Executives: Ashlee Kishimoto - Sr. Director, IR Mark Dunkerley - President and CEO Peter Ingram - Chief Commercial Officer Shannon Okinaka -

CFO
Analysts: Helane Becker - Cowen & Company Hunter Keay - Wolfe Research Rajeev Lalwani - Morgan Stanley Adam Hackel - CRT Stephen O’Hara - Sidoti & Company Michael Derchin - Sterne Agee David Siegel - Honolulu Star-Advertiser Adrian Schofield - Aviation

Week
Operator: Greetings and welcome to the Hawaiian Holdings' 2016 Quarter One Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Ashlee Kishimoto. Thank you, you may begin.

Ashlee Kishimoto: Thank you, Operator. Welcome everyone and thank you for joining us today to discuss Hawaiian Holdings' financial results for the first quarter of 2016.

On the call with me today are Mark Dunkerley, President and Chief Executive Officer; Peter Ingram, Chief Commercial Officer; and Shannon Okinaka, Chief Financial Officer. Mark will begin with some overview comments. Next, Peter will take us through revenue performance. Shannon will follow with a discussion on cost and the balance sheet. We will then open the call up for questions and Mark will end with some closing remarks.

By now everyone should have access to the press release that went out at about 4 o'clock Eastern Time today. If you have not received the release, it is available on the Investor Relations page of our website hawaiianairlines.com. During the course of our call today, we will refer at times to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found in our press release or in the Investor Relations page of our website. Before we begin, we'd like to remind everyone that the following prepared remarks contain forward-looking statements including statements about our future plans and potential future financial and operating performance and management may make additional forward-looking statements in response to your questions.

These statements are subject to risk and uncertainties and do not guarantee future performance and therefore undue reliance should not be placed upon them. For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements, we refer you to Hawaiian Holdings' recent filings with the SEC, including the most recent annual report filed on Form 10-K as well as reports filed on Form 10-Q and 8-K. And with that, I'd like to turn the call over to Mark.

Mark Dunkerley: Thank you Ashley, and hello, hi, everyone. Thank you for joining us today.

Our first quarter's record breaking financial results reflect the continuation of improving trends in our business. Contributing have been solid demand for travel to Hawaii, balance industry capacity over the vast majority of our network, lower fuel prices, and the lapping of a strengthening U.S. dollar against the Japanese yen. Our adjusted net income grew 43% to $43 million and our adjusted earnings per share more than doubled to $0.80 per share slightly ahead of consensus estimates. Adjusted pretax margin for the quarter grew to 5.2 percentage points to 12.6% in what is typically our weakest quarter.

Our pretax return on invested capital rose to 29.7% for the 12 months ended March 31. Our outstanding financial performance this quarter as well as our outlook for the rest of 2016, reflect the dedication of my colleagues to making Hawaiian Airlines a world class carrier consistently delivering excellence. My gratitude goes through all of Hawaiian's employees for their tremendous efforts and the passion they put into taking care of our guests on the ground and in the air. We are reaping the financial benefits of the investments we made in the business over the past five years. One of those benefits has been the strengthening of our balance sheet.

In the last quarter, we made some scheduled principal payments and also retired some debt ahead of maturity together amounting to $82 million. This lowered our leverage on an adjusted debt to EBITDA basis to 2.5 times. Our cash position remains strong with $669 million available. Also in the quarter we repurchased $2.5 million of our outstanding stock. Let me share some of the highlights since we last spoke back in January.

We led our peers in operational and on-time performance and from an unprecedented 12th year in a row, we're the nation's most punctual airline. And we are off to a great start this year leading one time performance rankings for each month reported so far. In February the U.S. Department of Transportation reached an agreement with the government of Japan for expanded access to Haneda International Airport in Tokyo, an objective we have long supported. Under the amended agreement, two additional route rights will be available for U.S.

carriers, one for use during day time hours and one for night time. A few minutes ago, Hawaiian submitted its application for two of the now six routes for U.S. carriers to serve Haneda. The first is to serve the Honolulu-Haneda route daily as we do today, and the second is to split another daily service between frequencies from Haneda to Kona and additional flights to Honolulu. With almost four out of every 10 passengers that travel between the United States and Japan coming to Hawaii, we are hopeful that DOT will award Hawaiian both of the routes that it seeks.

A couple of weeks ago, we began modifying the first of our A330s with fully lie-flat seats in our premium cabin. The first aircraft is due to be completed later this quarter and after this summer, we will be modifying all of our A330s most detailed through the beginning of 2018. The increasing deployment of our A330s on longer haul missions in the years ahead makes us a sensible time to modify our A330 fleets. We are confident that the new lie-flat seats will set the standard for premium cabin service to Hawaii. And in addition, we are going to be adding more extra comfort seats in response to strong demand.

This quarter we implemented changes through our sales teams in Australia and New Zealand by in-sourcing certain key sales and distribution functions. In addition, we announced our intention to complete a similar transition in Japan this year. As our business grows and develops in these countries, we have determined that the restructuring is necessary to best sale and market our services. As a result, we expect our international revenue performance to improve, while also generating some cost savings. Elsewhere in our industry, the big recent news was the announcement of Alaska's intention to acquire Virgin America.

