Executives: Daniel Wong - Senior Director, Investor Relations Peter Ingram - President and Chief Executive Officer Shannon Okinaka - Chief Financial Officer Brent Overbeek - Senior Vice President of Revenue Management and Network

Planning
Analysts: Hunter Keay - Wolfe Research Joseph DiNardi - Stifel Nicolaus Rajeev Lalwani - Morgan Stanley Helane Becker - Cowen and Company Kevin Crissey - Citi Dan McKenzie - Buckingham Research Group Stephen O'Hara - Sidoti and Company Susan Donofrio - Macquarie

Capital
Operator: Greetings, and welcome to Hawaiian Holdings Inc. Third Quarter Fiscal Year 2018 Earnings 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, Daniel Wong, Senior Director, Investor Relations. Please go ahead.

Daniel Wong: Thank you, Hector. Hello everyone, and welcome to Hawaiian Holdings Third Quarter 2018 Earnings Call. Here with me in Honolulu are Peter Ingram, President and Chief Executive Officer; Shannon Okinaka, Chief Financial Officer; and Brent Overbeek, Senior Vice President of Revenue Management and Network Planning.

Peter will open the call with an overview of the business. Next, Brent will share an update on our revenue performance and outlook. Shannon will then discuss our cost performance and outlook. We'll then open the call up for questions, and Peter 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've not received the release, it is available on the Investor Relations page of our Web site, hawaiianairlines.com. During our call today, we will refer at times to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found in our press release or on the Investor Relations page of our Web site. As a reminder, 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 risks and uncertainties and do not guarantee future performance, and therefore, undue reliance should not be placed upon them.

For a more detailed discussion on the factors that could cause actual results to differ materially from those projected in any forward-looking statement, 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 forms 10-Q and 8-K. And with that, I'll now turn the call over to Peter.

Peter Ingram: Mahalo, Daniel. Aloha everyone, and thank you for joining us today. We had a very eventful summer and what is proving to be an eventful year.

Our third quarter financial performance was solid, but fell short of the expectations we shared on our last earnings call as a series of severe weather events in the latter part of the quarter affected our business in the period. Second quarter flooding in Kauai and volcanic activity at Kilauea the way to hurricane and typhoon-related disruptions in Hawaii and Japan in the latter part of the third quarter. Each of these affected our financial performance and specifically our revenue to varying degrees. Brent will walk you through the specific third quarter impacts later in the call. Through it all, our team once again rose to the challenge and remained focused on delivering outstanding customer service to our guests and supporting our communities in times of need.

Their continued commitment and dedication is an inspiration to all of us and gives me great confidence for the future. As we enter the home stretch of 2018, it's worth taking a moment to reflect on our progress against the key objectives we had laid out for the Company entering the year, and frame how that progress positions us for 2019 and beyond. At the top of the agenda for the year was transitioning A321neos into our fleet and phasing out of our 767s. Though, delivery delays in the first half of the year forced adjustments in our network deployments in the second and third quarter. We're now substantially back on track and expect to end the year with the 11 A321s we expected when we started the year.

As we have noted previously, the A321s unlock important new opportunities for our route network, allowing us to tap into midsized city pairs between the Western U.S. and Hawaii that were not economically feasible with a wide body only fleet. In addition, the continued deployment of these aircrafts will afford us the opportunity to redeploy A330s to the large market and long-haul routes that utilize the aircraft's full potential. Our announcement in September that we will watch non-stop service between Boston and Honolulu, starting in April of 2019, is one example of this. Shortly after the Christmas and New Year peak season, we'll retire the last of our 767s.

This event will leave Hawaiian mainline with a simplified fleet of just three aircraft types; 717, serving shortfall neighbor island routes; A321 serving the mid-haul; and A330s flying a more optimal mix of long-haul routes and high demand mid-haul routes. Every one of our cabins will have been reconfigured or new within the last five years. And each of these three types will have a single configuration, optimized to their mission, providing us superior revenue generating capability, operational efficiency and flexibility. Including investments in lie flat an extra comfort seating, our fleet is better positioned now than it has been at any time in the past decade. Also, at the beginning of the year, we laid out plans to move quickly on our partnership with Japan Airlines.

With our mutual code sharing distribution through JALPAK and Frequent Flyer reciprocity now in place, we have turned our attention fully to preparing our organization for the joint venture, which our application is in front of regulators here in the U.S. and Japan. The timing of regulatory approvals remains uncertain but our working expectation is that we will complete the process by the early part of 2019, which would allow us to implement the joint venture a bit later in the year. We're eager to get started and our teams continue to engage in planning with the JAL teams to the extent permitted prior to antitrust immunity being granted. Finally, when we started the year, investor focus was at least as much on changes in our competitive environment as on the things we were doing to position ourselves for the future.

