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Hawaiian Holdings (NASDAQ:HA)

Q4 2013 Earnings Call

January 28, 2014 4:30 pm ET

Executives

Ashlee Kishimoto

Mark B. Dunkerley - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of Hawaiian Airlines Inc and President of Hawaiian Airlines Inc

Peter R. Ingram - Chief Commercial Officer, Executive Vice President, Chief Commercial Officer of Hawaiian Airlines Inc. and Executive Vice President of Hawaiian Airlines Inc.

Scott E. Topping - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Executive Vice President of Hawaiian Airlines Inc., Chief Financial Officer of Hawaiian Airlines Inc. and Treasurer of Hawaiian Airlines Inc.

Analysts

John D. Godyn - Morgan Stanley, Research Division

Hunter K. Keay - Wolfe Research, LLC

Helane R. Becker - Cowen and Company, LLC, Research Division

Catherine M. O'Brien - Deutsche Bank AG, Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Bob McAdoo - Imperial Capital, LLC, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Operator

Greetings, and welcome to the Hawaiian Holdings Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ashlee Kishimoto, from Hawaiian Holdings. Thank you. You may now begin.

Ashlee Kishimoto

Thank you, operator. Welcome, everyone, and thank you for joining us today to discuss Hawaiian Holdings' Fourth Quarter and Full Year 2013 Financial Results. On the call with me today are Mark Dunkerley, President and Chief Executive Officer; Peter Ingram, Chief Commercial Officer; and Scott Topping, Chief Financial Officer. Mark will begin with some overview comments. Next, Peter will take us through the revenue results, network and capacity. Scott will follow with a discussion on cost, the balance sheet and guidance. We will then open the call up for questions, and then Mark will make a few closing remarks.

By now, everyone should have access to the press release that went out at about 4:00 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 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. Before we begin, we'd like to remind everyone that the following prepared remarks contains forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements 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 statement, we refer you to Hawaiian Holdings' recent filings with the SEC, including the most recent annual report filed on Form 10-K, recent quarterly reports filed on Form 10-Q, as well as reports filed on Form 8-K. And with that, I'd like to turn the call over to Mark.

Mark B. Dunkerley

Thank you, Ashlee, Thank you, all, for joining us today. As you can see from the press release we issued earlier, for the fourth quarter, we recorded adjusted net income of $0.22 per share in line with consensus. Revenues and costs were within the guidance ranges we previously issued while our fuel consumption was higher than anticipated due to a clerical error in our fuel gallon forecast when we first issued the guidance.

The quarter's results continued the improving trend in financial performance through 2013. Our domestic businesses, that's North America to Hawaii and among the islands of the states, represent approximately 70% of our passenger revenue and continued to perform extremely well. Results from our international business improved sequentially but remained below last year's numbers in the face of the continuing currency headwinds. Absent the impact of currency, the company's overall results would've been the best in any fourth quarter in our history.

2013 was also our sixth year in a row of profitability. We recorded adjusted net income of $0.88 per share, which were slightly below last year's mark, reflecting a very challenging first half of the year and then a good recovery in the back half.

The past year was very busy. We continued to expand our long-haul business driving a 14.3% increase in total ASMs. We inaugurated service to 3 new international destinations and passenger counts rose to 9.9 million. Our re-fleeting campaign continued. 4 Boeing 767s left our fleet and 5 A330s joined it. Our reputation for superior operational performance was further cemented by continuing to lead the industry in punctuality, ranking #1 for on-time performance for 10 of the 11 reported months in 2013. We would not have been able to achieve all of this without the tremendous and tireless efforts of my colleagues who have my sincerest thanks and appreciation.

The rate of change in our business has been remarkable these past 3 years. Throughout, our day-to-day operational execution has been great and, as our punctuality and completion factors results demonstrate, our growth has not come at the expense of either the tangible aspects of our product or our sense of aloha. The fourth quarter in particular was extremely strong for us operationally being the single best quarter since 2007. My thanks again to everyone in our business for a job well done.

The significant announcements during the quarter were: the upcoming introduction of extra comfort economy seating, offering more legroom, priority boarding and complementary on-demand entertainment on our A330s beginning in the third quarter of this year; a commercial agreement with Barclaycard for a new co-branded credit card that became effective January 1 of this year. As a reminder under the new terms, the same volume of mileage sales will yield over $100 million in new additional cash flow over the life of the agreement. Several network changes. They include adding a fourth flight to our existing 3 weekly nonstop services between Honolulu and Brisbane from March and upgrading our seasonal Los Angeles-to-Maui service to daily from this summer.

