Hawaiian Holdings Inc (HA) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Hawaiian Holdings 2017 Third Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Alison Croyle, Senior Director of Corporate Communications. Please go ahead.

Thank you, operator. Welcome, everyone, and thank you for joining us today to discuss Hawaiian Holdings' financial results for the third quarter of 2017. On the call with me today are Mark Dunkerley, President and Chief Executive Officer; Peter Ingram, Chief Commercial Officer; and Shannon Okinaka, Chief Financial Officer. Mark will begin with some overview comments. Next, Peter will take us through our revenue performance. Shannon will follow with a discussion of costs and the balance sheet. We will then open the call up for questions, and Mark will end with some closing remarks. By now, everyone should have access to the press release that went out about 4:00 Eastern Time today, which is also available on the Investor Relations page of our website, hawaiianairlines.com.

During the course of our call today, we will refer at times 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 or on the Investor Relations page of our website. Before we begin, we'd like to remind everyone that the following prepared remarks contain forward-looking statements, including statements about our future plans and potential future financial and operating performance, and management may make additional forward-looking statements in response to your questions. These statements are subject to risks and uncertainties and 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 as well as reports filed on Forms 10-Q and 8-K.

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

Thank you, Alison. Hello, hi, everybody, and thank you for joining us today.

Our third quarter adjusted net income grew to a little more than $102 million, which is $1.92 per share. Our adjusted pretax margin for the quarter rose to an impressive 22.8%, while on a trailing 12-month basis, it was 18.7%. So it was another excellent period of outstanding financial results.

Our earnings growth this quarter reflects a continuation of most of the trends we've experienced over the past several quarters. Demand for the Hawaii vacation remains strong. Overall industry capacity growth has been manageable and fuel costs, arising slightly during the quarter, remained well below historic levels.

The third quarter is our season of peak demand. And with it comes an up-tempo operation requiring our staff to be more attentive than ever to delivering their usual pillar standard of service. As always, they rise to the challenge, allowing us through their efforts to demonstrate that we are the best airline operationally, and we do deliver the very highest levels of customer service. We are different and we are better than our competitors at taking care of our customers. I hope all of my colleagues here at Hawaiian Airlines understand how much their efforts are appreciated and continue to contribute to the strength of our business in this most competitive of markets.

Since we spoke last July, there have been a number of important developments. The most significant was the announcement of our comprehensive partnership with Japan Airlines. In its initial phase, the partnership will involve mutual codesharing, lounge access and loyalty program earn and burn.

In addition, we will gain access to JAL's in-house travel agency, JALPAK, for sales in Japan. In a market where well over 80% of all tickets are distributed through travel agencies, gaining access to JALPAK, the third largest agency for Japan to Hawaii travel, is of signal importance.

Phase 1 of the agreement will come into force with the summer traffic season next March, subject, of course, to the receipt of government approvals.

Phase 2 of the commercial partnership with JAL will involve a joint venture, where the 2 airlines will be able to make decisions and operate as one in the market. Teams from both companies are busy working through the details, and after reaching agreement, a grant of antitrust immunity will be required by the appropriate agencies, both here and in Japan. So the benefits of this part of the agreement, which likely will be the more significant to Hawaiian, JAL and consumers alike, will take a little time to come.

Let me explain why we're so excited about this development. The Japan to Hawaii market is huge. Honolulu-Tokyo alone has 14 daily flights, ranking it in the top 2 or 3 largest long-haul city pairs, just behind New York to London. For Hawaiian, Japan today represents 14% of passenger revenues.

The combining of our product, cost base and brand with JAL's distribution strength and sterling reputation in the eyes of the Japanese consumer should open tremendous opportunities that the individual airlines could not otherwise exploit. The agreement with JAL will strengthen our ability to compete and should result in significant opportunities for future growth.

Our long-delayed hangar and cargo facilities have finally been completed. It's worth noting that the projects were originally managed by the state but delays in budget overages led to the decision for Hawaiian to take control of completing them. That we did on-time and within our budget. In the next month, our teams will be moving into their new facilities.

Last week, we announced the commencement of a quarterly dividend. As we mentioned then, this decision was born out of the strength of our balance sheet and our confidence in the future financial performance of our business. This in turn is a product of our expectation that our unique combination of product, cost and reputation is sufficient to see off competition in the future, just as it has in the past.

Next week, we will take delivery of the first of our 18 A321neos. We've been talking about this for a long time, so I won't belabor our messages beyond saying that for the purpose of flying between the U.S. West Coast and Hawaii, there is no better narrow-body aircraft. The A321neo is ideally suited to these routes and is configured to optimize revenue performance on this particular mission.

