Hawaiian Holdings Inc (HA) 2008 Q4 法說會逐字稿

Good afternoon. Thank you for standing by. Welcome to the Hawaiian Holdings fourth quarter and fiscal 2008 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions). This conference is being recorded today, Wednesday, February 18, 2009. Now I'd like to turn the conference over to Ms. Lena Adams. Please go ahead.

Thank you. Welcome everyone and thank you for joining us today to discuss Hawaiian Holdings' fourth quarter and full year 2008 financial results. On the call from the Company, are Mark Dunkerkey, President and Chief Executive Officer, and Peter Ingram, Chief Financial Officer. By now, everybody should have the access to the press releases which went out about 4:00PM Eastern Time today. If you have not received the release, it is available on the investor page of Hawaiian's website.

Before we begin, we would like to remind everyone of the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks do 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 (inaudible) From 8-K. With that, I would like to turn the call over to Mark.

Thank you, Lena, and thank all of you on the line for joining us today. Well, 2008 is going to be a year to remember. With the benefit of hindsight, it is clear that there were three major developments that affected our business.

At the beginning of the second quarter, we witnessed the foundering of both Aloha and ATA in the very same week. As those of you who have followed our story know, our Company did a truly remarkable job in reacting to the sudden departure of these competitors. We not only seized the opportunity to fill the void, but we also made sure that not one of the passengers affected by the collapse of Aloha and ATA was left stranded. We made sure that our own community which depends so critically on the ability of visitors to fly in, did not suffer from a shortage of seats. Rising fuel prices left little time for us to enjoy the fruits of a job well done.

But here again, I was extremely pleased and proud of the performance of our Company in meeting the extraordinary challenge of oil prices that neared $150 a barrel. All of this of course seems like ancient history as the collapse of the economy has precipitated a significant downturn in demand for air travel. It is dealing with this latest challenge that has been the focus of our efforts throughout the fourth quarter and into the first quarter.

So how did we do? Well, I'm pleased to say that we entered 2009 a stronger company than we were one year ago. Unlike the vast majority of our competitors, we posted a small profit for 2008, even after adjusting for the settlement of our litigation with Mesa in the second quarter. And while over the long term, we need to be focused on generating more robust operating margins than the ones we posted for 2008, we are gratified to be in the black during the year that included $147 per barrel of crude oil and the deepest recession in a generation.

But of course, it is how we fared in the fourth quarter and what the current environment means for our performance in the first quarter and beyond that is of principal interest. I'll take to few minutes to go through the fourth quarter results at hight level while providing some color on the current conditions in our key markets. Later in the call, I'll turn it over to Peter to provide further detail on the quarter and some information on our balance sheet.

During the fourth quarter, we posted an operating profit of $38.1 million. A couple of notable charges in our nonoperating line dropped our pre tax earnings for the quarter to $4.2 million. The first of and largest of these is a $21.3 million expense related to fuel hedges. And the second is a $7.8 million noncash charge related to our recognition of an impairment of our auction rate securities.

Revenue for seat miles for the fourth quarter improved 17.8%, compared to the same time a year ago. While cost per seat mile rose 2% since for the first time in a long while, fuel was not a drag on our cost structure. Excluding fuel, our cost per seat mile grew by 9.1%, primarily as a result of the increased proportion of shorter haul interisland operations in 2008 following our expansion of this part of our business beginning last April.

As everyone knows, the multi-year assent in the price of jet fuel has decimated the economics of the airline business over the past several years. Our cost performance in the fourth quarter demonstrates the substantial leverage that our financial results have to changes in the price of fuel, thankfully for once in the right direction. Our hedging strategy appears to have been a little different from those of our competitors so I would like to reiterate how we view the role of hedging in our business. We are not fuel experts and we try to stay away from activity that could be termed playing in the market.

Instead, we hedge in order to reduce volatility, and so you may expect our hedge position to remain largely constant, no matter the market conditions of the day. When fuel prices rise, we will have a degree of upside protection and when they fall, as they have in the back half of 2008, we'll recognize losses on our hedge positions. Hence our fourth quarter financials including a $21.3 million nonoperating expense related to the recognition of losses on our hedges.

I'll let Peter discuss the specifics of this in more detail, but I would like to note a couple more things about this. First, relative to the size of our business, this charge is smaller than that of many of our competitors. Second, it is our accounting policy to mark our entire hedge portfolio to the market at the end of each quarter. So, unlike some of our competitors, we do not carry unrecognized losses related to the hedge portfolio into the new year.

