Hawaiian Holdings Inc (HA) 2020 Q3 法說會逐字稿

Greetings and welcome to the Hawaiian Holdings, Inc. Third Quarter 2020 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Alanna James, Managing Director, Investor Relations. Thank you. You may begin.

Thank you, Michelle. Hello, everyone, and welcome to Hawaiian Holdings Third Quarter 2020 Results Conference Call. Here with me in Honolulu are Peter Ingram, our President and Chief Executive Officer; Brent Overbeek, our Senior Vice President of Revenue Management and Network Planning; and Shannon Okinaka, our Chief Financial Officer. We also have several other members of our management team in the room for the Q&A.

Peter will provide an overview of the continued impact of COVID-19 on our business and our vision for the future. Brent will provide an update on our commercial performance and trends, and Shannon will provide an update on our cash and liquidity. At the end of the prepared remarks, we will open up the call for questions. By now, everyone should have access to the press release that went out at about 4 o'clock Eastern Time today. If you've not received the release, it is available on the Investor Relations page of our website, hawaiianairlines.com.

During 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 at the end of today's press release posted on the Investor Relations page of our website.

As a reminder, the following prepared remarks contain forward-looking statements, including statements about our future plans and potential future financial and operating performance. Management may also 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.

We refer you to Hawaiian Holdings' recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statement. This includes the most recent annual report filed on Form 10-K as well as subsequent reports filed on forms 10-Q and 8-K.

I will now turn the call over to Peter.

Mahalo, Alanna. Aloha, everyone, and thank you all for joining us today. As you have seen in our press release today, the COVID-19 pandemic continued to have a severe impact on our business in the third quarter. The second and third quarters of 2020 will likely go down as the most difficult period of Hawaiian Airlines' proud, almost 91-year history. In spite of that, it has touched my heart each day to see the dedication and care that our team has showed to our guests and each other.

I'm very encouraged that the Hawaii Pre-travel Testing Program, which went into effect on October 15, will mark an important inflection in the trajectory of our business. Program allows the traveler to bypass the mandatory 14-day quarantine by presenting evidence of a qualifying negative COVID-19 test from a state-approved provider.

Since the beginning of April, we have operated a minimal schedule to serve the minimal demand for travel to and from Hawaii. Our experience in Hawaii corresponds to that in Europe, Asia and elsewhere in the world that have utilized quarantines to mitigate the spread of the virus. Simply put, quarantine requirements, when strictly enforced, virtually eliminate all demand for travel. With the opportunity available once again to travel to Hawaii without enduring a 14-day quarantine, we expect demand will continue to improve in the months ahead, and we are expanding and will continue to expand our schedule to meet this demand.

The early returns are encouraging. The logistics of the process are going relatively well. There have been some teething pains to be sure that are being worked through by the state and that are improving every day. We have indeed seen an increase in our load since the 15th and have seen positive trends in our bookings, which Brent will elaborate on later in the call. While there is a very long road yet to be traveled, it is encouraging to have begun the journey.

As for the Neighbor Island quarantine, at the time of our last call, the quarantine had been lifted, but due to a spike in cases on the Island of Oahu, the quarantine was reinstated on August 11 for all travel to any island other than Oahu. And the stay-at-home order was put in place for Oahu for about 4 weeks starting in the last week of August. As things stand today, travel from Oahu to the Neighbor Islands without quarantine is possible only with a negative COVID-19 test.

We do not believe that test exemptions are the right solution for Neighbor Island travel, as Neighbor Island visits are generally shorter in duration and lower cost, overall, for the traveler. So the $100 to $200 incremental expense and inconvenience of taking a COVID test is going to stifle much of the inter-island demand for as long as this requirement is in place. Our hope is that the prevalence of the disease on Oahu, which has been declining appreciably over the past several weeks, reaches a level where the intrastate quarantine requirements will be lifted entirely.

The biggest risk to the upward trajectory of our business is a scenario in which there is a significant increase in cases of the disease in Hawaii, leading to a retreat from the Pre-travel Testing Program.

While this is not in our control, we will do our part to make sure that travelers understand the testing requirements, that they arrive with state-approved tests and that they are informed about their personal responsibility to keep our community safe. Importantly, more travel does not have to mean an unmanageable spike in COVID cases. We've gone from a small number of untested travelers to a larger number of travelers, but with most being recently tested negative for the disease. Combined with ongoing efforts to reduce the community spread of COVID-19, our hope is that these actions keep the disease in check here in Hawaii.

To help ensure that our guests get tested, we have worked to bring testing partners to the table in addition to the provider sourced by the state of Hawaii. We are continuing to pursue additional testing opportunities in order to make the testing process as seamless and easy as possible for our guests. We expect that market competition will make testing less expensive and more accessible over time. As this happens, we expect demand for travel will continue to improve.

While the delay of the testing -- Pre-Travel Testing Program, reinstatement of the Neighbor Island quarantine and reimposition of stay-at-home orders comprehensively stifled demand in the third quarter, we focused on what we could control. We were successful in accessing the financing we needed to endure the immediate crisis and feel we are in a good place from a liquidity perspective. We completed negotiations with our labor unions on voluntary leave programs and executed on the labor rightsizing efforts that were painful but necessary to ensure we remain competitive as we fight through this challenging period and position our company to emerge successfully from the crisis.

We've reduced our active workforce by about 1/3 through a combination of voluntary leaves, voluntary separations and furloughs. About 87% of the reductions were voluntary separations or voluntary leaves. We also successfully completed negotiations with Boeing to push back the introduction of 787s to our fleet from early next year to the latter part of 2022. Shannon will provide more details on the adjustments to our fleet plan, but I'd be remiss if I didn't note that Boeing has been a supportive partner throughout this process.

The 787 is a terrific airplane and will be a vital part of our fleet in the future, but we don't need it in 2021. I'm pleased that we were able to make this agreement to push back deliveries to a more appropriate time. As we look ahead to 2021, we continue to plan for our operations to be 15% to 25% lower in the summer of '21 than they were in 2019. However, with less than 2 weeks having passed since travelers have had the ability to avoid quarantine, our assessment of the demand environment is sure to evolve in the days ahead. With this in mind, we are positioning ourselves to respond to circumstances as they unfold.

In the near term, we continue to focus on managing down our cash burn. We've done an admirable job of minimizing our expenses as we have run a much smaller operation, and we remain laser-focused on controlling our spending. But there is only so much we can do to reduce costs while maintaining our ability to rebound.

Step function change in our cash burn requires us to generate more revenue. That's why the pre-travel testing program is so important. It allows us to begin to access the pent-up demand for travel to the world's premier leisure destination. Getting there won't happen immediately. While bookings have improved over the past few weeks, this is against a backdrop of advanced bookings well below historical levels for the coming months.

As we compete for this demand and begin to ramp up our operations, we will necessarily increase our cash expenses. Even as we do so, we will be extremely judicious in these spending decisions. And we're going to continue to look at every aspect of what we do to make sure that it meets the new expectations of our guests, whether these expectations are permanent or transitory. At the core of this is our focus on the needs of travelers to, from and within Hawaii. This has always been a source of competitive advantage for us, and it is likely to be amplified in an environment where the travel process and guest expectations have been upended by the pandemic.

One of the important first milestones in our journey back is to reach cash breakeven. I'm not going to attempt to forecast the timing for us to do so as we don't yet have enough experience with demand in the pre-travel testing environment to provide a specific target, but we are on a positive path. And our ability to, again, access demand gives us more confidence than we've had that we are moving in a better direction.

Looking further ahead, we need to restore balance sheet strength. Reaching cash breakeven will be an important milestone, but it is only a single marker on the road back to success. I joined Hawaiian as its Chief Financial Officer in 2005 shortly after the company emerged from a 2-year restructuring. It was a company with many incredible and unique strengths, but the balance sheet was not one of them. Our team leveraged the strengths of our business to generate cash flow to build a strong balance sheet. It didn't happen overnight then, and it won't happen overnight now, but I'm certain we will do so again.

There is much that gives me confidence as I look forward. Hawaii is again open for business. Leisure travel throughout the world is rebounding faster than business travel. And with the ability for guests to travel to Hawaii without quarantine, we'll be able to take advantage of this more so than we have been able to over the past 7 months.

As I look forward to 2021, I know that we are not yet out of the woods, but I know that we have the right team in place to get through this. I'm continually amazed by the outstanding efforts made by my colleagues, both on the front lines and in the back office, to deliver the guest experience and operational excellence that our guests expect from us. I would like to express my gratitude once again for the exceptional job they do every day despite the unprecedented circumstances we have faced together over the past many months.

In particular, I want to acknowledge the contributions of our colleagues who accepted early out or retirement packages in September, in many cases, after decades of loyal service. I wish our retiring pilots and flight attendants could have enjoyed their traditional final flight to allow us to honor their years of service to our guests. And I wish our departing ground employees could have had a final in-person celebration with coworkers. While the pandemic robbed them of that, the legacy that has been left by all of these dedicated professionals will inspire our recovery. And we look forward to welcoming those on furlough and voluntary leave back to productive employment as soon as possible.

I'll now turn the call over to Brent to give you more details on our commercial outlook.

Thank you, Peter. And aloha, everyone. I'd also like to express my gratitude and appreciation to our team for all the work that has gone into building and executing our evolving plans as we respond to this unprecedented situation.

This touches so many parts of the organization, and we, as a leadership team, are proud of this collective effort. During the third quarter, total revenue was down 90% year-over-year and an 87% decline in capacity. Passenger revenue was down 94% year-over-year, and other revenue was down 41%.

A highlight in our third quarter results was the outstanding performance of both our cargo and charter businesses. As we adapt to the current environment, our team has been nimble and opportunistic, and has found ways to secure incremental business. Despite an 87% decline in capacity year-over-year, cargo revenue was down only 28%, driven by higher yields and extra cargo-only flying. We operated more than 140 cargo-only long-haul flights in the quarter, and we ramped up charter flying as well. We will continue to look for alternatives to utilize our aircraft and resources to generate cash for the company, while our passenger business recovers.