Flights between the U.S. mainland and Hawaii with this type will commence in January with the introduction of: new nonstop service between Portland and Maui; seasonal service between Los Angeles and Kona, which will become a year-round service beginning in March, first with our 767s and then our A321neos; and lastly, seasonal service between Oakland and Lihue, which will also become year-round beginning in April, first with our A330 wide-body and then our A321neos.

Speaking of A330s, last month, we took delivery of our 24th and final A330-200. This is the aircraft type which ushered in our Asian expansion, the defining strategic development in the last decade. As A321neos arrive in greater numbers, some of the A330s presently dedicated to North America services will be freed up for further long-haul expansion. We continue to see attractive additional opportunities to grow in Asia.

Lastly, in the remainder of this year, we will largely complete the reconfiguration of our A330 fleet, adding fully lie-flat seats in the front as well as an additional 28 Extra Comfort seats in the back. Throughout this year, we have been managing a mixed fleet of aircraft with different configurations. The inevitable result is that for large parts of the year, we've been selling both fewer available seats and the lesser seating product in order to make sure that we didn't disappoint our customers. This, if you like, is the worst of both worlds.

At the end of the first quarter of next year, we'll be back to a consistent configuration. The significance of this is that from that point on, we will be free to sell the right number of seats and the improved product on all of our A330 flights. The best of both worlds. Our commercial team can't wait.

Through 3 quarters, 2017 continues to shape up as one of our best years ever, despite rising fuel costs and inflation in a number of our other cost lines. Some of this great performance, but by no means all of it, is due to the benign operating environment that we've enjoyed.

Also playing an important hand is what's going on behind the curtain of our company. We're executing our strategy to a very high level and reaping the rewards of the strategic decisions we made several years ago. The fourth quarter will likewise be a strong quarter for us, though the lapping of a period of particular strength last year means that the year-over-year improvements will be less pronounced.

Peter will now walk you through the revenue performance.

Thanks, Mark, and aloha, everyone. We delivered our highest quarterly revenue result ever in the just completed period, with operating revenue topping $719 million, an increase of $47 million or 7.1% year-over-year. Strong summer performance in our North America and international geographies was bolstered by record cargo revenue in the quarter. I'm proud to be part of a commercial team that continues to raise the performance bar, and I'm grateful as always for our front-line employees who deliver unparalleled service and hospitality to our guests.

Unit revenue was right in line with the expectations we set at the beginning of the period, in contrast to the results of many of our industry counterparts, who lowered revenue guidance during the period. RASM improved 5.8% and PRASM was up 6% compared to the same period last year. We expect these results to lead the U.S. industry again this period, extending our streak of surpassing all our peers in unit revenue growth to 7 consecutive quarters, which is a pretty remarkable achievement.

Domestic PRASM, which includes North America and Neighbor Island services, grew 5.3% this quarter. North America to Hawaii PRASM was up in the high single digits, our eighth consecutive quarter of year-over-year PRASM gains in North America. And we continue to earn a strong unit revenue premium over our competitors on our mainland routes.

The strength was again broad-based throughout our North America network, with continuing strong load factors and solid year-over-year yield improvement. Our North America capacity was down slightly this quarter, with tighter fleet availability following the increases in our Japan service last year, while overall competitive capacity was up about 3%.

Neighbor Island industry capacity increased 13% in the quarter, reflecting the expansion of our principal competitor services between Honolulu and Maui, Kona and Lihue that we discussed during last quarter's call.

As in the prior quarter, the higher industry capacity created pressure on RASM, with the difference in this quarter being that the capacity increases were in effect for essentially the entire period. The net result of this was a Neighbor Island PRASM decline in the high single digits.

Despite the competitive capacity increases, we saw our own passenger totals increase about 4% on slightly higher capacity. Load factors declined a bit overall while yield remained under pressure. The yield pressure reflects 2 elements. The lesser of these is slightly lower entry-level price points. More impactful is that with more industry seats available throughout the day, there is less ability to yield up closer to departure.

Despite the increases in competition and capacity, we continue to deliver a winning combination of the best schedule, service and product in the market, and we believe that we are outperforming our primary competitor by every measure. As many of you have likely seen, Island Air filed this week for a Chapter 11 reorganization and is continuing its operations as before the filing. This development in no way changes our focus on executing our own strategy to serve the needs of our Neighbor Island guests with the efficient hospitality that remains our trademark.

