Hawaiian Holdings Inc (HA) 2010 Q1 法說會逐字稿

Greetings and welcome to the Hawaiian Holdings first quarter 2010 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Matt Bernier, Senior Director of Finance of Hawaiian Holdings. Thank you. You may begin.

Thanks Joe. Welcome everyone and thanks for joining us today to discussion Hawaiian Holdings' first quarter 2010 financial results. On the call with me today 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 about 4:00 Eastern Time today. If you have not received the release, it is available on the Investor Relations page of Hawaiian's Web site.

Before we begin, we'd like to remind everyone that 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 filing 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 reports filed on form 8-K.

And with that, I'd like to turn the call over to Mark.

Thanks Matt and thank you everyone for joining us on today's call. As you have already seen in today's press release, we've posted essentially breakeven results for the first quarter of 2010. Seasonally, the first quarter is typically the weakest of the year for our company and while for a variety of reasons this was not the case in 2009, we expect that 2010 may shape up as a more normal year in terms of seasonality. So, while our modest profit looks impressive when compared to the prevailing losses at many of our competitors, it is overshadowed by the extraordinary favorable results posted in the first quarter of 2009. Nonetheless, we saw some positive trends this past quarter and the numbers were generally in line with what we expected when the year began.

On the positive side of the ledger, our inter-island routes performance rebounded solidly from what we experienced through much of the prior year. As we discussed during our last call, 2009 surplus capacity disappeared and pricing returned to more rational levels. All in all, I'd describe the current market condition as representing a reasonable balance between supply and demand.

On our Transpacific routes we didn't see unit revenues rise as quickly as has occurred in the US industry as a whole, but this was not unexpected, given that we did not experience as precipitous a decline in 2009 as most other carriers. Those of you who have followed our business for a while will recall that in the first quarter of 2009 we posted year-over-year improvements in revenue per ASM at a time when much of our industry was in revenue freefall. As such, our modest year-over-year improvements in the first quarter of 2010 are relative to a much more difficult comp than has been the case for our competitors.

Fuel prices continued to escalate during the first quarter, further taxing our business, particularly our long-haul operations. Overall, our fuel bill rose over $20 million year-over-year in the first quarter, explaining the lion's share of the increase in our operating expenses. Aside from fuel, certain other operating costs were high in the first quarter, consistent with our expectations. As we projected in our last conference call, we expect that CASM ex-fuel increase that we experienced in the first quarter will be the largest of any quarter in 2010 by a considerable margin. The biggest drivers of this increase were in our maintenance and selling expense lines and the details of which are going to be reviewed a little later in the call.

I'm going to turn the call over to Peter in a moment to review the numbers from the quarter in more detail, but before I do, I'd like to comment on a few other notable items from the year so far. First, many of you will have seen two weeks ago that Hawaiian was named the number one carrier for overall quality in the annual Airline Quality Ratings survey. The AQR report is regarded as the single most comprehensive study of airline performance and we are proud to have been named the number one carrier in each of the three years that we have been included in the analysis.

Credit for this achievement goes to our terrific employees, who continue to set the standard for others to emulate. I cannot overemphasize how much confidence our employees' efforts give us and Management as we embark on the initiatives to better position the company competitively. It's therefore especially gratifying that their efforts on behalf of customers are recognized broadly.

And speaking of our employees, earlier this week we completed a new collective bargaining agreement with the union representing our mechanic and related employees. With this agreement in place, all of the company's labor groups are now working under new agreements. During the quarter we announced the purchase of an additional Airbus A330-200, scheduled for delivery in the second quarter of 2011. With this announcement we are now acquiring a total of 10 new A330s over the coming five-year period, with purchase rights available for five additional aircraft.