In North America, we operated just 18% of our schedule compared to last year. We added service to Portland, Sacramento, in San Diego back in the beginning of the quarter, but then trimmed some frequency due to the delay in the launch of the pre-travel testing program beyond September 1.

Now looking ahead to the fourth quarter, we expect to operate about 37% of our North America schedule, overall, compared to last year as we bring back more capacity each month. In October, we welcomed Las Vegas back to our network and will fly approximately 20% of last year's schedule. In November, we're bringing back Phoenix, San Jose and Oakland back to the network as well as several North America to Maui routes, flying approximately 36% of our schedule compared to last year. And in December, we plan to bring back New York, Boston and Long Beach as well as more North America to Maui and Hawaii service and expect to fly about 54% of last year's levels, with that figure bumping up to the mid-60s during the holiday peak. With these additions, we will restore service to all 13 of our pre-pandemic origin points in the U.S. -- on the U.S. Mainland.

Now moving over to Neighbor Island. Our performance was negatively impacted by the reinstatement of the Neighbor Island quarantine by the governor about midway through the third quarter. In July, with no quarantine in effect, load factors were in the mid-40s, while after the quarantine reinstatement on August 11, load factors in August and September were in the 20s despite a schedule that was more than 20% and 50% smaller, respectively. Our schedule for the fourth quarter is expected to gradually build back as we anticipate a modest increase in demand for connections, aligned with the increase in visitors to the state. However, with the recently announced requirement for pre-travel Neighbor Island testing, we do not expect to see much demand recovery for local traffic, given the magnitude of the cost of the testing in relation to the fare. This could change, of course and if we were to see relief from the quarantine and testing requirements for interstate travel.

Overall, for the fourth quarter, we expect to operate about half of our Neighbor Island schedule compared to the same period last year. Regarding international, with government-mandated travel restrictions on both ends of the journey, we didn't operate any scheduled international passenger flights in the third quarter. But we brought back once-per-week passenger service to Narita in October to accommodate essential travel between Japan and Hawaii. We are encouraged by the recent announcement by the governor of Hawaii that Japan will be included in the pre-travel testing program as soon as suitable testing partners are secured. And we expect that Korea will fall short -- will follow shortly thereafter.

Assuming that testing partners will be in place soon, we're planning to increase our service to Japan as well as to convert some of our All-Cargo flights to Korea to include passengers later in the quarter.

As for Australia and New Zealand, we do not expect to resume service during 2020 as borders are still effectively closed. At this point, we anticipate operating roughly 5% to 10% of our international network during the quarter. Overall, in the fourth quarter across our network, we're planning to operate about 30% of our capacity compared to the same period last year, reaching a high point of 41% in December.

Now switching gears to demand. We're encouraged with our inbound load factor from North America to Hawaii running at 57% in the first 10 days since we reopened the state. Bookings for the fourth quarter have steadily improved as travelers gain confidence in the state reopening. Before the state's latest pretravel testing announcement in mid-September, bookings for the fourth quarter were coming in at about 10% of historical levels. After the announcement in mid-September, that improved to 25% to 35%, with greater progress in the front half of the quarter. And since October 15, as travelers have seen the state finally implement the testing program, we've seen steady improvement with bookings coming in at 35% to 55% of last year's levels, with improved trajectory for the back half of the quarter. While still early in the COVID booking curve world, we are seeing some additional booking activity in the first quarter of 2021 as well.

For most of the summer, we were seeing just about half of our new bookings being paid with cash. In recent weeks, this has changed and the level of new bookings being paid with cash has increased to around 2/3. Although we're clearly still at the beginning of the recent reopening of Hawaii and it is challenging to assess demand, our latest forecast for net sales for the fourth quarter is approximately $1.3 million per day.

We're currently maintaining a cap on our load factor of 70% for all flights in our network to promote physical separation until December 15. We are encouraged by the recently published studies that demonstrate airplanes are among the safest indoor places with respect to the transmission of coronavirus given the sophisticated air filtration systems on board, the continual introduction of fresh air from outside the aircraft and the fact that all guests are facing forward. These environmental attributes are complemented by our requirement that all employees and all guests wear face coverings throughout the journey. The fact that a substantial portion of our guests are now being tested for the virus also gives us further confidence. We will continue to evaluate our distancing policies for travel beyond December 15 over the next several weeks. Overall, we look forward to the opportunity to bring back more of our service in the coming months, and we remain ready to respond to the evolving demand environment.

And with that, I'll turn the call over to Shannon.

Thanks, Brent, and thanks, everyone, for joining us today. Today, we reported an adjusted net loss of $172.7 million for the third quarter or $3.76 per share, reflecting the continued impact of COVID-19 on our business. We recorded special items totaling $24.5 million related to the workforce rightsizing initiatives that Peter mentioned, which included voluntary separations executed in the third quarter as well as involuntary separations effective October 1. Our total operating expenses, excluding special items, were down 52% year-over-year on an 87% decline in capacity. We closed the quarter with $979 million in cash and short-term investments, which includes the receipt of $459 million from new financing and CARES Act funding. More specifically, we received $376 million from the sale-leaseback and WTC transactions that we mentioned on our last call as well as $38 million of CARES Act's PSP funding, and $45 million from the initial draw of our CARES Act Economic Relief Program Loan. We have an additional $577 million available to us under the CARES Act Economic Relief Program Loan, and we have until March of 2021 to draw any additional amounts.

With access to $1.6 billion in liquidity, including the undrawn portion of our CARES Act loan, we're confident that we have sufficient liquidity based on our current view of the crisis. While our focus on liquidity was appropriate and necessary, the increased leverage and associated debt service over the next 5 years presents a sizable challenge. Until we reduce our debt load, we'll be constrained in capital spending, investments and growth.

Over the coming quarters, as we get a better sense of the pace of growth of our cash inflows, we'll turn our focus to mending our balance sheet with an aim to get back to the strength we had pre-COVID, including our leverage target. This won't happen as quickly as we'd like, but it is a critical element of our recovery. As Peter mentioned, we reached an agreement with Boeing to defer the 2 787 deliveries that were scheduled for the first half of 2021 to September and December 2022 and subsequent deliveries to 2024 through 2026. The retiming of our 787 induction will provide significant relief in terms of the cash outlays related to our aircraft CapEx.

Overall, this agreement defers over $500 million in aircraft CapEx from the 2020 to 2023 time frame to 2024 to 2026. Our CapEx for the remainder of 2020 is estimated at $5 million to $7 million, bringing our 2020 total to between $107 million and $109 million, which includes 1 A321neo delivered earlier this year. Our CapEx for 2021 is estimated at $40 million to $60 million, most of which is non-aircraft CapEx. We continue to make investments in the business, albeit at a slower pace, particularly in technology and facilities based on our confidence in the positive returns from these investments.

During the third quarter, we were highly focused on cost reduction and the resizing of our company. Our strategy has been to reduce costs while maintaining the ability to meet increasing demand as nimbly and quickly as necessary. For the fourth quarter, while our capacity is forecast to more than double compared to our third quarter capacity, we estimate our operating expenses, excluding special items, will increase only about 15% compared to the prior quarter. We're currently at the point in our recovery, where we can bring back capacity relatively efficiently as we've been carrying fixed costs and labor expenses that can now be spread over more capacity. Subsequent growth may not have the same cost implications.

Our third quarter daily cash burn, excluding CARES Act funding and new financing and assuming net sales were equal to 0, was $2.9 million, which was favorable to our original forecast of $3.2 million, primarily due to lower volume of operations and a higher uptake in voluntary employee leaves. Net sales for the third quarter were approximately $300,000 per day, bringing our net cash burn for the third quarter, excluding CARES Act and new financing, to $2.6 million per day. This figure includes an average of approximately $400,000 per day in benefits from nonrecurring tax refunds during the quarter, which resulted from provisions in the CARES Act, which allowed for the carryback of net operating losses to a period with a higher tax rate.

For the fourth quarter, we estimate that our net cash burn, excluding CARES Act and new financing, will be approximately $2.2 million per day, which includes net sales, operating cash outflows, debt service, interest payments, CapEx and severance payments. Our cash burn in the fourth quarter is slightly better than the third quarter due to forecasted improvement in net sales, which are partially offset by costs associated with increased operations and the nonrecurring tax refunds that we received in Q3.

As we look out into 2021, our priority is a swift return to cash breakeven. We know this will require a recovery in demand as we cannot get there on cost reduction alone. With the launch of the pre-travel testing program less than 2 weeks ago, we're not yet willing to forecast the timing of achieving this milestone. As we get a clearer understanding of the pace of demand recovery in the period ahead, we should have a better estimation of when we will get there.

As we rebuild our network, we're focused on balancing the need to capture demand where it exists while also reducing cash burn. We're at the beginning of our recovery phase. And with the generally longer booking curve for travel to Hawaii, there may be a slight lag in the recovery of revenue relative to the increase in costs we'll incur to bring back capacity. However, we know that this is a critical first step as we restore our network and bring our fleet back to productive service. We will be nimble and aggressive, and we'll continue to do what we do best, focus on the needs of travelers to, from and within Hawaii.

While the events of this year have unfolded very differently from what we envisioned at the beginning of the year, we're confident we have a winning formula, and we're positioned for long-term success.

With that, operator, we can now open up the call for questions.

(Operator Instructions) Our first question comes from the line of Hunter Keay with Wolfe Research.

A couple of quick ones on the 787 delivery schedule. Can you tell me what the new CapEx profile is for '21, if I missed it? And just so I'm clear, you're taking 2 787s in late '22, and then your next one is not coming for like a year. Did I get that right, for like 1.5 years after that, so you're going to only have 2 787s for about a year. Is that correct?