Our international routes continue to perform impressively, with unit revenue up just over 12% year-over-year, with both yield and load factor improving. Demand from Australia and New Zealand remains healthy, and we announced an expansion of our New Zealand service beginning in March 2018, moving from 3 flights per week to as many as 5 depending on the season.

Japan remains a source of strength, with our growth over the past year meeting strong demand, and the demand picture continues to be strong as we look ahead. We see absolutely no indication in our forward bookings that reported weakness in Japan to Guam demand is carrying over to Hawaii. As Mark discussed in more detail, we look forward to continuing success in Japan with our new comprehensive partnership with Japan Airlines beginning next year.

Value-added revenue per passenger grew to $24.31 in the third quarter, an increase of $0.94 over the prior year period, primarily driven by strong sales of HawaiianMiles and our Extra Comfort seat products, consistent with prior quarters. We expect continued growth in value-added revenue per passenger in the fourth quarter and into next year as we expand the number of Extra Comfort seats as part of our A330 cabin modification. And as Mark mentioned, the completion of the A330 remodeling and the launch of the A321 next year will allow us to market our additional Extra Comfort seats even more effectively.

Our cargo business continues to perform very well, with revenue growing more than 26% in the quarter to nearly $23 million. These results come courtesy of increased volume both to North America and internationally. The outlook for cargo remains positive into the fourth quarter.

In the third quarter, we took delivery of our first ATR 72 turboprop aircraft in an all-cargo configuration. The next 2 deliveries are scheduled for December 2017 and March 2018, and we look forward to initiating revenue service in early 2018.

Looking ahead to the remainder of the year. We expect our overall capacity to be up between 4% and 6% in the fourth quarter, driven by the full quarter of flying our second Haneda service that started at the end of the fourth quarter last year, the extension of our Los Angeles to Lihue flight to year-round and increases in Neighbor Island flying. For the full year, capacity will grow 3% to 4%, in line with expectations at the beginning of the year.

Tougher year-over-year comparisons will moderate unit revenue growth in the fourth quarter as we've lapped the introduction of our Narita route, and we'll lap our second Haneda service by the end of the year. We expect fourth quarter RASM to be down -- to be between down 1% and up 2% as a result. For a bit of context, our North America and international performance stepped up significantly in the final quarter of 2016. The midpoint of our 4Q guidance is up 6.5% from the fourth quarter of 2015, whereas our just completed third quarter finished up 7.2% above the third quarter of 2015. So while the year-over-year numbers are tapering, we are still expecting to generate revenue at a high level.

For the full year, we expect RASM growth to be between 5% and 6%, which should comfortably surpass all other U.S. carriers.

I know that many of you are eager to hear us to provide an outlook for our first quarter revenue given the uptick in competitive capacity, particularly from North America, that is reflected in published schedules. While early booking performance is encouraging and slightly up year-over-year, the fact of the matter is that we are still very early in the booking curve for this period and it would be premature for us to start extrapolating the numbers we see on the books at this juncture.

What I can say is that our competitive position has never been stronger. We continue to grow our North America revenue premium based on the most recent DOT figures we have available. Our product, service, aircraft configuration and cost structure position us better than any of our competitors to serve Hawaii. We know the Hawaii traveler better than anyone, and our product is uniquely aligned with the hospitality of our hometown culture, all of which positions us well for whatever competitive challenges lay ahead. Demand remains robust, and we have a number of commercial initiatives that give us confidence as we move toward 2018.

With that, I'll now hand the call over to Shannon to discuss our costs and the balance sheet.

Thank you, Peter. To recap the quarter, adjusted net income grew to a little more than $102 million or $1.92 per share. Adjusted pretax margin was a strong 22.8%, which will likely be among the top in the industry.

As we forecasted on our second quarter call, CASM ex-fuel grew at a higher-than-normal rate during the third quarter at 8.2% over the same period last year, which was in line with our guidance. The increase was primarily due to wages and benefits, including the new pilot contract and incentive compensation timing, A321neo induction costs and the timing of certain 2016 credits.

During this quarter, we also significantly reduced long-term liabilities on our balance sheet as a result of transactions which resulted in 2 non-operating special charges. The first was a cash payment of $18 million related to the settlement and termination of our IAM and salary merged pension fund, which resulted in a $35 million charge. And the second was a cash payment of $102 million to sell a portion of the outstanding post-retirement medical plan obligation with our pilots, which resulted in a $15 million charge.

Neither transaction had had an impact on CASM ex-fuel. But importantly, they reflect our commitment to use our financial resources to address long-term liabilities to better position Hawaiian for the future.

Even after these settlements, we continue to maintain a strong cash position with just under $619 million in cash, cash equivalents and short-term investments, which represent approximately 23% of trailing 12-month revenue.