Turning back to the revenue lines, let me now take a moment to discuss the recent trends in our major markets. Starting with the Trans Pacific, we posted passenger revenue per seat mile growth of 8.8% in the fourth quarter, a result which is on the one hand encouraging, given the economic climate. But which on the other, reflects a lower year-over-year pace of growth than we achieved in the prior two quarters. [Past specific] yield during the quarter improved 14.6% while load factor declined by 4.5 percentage points.

During our last earnings call, we noted that late in the third quarter and earlier in the fourth quarter, we saw both a weakness in our Trans Pacific booking trends and a shifting towards bookings being made much closer in to the dates of travel. As the fourth quarter progressed, I'm encouraged to report that the pace of bookings recovered from the [truff] that we saw in September and October. And while we wouldn't describe the revenue environment as robust by any stretch, the worst of our fears were not realized.

The pattern of bookings coming in close to the day of travel has continued. While we have a reasonable visibility on the revenue outlook for the first quarter, our level of confidence in predicting the future beyond that is minimal. Visitor arrivals to the state of Hawaii declined sharply in the back three quarters of 2008. During December, total domestic arrivals in Hawaii declined 19%, with a steeper 22% drop in the US west markets that most closely approximates the markets we serve.

Similarly, recent hotel occupancy figures indicate occupancy levels in the very low 60s. It bears reminding, however, that air capacity is also down year-over-year. We are not suffering a severe case of supply versus demand in balance, as other parts of Hawaii's tourism sector.

We will continue to monitor the booking trends more closely with an eye to both to the level of demand and the level of discounting in the market. We have been generally encouraged by the trends in January and February. Though March will be more of a challenging period year-over-year due in part to the later timing of Easter this year.

By far from the lack of visibility into the future created by the shortening of the booking window, it is important to remind everybody that from April, we will be making year-over-year comparisons to the chaotic period in 2008 after the sudden collapse of both Aloha and ATA. This, too, serves to make estimated the future more difficult. Of course lower fuel prices have improved the economics of our business in the face of our greater revenue challenges. And this is particularly true in the longer haul markets where fuel is a more substantial proportion of the cost structure than in short whole markets.

Switching now to the interisland market, we saw strong growth in revenue per ASM during the fourth quarter. Although in common with the experience of the Trans Pacific market, the pace of RASM growth was lower in the fourth quarter than it was in the second or third. Passenger yield improved 28%, while load factor declined 6.2 percentage points in the quarter, resulting in a passenger revenue per ASM improvement of 17.8%.

The interisland market is both less seasonal and less cyclical than our Trans Pacific routes. But while it's less cyclical, that is not to say that it is not cyclical at all and the lower industry traffic that we've seen in the interisland markets in the latter part of this year reflects a softer economy and lower tourism numbers. In November, [Mocha Lilly] expanded from a Cessna caravan operation with the addition of two regional jets serving some of the same routes we serve in Hawaii. While our load factors declined in the quarter, this result is more attributable to a decline in the overall size of the market over the past couple of quarters, than it is to slippage and traffic to Mocha Lilly. It is true, however, that contrary to Mocha Lilly's initial public pronouncement, the new carrier has initiated several rounds of fare discounting in an effort to seek out a place for itself in the market.

As we have maintained since Mesa entered the market in 2006, we're used to competing. And we believe our combination of superior aircraft, superior product, superior cost structure and most importantly, superior customer service from our team of front line employees gives us the competence in any of these competitive battles. By the first week in January, we have entered into service the fourth and final of the Boeing 717 aircraft that we acquired following the did demise of Aloha. At this point, we have no plan to increase our fleet size in 2009.

There is a lot going on as we enter a new year. On the positive side, we continue to benefit from the reductions in industry capacity in our primary markets that began last April. And although fuel markets remain extraordinarily volatile, the current price, even combined with a upward forward sloping curve, would suggest a reversal of at least some of the $133 million increase we saw in fuel expense in 2007 and 2008.

Of course it is impossible to ignore the collapse in the global economy that precipitated the decline in fuel prices. Demand in the market is undeniably weaker than it was a year ago or even six months ago. In a few minutes, Peter is going to share our thoughts on how these factors will balance for the first quarter.