We compete with both companies today on service between the Western United States and Hawaii. Our competitive costs, outstanding operational performance and unparallel Hawaiian hospitality have proven to be a winning combination against the wide variety of competitors over many years and we expect to be successful regardless of the changing competitive landscape. Inevitably we've received questions regarding the prospect for future consolidation and its potential to include Hawaiian. So let me reiterate our long standing policy in addressing such questions by saying that management seeks the maximization of long term shareholder value, and that beyond this, we don't comment on hypothetical scenarios. Looking ahead, we expect the current positive trends to continue.

Demand for travel to Hawaii remains strong. There is balanced industry capacity throughout the majority of our network. Fuel costs remain low, and we will continue to benefit from the lapping of foreign exchange in fuel surcharge headwinds. Our exceptional hospitality combined with a product and schedule tailor to ledger traveler to Hawaii consistently delivers a unit revenue premium for us when compared to our peers. The outstanding first quarter results reflect a good start to 2016 and enhances our confidence that the full year will be even better.

Peter will now take us through the revenue picture.

Peter Ingram: Thanks Mark. First quarter total operating revenue was up $11 million to $551 million on a 3.3% capacity increase driven by solid demand throughout our network, particularly in North America. Unit revenue on a year-over-year basis improved sequentially for the third consecutive quarter with PRASM down 0.5% and RASM down 1.2%. PRASM was in line with our expectations with positive year-over-year results in our domestic network and sequential improvements in international results as we begin to lap some of the yen headwinds and reduction in international fuel surcharges.

RASM results ended towards the unfavorable end of our original guidance range due largely to weaker than expected cargo performance which I will expand upon in more detail. Irrespective of these challenges, in the first quarter we expect our year-over-year RASM performance will compare favorably to the vast majority of our competitors in this period. And on the PRASM basis, I think we are very likely to be the leader of the pack among U.S air carriers. Overall, we remain encouraged by the continuing sequential improvements in year-over-year unit revenue and notably absent ForEx and fuel surcharge impacts our year-over-year RASM changes would have been in positive territory for the period on a year-over-year basis. Domestically PRASM was up 1.3% in this quarter with positive year-over-year performance in both our North America and Neighbor Island networks and healthy demand trends in both areas.

Starting this quarter we'll be reporting domestic revenue performance on a combined North America and Neighbor Island basis on these calls to align with the A4A reporting which we joined this year. We intend to continue to provide qualitative commentary for both North America and the Neighbor Islands. In North America PRASM was healthy and we're encouraged by the improving trend in our performance throughout the first quarter. This strong performance was seen in the period of more moderate industry capacity growth of about 5%. Looking ahead, our momentum continues.

Booking trends in North America are strong and despite an earlier Easter that landed in the first quarter of this year, we expect to see year-over-year PRASM improvements in the second quarter on flat industry capacity growth from the cities we serve. The industry capacity outlook also remains manageable in the back half of the year with published schedules currently suggesting 2% capacity growth in the third quarter and flat in the fourth quarter. In the Neighbor Islands, we managed a slightly positive year-over-year PRASM results this quarter on a flat load factor and a 3% increase in ASMs, owing to the interior refurbishments of our Boeing 717 last year. These results were notable as we offered 5% more seat departures on 1% fewer aircraft departures which drove meaningful cost efficiencies. The results for this period continue to validate the business case for reconfiguring the aircraft.

During the peak periods of the day, when much of our traffic is long haul connections, we carried more passengers with the additional capacity, capturing previously spilled demand and supporting our long haul business. Internationally, underlying trends are positive and demand for travel to Hawaii remains solid despite the strength of the U.S. dollar over the last year and half. We are seeing sequential year-over-year improvements to international PRASM which was down 9.2% in the first quarter and we’ve begun to turn the corner towards a more level year-over-year comparisons with respect to currency and fuel surcharges. ForEx and fuel surcharge headwinds decelerated from the fourth quarter to 3 points of year-over-year system RASM impact in the first quarter.

And in Japan, our largest source of international visitors, the currency trends reversed to tailwinds year-over-year by the end of the period. Looking ahead, industry capacity growth internationally varied by region but on an overall basis, seats to Hawaii on the routes that we serve are expected to be up 1% to 4% for the rest of the year with some puts and takes in certain regions. A new competitor launched service from Seoul in December with early indications suggesting that our one of a kind Hawaiian hospitality continues to resonate in the marketplace. In Brisbane, our only non-stop competitor which had started service in late 2014, has announced that it will leave the route in the fourth quarter of this year which should provide for a better balance of supply with demand. Also we are looking forward to launching our Narita to Honolulu service in July building on our continued strength in Japan.

And as Mark noted earlier, we are eager to take advantage of the further opening of Haneda to airport to U.S. operators. Overall, we remain well positioned internationally with a balance of capacity and maturing developing markets, and we expect to continuation of sequential year-over-year improvements throughout the rest of the year. Our value added revenue per passenger continues to strengthen and in the first quarter grew $1.34 from last year to $22.66. The growth in the first quarter was again due to the continued success of extra comfort and preferred seats on sales of HawaiianMiles, particularly through our co-brand credit card.