Consistent with our commitment to be opportunistic buyers of our stock, we repurchased $46.2 million of our stock during the third quarter. This leaves approximately $49.5 million remaining under our current share repurchase program for continued shareholder return.

Looking ahead to the remainder of the year. We expect CASM ex-fuel and special items to increase between 3.5% to 6.5% in the fourth quarter over the same period last year, which excludes any assumptions relating to the amendable contract with our flight attendants' union.

We anticipate year-over-year headwind totaling approximately 4 percentage points from wage and benefits cost increases, of which approximately 3 points reflect the pilot agreement which we will lap at the end of the year. In addition, onetime costs related to the completion of and movement to the new hangar and cargo facility will drive close to 1 more point.

For the full year 2017, we expect CASM ex-fuel and special items to increase between 6% and 7%, which similarly excludes any assumptions relating to the amendable contract with our flight attendants' union. Of this increase, about 4.5 percentage points is due to increases in wages and benefits, including about 2.5 percentage points attributable to our pilot contract and about 0.5 percentage point related to A321 crew training cost.

Based on the fuel curve as of October 9, our economic fuel cost per gallon is expected to be between $1.75 and $1.85 in the fourth quarter. For the full year, we are raising our guidance range to be between $1.65 and $1.75.

Based on our current outlook, we expect fuel consumption to increase by 5% to 8% in the fourth quarter due to a mix of more long-haul flying and higher payload. Full year fuel consumption growth remains in the range of 5.5% to 6.5%.

We continue to expect our full year CapEx to be between $380 million and $400 million. You'll recall we lowered this range on our second quarter call due to the delay of our third A321neo aircraft into 2018. Additionally, we are expecting to complete a sale and leaseback transaction on the recently purchased A330, which will further reduce 2017 CapEx.

Lastly, to echo Mark's earlier comment, we're thrilled to be initiating a quarterly dividend. We are fundamentally a stronger company today than we've ever been, and we've become stronger while making significant investments in our people, product and service and infrastructure.

This year is proving to be better than we expected, highlighted by healthy earnings and a stronger balance sheet. We stuck to our plan and are seeing the benefits from our investments in the growth and long-term sustainability of our business. We're proud of our results this quarter and look forward to closing out the year strong.

This concludes our prepared remarks, and I will now turn the call back to Alison.

Thank you, Mark, Peter and Shannon. 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 first, and then the media, if time permits. (Operator Instructions) Operator, please open the lines for questions.

(Operator Instructions) Our first question is from Hunter Keay with Wolfe Research.

Our next question is from Mike Linenberg with Deutsche Bank.

A quick question, Mark. Just on Island Air. I know in the press this last week, I think their CEO was saying that it was going to be business as usual operating under Chapter 11. And then he proceeded to go on and say that they're going to continue to operate something on the order of about 200 weekly flights. As I recall just looking back at the past schedule, for some reason, I thought that they were flying more something on the order of about 450 weekly flights. Does your intelligence tell you that they may have either grounded some airplanes or taken some airplanes out? Or are we actually -- are seeing a reduction in capacity by them? Anything that you -- any of your intelligence that you can tell us on kind of what -- how things look presently.

Yes, sure. And obviously, we monitor the performance of our competitors, and Peter has the facts at his fingertips.

Hey, Mike. What we have seen recently is that in the -- through most of the third quarter, Island Air was flying a somewhat bigger schedule than they are right now. There were some close-in cancellations late in August that were announced for September. And so they trimmed the schedule back a little bit in September and then subsequently have done that a little bit from October and November. So it's still up year-over-year considerably. But it is down a bit from what they had published in initial schedules. And it looks to us to be about 3 lines of flying that is flying right now.

Okay. Okay, that's helpful. And then second question. Mark, look, I think it's great that you're looking to do something comprehensive with Japan Airlines. It seems like it would be a natural fit. What are your thoughts about a non-U. S. carrier taking a stake in Hawaiian? Is that something that you would embrace? Or do you think that remaining independent and being held by U.S. investors makes the most sense for Hawaiian? Just thoughts on that.