With three full quarters of elevated competitive capacity growth behind us, we are continuing to deliver margins in the industries' top tier and have maintained our revenue premium. In the just completed quarter, we were on track for a modest year-over-year gain above last year's best ever RASM performance. Alas, multiple weather events pushed the third quarter year-over-year RASM into negative territory, so that particular record will stand for the time being. Looking back over the last few years, you'll see that we consistently produced solid operational and financial results, while competing against the industry's largest domestic and international airlines. Over the better part of the last decade, we've grown from a successful niche airline into a durable carrier that is built to compete.

We're executing our plan for disciplined profitable growth built on a combination of superior hospitality and operational focus. Irrespective of the competitive environment, no airline is better positioned to serve the needs of guests traveling to, from and within Hawaii. As we continue to build on our strengths, we will continue to thrive as a carrier of choice for Hawaii. Now, let me turn it over to Brent to take you through our revenue performance and near term outlook.

Brent Overbeek: Thanks, Peter, and aloha everyone.

Top line growth in each of our geographies, strong performance in our value-added products and another record quarter for our cargo business, led revenue growth of 6% year-over-year to $759 million. Despite setting a record for third quarter revenue, Mother Nature had her presence known during the quarter with two hurricanes in Hawaii, typhoon in Japan and lingering impacts from volcanic book away, all of which pressured RASM, which declined 2% year-over-year. Adjusting for these unforeseeable events that occurred in the quarter, system-RASM would have been essentially flat, which was in line with our original guidance range given in July. The RASM performance is inclusive of 1.25 point benefit from fuel surcharges and foreign exchange gains. Domestic PRASM, which includes our North America and Neighbor Island services, was down 6% year-over-year.

Roughly a third of the decline was due to entity mix as longer states like North American capacity grew high single digits and Neighbor Island capacity was down slightly year-over-year. Our North America services were impacted the most from hurricanes Lane and Olivia where PRASM was down more than system average year-over-year. Despite the storm disruptions, North American yields were solid while facing industry capacity growth of 8% year-over-year. Neighbor Island PRASM, which was up in the mid-single-digit range again this quarter but below expectations given the impact of the storms and some residual impact of the volcano earlier in the booking curve. We've seeing booking trajectories generally improve in North America and Neighbor Island markets following both hurricanes, though some revenue softness is expected to carry forward into the fourth quarter.

As several analysts have noted, the industry pricing environment to Hawaii has weakened a bit over the past seven weeks. Our international markets showed their resilience once again this quarter. International PRASM was up nearly 4% year-over-year driven by strong demands, especially in Japan that led to solid load factors and higher average fares in the quarter. Strength in the region helped offset the effects of typhoon Jebi that closed Osakas Kansai airport for 10 days. Our operations have returned to normal but we do anticipate a nominal impact on traffic, particularly in the front half of the quarter.

When we spoke back in July, we noted the tough comp we were facing this quarter against our highest ever absolute RASM performance in the third quarter of 2017. Looking beyond year-over-year comparisons, though, our revenue performance remains encouraging from historical perspective. The double-digit industry capacity growth we faced in 2018 on our North America services, which accounts for on average about half of our total revenues, has been met with strong demand for the Hawaii vacation. Notably, overall North America traffic was up 5% against our own capacity growth of more than 8% in the quarter. The midsized U.S.

West Coast markets we're entering with our A321neos are trending positively. We're operating nine routes exclusively with A321neos today and by years' end that number will increase to 11. Our premium cabin continues to perform well with front cabin PRASM growth outperforming the main cabin. The extra comfort product investments we made on the A330 and A321 fleets continue to reap benefits. Extra comfort and preferred seat revenue increased by 35% year-over-year in the third quarter.

Our seat upgrades and Hawaiian mile sales continue to drive strong value-added revenue growth as well. In the third quarter, value-added revenue per passenger was up 23% year-over-year. And finally, our cargo performance continues to benefit from the strong global economy. Cargo revenue was up nearly 13% this quarter to more than $27 million, a new quarterly record. This quarter, we watched all cargo Neighbor Island freighters service.

While it represents a small part of our overall cargo business, it complements our existing 717 operation and adds the ability to seamlessly connect containerized cargo with our long-haul network. It was fitting to inaugurate this service by shipping construction and household supplies to Kauai and Hawaii Island to support disaster relief efforts for those communities. Now, looking ahead to the fourth quarter. Following 2018s peak capacity growth in the third quarter, we expect fourth quarter capacity to moderate and grow between 4.5% to 6.5% year-over-year. This puts us on track for full year 2018 capacity growth between 5.5% and 6.5%, which we've narrowed a bit since our last guidance.

