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May 7, 2020, 4:45 p.m. EDT


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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. Such forward-looking statements include, without limitation, statements related to our financial statements and results of operations; any expectations of operating expenses, deferred revenue, interest rates, tax rates, income taxes, deferred tax assets, valuation allowances or other financial items; the severity, magnitude, duration and effects of the COVID-19 pandemic; the extent to which the COVID-19 pandemic and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position or achievement of strategic objectives; the duration and scope of government mandates or other limitations of or restrictions on travel; the demand for air travel in the markets in which we operate; the compounding effect of the COVID-19 pandemic on competitive pressures in the markets in which we operate; our dependence on tourism; the impact of the COVID-19 pandemic on our suppliers; the effect of economic downturn and the COVID-19 pandemic on our aircraft contracts and commitments; the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; the terms and effectiveness of cost reduction and liquidity preservation measures taken by us; our ability to continue to generate sufficient cash to operate; changes in our future capital needs; estimations related to our liquidity requirements; our participation under the CARES Act and the terms of relief thereunder; the availability of aircraft fuel, aircraft parts and personnel; expectations regarding industry capacity, our operating performance, available seat miles, operating revenue per available seat mile and operating cost per available seat mile for the second quarter of 2020; our expected fleet as of March 31, 2021; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; the availability of financing; changes in our fleet plan and related cash outlays; committed capital expenditures; expected cash payments related to our post-retirement plan obligations; estimated financial charges; expected delivery of new aircraft and engines; the impact of accounting standards on our financial statements; the effects of any litigation on our operations or business; the effects of our fuel and currency risk hedging policies; the fair value and expected maturity of our debt obligations; our estimated contractual obligations; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Words such as "expects," "anticipates," "projects," "intends," "plans," "believes," "estimates," "could," "would," "will," "might," "may," 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 our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.

Factors that could affect such forward-looking statements include, but are not limited to: the continuing and developing effects of the spread of COVID-19 on our business operations and financial condition; whether our cost-cutting plans related to COVID-19 will be effective or sufficient; the duration of government-mandated and other restrictions on travel; the full effect that the quarantine, restrictions on travel and other measures to limit the spreads of COVID-19 will have on demand for air travel in the markets in which we operate; fluctuations and the extent of declining demand for air transportation in the markets in which we operate; our dependence on the tourist industry; our ability to generate sufficient cash and manage the cash available to us; our ability to accurately forecast quarterly and annual results; global economic volatility; macroeconomic political and regulatory developments; the price and availability of fuel, aircraft parts and personnel; foreign currency exchange rate fluctuations; competitive pressures, including the impact of increasing industry capacity between North America and Hawai'i; maintenance of privacy and security of customer-related information and compliance with applicable federal and foreign privacy or data security regulations or standards; our dependence on technology and automated systems; our reliance on third-party contractors; satisfactory labor relations; our ability to attract and retain qualified personnel and key executives; successful implementation of growth strategy and cost reduction goals; adverse publicity; risks related to the airline industry; our ability to obtain and maintain adequate facilities and infrastructure; seasonal and cyclical volatility; the effect of applicable state, federal and foreign laws and regulations; increases in insurance costs or reductions in coverage; the limited number of suppliers for aircraft, aircraft engines and parts; our existing aircraft purchase agreements; delays in aircraft or engine deliveries or other loss of fleet capacity; changes in our future capital needs; fluctuations in our share price; our financial liquidity; and our ability to implement our growth strategy. The risks, uncertainties, and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements also include the risks, uncertainties, and assumptions discussed under the heading "Risk Factors" in Part II, Item 1A in this Quarterly Report on Form 10-Q and discussed from time to time in our public filings and public announcements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this quarterly report. The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Our Business

We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the Neighbor Island routes), between the Hawaiian Islands and certain cities in the U.S. mainland (the North America routes and collectively with the Neighbor Island routes, referred to as our Domestic routes), and between the Hawaiian Islands and the South Pacific, Australia, and Asia (the International routes), collectively referred to as our "Scheduled Operations." In addition, we operate various charter flights. We are the largest airline headquartered in the State of Hawai'i and the tenth largest domestic airline in the United States based on revenue passenger miles reported by the Research and Innovative Technology Administration Bureau of Transportation Statistics for the month of January 2020, the latest available data. As of March 31, 2020, we had 7,492 active employees.