Looking to the year ahead, we remain optimistic. With the usual caveats understood for our industry sensitivity to consumer sentiment, competitive capacity, exchange rates and the price of fuel, we think 2014 will be marked by the maturing of our network. We've had a relatively large number of new routes during the last 18 months, which has had a dilutive impact on our business. The upcoming service to Beijing is the only new destination announced for this year. So the number of routes in the early stages of development will decline. Our focus shifts slightly to the task of maturing all that we have started in the recent past, and we expect this effort will enhance our unit revenues in the coming year. The continued positive impact from upgrading our revenue management system, implemented in mid-2013. The upgrade has helped us better manage our seat inventory and improve revenue performance, particularly on our domestic routes.

Continued cost control. Despite some of the -- some substantial inflationary pressures that will affect our first quarter in particular, we expect to make efficiency gains such that our unit costs will grow only by a small single-digit percentage for the year as a whole. Scott has more on this in his remarks. Our widespread brand recognition and outstanding service position us well against our competitors on our U.S. mainland-to-Hawaii routes and between the islands of the State of Hawaii. In Asia, we continued to see a spectrum of results from those that are great to those we will improve as we come to understand the markets better. So we're looking forward to the year ahead.

To discuss the revenue results in greater detail, I will turn the call over to our Chief Commercial Officer, Peter Ingram, who those of you that have followed our company for many years, will already know well. Peter?

Peter R. Ingram

Thanks, Mark. Operating revenue for the fourth quarter was $532 million, a 7.9% increase year-over-year, while passenger revenue increased 8.5%. Load factor for the quarter was 80.8%, a 1.1 percentage point decrease year-over-year while yield increased 5%. Combined, this resulted in an improvement in RASM and PRASM of 3.3% and 3.7% year-over-year, respectively, which was in line with the expectations that we had at the beginning of the quarter. Our revenue performance gained momentum in the second half of the year, and for the full year, operating revenue grew to $2.2 billion and passenger revenue grew to $1.9 billion, both up about 10% year-over-year. It's hard to precisely quantify the benefit we received from the changes to our revenue management systems and associated business process changes during 2013, but we have no doubt that this was a substantial contributor to the second half of the year improvements.

Let me go through the results by geography starting with North America, which generated 47% of our passenger revenue and continued to improve in the fourth quarter. PRASM was up 13% despite a 1.5 percentage point decrease in load factor. Demand remains strong and the moderation and reversal of supply increases has created a better revenue environment. Industry capacity declined by 3% this quarter, a far cry from the double-digit increases we battled at the beginning of 2013. Looking ahead, industry capacity is expected to be down 1% in the first quarter and flat in the second quarter. And based on current bookings, we expect the trend of strong yield performance more than offsetting slightly lower load factor to continue into the first quarter.

Our Neighbor Island routes, which accounted for 23% of our passenger revenue this quarter, also posted very strong results. PRASM in this area of the business was up 12.7% on a 0.5 percentage point increase in load factor. Supply and demand continue to be in good balance and we -- when we look at it on a year over 2 year basis, we are pleased to have succeeded in growing capacity in this part of the business without diluting RASM.

Our international routes, which contributed 30% of our passenger revenue continued to be negatively affected by the year-over-year strengthening of the yen and Australian dollar, competitive capacity on certain routes and the consequences of introducing a number of new routes over the last couple of years that are still in the developing stage. This resulted in a PRASM decrease of 10.6% on a 0.2 percentage point increase in load factor. Absent currency effects, including the offsetting hedging benefits, PRASM would have been down approximately 3.3% year-over-year in this area of our business. The past 3 years were a period of rapid expansion for us with the launch of service to 10 new cities. As we look to this coming year, as Mark mentioned, our growth is slowing. While we launched Beijing in the second quarter, the bulk of our focus will be on maturing the routes already in our network portfolio and adjusting the network where necessary to boost performance. As we mentioned on our last quarterly call, we have applied for the available route [indiscernible] Haneda Airport in Tokyo what was vacated by American and look forward to beginning nonstop daily service between Tokyo and Kona if that's slot award comes our way.

In summary, I'm confident on our prospects for the year ahead. On our U.S. West Coast-to-Hawaii routes, we have a superior product offering, strong brand recognition and the best frontline team in the business, which places us ahead of our competitors. Between the islands of the state, Hawaiian has built a great franchise to which we are looking forward to adding our new Ohana By Hawaiian turbo prop service in the coming weeks. Internationally, 2014 will be a year in which we continue down the path of maturing the swath of new routes we have added these past few years, leaving us well-positioned to benefit from the growth in Hawaii tourism that we expect from Asia.

With that, I will turn the call over to Scott to discuss our cost performance and provide insight into the first quarter of 2014.

