. In addition we expect that this transaction will enable us to further improve our cost structure as both the A330 and A350 feature advances in technology and efficiency relative to our current fleet.

We're also extremely excited by the opportunity to further raise the quality of our customer service with the introduction of the new aircraft. We're still in the process of defining the seating and inflight entertainment options for the aircraft but it is clear that the Airbus aircraft will enable us to raise the service bar while providing a great working environment for our crews.

Importantly, the development of our fleet plan will provide us with the flexibility to scale our fleet based on market opportunities as they arise, including the ability to moderate our growth when economic conditions make this appropriate. By managing our lease expirations and the disposition of our owned aircraft and availing ourselves of the market for both new and used aircraft we will be working diligently over the next several quarters to build a responsible plan for the transition out of 767s over the next decade and into our new Airbus fleet.

On the subject of new market opportunities, commencing this April, we'll be offering nonstop flights from Honolulu to Manila, marking our entrance into the Asian market. Given that almost one quarter of Hawaii's population is identified as either Filipino or part Filipino we're confident that there will be great support for our new route. Furthermore, we believe that this market can be a stepping stone for other growth opportunities in the Asian markets. In the years ahead, equipped with the new state of the art and longer range aircraft we'll be able to successfully pursue additional expansion opportunities around the world.

In conclusion, I'd like to say that we're optimistic about Hawaiian Airlines future while at the same time recognizing that the near-term environment remains extremely challenging. During 2008 we will continue to focus on managing our costs aggressively, improving our revenue performance and building shareholder value. The current high cost of fuel and risk of a softening U.S. economy adds urgency to these efforts. We've made substantial progress on the cost front over the past year which, while improving our overall competitiveness, does mean that there isn't as much low hanging fruit available for the picking in 2008. As a result, we're going to be looking for opportunities to improve our revenue performance in the months ahead to help offset the dramatic increases in fuel prices that are plaguing our industry. While the current market challenges are unlikely to disappear in the new future -- in the near future, we believe that Hawaiian Airlines is well positioned competitively for 2008 and beyond. And with that, I'd like to turn the call over to Peter.

Thanks, Mark. As Mark mentioned, much of our focus during 2007 was on cost control, and our accomplishments in that regard were tangible. Let me briefly review our top-line performance and provide more details of expense analysis for the fourth quarter. Then I will touch on the balance sheet and provide some color on our outlook for the first quarter of 2008. For the fourth quarter operating revenue increased 14.1% to $250.7 million and for the fiscal year our revenues were up 10.6% to $982.6 million. As Mark mentioned, year-over-year improvement in our RASM was achieved in both the long haul and short haul parts of the business.

Our operating expenses for the fourth quarter increased 7% on an 8.5% capacity increase which resulted in a cost per seat mile decline of 1.5%. Excluding fuel, CASM declined 13.4% to $0.0703. This result is better than we had expected and some of it is attributable to some nonrecurring items that I will touch on as I go through the details. Our fuel expenses grew by almost 45% in the fourth quarter to $87.4 million, representing over 34% of our total operating expenses.

This jump in fuel expense reflects a 7% increase in block hours and somewhat higher fuel consumption per block hour reflecting increased 767 operations and more flat 717 operations. Our average cost per gallon of jet fuel increased 33% year-over-year to $2.63 for the quarter, which includes taxes, delivery, and hedging impacts. During the latter part of 2007, we began migrating our fuel hedging away from jet fuel swaps and into heating oil forward contracts. Currently we have not designated our heating oil contracts for hedge accounting under FAS 133 so our fourth quarter results include a $3.3 million unrealized mark to market gain relative to heating oil contracts that were on our books as of December 31, which we will settle in 2008. These gains are included in nonoperating income.

In total, Q4 nonoperating income included a gain from fuel derivatives of $5.5 million, which includes both realized and unrealized gains and losses. We purchased heating oil forward contracts for 2008 representing 28%, 19%, and 10% respectively of our first, second, and third quarter consumption. As we are well into the first quarter now, some of these contracts have settled subsequent to year end. The average price of our contracts is $2.28 for the first quarter, $2.39 for the second quarter, and $2.41 for the third quarter. Wages and benefits expense decreased 17.1% or $10.05 million year-over-year in the fourth quarter, to $51 million. Approximately $7.1 million of this improvement relates to the combination of a favorable adjustment to our Workers' Compensation liabilities in the fourth quarter of 2007, and an unfavorable pension adjustment in the prior year's fourth quarter. So our actual run rate of wages and benefits expense is somewhat higher than what might be suggested by the fourth quarter results.