Sure. The first thing I should state, which is probably well known to everybody, is that there are some very tight restrictions on the amount of equity that a foreign national can hold in a U.S. airline. So that limitation would always prevent a foreign carrier from owning or controlling a U.S. carrier. But more generally, I think the way I would characterize things is as follows. At the moment, we've got good -- we've got a strong balance sheet, as you heard Shannon relay. And so we don't have a sort of independent need for external finance. That said, I think what would be -- the way we would look at things is a discussion around what are the commercial benefits of a tie-up with another carrier, whether foreign, whether domestic? And the commercial benefits would be the thing that would lead us into a discussion about whether or not it would make sense to have any form of cross-investment. And I would just say, over and above, I'd say, well, I hope you've all heard me say many times before. I mean, we're here to support the interest of our shareholders. We would never say never to a proposal that might come in to invest in our company. We'd look at it on its merits, and we would do so with the long-term interest of our shareholders uppermost in our minds.

Our next question is from Joseph DeNardi with Stifel.

Peter, I think -- Mark, one of the challenges into next year is to try and quantify the benefit to RASM from the neos coming in and how much of an offset that will provide you as kind of industry capacity ramps up. So could you talk about it a little bit? It seems like the main benefit will be more Extra Comfort and Preferred Seats, which is maybe about a $50 million benefit next year based on our Investor Day decks. How much more of a benefit on the revenue side is there on the RASM side from the neos?

Yes, Joe. This is Peter. I think that there certainly is a benefit from the greater proportion of Extra Comfort seating, and that includes the A321 and the full impact of the remodeling of the A330s, which brings them both to, what, a similar proportion of Extra Comfort seats as a proportion of the total. I think the other benefit is -- of the A321, in particular, is that it is a 189-seat aircraft versus 278 for our A330s. And that makes it a more viable proposition for us to go in with a daily schedule into some of the O&Ds that are a little bit smaller than the sort of big over-200 passenger a day O&Ds that are the core of our network today. So all of that will accrue some benefits. It is hard to speculate right now about what that's going to mean for next year given it's washing out against the competition. But I think we would reiterate that we think that we wouldn't trade our competitive position on serving North America to Hawaii with anyone. We have the aircraft configured optimally. We have aircraft with good cost economics. We have the ability to generate revenue in all 3 seating sections of the airplane. And that sets us up really well to compete well in any environment.

Okay. And then I guess one for Shannon. I can understand Peter not wanting to talk about the revenue trends into first quarter. But Shannon, I assume you have some decent visibility on the cost side into '18. So can you just maybe give us an early look at CASM or at least kind of what some of the puts and takes are?

Yes. We're going to -- we continue to target that low-single-digit range for our CASM ex-fuel growth. We have a bunch of puts and takes, and I will -- I do plan to go over more of the details at Investor Day in December. But if you think about the A321s slowly transitioning in with 767s transitioning out, there will be a CASM impact from that. We have our hangar that's now completed. We've talked a bit before about how we're basically on a cost recovery basis with the state, so comparing a 50-something-year-old hangar versus a brand-new state-of-the-art hangar, there's going to be some increases in cost there. None of the guidance, cost guidance or estimates that we talk about now include any assumption on the flight attendants' contracts, but we are still in negotiations there, and when we have more information, we will share it. So there are -- and you're right. There are a number of puts and takes, but I'm not really ready to quantify anything on this call. But we have a lot of initiative to counterbalance some of these increases, and there's a lot going in and out. And we'll talk about more of the detail at Investor Day.

Our next question comes from Susan Donofrio with Macquarie Capital.

The question I have is on international growth priorities. As you move forward, I'm just wondering if we should expect you growing more of what you have or can you guesstimation? And I guess part of that is with the JAL JV. Can we expect more of a Japan focus in growth going forward? I guess, we're just -- I'm trying to conceptually think of what your international picture looks like going forward.

Well, I think the first thing I'd say is it looks really attractive to us. I think at the moment, we have more growth opportunities in Asia than we have fleet to take them. I think there are -- and I think they're pretty evenly balanced, frankly, between more of the same deepening of our presence in markets that we already serve and inaugurating flights to new markets. As to how we're going to sequence that, it'll rather depend on what the exact circumstances are in all the respective markets when we get to that point where we have new -- where we have wide-bodied capacities to deploy. And that, in turn, as you just heard, is kind of tied to the A321neos. So I don't think there is a single theme around that, that you could point to, beyond our saying that we think there are more opportunities out there than, frankly, in the short to medium-term we think we have the aircraft to exploit.

Our next question comes from Dan McKenzie with Buckingham Research Group.

Just a couple of quick questions. Thanks for the color on Japan. Are you seeing some share shift in that market? And could that -- could there be some potential share shift just given the premium seating initiatives? I'm just wondering if you can elaborate a little bit further on that.