Scott E. Topping

Thank you, Peter. As mentioned earlier and to recap the quarter, the company reported adjusted net income of $12 million or $0.22 per share compared with breakeven results a year ago.

For the full year, the company reported adjusted net income of $46.6 million or $0.88 per share compared to $55.6 million or $1.06 per share. Our return on invested capital for 2013 was 12.9% before tax and 7.7% on an after-tax basis.

For the fourth quarter, total operating expenses, excluding fuel, increased $19 million resulting in a 1.4% increase in CASM x fuel year-over-year. These results ended up better than guidance due to lower-than-expected commissions and other selling expenses and lower-than-expected maintenance costs. As a reminder, in the fourth quarter of last year, we recorded frequent flyer adjustments on both the cost and revenue lines creating some variability in our year-over-year unit costs and revenue. These resulted in metrics this quarter that are both higher by approximately 2 percentage points than they would otherwise be. For the full year, total operating expenses, excluding fuel, increased $122 million or 10.2%, which resulted in a CASM x fuel year-over-year decrease of 3.7%.

As we outlined at our Investor Day last October, we have been making significant changes to our risk management programs. We changed our approach to fuel hedging by moving from an option-based program to one that depends primarily on swaps. We continue to use forward contracts to manage our foreign currency exposure. This lower cost approach is expected to result in savings of $10 million to $15 million this year reflected in the nonoperating expense line. More details on our hedges can be found in the press release. From a liquidity standpoint, we ended the year with $423 million in unrestricted cash and $67 million available under our undrawn revolving credit facility.

Let me switch gears and move to our outlook for the first quarter and the full year. As we mentioned earlier, our ASM growth in 2014 will slow. Year-over-year, ASMs will increase 1% to 3% in the first quarter and 4% to 7% for the full year. On the surface, our 5 A330 deliveries relative to 2 767 retirements in 2014 may seem counterintuitive with the slowing of our ASM growth. The disconnect is explained by the timing of our aircraft movements during the year. The 2 A330s delivering in the first quarter are actually replacements for 2 767s retired in the fourth quarter of last year. The other 2 A330 deliveries, one in the second quarter and one in the fourth quarter, occur in the same quarter as the 767 retirements. As a result, the remaining delivery and A330 in the second quarter, is effectively the only incremental aircraft in the year, which only has a partial year impact on our ASMs. Our widebody aircraft utilization will be essentially unchanged.

Turning to the top line. For the first quarter, our revenues are expected to increase year-over-year with RASM expected to increase between 4.5% and 7.5% and PRASM expected to increase 4% to 7%. As Mark mentioned earlier, our costs will be elevated in the first quarter, and we expect CASM x fuel up 5% to 8%. Cost headwinds will recede in the second half of the year, and for the full year, we expect CASM x fuel to be up in the low-single-digit range.

Let me provide a little more detail as we have several projects and one-off items in early 2014 causing our cost to be front-loaded relative to last year. So first, we have costs in our Other expense line related to the start-up of Ohana, our new turbo prop operation; secondly, on the maintenance side, we have cabin modifications related to new -- to our new extra comfort economy product and 717 painting costs that are weighted in the first half of the year. In addition, certain maintenance items planned for the prior quarter are now scheduled in the first quarter. Lastly, there are additional labor costs related to F.A.R. part 117 flight time and duty rules for pilots as we've hired additional pilots to mitigate the potential impact on the customer. This one is expected to affect our business for the entire year.

So all together, these one-off items total approximately 3 percentage points of the year-over-year CASM x fuel increase in the first quarter. We expect our cost to continue to track a bit higher in the second quarter due to the timing of these one-off items before improving in the second half of the year as the impact of these activities recedes. We also faced other inflationary pressures in 2014, including escalations in labor agreements, increases to aircraft and passenger servicing costs and increases in D&A due to additional owned aircraft being added to our fleet. Some of this will be offset by a cost tailwind related to our pension and other postretirement benefits. With rising interest rates, the discount rate used to calculate our liability increased over 90 basis points, reducing our obligations by nearly $90 million and our expected expenses for this year by $12 million.

Our 2014 full year effective tax rate is expected to be in the 38% to 40% range, and we expect to pay a very minimal amount of cash taxes this year due to AMT. Regarding fuel and sticking with our normal practice, we won't give guidance at this time but we expect our fuel consumption to be up 0.5% to 2.5% year-over-year for the first quarter. Our full year CapEx is expected to be in the range of $465 million to $475 million. We have financings in place for all of our A330 deliveries in 2014. That's the end of our prepared remarks. With that, I'll turn the call back to Ashlee.

