Hawaiian Holdings Inc (HA) 2013 Q4 法說會逐字稿

Greetings and welcome to the Hawaiian Holdings fourth-quarter and fiscal-year 2013 earnings conference call. All participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ashlee Kishimoto, from Hawaiian Holdings. Thank you. You may now begin.

Thank you, operator. Welcome, everyone, and thank you for joining us today to discuss Hawaiian Holdings' fourth-quarter and full-year 2013 financial results. On the call with me today are Mark Dunkerley, President and Chief Executive Officer; Peter Ingram, Chief Commercial Officer; and Scott Topping, Chief Financial Officer. Mark will begin with some overview comments. Next, Peter will take us through the revenue results, network, and capacity. Scott will follow with a discussion on cost, the balance sheet, and guidance. We will then open the call up for questions, and then Mark will make a few closing remarks.

By now, everyone should have access to the press release that went out at about 4 o'clock Eastern time today. If you have not received the release, it is available on investor relations page of our website, HawaiianAirlines.com. During the course of our call today, we will refer to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found in our press release.

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 filings with the SEC, including the most recent annual report filed on Form 10K, 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.

Thank you, Ashley. Thank you all for joining us today. As you can see from the press release we issued earlier, for the fourth quarter we recorded adjusted net income of $0.22 per share, in line with consensus. Revenues and costs were within the guidance ranges we previously issued, while our fuel consumption was higher than anticipated due to a clerical error in our fuel gallon forecast when we first issued the guidance.

The quarter's results continue the improving trend in financial performance through 2013. Our domestic businesses, that's North America to Hawaii and among the islands of the States, represents approximately 70% of our passenger revenue and continued to perform extremely well. Results from our international business improved sequentially but remain below last year's numbers in the face of the continuing currency headwinds. Absent the impact of currency, the Company's overall results would've been the best in any fourth quarter in our history.

2013 was also our sixth year in a row of profitability. We recorded adjusted net income of $0.88 per share, which was slightly below last year's mark, reflecting a very challenging first half of the year and then a good recovery in the back half.

The past year was very busy. We continued to expand our long-haul business, driving a 14.3% increase in total ASMs. We inaugurated service to three new international destinations, and passenger counts rose to [9.9 million]. Our re-fleeting campaign continued. Four Boeing 767s left our fleet, and five A330s joined it.

Our reputation for superior operational performance was further cemented by continuing to lead the industry in punctuality, ranking number one for on-time performance for 10 of the 11 reported months in 2013.

We would not have been able to achieve all of this without the tremendous and tireless efforts of my colleagues, who have my sincerest thanks and appreciation. The rate of change in our business has been remarkable these past three years. Throughout, our day-to-day operational execution has been great. And, as our punctuality and completion factors results demonstrate, our growth has not come at the expense of either the tangible aspects of our product or our sense of aloha. The fourth-quarter in particular was extremely strong for us operationally, being the single best quarter since 2007. My thanks again to everyone in our business for a job well done.

The significant announcements during the quarter were the upcoming introduction of Extra Comfort economy seating, offering more legroom, priority boarding, and complementary on-demand entertainment on our A330s beginning in the third quarter of this year. A commercial agreement with [Barclaycard] for a new co-branded credit card that became effective January 1 of this year. As a reminder, under the new terms, the same volume of mileage sales will yield over $100 million in new additional cash flow over the life of the agreement.

Several network changes. They include adding a fourth flight to our existing three weekly nonstop services between Honolulu and Brisbane from March, and upgrading our seasonal Los Angeles to Maui service to daily from the summer.

Looking to the year ahead, we remain optimistic. With the usual caveats understood for our industry sensitivity to consumer sentiment, competitive capacity, exchange rates, and the price of fuel, we think 2014 will be marked by the maturing of our network. We've had a relatively large number of new routes during the last 18 months, which has had a dilutive impact on our business. The upcoming service to Beijing is the only new destination announced for this year. So the number of routes in the early stages of development will decline. Our focus shifts slightly to the task of maturing all that we have started in the recent past, and we expect this effort will enhance our unit revenues in the coming year.

The continued positive impact from upgrading our revenue management system. Implemented in mid-2013, the upgrade has helped us better manage our seat inventory and improve revenue performance, particularly on our domestic routes.