The Workers' Compensation adjustment is notable in that this is an area we have focused on over the past few years and the improvement in our loss performance is attributable to these efforts. We wouldn't expect further adjustments to our liabilities of this magnitude but the improvements we've achieved have allowed us to go into the market and establish a fixed cost contract for the policy period we're in now, at terms we certainly couldn't have achieved a couple of years ago. As we've discussed on previous calls, our maintenance expense continues to increase. For the fourth quarter maintenance, materials, and repair increased $6.3 million versus a year ago to $23.7 million. The increase in maintenance expense is primarily due to a year-over-year expansion in our operations during 2007, and the increase in the level of Boeing 767 heavy maintenance activity and higher power by the hour charges for engine maintenance.

As some of you may know, we've shifted our heavy maintenance for the 767 fleet to Air New Zealand under a five-year contract that provides better economics than we had with our previous vendor. Nonetheless, these savings don't fully offset the increased activity that is related to the number of check events and the level of checks that vary over the life of the aircraft. We expect maintenance costs to increase again in 2008 related to many of the same factors that drove costs up in 2007.

Aircraft rent expenses declined by 12.2% year-over-year to $24.4 million. This reflects the acquisition in December 2006 of three 767s that were previously leased. As a result of the aircraft acquisition, we incurred higher depreciation and amortization expense which increased by $4.6 million to $12.6 million for the quarter. This increase reflects the ownership of the three previously leased 767-300ER aircraft, and four Boeing 767-300EM aircraft that we brought into service during 2006 and 2007. You will also note that our aircraft and passenger servicing line improved by about $4 million during the fourth quarter as we dealt with the delayed entry into service of a couple of our 767s at the end of 2006 we experienced a spike in passenger inconvenience expenses. With a more stable operation in 2007 we didn't face the same challenges.

Our commissions and other selling expense line was down for the fourth quarter in contrast with the annual trend which reflects our growth in 2007. Increases in booking fees and credit card processing expenses and some of the other items that roll up in this category were offset by adjustments related to the estimates we use to value our frequent flyer milers liability. These adjustments, the most significant of which is the recognition of estimated breakage of miles held in the liability account netted to $4 million in the selling and expense category. We also had a related but smaller positive adjustment to our revenue lines connected with the update of our frequent flyer estimates.

Other operating expenses decreased $1.9 million to $23.0 million. This line includes some expenses related to our aircraft acquisition and lease amendments last year that have been reclassified from nonoperating expense in last year's presentation. Obviously we didn't see the same expenses this year in the absence of those transactions. Below the operating line, we reported nonoperating income of $3.1 million versus a non-operating expense of $3.5 million in the fourth quarter of 2006. Higher interest expense in the fourth quarter of 2007 resulting from our aircraft borrowings at the tail end of '06 was offset by slightly higher interest income and the gains I mentioned earlier related to our fuel hedging activities. The prior year included a $2.5 million expense related to fuel hedging activities.

Turning to the balance sheet, we ended the quarter with $183.2 million in cash, restricted cash, and short-term investments compared to $168.2 million at the end of 2006. Despite the challenging competitive environment we faced over the past year we're pleased that we have reduced our long-term debt by about $20 million over the past year, as we have paid down the principal on both our term loan A and the 767 debt.

Before I turn the call over to the operator, I'll spend a couple of minutes on the outlook for the first quarter. Our capacity is expected to increase slightly less than 6% year-over-year in the first quarter, and we expect full-year 2008 capacity to be up a bit below 4% overall. Both of these numbers reflect a slower pace of growth than we saw throughout 2007 as we passed the anniversary of much of our fleet expansion. The upshot of this, as Mark alluded to earlier, is that we will see less benefit from growth on our unit costs in 2008 than we did in 2007.

As always, our outlook is leveraged to the revenue environment in our two key markets as well as the price of jet fuel. On the revenue front we expect a higher RASM during the first quarter. Factoring in the heavier weighting of long-haul flying, which is lower yielding than the shorter -- short-haul inter-Island business we expect RASM to be up by 5 to 6% in the quarter. I should mention that we have a number of yield management initiatives underway at the moment. And while we expect these to help raise our yields, of course, nothing is assured in the dynamic markets we contest. I raise this however not only to share with investors our initiatives for the year ahead but also to warn that our monthly traffic statistics are likely to be less good a predictor of revenue than they have been in the past as we make some different decisions about when we release inventory for sale.

