december 3, 2014 - hawaiian airlines€¦ · southwest airlines. agenda presentations 8:30 a.m. –...
TRANSCRIPT
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INVESTOR DAYDecember 3, 2014
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Forward-looking Statements
This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to certain current and future events and financial performance. Words such as “expects,” “anticipates,” “projects,” “intends,” “plans,” “believes,” “estimates,” variations of such words, and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and assumptions relating to the Company’s operations and business environment, all of which may cause the Company’s actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. These risks and uncertainties include, without limitation, the Company’s ability to accurately forecast quarter and year-end results; economic volatility; theprice and availability of aircraft fuel; fluctuations in demand for transportation in the markets in which the Company operates;the Company’s dependence on tourist travel; foreign currency exchange rate fluctuations; and the Company’s ability to implement its growth strategy.
The risks, uncertainties and assumptions referred to above that could cause the Company’s results to differ materially from the results expressed or implied by such forward-looking statements also include the risks, uncertainties and assumptions discussed from time to time in the Company’s other public filings and public announcements, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and the Company’s Quarterly Reports on Form 10-Q, as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. All forward-looking statements included in this document are based on information available to the Company on the date hereof. The Company does not undertake to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof even if experience or future changes make it clear that any projected results expressed or implied herein will not be realized.
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MARK DUNKERLEYPresidentChief Executive Officer
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A Decade of Hawaiian Airlines
• Focused profitable growth
• Re-fleeting• Diversification of our
network• International
expansion• Strengthening our
North America and Neighbor Island network
• Growth opportunity with the delivery of the A321neos
• Leading long-haul network
• Financial strength • Best customer value
proposition• Best operational
performance
• Good year in 2014• Outlook for an even
better 2015 / 2016• Modest growth• Maturing network• Expanding margins • Balance sheet
strength• Best customer value
proposition• Best operational
performance
LOOKING BACK (2010 – 2013)
CURRENT(2014 – 2016)
LOOKING FORWARD(2017 – 2019)
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Agenda
PRESENTATIONS8:30 a.m. – 9:30 a.m.
COMMERCIALPeter Ingram, EVP and Chief Commercial Officer
FINANCEScott Topping, EVP, Chief Financial Officer and Treasurer
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Today’s Presenters
PETER INGRAMExecutive Vice President Chief Commercial Officer
9 years with HawaiianPrevious Experience:
American Airlines / American Eagle
SCOTT TOPPINGExecutive Vice President
Chief Financial Officer & Treasurer3 years with HawaiianPrevious Experience:
Southwest Airlines
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Agenda
PRESENTATIONS8:30 a.m. – 9:30 a.m.
BREAKOUT SESSIONS
9:30 a.m. – 12 p.m.
Three 40-minute sessions
NETWORK• Theo Panagiotoulias, SVP of Global Sales and Alliances • Brent Overbeek, VP of Revenue Management & Network Planning
ANCILLARY REVENUE• Vicki Nakata, VP of Loyalty and Travel Products• Tim Strauss, VP of Cargo
FINANCE• Scott Topping, EVP and Chief Financial Officer and Treasurer • Christian Forbes, VP of Financial Planning & Analysis
COMMERCIALPeter Ingram, EVP and Chief Commercial Officer
FINANCEScott Topping, EVP and Chief Financial Officer and Treasurer
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Breakout Session Participants
THEO PANAGIOTOULIASSenior Vice President, Global Sales and Alliances
BRENT OVERBEEKVice President, Revenue Management & Network Planning
TIM STRAUSSVice President, Cargo
VICKI NAKATAVice President, Loyalty & Travel Products
CHRISTIAN FORBESVice President, Financial Planning & Analysis
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Hawaiian Airlines Management Team Attendees
SEAN MENKEExecutive Vice President, Chief Operating OfficerJoined Hawaiian in October
RON ANDERSON-LEHMANExecutive Vice President, Chief Administrative Officer2 years with Hawaiian
ANN BOTTICELLISenior Vice President,
Corporate Communications &
Public Affairs
SHANNON OKINAKAVice President,
Controller
HOYT ZIASenior Vice President,
General Counsel & Corporate Secretary
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Agenda
PRESENTATIONS8:30 a.m. – 9:30 a.m.
BREAKOUT SESSIONS
9:30 a.m. – 12 p.m.