Many of you were already aware that we'd been actively seeking an additional wide body aircraft for delivery during 2011. With this addition to our fleet, we will now be introducing a total of 4 A330s during 2010 and 2011, while at the same time we'll be returning 2 leased 767s; net-net our fleet count will rise by 1 aircraft for each of 2010 and 2011. Our ability to seize the opportunity to add this incremental airplane in 2011 on relatively short notice is a testament to or improved financial condition and the strengthening of our balance sheet over the last few tumultuous years. As a result we are going to be able to grow our airline at a responsible pace over the next two years and take advantage of the opportunity to deliver our award winning service to even more customers.

With that, let me turn it over to Peter to run through the financial results before I come back to provide a bit more commentary on the current operating environment and the period ahead.

Thank you, Mark. During the first quarter we earned net income of $216,000 or breakeven on a per diluted share basis compared to a net income of $23.5 million or $0.46 per share in the first quarter of 2009. On a pretax earnings basis, earnings were $369,000 in the quarter compared to pretax earnings of $29.6 million a year ago.

Operating revenue during the first quarter was $298 million, up $9.8 million or 3.4% year-over-year on ASMs down 4% year-over-year. Passenger revenue per ASM came in 7.8% higher than the first quarter of 2009, which is an improvement relative to the expectations we had entering the quarter. Revenue for the quarter was boosted by 1.7 point increase in load factor year-over-year and a 5.8% improvement in yield.

Total operating revenue per ASM was 7.7% higher than the first quarter of 2009. Our non-passenger revenue improved during the quarter, although not by as much as some of you may have expected, because of a decline in the revenue that we recognize from the sale of frequent flyer miles to third parties. This result is attributable primarily to a change year-over-year in the proportion of these sales that we recognize in the current period, relative to what we defer as sale and recognize over the period the travel occurs.

On the cost side of the equation we foreshadowed a challenging quarter during our last conference call and as you will have seen from the press release, our operating expenses increased $40 million year-over-year in the first quarter. Fully half of this increase is attributable to the price of fuel while our CASM ex-fuel increased 14.4%. This nonfuel cost increase was marginally higher than we expected for the quarter but our expectation that this will be the biggest increase of the year remains intact as Mark noted earlier.

Let me give you a few more details on fuel before I cover the nonfuel items. Our consumption during the quarter was down about 4% as we ran a slightly smaller operation both interisland and long-haul. We also completed our winglet program in March, covering a total of 8 aircraft and I'm happy to report that the fuel savings being generated are coming at a higher level than what we counted on to justify the investment.

Although consumption was down, cost per gallon increased about 46% from $1.48 to $2.16 per gallon, excluding the impact of hedging. Our economic fuel cost per gallon which reflects the impact of realized gains and losses on fuel derivatives but excludes the mark to market impact on our hedge portfolio, was $2.19 for the quarter compared to $1.81 last year. And there's a table in our press release that shows our pro forma results reflecting economic fuel expense. On that basis, that is excluding unrealized gains and losses on fuel hedges, our net income during the first quarter would have been fractionally lower but not enough to impact earnings per share during the first quarter of 2010.

We continue to average into our hedge position on a disciplined basis with 41% of our fuel consumption hedged for the final three quarters of 2010 as of April 16th and by quarter our hedge percentages are 56% for second quarter of 2010; 42% for the third quarter; 26% for the fourth quarter; and 10% for the first quarter of 2011. Further details of that are also available in the press release.

Moving on to the nonfuel lines, the most notable cost drivers were maintenance, materials and repairs and commissions and other selling expenses. Let me take a moment to give a little bit of background on both. Starting with the maintenance, materials and repairs line, our expenses totaled $35.9 million, an increase of $7.1 million compared with the first quarter of 2009.

The increase is attributable to three factors; a higher level of 767 airframe check activity with 6 heavy checks in the current year's quarter compared to 3 last year; the beginning of our 717 ten-year checks with 3 events in the first quarter; and higher 767 engine maintenance expense for non power by the hour engines, most notably 1 major overhaul this year with none in the prior year's first quarter. Almost all of these items were in our plan for the quarter although we did see a bit more expense than expected on the 717 checks because we ran ahead of plan on this program and were able to accelerate the third quarter. The benefit of this of course is that we'll see that aircraft back in the operation earlier as we approach the peak season and of course those expenses will have just moved into the first quarter so it's more of a timing impact than an expense increase.