Yes. I mean, Dan, there have been some changes over the course of the year. There's some of the single time a day carriers. And I'm thinking of China Airlines that operates its Fifth Freedom Flight have had some reductions in capacity. You've seen a little bit of growth from us year-over-year out of Japan. JAL has had some growth in the market. So there have been some things moving around. Relative to the seat growth, I don't have numbers at my fingertips around share shift, but I can tell you that we are performing well. We have high load factors and generally an improving picture year-over-year. So we're really encouraged by how we're performing in Japan.

Yes. And I would just add to that. While we don't have the numbers for other people, at least as we are out in the travel community and talking to the travel trade, there's no indication that our competitors are running empty while we're running full. So we actually think that this is underlying demand strength in the market.

Yes, that's correct.

I see. Okay. Just a follow-up question here. On the fourth quarter revenue guide, can you talk about the calendar shift this year? Is that a source of revenue sort of strength or weakness as you look at your fourth quarter guide and sort of how is that weighing or adding to your fourth quarter revenue outlook? And then separately tied to that, we have also seen the cuts per mile over the past month. It does suggest there's some sequential benefit from these cuts that you're going to gain. I'm just wondering if you can help us understand the sequential improvement that you might be getting from some of these cutbacks from Island Air.

Yes. Let me start with the calendar. The calendar is actually a little bit more challenging this year in that you've got an early Thanksgiving, and so that trough period that we have between the Thanksgiving flying and Christmas flying is stretched out a little bit longer year-over-year. So that's a headwind to our performance. With regards to some of the changes and the short-term changes in capacity with Island Air, seats coming out of -- or not coming in to, more accurately stated -- not coming into the market, obviously, changes that supply/demand equation a little bit. But seats are still up considerably year-over-year. And I think even with the 3 lines of flying I referred to earlier, Island Air has a presence in the 3 markets they fly in throughout the day. And so that pressure is still there on RASM from having that extra competitive capacity year-over-year.

Our next question comes from Kevin Crissey with Citigroup.

Quick clarification. Peter, you said about the Q1 early bookings. I'm not looking for more detail. Just clarification on when you say bookings, are you referring to revenue or -- like what is it that you're referring to?

I'm referring to book RASM.

Okay. And then if we think about with the increased competition or increased seats in your markets, knowing that you can't talk about future pricing but maybe you could talk about philosophically about how you think about your revenue management? Maybe would you make any adjustments to go for earlier bookings versus later closer-in bookings? How does capacity increases by competitors typically change your revenue management strategies?

Yes. I guess one thing I would say is that these markets are very competitive and have been very competitive for a long time, so it's a very dynamic environment. In terms of specific tactics that we are taking from one period to another, that's a little bit of competitively sensitive information that I just don't feel comfortable giving too much detail on.

Our next question comes from Hunter Keay with Wolfe Research.

Can you hear me now?

Yes, we can hear you now, Hunter.

Okay. So the JAL JV. Sort of, I guess, a couple of question on this. You mentioned regulatory hurdles or regulatory approvals for the codeshare, but what kind of hurdles are you facing for the JV? Obviously, given the open skies backdrop, you're going to have combined pro forma like 50% share of that market. So should we think about maybe some carve-outs? And then how are you thinking about the partnership, vis-à-vis traditional revenue share? Or is this going to be sort of a top to bottom P&L share? Sorry, a lot of questions in there.

That's okay. Well, yes, we obviously need regulatory approvals, not only for the codeshare portion of it but also for the JV. We think -- we're working through the details and negotiating out the JV at the moment with JAL. We think in this market, we'll be able to demonstrate our benefits to the consumer, which given the standards that are typically applied under these approvals process -- processes, should secure us approval. I mean, that's obviously a to-do for us. We wouldn't anticipate any carve-outs under this situation. I'd point out that very much unlike other markets, there are plenty of competitors between Hawaii and Japan. With the entrance of Scoot this year, I think I counted a total of 9 competitors. And so it's a very, very competitive marketplace. And I think that has an important bearing on the way in which the JV should be seen. With respect to the design of the JV, whether it's a revenue share or another form of structure, we're still working through that. I think what we're intent on doing is to figuring out the best way of meeting the need to serve the public's interest here. We want to be able to grow and develop the markets using their distribution strength there. They're a terrific brand in the marketplace. We want to be able to grow also. We think we have the right product for the marketplaces, as we frankly been able to show over the last 7 years. How we harness those 2 is the subject of negotiation at the moment.

Okay. And then I have a couple more follow-ups on this too, so -- and then I'm done. Your government affairs folks, do they think this is going to be a generally easy path to approval? Yes or no? And then can you talk about how you're going to participate in some of the beyond point revenues? Some of these JVs generate incremental revenues from obviously places beyond Tokyo as well. Any color there would be helpful. And then I guess, lastly, on this. This is presumably all 2019 benefit or should we see something in 2018?