Yes, that's the plan. I mean, Hunter, the deliveries are September and December as we'll probably not introduce those into service until the early part of 2023, by the time we go through proving runs and certification efforts. So we'll do a lot of that with the September delivery and then bring the December one in and likely start in 2023. And then we'll have the next ones are scheduled in 2024. And I think on CapEx, Shannon, you gave the number for next year.

Yes, Hunter, our total CapEx is estimated at $40 million to $60 million for next year, most of which is non-aircraft CapEx. We really don't have very much aircraft related CapEx next year.

I'm sorry, I missed that. Shannon, appreciate that. And then is there an appetite, Peter to -- by locals to roll back the enforcement of the regulations on the SDR market, even only if temporarily to bring some tourism back?

That is a hot button topic here locally. I think a lot of people are concerned about vacation rentals that have existed, particularly in areas where they're not currently zoned for that purpose. And I think sometimes, the legal vacation rental gets -- vacation rentals get wrapped up in the negative sentiment around those illegal operations. So it's not something that has been gathering a lot of attention right now. I think people are still candidly getting comfortable with the notion of having so many visitors back in the state right now, and that's why it's important for us to have a successful reopening and make sure that we're making people aware of what they need to do to get tested so that we can keep the cases down, and we can just improve the overall comfort level with increased visitors in the state.

Our next question comes from the line of Catherine O'Brien with Goldman Sachs.

Maybe one, actually, quick follow-up on Hunter's question on the 787s. So if I understood you correctly, you're now going to have 2 787s by the end of '23 versus your original plan for 7, I think, at least for the last 10-K. Was this decision based on your view of what international demand is going to look like over the medium term? Or is it more of a cash outlay decision, where you'll potentially keep some of your A330 lift longer than planned.

So I'm not sure that -- I would have to go back and check the numbers. Seven seems like a lot for us to have had by the end of 2023. I would have thought it would be more like 5, but then some coming at the end. But in any event, really, what this is -- this is less about a change in our view of the long term and more about the fact that short term, we're just in a dramatically different demand environment than we were at the beginning of this year. It's going to take some time to build back. We have -- we've obviously had pressure on our cash levels, and we've had to do a lot of borrowing this year. So the complexity of entering a new fleet into the business and the inherent inefficiency, you have to go through it periodically in this business, but it is a lumpy process when you go through them. We just wanted to move that to the right a little bit to allow us to focus in 2020 and 2021 on stabilizing, restoring and beginning the recovery of the business, and we think we'll be in a much better position in 2022.

I might add -- Katie, I might add as well, the timing -- original timing of the 787s really gave us the ability to kind of throttle our growth rate higher or lower as they were synced up with 330s in terms of lease returns. And so given that we won't be pushing the existing fleet as hard in the period leading up to that, we decided to push some of that flexibility out into the later years.

Okay. Got it. Understood. And then maybe just so -- I realize it's probably very early for this, but do you -- are you guys tracking data on travelers coming to Hawaii and the success of these testing programs and preventing inbound spread of the disease. And the reason I'm asking is, the last time we saw a spike in COVID cases in the U.S., this pre-departure test workaround got delayed. So I wanted to see if you guys were like working with the government to show the efficacy of this program, just in light of the recent uptick in cases, maybe as a way to avoid this being rolled back.

Yes, let me start, and then I might ask Avi Mannis, who's in the room with us, who's been doing a lot of interactions with the policymakers in the state around the program. We certainly are pushing to get some data. We really like to understand what proportion of guests are being tested, with test from the pre-approved providers. We'd like to use that so that we can communicate that much better with our guests and make sure they know about what the requirements are and how to get the test. We're still -- today is the 27. So we're 12 days since people started arriving without testing. We've been on a positive trajectory, certainly here on Oahu, with cases in the last little while as a result of some of the interventions to prevent community spread. And really, the spread recently of the disease has been from community spread. But yes, we would certainly like to understand that. And the whole purpose of pre-travel testing is to make sure that you've got a much, much higher comfort level around the people who are traveling to and from, whether it's visitors or whether it's residents returning from travels on the mainland to have a comfort level about what is coming into the state, and we're hopeful that it's going to work. Avi, anything you want to add to that?

Yes. I think I would just add that it's too soon for there to be a real data-driven -- real data-driven evidence of the efficacy of this. But there have been secondary testing protocols that have been implemented, either on a sampling voluntary basis. There's a surveillance study that's going on in the state. And for a period of time, Hawaii Island was requiring every arrival to take a second test. And I think what that's demonstrated thus far is that there's a very, very low incidents. I think there have been maybe 1 case identified of someone on a secondary test. And so too soon to tell, but the results thus far are encouraging. And I think the state remains very committed to continuing to roll out the program.

Our next question comes from the line of Joseph DeNardi with Stifel.

Peter, you and Shannon spoke a little bit about kind of the structural cost improvements that are underway or efforts to variablize the cost structure, I guess. And it's not entirely clear what that means from an earnings power standpoint post COVID, so I'm just wondering if you could speak to that a little bit. It would seem like one way to quantify that would be to say what level of 2019 capacity you think you need to get back to in order to get CASM ex back to where it was in 2019. But some of your peers have struggled to answer that succinctly. So any way that you want to talk about that would be helpful.