On the commissions and other selling expense line, almost half the increase is attributable to an increase in the valuation of our frequent flyer liabilities and this is a function of how we value each mile of liability on the balance sheet, the biggest component of which is the fuel cost we will assume in the future to carry passengers who redeem travel awards.

You'll also notice an increase in wages and benefits during the quarter. There was no single driver here; rather this reflects the weight scale step increases for employees we've hired over the past couple of years, as they gain seniority, as well as some of the pay scale increases that we negotiated in our recent rounds of contract negotiations with each of the major labor groups. Additionally we recognized about a million dollars in incremental expense related to payroll taxes, primarily due to higher unemployment insurance taxes here in Hawaii.

Finally from a productivity standpoint, this was a challenging period as we prepared for the transition to our A330 aircraft, which necessitates additional training and transition expenses. As we move through the year we'll see the training and transition expenses level off and begin to decline and we'll start to more tangibly reap the benefits of some of the productivity changes that we negotiated with our big labor groups.

Before I leave the income statement I'll take a minute to review the tax provision. We reported a tax rate of 41.5% in the quarter, consistent with our discussion on our last call that we expect to see a book tax rate of 40 to 42% during 2010. I'd not however that we do continue to have some valuation allowance on our deferred tax assets and as we continue to review the appropriateness of the remaining allowance in future periods there is potential for further adjustment.

Turning now to the balance sheet, we ended the quarter with $310 million in unrestricted cash and short-term investments and another $33 million in restricted cash. Our CapEx in the quarter was $11 million, in addition to which we made progress or pre-delivery payments of $19 million related to future aircraft and engine deliveries. The pre-delivery payment number includes payments related to the 2011 delivery that we agreed to during the quarter.

Aside from the PDPs the most significant CapEx driver in the quarter was our winglet program. In the remainder of 2010 we expect CapEx of $40 to $50 million plus another $35 million for PDPs. Aside from the PDPs the biggest CapEx item in the remainder of 2010 will be a spare engine for our A330 fleet, which we expect to have completed this month.

We also contributed approximately $11 million into our pension and benefit plans during the quarter. We anticipate making total pension and benefit plans of about $38 million this year and that includes the first quarter contributions that have been made.

With that I'll turn the call back over to Mark for some further commentary on the business.

Thanks Peter. As we've mentioned, the first quarter last year was a very unusual period both for our company and for the markets in which we operate, which distorts comparisons. Peter's already noted that our RASM improved 7.7%. Within the quarter we realized a higher year-over-year improvement in each succeeding month. On our interisland routes we are seeing an improvement in market conditions, capacity in the market remains below last year's levels, in part because of the surgical reductions to our own schedule and in part due to the reductions in capacity occasioned by the merging of our two largest interisland competitors.

For the first three months of the year, our interisland passenger revenue per ASM was up about a quarter, with meaningful improvement in both yield and load factor.

On our Transpacific routes between the Western United States and Hawaii, our passenger revenue per ASM was modestly positive year-over-year. This result fell short of the year-over-year improvements in revenue posted by our competitors on their networks during the past few months but I'd offer a reminder that last year, our Transpacific PRASM was up roughly 5% at a time when our competitors' revenue performance was circling the abyss. Nonetheless, given the higher fuel prices we're experiencing this year, it's important that we generate more substantial improvement from our Transpacific routes in the coming months.

Visitor arrivals to Hawaii from the West Coast remained comparable to 2008 levels, albeit well below the peaks achieved late in 2007. Industry seat capacity increased moderately during the period, up 0.5% year-over-year with seat increases by Alaska, Continental and American offset by reductions in seats offered by Delta Northwest, United and US Airways.