Cargo revenue faced headwinds in the first quarter as I mentioned earlier, coming in $5 million lower than last year. The primary drivers were lower fuel surcharges, weakness in outbound cargo markets in Asia, and a uniquely hard comp, as last year's first quarter was boosted by the dock slowdowns on the West Coast which redirected some cargo shipments from sea to air. Cargo shipments between the islands of Hawaii were a bright spot during the quarter but this is a smaller part of our overall business and so it wasn't enough to offset the global cargo headwinds. Let me switch gears to cover the outlook for the second quarter. For the second quarter, we are expecting ASM growth of 1.5% to 3.5% from last year and for the full year, our guidance is unchanged at up 2.5% to 5.5%.

For RASM, we are forecasting the continuation of improving trends, bolstered by solid demand. RASM is expected to be flat year-over-year at the mid-point of our guidance range, of down 1.5% to up 1.5%. These expectations reflect an improvement in passenger unit revenue trends with positive domestic results despite headwinds from an earlier Easter, and improving international results with reduced foreign exchange in fuel surcharge impacts which should affect RASM by about 2 points on a system level. We expect continued gains from value added products and I've incorporated the challenging cargo environment in our expectations. In conclusion, I want to thank everyone on our commercial team for delivering these results and all of our frontline employees for continuing to take great care of our guests.

Producing these outstanding first quarter results in our seasonally weakest quarter reflects robust demand for travel to Hawaii and reinforces our confidence that 2016 will be an even better year than our record financial performance in 2015. We are well positioned with the products and services tailored specifically for our guests, exceptional service and outstanding hospitality. And with that, let me turn the call over to Shannon to discuss our cost and the balance sheet.

Shannon Okinaka: Thanks Peter. To recap the quarter, adjusted net income grew to a record $43 million and our adjusted earnings per share more than doubled to $0.80 per share.

Our adjusted pretax margin this quarter was an outstanding 12.6%. These 5.2 point increases from last year will likely compare favorably to the vast majority of our peers. Total operating expenses for the quarter were down $10 million as the decline in fuel cost fully offset cost headwinds we faced mainly wage increases, higher profit sharing expenses and increases in maintenance cost. CASM ex-fuel increased 5.4% from last year which was toward the unfavorable end of the guidance range we provided at the end of January primarily due to higher than anticipated 2015 profit sharing and stock based compensation due to the increase in our share price. Non-operating expense was a tailwind this quarter with lower interest expense due to our early debt retirement over the past year.

In addition, we also received the benefit from the conversion of our balance sheet of cost denominated in foreign currencies to the U.S. dollar for reporting purposes reflecting the strengthening of the yen against the dollar during the quarter. We continue to strengthen our balance sheet in the first quarter. We early retired $52 million of debt and lowered debt levels to $683 million which further decrease a leverage to 2.5 times on an adjusted debt to adjusted EBITDA basis. In contrast, it illustrate how far we come of our de-levering.

A year ago, our outstanding debt sit at $962 million and leverage was 3.6 times. In April, we continue to de-lever an early retired an additional $90 million of debt where our total of $142 million so far this year. The early retirement of debt not only significantly reduces our debt obligations and leverage but also provides us with valuable cost savings from interest expense which we expect to total about $18 million this year. In addition, it increases our financial flexibility with the growing number of un-incumbent aircraft in our fleet. We also continue to maintain a strong cash position with $669 million in cash, cash equivalents and short term investments, some of which was used to fund the early debt retirement in April that I just mentioned.

We’re forecasting the continuation of positive free cash flow. We will continue to look for opportunities to de-lever, opportunistically repurchase shares, make investments in our business and fund our pension plans in excess of required contribution. Beyond 2016, we expect to continue generating positive free cash flow which we plan to use to contribute to the investments in our A321neos that begin delivery in 2017. Switching gears to the second quarter and full year outlook. We expect CASM ex-fuel for the second quarter to increase 3.5% to 6.5% from last year, as we continue to make investments in our people and our business.

About 3.5 percentage points of the expected year-over-year increase are expected to come from the following; wage increases totaling 1.5 points primarily driven from the execution of the IAM agreements earlier this year, profit sharing accruals and an increase in stock based compensation totaling half a point, airport space rents and landing fee increases totaling half a point, and purchase services including start-up costs for our new Neighbor Island cargo freighter operations launching later this year, and investments in IT infrastructure as we continue to grow our business totaling one percentage point. For the full year, we continue to expect our CASM ex-fuel to grow in the low single digit range which does not include any assumptions about the amendable contract with our pilots union and our employees covered by a contract with the TWU. We will provide a revised estimate if necessary after agreements are reached. We expect year-over-year CASM ex-fuel headwinds to be similar to the first half of the year totaling about four percentage points coming from the following. Maintenance expense due to an increase in heavy trucks on our A330s and B717s totaling one percentage points, wages and benefits totaling about two points primarily from the ratification of the IAM agreements and higher profit sharing, purchase services totaling half a point as we launched the Neighbor Island freighter business and investments in IT infrastructure, and space rent totaling half a point for our new maintenance and cargo facility.