And while it's too early to share formal 2019 guidance, as Peter and I have said in prior quarterly calls, we expect 2019 capacity growth to be less than 2018s year-over-year capacity growth. We expect RASM will be down 2.5% to up 0.5% in the fourth quarter, which include some lingering effects from August and September storms and reflects the current pricing environment. While we're never satisfied reporting lower year-over-year RASM, our performance in the third quarter was credible given the capacity environment and everything Mother Nature through our way. As Peter mentioned, we're built to compete. We've built a durable airline and our performance this quarter reinforces our confidence and our ability to deliver solid results regardless of the competitive environment.

We're excited about our opportunities ahead and look forward to sharing more details with you at our Investor Day in December. And now, I'll turn the call over to Shannon.

Shannon Okinaka: Thanks Brent and thank you to everyone for joining us today on the call. To briefly recap the quarter, adjusted net income was about $97 million or $1.91 per share. We delivered what we expect will be among the industry's highest adjusted pretax margin of about 16% despite competitive pressures and rising fuel prices, which increased over 38% over the same period last year.

Total operating expenses were up about 18% year-over-year this quarter, driven mostly by the increase in fuel costs. With fuel rates continuing an upward trajectory, it's worth taking a moment to mention our fuel hedging program and how it offset some of the pressure of rising fuel costs. Given the unpredictable nature of the fuel market, we use our hedging programs to give a short term protection on rising fuel rates to ease us into changing market conditions. Our focus on call options allows us to fully participate in the benefits of a decreasing fuel rate environment and provide some relief as the industry adjust to rising fuel costs. In the third quarter, we realized fuel hedging gains of $8 million net of premium and for the full year, we expect our fuel hedges to settle at a gain of more than $31 million net of premiums.

Underscoring how much fuel has risen this year this expected gain is nearly 2.5 times what we expected it to be at the beginning of the year. A gain on the fuel hedge line, however, indicates an increase to our overall fuel costs. In the third quarter, our economic fuel costs per gallons increased nearly 30% over the prior year. And in the fourth quarter, we expect our economic fuel costs per gallon to increase between 20% to 25% over the prior year. Now, switching to our non-fuel unit costs.

CASM, ex-fuel on special items, increased 1.2% year-over-year in the third quarter. This included about 2 percentage points of headwind from contractual increases in maintenance rates, increased benefits costs and costs related to the start up of our Neighbor Island cargo business. In the fourth quarter, we expect non-fuel unit costs to be in the range of down 2% and up 1% year-over-year. This includes about 1 percentage points of the same headwinds we saw in the third quarter. This puts us in line with our prior full year CASM ex-fuel guidance above 2% at the midpoint.

Both fourth quarter and full year CASM ex-fuel guidance ranges exclude any assumptions relating to the amendable contract with our Flight Attendants Union. During the past quarter, we jointly filed for mediation with the National Mediation Board with the Association of Flight Attendants, which is scheduled to begin next month. We hope that the commencement of mediation will lead to a comps resolution of our negotiations. Overall, our 2018 cost story is playing out as anticipated. The CASM ex-fuel and the special item growth we saw in the first half of the year has given way to flattish year-over-year growth in the back half of the year.

We’ve lapped the increases that we saw in the first half of the year, the most notable of which was from wages and benefits. And we’re benefiting in the back half of the year from increased productivity from our A321neo deployments and 767 retirements. The cost to benefit from our fleet transition will continue into 2019 as we retire our last 767 and grow our A321neo fleet by about 50%. The improvement in the fuel burned for ASM of the A321neo’s versus the 767 is significant and important in this rising fuel environment. Concluding this three year transition is key as it help to set a more stable base for our cost improvement efforts, while establishing a solid foundation for our next stage of growth when our 787 deliveries begin in 2021.

We’re committed to a culture of continuous improvement and value generation, ensuring that the dollars that we spend and invest positively impacts the bottom line. Finally, last quarter I mentioned that we were reviewing our expected uses of capital. During the third quarter, we bought back 31 million in share repurchases and issued 6 million in dividends. We also made $15 million pension contribution, the timing of which allowed the payment to be a deductible expense against our 2017 taxes. This is particularly notable because this deduction offset taxes at last year’s higher federal tax rates.

As a result of this pension contribution, we had a lower than usual tax rate for the third quarter of 2018 and now expect our full year 2018 effective tax rate to fall between 21% and 23%. We're pleased with our financial results this quarter and look forward to a strong closing of 2018. We look forward to seeing you at our Investor Day this December and sharing more about our future plans. This concludes our prepared remarks, and I'll now turn the call back over to Daniel.

Daniel Wong: Thank you, Peter, Shannon and Brent.

I'd also like to thank 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. And as a reminder, please limit yourself to one question and if needed one follow-up question. Hector, please open the line for questions.

Operator: Thank you.

At this time, we'll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Hunter Keay with Wolfe Research. Please proceed with your question.

Hunter Keay: So as we're heading into '19, you're kind of limping into '19 on RASM. And that’s obviously a little bit Island air benefits still in there and that’s before anything about the competitive environment changing potentially.