But beyond that timeframe, as has been our custom, we'll abstain from offering a prognosis. What I can say with confidence is that I believe that Hawaiian is a better company than it was a year ago, that it is better positioned in the market, that its balance sheet is strong stronger and that our future remains bright in spite of the uncertainties in the macro environment. My thanks as always goes to the team of employees who are responsible for it being the case. And with that, I'll turn it over the Peter.

Thanks, Mark. Since Mark has already covered the revenue environment, I'll focus most of my attention on the expense line during the fourth quarter. Let me start by discussing our CASM which was up 2% in total, and 9.1% excluding fuel. As we have discussed for the last couple of quarters, the increase in our short haul flying since April of this year creates a mixed impact on both RASM and CASM. Charter haul flying, everything else held constant as both higher revenue per seat mile and higher cost per seat mile. Given the extremes in our network with both very short and very long flying, the mixed change can be quite significant when one part of the business is growing disproportionately to the other. We estimate that for the fourth quarter that mixed change explains about two-thirds of the year-over-year increase in our CASM excluding fuel.

Obviously, fuel was the dominant expense driver for our industry in 2008. For the full year, our fuel consumption in gallons increased 3.3%, reflecting the expansion in our operations while our overall fuel bill increased 45.6% or $133 million. Although they are dwarfed at times by the magnitude of the swings in fuel prices, we continue to make improvements in fuel consumption. That remains an important hedge against the return of high fuel prices and the installation of winglets on some of our 676 aircraft beginning later this year will further these efforts.

In the fourth quarter, our fuel consumption in gallons increased 2.2% year-over-year and our fuel cost per gallon was $2.32 which is 11.7% lower than the fourth quarter of 2007. This cost per gallon figure excludes the impact of fuel hedges. On an economic fuel cost basis, our cost per gallon was $2.72 which reflects realized hedging losses during the quarter.

As Mark noted, we have also continued to execute our fuel hedge program in a disciplined manner. And as you can see in the press release, we have upside protection on about 53%, 40%, 23% and 8% of our first quarter, second quarter, third quarter and fourth quarter consumption respectively. You can also see that own downside exposure, that is where we have locked in floor prices for future time periods, is limited to a smaller percentage of our consumption in each of these time periods. This reflects a strategy of balancing a mix of call options which provide upside protection at a fixed insurance price with callers and swap agreements that expose us as a hedging party to down size risk if prices fall. We think that balancing our hedges between these different tools provides us with both a prudent level of upside assurance, while managing the cost of the program and the risks of losses in a falling market.

During the quarter, we recorded $21.3 million in expenses related to the hedge program, which was recorded in the nonoperating section of our income statement. Our realized losses for positions that settled in the quarter were $13.5 million, of which we had previously recorded $3.3 million in expenses as of September 30th. Additionally, we recognized losses of $11.2 million for hedge positions for future periods on a mark-to-market basis at the end of the fourth quarter. As Mark mentioned, our accounting policy is to recognize fuel hedges on a mark-to-market basis so these losses reflect the full impact of the decline in fuel prices through December 31st, including the impact on contracts that were settled during 2009.

Turning to the rest of of the income statement, higher wages and benefits expenses reflect the expansion of our interisland operations this year. But the year-over-year increase in the fourth quarter is exaggerated somewhat as the -- the fourth quarter 2007 expenses on this line included a $3.4 million credit related to an adjustment of our worker's compensation liabilities last year. Other rentals and landing fees increased $4.9 million during the quarter, which reflects an increase in both our flight activity and the rates we pay for airport space and landing fees, particularly here in the state of Hawaii. We also recorded some supplemental rent in our aircraft rent line that reflects a recognition as an expense of some of the maintenance deposits that we paid to our lessors which we no longer expect to recover, based on our current estimates of future maintenance costs.

Turning back to the nonoperating lines, we recorded an impairment charge of $7.8 million which recognizes a reduction in the value of our auction rate securities as the result of the loss of liquidity in the auction rate markets. To refresh your memory, we currently hold a total of $35.5 million in fact value in two separate series of auction rate securities issued by a Honolulu based healthcare not-for-profit. We continue to believe that the underlying security in these notes is strong and we have no immediate intention of selling them at a discount to their face value.