We continue to look for ways to minimize our controllable cost and identify productivity savings opportunities to offset increasing costs. Here are few examples of investments for making in our business that are structurally lowering our cost for the long term. Our new Honolulu cargo and maintenance facility is expected to be completed in the third quarter and we anticipate it will positively transform the way we work resulting in productivity gains and the end sourcing of search in aircraft checks, which we expect to provide increased aircraft availability and cost savings to offset increased rent cost. Earlier this month, we announced the purchase of an onsite A320 series like stimulator at our corporate headquarters. The sim is expected to provide the most advanced and sophisticated training technology as we begin preparations for the arrival of the A321neo fleet in 2017.

With the onsite location of the sim, we expect cost savings from decreased training and travel costs as compared to an alternative offsite facility. And as Mark mentioned earlier, the changes to our sales and distribution teams in Australia and New Zealand this quarter and the announcement of upcoming changes in Japan are expected to provide important synergies for our future success in these destinations, which not only improves revenue performance but also provides the decrease to cost as we expect our additional labor cost to be more than offset by lower commissions and other selling expenses. Based on the fuel curve as of April 13, our economic fuel cost per gallon for the second quarter is expected to be in the range of $1.50 to $1.60 and for the full year, $1.45 to $1.55. Our fuel hedge is expected to settle in the second quarter are currently at a loss of $12 million and based on the current fuel curve we anticipate sequential improvements in the second half of the year. As of March 31, we hedged approximately 50% of our projected fuel requirements for the remainder of 2016 with heating oil swaps.

We’ll continue to maintain a disciplined approach to managing our program and our focus first and foremost on managing operating and economic win. For the second quarter, we expect our fuel consumption to be in the range of up 1% to up 3% from last year and for the full year, we continue to expect up 1.5% to up 4.5% as we continue to benefit from our fuel efficiency initiatives. Based on the current outlook, we continue to expect fuel savings from last year net of hedges and volume increases of $39 million in the second quarter and $120 million for all of 2016. We continue to expect our CapEx to be lower than the peak in 2014 but higher than 2015 to a range of $160 million to $170 million which consists of $80 million of free delivery payments for the upcoming A321neo deliveries, $45 million of maintenance CapEx and $40 million for other items included in the A320 series simulator and the A330 interior modifications. As a reminder, our current 2016 fleet plan is to add one A330 under lease in June.

These strong first quarter results position us well for the long-term success of Hawaiian and we're excited about the outlook for the remainder of the year. With continued strong financial performance, we intend to use excess cash that we generate to further strengthen our balance sheet, invest in our business and people and enhance long-term value for our shareholders.

Ashlee Kishimoto: Thank you, Mark, Peter and Shannon. Also thanks to all of you for joining us today and for your continued interest in Hawaiian Holdings. We're now ready for questions from the analysts first and then the media, if time permits.

As a reminder, please limit yourself to one question and if needed one follow-up question. Operator, can you please open the line now for questions.

Operator: [Operator Instructions] Our first question comes from Helane Becker with Cowen & Company. Please go ahead.

Helane Becker: Okay.

Thanks operator, hi guys. Mark, I know that it would take a long time before you would get to a situation where your pilots could potentially strike, but they are doing this vote and there being very vocal about it. And I'm just kind of wondering - and their ask is rather large. I don't want you to negotiate or anything in public, but can you go through the process of where you and the NMB stand with this and what we're potentially looking at?

Mark Dunkerley: Sure. Certainly.

We're in mediation at both the company and file for mediation so I think we're both pleased to be part of that process. Negotiations are taking place this week and there's other dates as you probably know under the Railway Labor Act, so long as we're in mediation, neither party is free to engage in self-help either management or the union. So I think that process is rumbling forward and I think the dynamic is relatively straightforward. Our pilots have hourly rates that are below those of their competitors and that's something we freely acknowledge. And they have benefits that are substantially better than those of competitors.

And I think the negotiation is really around how do we get to a competitive contract where the dollars make sense for the business and the pilots have for them, the right blend of pay, work rules and benefits that does not leave it at a competitive disadvantage.

Helane Becker: Okay. That's fine. And then my other question is, a lot of the Caribbean and some places like Costa Rica, were seeing people, young people especially, cancel their planned trips. Do you think you're benefiting from the Zika Virus concerns that are out there? Travel to Hawaii?

Mark Dunkerley: I don't think we're benefiting very directly from our concerns around Zika.

I think there is - we do benefit generally out of Asia, the perception that the United States is a safe destination at a time when there are security concerns in Europe, in other and in other tourist destinations around Asia. So less of a Zika related issue and more just of a general state of the planet issue which actually places us in relatively good shape.

Helane Becker: Great. Okay, thanks.

Operator: Our next question comes from Hunter Keay from Wolfe Research.

Please go ahead.

Hunter Keay: Hi. Thank you. How are you guys? Are there any maybe barriers to entry on the inner island business that maybe people don't really fully appreciate whether it's an infrastructure issue or maybe even like a distribution issue or labor issue? Anything that gives you confidence over the long term that you're going to continue to keep a tight dominant share that you have there as long as you continue to provide reasonable service at a reasonable price?

Mark Dunkerley: So, there no natural barriers to entry for anybody coming into that marketplace. I think there are - we do enjoy sort of degree of presence in the marketplace and frequency and if you're follower of this sort of S curve effect, we're in a very comfortable position there.

