Edgar Filing: HAWAIIAN HOLDINGS INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-31443

HAWAIIAN HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		71-0879698
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)



3375 Koapaka Street, Suite G-350
Honolulu, HI		96819
(Address of Principal Executive Offices)		(Zip Code)

(808) 835-3700

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No

As of April 20, 2018, 50,771,610 shares of the registrant’s common stock were outstanding.

Hawaiian Holdings, Inc.

Form 10-Q

Quarterly Period ended March 31, 2018

Table of Contents



Part I.	Financial Information	3

Item 1.	Consolidated Financial Statements of Hawaiian Holdings, Inc. (Unaudited)	3

	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	3

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	4

	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

Part II.	Other Information	41

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

	Signatures	43

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Hawaiian Holdings, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)



	Three Months Ended March 31,
	2018			2017 (a)
	(unaudited)
Operating Revenue:
Passenger	$	611,600		$	563,752
Other	53,812			42,457
Total	665,412			606,209
Operating Expenses:
Wages and benefits	168,709			151,053
Aircraft fuel, including taxes and delivery	133,446			103,538
Maintenance, materials and repairs	58,141			59,404
Aircraft and passenger servicing	36,518			34,290
Aircraft rent	31,900			33,135
Commissions and other selling	31,925			29,642
Other rentals and landing fees	30,815			28,336
Depreciation and amortization	32,245			27,468
Purchased services	31,121			26,637
Contract terminations expense	35,322			—
Special items	—			18,679
Other	39,005			31,997
Total	629,147			544,179
Operating Income	36,265			62,030
Nonoperating Income (Expense):
Interest expense and amortization of debt discounts and issuance costs	(8,555		)	(8,003		)
Gains (losses) on fuel derivatives	4,617			(8,798		)
Interest income	1,474			1,152
Capitalized interest	2,238			1,760
Other, net	1,056			(1,924		)
Total	830			(15,813		)
Income Before Income Taxes	37,095			46,217
Income tax expense	8,553			12,572
Net Income	$	28,542		$	33,645
Net Income Per Common Stock Share:
Basic	$	0.56		$	0.63
Diluted	$	0.56		$	0.62
Weighted Average Number of Common Stock Shares Outstanding:
Basic	51,055			53,562
Diluted	51,199			53,980
Cash Dividends Declared Per Common Stock Share	$	0.12		$	—

(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 2 to the financial statements contained in Part I, Item 1 of this report for additional information.

See accompanying Notes to Consolidated Financial Statements.

Hawaiian Holdings, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)



	Three Months Ended March 31,
	2018			2017 (a)
	(unaudited)
Net Income	$	28,542		$	33,645
Other comprehensive loss, net:
Net change related to employee benefit plans, net of tax expense of $166 and $896 for 2018 and 2017, respectively	513			1,468
Net change in derivative instruments, net of tax benefit of $2,345 and $4,325 for 2018 and 2017, respectively	(7,244		)	(7,097		)
Net change in available-for-sale investments, net of tax benefit of $149 and net of tax expense of $52 for 2018 and 2017, respectively	(460		)	86
Total other comprehensive loss	(7,191		)	(5,543		)
Total Comprehensive Income	$	21,351		$	28,102

See accompanying Notes to Consolidated Financial Statements.

Hawaiian Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except shares)



	March 31, 2018			December 31, 2017 (a)
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	279,185		$	190,953
Restricted cash	1,000			1,000
Short-term investments	244,948			269,297
Accounts receivable, net	106,724			140,279
Spare parts and supplies, net	30,815			35,361
Prepaid expenses and other	83,404			79,186
Total	746,076			716,076
Property and equipment, less accumulated depreciation and amortization of $585,766 and $558,548 as of March 31, 2018 and December 31, 2017, respectively	1,918,035			1,842,263
Other Assets:
Long-term prepayments and other	188,742			193,632
Intangible assets, less accumulated amortization of $21,820 and $21,561 as of March 31, 2018 and December 31, 2017, respectively	14,928			15,187
Goodwill	106,663			106,663
Total Assets	$	2,974,444		$	2,873,821
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	137,716		$	140,805
Air traffic liability	698,949			589,093
Other accrued liabilities	126,700			147,593
Current maturities of long-term debt and capital lease obligations	59,002			59,470
Total	1,022,367			936,961
Long-Term Debt and Capital Lease Obligations	498,748			511,201
Other Liabilities and Deferred Credits:
Accumulated pension and other post-retirement benefit obligations	217,812			220,788
Other liabilities and deferred credits	265,422			225,605
Deferred tax liability, net	131,881			134,141
Total	615,115			580,534
Commitments and Contingencies
Shareholders’ Equity:
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of March 31, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value per share, 50,771,515 and 51,173,453 shares outstanding as of March 31, 2018 and December 31, 2017, respectively	508			512
Capital in excess of par value	124,868			126,743
Accumulated income	795,293			793,134
Accumulated other comprehensive loss, net	(82,455		)	(75,264		)
Total	838,214			845,125
Total Liabilities and Shareholders’ Equity	$	2,974,444		$	2,873,821

See accompanying Notes to Consolidated Financial Statements.