Okay. So with respect to the government affairs question, it's probably not appropriate for me to be describing things, if it's going through easily or not easily. I think that's going to be -- it's going to depend on how it's designed. And the burden is on us to demonstrate that it's going to be in the public interest. We are very confident that we're going to be able to show that, but we're not the judge and jury here. We have to be able to show that. With respect to behind point traffic, I think that's going to be a very exciting part of the relationship that we have with JAL. They've got not only terrific coverage within Japan itself but throughout Asia. We're going to start with code sharing. We would hope to have that also be part of the broader commercial agreement that we are busy negotiating now. As to when it will take place, I mean, if we are right that we can demonstrate good public benefits from the JV, I think we would be expecting a 2019 kickoff. There's a lot to be done between now and then. But it does look like 2019's story from that portion of the agreement. The code sharing and the other benefits flow from March of next year.

Our next question comes from Helane Becker with Cowen and Company.

It's actually Conor in for Helane. So I just wanted to piggyback off Kevin's question. Maybe I'll try to ask it a little bit differently. You've dealt with increased competitive capacity off the West Coast for years, and there's been a lot of ebbs and flows in the capacity from that market. Maybe you can provide a little historical context in how you defended your market in the past and how that might be helpful going forward.

Yes. I'll turn it over here in a second to Peter and he can give you some more of the details. First of all, just for the benefit of everybody on the call, I mean, we've had double-digit capacity growth in the last 4 or 5 years in this marketplace. What we've done is, I mean, we view every customer coming off the West Coast as a potential customer of Hawaiian Airlines, and we will compete to the best of our ability to secure their business. That's what we did the last time there was a pause in capacity. We grew our capacity during that period, not as much as by the average. What the ensuing competitive interaction demonstrated was that our capacity was not the marginal capacity in the market. Other carriers pulled back. And the net result of it was that when the dust settled, we had a higher market share than we went in with and that our unit revenue advantage over our competitors grew. But I'll turn it over to Peter to see if he wanted to add any more color.

Yes. Just a couple of things. First of all, one of the things that gives us an advantage is that we've got a better product to sell than our competitors. And credit for that goes to our operations team and the work that they do every day and how we've laid out the aircraft so that we can optimize revenue performance for the way that demand looks in these particular markets. I think from a commercial standpoint, we've really focused on the last several years on getting better and better at just how we execute day-to-day. And that is really understanding the distribution channels that are important in all of our geographies and very much including North America, focusing on where -- what channels are going to be important to drive revenue. And revenue management, a lot of it comes down to just day-to-day execution. It's really where -- this is what we do and we're staying focused on the market and we will execute very well. And the competitive environment and the pricing environment is very dynamic and changes all the time. But it is -- our team's ability to execute against that competitive environment that we think has improved candidly relative to the last time we saw a lot of capacity coming in. And we have a lot of confidence that, that positions us very well this time.

That's great color. And then, Mark, I think you've been quoted, I believe in the past week, that you're potentially re-evaluating your A330neo order. There hasn't been a ton of interest from other airlines. And we've also heard that there may be potential delays to that aircraft anyways. Can you just talk about maybe potential aircraft that you may target? I mean, I know the orders are coming in 2019 to 2021 slots relatively soon. So maybe if you can just address that.

Sure. If you look at our order stream now, if you just take the 330-800s and just lay them to one side for one second. Right now our order stream is to take 18 A321neos between now and 2020. Beyond that, we have no aircraft plan for future growth. It makes sense for us to be thinking about our fleet over the medium-term. You'd expect us to do that. That's in fact what we are doing. Both Airbus and Boeing has some terrific products. Both of their products have -- in the period of time since we ordered the A330-800, our business has changed and evolved. Their businesses have as well. And so we think it's a good time now to be looking at the alternatives, and we still have the A330-800 orders on the books, which we know that Airbus is going to build the aircraft. We're still very much looking at that aircraft. We're also looking at alternatives.

Our next question comes from Steve O'Hara with Sidoti & Company.

I was curious just on the commentary about the bookings for 1Q. Did you say that the book RASM was up so far?

I did.

Okay. All right. That's good. And then on the other thing, just on the currency. Was there any currency impact in the quarter on international revenue?

I don't have that at my fingertips, Steve. We can get that for you. But it was pretty minimal year-over-year.

Our next question comes from Michael Derchin with Imperial Capital.

Most of my questions have been answered. But I just want to follow up on the calendar headwind that you're going to have in December. Can you quantify that in any way?