We operate almost 30 round trips a day between Honolulu and Maui for example, which is a terrific level of service unmatched in any other city anywhere in the United States. Furthermore, we do manage our business for in such a way that we're looking for the preservation of our franchise for the long-term, as oppose to perhaps extracting all the benefits that might be available to us in the short term. And if you look at average fares in the Neighbor Island business, they range it about sort of between $70 and $80 which in the context of flying around the U.S. continent. I think most people would see as being a very, very, very good deal.

So, I think there's nothing per se stopping anybody coming in and challenging us, but we do manage our business in such a way that we imagine that there is competition out there and we want to provide a competitive service offering to customers flying between the islands.

Peter Ingram: Hunter, this is Peter. I just might add that. You hear us say, quarter after quarter on these calls that we've got the right cost structure, the right aircraft, the right product and that our frontline employees deliver outstanding hospitality, and that's the competitive difference. And those aren't just words that we say on the call.

We really do believe that and we think that is what positions us well for the long-term in the Neighbor Island business and in our long haul business for that matter.

Hunter Keay: Sure, yes. Okay. And then in terms of 2017 capacity, can you give us an idea of how to think about now given you're going to start to get some of the A321 next year. And maybe if you can take a - gives us an early read on how that might help or hurt CASM ex-fuel would appreciate it.

And thanks a lot for the time.

Peter Ingram: Sure. Hunter, this is Peter again. In terms of 2017 it’s a little too early to be giving specific guidance, but I think you can expect another year of what I would characterize as low single digit capacity growth overall. The A321 start to arrive for us in the summer, but because this is an introduction of a new aircraft type, it is not like taking a new A330 where we have it on the line and in service within a week.

We'll take a little bit of time to ramp up on that. We have no A330 deliveries after the airplane that we're taking in June of this year. So, I think if you think of something in the 2%, 3%, 4%, 5% range, something in there is roughly what we're thinking, although we're not going to give the specific guidance yet.

Shannon Okinaka: Hunter, this is Shannon. On the CASM you'll see similar to what Peter said, I can't give you guidance.

But if you think about the cost to end up a new fleet type, there will be no additional training costs and another start-up cost related to that. But we've also got a bunch of projects in place now that are providing structurally lower cost. So there is some offset there, but I mean inducting the news fleet type role will have additional one-time cost associated with it.

Hunter Keay: Sounds good. Thanks a lot.

Operator: Our next question comes from Rajeev Lalwani from Morgan Stanley. Please go ahead.

Rajeev Lalwani: Hi. Thanks for the time. I guess the first question, can you just talk about whether or not if there are any limitations to adding capacity to or from some of your key markets going to Hawaii.

I’m not thinking about inter-islands, I think you did a good job of answering that. But just thinking about whether or not there is the ability for just more competition, more capacity et cetera?

Peter Ingram: Yes, sure. The only market in which we operate that has a sort of absolute barrier to entry is Haneda to Honolulu and that subject to application we just put in now whether there is opportunity for little bit more. There are some slot constraints in some of our international airport that are significant Beijing comes to mind. Setting those aside, there aren't any barriers entry and there haven't been barriers to entry.

And really that's why we've been so focused on making sure that our product is the most competitive product in the marketplace that we operate in and we found that has been the influencer that make sure that we are never sort of uniquely disadvantage by whatever competitors choose to do. Last year we had a lot of capacity coming in to the marketplace that was a subject to many conference calls. We had many quarterly conference calls. This year as Peter mentioned we're looking at sort of flat capacity growth - industry capacity growth in the second quarter up 2% in the third and flat in the fourth quarter and that's just by some OAG schedules, we wouldn't expect that to change dramatically.

Rajeev Lalwani: Appreciate it.

And then Shannon just a quick question for you, I know we've talked about this before, but as far as the cash balance and getting to your liquidity targets and all of that, just an update there and the timeline et cetera?

Shannon Okinaka: Sure, Rajeev we always have - we're always evaluating the best uses for our cash, so we maintain basically a less all the different actions that we can take and we're researching and rank it based on the highest internal rate of return, so that includes prepayment of debt. We're looking at interest rate levels and coupon levels as well as breakage fees that we'd have to pay. We consider our stock repurchase plan and there we're looking at investments in the business. Another ways to reduce debt still, as mentioned we're fairly focused on pension this year and you'll see us making contribution to our pensions and other retirement, post-retirement benefit. I mean access of minimum required contributions.

We're also looking ahead. We might have a little bit of a higher balance this year than you'd expect, because we're also looking ahead at our 321 news. And we anticipate having enough cash to pay for all of them, I don't know that that's what would do, because we also know that or think that these aircraft are highly financeable and they are highly desired, so we will be out in the market looking for opportunities. But we want to make sure that we have the right capital structure and I think that will maintain for at least some of them in cash. So, we're just constantly evaluating all the different options we have and executing based on opportunity and IRR.

Rajeev Lalwani: Great. Very helpful. Thank you, guys.

Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Please go ahead.

Unidentified Analyst: Hi everyone, it's actually [indiscernible] for Mike. Good afternoon. So first regarding your recently announced restructuring plan for the Japanese sales strategy which it sounds like you modeled after changes made to your strategy in Australia, New Zealand. Mark you talked about how you expect that to enhance revenue performance and cost savings. Just wondering if you would want to put some more meat on the bones around that and tell us any financial metrics you're targeting for making that change?