Continued cost control. Despite some substantial inflationary pressures that will affect our first quarter in particular, we expect to make efficiency gains such that our unit costs will grow only by a small single-digit percentage for the year as a whole. Scott has more on this in his remarks.

Our widespread brand recognition and outstanding service position us well against our competitors on our US mainland to Hawaii routes and between the islands of the state of Hawaii. In Asia, we continue to see a spectrum of results from those that are great to those which will improve as we come to understand the markets better. So, we are looking forward to the year ahead.

To discuss the revenue results in greater detail, I'll turn the call over to our Chief Commercial Officer, Peter Ingram, who those of you that have followed our Company for many years will already know well. Peter?

Thanks, Mark. Operating revenue for the fourth quarter was $532 million, a 7.9% increase year-over-year, while passenger revenue increased 8.5%. Load factor for the quarter was 80.8%, a 1.1 percentage point decrease year-over-year, while yield increased 5%. Combined, this resulted in an improvement in RASM and PRASM of 3.3% and 3.7% year-over-year, respectively, which was in line with the expectations that we had at the beginning of the quarter.

Our revenue performance gained momentum in the second half of the year, and for the full-year operating revenue grew to $2.2 billion and passenger revenue grew to $1.9 billion, both up about 10% year-over-year. It's hard to precisely quantify the benefit we received from the changes to our revenue management systems and associated business process changes during 2013, but we have no doubt that this was a substantial contributor to the second half of the year improvements.

Let me go through the results by geography starting with North America, which generated 47% of our passenger revenue and continued to improve in the fourth quarter. PRASM was up 13% despite a 1.5 percentage point decrease in load factor. Demand remains strong, and the moderation and reversal of supply increases has created a better revenue environment. Industry capacity declined by 3% this quarter, a far cry from the double-digit increases we battled at the beginning of 2013. Looking ahead, industry capacity is expected to be down 1% in the first quarter and flat in the second quarter. Based on current bookings, we expect the trend of strong yield performance more than offsetting slightly lower load factor to continue into the first quarter.

Our neighbor island routes, which accounted for 23% of our passenger revenue this quarter, also posted very strong results. PRASM in this area of the business was up 12.7% on a 0.5 percentage point increase in load factor. Supply and demand continue to be in good balance, and when we look at it on a year-over-two-year basis, we are pleased to have succeeded in growing capacity in this part of the business without diluting RASM.

Our international routes, which contributed 30% of our passenger revenue, continued to be negatively affected by the year-over-year strengthening of the yen and Australian dollar, competitive capacity on certain routes, and the consequences of introducing a number of new routes over the last couple of years that are still in the developing stage. This resulted in a PRASM decrease of 10.6% on a 0.2 percentage point increase in load factor. Absent currency effects, including the offsetting hedging benefits, PRASM would've been down approximately 3.3% year-over-year in this area of our business.

The past three years were a period of rapid expansion for us with the launch of service to 10 new cities. As we look to this coming year, as Mark mentioned, our growth is slowing. While we launch Beijing in the second quarter, the bulk of our focus will be on maturing the routes already in our network portfolio and adjusting the network where necessary to boost performance. As we mentioned on our last quarterly call, we have applied for the available route authority at Haneda Airport in Tokyo that was vacated by American and look forward to beginning nonstop daily service between Tokyo and Kona if that slot award comes our way.

In summary, I'm confident on our prospects for the year ahead. On our US West Coast to Hawaii routes, we have a superior product offering, strong brand recognition, and the best frontline team in the business, which places us ahead of our competitors. Between the islands of the state, Hawaiian has built a great franchise to which we are looking forward to adding our new Ohana by Hawaiian turboprop service in the coming weeks.

Internationally, 2014 will be a year in which we continue down the path of maturing the swath of new routes we have added these past few years, leaving us well positioned to benefit from the growth in Hawaii tourism that we expect from Asia.

With that, I will turn the call over to Scott to discuss our cost performance and provide insight into the first quarter of 2014.