Nonetheless, because of the continued illiquidity of the auction rate market and the uncertainly regarding when the market for this particular security will return, we assess the fair value using a discounted cash flow approach and recognize the charge against nonoperating income to write down the security to fair value as of December 31st. Based on this charge, we're now carrying these securities at $27.7 million or at 22% to their face value on our balance sheet as noncurrent assets.

Before ending the discussion of the fourth quarter income statement, I want to mention a change that we made for our frequent flier accounting estimates during the quarter that affected the top line for the period. We periodically update the deferral period over which we recognize revenue from the sale of frequent flier miles to third party partners. During the fourth quarter, we extended the deferral period based on an updated analysis of customer activity. And based on this adjustment, our revenue in the quarter was about $7.8 million lower than it would have been without the change of which about $5 million related to prior quarters.

Moving on to the balance sheet, we ended 2008 with $205.9 million in unrestricted cash and short term investments, and another $28 million in restricted cash. Based on the ebbs and flows of our advance ticket liability which tends to seasonally decline in the fourth quarter, we're pleased to have maintained this level of liquidity on the balance sheet. Our restricted cash is primarily related to credit card hold backs. The percentage hold back in our largest credit card processing agreement at 25% which is unchanged from the percentage at the end of the third quarter.

During the fourth quarter, we completed an amendment to our contract with this credit card processor and extended the contract to the end of 2009. The revised amendment is materially similar to the previous deal, although we did achieve some small improvements in our favor from the negotiations. Based on our current outlook, we don't expect to hold back the change from its current 25% level.

Sticking with the balance sheet, like most every business that sponsors a defined benefit pension plan, our year-end balance sheet reflects a significant reduction to shareholders equity based on the deterioration in our pension asset values during the year relative to our long-term pension liabilities. For us this charge was $135 million, which is recorded as a reduction to other comprehensive income on the balance sheet. While this adjustment to equity did not affect the income statement for 2008, we'll recognize over $12 million more year-over-year for pension expenses in 2009 as a result of the deterioration in pension asset performance last year.

Before turning to the first quarter outlook, let me take a moment to try to explain our tax provision for the first quarter. First, on a full year basis, our tax provision came in at 46.3%. Although we had some noise in the quarter-to-quarter numbers during the year, the net number came in only slightly higher than what our marginal steady state tax rate should be.

For the fourth quarter, however, we recorded a 384% tax rate that turned a $4.2 million pre tax profit into an $11.9 million net loss. This occurred due to two factors. The first is that our financial projections improved in the back half of the year and we moved from the expectation of having no tax owed for 2008 to the point where we will be a taxpayer. Because of the complexities of our tax accounting related to the valuation allowance on our deferred tax assets, our tax provision roughly mimics our cash taxes which required us to dial up the provision in the second half of the year.

Secondly, some of our losses in the fourth quarter, notably the ARS write down and part of our fuel hedge expense, our unrealized losses from which we do not benefit from tax savings unless and until we realized the losses. Having stretched my ability to explain corporate taxes to just about its full extent, let me move on to the first quarter outlook without getting any deeper into that subject.

Starting with capacity, we expect ASM growth of about 4% to 5% in the first quarter, which is primarily driven by the additions to our 717 fleet and the growth of our interisland operations over the past year. This growth will moderate over the course of the year as we start to get past the anniversary of some of our growth in 2008, and as we rotate the 767 out of the long haul operation later in the year to fund our winglet line. As such, we project full year capacity to increase about 1%.

As Mark noted, we expect the softness in the economy to take a toll on the revenue environment. But given that the first quarter of 2008 was prior to the capacity adjustments in the market last year, we expect to post a modest year-over-year improvement in passenger RASM during the first quarter, albeit at a slower year-over-year pace than we saw for the past few quarters. In total, we would expect first quarter passenger RASM to improve by 1% to 2%, with yield improving 6.5% to 7.5% and load factor lower by 4.5 to 5.5 percentage points. And we expect that total RASM will slightly outperform the passenger RASM numbers.

Looking at the cost side of the equation, the lower fuel prices we're currently experiencing will provide us with a significant benefit during the quarter. In terms of CASM excluding fuel, we will continue to experience a mixed impact through the first quarter. And we expect that alone to account for about a 6.5% increase in CASM for the period. In addition, we'll see some cost headwind from the continuing impact of higher airport cost here in Hawaii and the higher pension expenses I noted earlier. But we also expect some offsets working in a positive direction. Combining all of these impacts, we would expect to see CASM excluding fuel increasing by 4% to 6% in the first quarter. With that, I'll turn the call back over to the operator and open up the discussion to any questions you folks have for me and Mark.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question is from the line of William Greene with Morgan Stanley. Please go ahead.