Looking ahead, we expect overall airline capacity from the Western States to Hawaii to increase about 10% in the second quarter compared to a year ago and about 9% for the full year of 2010. Put into perspective, if current schedules play out, 2010 capacity will still be about 9% lower than what was available in 2007, the peak year for visitor arrivals from the West Coast to Hawaii. To date our booked load factor is comparable to where it was at this time last year.

Last caution about the numbers, looking ahead we'll be able to see comparative numbers that are affected by last year's oddities but to a declining extent. We think we'll be back to more normal comparisons in the third quarter.

In less than a week we'll be celebrating the beginning of a new era of service with a delivery of our first Airbus A330-200 aircraft. Our second aircraft will be delivered during May and both are scheduled to enter passenger service in early June, once we complete the requirements of having the new type added to our operating certificate. The introduction of a new aircraft type is a monumental task for an airline and the fact that we are on schedule and ready to move forward is a tremendous credit to the tireless efforts of the team of professionals involved.

As a company we are very excited about the arrival of the A330. This aircraft will not only establish a new product standard on the Transpacific routes, but it will improve our operating efficiency and bring additional destinations within our capabilities. The first route that's going to see the A330 is going to be Los Angeles to Honolulu, where we're the best product offered by anyone in the market.

Among the markets we hope we'll soon see flying A330 is Tokyo. In February Hawaiian took a significant step towards expanding its international route network by filing an application with the US DOT for approval to introduce nonstop flights between Honolulu and Tokyo's Haneda International airport. Modifications to the air services agreement between the United States and Japan last year has created an opportunity for new service between Haneda airport and the United States.

DOT will award a total of four frequencies to US-based airlines for service to start at the end of October. Given that Hawaiian is proposing to operate in the most popular origin and destination market between the two countries and the fact that we are the only applicant for these route authorities that does not currently serve Japan, we believe that our application is superior to any of the other alternatives before DOT.

Now let me turn the call over to Peter to update our second quarter outlook before we take your questions.

Thanks again Mark. Our second quarter capacity will be up 0 to 2% compared to the same period in 2009. The increase will be back loaded in the quarter as we introduce the A330 in June and add some seasonal flying to our long-haul schedule, offset by a slightly smaller interisland schedule compared to the second quarter of last year. For the full year 2010 we continue to expect capacity to grow 3 to 4%, unchanged from what we suggested on our last conference call.

The benefits of a slowly improving economy and continued stability in the interisland competitive situation are anticipated to be reflected in a load factor improvement between 1 and 3 percentage points year-over-year in the second quarter and yield improvement between 5.5 and 8.5%. In total, we expect our passenger revenue per ASM to come in about 8 to 11% higher compared to the second quarter of 2009.

On the cost side, Mark and I already mentioned both today and on our last conference call that we expect the increase in CASM ex-fuel that we experienced in the first quarter to be the high water mark for the year. In that light, we expect our second quarter increase to be in the range of 5 to 8% with a further flattening expected in the back half of the year. During the last call we suggested that the full year increase would be in the vicinity of 6 or 7% and our perspective remains the same today. In fact, we'd hoped to be a bit south of that when we're adding up the numbers at the end of the year.

Fuel prices as usual remain volatile, as we've seen about a $12 trading range in the price of a barrel of oil in the first quarter, with the $85 per barrel level breached for the first time since October 2008, in the past month. As a result we expect our fuel line to continue to be higher year-over-year in the second quarter of 2010, requiring us to remain vigilant on both cost control and revenue generation initiatives.

With that said, we've reached the conclusion of the prepared remarks. I'd like to thank you all again for being with us today and for your continued interest in Hawaiian and I'll turn the call back over to the operator now to open the line for Mark and I to respond to your questions.

(Operator instructions) Our first question is from Bill Green with Morgan Stanley Smith Barney.

I have a question about what your views are on Allegiant entering the market; on the one hand we could say that what they do is a leisure focus and you have somewhat of a leisure focus as well, so that could be a negative, on the other hand, perhaps it spurs you to take some actions on things that you've sort of been not willing yet to test but maybe this is a reason to think there will be more on the ancillary side? I don't know; how do you think about this new entrant?