Thank you, Peter. As mentioned earlier, and to recap the quarter, the Company reported adjusted net income of $12 million, or $0.22 per share compared with breakeven results a year ago. For the full year, the Company reported adjusted net income of $46.6 million, or $0.88 per share, compared to $55.6 million, or $1.06 per share. Our return on invested capital for 2013 was 12.9% before tax and 7.7% on an after-tax basis. For the fourth quarter, total operating expenses, excluding fuel, increased $19 million, resulting in a 1.4% increase in CASM ex-fuel year-over-year. These results ended up better than guidance due to a lower-than-expected commissions and other selling expenses and lower-than-expected maintenance costs.

As a reminder, in the fourth quarter of last year, we recorded frequent-flier adjustments on both the cost and revenue lines, creating some variability in our year-over-year unit costs and revenue. These resulted in metrics this quarter that are both higher by approximately 2 percentage points than they would otherwise be.

For the full year, total operating expenses, excluding fuel, increased $122 million, or 10.2%, which resulted in a CASM ex-fuel year-over-year decrease of 3.7%.

As we outlined in our investor day last October, we have been making significant changes to our risk management programs. We changed our approach to fuel hedging by moving from an option-based program to one that depends primarily on swaps. We continue to use forward contracts to manage our foreign currency exposure. This lower-cost approach is expected to result in savings of $10 million to $15 million this year, reflected in the non-operating expense line. More details on our hedges can be found in the press release.

From the liquidity standpoint, we ended the year with $423 million in unrestricted cash and $67 million available under our undrawn revolving credit facility.

Let me switch gears and move to our outlook for the first quarter and the full year. As we mentioned earlier, our ASM growth in 2014 will slow. Year over year, ASMs will increase 1% to 3% in the first quarter and 4% to 7% for the full year. On the surface, our five A330 deliveries relative to two 767 retirements in 2014 may seem counterintuitive with the slowing of our ASM growth. The disconnect is explained by the timing of our aircraft movements during the year. The A330s delivering in the first quarter are actually replacements for two 767s retired in the fourth quarter of last year. The other two A330 deliveries, one in the second quarter and one in the fourth quarter, occur in the same quarter as the 767 retirements. As a result, the remaining delivery, an A330 in the second quarter, is effectively the only incremental aircraft in the year, which only has a partial-year impact on our ASMs. Our wide-body aircraft utilization will be essentially unchanged.

Turning to the top line, for the first quarter, our revenues are expected to increase year over year, with RASM expected to increase between 4.5% and 7.5% and PRASM expected to increase 4% to 7%. As Mark mentioned earlier, our costs will be elevated in the first quarter, and we expect CASM ex-fuel up 5% to 8%. Cost headwinds will recede in the second half of the year, and for the full year we expect CASM to be up in the low single-digit range.

Let me provide a little more detail, as we have several projects and one-off items in early 2014 causing our costs to be frontloaded relative to last year. So first, we have costs in our other expense line related to the startup of Ohana, our new turboprop operation. Secondly, on the maintenance side, we have cabin modifications related to our new Extra Comfort economy product and 717 painting costs that are weighted in the first half of the year. In addition, certain maintenance items planned for the prior quarter are now scheduled in the first quarter. Lastly, there are additional labor costs related to FAR part 117 flight time and duty rules for pilots, as we've hired additional pilots to mitigate the potential impact on the customer. This one is expected to affect our business for the entire year.

So altogether, these one-off items totaled approximately 3 percentage points of the year-over-year CASM ex-fuel increase in the first quarter. We expect our costs to continue to track a bit higher in the second quarter due to the timing of these one-off items before improving in the second half of the year as the impact of these activities recedes.

We also faced other inflationary pressures in 2014, including escalations in labor agreements, increases to aircraft and passenger servicing costs, and increases in D&A due to additional owned aircraft being added to our fleet. Some of this will be offset by a cost tailwind related to our pension and other postretirement benefits. With rising interest rates, the discount rate used to calculate our liability increased over 90 basis points, reducing our obligations by nearly $90 million and our expected expenses for this year by $12 million.

Our 2014 full-year effective tax rate is expected to be in the 38% to 40% range, and we expect to pay a very minimal amount of cash taxes this year due to AMT.