Peter, can you give us a little more detail on the air traffic liability? What was the number at year end?

Give me one second and I can give you that.

And then maybe while you're looking it up if we can just think about how should it seasonally end for the first quarter? Is that typically an increase? And will the shift in the Easter holiday affect that increase?

Yes, typically we would expect it to go up a little bit in the first quarter as we start to get some of the stronger spring traffic numbers. At the end of December, we were at $218.7 million.

Okay. And then -- you mentioned -- your guidance on for the quarter. Were January and February broadly in line with that? I'm really asking because I'm trying the figure out will the shift of the holiday from March to April have a big impact on the second quarter's results well?

I think in -- -- I think we have given the guidance we feel comfortable giving at this point. And again, I think the underlying issue here is that with close end booking windows and with the volatility in demand, we're just not giving a sense of what we think the second quarter will look like because it moves around quite a lot.

No, no, I understand. I'm just trying to figure out the impact of Easter, if it's a point or two on RASM or more significant than that.

It is difficult for us to be able to path that out. First week in April last year is when ATA and Aloha disappeared all of a sudden. We have got so many big things happening in our numbers at the moment that -- I think Easter while it is -- it does have an impact. It is actually going to be a relatively smaller impact than some of these other things that we're talking about.

Right, okay. Have you -- you mentioned Mocha Lilly and that they had been a bit more aggressive. Have you noticed that becoming increased as we have gone through a slower period in the economy? Or has it been pretty steady in terms of the aggressiveness since they announced their expansion?

Mocha Lilly has only been competing with us with jet service since the middle of November. We don't have much of a historical perspective. I think it is fair to say that as they try and find a footing in the marketplace -- they try one thing, then they move and try another thing and try another thing. Several of those things that they have tried include discounts and we currently in the marketplace, for example have $27 fares.

Oh wow. Okay. I know in the past you've also talked about the weakness in the demand from a hotel perspective has caused them to drop rate, and that could mean a bit of a benefit for you on the demand side. Can you parse that out at all or is that -- you can't see it through the economic trend?

I think you can just see it in terms of the raw numbers. You can see how much down -- how much our traffic has declined. And you can compare that to how -- for example, domestic arrivals from the west coast to Hawaii have declined. And you can see that while they have moved from having occupancy rates that were in the '80s down to low, low 60s, we have seen our load factors coming off from -- by about 5, 6, 7 percentage points, depending on which month you look at.

We are in a considerably better relative position than the [hoteliers], but in a declining market. It is true that unsurprisingly in their business, much like ours, they are responding to lower occupancies with deeper discounts. That is reducing the overall cost of a Hawaii vacation to people who are looking to come here.

Okay, just two quick last questions. Stage length, once we start lapping after the first quarter numbers, I assume the stage length changes are going to slow which won't affect I think the RASM CASMS much beyond the second quarter. Is that correct?

Yes. I think that is -- that is absolutely right. Because -- depending on how you're calculating the stage length number -- if it's on an aircraft mile or a seat mile, you may end up with a little bit of a continuation in the second and third quarters because we have the 767 flying in for island last year. But generally, you're right that the the stage length impact on our market should moderate as we get into the second quarter.

Okay, on ancillary -- the last question here. Some of the carriers on the mainland have been a little bit more aggressive like when you think about like a legion on some of the ancillary stuff. Is there a lot more for you left due, do you think? Or is your market or is the way you perceive the market just different? I know you wouldn't want to go and serve as far as they have.

It is a great question. It is something we look at periodically. We look at revenue opportunities around our brand and how we sell ourselves in the marketplace.

I think at the moment, the way I would describe our positioning is -- I think we like the ancillary revenue elements that we have. I think we are looking to expand the number of opportunities to earn ancillary revenue. We are not looking to fundamentally change our business model in a way that for example, legion -- that you have mentioned has adopted. But we do review that periodically and we certainly understand and appreciate ancillary revenue.

Thank you for the time.

Thank you, sir. The next question comes from the line of Stephen O'Hara with Sidoti and Company. Please go ahead.

I just had a question on the pension cost. Is that going to be spread throughout the year and less show up in wages and benefits or is that more of a balance sheet accrual item?

