Hawaiian Holdings Management Presents At Deutsche Bank 2012 Aviation And Transportation Conference (Transcript)

Hawaiian Holdings, Inc. (HA)

Deutsche Bank 2012 Aviation and Transportation Conference

September 6, 2012 3:55 PM ET


Scott Topping – EVP, CFO and Treasurer


Unidentified Analyst

Okay, thank you. All right, for our next presentation this afternoon, we’re very pleased to have Scott Topping, Executive Vice President, Chief Financial Officer and Treasurer of Hawaiian Holdings. Scott was appointed CFO of Hawaiian in 2011. Prior to becoming CFO, Scott spent six years at South West Airlines in various senior roles, most recently as Vice President and Treasurer.

And so now, to provide us with an update on the Hawaiian story, Scott Topping.

Scott Topping

Thank you Mike and thank you everybody for coming out and spending some time with us today. Before I get started, I’d like to introduce Susan Donofrio, our Senior Director of Investor Relations. I know many of you know Susan already with her years in the industry, we’re happy to have her here.

What I’d like to do today is leave you with some thoughts around how Hawaiian Airlines is different. We are certainly charting our own course. We have different business model and we’re a much different airline than we were just a few years ago. And these are very, very positive things.

To see this, I’m going to organize my talk around the strategy and network, we’ll look at growth opportunities, we’ll take a look at financial performance and then we’ll look at how we manage our balance sheet which is pretty critical when you’re growing at 20% to 30% clip.

So, let’s start with the strategy. Our business model is simple as many successful models are. We’re not though a network carrier and we’re not a point-to-point carrier. Based on where we’re located, we are a destination carrier. And our franchise, you could put it simply as that we sell Hawaii experiences. We bring people to Hawaii.

On top of that, we’re in the midst of implementing a growth strategy and diversifying our business. We’re roughly two times the size we were five years ago as measured by revenue.

In the strategy, on top of the business model has several advantages. And I believe these are sustainable competitive advantages, just being focused on Hawaii doing one thing that’s important. We’re growing into regions where the demand for the Hawaii Vacation is growing and we’ll look at some of those numbers in a bit. As the leisure carrier, we’re less sensitive to economic downturns, and we’re enjoying economies of scale as we grow.

Let’s take a quick look at our fleet. We have narrow body and wide body aircrafts totaling 43 today. We operate 18 Boeing 717s in our inter-island network with about 123 seats. And it’s the perfect airplane for short-haul, high-frequency flying. The airplane is durable, it has good economics. And it should get us through the decade, if not further.

We’re transitioning our wide body fleet by retiring 767s and adding Airbus A330s to our longer haul services. Currently we have 15 767s worth about 264 seats and nine A330s with 294 seats. The 767 is a fine airplane, but the A330 gives us about 30 more seats, a bit more range and a better cargo capabilities. In 2015, our transition will look like this, we’ll have 22 A330s, and nine 767s.

So, let’s take a look at the network broadly. I know you can’t read this. But the point here is that we have a lot of reach. We’re on the East Coast of the US, we were in the Far East. Also note how everything connects to Hawaii, that’s the point, we’re a destination carrier, and we’re converging in the middle.

So, let’s break the network down. First, we have the neighbor island it’s about quarter of our revenues. It’s a unique, very high frequency, very short-haul market. We have a very strong competitive position with over 85% seat-share. Several routs in this network or among (inaudible) to the US, it surprised me to learn when I came to Hawaii and that we operate a 170 round-trips in the network each day. And as an example, Honolulu to Maui, we operate 32 round-trips per day, very busy.

And the unique part about this is that we carry everyday life. If you go to our inter-island terminal, you will see the soccer teams, with parent’s and toe, boarding the aircraft, you will see people coming to Honolulu for medical services, you’ll see the ATM repair man throw his tools on board off to another island to fix the ATM machine. This is a lot of our business and this makes it very stable and it’s relatively in elastic demand.

North America represents just under half of our business. We have outstanding brand recognition. We have 11 gateways with the addition of JFK back in June. And we do see growth opportunities in North America. Canada for instance more on the East Coast might be of interest as well.

The third segment is international, and this is approaching 30% of our business. It is the engine of growth and diversification which is an important part of our strategy. In the coming – fourth quarter, we will add two cities, Sapporo and Japan, which will be our fourth city in Japan. Brisbane, Australia, our second city in Australia and Auckland, New Zealand, which will be our first to that country.

So, I’d like to show you how this international growth has kind of reshaped the airline. On the left, this pie is in 2007, you can see, in the blue, North America is almost 70% of our revenue. Five years later, North America represents under half but 47%. You can see Neighbor Island is fairly stable. And international makes up the difference at 26, I’m sorry, 27%. So, our strategy has reshaped the airline. We’re bigger and we’re more diverse.

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