Yes. I think the reason people have struggled to talk about is that there's just a lot of variables going on in there. I think what we have tried to do is take some of the cost structure permanently out of our business where we can. We -- unlike some carriers, we haven't reduced our fleet or haven't removed an entire fleet type from our fleet. And so that -- we haven't had that lever to pull, but we have certainly reduced our labor costs and tried to, as you say, make the cost. We are operating more variable. So if you end up being 15% smaller, you'd like to reduce your cost by 15%. It is complex with some of the training requirements, particularly around the pilot group when you have a multiple aircraft type fleet that adds a certain amount of inefficiency in that. And that's inefficiency, we're just going to have to absorb because operating our network, which just got some varied missions, we need to serve that. And the best revenue outcome we get is from serving that by having multiple aircraft types available. But that does create some complexity as we look to next year.

I'm not quite willing to try and give you a -- if we get back to x percent of revenue, we will produce x result, whether it's CASM or breakeven or pretax breakeven or -- sorry, positive cash flow, but we'll -- as we go forward in the next few months, we get a little bit more comfort on the pre-travel testing program. I think we'll be able to give you a little bit more comfort about what the world looks like as we're going into next year.

Okay. Yes. Sure. No, go ahead.

Yes, the only thing I'd add there is, from a cost perspective, we did not, in all areas, bring our costs down to the minimal level of cost that we could have because what we're trying to also maintain is that flexibility to ramp back up quickly if demand is such that we should ramp the capacity back up. And part of the difficulty in giving you some forecast for 2021 is we -- I think a lot of the cost piece is dependent on how demand ramps back up. So if demand is slow to ramp back up, and we find that we don't need the flexibility that we've given ourselves, then we can bring our costs down even further than we have. Or if we find out we needed that flexibility and we need to ramp up that quickly, then we'd have a different cost profile than the former situation. So that's where we have even more difficulty right now in giving you more concrete guidance for next year.

Okay. Got it. And then, Brent, can you just talk about the kind of competitive environment that you're seeing on the North America side? It seems like, to this point, it's been pretty benign because there wasn't much volume. But as it comes back, maybe what you're seeing and kind of what your expectations are for in terms of how much revenue will lag the recovery in demand?

Yes. I think at a high level, the industry has been adjusting capacity rather late. They've been doing that kind of across the network, but certainly, Hawaii has probably been a little more extreme with that, kind of given the uncertainty of demand based on where we were with the quarantine. So we're still seeing the industry continue to morph and adjust capacity in November and De quite a bit.

I mentioned in my prepared remarks, we're encouraged with how demand is coming back. It's on a positive trajectory. We are obviously seeing quite a different booking curve. Our normal booking curve is much longer that has been compressed quite a bit, which in the short term, clearly helps. We had started to see a little bit more promotional activity as the state has opened up. I would say, as we worked our way through the summer, broadly speaking, there wasn't nearly the level of promotional fares put out there by the industry. That has ramped up a little bit more with opening up, and it's something that -- it's important for us to be competitive. And while we've got a bunch of competitive advantages that we've talked to over time, it's something that we'll make sure that we get our fair share or more of traffic.

Our next question comes from the line of Mike Linenberg with Deutsche Bank.

Peter, I want to just go back on the -- for Hawaii. Is that the -- to come up to the state of Hawaii, is it the more intense PCR test, which obviously takes -- it's a longer turnaround? Or is there some possibility that the state of Hawaii will be willing to accept the more rapid antigen testing? And I'm just wondering if there's an opportunity to maybe implement the cheaper, faster test between the islands because you have sort of the 0 risk policy, which is not reliable in the world of commerce and mobility. And I'm just curious, what the state appetite is with respect to that. And then just the Island of Hawaii, are they -- I heard Avi talk about that second test. Is that still in effect? And are you actually seeing much weaker demand to the Island of Hawaii because they have an extra step?

So let me start on the test first, and then maybe I'll let Avi chime in again on where we are on the testing regime in Hawaii. And I'm going to wow you with what I have learned about COVID-19 testing over the last several months here. The required test in Hawaii is a nucleic acid amplification test or a NAAT test, and it has to be from a CLIA-approved lab. PCR tests are part of that category of tests, but they're not all of it. It also includes some of the point-of-care Abbott labs device, but it doesn't include antigen tests. So antigen tests are a different classification. And I think as the policymakers were thinking about this, they really wanted to set a standard that had high efficacy and accuracy, and responding to the concerns of the community about bringing more travelers back. I think as testing becomes -- continues to evolve, and it's evolved a lot over the last several months, there is -- ought to be an opportunity to expand the pool of acceptable tests, in our opinion, as long as they provide high efficacy and accuracy. So as long as you believe you can get a reliable result. And we would like to see that, that is something that is pursued.

And particularly, as I said in my remarks, we don't think the sort of $100, $200 test is going to help unlock demand for Neighbor Island. I think a lower-cost test might do better. Certainly, the removal of the quarantine, if we get to a more standard level of the prevalence of the disease throughout the islands would be the best outcome from a demand standpoint in that regard. Avi, you want to just cover where the testing is between the islands right now?