It's a great question. I think when we think about Allegiant they're obviously going to come into this market. They have announced that. They're going to compete I think in a slightly different way than traditional airlines compete. It's not just because of Allegiant but just generally there is a renewed focus on ancillary revenue. I think it is an area that we are very interested in. It's an area in which we are currently sort of building the infrastructure that's necessary in order to try and exploit some opportunities that we think may be out there.

With respect to the broader question about the capacity that they're going to represent, I would point out that we deal with competition from all comers and we haven't so far seen any particular difference between the capacity offered by one airline versus another in terms of its impact on us. I don't know if that adequately answers your question, but we are obviously prepared to deal with the competitive impact of Allegiant when they come.

Allegiant hasn't announced all of their details, but assuming that they go to Honolulu as a base, one would also assume that folks who fly there may wish to go to other parts. Could it be that you could actually see more revenue from this new entry, which is sort of a weird concept, but because they'll go from cities you're very unlikely to fly to on the Mainland and maybe need a connect, although you wouldn't likely do a code share with Allegiant. But I don't know; is there an opportunity there or does that just fall flat as you think about what I'm saying?

You know, it doesn't fall flat at all. I think it's very early days to kind of speculate whether or not there would be a potential upside, but clearly if you look at our business today, we compete with virtually all of the major airlines tooth and nail across the Pacific and at the same time we do carry a lot of their connecting customers within the Islands of the States, so we have this sort of curious relationship with all of our major competitors and I don't think we'd see any reason why Allegiant would not also fall into that mold.

Okay. Now we also see in the US Mainland, sort of the M&A discussions heating up. What sort of opportunities could that kind of realignment mean for Hawaiian? Obviously if someone made a bid for you, you would do the appropriate due diligence and what not and consider it, but I'm more kind of thinking about this could result in some changes in the Mainland world that I don't know if that's an opportunity for you to realign some things or not. I don't know how you think about that.

If you look at some of the decisions that we've made over the last couple of years, and I would point attention particularly to what happened in the aftermath of Aloha and ATA going away, and then slightly before then when American vacated San Jose-Honolulu, we are always ready and able to take advantage of voids that appear in the marketplace because of whatever happens on the mainland. In the case of Aloha and ATA, obviously it was a bankruptcy. In the case of American it was just a realignment of their route network. And I think that continues to be the case looking forward.

Furthermore, I think just in general terms I would say that we believe that our product between Hawaii and the US Mainland is the best product in the marketplace for a range of reasons, many of them service related, but also because it's tailored to this market and as such, I think we provide very effective capacity and I think we would always be open and willing as we have been with many carriers, to work with them to try and solve their needs to get people to Hawaii in a cost effective way.

Okay, fair enough. Just one quick question and I'm sorry if you said this. Do you know the timing of the DOT decision on Haneda?

No, we don't. We know the following; there's the IATA slot conference is the middle of June and the airlines wishing to get slots for the IATA winter traffic season that starts at the end of October, have to present their credentials at the meeting. So a final decision is necessary before middle of June in order to take advantage of that and we have no reason to suspect the DOT is not aware of that. DOT hasn't decided yet, so far as I'm aware, whether they will first issue a tentative ruling, a so called order to show cause and give everybody an opportunity to comment on their tentative ruling or move to a final rule. And what they decide to do procedurally may affect when we all hear.

Your next question is from Helane Becker with Jesup & Lamont.

Question on the tax rate; is there anything you can do to mitigate that book tax rate? It seems really high.

From a book standpoint, Helane, there's not a lot you can do there. Effectively it's a 35% federal rate and for us the weighted average of our state rate is 5%. From the perspective of the taxes that we actually pay as we file our tax return each year, there is a number of things you can do in terms of trying to maximize the available deductions, not least of which is as we take aircraft over the next couple of years if we own those aircraft rather than having them in drop rating leases, we'll have the advantage of accelerated depreciation which given the value of those assets, should help us to minimize some of the cash taxes that actually go out over the next few years.