Ashlee Kishimoto

Thank you, Mark, Peter and Scott. Also thanks to all of you for joining us today and for your continued interest in Hawaiian Holdings. We are now ready for questions from the analysts. [Operator Instructions] Operator, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Godyn from Morgan Stanley.

John D. Godyn - Morgan Stanley, Research Division

Mark, last quarter and at the Investor Day, I think you sort of established a story of margin expansion as we looked through 2014. It certainly seems like you're on track with the fourth quarter result there. You obviously didn't give full year RASM guidance so that we can compare it to the CASM x fuel guidance that you gave but it sounded like from Peter's commentary about maturing markets and some of the improvements there, we should see RASM broadly exceed CASM in 2014. It should be a year of margin expansion. Is it fair to say that?

Mark B. Dunkerley

Yes, I mean, obviously we've got to heavily caveat it with the unknown that, in our business, can come very, very quickly. But certainly, as we look out into the future, we see cost control and we see optimism on the revenue line that would logically lead to that conclusion.

John D. Godyn - Morgan Stanley, Research Division

Got it. And as we think about the earnings growth that could be possible in 2014 and the fact that perhaps, as we look out even a little bit farther, the CapEx profile kind of comes in a little bit. Is the organization moving any closer thinking about capital returns to shareholders? If you could update us on the thinking there, that'd be helpful.

Mark B. Dunkerley

Sure, yes. Actually, I would certainly argue quite vociferously that we never lost the notion of the central importance of a return on invested capital. I think what we did is that we saw coming out of the global financial crisis in 2008. We saw a window of opportunity to develop a network and then we thought that window would be open for a while and then would start to close. And we very deliberately accelerated plans that had previously existed to try and get in that window while it was still open. And that's why we grew so quickly from 2010 to 2013. We are now in a period of much slower growth and it is absolutely the case that we've got to improve our maturities markets and so on. All of which will -- should improve our return on invested capital. What it does to our cash balance and how we're going to manage that is obviously something -- it'd be inappropriate for me to speculate about on this call. But we do recognize that we're coming out of a period of heavy investment and should be into a period of generating some free cash flow.

John D. Godyn - Morgan Stanley, Research Division

That's very helpful. And if I could slip in one more, just -- and I know you fielded variants of this question in the past, but with American sort of now happening and that -- and sort of the deal getting consummated and being now behind us. Is there anything that we should be thinking about in terms of the impact on Hawaiian or Hawaiian's network from a consolidated American Airlines?

Mark B. Dunkerley

I wouldn't make a particular point of pointing out a consolidated American Airlines. Obviously, consolidation in the industry is been changing quite a bit about -- quite a bit about our business. There is -- I mean, American, US Airways got a lot of integration activities still to take place. United and Continental likewise further down the track, and Delta most further down the track. I think all of this stuff does actually create a seam of opportunity for a niche business like ours. So we're supporters in general of consolidation and we think our opportunities increase rather than decrease because of these developments.

Operator

Our next question comes from Hunter Keay from Wolfe Research.

Hunter K. Keay - Wolfe Research, LLC

So you guys have a lot of debt coming on this year. You laid out the CapEx plan. I guess that's a lot of invested capital growth in your ROIC. So how high do margins have to go for your return on invested capital to go up this year?

Mark B. Dunkerley

As a matter of math, we would need to have, obviously, expanding margins. We think that there's expanding margins which, if there are not -- if we don't see big sort of environmental effects out there in the markets in which we compete, within our ambition for 2014.

Hunter K. Keay - Wolfe Research, LLC

Yes. I think -- I asked the question, Mark, because you guys -- you talk about ROIC and, Mark, you're paid on ROIC, which I appreciate and I would think a lot of people do. So that's a big deal to me as I think about analyzing the value of the company. But sometimes I wonder whether or not ROIC is really driving the strategy there. The returns have been okay, but I guess...

Mark B. Dunkerley

I could assure you that long-term ROIC is driving decision-making at our company. Part of maximizing long-term ROIC is making some decisions in the short term over the last 3 years, which I think we fully understood. We're an investment in a future that we thought would be accretive in the long term. We have no reason to question the assumption that we had going into our recent expansionary period.

Hunter K. Keay - Wolfe Research, LLC

Yes, okay. No, I appreciate that. I didn't mean any disrespect by that. Thank you for the color...

Mark B. Dunkerley

No disrespect taken. What I'm trying to convey to you is that we're building a franchise, we saw a window of opportunity, we accelerated some growth into a new market and all of those decisions were predicated on an understanding that we wouldn't start in a market and immediately have it at its optimal level of profitability and return in the first year, first couple of years. It takes typically 3 years for this stuff to mature. So we made a eyes-wide-open decision to make those investments against a long-term picture, which we continue to believe is a better long-term picture than our existing performance -- as we had expected at the time that we made these decisions.