Three 40-minute sessions
NETWORK• Theo Panagiotoulias, SVP of Global Sales and Alliances • Brent Overbeek, VP of Revenue Management & Network Planning
ANCILLARY REVENUE• Vicki Nakata, VP of Loyalty and Travel Products• Tim Strauss, VP of Cargo
FINANCE• Scott Topping, EVP and Chief Financial Officer and Treasurer • Christian Forbes, VP of Financial Planning & Analysis
CLOSING REMARKS, Q&A
12 p.m. – 12:30 p.m.Mark Dunkerley, President and CEO
COMMERCIALPeter Ingram, EVP and Chief Commercial Officer
FINANCEScott Topping, EVP and Chief Financial Officer and Treasurer
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PETER INGRAMExecutive Vice PresidentChief Commercial Officer
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NETWORK
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Larger / Diversified Network
LTM September 30, 2010 Total Passenger Revenue Breakdown
LTM September 30, 2014 Total Passenger Revenue Breakdown
Total Passenger Revenue
$1.1 billion $2.0 billion
Diversification and growth de-risk our network
51%
24%
25%
North America Neighbor Island International
32%
59%
9%
Neighbor Islands North America International
200,000
300,000
400,000
500,000
600,000
Pass
enge
r Rev
enue
in
'000
s
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0%1%2%3%4%5%6%7%8%9%
10%
Upgauge Full Year Effects [a] New Routes [b] Other Discontinued Total
2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2010 2011 2012 2013 2014E 2015E
1% to 3%
2015: Another Year of Moderate Capacity GrowthYear-over-Year ASM Growth
Current 2015 Capacity Plan – Expected Year-over-Year ASM growth
5%
19%22%
14%
4% to 7%
2%
4%
1% -3%
4% to 7%
[a] Full year effects of 2014 new routes to Beijing, SFO-OGG, HNL-SJC and ‘Ohana by Hawaiian service[b] New routes with destinations TBA.
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Hawai‘i Neighbor Island Network is Without Parallel
• Unmatched presence: 86% seat share• Unrivaled flight schedule: ~160 daily
flights• Strongest competitive position• 2/3 of traffic is taking locals amongst
the Neighbor Islands for everyday business
• ‘Ohana by Hawaiian rounds out portfolio
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Flying to Where Hawai‘i’s Visitors Are
Source: HTA International Passenger data
0.48
0.28
0.71
0.70
1.04
3.03
3.41
6.47
Other
Europe
Other Asia
Oceania
Canada
Japan
US East
US West
Millions
Market SizeLast 24 months SEP. 2014 -
OCT. 2012
-28%
13%
51%
55%
8%
15%
3%
6%
Other
Europe
Other Asia
Oceania
Canada
Japan
US East
US West
Market GrowthLast 24 months % change
2012-14 v 2010-12
Leading position in traditional core markets
JFK service and domestic codeshares
Tokyo, Osaka, Sapporo/Sendai
Sydney, Brisbane , Auckland
Seoul, Beijing, codeshare and interline partners
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Leading North America to Hawai‘i Network
North America Network Strategy:• Focus on largest gateways to Honolulu
and Maui• Product / schedule tailored for Hawai‘i
service• Create per-seat cost advantage• Convenient connections to Neighbor
Islands
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West Coast to Neighbor Island Flying
2014 Summer routes from Los Angeles and Oakland to Lihue and Kona • June to August PRASM on Mainland to
Neighbor Island non-stops was accretive to North America average
Future network opportunities:• Seasonal flights in 2015• Additional opportunities with A321neos
starting 2017
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Broadest International Portfolio to Hawai‘i
Route Maturation FocusWith slower expansion we are pivoting to network maturity
Bolster global sales effort to optimize distribution• The Hawaii experts• In-market sales presence• Focused incentives
Invest in underdeveloped direct distribution• New website• Advertising (awareness, channel shift)
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COMMERCIAL INITIATIVES
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Hawaiian Airlines Approach
Hawai‘i’s airline
Outstanding hospitality
Long-haul leisure
Value for money
Cost control – but not at the expense of the guest
Aggressively pursue incremental commercial opportunities
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Refreshing Interiors on our B717s
Project underway to reconfigure B717s to a consistent, 128-seat configuration
Current Future# of Aircraft 11 7 18 # of Seats First 8 8 8# of Seats Main 115 110 120 Total 123 118 128
• Updated seats maintain personal space in a denser configuration
• Consistent layout eliminates operational complexity• More seats for peak demand periods
717 SEAT CONFIGURATION
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Multiple initiatives bearing fruit• Introduction of A330• Network expansion• Personalized and responsive sales
and service• Investment in systems and