So, how do we think about what offsets you guys have in the fleet to offset, or the network itself to offset or to say, maybe this is a reverse that trend next year?

Peter Ingram: Yes, let me start and then maybe turn it over to Brent to see if he has any comments to add to mine. I think if you look at the last couple of quarters, we've had a fair bit of noise from natural events, particularly affecting the Neighbor Island North America networks but also Japan. If you assume that some of that doesn't exist in 2019, or not that we can count on nothing but I think it's been an unusual year for some of these. There's some opportunity there, some little stability perhaps in the Neighbor Island network. I think we are maturing into some new route additions in the Western U.S.

They're not necessarily brand-new markets for us. But I think we will expect to mature and see better performance in some of those. And of course we've got the joint venture with JAL that we expect start to more positively impact our results going into 2019. So, we think we've got a lot to look forward to. And I think -- I take your comment from a year-over-year basis about "limping through the back part of the year".

I'd say if you look at where our pretax margin is going to be, we're going to be near the top tier of the industry on a full year basis, stripping out all the seasonality. I think we are coming off very different comps in 2016 and 2017 than many of the other carriers you follow. So I don’t think I would characterize it as limping, I think we’re executing just fine in a competitive environment. We’re focused on managing our costs into next year, which will give us some benefits as well. And we’re really excited about the fleet transition.

Hunter Keay: So let’s talk about the other side of that, exactly as you mentioned is the CASM mix is there -- because there’s only so much you can do obviously on the RASM side, the market is going to do what it's going to do. But do you feel like you’re in a position next year where you can grow your RASM more than your CASM ex or your RASM shrinks more slowly than your CASM ex and you’re setting up for like a positive controllable margin year in 2019. Do you feel good about the spread between your RASM and CASM ex moving through the year next year as you see it right now?

Peter Ingram: I think it’s a little early for us to be talking about specific guidance going into 2019. I think -- and we’re in the budget process now, and I'll turn it over to Shannon to talk a little bit more about the costs. We’re in the budget process but we are confident about moving into a period where we'll have better cost performance.

Getting through the fleet transition is very helpful in that. I think the entire team here is very focused on the fact that the world has got more competitive in the last couple of years and you expect that when you're leading the industry and margin that you are going to see more competitive capacity and we have to sharpen our pencils. So I am not going to give a RASM/CASM spread forecast for 2019. But I would say on the cost side, we've got a lot of confidence that we can continue to manage things well. Shannon, maybe just see what's there's anything you want to add to that.

Shannon Okinaka: Yes the only thing I would add. I agree on everything with that Peter said regarding our CASM ex and controllable costs. Sometimes we tend to think of fuel as not being controllable but there is a piece to fuel that is somewhat controllable. And I think our fleet transitions, especially as we get into this environment of rising fuel cost, is going to be really important when you’re talking about RASM/CASM spread. Obviously, we’re looking at profitability and margin.

I think in addition to all the things that we’re doing with labor productivity and automation and things like that, I think the fleet transition will also contribute a lot to better fuel burn and fuel efficiency and that’s an important part of that profitability prospectus.

Operator: Our next question comes from the line of Joseph DiNardi with Stifel. Please proceed with your question.

Joseph DiNardi: Just piggy backing on Hunter's question a little bit. Peter, you mentioned that your returns are going to be towards the high end of the industry.

And I think what we’ve learned over the past few years is that it’s hard for airlines with superior returns to maintain them unless there's some structural advantage that they have. I am wondering if you think Hawaiian possesses some structural advantage that will allow you to maintain above average margins. Or if this is just a question of increased capacity coming in until your margins normalize, whether that'd be southwest or united or whoever else? Or is there something that allows you to maintain better margins?

Peter Ingram: I would say there are a number of things. And some of it is reflected in the comments I had in the prepared remarks about no airline being better positioned to serve guests to, from and within Hawaii than anyone else. And some of that is very much structural.

I think our fleet as we are moving into this coming period is, as I said in the prepared remarks, more optimally positioned than we have been in a decade really for as long as I've been here. I think having a mix of products on the airplane from our front cabin product, to extra comfort, to our main cabin product that is specifically targeted to the needs of people traveling to and from Hawaii is an advantage relative to competitors that appropriately configure their airplanes for a broader mix of markets as opposed to specifically for applying here in Hawaii. I think we've got an advantage on the revenue side and we've seen this bear out in our customer service -- customer experience scores that with the hospitality that our employees deliver on every flight, and that has served us well over time and that gets reflected in the revenue premium in the markets we serve. So, I think there's a variety of things that we can count on to continue to execute very well. On a relative basis, period-to-period as competitive environment changes, there will be some differences in our performance.

But we are very confident that we are built to compete and we are positioned to succeed in whatever the competitive environment is.

Joseph DiNardi: Just on the JAL JV, I'm wondering if you could just talk about economic impact. Is it a rounding year in 2019, it's more 2020, any color there? And is the idea that on a like-for-like basis, you guys are just earning a PRASM discount to JAL on some of these routes for whatever reason? And once you turn this on that that discount should go away. Is that how we should think about it?

Peter Ingram: Yes, it's difficult at this point to put a precise number to it. And candidly, because we are in the pre-antitrust immunity phase at this point, we don't have specific insights into their route level revenue performance and they don't have insights into our route level revenue performance.

I think we do know that the benefits of commercial partnerships in this industry are correlated to how well you can align the interest of the participants. And so code share is better than interline at aligning interest. Joint ventures are better than code share in terms of aligning interest. And we think we bring two carriers together in this partnership that have different strengths in terms of their presence in Japan, their network behind our gateways in Japan, our presence in Hawaii, our history serving Hawaii, our gateways connecting routes behind Hawaii that will allow us to serve guests very well and should allow us to generate positive returns as we get into the joint venture.

Operator: Our next question comes from the line of Michael Linenberg with Deutsche Bank.

Please proceed with your questions.

Unidentified Analyst: Hey guys, it’s actually Matt on for Mike. Could you just talk about competitive capacity over the next few quarters, looking at both domestic and international, or more specifically, transpacific to Asia and transpacific to the continental United States?

Peter Ingram: Right now, it looks like fourth quarter industry capacity from North America to Hawaii will be up around 7%. That’s about a point-less year-over-year than what we saw from an industry perspective in 3Q. Based on what is currently published and obviously some time for that to change, industry capacity looks pretty flat as you look into the front part in the first half of 2019.

On the international side of the business, again, it looks generally flat. You've got individual markets up and down a little bit. You still have some competitive capacity being up in Osaka and a bit in Auckland. But absent that based on what’s currently published in the front half of ‘19 is quite moderate, up in the 1% to 2% range and in terms of 4Q, a similar percentage.

Unidentified Analyst: And just as a quick follow-up.

How much of fuel surcharge is adding to pricing in the Pacific?

Peter Ingram: In 3Q, we had -- on the international side of the business, fuel surcharges were added just under 5% benefit in the third quarter, which was disproportionately in Japan.

Brent Overbeek: And to clarify that, that’s RASM on the international, not a system impact.

Operator: Our next question comes from the line of Rajeev Lalwani with Morgan Stanley. Please proceed with your question.

Rajeev Lalwani: Peter or Brent, a question for you, in your prepared remarks, you talked about just some softness in yields from North America.

Can you just provide some color as to what’s driving it? Is it demand? Is it capacity? Is it just folks getting ready for Southwest? Just any color that you can provide there. And then just as a quick follow-up, I think you mentioned that there’s some lingering effects that you’re assuming around storms et cetera carrying into the fourth quarter. Can you just quantify some of that?

Peter Ingram: Let me start on the first part and then I’ll turn it over to Brent, and he can maybe answer the second part on that about the lingering effects of the storms. I’d say and this might disappoint you a little bit, Rajeev. But it's really hard for us to speculate on what is driving the competitive action in the marketplace.

We monitor it very closely every day and we'll come up with our own theories. But if you really want to understand what's going on in terms of pricing of others, you’re better to talk to them and then they’re probably not going to give you a very straight answer either. So we mentioned it in the call, I would say, because we have seen conversation about it in some of the commentary on the industry. And we think that it's important for us to acknowledge that we do see some softness out there. But really when it comes to pricing and forward outlook, there is not very much more we can add on top of that.

Brent Overbeek: And in terms of storm impact and natural disaster moving in the 4Q, Rajeev, we didn’t explicitly call out and we didn’t specifically tag it as a direct dollar impact. It's inherent in the trends we're seeing and the baseline that we're doing our forecast off of in 4Q. So we don’t have an explicit call out right now in terms of what we put in the 4Q.

Rajeev Lalwani: Would it be possible again I can bite at the apples?

Brent Overbeek: Yes, we can take a look at it. We'll have to triangulate on a bit.

But I think it's something that we can have Daniel follow up on.

Rajeev Lalwani: Peter, I just wanted to follow-up to your answer, maybe I'll parch it a bit of different way. I mean, as it relates to fuel prices moving up. Can you maybe talk about your confidence or your ability maybe to recapture that just given that you're more leisure market and so the elasticity of demand and pricing obviously is a factor to consider, so maybe approaching it that way in terms of how you're going to handle that as you move forward in some of the fuel hedges roll off?

Peter Ingram: Yes, I think what I would say is it gives us a lot of confidence and it doesn’t necessarily manifests itself in a particular quarter. But I think our ability to consistently generate a revenue premium and to operate at efficient cost structure means that as capacity and competitive balances shakes out, it should shake out with Hawaiian in a better position.

So, we don't think anyone is better positioned to earn positive returns travelling from and within Hawaii than we are. And so as the competition settles out over a period of time, we think we'll be in a good position to cover our costs and then some.