Okay. And then Peter, I'm sorry about this. I missed a couple of these numbers for the second quarter. You said capacity of 0 to 2, then you said yield up 5.5 to 8.5 and then you said something was going to be at 8 to 11 and I think I missed that.

Yield was 5.5 to 8.5; PRASM will be 8 to 11; we expect to have some load factor improvement as well.

Okay, the rest of it I got but you flew by there and I missed it.

Your next question is from Kim Zotter with Imperial Capital.

Circling back to the increasing commissions; is there a way to break down the year-over-year growth of the pieces into the pure commissions versus the frequent flyer liabilities?

Two-part answer, Kim. One, there most certainly is and two, that's not something we've disclosed publicly at this point.

Okay, I was just trying to figure out if there was a nonrecurring item in there or if this is something that we should somehow model going forward?

I'll give you a little bit more color on it. The frequent flyer liability one is a little bit hard to peg because the value of that liability, as I mentioned in my comments, is related to the cost of providing travel later on for the people that own those miles and the biggest component of that incremental cost that we value is the price of fuel going forward. So we see this tend to move around our income statement a little bit as the balance sheet is getting adjusted for the different price in fuel between periods. When fuel goes up over the course of a quarter, that liability tends to go up, all else being equal. So that one is a little hard to peg.

We did have some higher advertising expenses in this quarter. We would expect that number to moderate a little bit over the course of the year. There are some pieces of that line, frankly, we'd love to see go up. Not that I like paying credit card fees, but they typically go up when we're generating more revenue and I would be happy to make that trade. And there are things like booking fees in there that have some inflationary pressures as well. I think one of the things we can say is that in the current distribution environment, the amount that is truly commissions in the old fashioned sense of the word is actually pretty small; a lot of it is transactional costs.

Okay. And then if I may, you mentioned in your prepared remarks about the 330s that will be arriving this year, so if you could remind us what the benefits are versus the 767 from a unit revenue and cost perspective? I would imagine at a minimum, that the new aircraft have more cargo capacity and are more fuel efficient. And then kind of following on to that, I guess where do you stand on the financing for the deliveries; any updates there?

The A330 was designed about a decade after the 767 and using the technological advances of a decade, it was built to be slightly larger than the 767 and slightly more fuel efficient, so yes, it is more fuel efficient. It does carry about 15% more customers in our configuration and it does carry considerably more cargo, the aircraft being slightly wider and able to take 2 standard containers side-by-side; the 767 taking just 1 container in each container position. So those really are the principle sort of efficiency benefits associated with it. We would expect our cost per available seat mile to be lower for the A330 than they are for the 767. The exact number is going to move around a little bit but it will be in low single digits, the synergies.

Okay thank you. And the financing for deliveries; any update?

The first 3, Kim, the 3 that are coming in April, May and October of this year are on operating leases. Those are actually from the lessors order book, so those are financed. We are still pending on the financing for the airplane starting now in 2011, but as I commented, given that we're making pre-delivery payments we think that market is pretty decent right now. There is an available market for finance particularly for an aircraft like the A330 which in the current aviation hardware market has held up from a value perspective as well as just about any airplane. I think the 777, 300 and the A330-200 are considered by the financial community to be the two most financeable wide body aircraft that are out there.

Your next question is from Steve O'Hara with Sidoti & Company.

Can you talk about the economics of Japan and what that might mean in terms of yield and your revenues?

Sure. I can talk in general terms rather than specific terms. First of all just to set some context; the market between Japan and Hawaii is huge. There are more Japanese visitors coming to Hawaii than there are Japanese visitors visiting the other 49 states of the Union combined. So it's a very large, very mature market. There are roughly a dozen wide body flights a day flying between Japan and Hawaii. As a consequence, you can imagine it's a pretty competitive marketplace and we would certainly not dispute that.