Hunter K. Keay - Wolfe Research, LLC

Yes, okay. I appreciate that. And let me ask one more on the Asian expansion real quick. Can you give us a timeline for when you expect this Haneda thing to shake out? And what do you know about slot timing? What time of day would you be able to arrive in Honolulu? Because it seems to me that, really, the success of Haneda, for these other airlines that have tried it, is wholly contingent on the timing of the slot. So when do you expect a decision to be made? What do you know about timing? And would it be incremental to the capacity guidance?

Mark B. Dunkerley

Sure. You bet. On timing, the U.S. government has no specific timetable. Frankly, it could come anytime shortly or it could be some time away. That is a matter on which we don't really have any insight. In terms of slot arrival times and departure time, within the curfew -- within the period outside the curfew, there are slot timings available that are reasonably attractive for Hawaii flying. And we would clearly -- it would be premature for us to say that we can get those slots because we have to first get the route authority and then apply for the slots. But were we to get slot timing similar to the ones that we have for our Honolulu to Haneda service, I think we will be well-pleased.

Peter R. Ingram

Just to follow up on Mark's point and be clear, there are restrictions under the U.S, Japan bilateral around when flights to the United States can operate from Haneda airport that have caused some of our competitors problems with other gateways. Well it wouldn't necessarily be the optimal time if we had the whole day to pick from. It actually is less punitive, we think, for Hawaii flying and ends up with reasonable times that we have today and we'd hope for the same times with the Kona flight.

Operator

Our next question comes from Helane Becker from Cowen and Company.

Helane R. Becker - Cowen and Company, LLC, Research Division

I just have a couple of questions. One is I look at the last information I got from the Hawaiian Tourism Authority, it looks like seats to the West Coast are down for the first quarter? And I just kind of wonder how you're seeing the competitive environment from U.S. West Coast to Hawaii?

Mark B. Dunkerley

Yes. It's great. Peter, go ahead.

Peter R. Ingram

Yes. Helane, there is a slight reduction. We're seeing seat capacity down 1% in the first quarter, I believe. Flat in the second quarter as of right now. And in terms of the visitor stats you see from the HGA [ph], you will see visitor arrivals down slightly. I think that's really consistent. If you think about our North America fourth quarter results, we had a slightly lower load factor but a good improvement in yield. So the supply demand balance, we think, is in pretty good shape right now and we're happy with how supply and demand are positioned for North America to Hawaii.

Helane R. Becker - Cowen and Company, LLC, Research Division

Okay. Yes I'd rather have a percent in yield than a percent in traffic, that's for sure. Okay. My second question is just on Ohana. Did you say a time where the FAA is in its review and what your thought process is with timing?

Mark B. Dunkerley

Sure. The -- we're currently in that part of the FAA certification activity. It involves proving runs. It's one of the last steps. It isn't the absolute last step. And we are sort of cautiously optimistic that we're talking in numbers of weeks until we can start service as opposed to number of months. This has been a fairly tortured path to this point and so we're being a little reluctant to make firm promises about this. But we certainly hope in the next few weeks to be up and running.

Helane R. Becker - Cowen and Company, LLC, Research Division

Okay. And then my last question is on China. So you -- I think they started service now to Honolulu. And I know you guys were doing a codeshare with them. So can you just -- I'm sorry I don't know the answer to that but could you just update us?

Mark B. Dunkerley

Sure, yes. We've got -- we have a partnership with Air China that involves, among many other things, the ability to connect traffic at both ends, the other end of the route. It is, like many of these things, reciprocal type of arrangement. They are now flying in the market, they started a few days ago. We start prospectively in the middle of April, and it is a fairly common sort of relationship of the sort that we have, for example, with China Airlines out of Taiwan, Korean Airlines out of Korea and ANA from Japan.

Helane R. Becker - Cowen and Company, LLC, Research Division

So I mean, if they started already, can you say how the early codeshare looks, the early results?

Mark B. Dunkerley

Yes really hard to tell because -- I mean they have had, I think, they've had 2 or 3 flights at this stage. And so it really is...

Operator

Our next question comes from Michael Linenberg from Deutsche Bank.

Catherine M. O'Brien - Deutsche Bank AG, Research Division

This is actually Catherine O'Brien filling for Mike. So my first question is, I was just wondering if you give us a little bit of color on how the Japan-to-Hawaii markets are going? I know you said there's varying results in your different Asian markets. And I was wondering, aside from just the straight translation impact, if you had noticed any changes in demand patterns over the summer or anything? [indiscernible]?