management
With more to come…. • Expand our express carrier
relationship• Better exploit our neighbor island
network• Interline opportunities to expand
reach
Cargo Revenue
$38.4 $48.0
$63.6 $73.6
$0$10$20$30$40$50$60$70$80
2011 2012 2013 LTM Sep-14
in M
illio
ns
2.3%
2.4%
3.0% 3.2%
2011 2012 2013 2014
Cargo Revenue as a % of Revenue
US Carriers Average
Note: 2014 Cargo as a % of Revenue represents YTD 3Q14
Building on our Cargo Success
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E-commerce Platform Rebuild is Underway
• Internationalized to reflect our changing business
• Higher share of vacation spend- Integrated presentation of non-
fare products• Designed for how people shop• More targeted offers and higher
conversion rates• Scalable and flexible technology
platform
Asian language sites deployed in August;Full site launch in 2015
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Growing Sales of Value-Added Products
Value-Added Product Revenue Per Passenger
Re-launching our website will improve distribution of our expanding mix of value-added products
Existing Products• Sale of HawaiianMiles (other
revenue)• Baggage• Seat Products (Extra Comfort /
Preferred)• First class upgrades• HawaiianAirlines vacations• Onboard Sales• Ticket Changes
$14.82 $15.13 $14.68
$17.89
2011 2012 2013 LTM-Sept 2014
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Successful Re-launch of Credit Card Boosts HawaiianMiles Revenue
HawaiianMiles Revenue(non-passenger revenue component)
• New relationship with Barclaycard US, MasterCard and Bank of Hawaii in 2014
• Japanese credit card launched with Sumitomo Mitsui Banking Corporation in October
$12.1 $13.5
$12.5
$30.6
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2011 2012 2013 LTM-Sept2014
In m
illio
ns
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Non-airfare Products are Increasingly Important
$3.1
$4.8
$7.5
$15.8
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2011 2012 2013 LTMSep-14
(in M
illio
ns)
PREFERRED SEATS / EXTRA COMFORT REVENUE
$4.1$4.4
$6.6
$8.0
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
2011 2012 2013 LTMSep-14
Com
mis
sion
Rev
enue
(in
Mill
ions
)
HAWAIIAN AIRLINES VACATIONSBAGGAGE
$56.6
$67.8 $70.0
$73.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
2011 2012 2013 LTM Sep-14
(in M
illio
ns)
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In Summary
Slower growth provides the opportunity to focus on maturing our strengthened network
Optimized value proposition for the long-haul leisure customer
Focused on margin-accretive revenue initiatives
-28-
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SCOTT TOPPINGExecutive Vice PresidentChief Financial Officer and Treasurer
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Table of Contents
• 2014 Review• 2015 Highlights• Balance Sheet Strategy
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2014 Themes
• Rapid growth
• Heavy investment
• Balance sheet steady
• Many developing routes
• High-cost hedging program
• High start-up costs
• Moderating growth
• Lower investment
• Strengthening balance sheet
• More mature routes
• Low-cost hedging program
• Lower start-up costs
Recent History Future Expectations
Growth-limited ROI Improving ROI
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Growing ROIC and Operating MarginAfter several years of investment in the business, Hawaiian’s financial performance is trending higher
7.5%
8.5%
7.7%
8.7%
2011 2012 2013 LTM Sep-14
After-Tax ROIC
5.5%
7.0% 6.9%
8.9%
2011 2012 2013 LTM Sep-14
Adjusted Operating Margin
LTM-3Q14 Adj. Op Margin up 29% over 2013
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2015
Moderating Growth &
Investment
MaturingRoutes
Stronger Balance Sheet
Cost Control
Improving Financial Results
Turning FCF Positive
CAPITAL ALLOCATION
Favorable Operating
Environment(Fuel)
Accretive Initiatives
• Network adjustments• Other commercial initiatives
Positive Trends Continue in 2015
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2013 2014E 2015E 2016E 2017E
Aircraft Related CAPEX Non-Aircraft
$450M to $455M$498M
No scheduled
aircraft deliveries
Future Capital Spending Expected To Decline
• A330 deliveries complete in 2015
• No planned deliveries in 2016
• A321NEOs deliveries in 2017
• 4 planned 767 retirements / returns in 2015 - 2016
• Net aircraft +2 at YE 2017
# of Expected Aircraft Deliveries
Based on our existing fleet plan.Utilized the mid-point of the Total CAPEX range for 2014E, 2015E , 2016E and 2017E
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Good Cost Control
Stable CASM ex-fuel year-over-year despite moderating growth
8.708.18
7.88 8.06
2011 2012 2013 LTM Sep-14
Note: CASM ex-fuel is a non-GAAP measure. See Appendix for the Non-GAAP reconciliation.