Regarding fuel and sticking with our normal practice, we won't give guidance at this time, but we expect our fuel consumption to be at 0.5% to 2.5% year over year for the first quarter. Our full-year CapEx is expected to be in the range of $465 million to $475 million. We have financings in place for all of our A330 deliveries in 2014.

That's the end of our prepared remarks. With that, I'll turn the call back to Ashlee.

Thank you Mark, Peter, and Scott. Also thanks to all of you for joining us today and for your continued interest in Hawaiian Holdings. We are now ready for questions from the analysts. As a reminder, please limit yourself to one question and, if needed, one follow-up question. Operator, please open the line for questions.

(operator instructions). John Godyn, Morgan Stanley.

Mark, last quarter and at the investor day, you sort of established a story of margin expansion as we looked through 2014. It certainly seems like you're on track with the fourth-quarter results there. You obviously didn't give full-year RASM guidance that we can compare it to the CASM ex-fuel guidance that you gave. But it sounded like, from Peter's commentary about maturing markets and some of the improvements there, we should see RASM broadly exceed CASM in 2014. It should be a year of margin expansion. Is it fair to say that?

Yes. I mean, obviously we've got to heavily caveat it with the unknown that in our business can come very, very quickly. But certainly as we look out into the future, we see cost control and we see optimism on the revenue line that would logically lead to that conclusion.

Got it. And as we think about the earnings growth that could be possible in 2014 and the fact that perhaps as we look out even a little bit farther, the CapEx profile kind of comes in a little bit, is the organization moving any closer to thinking about capital returns to shareholders? If you could update us on the thinking there, that would be helpful.

Sure. Yes. Actually, you know, I would certainly argue quite vociferously that we never lost the notion of the central importance of a return on invested capital. I think what we did is that we saw — coming out of the global financial crisis in 2008, we saw a window of opportunity to develop a network, and then we thought that that window would be open for a while and then would start to close. And we very deliberately accelerated plans that had previously existed to try and get in that window while it was still open. And that's why we grew so quickly from 2010 to 2013. We're now in a period of much slower growth. And it is absolutely the case that we've got to improve our — you know, mature these markets and so on. All of which will — should improve our return on invested capital. What it does to our cash balance and how we are going to manage that is obviously something that would be inappropriate for me to speculate about on this call. But we do recognize that we are coming out of a period of heavy investment and should be into a period of generating some free cash flow.

That's very helpful. And if I could slip in one more. Just — and I know you've fielded variants of this question in the past. But with American sort of now happening and that — and sort of the deal getting consummated and being now behind us, is there anything that we should be thinking about in terms of the impact on Hawaiian or Hawaiian's network from a consolidated American Airlines?

I wouldn't make a particular point of pointing out a consolidated American Airlines. Obviously, consolidation in the industry is changing quite a bit about our business. There is — I mean, American and US Airways have got a lot of integration activity still to take place. United and Continental, likewise further down the track. Delta, most further down the track. I think all of this stuff does actually create a scene of opportunity for a niche business like ours. So we are supporters in general of consolidation, and we think our opportunities increase rather than decrease because of these developments.

Very helpful. Thanks guys.

Hunter Keay, Wolfe Research.

So you guys have a lot of debt coming on this year. You've laid out the CapEx plan. I guess that's a lot of invested capital growth in your ROIC. So how high do margins have to go for your return on invested capital to go up this year?

As a matter of math, we would need to have, obviously, expanding margins. We think that there are expanding margins which — if there are not — if we don't see big sort of environmental effects out there in the markets in which we compete within our ambition for 2014.

Yes I think — I ask the question, Mark, because you guys talk about ROIC; and Mark, you are paid on ROIC, which I appreciate and I don't think a lot of people do. So that's a big deal to me as I think about analyzing the value of the Company. But sometimes I wonder whether or not ROIC is really driving the strategy there. You know, the returns have been okay. But I guess — yes go ahead, please.

I can assure you that long-term ROIC is driving decision-making at our Company. Part of maximizing longer-term ROIC is making some decisions in the short term over the last three years, which I think we fully understood were an investment in a future that we thought would be accretive in the long-term. We have no reason to question the assumption that we had going into our recent expansionary period.

Yes, okay. No, I appreciate that. I didn't mean any disrespect by that. I thank you for the comment (multiple speakers).