General information about us is available at https://www.hawaiianairlines.com . Information contained on our website is not incorporated by reference into, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q unless expressly noted. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission.

March 2020 Financial Overview

GAAP net loss in the first quarter of $144.4 million, or $3.14 per diluted share.

Adjusted net loss in the first quarter of $34.0 million, or $0.74 per diluted share.

Unrestricted cash and cash equivalents and short-term investments of $814.6 million as of March 31, 2020.

See "Results of Operations" below for further discussion of changes in revenue and operating expense. See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.

Impact of COVID-19

Due to the spread of COVID-19, what began with the Company's suspension of service to South Korea and Japan in late February, accelerated in March, when governments in Australia, New Zealand, Tahiti, American Samoa, and Hawai`i instituted requirements of self-isolation or quarantine for incoming travel, as well as travel within the State of Hawai`i. As a result of these actions, global travel demand declined precipitously to historically low levels, with our capacity reduced by more than 95% in the last week in March 2020. While a minimal level of air travel continues to operate during the COVID-19 pandemic, its impact on air travel and the broader economy continues and whether we will be able to recover to pre-COVID-19 pandemic levels is unknown.

In addition, we have taken, or intend to take, various actions to mitigate the impact of declining demand on our business. including, but not limited to:

Drawing down fully from our previously undrawn $235.0 million revolving credit facility in March 2020 (refer to Note 9 in the Notes to Consolidated Financial Statements for additional discussion,

Suspension of dividend payments on, and the repurchase of, our common stock,

Applying for, and on April 22, 2020, receiving the first tranche of funding of $146.2 million under the CARES Act PSP, as discussed in further detail below, and we are eligible for an additional $364 million in loans through the CARES Act ERP,

Pursuing additional financing secured by our unencumbered assets, including 36 aircraft with an estimated fair value of approximately $800 million,

Instituting a hiring freeze across the company, except for operationally critical and essential positions,

Deferring non-essential, non-aircraft capital expenditures,

Instituting voluntary unpaid leave and float day purchase programs offered to each work group, and

Reducing discretionary contractor, vendor, and other spending.

Additionally, all of our officers have temporarily reduced their base salaries by between 10% and 50% through at least September 30, 2020. Members of the Board of Directors have also temporarily reduced their compensation. We anticipate that we may implement further discretionary changes and other cost reduction and liquidity preservation measures as needed to

address the volatile and quickly-changing dynamics of passenger demand and changes in revenue, regulatory and public health directives and prevailing government policy and financial market conditions.

Based on these actions, including recovery assumptions made regarding the impact of COVID-19, we have concluded that we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with existing covenants for the next twelve months, prior to giving effect to any additional financing that may occur. We continue to evaluate future financing opportunities by leveraging our unencumbered assets, which, as of March 31, 2020, have a fair value of approximately $800 million, and utilizing additional funding from the CARES Act, as discussed below.

We cannot assure you that our assumptions used to estimate liquidity requirements will be correct because we have never previously experienced such an unprecedented decline in global travel and passenger operations, and as a consequence, our ability to be predictive is uncertain. In addition, the magnitude, duration and speed of the COVID-19 pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but we expect a net loss on both a GAAP and adjusted basis for the fiscal year ending December 31, 2020. We will continue to monitor these conditions as new information becomes available.

On March 27, 2020, President Trump signed into law the CARES Act, which provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides for, among other things; (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of loans and loan guarantees available for operations under the ERP, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional Corporate tax benefits that are further discussed in Note 13 in the Notes to Consolidated Financial Statements.

Payroll Support Program

On April 22, 2020, Hawaiian entered into the PSP Agreement with the Treasury with respect to the PSP under the CARES Act. In connection with the PSP Agreement, on the PSP Closing Date, we entered into the Warrant Agreement with the Treasury and Hawaiian issued the Note to the Treasury. Pursuant to the PSP Agreement, the Treasury will provide Hawaiian with financial assistance to be paid in installments expected to total approximately $292.5 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, Hawaiian agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury mandated reporting obligations on Hawaiian and us. Finally, Hawaiian is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT; however, we applied for and received an exemption from the DOT from certain of the service requirements due to impacts of COVID-19.

The Note issued by Hawaiian to the Treasury will increase to a total principal sum of approximately $57.8 million as Hawaiian receives installments from the Treasury under the PSP Agreement. The Note has a ten year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.