Yes, the $12 million number I mentioned for 2009 will be spread throughout the year. And that will be in the wages and benefits line.

And the second thing if you look at your -- I think you said the revenue was off by about $7 million, based on the frequent flier changes. Is that correct?

Yes, $7.8 million.

Okay. Then lastly, your cargo revenue was up pretty sharply year-over-year. Is there any real explanation to that, other than Aloha going out of business? Cargo has really been dropping precipitously and yields are down. And I'm just wondering if you can give any color on that.

There is a couple of things going on there. I think one, we have benefited a little bit from the cargo on Manila which wasn't in the fourth quarter last year because we didn't operate that route. And also, we have some of the excess baggage charges hitting our quality line.

Last question on the hedge position. Is there any collateral requirements there and does that affect liquidity at all?

There are collateral requirements. We generally have a small amount of credit from our counter parties, but generally we have been paying collateral on a steady basis. And that amount is not reflected. What we posted as collateral is not reflected in our cash numbers. You will see that essentially the full impact of collateral reflected and we have maintained a strong cash balance, despite meeting all of those collateral requirements.

Okay. Thank you very much.

Thank you.

Thank you, sir. And our next question comes from the line of Kim Zotter with Imperial Capital. Please go ahead.

Question for you, you guys mentioned that competition -- how competition was performing on the interisland. But could you touch on the Trans Pac? For instance, have you seen additional discounting there in an attempt to trade yield for load? And what other the capacity -- is there any specific streaks that we've -- really by cabin?

Looking at Trans Pac, we have seen a level of discounting. It ebbs and flows. You have heard many carriers in their year-end conference calls talk about March being a weaker month than January and February. We have certainly seen some discounting around March. It is too early to tell at this point what things might look like for the summer which is clearly a very important period for us.

In terms of capacity, in broad terms, we are in a situation of flat capacity quarter-over-quarter, after you take into account last year, Aloha and ATA going away. In broad, broad terms, ATA and Aloha accounted for 17%, 18% of the market. When they disappeared, a couple of carriers increased their capacity and have moved that total industry capacity to more like a minus 16% year-over-year. That is broadly speaking where we are today and what we're looking at into the future. And then cabin by cabin, we haven't seen any big change in the dynamics.

Okay. Thanks. And then going along the lines still on the ancillaries, could you discuss the performance that you have been seeing in the new fee initiatives? I recall like on the third quarter call, for instance you mentioned some new things like the lai greeting, and I see that there are some concierge services on your website for booking things like golf outings, reservations. Now from an accounting perspective, how do you get compensated for these services? Are their more transaction oriented or percentage based? And then where do you book them on the revenue? Is it other revenue or is it included in passenger?

Okay. Yes, we've got a bunch of these, as you point out, ancillary revenue opportunities going at the moment. They're going really very, very well. They're really small at this stage, but you have got to start small. They generally work on the basis that we get a percentage of the gross take of the service provider whom we're giving access to our customers to. And that revenue does go indeed into other revenue.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Bob McAdoo with Avondale Partners. Please go ahead.

You talked about how you mark-to-market everything in the future so there is nothing unrecognized. In terms of changes in the price of fuel since December 31st, if you were to mark-to-market today as compared to where we were on 12/31, would that be an up or a down? A plus or minus? And roughly, how big do you think that would be in today's prices?

Yes, a good question, Bob. The market has come down a little bit since December 31st, and particularly in some of the further outlands, the forward curve has actually flattened out a bit which is terrific news for us from the standpoint of hedges we're adding now. But that does mean we will have -- if we closed the books today, we would have some additional mark-to-market losses on our hedge portfolio.

I would say that it is -- that the magnitude of that is small compared to what it was in the fourth quarter. Just for reference on that, and I'm just quoting these numbers off the top of my head so I may be not perfectly right on this. But I think the spot price for a barrel of crude oil at the end of September was about $101. And by the end of the year, it was $45 so the fourth quarter reflects that magnitude of movement in the market. We're now sitting in the mid-30s today. While we're down, it is not the same magnitude as we saw in the fourth quarter.

And that adjustment -- that is the piece that ties to the $11.2 million that was the future periods portion, right?

It is -- that $11.2 million, but it is also part of the realized losses on the fourth quarter piece as well. Because --

I see, yes. And --

Dropped in value before they settled in December.