Mike, this is Peter. I don't have a percentage to put on it. It is just the calendar is always a little different every year. This is, as I said earlier, we've got this longer trough period between Thanksgiving and Christmas this year. I think that's good for retailers because there's more shopping days. And it's not so great for airlines because those are typically not peak days for leisure travel. What I will say is the impacts of that are all built in to the RASM guidance, so it's not incremental to anything I said in the guidance.

Our next question comes from Adrian Schofield with Aviation Week.

Just on the A330neo question again. Do you have any sort of idea of when you might be able to make a decision on that? And also, what sort of roles do want that aircraft choice to fulfill?

Sure. Nice to talk to you, Adrian. Let me take that in sort of reverse order. I mean, I think what we're going to be looking at in general terms is, as you heard in our prepared remarks, we've got 24 A330-200s. It's a terrific airplane. It served us extremely well. By the time we get to the end of the next decade, some of those aircraft will be getting to the 20-year mark. At some point in the next decade, we've got to start thinking about the next generation of aircraft in our fleet. And in the meantime, we've got to also fund our growth. So those 2 things are sort of what is driving our consideration of additional aircraft. Again, it's a sort of medium term -- it's not a short-term consideration. It's a medium-term consideration. The routes we want them to fly because, in part, they're going to be replacing the A330-200s over time, have to include our existing network. And that's going to be to the focus. We're not going to get into a situation where the tail of ambition of serving markets that today aren't large enough for us to serve and are too far away are going to drive the dog of being able to grow and develop the network that we -- the footprint of the network that we already serve. So that's what we're sort of looking for. And then in terms of timing, we're talking to both manufacturers. We'll determine the timing when we think the lead time for the aircraft and the decision is right for us.

Our next question comes from Rajeev Lalwani with Morgan Stanley.

Two questions for you. One, as it relates to codeshares and that sort of thing, you talked about JAL and that seems like a nice opportunity for you. What's going on with the ANA agreement and how does that come into play, if at all?

Yes. Hey, Rajeev. It's Peter. We are actually going to be winding down the ANA codeshare relationship. We've had a positive relationship with ANA over the years, but at this time as we look at our future and as we have the opportunity to talk with JAL about how their vision of the market corresponds to ours, we decided to make a change in that relationship. We served notice to ANA. I would say it is -- they've been a great partner for us, and we will still have an important interline relationship with them. So our cooperation with them goes forward. Our focus right now is on how we manage the remaining period under which we have the codeshare, and I think both companies are very focused on taking care of all the guests in that period and making sure that our changes and business relationship don't alter their travel plans.

Okay. It seems like as one winds down, the other one sort of kicks in. So you -- no real hiccup on your end, right?

Yes. And I would embroider that in the following sense. I think that statement is fundamentally correct. I would actually go further and say, clearly, we believe that there is more value in the relationship with Japan Airlines than there is in the existing value with ANA. So from our perspective, we don't see this as just a one-for-one substitution. We see this as an important and, in that market, material improvement in our competitiveness.

That's helpful, Mark and Peter. And then a second question for you, gentlemen. Earlier, you talked about how in years past, we saw sort of double-digit capacity, competitive capacity coming in. Can you talk about the experience back then? And what did RASM do and that sort of thing just so that we can, I guess, brace ourselves there or try to figure out how to navigate some of this.

I mean, we can -- the information I think is publicly available as to what happened last time around. I mean, RASM was depressed for a relatively short period of time. It bounced back. And our RASM advantage widened relatively quickly. In terms of -- for the benefit of everybody else in the call, I think we'd happy to share that with you on a call later. It's all historic information that's generally available.

Yes. And I would just add to that, Mark. Clearly, all else being equal, when greater supply is available, the market does pressure the revenue-generating capability. That being said, all else is rarely equal. And so you have to be careful when looking at historic periods to understand changes in the fuel price environment that affects the cost structure, changes in the underlying level of demand. So I think history does provide a guide, but I don't think that you really can just purely extrapolate what happened in a prior period and say that's what will happen in the next period.

Yes. And I would just add on -- one last comment on that is, I'm in no doubt that we're in a better position to fight that fight this time around than we were 3 or 4 years ago.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Okay. Thank you, operator. Thank you all for joining us today. Our recent string of success gives us confidence in the future regardless of the competitive landscape. We've had a great year so far, and we're poised for continued success both in the near term and the long term. Lastly, please do save the date for our upcoming Annual Investor Day in New York on Tuesday, December 5. We look forward to seeing you there. Aloha.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.