Hawaiian Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)



	Three Months Ended March 31,
	2018			2017
	(unaudited)
Net cash provided by Operating Activities	$	225,545		$	208,949
Cash flows from Investing Activities:
Additions to property and equipment, including pre-delivery payments	(110,897		)	(53,130		)
Purchases of investments	(30,386		)	(68,155		)
Sales of investments	53,984			78,301
Net cash used in investing activities	(87,299		)	(42,984		)
Cash flows from Financing Activities:
Repayments of long-term debt and capital lease obligations	(20,395		)	(21,872		)
Dividend payments	(6,145		)	—
Repurchases of common stock	(20,245		)	—
Other	(3,229		)	(7,295		)
Net cash used in financing activities	(50,014		)	(29,167		)
Net increase in cash and cash equivalents	88,232			136,798
Cash, cash equivalents, and restricted cash - Beginning of Period	191,953			330,991
Cash, cash equivalents, and restricted cash - End of Period	$	280,185		$	467,789

See accompanying Notes to Consolidated Financial Statements.

Hawaiian Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Business and Basis of Presentation

Hawaiian Holdings, Inc. (the Company or Holdings) is a holding company incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

2. Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and created Topic 606 (ASC 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 replaced most existing revenue recognition guidance in GAAP and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

The Company elected to adopt the full retrospective transition method as of January 1, 2018, resulting in the restatement of the prior periods as of the date of adoption. The overall decrease in equity as of January 1, 2016 was $76.0 million net of tax, with an offsetting change primarily in Other liabilities and deferred credits. Refer to Note 5 for additional revenue recognition discussion.

The most significant impact of the standard relates to the accounting for the Company's frequent flyer travel award program. This change, as well as other less significant changes, are described below:

•

Frequent flyer - The standard requires the Company to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles, effectively eliminating the incremental cost accounting previously applied. ASC 606 resulted in a significant increase to the deferred revenue liability on the Company's balance sheet, as the estimated selling price of the miles significantly exceeds the value previously recorded for incremental cost. The allocated value of miles earned through flights and sold to partners is recognized at the time the free travel or other award is redeemed by the passenger. Previously, the transportation element associated with sold miles was deferred and recognized as passenger revenue over the period when the transportation was expected to be provided (23 months).

•

Passenger revenue - The standard requires the Company to make certain adjustments to its passenger revenue, most notably related to unused tickets, which represents unexercised passenger rights. The Company uses historical information to estimate the proportion of ticket revenue that will expire unused to be recognized at the scheduled flight date. Prior to the adoption of ASC 606, the Company recorded this revenue as the tickets expired unused. As of the adoption date the adjustment due to passenger ticket expiration had the effect of reducing the air traffic liability but did not have a significant effect on revenue recognized. Ticket change fees were previously recognized at the time the fees were assessed; however, under ASC 606, the Company now defers the recognition of ticket change fees as a component of air traffic liability until the related transportation is provided. Further, the Company reclassified revenue items such as checked baggage, charter, ticket change and cancellation fees, in flight revenue, and other incidental sales to passenger revenue (from other operating revenue), as these items do not represent distinct performance obligations separate from the transportation provided to the passenger.


•	Selling Costs - Under ASC 606, the Company will capitalize selling costs associated with credit card fees, booking fees, and commissions, and recognize the associated expense at the ticketed flight date. Prior to ASC 606, the Company recognized the costs associated with credit card and booking fees as they were incurred.

Restated financial statement information, which reflects the adoption of the ASC 606 is below:



	Three Months Ended March 31, 2017
	As Reported			Adjustments			As Restated
	(in thousands)
Operating Revenue:
Passenger	$	537,590		$	26,162		$	563,752
Other	76,595			(34,138		)	42,457
Total	$	614,185		$	(7,976	)	$	606,209
Operating Expenses	546,891			(2,712		)	544,179
Operating Income	67,294			(5,264		)	62,030
Nonoperating Income (Expense)	(15,813		)	—			(15,813		)
Income tax expense	14,570			(1,998		)	12,572
Net Income	$	36,911		$	(3,266	)	$	33,645
Net Income Per Common Stock Share:
Basic	$	0.69		$	(0.06	)	$	0.63
Diluted	$	0.68		$	(0.06	)	$	0.62

Select consolidated balance sheet line items, which reflect the adoption of the new standard are as follows:



	December 31, 2017
	Balance Sheet
	As Reported		Adjustments			As Restated
	(in thousands)
ASSETS
Prepaid expenses and other	$	65,196	$	13,990		$	79,186
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Air traffic liability	545,362		43,731			589,093
Other accrued liabilities	146,283		1,310			147,593
Noncurrent Liabilities:
Other liabilities and deferred credits	95,636		129,969			225,605
Deferred tax liability	174,344		(40,203		)	134,141
Shareholders' Equity:
Accumulated income	913,951		(120,817		)	793,134

There was no impact to the Company's net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

Recently Issued Accounting Pronouncements

In February 2018, the FASB issued 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The guidance allows reclassification from accumulated other comprehensive income to retained earnings of stranded taxes resulting from the Tax Cuts and Jobs Act. In addition, under ASU 2018-02, certain disclosures regarding stranded tax effects are required. ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company continues to evaluate the impact of ASU 2018-02 and the potential effects on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (ASU 2017-02), which better aligns a company's risk management activities and financial reporting for hedging relationships and is intended to simplify hedge accounting requirements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company continues to evaluate the components and options within ASU 2017-12.