Got it, got it. Okay. The only other thing -- seeing some things written recently about -- from [Miada] talking about how international businesses has really slowed. Curious as to how Australia and the Philippines are doing relative to recent quarters.

Well, I think they're two very different markets. Australia, I think is generally doing fine. We of course see the effects of change in the Australian dollars to US dollars exchange rate. It is a market which we get most of our revenues in Australian dollars and most of our costs are in US dollars so that after affects us.

With respect to the Philippines, it is less than a year old. It continues to build. There isn't a month goes by that we don't learn something new about the market that we can take advantage of. It is hard to path out what the effect of the broader malaise may be, but we're actually making headway in Manila.

It's nothing surprising? It is growing -- still growing slowing but still growing is that what you're saying?

Yes, I think that would be a fair characterization.

Was Manila one of the places where there were issue on visas that had to be dealt with or was Manila one of the few that didn't have that issue?

Manila does have a difficult visa regime in terms in people traveling to the United States. But that having been said, a large part of the traffic to Manila are people living in the United States who are returning to spend time with their families.

Yes, it is the locals who live there in Hawaii, right?

In that sense, it is not particularly an issue.

All right. Thank you very much.

Thank you, sir. And our next question is a follow up from the line of William Greene with Morgan Stanley. Please go ahead.

I just had two quick questions as follow ups. The first is on liquidity. Could you remind us what options you would have to raise liquidity if you wanted to?

I think there is a number of things out there -- we have -- as you know, we have got the two term loans. I think they're both -- because we have paid principal down on those, they're both well collateralized right now. But at some point when market conditions are appropriate, a refinancing of those may make sense for us. We have got a couple of airplanes that we -- the three 767 ERs that we own -- that we have got a fair bit of equity in that I think would be good candidates for sale lease backs if we thought that was appropriate. Particularly as we fix what -- is would be a sensible retirement date for us as we start to bring the air buses into our fleet.

We have got some other airplanes that are also owned -- that are owned out right -- the 767, 300 EMs that we think could be used if that was appropriate. Of course we have the auction rate securities that -- there is still the opportunity for that market to recover or to liquidate that. We do have a line of credit that is not nearly fully drawn. I think there is a wide number of options.

Candidly right now, it's not -- because I think we're comfortable with our cash position as we sit here this year. But I think we do always have a lot of options and that is a good position to be in.

Have you ever put an estimate on the value of those?

Of the aircraft?

Well, of all of those options to raise liquidity, just as a sum total liquidity availability if you will.

The auction rate securities have been evaluated through the accounting process. In terms of the aircraft, we have not done an analysis of their value in today's market.

Okay. And then I -- this may be splitting hairs a little bit, but in or RASM guidance, you gave us a relatively tight range. I think in the past, you have given a little bit broader range. I just want to make sure I understand your confidence in that range. Is that because you have enough of the first quarter already booked the way your booking curve works? That you have enough confidence to give a relatively narrow range here for the first quarter in guidance.

It is a good point. I probably would have given you a wider range. But having given the narrow one, I'll stick with it. I think it is fair to say that normally when we're releasing earnings on the quarters, we're a little bit earlier than this. It is the middle of February so we have obviously a great idea of what January looked like in the rear view mirror. And February is pretty well along the way. We're reasonably confident in that range.

All right. Thanks for your help.

Thank you, sir. And our next question is a follow up from the line of Steve O'Hara from Sidoti and Company. Please go ahead.

Just a quick follow up on the tax rate. When you say normalized tax rate, your looking at 38% to40%. Is that expected to be normalized in 2009?

We would expect something more normal in 2009. We would normally expect the marginal rate to be about 40% and the total rate to be about 42% for us which reflects some of the permanent differences from the 35% federal plus 5% state rate.

Okay. Great. Thank you very much.

Thank you, sir. And our next question is from the line of [Steven McFell] with Knob Hill Capital Management. Please go ahead.

Good job, boys. Listen, how -- I have a couple of questions. How is [Go] doing? Have you heard anything on how Go is doing?

You talked about Mocha Lilly a little bit. I don't know if you have heard the rumor, but they're having problems raising cash. I want to know if you have heard that. The third question is the auction rate security -- in health care. What does that got to do with Hawaiian Airlines? Why are you in an auction rate security in this kind of environment? That is what I'm trying to figure out.

Okay.