One other revenue related point for investors to consider is the early date in 2008 for Easter. Easter falls in March of this year versus April of last year. And all other things being equal this should help our first quarter revenue performance while handicapping the early part of the second quarter.

We currently expect first quarter yield increases between 9 and 10% with a lower load factor of about 85%. On the expenses front, cost per available seat mile will be higher given the substantial year-over-year increases we're experiencing in the price of fuel. Excluding fuel, we expect our CASM to be about 0.5% to 1.5% higher in the first quarter compared to the same period of last year. As usual, I'm not going to get into the game of projecting fuel prices, but with about two-thirds of the quarter in the rearview mirror it's pretty clear that we are starting 2008 with some significant head winds in our largest expense line that will take a toll in our year-over-year comparisons.

To give you some sense of the impact last year the price of L.A. basin jet fuel on which all of our West Coast fuel lift is based average $1.85 during first quarter. This excludes the location differentials, tax, and hedge impacts that get baked into the final price. For January and February these same prices have averaged in the mid $2.60s. We did manage to get some forward contracts on the books before the most recent surge in prices. As a result we have some protection on about 30% of our first quarter consumption. The heating oil contracts, as I mentioned earlier, are not being accounted for under FAS 133 hedge accounting so we will have some mark to market impacts of the open contracts at the end of the quarter depending on where the forward curve moves. With that, I will turn the call back over to the operator so that we can take your questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question comes from Nick Capuano with Imperial Capital.

Hey, guys. Couple quick financial questions, then just a few more general market questions. Maybe we can start out with Peter. Just to clarify, on the Workers' Comp benefit given, I believe you had a $3 million -- the 4Q '06 chart -- the 4Q '06 thing that you referenced, I believe that was for a $3 million benefit. Excuse me, that was $3 million expense that you had in 4Q '06. So does that imply it was like $4.1 million benefit in--?

Yes, you--.

Is that the math there?

You have a good memory, Nick. That's about the right numbers.

So just think, in the wages and benefits, think more, which is kind of what I was modeling, think more about $4 million higher as a run rate range than the $51 million that you reported?

Yes, I think that's a reasonable assumption to be working [out of].

Just as a generalization. Just to be clear also on the non-operating income, on the benefits from the hedge that didn't flow through the fuel expense, you reference a $3.3 million unrealized gain. What was the other component of the nonoperating -- other nonoperating income?

I said 3.3 was the unrealized gain, and the total gain was $5.5 million, if I can remember the number right. So there was the other piece of that would be what was the realized gain during the quarter.

Right. So the way -- can I think of it -- so just to try to kind of normalize your fuel expense, can I think of it by taking the $5.5 million out of other income and basically subtracting it from your fuel to kind of get your normalized fuel cost, including the hedge?

I guess there's a number of ways to think about it. One way to look at would be to say the unrealized gain is a piece that relates to future periods, because that is sort of the change in the value (multiple speakers).

Understood.

The hedged 2008 consumption.

Right.

And the realized gain could be thought of as offsetting--.

Offsetting the current fuel expense of the quarter. So if I really wanted to look at apples to apples, the 2.2 would really, I wouldn't consider that a one-time -- that's just a function of hedging benefit that didn't show up in the fuel expense, right?

Sure.

Thank you. That's helpful. Then for Mark, could you just speak to some more detail about just the competitive environment in the markets in terms of fares, and you mentioned a 5% increase in capacity that you're looking at potentially for '08 and if you can also just kind of -- so a little more color there. And also just some color, you mentioned you're going to be focused on revenue programs, if you could talk to some revenue producing initiatives that would be great.

Sure. Let's start with the trans-Pac market. I think our overall outlook at the moment is that we've looked at forward schedules. They suggest, as I think I mentioned, between 4 and 5% increase in the number of seats in the trans-Pac market. That's been driven by the year on year impact of Alaska coming into the market. I think we've seen some additional ATA flights in the market. But that number is up about 4 to 5% as we look forward. There may be other changes. We've certainly taken note of several airlines saying that they're going to draw down domestic capacity further. We sit with bated breath and hope that it will affect Hawaii.

In terms of the market as a whole one of the things I mentioned in our monologue was that we are very cognizant of the weakness on the West Coast in terms of the overall economic situation. We have not yet seen that reflected in forward bookings, which is obviously good news, but we are far, far from declaring victory and saying that that will persist. So we remain really quite watchful. In terms of the inter-Island marketplace, the dynamics have frankly just not changed very much. That is both good and bad. I think the good news is that we continue to enjoy a share gap. In other words, we believe we carry a greater proportion of the passengers than we fly in terms of proportion of seats. I think that's good. The fares have come up from 39, where they started, they then went down to people remember 29, 19, 9, we even had a $1 fare in there for a while. They're now at $49, which marks, I guess, some progress, but obviously we're not yet suggesting that this is a rational marketplace.