In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), requiring a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires entities to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company is evaluating the impact the adoption of this standard will have on its consolidated financial statements and believes this ASU will have a significant impact on its consolidated balance sheet but does not expect that the ASU will have a material impact on the Company's results of operations or cash flows. The effect of adopting the new standard will be to record right-of-use assets and operating lease obligations for current operating leases on the Company's balance sheet. See Note 10 below which discusses our lease obligations as of March 31, 2018.

In November 2017, the FASB directed the staff to draft a proposed ASU that would provide transition relief allowing entities to continue to apply the guidance in ASC 840, Leases including its disclosure requirements, in the comparative periods presented in the year that a company adopts ASU 2016-02 (ASC 842). Entities that elect this option will record the cumulative effect of adoption on the effective date rather than at the beginning of the earliest comparative period presented. The Company is awaiting the finalized pronouncement.

3. Accumulated Other Comprehensive Income (Loss)

Reclassifications out of accumulated other comprehensive income (loss) by component are as follows:



Details about accumulated other comprehensive (income) loss components	Three months ended March 31,						Affected line items in the statement where net income is presented
	2018			2017
	(in thousands)
Derivatives designated as hedging instruments under ASC 815
Foreign currency derivative losses (gains)	$	1,221		$	(1,212	)	Passenger revenue
Total before tax	1,221			(1,212		)
Tax expense (benefit)	(299		)	459
Total, net of tax	$	922		$	(753	)
Amortization of defined benefit plan items
Actuarial loss	$	624		$	2,228		Nonoperating Income (Expense), Other, net
Prior service cost	56			60			Nonoperating Income (Expense), Other, net
Total before tax	680			2,288
Tax benefit	(167		)	(867		)
Total, net of tax	$	513		$	1,421
Short-term investments
Realized losses (gain) on sales of investments, net	$	5		$	(8	)	Nonoperating Income (Expense), Other, net
Total before tax	5			(8		)
Tax expense (benefit)	(1		)	3
Total, net of tax	$	4		$	(5	)
Total reclassifications for the period	$	1,439		$	663

A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three months ended March 31, 2018 and 2017 is as follows:



Three months ended March 31, 2018	Foreign Currency Derivatives			Defined Benefit Plan Items			Short-Term Investments			Total
	(in thousands)
Beginning balance	$	1,249		$	(75,953	)	$	(560	)	$	(75,264	)
Other comprehensive loss before reclassifications, net of tax	(8,166		)	—			(464		)	(8,630		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	922			513			4			1,439
Net current-period other comprehensive income (loss)	(7,244		)	513			(460		)	(7,191		)
Ending balance	$	(5,995	)	$	(75,440	)	$	(1,020	)	$	(82,455	)



Three months ended March 31, 2017	Foreign Currency Derivatives			Defined Benefit Plan Items			Short-Term Investments			Total
	(in thousands)
Beginning balance	$	7,071		$	(110,202	)	$	(362	)	$	(103,493	)
Other comprehensive income (loss) before reclassifications, net of tax	(6,344		)	47			91			(6,206		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	(753		)	1,421			(5		)	663
Net current-period other comprehensive income (loss)	(7,097		)	1,468			86			(5,543		)
Ending balance	$	(26	)	$	(108,734	)	$	(276	)	$	(109,036	)

4. Earnings Per Share

Basic earnings per share, which excludes dilution, is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three months ended March 31, 2018 and 2017, anti-dilutive shares excluded from the calculation of diluted earnings per share were immaterial.



	Three Months Ended March 31,
	2018		2017
	(in thousands, except for per share data)
Numerator:
Net Income	$	28,542	$	33,645
Denominator:
Weighted average common stock shares outstanding - Basic	51,055		53,562
Assumed exercise of stock options and awards	144		418
Weighted average common stock shares outstanding - Diluted	51,199		53,980
Net Income Per Share
Basic	$	0.56	$	0.63
Diluted	$	0.56	$	0.62

Stock Repurchase Program

In November 2017, the Company's Board of Directors approved a stock repurchase program pursuant to which the Company may repurchase up to $100 million of its outstanding common stock over a two-year period through December 2019. The stock repurchase program is subject to further modification or termination at any time. The Company spent $20.3 million to repurchase and retire approximately 549 thousand shares of the Company's common stock in open market transactions during the three months ended March 31, 2018. As of March 31, 2018, the Company had $79.7 million remaining to spend under its stock repurchase program.