I think one of the great advantages and attractions to us of this particular opportunity is that Haneda airport should have tremendous preference for Japanese customers when compared to Narita. That gives us considerable confidence that if we are fortunate enough to be awarded the two routes that we're looking for, that we will be able to first of all attract customers to that business and also to make sure that we can manage that route from a yield perspective in a sensible way.

In terms of the unit cost of operating there, in some respects it will be very efficient flying for us, in some respects it will be quite expensive flying for us. I think some of the infrastructure costs are likely to be quite high. Some of the other costs associated with international flying tend to put your cost up. On the good side of the ledger, in a 24-hour period whereas we only get about 11 to 12 hours flying out of the 787 or an A330 between Hawaii and the West Coast, when you fly off to Japan and back, that is more like a 14-hour, sometimes 15-hour utilization in the day and that reduces your unit cost from that flight.

Okay. And then I guess I assumed you'd use the 330 preferably?

I think we will definitely be operating the 330 into Tokyo sooner or later if we're fortunate enough to get the two routes that we're asking for. The question is going to be one of timing and the timing question is going to be wrapped up in how large is our fleet size and how does the aircraft actually flow through the schedule in the most efficient way. And as we've said, we're actually starting off on Los Angeles-Honolulu; that's efficient for us in terms of getting experience with the new aircraft type. We've only got 2 to begin with; we've got a third in November; a fourth coming in second quarter of next year and there will come a point where we have enough aircraft to make it make sense going to Tokyo.

Okay. And just finally, the A330s; the first three were leases and then the fourth was going to be purchased; is that correct?

That's correct.

(Operator instructions) Your next question is from Bill Green with Morgan Stanley Smith Barney.

I had one question for you, Mark. In the past you'd sort of mentioned the hotel market and what hotels were doing with some of their rates and how that might affect your business. Is there anything in that market that makes you nervous as what you see they're doing? Do they have enough strength to start raising rates to increase the cost of a Hawaiian vacation, is essentially the question?

You're right; I have raised that point before. It is an important issue for us and no, I'm not seeing anything to particularly worry us at the moment.

Okay. And then your commentary about some of your RASM trends and whatnot that we've seen, it certainly makes sense in light of the comparables, but when you think about this environment - and I realize for you guys you haven't had a stable environment or there's been a lot of what feel like onetime events occurring in your markets, but I'm trying to understand what a stable environment might look like for you, sort of if I think about a fair longer-term margin for the company? How should I think about where you think that could be?

I think that involves me sort of speculating around margins into long-term and I'm not sure that's an entirely appropriate thing for me to do. But let me try and be helpful rather than just being affirmatively unhelpful. We inside the company believe that we have a company that is structured in a way and operating in markets that we choose such that we think we can earn a rate of return for our shareholders.

Sorry, do you mean ROIC or ROE?

I mean that broadly rather than getting particularly specific and to go a little bit further down that path, we are the only airline that I know of currently operating in this market who over the last three or four years has not had to dramatically change its corporate strategy when faced with circumstances and conditions that are out there in the marketplace. We have been able to stick with our long-term strategy. We have done so for two reasons; one because we've been able to earn sufficient money in order to finance our longer-term strategy and then two, coming back to your question, because we continue to believe that the strategy that we have been embarked upon for the last three or four years is working and has the prospect of continuing to work in a normal environment.

There are no further questions in queue. I'd like to turn the call back to Management for closing remarks.

Okay thanks, Joe. Thanks everybody for joining us today on the call. We're going to move into the second quarter. Just to reiterate, we are seeing some signs of improved economic environment. We are dealing with the competitive environment at the same time. We've got the fuel challenge that is common throughout the industry, but I think we are feeling that we are in a place where our outstanding service positions us pretty well to take advantage of this gradual recovery in demand and we in Management are going to remain focused on improving our productivity and effectiveness as a business, to ensure that we can deliver a good value for money service at a reasonable cost. So with that, thank you very much.

This concludes the teleconference. You may disconnect your lines. Thank you for your participation.