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Expansion drags
down Hawaiian
Air earnings

The cost of replacing its
interisland fleet contributes
to a loss of $34.2 million

Airline buys back shares

By Russ Lynch
Star-Bulletin

Higher costs at Hawaiian Airlines Inc., caused mostly by a $47 million charge related to plans to replace its interisland fleet, wiped out increased revenue in the company's fourth quarter.

The result, reported today, was a net loss of $34.2 million, or 83 cents a share, for the latest period, compared to a net profit of $231,000, or 1 cent a share, in the year-earlier quarter.

The special pre-tax charge, called a fleet-impairment charge, came from plans to retire Hawaiian's DC-9-50 fleet and replace the 15 narrow-body jets with 13 bigger, new Boeing 717s.

Hawaiian also had higher operating costs from service expansion that took place in 1999, including putting an additional DC-10-30 aircraft into service in November on the Los Angeles-Kona and Los Angeles-Maui routes and adding a second weekly flight from Honolulu to Tahiti.

Higher fuel costs and the September resumption of Hawaii landing fees after a two-year exemption also pushed costs higher, Hawaiian said.

Earlier this month, the airline finalized the deal to buy the new aircraft from Boeing Co. for $430 million, taking delivery of the first jets in next February and the rest delivered through 2001.

Hawaiian has an option to buy an additional seven 717s later, for a total of 20.

Fourth-quarter operating revenues of $122.4 million were up 20.5 percent from $101.6 million in the 1998 quarter.

However, the company treated the fleet-impairment charge as an operating expense and that left it with a loss from operations alone of $52.6 million, compared to an operating profit of $1.8 million in the year-earlier period.

Without the charge, Hawaiian said, it would have reported an operating loss of $5.7 million and a net loss of $2.5 million for the 1999 quarter.

"While we are pleased with the company's growth and revenue performance in 1999, the final numbers are disappointing," said Paul J. Casey, president and chief executive officer.

"The write-down of our interisland fleet, in combination with sharp increases in our operating costs, overshadowed the substantial improvement in revenues we achieved in 1999," he said. "Most importantly, the operational growth positions the company well for further revenue improvements in 2000."

Hawaiian reported a drop in business at the end of the year as tourists stayed home because of Y2K concerns, but Hawaiian nevertheless carried 4 percent more passengers in December and 9.8 percent more in the latest quarter than it did a year earlier.

Revenues of $97.1 million from scheduled passenger flights in the 1999 quarter were up 16.1 percent from $83.6 million in the year-earlier quarter.

Fourth-quarter operating expenses, aside from the special charge, were up 28.2 percent because of the costs of supporting a 10.7 percent increase in flight activity, combined with a 58 percent increase in fuel costs, the company said.

Not only was the average cost of a gallon of aviation fuel up 43 percent from the year-earlier quarter, but also the airline used 20.5 percent more fuel because it had more flights, Hawaiian said.

Casey said fuel costs and the year-end slowdown in passenger flow will continue to affect results into the first quarter of 2000.

For all of 1999, Hawaiian reported a net loss of $29.3 million, or 72 cents a share, compared to a net profit of $8.2 million, or 20 cents a share, in 1998. Full-year revenues were up 14.7 percent at $488.9 million, from a year-earlier $426.4 million.

Casey said Hawaiian had a record profit in 1998 because of a combination of strong revenue growth, favorable fuel prices and the exemption from Hawaii landing fees. Hawaiian has said its saved roughly $6 million a year during the exemption from state landing fees.

Airline to buy back up to 12% of shares Star-Bulletin staff Hawaiian Airlines Inc. said today it will buy back up to 5 million of its common shares, or about 12 percent of the 41 million shares outstanding, in open-market and private transactions from time to time when the price is right. Such share buybacks are usually aimed at increasing the value of a company's shares in the marketplace. Hawaiian shares, traded on the American Stock Exchange, have averaged $2.38 over the past 12 months. The stock closed up 19 cents at $2.44 today. They hit a 52-week low of $1.81 on Feb. 28 and a high of $3 on May 3. Paul J. Casey, president and CEO, said the airline feels the shares are "undervalued to the point that a buyback makes good investment sense for the company." He said approval of the buyback by the company's board of directors "speaks of the board's confidence in the company's profitability, cash flow and future market valuations."