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2015 CASM Excluding Fuel
-36-
2015 CASM Ex-Fuel will be
higher due to the following items
One-Time Items(Pension, Commissions, Technology)
Fleet Related(Aircraft Rent, Heavy Maintenance, PBH, D&A)
Note: CASM ex-fuel is a non-GAAP measure.
Excluding fuel, 2015 CASM is expected in increase in the low single digit range as compared to 2014
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We Benefit From the Significant Drop in Fuel Prices
Based on the current forward curve (as of 12/1/14), including hedges, 2015 economic fuel price per gallon would be ~ $2.30-$2.40, including fuel taxes
$2.31
$3.13 $3.20
$3.15
$3.00 - $3.10
$2.30 - $2.40
2010 2011 2012 2013 2014E 2015E
Economic fuel cost per gallon
Notes: Economic fuel cost per gallon is a non-GAAP measure. See Appendix for reconciliation. We believe this is a useful measure because it better reflects our controllable costs
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Comprehensive Balance Sheet Strategy
• Expecting strong cash generation
• Favorable trends propelling the business• Excess cash today• Turning FCF positive in 2015
• Need to review our balance sheet strategy
• Optimize to compete effectively over the long-term• Guide decision making on capital allocation
• Initiated a 3 phased project over the last couple of quarters
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Balance Sheet Strategy Phases
LIQUIDITY TARGET
LEVERAGE TARGET Adjusted Debt / EBITDAR
CAPITAL ALLOCATION
Multiple options
Cash & Short term investmentsRevolving Credit
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Liquidity Target of 23% to 25% 42%
38%
26% 25%
19%
15%17%
19%
14%11%
5%
10% 7%2%
3%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
ALGT SAVE HA ALK LUV JBLU HA AAL UAL DAL
(Cash + STI) / 3Q14 TTM Revenue
CURRENT
TARGET
(Cash + STI + Revolver) / 3Q14 TTM Revenue
• Scaled to our recent growth• Low cost capital for occasional
operating needs• Carry less cash• Primarily a rainy day fund
Liquidity Target
Notes: Based on 3Q14 TTM (Unrestricted Cash, STI and Availability under Revolving Credit Facility)Source: OA 10-Q / 8-K filings
Current Maturities of
LTD / Cap Leases
Capex vs. Operating Cash Flow
Cash: 16-18%
RCF: ~7%Support for Variability in
working capital, PRASM,
Fuel
NEW REVOLVING CREDIT FACILITY - $175M
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1.3x 1.5x
1.7x
2.3x2.5x
3.6x 3.7x 3.7x
4.2x
ALK LUV DAL SAVE ALGT JBLU UAL AAL HA
4.5x
Leverage TargetAdjusted Debt / EBITDAR
Below 4x
Leverage Target
Notes: Based on 3Q14 TTMAircraft Rent Expense Capitalized at 7x
Source: OA 10-Q / 8-K filings
COMPETITIVE LEVERAGE
Access to CapitalCost of CapitalCredit RatingsEnterprise Risk
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Framework – Balanced Capital Allocation
• Target:• 23-25%
• Cash: 16-18%• Revolver: 7%
TARGET LIQUIDITY
• Target:• < 4.0X
• Current:• 4.5X
TARGET LEVERAGE • Shareholder returns
• Debt management
CAPITAL ALLOCATION
Multiple options
FCF generation
Trending to target
Excess cash today
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In Summary
• Our underlying business is strengthening
• Our balance sheet is strengthening
• A favorable operating environment is providing a tailwind
• Earnings and cash generation are gaining momentum
• We have a plan for capital allocation
• Maintain a competitive financial profile for the long-term
• Maximize shareholder value
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MARK DUNKERLEYPresidentChief Executive Officer
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In Conclusion
• 2014 is a good year • 2015 outlook is for an even better year
–Moderate growth–Maturing network–Ancillary revenue growth–Good cost control–Expanding margins–Continued strengthening of the balance sheet
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Mahalo.