Dividends

During the three months ended March 31, 2018, the Company declared and paid cash dividends of $0.12 per share, or $6.1 million which was paid on February 28, 2018, to stockholders of record as of February 14, 2018.

5. Revenue Recognition

The majority of our revenue is derived from transporting passengers on our aircraft. The Company accounts for revenue in accordance with ASC 606, which was adopted on January 1, 2018, using the full retrospective method. See Note 2 for further discussion of the adoption, including the impact on our previously issued financial statements.

The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian

either originate and/or end in the State of Hawai'i. The management of such operations is based on a system-wide approach due

to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian is engaged in only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's operating revenues by geographic region (as defined by the Department of Transportation) are summarized below:



	Three months ended, March 31,
	2018		2017
Geographic Information	(in thousands)
Domestic	$	492,202	$	450,797
Pacific	173,210		155,412
Total operating revenue	$	665,412	$	606,209

Passenger & Other revenue - Generally, the Company’s contracts with customers have two principal performance obligations, which are the promise to provide transportation to the passenger and the frequent flyer miles earned on the flight. In addition, the Company often charges additional fees for items such as baggage and in-flight entertainment. Such items are not capable of being distinct from the transportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of HawaiianMiles awards for flights, is satisfied, and revenue is recognized, as transportation is provided. In some instances, tickets sold by the Company can include a flight segment on another carrier which is referred to as an interline segment. In this situation, the Company acts as an agent for the other carrier and revenue is recognized net of cost. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.

Other operating revenue consists of cargo revenue, ground handling fees, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.



	Three months ended, March 31,
	2018		2017
Passenger Revenue by Type	(in thousands)
Passenger revenue, excluding frequent flyer	$	577,955	$	534,054
Frequent flyer revenue, transportation component	33,645		29,698
Passenger Revenue	$	611,600	$	563,752

Other revenue (e.g. cargo and other miscellaneous)	$	38,690	$	32,141
Frequent flyer revenue, marketing and brand component	15,122		10,316
Other Revenue	$	53,812	$	42,457

For the three months ended March 31, 2018 and 2017, the Company's total revenue was $665.4 million and $606.2 million, respectively. As of March 31, 2018 and December 31, 2017, the Company's Air traffic liability balance as it relates to passenger tickets (excluding frequent flyer) was $526.4 million and $422.6 million, respectively, which represents future revenue that is expected to be realized over the next 12 months. During the three months ended March 31, 2018 and 2017, the amount of revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $260.3 million and $229.6 million, respectively.

Passenger revenue associated with unused tickets, which represent unexercised passenger rights, is recognized in proportion

to the pattern of rights exercised by related passengers (e.g. scheduled departure dates). To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information and applies the trend rate to the current air traffic liability balances for that specific period.

Management has elected (via a practical expedient election) to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer, e.g., sales, use, value added, and certain excise taxes.

Frequent Flyer Revenue - Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. ASC 606 requires the Company to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel or other award is used by the passenger, at which time it is included in passenger revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. On a quarterly basis, the Company calculates the equivalent ticket value (ETV) by analyzing the fares of similar tickets for the prior 12 months', considering cabin class and geographic region.

The Company also sells mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities. The marketing and brand performance obligations are effectively provided each time a HawaiianMiles member uses the co-branded credit card and monthly access to customer lists and marketing is provided, which corresponds to the timing of when the Company issues or is obligated to issue the mileage credits to the HawaiianMiles member. Therefore, the Company recognizes revenue for the marketing and brand performance obligations when HawaiianMiles members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with the Company’s performance toward satisfying the obligation.

Accounting for frequent flyer revenue involves the use of various techniques to estimate revenue. The Company sells mileage credits to companies participating in the frequent flyer program, who in turn issues those miles to customers based on the volume of spend, making the majority of the transaction price variable. To determine the total estimated transaction price, the Company forecasts future credit card activity using historical information.

The relative selling price is determined using management’s standalone estimated selling price of each performance obligation. The objective of using the estimated selling price based methodology is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, the Company determines the best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, published selling prices, number of miles awarded and number of miles redeemed. The Company estimates the selling price of miles using an ETV adjusted for a fulfillment discount as described above.

Miles expire after 18 months of member account inactivity. The ETV includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile.

The Company's frequent flyer liability is recorded within two balance sheet accounts, Air traffic liability (short-term) and Other liabilities and deferred credits (long-term) based on estimated and expected redemption patterns using historical data and analysis. As of March 31, 2018 and December 31, 2017, the Company's contract liability balance was $366.0 million and $321.9 million, respectively.

Accounts Receivable - Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. The Company provides an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.

Costs to obtain or fulfill a contract - In order for the Company to provide transportation to our customers we incur fulfillment costs which are generally: booking fees, credit card fees, and commission/selling costs. As of March 31, 2018 and December 31, 2017 the Company's asset balance associated with these costs were $20.3 million and $16.7 million, respectively. During the three months ended March 31, 2018 and 2017, expenses related to these costs totaled to $23.9 million and $22.5 million, respectively. To determine the amount to capitalize and expense at the end of each period, the Company uses historical sales data and estimates the amount associated with unflown tickets.