No, no disrespect taken. I — what I'm trying to convey to you is that we are building a franchise. We've saw a window of opportunity. We accelerated some growth into a new market. And all of those decisions were predicated on an understanding that we wouldn't start in a market and immediately have it at its optimal level of profitability and return in the first year — first couple of years. It takes typically three years for this stuff to mature. So we made an eyes-wide-open decision to make those investments against a long-term picture, which we continue to believe is a better long-term picture than our existing performance, as we had expected at the time that we made these decisions.

Okay. Thank you, Mark. I appreciate that. And let me ask one more on the Asian expansion real quick. Can you give us a timeline for when you expect this Haneda thing to shake out? And what do you know about slot timing? What time of day would you be able to arrive in Honolulu? Because it seems to me that really the success of Haneda, for these other airlines that have tried it, is wholly contingent on the timing of the slot. So when do you expect a decision to be made? What do you know about timing, and would it be incremental to the capacity guidance? Thank you very much.

Sure, you bet. On timing, the US government has no specific timetable. It could, frankly, come any time shortly; it could be some time away. That is a matter on which we don't really have any insight.

In terms of slot arrival times and departure times, within the curfew — within the period outside the curfew, there are slot timings available that are reasonably attractive for Hawaiian flying. And we would clearly — it would be premature for us to say that we can get those slots because we have to first get the root authority and then apply for the slots. But were we to get slot timing similar to the ones that we have for our Honolulu-to-Haneda service, I think we will be well pleased.

Just to follow-up on Mark's point and be clear, there are restrictions under the US-Japan bilateral around when flights to the United States can operate from Haneda airport that have caused some of our competitors problems with other gateways. Well, it wouldn't necessarily be the optimal time if we had the whole day to pick from. It actually is less punitive, we think, for Hawaii flying and ends up with reasonable times that we have today, and we'd hope for the same times with the Kona flight.

Thanks, Peter.

Helane Becker, Cowen & Company.

I just have a couple of questions. One is as I look at the last information I got from the Hawaiian Tourism Authority, it looks like seats to the West Coast are down for the first quarter. And I just kind of wondered how you are seeing the competitive environment from US West Coast to Hawaii?

Yes, it's great. Peter, go ahead.

Yes, Helane, there is a slight reduction. We are seeing seat capacity down 1% in the first quarter; I believe flat in the second quarter as of right now. And, in terms of the visitor stats you see from HTA, you will see visitor arrivals down slightly. I think that's really consistent if you think about our North America fourth-quarter results. We had a slightly lower load factor but a good improvement in yield. So the supply-demand balance, we think, is in pretty good shape right now, and we're happy with how supply and demand are positioned for North America to Hawaii.

Okay. Yes, I'd rather have a percent in yield than a percent in traffic, that's for sure.

Okay. My second question is just on Ohana. Did you say a time where the FAA is in its review and what your thought process is with timing?

Sure. We are currently in that part of the FAA certification activity that involves proving runs. It's one of the last steps; it isn't the absolute last step. And we are sort of cautiously optimistic that we are talking in numbers of weeks until we can start service as opposed to number of months. This has been a fairly tortured path to this point, and so we are being a little reluctant to make firm promises about this. But we certainly hope in the next few weeks to be up and running.

Okay. And then my last question is on China. So you — so I think they started service now to Honolulu? And I know you guys were doing a code share with them. So can you just — I'm sorry I don't know the answer to that, but could you just update us?

Sure, yes. We've got — we have a partnership with Air China that involves, among many other things, the ability to connect traffic at both ends — at the other end of the route. It is, like many of these things, a reciprocal type of arrangement. They are now flying in the market that started a few days ago. We start prospectively in the middle of April. And it is a fairly common sort of relationship of the sort that we have, for example, with China Airlines out of Taiwan, Korean Airlines out of Korea, and ANA from Japan.

So, I mean, if they started already, can you say how the early code share looks? The early results?

Yes, really hard to tell. I mean, they've had two or three flights at this stage, and so it really is fairly early days.

All right. Okay. That's fine. Thank you very much.

Michael Linenberg, Deutsche Bank.