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Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS
($ in thousands, except CASM data) FY 2011 FY 2012 FY 2013 LTM‐Sep 14GAAP Operating Expenses $1,630,176 $1,832,955 $2,022,118 $2,070,276
Less: aircraft fuel, including taxes and delivery (513,284) (631,741) (698,802) (701,253)
Less: lease termination expense (70,014) - - -
Adjusted operating expenses - excluding aircraft fuel and lease termination
$1,046,878 $1,201,214 $1,323,316 $1,369,023
Available Seat Miles 12,039,933 14,687,472 16,785,827 16,993,661 CASM - GAAP (in cents) 13.54 12.48 12.05 12.18
Less: aircraft fuel and lease termination expense (in cents) (4.84) (4.30) (4.16) (4.13)
CASM Excluding Fuel and lease termination expense (in cents) 8.70 8.18 7.88 8.06
NON-GAAP RECONCILIATIONS
($ in thousands) FY 2011 FY 2012 FY 2013 LTM‐Sep 14Operating Income $20,283 $129,398 $133,747 $201,649
Add: lease termination expense 70,014 - - -
Operating Income, Non-GAAP $90,297 $129,398 $133,747 $201,649
Adjusted for realized losses on settlement of fuel derivative contracts 430 7,372 14,018 56
Adjusted Operating Income, Non-GAAP $90,727 $136,770 $147,765 $201,705
The Company evaluates its financial performance utilizing various GAAP and non-GAAP financial measures, including operating income and CASM. Pursuant to Regulation G, the Company has included the following reconciliation of reported non-GAAP financial measures to comparable financial measures reported on a GAAP basis. The Company believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence.
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Non-GAAP Reconciliations –Economic Fuel ExpenseNON-GAAP RECONCILIATIONS
(in thousands) FY 2010 FY 2011 FY 2012 FY 2013RECONCILATION OF GAAP FUEL COST TO ECONOMIC FUEL COST
Aircraft fuel expense, including taxes and delivery $322,999 $513,284 $631,741 $698,802
Realized losses on settlement of fuel derivative contracts 3,199 430 7,372 14,018
Economic Fuel Expense $326,198 $513,714 $639,113 $712,820
Fuel Gallons Consumed 140,995 164,002 199,465 226,214
Economic fuel costs per gallon $2.31 $3.13 $3.20 $3.15
The Company believes that economic fuel expense is the best measure of the effect of fuel prices on its business as it most closely approximates the net cash outflow associated with the purchase of fuel for its operations in a period. The Company defines economic fuel expense as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled during the period.
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Return on Invested Capital
1. All unrestricted cash removed from invested capital, except for working capital required to operate the business, defined as unrestricted cash equal to 15% of TTM total revenue
2. Assumes 25 years useful life of aircraft and 10% salvage value3. Average capitalized operating leases equals TTM rent multiplied by 7
Hawaiian Airlines – Return on Invested Capital (ROIC) – Working Capital Cash Methodology 1
2011 2012 2013 LTM 9/30/14
Operating Income $20,283 $129,400 $133,745 $201,648
Add Back One-Time Charges $70,014 $0 $0 $0
Operating Income Less One-Time Charges $90,297 $129,400 $133,745 $201,648
Add Back Aircraft Rent Expense for Operating Leases $112,883 $98,784 $108,535 $105,755
Add Depreciation for Operating Lease Add Back 2 ($28,446) ($24,894) ($27,351) ($26,650)
Add Return on Invested Cash $248 $294 $323 $340
Adjusted Operating Income $174,981 $203,585 $215,253 $281,093
After Tax Adjusted Operating Income $101,489 $122,130 $129,131 $168,627
Average Total Debt and Capital Leases $341,899 $616,704 $735,676 $950,622
Common Equity $286,499 $249,384 $302,141 $404,794
Average Capitalized Operating Leases 3 $790,180 $691,486 $759,747 $740,283
Remove Average Excess Cash ($64,407) ($115,173) ($122,710) ($159,441)
Average Invested Capital $1,354,171 $1,442,401 $1,674,855 $1,936,257
Pre-Tax ROIC 12.9% 14.1% 12.9% 14.5%
After-Tax ROIC 7.5% 8.5% 7.7% 8.7%