Mark B. Dunkerley

Yes. In terms of Japan, we've got a -- we've obviously got currency, and that's the big impact. There are some competitive dynamics. So Korean for example introduced a flight, an extra flight coming out of Narita into Honolulu that has an impact. JAL put some more seats into Osaka. Because there's so many moving parts, it's pretty -- we've not isolated -- we've not been able to isolate any sense that there is a kind of wholesale change in the level of interest and demand from the Japanese visitor for the State of Hawaii, but it's a pretty obscure picture right now. And I'm looking at Peter. Any...

Peter R. Ingram

Yes, I would echo that. I think you're absolutely right that currency is the dominant feature of some of the year-on-year changes. The second most important, I would say, would be the competitive factors. And I really don't think we have seen any swings in consumer behavior absent the fact that the currency is different that we can point to as sort of bold year-on-year differences in the marketplace. But obviously, we're on the lookout for changes.

Catherine M. O'Brien - Deutsche Bank AG, Research Division

Great. And then just a second question on your cost guidance. I know back at the investor day last fall, you kind of guided to a near flat full year CASM x fuel for this year. Now you've gone with low single digits. Is that in-line with what you were thinking or there's some additional pressures that kind of have rolled into this year that you weren't expecting? And then also in the second half of the year, is the cost pressure [ph] debate, is that more that you'll finish some projects in the first half of the year? Or you have some cost initiatives that you're going to try to achieve in the second half? Or just easier comps? If you could just give some color on that, that'll be great.

Scott E. Topping

Sure, sure. Yes, back in October, we were -- as I think we mentioned, we were pretty early in our budgeting process. We were hoping to get to flat. I think I may have mentioned we're shading a little bit toward a little increase for the full year. As we go through our process, we still feel like low single digits is the place we'll be. So that's kind of the full year look. In terms of the first half, second half, as we said in our comments, a lot of these projects that are unusual for the year are kind of front-loaded into the first and second quarter. The second half will naturally -- we expect those cost pressures to recede. We do have, as always, some cost initiatives in place that we'll continue to work on and affect the second half more than the first quarter or 2. So I think all in all, it's consistent with what we thought. A flat outcome would be great, but we think we'll be pretty close to that.

Operator

Our next question comes from Glenn Engel from Bank of America.

Glenn D. Engel - BofA Merrill Lynch, Research Division

A few questions please. First is on rent and lending fees that was down in the fourth quarter, 7%, is there any onetime nature? And should we see -- what type of pressure should we see in 2014?

Mark B. Dunkerley

Yes, most of those, Glenn, came from the state of Hawaii. I'm not sure it will be a continuation, but it's -- that's probably characterized as more of a onetime.

Glenn D. Engel - BofA Merrill Lynch, Research Division

And on the other revenue side, you mentioned you changed your card and it should create a lot of value. So does that mean that on the Other revenue side, we should be seeing sort of double-digit increases throughout the year?

Peter R. Ingram

Glenn, this is Peter. We will see some of that on the other revenue line. A lot of that actually ends up flowing through the passenger revenue line as deferred revenue and it gets recognized over a 22-month period, so we expect to see the new card benefit our cash flow faster than it benefits our income statement but it will eventually run through the income statement. It gets split over the 2 lines based on the accounting treatment.

Glenn D. Engel - BofA Merrill Lynch, Research Division

And finally, the -- in addition to the yen, the Aussie dollar's been pretty weak lately. Is there any impact on volume you're seeing from the currency weaknesses?

Mark B. Dunkerley

The Australian -- the short answer to that is no, I. Think we're pretty encouraged by Australia. Peter's...

Peter R. Ingram

Yes, that's right. We've seen continued strong traffic trends from Australia. Brisbane has been among the routes that we started in the last 12 to 18 months. Brisbane has stood out, and we, during the quarter, increased our Brisbane services from 3x per week to 4, as Mark mentioned. So that's indicative of the fact that we see Australia performing reasonably well. Obviously, we would perform -- prefer the Aussie dollar to go back up to parity with the U.S. dollar but we're doing pretty well in this environment.

Glenn D. Engel - BofA Merrill Lynch, Research Division

So you're saying it's like Japan where the impact is more on the yield side than it is the volume side?

Peter R. Ingram

That's right.

Scott E. Topping

Glenn, this is Scott. I want to clarify a comment I made. The state of Hawaii is not onetime. It will be expected to be continuing. We had a credit in Australia that was onetime.

Operator

Our next question comes from Bob McAdoo from Imperial Capital.