Operator: Our next question comes from the line of Helane Becker with Cowen and Company. Please proceed with your question.

Helane Becker: Just a couple of questions here.

Have you noticed any change in the way people redeem their Frequent Flyer miles? Have they been maybe increasing their redemptions or is it about the same, I don’t know if you get ready for some of these capacity changes that are going on?

Peter Ingram: So, Helane, in terms of redemption as a percentage of traffic, it's pretty consistent year-over-year. Certainly, as we've grown the airline and grown the Hawaiian miles program, redemptions have increased as we've got more miles, more engaged customers. And so, overall, load factor contribution, which is probably the easiest way to look at frequent flyer. Load factor contribution in the third quarter was pretty consistent year-over-year.

Helane Becker: And then the other question I had is Peter and [Kim] I've been following the Company on and off for a very long time now.

And one of the things I don't really ever recall is the airline talking about weather and weather events. And it seems like there's been more of that in the past year or so. And I'm just wondering are you seeing more -- I don’t know how to ask the question. Are you seeing more disruptions than you would've expected to see? Or is what you're seeing just -- it's not an anomaly, it's just normal weather events and we just never really heard about them?

Peter Ingram: Yes, so I can just talk about it somewhat anecdotally. But I've been with Hawaiian now for just about 13-years.

And I would on the one hand agree with you that that we've had more tropical storm activity here around Hawaii in the last four or five years than we did in the first four, five or six years that I was here. Interestingly, we actually haven't had a storm with hurricane force winds hits the Island and almost -- hit any of the islands in almost two decades. Although, we have had some near misses and some tropical storms that did some damage, which obviously I wouldn't want to minimize. There's a little bit of an ebb and flow of the storm activity based on whether it’s El Nino or La Nina and the temperature of the waters in a particular year. What we do know is a storm doesn’t have to actually hit the islands to disrupt our traffic.

As there is uncertainty and we all have -- see lots of weather reports there, we saw in the days leading up to hurricane Lane impact, which here Oahu was a bit of a non-event in terms of a weather event. It was barely even raining during the point of closest approach. But by the time we got to that point on a Friday morning, a lot of people had changed their plans and canceled their trips. And we were flying some empty airplanes for a couple of days. And, so it has an impact on the business, even sometimes if it doesn't have an impact on the people living here at the time the storm hits.

The other thing I would add is I think it was a particularly active, and I probably can’t say past tense yet, because I think the tropical storms even goes through November. But it has been a particularly active tropical storm season in Japan. And that is a big part of our business and they've really seen a lot of activity this year. Credit to our Japan team, it seemed like every couple weeks we were dealing with a storm event and they really rallied up and performed well. But obviously that was disrupting to the business in this quarter.

Helane Becker: And then just one other question, as you transition aircraft types and from the 767s to A321s. So I am assuming you get -- I think Shannon you actually said fuel cost benefit, fuel efficiency. What about on the RASM side? As I recall, there's a greater percentage of premium fleets. So is that a RASM positive I should think about it that way?

Peter Ingram: Helane, we’ve got a lot of moving parts as we work through it. And like-for-like where we have swaps, I would say clearly should be RASM positive.

We’ve got higher proportion of premium seats. As you mentioned, we've got the ability to monetize extra comfort, which is there. But in a lot of markets we've deployed already, we've actually had a fair amount of moving parts where we've taken the 330 in a market like Portland and split that into two A321s. And so, we'll have some examples where will be increasing the capacity within an individual city that makes it a little harder to isolate the pure economics of down gauging 321s. But certainly going forward, we'll have a few more in terms of cleaner comparisons.

Brent Overbeek: I'll just underscore the extra comfort piece, in particular, which has been a great story for us over the last few years. We never invested in putting an extra comfort cabin into the 767s knowing that they were only going to be in our fleet for a relatively short number of years after we launched that product. The revenue capability of that is, therefore, something that is incremental as we replace 767 capacity with A321 capacity. And you're seeing that reflected this year and we expect to see more of that as we go into next year and more 321s are in the marketplace.

Operator: Our next question comes from the line of Kevin Crissey with Citi.

Please proceed with your question.

Kevin Crissey: Quick question on FX. Does FX become a headwind in Q4 or does it remain a tailwind as it was in Q3?

Peter Ingram: Right now, our anticipation it would become a bit of a headwind. It was a bit of a tailwind in 3Q and it will become a bit of a headwind in 4Q.

Kevin Crissey: And speaking of the extra comfort seating and just maybe speaking broadly about the concept of extra comfort, it seems to be -- that type of product seems to be very successful across the sector.

Can you talk about why that is working now? I understand why you wouldn't have put it on an aircraft fleet that you were ultimately getting out of. But can you talk about why that works now, and maybe it wasn’t a product that was used 10 years ago 15 years ago? Why does these products -- are they being successful now? And why shouldn’t an investor think that this is just a pro-cyclical opportunity as opposed to a structural opportunity?