Sure. So the -- with respect to the Hawaii Island mandatory test, that was discontinued after about a week. So they did something like [5,000] tests, with 10 false positives and 1 true positive, and they decided to discontinue that and move to a voluntary model. And that was an antigen test. And one of the issues with the rapid antigen test is the false positive rate. False negatives create problems, but false positives are also an issue. And so I think it is a prudent decision to focus on testing that has very high sensitivity and specificity initially. I do think everyone here recognizes that technology is going to change, and that this is a first step, and they started with something that has both -- PCR testing has both good sensitivity and specificity, but also a very mature supply chain. And so -- but I think everyone recognizes that over time, the state is going to migrate as technology improves to, hopefully, what our cheaper, equally accurate tests as they become more available.

And Peter, just the second question on the shutdown of Ohana. What's the trigger in the pilot agreement that lets you restart that operation? And are you using your 717s to still try to connect, I guess, what is it Lanai and Molokai? Or are those -- are they cut off from your network?

Yes, sure. So the trigger is, we have a requirement to allow us to operate a feeder carrier relationship within the Hawaiian Islands. We have a requirement that if you do a 12-month look back of the block hours of our Neighbor Island mainline airline flying that it is above 29,000 hours. And so as we've reduced our schedules for April, May, June, July through to now, we hit a point in -- we will hit a point here in October where we go below 29,000, and we don't make that 29,000 hour look back. And that's why we announced that we were going to suspend the Ohana by Hawaiian service effective November 1.

Subsequently, there's a couple of developments. We actually reversed that announcement yesterday, and that is based on the fact that although we do not accept. We have not historically accepted EAS subsidies for those. Those are to be Essential Air Service markets, and there is a notice requirement. And so we anticipate that the DOT is going to require us to continue flying those. And so we're continuing -- we've now said we're going to continue flying those with a minimal baseline schedule to Molokai and Lanai through at least the middle of January. As far as the 717s, we really don't think that's a good option. The 717, relative to prior generations of that aircraft type, and I know you're a long time [airline utility] you know that that's a predecessor of the old MD line and the DC...

Yes. The DC line.

Yes. This airplane flies a little bit faster. And with the very short runways and some of the obstacles, particular obstacles around the runway in Molokai. We don't think that 717 is a viable aircraft for regular operations. And so if we're going to fly it, it is going to be with the ATRs and operated by Empire in our Ohana delivery.

Thanks for that bit, Peter, because I know Hawaiian used to flight with the DC-9s. So I thought maybe they can serve with the [717s], but it doesn't make sense.

Our next question comes from the line of Helane Becker with Cowen.

So one of my questions is on the industry capacity coming into the market. Do you feel you need to match the industry in terms of pricing? Or are you able, because it's your core market and the experience is so much better than on the peer group, that you don't have to match?

Well, Helane, this is Brent. I would say that it is -- we feel like we've got a superior onboard product, and we are really grateful that the product, the physical product that we've got has been tailored for Hawaii, but our frontline team is fantastic in that, as we've talked about numerous times, that helps us generate a revenue premium. Ultimately, how that revenue premium versus our competitors is created is ultimately really by creating better-than-average demand, and that can either be kind of more passengers and more volumes at competitive prices or a little bit more. And I would say, right now, we've seen a little bit of both. Networks are still shaking out in people's previous service in certain O&Ds, it's changing and evolving as we move month-to-month, and it's something that my team is keeping a keen eye on. And we'll continue to do to ensure we're making the optimal revenue decisions for Hawaiian Airlines today and going forward.

Okay. That's helpful. And then the other question, I know, I think in your answer actually to Joe's, it was kind of like you don't have the information or you don't want to share any information. But I was listening earlier today to JetBlue's CEO say they're doing $8 million of revenue per day and need to get to 13% to 15% to kind of reach cash flow breakeven. And I think you mentioned that you don't really have a number.

But I was wondering if you can say where -- prior to the pandemic, where you are relative to that, a. And b, like where -- what percent of maybe historical bookings you would need to get to reach that cash flow breakeven? And how quickly could you actually bring capacity and staff back, if, say, demand improves in December?

Yes. So let me sort of try and respond to that a couple of ways. One, I would say, part of the challenge for us in terms of thinking about what cash -- what revenue we need per day to get to cash breakeven has been changing pretty rapidly, as Brent went through. Just what was in place between September 16 and October 15, we saw a big acceleration right after that, and we're continuing to ramp up. And some of that, frankly, is getting an expansion of the booking curve because that provides a cash flow as well even above what you're flying today.

As we ramp up our operations, that's the other side of the equation, changes as well. That's why it makes it a little bit difficult to give these forecasts because you got to think about what load factor you're running, what yield you're generating, how much capacity you're operating. And all of those things are part of generating the revenue.