Bob McAdoo - Imperial Capital, LLC, Research Division

Just curious. You talk about, looking forward, how slowing things will mature, but yet the biggest problem everybody seems to be taking about is the currency issue. And it sounds like, well, if the currency issues -- if the currency rates don't change much, that really doesn't get fixed. So I guess how long do we hang on with the currency in this particular level of capacity before we take action to try to bring the numbers up? Because obviously, the domestic side keeps getting better, it sounds like, but the bottom line doesn't seem to change much because the place where all of the currency issues are -- just seems to be making relatively little improvement. How long do we wait before we actually start to do something there?

Mark B. Dunkerley

I think that you have to be clear about which currencies. We're talking about the yen and the Australian dollar. We think the currencies, at their current levels, are sufficient for us to sustain a pretty attractive business for us. What it does reveal is that when the currencies were -- these foreign currencies were more valuable against the dollar than they are today just how good those markets were for us for that short period of time.

Bob McAdoo - Imperial Capital, LLC, Research Division

So what you're saying is that -- so that we shouldn't really plan on that this whole Asian process is going to be meaningfully better then as we go through the year, even with these kinds of currencies, even with the Japanese currency...

Mark B. Dunkerley

No, no. I think what we're saying, if you can divide -- if you divide the question into how do we think we're going to do in the local currencies, we think that we're to -- by maturing these markets, we think in local currency terms, our results are going to improve year-over-year because we get to know these markets better, we get to -- it boosts our local currency PRASM. What happens is that when you compare it to last year, some of that improvement is offset, a lot of that improvement is offset by the change year-over-year in the value of the U.S. dollar.

Peter R. Ingram

And Bob, this is Peter. If I might just add, we didn't attribute all of the international challenges to currency. We also talked about some routes that have different competitive situations that are challenging and the ones that are very new and in more of a developing mode. I think -- currency is what it is and we're going to deal with it. We can cheer for it to go one way or the other, but we have to deal with the reality of it. I think it is those 2 other factors, competitive situations and developing routes, that we have to make the appropriate changes, whether it's changes in our network, changes in our distribution practices, changes in how we promote ourselves in the market place, and that's where we have to make changes in how we approach the market to counteract the forces that are out there.

Bob McAdoo - Imperial Capital, LLC, Research Division

So are you able to get in the Japanese markets? Are you able to get increases in the fares -- as they are just denominated in the local currency? Meaning incremental yen per ticket I suppose -- so that to offset the fact that it takes more yen to make a dollar? Are you able to get that? Or the fares kind of tied to what Delta and United want to charge? How does that work?

Mark B. Dunkerley

We get incremental PRASM in most of the market. There are some competitive dynamics which, on a market-by-market basis, may make that statement more or less true depending on the market we're talking about. But in general, we're making PRASM improvements in those markets, some in fare, some in load.

Operator

Our next question comes from Steve O'Hara from Sidoti & Company.

Stephen O'Hara - Sidoti & Company, LLC

I guess just in terms of China. What -- do you have all the approvals necessary? I mean is that definitely a go at this point? And then what are your expectations for the maturity of that route? Is it typical maturation process in your view? Or do you think it's going to take longer?

Mark B. Dunkerley

In terms of where we are, well, we're still on track for an April launch. There are still some bits of approvals that we need. So we're not saying to anybody that we are absolutely done at this stage. But as I said, we're on track. There's nothing in where we are at this stage that is causing us any particular anxieties. In terms of the maturation of that route, I think it'll look very much like some of the other routes. It is in terms of flying to Hawaii not a particularly mature market, represents a lot of opportunity. We think it will become mature. But until we have fully established the distribution, the promotion of Hawaii as a destination within China itself, which is a really important element of the business, and while we hopefully push and see better visa processing, all of these things we think will contribute. But it's unlikely to be an overnight to maturity market.

Stephen O'Hara - Sidoti & Company, LLC

Okay. And then I mean I guess in terms of the fleet longer-term, can you just remind me what the terms on the 767s are and maybe your plans for those as you take more A330s? And then I guess transition into the A321s?

Mark B. Dunkerley

Sure. We are going to -- on current plans, and we have built in elements of flexibility, so there are opportunities for some of the -- for us both to hit the accelerator and the break to a certain degree. On current plans, we're down by the end of '15 to 6 767s and we'll, by then, have 22 A330s for a total widebody count of 28. We've got the A321s coming in starting in '17, if that answers your question.

Stephen O'Hara - Sidoti & Company, LLC

Yes, that's helpful. But -- and then when do the 767 -- what, at least 3 around, is that...

Mark B. Dunkerley

Yes, yes. Sorry, that's right. You did ask that. About 2020, the -- we're out of the 767.