6. Short-Term Investments

Debt securities that are not classified as cash equivalents are classified as available-for-sale investments and are stated as current assets at fair value as these securities are available for use in current operations. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations. Unrealized gains and losses on available-for-sale debt securities are reflected as a component of accumulated other comprehensive income.

The following is a summary of short-term investments held as of March 31, 2018 and December 31, 2017:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018	(in thousands)
Corporate debt	$	141,097	$	4	$	(1,080	)	$	140,021
U.S. government and agency debt	53,462		1		(237		)	53,226
Municipal bonds	19,628		—		(84		)	19,544
Other fixed income securities	32,227		—		(70		)	32,157
Total short-term investments	$	246,414	$	5	$	(1,471	)	$	244,948



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2017	(in thousands)
Corporate debt	$	165,610	$	8	$	(535	)	$	165,083
U.S. government and agency debt	59,054		1		(215		)	58,840
Municipal bonds	21,517		—		(104		)	21,413
Other fixed income securities	23,973		1		(13		)	23,961
Total short-term investments	$	270,154	$	10	$	(867	)	$	269,297

Contractual maturities of short-term investments as of March 31, 2018 are shown below.



	Under 1 Year		1 to 5 Years		Total
	(in thousands)
Corporate debt	$	68,515	$	71,506	$	140,021
U.S. government and agency debt	43,156		10,070		53,226
Municipal bonds	10,486		9,058		19,544
Other fixed income securities	25,200		6,957		32,157
Total short-term investments	$	147,357	$	97,591	$	244,948

7. Fair Value Measurements

ASC Topic 820, Fair Value Measurement (ASC 820), defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities; and

Level 3 — Unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets or liabilities.

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:



	Fair Value Measurements as of March 31, 2018
	Total		Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	176,125	$	135,323	$	40,802	$	—
Restricted cash	1,000		1,000		—		—
Short-term investments	244,948		—		244,948		—
Fuel derivative contracts:
Crude oil call options	19,551		—		19,551		—
Jet fuel swaps	113		—		113		—
Foreign currency derivatives	1,218		—		1,218		—
Total assets measured at fair value	$	442,955	$	136,323	$	306,632	$	—
Fuel derivative contracts:
Jet fuel swaps	$	10	$	—	$	10	$	—
Foreign currency derivatives	7,830		—		7,830		—
Total liabilities measured at fair value	$	7,840	$	—	$	7,840	$	—



	Fair Value Measurements as of December 31, 2017
	Total		Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	62,310	$	27,807	$	34,503	$	—
Restricted cash	1,000		1,000		—		—
Short-term investments	269,297		—		269,297		—
Fuel derivative contracts:
Crude oil call options	20,272		—		20,272		—
Jet fuel swaps	336		—		336		—
Foreign currency derivatives	4,300		—		4,300		—
Total assets measured at fair value	$	357,515	$	28,807	$	328,708	$	—
Foreign currency derivatives	1,713		—		1,713		—
Total liabilities measured at fair value	$	1,713	$	—	$	1,713	$	—

Cash equivalents. The Company's level 1 cash equivalents consist of money market securities and the level 2 cash equivalents consist of U.S. agency bonds, mutual funds, and commercial paper. The instruments classified as level 2 are valued using quoted prices for similar assets in active markets.

Restricted cash. The Company’s restricted cash consists of money market securities.

Short-term investments. Short-term investments include U.S. and foreign government notes and bonds, U.S. agency bonds, variable-rate corporate bonds, asset backed securities, foreign and domestic corporate bonds, municipal bonds, and commercial paper. These instruments are valued using quoted prices for similar assets in active markets or other observable inputs.

Fuel derivative contracts. The Company’s fuel derivative contracts consist of crude oil call options and jet fuel swaps, which are not traded on a public exchange. The fair value of these instruments are determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves, and measures of volatility among others.

Foreign currency derivatives. The Company’s foreign currency derivatives consist of Japanese Yen and Australian Dollar forward contracts and are valued primarily based upon data available or derived from public markets.

The table below presents the Company’s debt (excluding obligations under capital leases and financing obligations) measured at fair value:



Fair Value of Debt
March 31, 2018										December 31, 2017
Carrying		Fair Value								Carrying		Fair Value
Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
(in thousands)
$	415,059	$	418,825	$	—	$	—	$	418,825	$	433,072	$	444,099	$	—	$	—	$	444,099

The fair value estimates of the Company’s debt were based on the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar instruments.

The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.

8. Financial Derivative Instruments

The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices and foreign currencies.

Fuel Risk Management

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. During the three months ended March 31, 2018, the Company primarily used crude oil call options and jet fuel swaps to hedge its aircraft fuel expense. These derivative instruments were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.

The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations.