And why -- you say you didn't want to -- you didn't want to sell it. You didn't want to sell it, but you wrote it down $7.8 million. Couldn't you have sold it during the fourth quarter for close to that for $27 million and just gotten cash?

Okay, let me deal with those in order. I asked to go -- Go is a wholly owned subsidiary of Mesa. Mesa has had some well-publicized issues that they're contending with to do with their own capital structure. In terms of their competitive posture here, they continue to compete.

We like our product better. We like our aircraft better. We like our schedules better. We like the customer service that our people provide better. I think they're certainly still in the marketplace. They're our competitors to ours. We like our competitive position vis-a-vis them.

With respect to Mocha Lilly, yesterday, Republic Airways in a conference call announced that a line of credit had been fully drawn and that Mocha Lilly was actually in default of that line of credit. That same conference call said that they were out there seeking new sources of capital to tide them through. That's a very fast moving situation. That is all we know. It is public out there and beyond that we can't really comment.

As to the auction rate securities, these are securities that we have held actually on our balance sheet for quite some time. There was a time -- it seems like ancient history now, but it was a time when these were very liquid and they had pretty good rate of return on them. We did in the -- I think was it the third quarter or was it the fourth quarter -- actually managed to sell a bunch of them at par. We reduced the overhang of the auction rate securities. And the reason we just haven't sold all of them just to get out is that we believe that our -- at the moment, and this is a business in which things can change fast. But at the moment, our cash resources are adequate for our needs.

We think that we would have to sell them at a discount that is pretty unattractive. If we were compelled to sell them at the moment. Just a little bit more detail, these auction rate securities are held with a local healthcare provider. We have every reason to believe that they will continue to perform and make good on the coupons on these securities . We don't have any particular fear on that

Okay. Thank you.

Thank you, sir. And our next question is coming from the line of [Dominic Malay] with Canyon Capital. Please go ahead.

Congratulations. How are you? What was the the CapEx number for the quarter?

I can tell you for the full year, the CapEx number was about $13 million. For the quarter, I think it's going to be --

I can figure it out probably.

It was something in the $2 million to $3 million range in the fourth quarter so relatively low level of spend in the fourth quarter. And that -- just FYI -- excludes the 717 aircraft that we added during the quarter, which those are accounted for as a capital lease so they show up as an asset coming onto the balance sheet. But you can think about the stream of payments that we have for that, being much more like an operating lease than an asset purchase.

Okay. If you have the cash flow statement for either the quarter or the year, do you know what the number is for cash flow from operating activities? Either for the full year or the fourth quarter?

I'm sure we can get that number. For the full year, we're about $134.5 million.

Lastly, shares outstanding -- that $52 million number I think on your press release, does that include the shares that you issued for the warrants?

Yes, it does. The share is issue issued for what we call the Term b warrants.

Okay. Thanks.

And the next question comes from the line of [John Reredon with Prow Reredon].

Good afternoon, and great job on the quarter and the year. I was just wondering, since Delta and Northwest have merged, have you noticed any difference in their competitive profile, vis-a-vis Hawaiian?

Yes, that is a great answer. The short answer to that is no. It's early days yet for them. Obviously, they're going through tremendous, tremendous changes as they combine. It is the case that Delta and Northwest have traditionally, from a cultural perspective, have been very different sorts of competitors. We are interested, like everybody else, to see what kind of company actually emerges. At the moment, we have seen no substantial changes at all from -- each carrier as we compete against.

And just a follow up on that. As an industry participant, do you think we're going to see more M&A in the US airline industry?

I think that -- the situation in our industry is that there are some benefits to further consolidation across the industry. There are also enormous hurdles to be overcome. From our own perspective, we don't comment on what our own outlook is in terms of looking at potential strategic partners. I would say that our real focus is making sure that we run a sensible business. In a very volatile period, that seems like a sensible thing to do.

Thank you very much.

Thank you, sir. All right and I show no further questions in the queue. I would like the hand the call back over to management for any closing remarks.

Thank you, David. Thank you all for participating on the call. Thanks for your support during 2008. We're looking forward to 2009. Thanks again.

Ladies and gentlemen, this includes the Hawaiian Holdings fourth quarter and fiscal year 2008 earnings conference call. This conference will be available for replay at 6:30PM Eastern Standard time today through March 4th at midnight. You may access the replay system at any time by dialing 303-590-3030 or toll free, 800-406-7325 and entering the access code of 399-0985. We thank you for your participation, and you may now disconnect.