Operator

Our next question comes from Kevin Crecy [ph] from Sky Alland Research.

Unknown Analyst

Just trying to think big picture about your company and where you're heading. Can you remind us what growth is going to look like as we move forward? I know you're slowing your maturing markets this year and trying -- reducing the CapEx a bit and getting that under control. But if I think about growth going forward, are we talking about new countries, new cities within the existing countries of service? Or more service on the current routes? Can you talk about kind of how that will breakdown as we look big picture over the next few years?

Mark B. Dunkerley

Our anticipation and this is, again, subject to change seeing which way the market develops, is that much of the growth will come from bolstering services on some of the cities that we have put -- got a foothold in. It is, of course, likely that over a period of time like this, we'll make some adjustments to the number of cities. So not only adding some, but if some of these routes don't mature the way that we had anticipated, we have no reluctance about having to make the decision to change our network against that reality. But I think most of the growth in the next few years is likely to come from capacity adds on existing routes and relatively little in terms of adding new destinations.

Unknown Analyst

Terrific. And I'm pretty sure you mentioned it, but I missed the detail. Can you repeat what the CapEx was for '14 and '15, and the debt maturities in capital lease payments for the same years?

Mark B. Dunkerley

Scott?

Scott E. Topping

So for this year, it's going to be in the $465 million to $475 million range.

Mark B. Dunkerley

And we'll get back to you with the other numbers. We'll see what we've already put up in the public domain. I think the last time we talked about that was Investor Day but we...

Unknown Analyst

Yes, if I recall, you had a chart. I just didn't -- I don't remember if I -- I didn't think it had any labels on the numbers.

Mark B. Dunkerley

Yes. In fact, that's what I do recall. Thank you for reminding me of it.

Operator

Our next question comes from John Reardon [ph] from Merriman Capital.

Unknown Analyst

Listen, I heard a couple of things that caught my -- all this talk about China. Mark, does that mean that perhaps you guys are warming up for some eventual visa relief? And then, secondly, with regards to the phrase maturing markets, is that's strictly an exercise of marketing the Hawaiian vacation? Are there some operational issues that go into that to trimming capacity, adding capacity, et cetera? And then finally, in talking about the new fleet, aren't you supposed to get some A350 XWBs at some point around 2017 or '18? Anyway, I'm done.

Mark B. Dunkerley

Okay. In terms of the visa issuance process, I mean, clearly, we really have very little -- we have no direct control, little influence. But what influence we do have, we continue to push for some improvements. We're not particularly well-placed to give you a long-term projection. It is very much wrapped up in the political relationship between the United States and China. There's not -- these are my words obviously, but I think a lot of the visa issuance process has more to do with the politics than it actually has to do with any sort of tangible benefits or dis-benefits from the current regime, visa regime.

Peter R. Ingram

Just if I might interject, Mark, before you answer the rest of John's question. I'd say the prospect of visa waiver in China is not something that we see in the foreseeable future. But we do know, in talking to the people who, day-to-day sell travel for the U.S. in China, that the process of it issuing visas in the administration of it has improved fairly significantly over the last couple of years. So it is not as much an impediment as it was if you look back even 18 months ago to get a visa to travel to the United States. The notion that we will have visa waiver is not something we see happening anytime soon.

Mark B. Dunkerley

Yes, that's true. Thank you for that, Peter. And then on maturing markets, I think when we talk about maturing markets, it really runs the gamut and it depends largely on the market. Some of it is about gaining a better appreciation for the seasonality of the market; some of it is gaining a better understanding of who is likely to travel to Hawaii; some of it is encouraging our tourism authority to focus on certain travel segments in some of these markets; some of it is operational, working with local airport authorities and local carriers to provide better connections. So -- and it's not all true for every route. It seems to be each route has its own maturation needs. Your last question was about the A350 XWBs. We are indeed a customer for Airbus' A350 800 XWB, which is due to be delivered in 2017. There's obviously a lot of noise out there at the moment about whether or not that is an aircraft that Airbus will build on that timetable. It's not for us to comment on that to the extent that Airbus is interesting -- interested in changing our order book, and I'm sure we'll be sitting in [indiscernible] Airbus.

Operator

Thank you. At this time, I will turn the call back over to Mark Dunkerley for closing comments.

Mark B. Dunkerley

Okay, thank you, again, to everybody for joining us today and for the questions. It's great to finish the year on a high note after battling some pretty extraordinary capacity growth in the early stages of 2013. We're looking forward to the year ahead with every part of our business performing well or improving. And with that, we look forward to the next quarter's conference call. Thank you.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Hawaiian Holdings Management Discusses Q4 2013 Results - Earnings Call Transcript

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