Peter Ingram: Yes, I'll tell you what I think and then see if Brent wants to add on to it. But I think about going back 15 or 20 years ago and you think about the first premium economy product that was out there, I think it might've been economy class on United was launched. And it was really a product that was designed to attract a greater share of business traffic and corporate traffic in a very competitive market. And given the distribution capabilities at the time that was the -- it was really still priced as part of your main cabin fare structure but you are trying to basically attract demand to get to a better part of the booking structure by attracting more demand than your competitors.

For a carrier like Hawaiian with a direct-to-consumer selling proposition, we didn’t have a real way to monetize that. So it wasn't something we were talking about when I joined Hawaiian. What changed for us is distribution capability. And as we had more direct distribution, we had the ability to actually charge a separate fare in the main cabin versus the extra comfort seating and price it as an add-on product on our Web site and that was where it first really took off for us. And now we've got the distribution capability through third-party technology to be able to do that in third-party channels as well, which helps us in the international market.

So I think it really is a different situation than it was 10 or 15 years ago. This is not a product that we've lived through many cycles with and the difference is distribution capability.

Brent Overbeek: Yes, I agree with Peter. I think distribution has done a whole lot. And as we went through earlier this year, in terms of opening up distribution to third-party through EMD that has clearly benefited us on the international side of the business.

And I think the other is really just customer choice and that is really recognizing the value in the product. And I don't think as airlines we did a great job of marketing that at first in terms of the benefits and what consumers were getting out of that. And once we were able to get that message across and empower them with technology to be able to make the purchase quite easily from a distribution perspective, those two synergies really hold together and we’re seeing strong results from it.

Operator: Our next question comes from the line of Dan McKenzie from Buckingham Research Group. Please proceed with your question.

Dan McKenzie: Just had a few questions. So there’s a lot of background noise in the third quarter and fourth quarter RASM trends. And I guess just going back to an earlier question, I think it was Rajeev. It is helpful to strip out Mother Nature just to get a sense of whether trends are improving or deteriorating on a sequential basis. So we don’t have the hurricanes.

But we’re also lapping the exit of Island Air here in October in last year, so that creates even more noise. And so I guess just wondering if you can elaborate a little bit more about how we should think about these trends sequentially?

Peter Ingram: Let me let Brent take that one.

Brent Overbeek: So Dan as you pointed out, there’re a lot of moving parts. And as we said with Rajeev’s question, we don’t have Mother Nature specifically broken out in terms of 4Q. With respect to Island Air, we all are getting to a point where a good chunk of that is in 4Q already.

So, if you look at their operation, they were winding down in October of last year. They've pulled their schedule down quite a bit and we've seen some strong traffic even in October as a result of that and then there cessation of service in early November. So a good chunk of that was already in the 4Q base from last year.

Dan McKenzie: So sequentially, third quarter and fourth quarters, do we think about it just being steady, a little bit better, a little bit worse. How do we think directionally?

Brent Overbeek: Overall, I would say with some of the pricing environment that’s existed from the third quarter into the fourth.

I would say, sequentially, a bit worse in North America specifically.

Dan McKenzie: And I guess if I focus on the North America and those weakening trends. At least when I look at the data, it seems to be more East Coast driven than West Coast. West Coast demand actually looks pretty firm. I am just wondering if you would share that view or is there -- am I maybe missing something here.

Brent Overbeek: I think demand overall is holding up reasonably well. I think we’ve seen -- it varies from market to market, Dan, in terms of some of pricing activity that we’ve seen. And I won’t go into specifics there. But yes, there have been some pockets of pricing in the Midwest and the East Coast that have been pretty highly discounted. But we've seen some fairs off the West Coast as well that some of our competitors have taken some more aggressive action from a year-over-year perspective on.

Dan McKenzie: Brent, I think average up-sell the comfort plus. How is this I guess transformed over this past year? What was that average up-sell? Where are you at today? And I guess I'm just trying to get a sense of what inning we're in with respect to the opportunity there.

Brent Overbeek: So, we'll share a bit more at Investor Day in December. If we look at this year, it was a year of rapid growth in terms of the supply of extra comfort seats. And so we will continue to see that in terms of through the fourth quarter of this year and into 2019 as we will have additional 321s joining the fleet and the annualization of that.

So, utilization remains quite good. We continue to expand our distribution internationally, and our take rates there have continued to go up. But I think there's still some more opportunity for us to succeed in that space and we'll share some more information around that at Investor Day.

Dan McKenzie: If I can squeeze one last one in. I guess, just one for Shannon.

What has to go right or wrong to hit the better or worst end of your cost outlook? It looks like it was about the usual gap that you guys provide, but it's not a $0.20 EPS. I'm just wondering what your thinking could swing that one way or the other.