This is actually Catherine O'Brien filling in for Mike. Thanks for taking my question. So my first question is I was just wondering if you could give us a little bit of color on how the Japan-to-Hawaii markets are going. I know you said there are varying results in your different Asian markets. And I was wondering, aside from just the straight translation impact, if you've noticed any changes in demand patterns over the summer or anything — or in this past fall.

Yes, in terms of Japan, we've got to a — we've obviously got currency, and that's the big impact. There are some competitive dynamics; so Korean, for example, introduced a flight — an extra flight coming out of Narita into Honolulu that has an impact. JAL puts more seats into Osaka. Because there are so many moving parts, it's pretty — we've not isolated — we've not been able to isolate any sense that there is a kind of wholesale change in the level of interest in demand from the Japanese visitor from the state of Hawaii. But, you know, it's a pretty obscure picture right now, and I'm looking at Peter — any thoughts to add to that?

Yes, I would echo that. I think you're absolutely right that currency is the dominant feature of some of the year-on-year changes. The second most important I would say would be the competitive factors. And I really don't think we have seen any swings in consumer behavior, absent the fact that the currency is different, that we can point to as sort of bold year-on-year differences in the marketplace. But obviously, we are on the lookout for changes.

Alright, great. Thanks. And then just a second question on your cost guidance. I know back at the investor day last fall, you kind of guided to a near-flat, full-year CASM ex-fuel for this year. Now you've come out with low single digits. Is that in line with what you were thinking, or are there some additional pressures that kind of have rolled into this year that you weren't expecting?

And then also in the second half of the year, as the cost pressures abate, is that more that you'll finish some projects in the first half of the year or you'll have some cost initiatives that you're going to try to achieve in the second half, or just easier comps? If you could just give some color on that, that would be great.

Sure, sure, yes. Back in October, we were — as I think we mentioned, we were pretty early in our budgeting process. We were hoping to get to flat. I think I may have mentioned we are shading a little bit toward a little increase for the full year. And as we got through our process, we still feel like low single digits is the place we'll be. So that's kind of the full-year look.

In terms of the first half, second half — as we said in our comments, a lot of these projects that are unusual for the year are kind of frontloaded into the first and second quarter. The second half will naturally — we expect those cost pressures to recede. We do have, as always, some cost initiatives in place that we'll continue to work on and affect the second half more than the first quarter or two. So I think, all in all, it's consistent with what we thought. A flat outcome would be great, but we think we'll be pretty close to that.

Okay, great. Thanks for the time.

Glenn Engel, Bank of America.

A few questions please. First is on rent and landing fees. That was down in the fourth quarter, 7%. Is there any one-time nature, and should we see — what type of pressure should we see in 2014?

Yes, most of those, Glenn, came from the state of Hawaii. I'm not sure it will be a continuation, but it's probably characterizes more of a one-time.

And on the other revenue side, you mentioned that you changed your card, and it should create a lot of value. So does that mean on the other revenue side we should be seeing sort of double-digit increases throughout the year?

Hey, Glenn, this is Peter. We will see some of that on the other revenue line. A lot of that actually flowing through the passenger revenue line as deferred revenue, and it gets recognized over a 22-month period. So we expect to see the new card benefit our cash flow faster than it benefits our income statement, but it will eventually run through the income statement, and it gets split over the two lines based on the accounting treatment.

And finally, in addition to the yen, the Aussie dollar's been pretty weak lately. Is there any impact on volume you're seeing from the currency weaknesses?

The Australian — I mean, the short answer to that is no. I think we're pretty encouraged by Australia, but it is — we'll get Peter's take on it.

Yes, that's right. You know, we've seen continued strong traffic trends from Australia. Brisbane has been a — among the routes that we started in the last 12 or 18 months, Brisbane has stood out and we, during the quarter, increased our Brisbane services from three times a week — three times per week to four, as Mark mentioned. So that's indicative of the fact that we see Australia performing reasonably well. Obviously, we would prefer the Aussie dollar to go back up to parity with the US dollar but we are doing pretty well in this environment.

So you're saying it's like Japan, where the impact is more on the yield side than it is the volume side?

That's right.

Thank you.

Glenn, this is Scott. I want to clarify a comment I made. The state of Hawaii is not one-time; we expect it will be continuing. We had a credit in Australia that was one-time.