As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the Warrant Agreement, we agreed to issue to the Treasury a total of 488,477 Warrants at an exercise price of $11.82 per share. The Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.

Economic Relief Program

Under the ERP, we are eligible for approximately $364.0 million in a secured loan. Conditions of the loan are generally consistent with the PSP; however, certain restrictions, including prohibition of share repurchases and dividend payments extend for 12 months after the loan is no longer outstanding. On April 17, 2020, we filed an application with the Treasury for access to these funds; however, we are currently evaluating our level of participation.

Additionally, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Lastly,

the CARES Act provides for the carryback of additional net operating losses to 2016 and 2017, which we expect will result in an annual tax benefit.

        Fleet Summary
        Due to the ongoing uncertainties of the extent and impact of the COVID-19
        pandemic on our business, we continue to evaluate our existing fleet structure
        to optimize capacity with demand, as well as the timing of future aircraft
        deliveries. As of March 31, 2020, we have temporarily parked 36 aircraft. The
        table below summarizes our total fleet as of March 31, 2019 and 2020, and
        expected fleet as of March 31, 2021 (based on existing executed agreements):
                                       March 31, 2019                             March 31, 2020                           March 31, 2021
        Aircraft Type       Leased (1)        Owned (2)     Total      Leased (1)      Owned (2)     Total      Leased (1)      Owned (2)     Total
        A330-200                 12                 12         24         12                 12         24         12                 12         24
        A321neo (3)               2                 10         12          2                 15         17          2                 16         18
        787-9 (4)                 -                  -          -          -                  -          -          -                  1          1
        717-200                   5                 15         20          5                 15         20          5                 14         19
        ATR 42-500 (5)            -                  4          4          -                  4          4          -                  4          4
        ATR 72-200 (5)            -                  3          3          -                  4          4          -                  4          4
        Total                    19                 44         63         19                 50         69         19                 51         70

(1) Leased aircraft include aircraft under both finance and operating leases.

(2) Includes unencumbered aircraft as well as those purchased and under various debt financing.

(3) We expect to take delivery of our final Airbus A321-200 aircraft in the second quarter of 2020.

(4) In July 2018, we entered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft with scheduled delivery from 2021 to 2025. The first aircraft is scheduled for delivery in the first quarter of 2021.

(5) The ATR 42-500 turboprop and ATR 72-200 turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly-owned subsidiary of the Company. The ATR 42-500 turboprop aircraft are used for passenger operations under a Capacity Purchase Agreement (CPA) with a third-party provider. The ATR 72-200 turboprop aircraft are used for our cargo operations under the aforementioned CPA.

Results of Operations

For the three months ended March 31, 2020, we generated a net loss of $144.4 million, or $3.14 per diluted share, compared to net income of $36.4 million, or $0.75 per diluted share, for the same period in 2019.

Selected Consolidated Statistical Data (unaudited)

                                                                             Three months ended March 31,
                                                                          2020                           2019
                                                                     (in thousands, except as otherwise indicated)
        Scheduled Operations (a):
        Revenue passengers flown                                               2,360                           2,821
        Revenue passenger miles (RPM)                                      3,711,474                       4,127,729
        Available seat miles (ASM)                                         4,974,971                       4,850,723
        Passenger revenue per RPM (Yield)                                      13.57 �                         14.57 �
        Passenger load factor (RPM/ASM)                                         74.6 %                          85.1 %
        Passenger revenue per ASM (PRASM)                                      10.12 �                         12.40 �
        Total Operations (a):
        Revenue passengers flown                                               2,362                           2,823
        RPM                                                                3,714,773                       4,128,485
        ASM                                                                4,979,529                       4,851,921
        Operating revenue per ASM (RASM)                                       11.23 �                         13.54 �
        Operating cost per ASM (CASM)                                          14.60 �                         12.45 �
        CASM excluding aircraft fuel, gain on sale of
        aircraft, and special items (b)                                         9.78 �                          9.87 �
        Aircraft fuel expense per ASM (c)                                       2.27 �                          2.60 �
        Revenue block hours operated                                          52,860                          51,627
        Gallons of aircraft fuel consumed                                     63,822                          64,521
        Average cost per gallon of aircraft fuel (c)           $                1.78           $                1.95

(a) Includes the operations of our contract carrier under a capacity purchase agreement.

(b) Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See "Non-GAAP Financial Measures" below for a reconciliation of non-GAAP measures.

(c) Includes applicable taxes and fees.

Operating Revenue

During the three months ended March 31, 2020, operating revenue decreased $97.6 million, or 14.9%, as compared to the same period in 2019, driven primarily by decreased passenger revenue and is discussed further below:

Passenger revenue

For the three months ended March 31, 2020, passenger revenue decreased by $97.8 million, or 16.3%, as compared to the prior year period. Details of these changes are reflected in the table below:

                                                          Increase (Decrease) vs. Three Months Ended March 31, 2019
                             Three months
                           ended March 31,
        (in thousands)           2020          Passenger Revenue         Yield            RPMs            ASMs          PRASM
        Domestic           $      366,473            (17.7 )%            (9.6 )%          (8.9 )%           7.0  %      (21.4 )%
        International             136,996            (12.1 )              0.5            (12.5 )           (6.4 )       (10.0 )
        Total scheduled    $      503,469            (16.3 )%            (6.9 )%         (10.1 )%           2.6  %      (16.7 )%

Domestic passenger revenue fell 17.7% to $366.5 million during the three months ended March 31, 2020. RPMs decreased 8.9% while yields fell 9.6%. The decreases were primarily driven by competitive pressures in our domestic market followed by declining demand as a result of the COVID-19 pandemic. In late March, following the announcement of a mandatory 14-day quarantine for all non-essential travelers arriving in, or traveling within the State by the governor of the State of Hawai`i, we commenced a significant reduction in our Domestic capacity, the effects of which will be reflected in our second quarter ASM. As of March 31, 2020, we operated a total of 18 daily domestic flights, including daily service between Honolulu, Hawai`i and Los Angeles, California and San Francisco, California, and sixteen daily interisland flights within the State of Hawai`i. This is

in comparison to 218 daily domestic flights, on average, in operation during March 2019, representing a decline of approximately 93%.

International passenger revenue fell 12.1% to $137.0 million during the three months ended March 31, 2020. RPMs decreased 12.5% on a capacity decrease of 6.4%, while yields remained flat. The decrease was primarily driven by declining demand as a result of the COVID-19 pandemic. Beginning in early March, and with the onset of the COVID-19 pandemic in China and South Korea, we reduced capacity on certain of its international routes. Throughout the month as various governments instituted mandatory quarantines and/or travel restrictions, including the State of Hawai`i, we temporarily suspended all international service. This is in comparison to 15 international flights on average operated daily in March 2019.

Other Operating Revenue

For the three months ended March 31, 2020, Other operating revenue was flat, up $0.2 million, or 0.4%, as compared to the prior year period, primarily due to an increase in loyalty program revenue of $2.3 million due to increased cardholder spend on the co-branded credit card. Other components in Other operating revenue include, but are not limited to, cargo, ground handling and other freight services, which collectively, declined in the period by approximately $2.0 million driven by the impact of COVID-19.

        Operating Expense
        Operating expenses were $727.2 million and $604.1 million for the three months
        ended March 31, 2020 and 2019, respectively. Increases (decreases) in operating
        expenses for the three months ended March 31, 2020, as compared to the same
        period in 2019, are detailed below:
                                                                 Increase / (decrease) for the three
                                                               months ended March 31, 2020 compared to
                                                                the three months ended March 31, 2019
                                                                         $                    %
        Operating expenses                                        (in thousands)
        Wages and benefits                                     $            13,189              7.5  %
        Aircraft fuel, including taxes and delivery                        (12,626 )          (10.0 )
        Maintenance, materials and repairs                                  (2,636 )           (4.2 )
        Aircraft and passenger servicing                                      (617 )           (1.6 )
        Commissions and other selling                                       (4,120 )          (13.4 )
        Aircraft rent                                                       (3,392 )          (11.2 )
        Other rentals and landing fees                                      (1,280 )           (4.1 )
        Depreciation and amortization                                        1,298              3.4
        Purchased services                                                   1,788              5.5
        Special items                                                      126,904                -
        Other                                                                4,657             12.2
        Total                                                  $           123,165             20.4  %

Wages and benefits

Wages and benefits expense increased by $13.2 million, or 7.5%, for the three months ended March 31, 2020 as compared to the prior year period. The increase was a result of higher salary expense, driven by annual rate increases for . . .

May 07, 2020

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