	Three months ended March 31,
Fuel derivative contracts	2018			2017
	(in thousands)
Gains (losses) realized at settlement	$	5,661		$	2,589
Reversal of prior period unrealized amounts	(11,792		)	(7,947		)
Unrealized gains (losses) that will settle in future periods	10,748			(3,440		)
Gains (losses) on fuel derivatives recorded as nonoperating income (expense)	$	4,617		$	(8,798	)

Foreign Currency Exchange Rate Risk Management

The Company is subject to foreign currency exchange rate risk due to revenues and expenses that are denominated in foreign currencies, with the primary exposures being the Japanese Yen and Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable.

The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The effective portion of the gain or loss of designated cash flow hedges is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. The effective portion of the foreign currency forward contracts represents the change in fair value of the hedge that offsets the change in the fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized as nonoperating income (expense). Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and any changes in fair value are recognized as other nonoperating income (expense) in the period of change.

The Company believes that its foreign currency forward contracts that are designated as cash flow hedges will continue to be effective in offsetting changes in cash flow attributable to the hedged risk. The Company expects to reclassify a net loss of approximately $5.5 million into earnings over the next 12 months from AOCI based on the values at March 31, 2018.

The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Company's unaudited Consolidated Balance Sheets.

Derivative position as of March 31, 2018



	Balance Sheet Location	Notional Amount	Final Maturity Date	Gross fair value of assets	Gross fair value of (liabilities)		Net derivative position
		(in thousands)		(in thousands)
Derivatives designated as hedges
Foreign currency derivatives	Other accrued liabilities	17,051,625 Japanese Yen 47,345 Australian Dollars	March 2019	1,109	(6,095	)	(4,986	)
	Other liabilities and deferred credits	4,666,550 Japanese Yen 7,858 Australian Dollars	March 2020	74	(1,573	)	(1,499	)
Derivatives not designated as hedges
Foreign currency derivatives	Other accrued liabilities	884,200 Japanese Yen 2,555 Australian Dollars	June 2018	35	(162	)	(127	)
Fuel derivative contracts	Prepaid expenses and other	95,508 gallons	March 2019	19,664	(10	)	19,654

Derivative position as of December 31, 2017

Balance Sheet
Location

Notional Amount

Final
Maturity
Date

Gross fair
value of
assets

Gross fair
value of
(liabilities)

Net
derivative
position

(in thousands)

Derivatives designated as hedges

Foreign currency derivatives

Prepaid expenses and other

16,732,375 Japanese Yen
47,805 Australian Dollars

December 2018

3,737

(1,441

)

2,296

Long-term prepayments and other

4,666,700 Japanese Yen
9,180 Australian Dollars

December 2019

546

(195

)

351

Derivatives not designated as hedges

Foreign currency derivatives

Other accrued liabilities

866,150 Japanese Yen
3,148 Australian Dollars

March 2018

(77

)

(60

)

Fuel derivative contracts

Prepaid expenses and other

94,332 gallons

December 2018

20,608

—

20,608

The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Company's unaudited Consolidated Statements of Comprehensive Income.



	(Gain) loss recognized in AOCI on derivatives (effective portion)				(Gain) loss reclassified from AOCI into income (effective portion)					(Gain) loss recognized in nonoperating (income) expense (ineffective portion)
	Three months ended March 31,				Three months ended March 31,					Three months ended March 31,
	2018		2017		2018		2017			2018		2017
	(in thousands)
Foreign currency derivatives	$	10,809	$	10,210	$	1,221	$	(1,212	)	$	—	$	—

Risk and Collateral

Financial derivative instruments expose the Company to possible credit loss in the event the counterparties fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings,

(2) limits its exposure to any single counterparty, and (3) regularly monitors the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments, as cash collateral would be provided by the counterparties based on the current market exposure of the derivative.

ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement, or present such amounts on a gross basis. The Company’s accounting policy is to present its derivative assets and liabilities on a net basis, including any collateral posted with the counterparty. The Company had no collateral posted with counterparties as of March 31, 2018 and December 31, 2017.

The Company is also subject to market risk in the event these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company’s overall exposure.

9. Debt

As of March 31, 2018, the expected maturities of long-term debt for the remainder of 2018 and the next four years, and thereafter, were as follows (in thousands):



Remaining months in 2018	$	30,231
2019	72,927
2020	21,413
2021	49,060
2022	56,856
Thereafter	184,573
	$	415,060

10. Leases

The Company leases aircraft, engines, and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, maintenance facilities, and general offices. Certain leases include escalation clauses and renewal options. When lease renewals are considered to be reasonably assured, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the life of the lease.

As of March 31, 2018, the scheduled future minimum rental payments under operating leases with non-cancellable basic terms of more than one year were as follows:



	Aircraft		Other
	(in thousands)
Remaining in 2018	$	80,443	$	5,155
2019	98,327		6,584
2020	82,362		6,399
2021	66,259		6,509
2022	60,153		6,778
Thereafter	164,993		91,181
	$	552,537	$	122,606

11. Employee Benefit Plans

The components of net periodic benefit cost for the Company’s defined benefit and other post-retirement plans included the following:



	Three months ended March 31,
Components of Net Period Benefit Cost	2018			2017
	(in thousands)
Service cost	$	1,962		$	3,813
Other cost:
Interest cost	5,009			7,259
Expected return on plan assets	(5,588		)	(4,796		)
Recognized net actuarial loss	680			2,287
Total other components of the net periodic benefit cost	101			4,750
Net periodic benefit cost	$	2,063		$	8,563

Total other components of the net periodic benefit cost are recorded within the nonoperating income (expense), other, net line item.

During the three months ended March 31, 2018 and 2017, the Company contributed nil and $6.4 million, respectively to its defined benefit and other postretirement plans. The Company is not required to make any further minimum contributions until 2019 due to the sufficiency of the plans' current position.

In August 2017, the Company completed the termination of the Merged Pension plan by transferring the assets and liabilities to a third-party insurance company. At that time, the Company contributed a total of $18.5 million in cash to fully fund the plan and recognized a one-time financial loss in the third quarter of 2017 of $35.2 million as an other nonoperating special item on the Company's Consolidated Statement of Operations. The Company no longer has any expected contributions to the Merged Plan due to the final settlement.

In March 2017, the Company announced the ratification of a 63-month contract amendment with its pilots as represented by the Air Line Pilots Association (ALPA). In connection with the ratification of the agreement, the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots, and replace the benefit with a heath retirement account (HRA) managed by ALPA, which represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. In August 2017, the Company made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. The Company recognized a one-time settlement loss of $10.4 million in the third quarter of 2017.

12. Commitments and Contingent Liabilities

Commitments

As of March 31, 2018, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:



Aircraft Type	Firm Orders	Purchase Rights	Expected Delivery Dates
A321neo aircraft	14	9	Between 2018 and 2020
Pratt & Whitney spare engines:
A321neo spare engines	3	2	Between 2018 and 2019

In February 2018, the Company exercised its right to terminate its aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. Refer to Note 13 below for discussion on the contract termination charge. The Company executed a non-binding letter of intent (LOI) for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft. The Company selected the General Electric GEnx engine to power the additions to its fleet. The expected expenditures for the Boeing 787-9 aircraft and engines are not reflected in the below table.

Committed capital and operating expenditures include escalation amounts based on estimates. The gross committed expenditures and committed payments for those deliveries as of March 31, 2018 are detailed below:



	Capital		Operating		Total Committed Expenditures
	(in thousands)
Remaining in 2018	$	354,102	$	55,960	$	410,062
2019	277,757		61,858		339,615
2020	51,911		56,484		108,395
2021	10,113		51,738		61,851
2022	10,113		51,930		62,043
Thereafter	75,431		216,077		291,508
	$	779,427	$	494,047	$	1,273,474

Litigation and Contingencies

The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of any currently pending proceeding will have a material effect on the Company’s operations, business or financial condition.

General Guarantees and Indemnifications

In the normal course of business, the Company enters into numerous aircraft financing and real estate leasing arrangements that have various guarantees included in such contracts. It is common in such lease transactions for the lessee to agree to indemnify the lessor and other related third-parties for tort liabilities that arise out of, or relate to, the lessee’s use of the leased aircraft or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by such parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to the lessee's use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most of the tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot reasonably estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.

Credit Card Holdback

Under the Company’s bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in the Company’s unaudited Consolidated Balance Sheets, totaled $1.0 million at each of March 31, 2018 and December 31, 2017.

In the event of a material adverse change in the Company's business, the holdback could increase to an amount up to 100% of the outstanding credit card amounts that is unflown (e.g. air traffic liability), which would also cause an increase in the level of restricted cash. If the Company is unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on the Company's operations, business or financial condition.

13. Contract Terminations Expense and Special Items

Contract terminations expense

For the three months ended March 31, 2018, the Company terminated two contracts which incurred a total of $35.3 million in contract terminations expense. The transactions are described below:

In February 2018, the Company exercised its right to terminate the aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, the Company was obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. The Company recorded a contract termination expense to reflect a portion of the termination penalty within the Consolidated Statements of Operations.

In January 2018, the Company entered into a transaction with its lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.

Special items

In March 2017, the Company received notice from ALPA that the agreement was ratified by ALPA's members. The agreement became effective April 1, 2017. The agreement included, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. During the three months ended March 31, 2017, the Company expensed $18.7 million principally related to a one-time payment to reduce the Company's future 401K employer contribution for certain pilot groups, which was not recoverable once paid.

14. Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2018 and 2017 was 23.1% and 27.2%, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items. The effective tax rate for the three months ended March 31, 2018 also reflects the reduced federal corporate income tax rate as a result of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017. The ultimate impact may differ from these provisional amounts related to 2017, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed later in 2018.

15. Condensed Consolidating Financial Information

The following condensed consolidating financial information is presented in accordance with Regulation S-X paragraph 210.3-10 because, in connection with the issuance by two pass-through trusts formed by Hawaiian (which is also referred to in this Note 15 as Subsidiary Issuer / Guarantor) of pass-through certificates, the Company (which is also referred to in this Note 15 as Parent Issuer / Guarantor) is fully and unconditionally guaranteeing the payment obligations of Hawaiian, which is a 100% owned subsidiary of the Company, under equipment notes issued by Hawaiian to purchase new aircraft.

The Company's condensed consolidating financial statements are presented in the following tables:

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)

Three months ended March 31, 2018



	Parent Issuer / Guarantor			Subsidiary Issuer / Guarantor			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating Revenue	$	—		$	663,412		$	2,127		$	(127	)	$	665,412
Operating Expenses:
Wages and benefits	—			168,709			—			—			168,709
Aircraft fuel, including taxes and delivery	—			133,446			—			—			133,446
Maintenance materials and repairs	—			57,494			647			—			58,141
Aircraft and passenger servicing	—			36,518			—			—			36,518
Commissions and other selling	(5		)	31,958			20			(48		)	31,925
Aircraft rent	—			31,900			—			—			31,900
Other rentals and landing fees	—			30,815			—			—			30,815
Depreciation and amortization	—			31,275			970			—			32,245
Purchased services	90			30,868			178			(15		)	31,121
Contract termination expenses	—			35,322			—			—			35,322
Other	1,581			37,123			365			(64		)	39,005
Total	1,666			625,428			2,180			(127		)	629,147
Operating Income (Loss)	(1,666		)	37,984			(53		)	—			36,265
Nonoperating Income (Expense):
Undistributed net income of subsidiaries	29,810			—			—			(29,810		)	—
Interest expense and amortization of debt discounts and issuance costs	—			(8,555		)	—			—			(8,555		)
Interest income	65			1,409			—			—			1,474
Capitalized interest	—			2,238			—			—			2,238
Gains on fuel derivatives	—			4,617			—			—			4,617
Other, net	(4		)	1,055			5			—			1,056
Total	29,871			764			5			(29,810		)	830
Income (Loss) Before Income Taxes	28,205			38,748			(48		)	(29,810		)	37,095
Income tax expense (benefit)	(337		)	8,900			(10		)	—			8,553
Net Income (Loss)	$	28,542		$	29,848		$	(38	)	$	(29,810	)	$	28,542
Comprehensive Income (Loss)	$	21,351		$	22,657		$	(38	)	$	(22,619	)	$	21,351

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)

Three months ended March 31, 2017 ^(a)



	Parent Issuer / Guarantor			Subsidiary Issuer / Guarantor			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating Revenue	$	—		$	604,567		$	1,746		$	(104	)	$	606,209
Operating Expenses:
Aircraft fuel, including taxes and delivery	—			103,538			—			—			103,538
Wages and benefits	—			151,053			—			—			151,053
Aircraft rent	—			33,135			—			—			33,135
Maintenance materials and repairs	—			57,293			2,111			—			59,404
Aircraft and passenger servicing	—			34,290			—			—			34,290
Commissions and other selling	6			29,663			19			(46		)	29,642
Depreciation and amortization	—			26,517			951			—			27,468
Other rentals and landing fees	—			28,336			—			—			28,336
Purchased services	106			26,354			192			(15		)	26,637
Special items	—			18,679			—			—			18,679
Other	1,152			30,453			435			(43		)	31,997
Total	1,264			539,311			3,708			(104		)	544,179
Operating Income (Loss)	(1,264		)	65,256			(1,962		)	—			62,030
Nonoperating Income (Expense):
Undistributed net income of subsidiaries	34,373			—			—			(34,373		)	—
Interest expense and amortization of debt discounts and issuance costs	—			(8,003		)	—			—			(8,003		)
Other components of net periodic pension cost	—			—			—			—			—
Interest income	70			1,082			—			—			1,152
Capitalized interest	—			1,760			—			—			1,760
Losses on fuel derivatives	—			(8,798		)	—			—			(8,798		)
Loss on extinguishment of debt	—			—			—			—			—
Other, net	—			(1,924		)	—			—			(1,924		)
Total	34,443			(15,883		)	—			(34,373		)	(15,813		)
Income (Loss) Before Income Taxes	33,179			49,373			(1,962		)	(34,373		)	46,217
Income tax expense (benefit)	(466		)	13,725			(687		)	—			12,572
Net Income (Loss)	$	33,645		$	35,648		$	(1,275	)	$	(34,373	)	$	33,645
Comprehensive Income (Loss)	$	28,102		$	30,105		$	(1,275	)	$	(28,830	)	$	28,102

Condensed Consolidating Balance Sheets

March 31, 2018



	Parent Issuer / Guarantor		Subsidiary Issuer / Guarantor		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	29,662	$	242,097	$	7,426	$	—		$	279,185
Restricted cash	—		1,000		—		—			1,000
Short-term investments	—		244,948		—		—			244,948
Accounts receivable, net	27		106,540		447		(290		)	106,724
Spare parts and supplies, net	—		30,815		—		—