Peter Ingram: Yes.

I don't think I'm going to go into specific. This is Peter by the way. I don't I'll go into this specific financial improvements, but I'll give you a little bit more background on what we are doing there. And what we've done is in Australia we had previously had a country manager and then a sales team that and people working on distribution in the marketplace. So we're working on contract to us from a third party.

We in-source that by hiring about a dozen people that builds out a team that serves to major markets. And I think when you get people working directly for the airline they have a greater connection to the business, often you're able to attract a little bit higher caliber candidate in the marketplace to work directly for an airline. And I think over time that will be reflected in our ability to connect better with the key elements in the distribution market and you remember in international the majority of our distribution is still through more traditional third party channels as oppose to being online and through digital channels as is more pervasively in North America. We were able to do that as well with a minimal and in fact slightly positive impact on our cost structure. So, we think we get revenue improvements.

We think we get lower costs and it will make sense as we remain very committed to developing and growing in these markets going forward.

Unidentified Analyst: Okay. Thanks Peter. That was really helpful. And then on Japan, one hand you have the prospect of a rise in fuel surcharges on tickets as we've seen fuel prices move up in recent weeks.

And you have a Yen that's getting stronger which would help on the translation effect revenue. But on the other hand you have an economy that continues to struggle on paper with a weak economic backdrop. So I just wanted to hear you elaborate on demand trends out of this market in particular I know you spoke a lot of Asia broadly, but if you could focus on Japan. And talk about how those trends that maybe evolved in recent months and how you expect them to evolve further out this year?

Peter Ingram: Yes. I think I understand what you're talking about from a macro basis in terms of a Japanese economy.

But frankly for the piece we serve for outbound leisure demand we are seeing nothing but continuing strength. And I think in fact some of the long term demographic trends in Japan that are potentially negative for GDP output as you projected over the next decade are actually leave us in a pretty sweet spot of a leisure demand standpoint, because an aging population with more time on their hands and still significant wealth, and not to mentioned a great affinity for traveling to Hawaii that's outpaces any other outbound destination in terms of demand from Japan. We think we are setup for continued success in demand and we're looking forward to continuing to capitalize on that.

Unidentified Analyst: Okay, great. If I could just ask one more housekeeping question.

Premium economy seats, do you have any update as far as like where the run rate is on that? And what you expect the contribution to be this year and next year?

Peter Ingram: What I can tell you on that is in the month of March, we had our best month ever which is a Mantra that we enjoyed repeating frequently when it comes to talking about that product. We are at a point where the gains are fairly incremental in North America just because we have fairly high load factor, we were able to adjust prices in some places this year. Looking forward with the reconfiguration of the A330, the headline on that reconfiguration is fully lie class seats that are going into place in the premium cabin. But in addition to that part of the modification is that and even more extra comfort seats and that gives us more inventory that we believe we can sell based on what we've seen so far. We think there are still opportunities to improve the distribution in international markets where it’s a little tougher with third party distribution.

We don't have all the advantages of selling a great proportion of our tickets through the website so there's still run rate for improvement there. And the A321s will also be configured with extra comfort seats and on a proportion of the cabin basis they will have more extra comfort seats in the A330 today. So we think that's a product that continues to have lot of runway in front of it.

Unidentified Analyst: Thanks so much for the helpful and thorough responses.

Operator: Our next question comes from Adam Hackel with CRT.

Please go ahead.

Adam Hackel: Hi guys. Thanks for taking my questions here. Just in terms of the yen given its now under 1.10 and seemingly going to be a nice tailwinds. How should we be thinking about that as we get into second half of the year where you really have some pretty easy comps from that side and I guess into the beginning of 2017 as well?

Mark Dunkerley: Yes.

I think we're excited. We are looking forward to that period of time. It's been – those of you – all of you listening to these calls over the last 18 months and here as we've been consistently talking about the adverse impact to foreign currency, and as we mentioned in our prepared remarks coming to a point where that's going to start to look positive. The yen has already returned in a lagging 12 months basis. The Australian dollar has yet to do that.

But I think that picture gets increasingly rosy for us as the year runs out.

Adam Hackel: Great. And just another kind of more longer term question on the new euros. I'm just kind of curious when you guys have to get these euros then you kind of look at the West Coast. How you're thinking about kind of deploying these versus maybe keeping the wide body in there? You kind of talked about on your Investor deck you had a slide that had kind of the OMD by market.

Is that a good way to think about maybe from our seat looking at where you could deploy some of these, is that a good proxy?

Mark Dunkerley: Well, it's sort of – and with A321 they're going to be able to do three things for us. Thing number one is they're going to a degree replace retiring 767. So have eight in our fleet and over the next several years we start to determine how long that would go for, but the several years would be retiring 767. The second thing is its going to allow us to increase capacity in markets that can take it in a smaller increment than laying on an extra wide body. At the moment we got 294 seat A330s and the next incremental capacity is to add another 294 seats with we'll be able to kind of walk up capacity and finer increments which will help at the margins.