Shannon Okinaka: So, assuming you are talking about fourth quarter, I think, we have a pretty good handle on fourth quarter for us, because we are small sometimes and unexpected maintenance event can swing some numbers. But it would really be an unanticipated event for the fourth quarter. Other than something like that, I really can't think of what would really changed our course on our guidance, maybe if we got to an agreement with the ASA in the fourth quarter as our guidance doesn’t include any assumption about that.

Looking ahead to 2019, really most of the 2019 -- we're still working on the details of the budget. But a lot of -- the guidance for flat to down, unit cost in '19 is really about fleet transition. And so getting the 767s out in the first quarter, flying the 321s more, so getting actual productivities from, all the labor that we have hired in 2018 is important. So, I guess if something changes with that transition plan that could cause it. If or some reason we had delays in 321neos, we had people unable to fly air planes then maybe that could change some of what we see.

That is still a little controllable. We have a lot of investment dollars we are continuing to make an IT and I think that’s really important for the long-term. So I don’t know that I'd want to pull that back too much. But I mean if we really needed to pull some levers, we do have some levers that we can pull on the cost side to come down if things changed.

Operator: Our next question comes from the line of Stephen O'Hara with Sidoti.

Please proceed with your question. Stephen O'Hara: Just on I guess the A321s. I mean, there are bit of issues with delivery delay, et cetera. I mean, what's your confidence that those issues are behind you and your plan going forward won't be interrupted by that?

Peter Ingram: So obviously we had a big setback in the first quarter back in February when deliveries halted for a period of time. As we said in the prepared remarks, we are substantially back on track now.

I think that setback has caused some other challenges in the supply chain in the production process that affected some of the deliveries and 3Q. But right now, we've got a lot more confidence with nine airplanes on property and another two coming by the end of the year, or about delivery timelines. I can’t speculate about the unknown unknowns. But based on the known unknowns, I think we are in a mode now of where delivery dates are swinging a few days or a week one way or the other as opposed to where we were back in the first quarter. And hopefully, our partners on the manufacturing side of the industry can keep that performance up and 2019 will be a little bit more quieter in this regard.

Stephen O'Hara: And then maybe just on the flat to down. I guess language about 2019, I think at the last Investor Day there were some comments about the CASM -- overall CASM impact of the fleet transition with the A321s, 767s et cetera redeploying the A330. And I mean could you update that at all, I mean, is that still on track? And then what does that mean for 2019 or 2020? Thank you.

Shannon Okinaka: Actually, we’ll get into a lot more of that detail at Investor Day. So at this point, I think I’ll not comment too much on it.

We plan to go through some of that math and impact of the CASM at Investor Day.

Peter Ingram: But Steve, I’ll just say there’s nothing about the cost performance of the 321 that has changed our view of the positive effect it will have on our route network.

Operator: Our final question comes from the line of Susan Donofrio with Macquarie Capital. Please proceed with your question.

Susan Donofrio: Just a couple of quick questions, first, just with respect to the extra comfort.

Are you able to fully sell that now on all those seats? I know there was an issue just because you do have 767s now. So if you could just clarify that.

Peter Ingram: So, we don’t have extra comfort on our 767s. We do have exit row seating that we sell on the day of operation on the 767s as what we call the preferred seat. But that’s just day off because we’ve got some different configurations on there.

But as we get those 767s retired, we will have the dedicated extra comfort seats on every one of our mid-haul and long-haul flights. And we do have extra light room seating also on our 717s.

Susan Donofrio: And then I am just curious, Peter. You talked about the weakening of pricing over the past seven weeks. Any idea if you think it’s more due to the competitive environment or it's due to some of these severe weather events and just getting some bookings back.

Do you have any color on that?

Peter Ingram: We obviously can’t speak for anyone else. I think we feel that bookings have recovered substantially from the weather events, say generally particularly on the long-haul flights affecting more for the particular period in question. So we feel pretty good about demand overall. But really can't speculate about what maybe motivating others and what they are looking at in their numbers as they decide what pricing to have available in the marketplace.

Susan Donofrio: And then just last, just for you -- what was your stage link in third quarter and what the expectations for fourth quarter and first half of next year?

Peter Ingram: Why don’t we -- I'll have the team get those numbers and take that -- talk to you off-line about that, Susan, we will follow up.

Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Peter Ingram for closing remarks.

Peter Ingram: Thank you, Operator. Mahalo to everyone for joining us today. Despite some twists and turns in the first nine months of 2018, our performance throughout the year so far reinforces our confidence in our plan and our ability to successfully compete in any environment.

We intend to continue to execute well and look forward to closing out 2018 on a strong note. Lastly, I'd just say please save the date for upcoming Annual Investor Day in New York on Tuesday, December 11th. We look forward to seeing many of you there. Aloha.

Operator: This concludes today's conference.

You may disconnect your lines at this time. Thank you for your participation.