Hawaiian Holdings, Inc. (Honolulu), parent company of Hawaiian Airlines, Inc. (Honolulu), reported third quarter 2012 adjusted net income of $40.6 million or $0.77 per diluted share, reflecting economic fuel expense, and GAAP net income for the third quarter of 2012 of $45.5 million, or $0.86 per diluted share.

Financial Highlights:

• Adjusted net income, reflecting economic fuel expense, increase of 35.2% year-over-year and GAAP net income increase of 77.6% year-over-year.
• Adjusted operating margin of 13.4%, reflecting economic fuel expense, and operating margin of 13.6%
• Adjusted net income margin of 7.4%, reflecting economic fuel expense, and net income margin of 8.3%.
• Operating cost per available seat mile (CASM) excluding fuel decrease of 6.8%.
• Unrestricted cash and cash equivalents of $433.5 million.

The Company reported operating income of $74.9 million in the third quarter of 2012, compared with operating income of $60.9 million in the same period in 2011.

Operating revenue was $549.3 million, a 20.5% increase compared to the same period in 2011.  Capacity for the third quarter of 2012 increased 28.0% year-over-year to 4.1 billion available seat miles, resulting in operating revenue per available seat mile (ASM) of 13.56 cents, down 5.8% from the same period in 2011.  Passenger yield (passenger revenue per revenue passenger mile) decreased 3.6% year-over-year to 14.77 cents, resulting in a year-over-year decrease in passenger revenue per ASM of 5.7% to 12.30 cents.  Selected Statistical Data is included in Table 2.

Total operating expenses increased 20.1% year-over-year to $474.4 million.  CASM decreased 6.1% year-over-year to 11.71 cents.  Excluding fuel, CASM decreased 6.8% year-over-year to 7.62 cents.  Reconciliations of GAAP and non-GAAP financial measures are included in Tables 2 and 6.

Aircraft fuel costs increased 21.9% year-over-year to $165.8 million and represented 34.9% of total operating expenses.  Hawaiian’s average cost per gallon of jet fuel decreased 4.1% year-over-year to $3.04 (including taxes and delivery).  The financial impact of hedging activities is included in nonoperating income (expense), and as such is not reflected in fuel expense.

The Company believes that economic fuel expense is the best measure of the effect of fuel prices on its business as it most closely approximates the net cash outflow associated with the purchase of fuel for its operations in a period.  The Company defines economic fuel expense as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled during the period.  For the three months ended September 30, 2012, economic fuel expense was $167.4 million ($3.07 per gallon), compared with $138.3 million ($3.22 per gallon) in the prior-year period.  Analyses of economic fuel expense for the third quarter 2012 and 2011 and pro-forma net income (loss) and diluted net income (loss) per share reflecting economic fuel expense are included in Tables 3 and 4.

Nonoperating income (expense) totaled ($1.1) million, compared with ($13.6) million in the same period in 2011.  The Company recognized gains on its fuel hedging activities, reflected in nonoperating income (expense), totaling $6.5 million compared with losses of $9.7 millionduring the same period in 2011.

A summary of the Company’s fuel derivatives contracts as of October 17, 2012 is included as Table 5.

As of September 30, 2012, the Company had:

• Unrestricted cash and cash equivalents of $433.5 million.
• Available borrowing capacity of $67.4 million under Hawaiian’s Revolving Credit Facility.
• Outstanding debt and capital lease obligations of approximately $674 million consisting of the following:
  • $251.2 million outstanding under secured loan agreements to finance a portion of the purchase price for four Airbus A330-200 aircraft.
  • $174.6 million in secured loan agreements for a portion of the purchase price for 15 previously leased Boeing 717-200 aircraft.
  • $108.2 million in capital lease obligations for an Airbus A330-200 aircraft and two Boeing 717-200 aircraft.
  • $68.0 million outstanding under floating rate notes issued in conjunction with the acquisition of three Boeing 767-300 ER aircraft.
  • $71.8 million outstanding of Convertible Senior Notes.

Copyright Photo: Bruce Drum. Boeing 767-33A ER N589HA (msn 33422) taxies to the runway at Seattle/Tacoma bound for Honolulu.

Hawaiian Airlines: