Hawaiian Holdings(HA) - 2022 Q4 - Annual Report

Revenue and Financial Performance - For the twelve months ended December 31, 2022, the company's revenue was approximately $2.6 billion, an increase of about$ 1.0 billion compared to 2021, but a decrease of approximately $191.0 million, or 6.7%, compared to the pre-pandemic period in 2019[70]. - Revenue from non-passenger operations, including cargo, accounted for approximately 11.6%, 14.1%, and 21.3% of total revenue during the years ending December 31, 2022, 2021, and 2020, respectively[75]. - The company is highly dependent on tourism to, from, and amongst the Hawaiian Islands, and financial results have been impacted by downturns in tourism levels due to the COVID-19 pandemic[78]. - The cost of jet fuel remains high and volatile, significantly impacting the company's operations and financial performance[81]. - The company experienced a significant decrease in demand for air travel due to the COVID-19 pandemic, which has led to operational challenges and reduced load capacity on flights[70]. - The company has faced increased competitive pressure on fares due to global economic volatility and uncertainty in demand for discretionary air travel[76]. - The ongoing global COVID-19 pandemic continues to pose risks to the company's operations, financial performance, and strategic objectives[69]. - The company has incurred ongoing expenditures to prevent information security breaches and expects these costs to continue[112]. - The company aims for aggressive cost-containment goals to maintain competitive fares while ensuring acceptable profit margins[123]. - The airline industry is characterized by low profit margins and high fixed costs, with significant competition from larger carriers that have greater financial resources[92]. - Inflation in 2022 increased costs for labor, fuel, and other services, which could reduce profit margins if price increases do not keep pace[94]. - Interest rate increases by the Federal Reserve have negatively impacted the fair value of the company's investments, affecting earnings and liquidity[95]. - The company’s financial liquidity could be adversely affected by credit market conditions, particularly due to the unpredictability of global credit markets[85]. - The company may incur additional indebtedness to meet future financing needs, which could limit cash flow available for operations[190]. - The company’s ability to satisfy obligations under its indebtedness may be impacted by adverse economic and industry conditions[190]. Operational Challenges - The company expects to incur additional costs to ramp up cargo operations for Amazon, including hiring crew and preparing maintenance for the Amazon fleet, which may negatively impact business results[75]. - The company has implemented enhanced health and safety measures to protect passengers and employees, which may further impact operations and results[72]. - The company is subject to various legal and regulatory risks related to COVID-19, including potential civil lawsuits and employee grievances[73]. - The company is subject to restrictive requirements under the Payroll Support Program 3 Agreement, including limitations on executive compensation through April 1, 2023[89]. - The company faces competitive pressures as approximately 73% of its passenger revenue was generated from North America routes, competing against larger network carriers[98]. - The company has entered into agreements with the Treasury under the CARES Act, which impose operating restrictions, including limits on executive compensation[89]. - The airline industry has substantial operating leverage, meaning a decrease in passenger numbers can lead to a disproportionately greater decrease in profits, especially in the context of economic downturns or external threats[136]. - The airline's operations are subject to significant seasonal volatility, with demand typically peaking during June, July, August, and December, and considerably weaker at other times of the year[139]. - Cargo operations also experience seasonal fluctuations, with demand historically low following the holiday peak in Q4[140]. - The airline industry faces potential adverse effects from terrorist attacks or hostilities, which could lead to decreased demand for air travel and increased operational costs[141]. - Extensive government regulations and potential new taxes could significantly increase operational costs and restrict airline operations[142]. - Compliance with FAA regulations requires significant expenditures, including maintenance and safety measures for older aircraft[144]. - Increased security measures and costs related to safety may impact financial performance[137]. Debt and Financial Obligations - As of December 31, 2022, the company had approximately$ 1.5 billion in outstanding commercial debt, excluding funds borrowed under the federal Payroll Support Program[87]. - The company has Japanese Yen denominated debt totaling $163.9 million as of December 31, 2022, which exposes it to foreign currency exchange rate fluctuations[83]. - Hawaiian had approximately$ 1.6 billion of total indebtedness as of December 31, 2022, which includes $1.2 billion principal amount incurred from the senior secured notes offering[190]. - The company is required to meet certain covenants under its financing agreements, and a breach could lead to a default, accelerating obligations and impacting financial stability[88]. - The company identified a material weakness in internal control over financial reporting as of March 31, 2022, June 30, 2022, and September 30, 2022, which has since been remediated as of December 31, 2022[195]. - The company may face litigation risks related to the restatement of financial statements and the identified material weakness in internal control over financial reporting[198]. Market and Competitive Environment - Approximately 89% of the company's passenger revenue was generated from Domestic routes during 2022, indicating a lack of geographical diversification[97]. - The company faces competitive disadvantages due to its reliance on specific city demand for North America flights, lacking a direct network to feed passengers[99]. - The company is increasingly dependent on technology and automated systems, with significant investments needed for upgrades and replacements, including the transition to the Amadeus Altéa Passenger Service System in April 2023[114]. - The company relies on code-share agreements to provide access to international destinations currently unserved, highlighting its dependence on partnerships for market reach[102]. - The company is exposed to potential losses from aircraft accidents, which could lead to significant claims and harm to reputation[127]. - The company faces risks related to compliance with privacy and data protection laws, which could lead to regulatory investigations and adversely affect reputation and financial condition[108]. - Any actual or perceived security breaches could result in significant financial expenditures for investigation, remediation, and potential liabilities, adversely affecting revenues and operating results[112]. - The company relies heavily on third-party contractors for critical services, and any failure by these providers could adversely affect revenues and operations[116]. Future Outlook and Strategic Considerations - The company has made substantial pre-delivery payments for Boeing 787-9 aircraft, with the first expected delivery in Q4 2023 and remaining deliveries scheduled through 2027[168]. - The carrying value of long-lived assets was approximately$ 1.9 billion as of December 31, 2022, and the company continues to evaluate these assets for potential impairment[172]. - Changes in U.S. tax laws, including a 1% excise tax on stock buybacks and a 15% alternative minimum tax, could materially increase the company's tax liabilities and operational costs[159]. - The company does not expect to repurchase its common stock or pay dividends for the foreseeable future due to restrictions and financial conditions[177]. - The market price of the company's stock is influenced by various factors, including operating results, competitive environment, and general economic conditions[176]. - The company is exposed to risks related to environmental regulations and sustainability goals, which may require significant capital investment and could impact brand reputation if not achieved[128]. - The company’s agreements with Amazon include termination rights that could adversely affect business operations and financial condition if exercised[133]. - The company must continuously invest in technology to mitigate risks associated with system failures and ensure operational efficiency[114].