Right.

So that's the outlook in our two main competitive markets. In terms of some of our revenue initiatives, a lot of them are very, very sort of, internal. It's around decision making as to how we sell our seats, how much we hold back for a higher price, how much we sell early. We are getting more market information than we used to. That's in common with everybody. The availability of data is improving. We're using that in our decision making process. I can't point you in the direction of a single silver bullet that's just going to all of a sudden transform things. This is about getting better at doing what we already do. We obviously have some hopes for the way in which we're changing our approach to yield management but as we mentioned earlier it's a very competitive marketplace and it's quite possible for the competitive dynamics to undo the good things that we're trying to achieve. In addition to that we're watching all of the ancillary revenue moves that our competitors are making. We're making some decisions of our own around this area. We're really just focused on getting better revenue for each flight we put in the air.

Our next question comes from [Kim Dotter] with Bear Stearns.

Hi, guys.

Hey, Kim.

In your third quarter call at the end of October you guys expected RASM to be flat in the fourth quarter. But as we know it came in much better so that's great news but what can you attribute to this surprise?

Well, I think there is -- as I mentioned earlier there's not a perfect, unfortunately not a perfect relationship between the cost of fuel and fares. But there is some relationship between the two of them, and I think that as fuel prices have gone up, we have seen some increase in fares in the marketplace. Again, the thing I would want to just reiterate, it's unfortunately not on a one for one compensation basis but I think that's the main reason why we've seen improvement in our RASM beyond what we'd expect. We didn't expect $2.60 fuel.

Right, right. Now, can you give us some sort of idea of the progression in yield over the quarter? Like could you give a breakdown on the monthly performance?

I think you -- again, I think you would find that it had some association to do with the price of fuel.

Okay.

And so as fuel moved, I think you'd see some changes in the yields we were able to secure.

So has it continued then like through the first couple of months of '08?

Well, I don't think we want to elaborate beyond the guidance that Peter gave in his -- in his part of the presentation which gives a sense of as we look at things today where we think things will end up.

Right, right. Okay. And then finally, you guys established your initial cost-cutting initiatives back in '06, '07, when fuel was in the 70s. Now with the oil over $100, do you have a target for your CASM guidance for fiscal year '08?

I think we've given some guidance for this next quarter. I don't think we've at this stage given some guidance for the full year. I think what I would elaborate and say is that the good news is I think we're going to enjoy -- a lot of the cost saving initiatives that we've been working on, on the last 18 months, are coming to fuller fruition in 2008 than they did in 2007 and 2006. That clearly is good news. I think the tough thing is that we've been picking the big cost items, the low hanging fruit as we look at this coming year it is less clear to us where cost savings of equal magnitude lie. That's not to say that we've given up on it. It's just the reality that we're in the realm of the lower diminishing marginal returns.

Right, right. Okay. Finally, could you give us an idea how your bookings are looking for your new Manila flights?

It's really too early to tell. We don't actually kick off the Manila flight until April 14, so that's some time away.

Okay. Thank you.

Our next question comes from Bob McAdoo with Avondale Partners.

Another follow-up on the Manila situation. Could you tell us a little bit about how you read the fare structures and the fare levels that Philippine Airlines has and what you think their likely response is going to be thus far in terms of any kind of early indications there?

Well, we haven't seen too much in the way of early indications. The fare structure there is it's much more traditional than the current environment here in the U.S. You sell a lot through travel agencies, there are a lot of wholesaler type deals. I think one of the reasons why we were attracted to Manila as a new route opportunity for us, is that, unlike most other Asian destinations, Manila is a destination where we think the majority of the sales will come from the United States rather than from the Philippines. And we think that we are in a better marketing position in the United States, because in the markets which we think we're going to have a lot of sales we're already a household name. We have a frequent flyer program, we have a good reputation, where as in the Philippines at this point we have not much of a reputation at all, one way or the over. We've got yet to establish that. So I think we remain confident and comfortable that this will be a good thing for us and we think we're actually going to be selling into our strength rather than having to work hard to sell into our weaknesses.

When you say the United States, are you thinking that the traffic would be generated there in the islands or would it be from the mainland?

We think it will be generated in both. Predominantly here in the Islands.