The third of course is that it will allow us to address the issues, the observations that you’ve made which is the markets which today, by themselves are not sufficiently large to warrant the 294 seat lie-flat. So the A321 is going to be - we are going to be able to deploy based on what sort of any one of three different theories out there. And we are delighted by the early indications of the efficiency of this aircraft. We have little doubt in believing that for this market, for this market that has just one range profile, one customer profile, the A321neo is going to be the aircraft to compete with and we are delighted to have them.

Adam Hackel: Great.

Thanks Mark. Thank you, guys.

Operator: Our next question comes from Stephen O’Hara from Sidoti & Company. Please go ahead. Stephen O’Hara: Hi, good afternoon.

Can you just talk about the - in terms of the Haneda routes, if you were to get both of them, what would that potentially do to your capacity growth? And I don’t know when the decisions supposed to be announced this year. But if you had the ability to add as much as you want, what would that look like versus where you are now?

Mark Dunkerley: I think, first of all to be clear, unfortunately it is the nature of this particular agreement, the things that are naturally clear. So we currently operate a daily A330 Honolulu to Haneda. The DOT is determined that we have to reapply to essentially keep that. So that is one of our two applications that went in today.

So what we are really talking about is the increment of one extra A330 going in. It will have a negligible impact on our total flying capacity this year for a couple of reasons. One is that whatever happens, it’s unlikely that services are going to stop until the back half, well into the back half of the year. And secondly, that with a fleet that is essentially fixed, we would be filling out some frequencies elsewhere to provide the essence we need for that operation. More generally I will say that, given the opportunities we are looking at today, we probably feel about an aircraft of two light in terms of what our fleet is but as stewards of our shareholders interest, rather be in that situation than to be long airplanes.

So the question of how much more could we do, I think the answer would be we could probably, happily utilize probably another couple of wide-bodies more than we have on the property today but we are not complaining. Stephen O’Hara: Okay. And then just on the guidance for revenue. I mean, it seemed to little bit - I guess I was surprised it was about the same as the last quarters, given the fact that I think capacity is flat and the yen is substantially better. I think more of a tailwind obviously as you said.

But maybe the differences other than being more of a shoulder period with the Easter move, but kind of big positive in other below the line. Should we expect that type of benefit as well because of the change in the yen? And maybe that’s kind of offsetting that unit revenue improvement or lending the unit revenue improvement and shows up down there because of the hedging or something.

Mark Dunkerley: Yes, let me just put it into context, Steve, because I actually think it’s pretty encouraging outlook that we have. If you look at what we just reported for the first quarter, we came in towards the lower end of that original guidance range which was also flat at the mid-point. The biggest driver of that was cargo which we are seeing a weaker global cargo market and I think if you look at the results from the big network carriers that have been released so far, that is not a situation that’s unique to us.

That’s really a good sign of times. As we look to the second quarter, you see the sequential improvement about 120 basis point from the mid-point. As I’ve seen some of the other carriers reporting so far that sequential improvement, I think compares fairly favorably to what you are seeing from some of the other carriers. So we feel pretty good about where we are going. We'd love to try and beat that number.

But I think it is pretty positive outlook and will put us on the favorable end of where the rest of the industry is. Stephen O'Hara: Okay. I certainly wasn’t implying your underperforming industry in any way. But should we expect another, based on where the yen is right now, should we expect another benefit below the line again as well?

Shannon Okinaka: Yes. I think that's fair to say Steve.

So you’ll probably see that non-odd benefit below the line like you did, as well as some of it gets pushed into revenue as well. Stephen O’Hara: Okay. And then if you could just remind me in terms of the other revenue. How much of that is cargo?

Mark Dunkerley: Cargo is probably about $15 million in this quarter, 15 million to 20 million. Stephen O’Hara: Okay.

And so – I mean the decline year-over-year was pretty slight. Assuming at a pretty big decline in cargo, what was the differential there? Was that the extra comfort or something?

Mark Dunkerley: I think what you seeing there, extra comfort actually gets reflected in the passenger line. So it is always a little confusing when we try and sort out our value added revenue because some of it's in passenger, some of it's in other. I think part of what you are seeing in there is the continued improvement we are seeing from the HawaiianMiles sales, the co-brand credit card success that we are continuing to enjoy. Stephen O’Hara: Okay.

Thank you very much.

Operator: The next question comes from Michael Derchin from Sterne Agee. Please go ahead.

Michael Derchin: Just want to ask about China a little, just to get two things. One, just an update on demand and view some of the economic issues that people are talking about in China.

As well as, what is the - you mentioned there might be some slight constraints in Beijing. What is the current state of the bilateral between the U.S. and China these days?

Mark Dunkerley: Sure. So in terms of overall demand, we are not really seeing any changes to overall demand. I caveat that by saying we operate three times a week in a market in Beijing to Honolulu that is not really fully developed in China.

We’ve got lot of work to do both as a community here in Hawaii to put Hawaii in the map in China, and also frankly as an airline there. So we are not seeing a dramatic impact on demand but that I think probably reflects the fact that we are not really participating in overall consumer demand trends in China. I think we are kind of small in pretty special case. With respect to the bilateral, the bilateral agreement between the United States and China rise for certain limitations in terms of the number of flights that can be operated by the airlines of either side to the big major cities including Beijing, including Shanghai, places like that. There are a few frequencies left that are unallocated.