Okay.

Bob McAdoo, Imperial Capital.

Just curious. You talk about looking forward, how slowing things will mature, but yet the biggest problem everybody seems to be talking about is the currency issue. And it sounds like if the currency rates don't change much, that really doesn't get fixed. And I guess how long do we hang on with the currency in this particular level of capacity before we take action to try to bring the numbers up? Because obviously the domestic side keeps getting better, it sounds like, but the bottom line doesn't seem to change much because the place where all the currency issues are just seems to be making relatively little improvement. But how long do we wait before we actually start to do something there?

Well, I think you've got to be clear about which currencies; we're talking about the yen and the Australian dollar. We think the currencies at their current levels are sufficient for us to sustain a pretty attractive business for us. What it does reveal is that when these foreign currencies were more valuable against the dollar than they are today, just how good those markets were for us for that short period of time.

So what you're saying is that — so that we should really plan on that this whole Asian process is going to be meaningfully better than as we go through the year, even with these kinds of currencies, even with the Japanese currency, you know —?

No. I think what we're saying — if you can divide — if you divide the question into how do we think we're going to do in the local currencies, we think that we're to — by maturing these markets, we think in local currency terms our results are going to improve year over year because we get to know these markets better. We get to boost our local currency PRASM. What happens is that when you compare it to last year, some of that improvement is offset. A lot of that improvement is offset by the change year over year in the value of the US dollar.

Bob, this is Peter. If I might just add, we didn't attribute all of the international challenges to currency. We also talked about some routes that have different competitive situations that are challenging and the ones that are very new and in more of a developing mode. I think currency is what it is, and we are going to deal with it. We can cheer for it to go one way or the other, but we have to deal with the reality of it. I think it is those two other factors, competitive situations and developing routes, that we have to make the appropriate changes, whether it's changes in our network, changes in our distribution practices, changes in how we promote ourselves in the marketplace. And that's where we have to make changes in how we approach the market to counteract the forces that are out there.

So are you able to get — in the Japanese markets, are you able to get increases in the fares as they are denominated in the local currency, meaning incremental yen per ticket as opposed — so to offset the fact that it takes more yen to make a dollar? Are you able to get that? Or are the fares kind of tied to what Delta and United want to charge? How does that work?

We get incremental PRASM in most of the markets. There are some competitive dynamics which, on a market-by-market basis, may make that statement more or less true depending on the market we're talking about. But in general, we are making PRASM improvements in those markets — some in fares, some in load.

Okay. Thank you.

Steve O'Hara, Sidoti and Company.

Thank you for taking my question. I guess just in terms of China, what — do you have all the approvals necessary? Is that definitely a go at this point? And then what are your expectations for the maturity of that route? Is it a typical maturation process in your view, or do you think it's going to take longer?

In terms of where we are, well, we are still on track for an April launch. There is still some bits of approvals that we need, so we're not saying to anybody that we are absolutely done at this stage. But as I said, we are on track. There is nothing in where we are at this stage that is causing us any particular anxieties.

In terms of the maturation of that route, I think it will look very much like some of the other routes. It's — it is, in terms of flying to Hawaii, not a particularly mature market. Represents a lot of opportunity. We think it will become mature but, until we have fully established the distribution, the promotion of Hawaii as a destination within China itself, which is a really important element of this and why we hopefully push and see better visa processing, all of these things we think will contribute. But it is unlikely to be an overnight-to-maturity market.

Okay. And then, I guess in terms of the fleet longer-term, can you just remind me what the terms on the 767s are and maybe your plans for those as you take more A330s and then, I guess, transition into the A321s?

Sure. We are going to — on current plans, and we have built in elements of flexibility. So there are opportunities for some of — for us both to hit the accelerator and brake to a certain degree. On current plans, we are down by the end of 2015 to six 767s. And we will, by then, have 22 A330s, for a total wide-body count of 28. We've got the A321s coming in starting in 2017, if that answers your question.

Yes, that's helpful. But — and then when do the 767s — I think, what, three released — three [around]. Is that right?

Oh yes. Sorry, that's right. You did ask that. About 2020, the — we're out of the 767.

Okay, all right. Thank you very much.

Kevin Crissey, Skyline Research.