I think, generally, you've heard some numbers by other carriers, and they all gravitate around the same general level of how much cash you need to get back to relative to where you were before. And our number is probably not going to be too terribly different from those, but we're not going to give a specific forecast about that while we're in a period of so much flux, really, as we just are 12 days into ramping back up to where we actually have an environment that is conducive to generating revenue.

Right. That makes perfect sense. Yes, Shannon, sorry.

And on your question on how quickly we could bring capacity back, we really haven't done very much from a fleet perspective to put anything in long-term storage. We've deferred a little bit of maintenance. But for the most part, our fleet is generally completely available in December. We haven't gotten too far down into pilot training that we couldn't reverse it if we had noticed probably around now, beginning of November, and as far as our flight attendants and ground stuff, we can bring them up pretty easily as well. So we're very flexible in the near term on capacity.

Our next question comes from the line of Dan McKenzie with Seaport Global Securities.

Yes, just a clarification here. How many destinations have a pilot program for rapid testing in place? And if you -- and I guess, if it's embraced, what percent of the network could it realistically encompass here in the fourth quarter?

So the pre-travel testing is in place for travel inbound from the U.S. Mainland. The state has indicated that there is -- are discussions underway to identify testing providers in Japan, which is our biggest international market. Korea is in discussions, and Canada, which is not part of our historical route network, is -- there are discussions going on as well. So theoretically, for our network, that brings the -- all the destinations, except for Australia and New Zealand, all the origin points that we bring people from back in play pretty quickly here by the end of the quarter. I would say that, that doesn't necessarily mean that we're going to be back at 95%. In fact, you heard Brent's forecast, we're not going to be at 95% of our capacity because we're operating lower frequency and, in some cases, smaller aircraft based on the demand environment. But a substantial proportion of the sort of addressable demand is available to access that pre-travel testing here pretty soon as we go through the quarter.

Got it. And is the expectation that the rapid testing would have a similar impact on travel volumes internationally as you are seeing domestically here? Or would they -- there's some additional hurdles that might impact the -- kind of how those volumes might blow up relative to what you're seeing domestically?

So the testing that is in place, as I talked about earlier with Mike, was the NAAT testing from -- in the U.S. from a CLIA-approved lab, and it will be other regulatory approvals for the lab. So it's not the rapid antigen testing, although there are point-of-care NAAT tests that are available. One of the other issues that, as we think about some of these international destinations and bringing them back, is it's not just the case of demand being limited by the 2-week quarantine into Hawaii, but it's also the 2-week quarantine on the return. So jurisdictions like Canada, Japan, Korea, they also have quarantines on the other end. And so that is something that is still going to be an impediment to accessing all of the historic demand that we have had.

Got it. And I guess just with respect to that impediment, though, is there a travel insurance policy you could sell people that if they got stuck in Hawaii for another 2 weeks, that some kind of travel insurance could kick in for some reasonable price?

I have not seen a product like that yet, but there's always entrepreneurs out there for everything.

Our final question comes from the line of Steve O'Hara with Sidoti.

Yes, I guess, it seems like some airlines have at least -- or at least appear to be focused on offense rather than kind of just on defense. I think I can understand why you guys appear to be still more on the defensive. But I mean does that put you at a greater disadvantage longer-term relative to peers? And might that change as cash burn improves?

I don't necessarily accept the characterization that we're on the defense. I think we have always been prepared to and ready to compete. We've had a home market and the core of our traditional network that has really been inaccessible, substantially inaccessible for the past several months. So I think that has limited our ability to do things. But now that we have the pretravel testing in place, I think we intend to compete aggressively to win our share of revenue.

Okay. That helps. And then can you -- I mean I know you said your capacity is down 70% for the quarter, for the full quarter. Do you know what the competitive capacity is roughly? I mean obviously, it's -- I'm sure it's in a constant state of flux, but I mean, is it -- do you expect to more or less have kind of similar share to what you'd normally have, or any greater or lesser share just as of right now?

As you mentioned, it is quite a bit in flux in that I think we're probably out a little bit ahead of some of the competitors and getting something that's closer to a final schedule out there. So we'll certainly have to wait and see how other folks make adjustments, particularly to December, where some of the carriers still have a vast majority of their schedule published. But I think by the end of the quarter, we'll be in a similar ballpark. It might be a slightly different trajectory to get there, but I think by the end of the quarter, my expectation is we'll look and feel a little more similar to the rest of the industry here in Hawaii.

And one of the things that's important to us was getting to the point where we will be by mid-December, where we have all of the 13 origin points in North America back in the network. And we've got the ability. We don't feel like we have to add every seat back in because we've got the ability with our Neighbor Island connecting network to be able to connect those 13 origin points to all of the points in the island. So it gives us the ability, without adding seats that there may not be demand to fill, to be able to provide the network breadth that will allow us to compete for all the revenue that we want to compete for.

We have reached the end of our question-and-answer session. I'd like to turn the conference back over to Mr. Ingram for any closing remarks.

Mahalo, again, for joining us today. We are encouraged that we have reached an inflection point from surviving the crisis to beginning the recovery. There's much work yet to be done, and we look forward to updating you again in a few months on our progress. We appreciate your interest. Aloha.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.