They are the subject of a contested proceeding at the moment between I believe United and American. And with that done, then those ones will be essentially consumed through the near term. Beyond that, the United States and China will be sitting down to negotiate amendments to the bilateral agreement. We are big believers in more liberalization and we hope that the two governments can find a way to increasing the number of permissible services between the United States and China.

Operator: Thank you.

Our next question comes from David Siegel from Honolulu Star-Advertiser. Please go ahead.

David Siegel: Hi Mark. I wanted to get back and ask a follow up question on Haneda and also ask about [indiscernible] cargo. Regarding Haneda, the other airlines, I've obviously had a difficult time holding on to the routes that you were originally awarded by the DOT and you’ve been pretty solid with the Honolulu Haneda routes since 2010.

And you've applied in the past Haneda to Kona without success. And now in this latest application, you're talking about splitting I guess that - this additional route between Kona and Honolulu. What you're thinking behind that and do you think that will give you may be a more of an advantage of getting approval this time from guilty?

Mark Dunkerley: Well, first of all I'm not quite sure exactly what's going to give us the greatest advantage in front of DOT. As I mentioned when fully, I mean 40% of all traffic between the United States and Japan is flying to and from Hawaii, we think that the case is very strong for Hawaii not just to enjoy one of the six available frequencies, but certainly two. We also think very strongly that if it in a - U.S.

policy should reflect the fact that the mega carriers against which we compete enjoy a playing field that has been typically decisively in their favor and this is an opportunity for government policy to begin to readdress some of that reality. So we're pretty optimistic about the two services. I would say that when we look at Honolulu versus Kona, we're simply trying to gauge how best to meet the demand for people wishing to travel on those routes. And we think we find tune to a little bit more accurately in this application than we did in the last.

David Siegel: And I know five of the six routes who can be in the daytime, but the two routes of you would be applying for this.

Would there be able to be daytime routes?

Mark Dunkerley: In our application, we have applied for Honolulu to Haneda during the day. Honolulu to the split Kona - sorry, the Haneda to the split Kona - Honolulu that second frequency during the day is our first preference as we've indicated a willingness as a third choice to take that second frequency during the nighttime hours.

David Siegel: Okay. And the other question I guess about, you made a mention - you mentioned on the phone call about you're going to launch the Neighbor Island cargo later this year. Could you explain what's that's going to be?

Mark Dunkerley: Sure.

At the moment, we've got a couple of all cargo aircrafts that we've purchased some months ago that are undergoing modification and the final approvals from the FAA. Once we have those, we'll be able to launch Neighbor Island Cargo Service with dedicated faces. The other thing that's holding us up is the fact that the new Honolulu cargo facility has been installed for the best part of the year. It isn't a helpful fact, but that too will be overcome and pretty soon we're looking forward to providing all cargo service for the needs of the Neighbor Island community.

Operator: Our next question comes from Adrian Schofield from Aviation Week.

Please go ahead.

Adrian Schofield: Thanks a lot. Just couple of things. First of all you mentioned that you could happily utilize another couple of wide bodies. Is there any prospect you think of boosting your wide-body fleet at all or restoring retirement of 767s? And with the A330 modifications, just wondering do you know how many of those you might complete this calendar year? And also I kind of missed this early in the call, but when did you say the entire fleet might be completed?

Mark Dunkerley: Okay.

So on your first one of course when we bring in the A321neos at the margins, that's also going to have the effect of freeing up some wide-bodies for deployment elsewhere. So as soon as the A321neo start arriving, we'll have the option of doing some more long-hold wide body flying further field. So that's a possibility. We do have an order in at the moment for the A330, 800, so those come in 2019. So we will attempt a new wide-body aircraft have this gap from the middle of 2017 to 2019.

With respect to the seat modification of the A330 fleet will be done early in 2018. And with respect to how many aircraft will be modified before year and it will be somewhere in the region of about seven or eight.

Peter Ingram: Yes. Six to eight, account by the end of the year.

Mark Dunkerley: Okay.

So I should say for the benefit of my colleagues, I should say it's going to be nine.

Adrian Schofield: Is 2018 estimated a little bit later than you had previously indicated for the completion?

Mark Dunkerley: No not really. The only real variable here is due to one at a time nose to tail or do you double up. And it's always been our intention to do them one at a time. As we say nose-to-tail, so one airplane is done, you fly it up back into service and you fly another aircraft for modification.

Peter Ingram: And Adrian this is Peter, because we have peak-demand periods around the holidays and in the summertime, one of the things we will do, because it makes the most sense for the business is to spend the nose-to-tail line so that we can bring extra airplanes into service for the peak. Around Christmas this year, the peak in the summer of 2017, but we'll be completing the modification as expeditiously as we can.

Operator: Thank you. It appears there are no further questions at this time. I'd like to turn the floor over Mr.

Dunkerley for any closing remarks.

Mark Dunkerley: Thank you very much operator, and thanks to all of you for joining us today. We had some strong results in the first quarter and we're enjoying solid demand in each of our geographies, manageable industry capacity growth to Hawaii, continuation of low fuel prices. So with all of that said, we remain optimistic about our outlook for 2016. Thank you all very much.

Bye, bye.

Operator: Thank you. This concludes today's conference. You may disconnect your lines and have a nice evening.