Just trying to think big picture about your Company and where you're heading. Can you remind us what growth is going to look like as we move forward? I know you're slowing your maturing markets this year and trying — reducing the CapEx a bit and getting that under control. But if I think about growth going forward, are we talking about new countries, new cities within the existing countries of service, or more service on the current routes? Can you talk about kind of how that will break down as we look big picture over the next few years?

Our anticipation — and this is, again, subject to change seeing which way the market develops — is that much of the growth will come from bolstering services on some of the cities that we have put a — you've got a foothold in. It is, of course, likely that over a period of time like this, we'll make some adjustments to the number of cities. So not only adding some, but if some of these routes don't mature in the way that we'd anticipated, we have no reluctance about having to make the decision to change our network against that reality. But I think most of the growth in the next few years is likely to come from capacity ads on existing routes and relatively little in terms of adding new destinations.

Terrific. Thanks. And I'm pretty sure you mentioned it, but I missed the detail — can you repeat what the CapEx was for 2014 and 2015 and the debt maturities and capital lease payments for the same years? Thanks.

So, for this year, it's going to be in the $465 million to $475 million range.

We'll get back to you with the other numbers. We'll see what we've already put out in the public domain. I think the last time we talked it about was investor day, but we — (multiple speakers)

Yes, if I recall, you had a chart. I just didn't — I don't remember — I didn't think it had any labels on the numbers. So I (multiple speakers) —

In fact, that's what I do recall. Thanks for (multiple speakers) chart.

Alright. Thank you.

John Reardon, Merriman Capital.

Aloha from San Francisco. Listen, I heard a couple of things that caught my — all this talk about China. Mark, does that mean that perhaps you guys are warming up for some eventual visa release? And then, secondly, with regards to the phrase maturing markets, is that strictly an exercise of marketing the Hawaiian vacation, or are there some operational issues that go into that, too? Trimming capacity, adding capacity, et cetera? And then, finally, in talking about the new fleet, aren't you supposed to get some A350 XWBs at some point around 2017 or 2018? Anyway, I'm done.

Okay. Thank you, John. In terms of the visa issuance process, clearly we really have very little — we have no direct control, little influence. But what influence we do have, we continue to push for some improvements. We're not particularly well-placed to give you a long-term projection. It is very much wrapped up in the local relationship between the United States and China. There is not — these are my words, obviously. I think a lot of the visa issuance process has more to do with the politics than it actually has to do with any sort of tangible benefits or dis-benefits from the current regime — visa regime.

Just if I might interject, Mark, before you answer the rest of John's questions, I'd say the prospect of visa waiver in China is not something that we see in the foreseeable future. But we do know, in talking to the people who day to day sell travel for the US in China, that the process of issuing visas and the administration of it has improved fairly significantly over the last couple of years. So it is not as much an impediment as it was, if you look back even 18 months ago, to get a visa to travel to the United States. The notion that we will have a visa waiver is not something we see happening anytime soon.

Yes, that's true. Thank you for that, Peter. And then on maturing markets, I think when we talk about maturing markets, it really runs the gamut. And it depends largely on the market. Some of it is about gaining a better appreciation for the seasonality of the markets. Some of it is gaining a better understanding of who is likely to travel to Hawaii. Some of it is encouraging our tourism authorities to focus on certain travel segments in some of these markets. Some of it is operational — working with local airport authorities and local carriers to provide better connections. So — and it's not all true for every route; it seems to be each route has its own maturation needs.

Your last question was about the A350 XWBs. We are indeed a customer for Airbus' A350-800 XWB, which is due to be delivered in 2017. There's obviously a lot of noise out there at the moment about whether or not that is an aircraft that Airbus will build on that timetable. It's not for us to comment on that to the extent that Airbus is interesting — interested in changing our order book. I'm sure we'll be sitting and turning to Airbus.

Thank you very much.

Thank you. At this time, I will turn the call back over to Mark Dunkerley for closing comments.

Okay. Thank you again to everybody for joining us today and for the questions. It's great to finish the year on a high note after battling some pretty extraordinary capacity growth in the early stages of 2013. We are looking forward to year ahead with every part of our business performing well or improving. And with that, we look forward to the next quarter's conference call. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.