One other last little thing on fuel. You guys made some comments that basically said that for January and February thus far looked like fuel is kind of running at $2.65. Given in the last few days we've kind of locked in at 100 or 100 plus, what's the most recent number look like? If we were going to roll forward exactly as it's been the last day or so how much more than $2.65 does it turn out to be by the time you get all your delivery charges and everything else on it?

I'm hoping not to roll forward the last couple of days but I understand where the question is coming from. The L.A. prices have been in the low $2.90s over the past week. I don't know where exactly it finished up this morning, but we've seen L.A. numbers in the low $2.90s. The rest of our fuel is based on Singapore prices, and there's been a bit more of a spread develop, and that spread can go anywhere up from -- from 0 sometimes to $0.20 between them. Right now it is closer to the high end of that range so right now we get a little bit of a benefit from having about half our fuel coming at Singapore-based pricing.

On top of the -- so the -- if I go look at spot prices in Singapore, what do you have to add or subtract, or how does that relate to what you guys end up having to pay by the time you get it to the Islands?

Well, it depends market by market. Most of our Singapore actually is what we pump into the planes here in Honolulu, and so we pay a delivery charge on top of that. So there is a spread per gallon on top of the Singapore based price that we pay.

Is that like $0.10 or $0.15, or is it more? Obviously costs tend to be a lot higher on a lot of things where you are. I'm just trying to get a sense of how bad that is.

I think that the numbers we've given out on that is if you look at the raw cost of fuel, we are generally, by the time you put on the delivery differentials, the taxes, the duties, and the various things on a system-wide basis that number ends up in the $0.14 to $0.16 range per gallon. That includes our West Coast markets, our Honolulu markets, as well as Sydney and the other places we fly, some of which have bigger numbers.

I guess that's all I got. Thanks a lot.

(OPERATOR INSTRUCTIONS) Our next question comes from Dominique Mielle with Canyon Capital.

Thank you. Hi. Can I have the CapEx number for the quarter?

I don't have that at my fingertips, Dominique.

We can talk about this later. And then any sense for the magnitude of changing the working capital? I'm assuming it was a use this quarter like it usually is?

I think that's probably right. Again, I don't have that one at my fingertips. We do have, as you know, a seasonality to our advanced ticket liability. The end of the fourth quarter and the end of the first quarter tend to be more troughs in that before we start really building the summer revenue sales.

Right. How about your cash and actually your short-term investments? Are there any auction rate securities or things that look like they're either not par or maybe longer term than you initially thought they would?

We do have some short-term investments that are in auction rate securities, and I think, like a lot of people, we have had the experience of the auctions not performing, not being successful over the last couple weeks, so obviously we're monitoring that situation.

But you're not moving anything from short-term investments to long-term at this point?

We have not made the determination that we need to reclassify anything out of short-term at this point.

Got it. Nor any write-offs, permanent or temporary at this point?

We have not made any determinations like that, either.

And would you have a different face amount of the tranches of debt between the first lien, the second, and the rest?

Sorry, say that again. I'm not sure I got that one, Dominique.

Your different tranches of debt the first lien --?

The term loan A I think at the end of the quarter we were at $45 million of face amount.

Right.

On the term loan B it's $62.5 million, and that -- I believe the term loan B we actually carry at a discount on our balance sheet because of the way that was set up with the equity, the warrants that were issued concurrent with the issuance of that debt. I think the term loan A is carried on our balance sheet at par.

Last one. What was your pension expense for the year or the quarter, whatever you have?

That is a good one. I don't -- we've got people flipping through -- it should not -- typically during the quarter, Dominique, that one doesn't change much during the year. It tends to -- once you set the service cost for the year it tends to be there until you do the year-end adjustment.

I actually think I didn't ask the question correctly. I'm trying to figure out what the cash amount above which would run in the cash flow statement is as opposed to what is expensed?

Yes.

I mean, maybe it's something I need to wait for the 10-Q for.

I'll probably have to get you that when we have the 10-K out.

Got it. Thanks a lot.

Okay.

At this time, I am showing no additional questions in the queue. I'd like to turn the call back over to management for any concluding remarks they may have.

Okay. No real concluding remarks from here. Just to say thank you very much for taking the time to listen to the call, and hope we've been able to address many of your questions, and looking forward to 2008. It's going to be an exciting year, hopefully one in which Hawaiian Airlines continues to make improvements and to prosper. So thank you all very much.

Ladies and gentlemen, this does conclude the Hawaiian Holdings fourth quarter 2007 conference call. You may now disconnect, and have a pleasant day.