Hawaiian Holdings Inc (HA) Q4 2022 Earnings Call Transcript

Hawaiian Holdings Inc (NASDAQ:HA) Q4 2022 Earnings Call dated Jan. 31, 2023.

Corporate Participants:

Marcy Morita — Managing Director, Investor Relations

Peter Ingram — President and Chief Executive Officer

Brent Overbeek — Chief Revenue Officer

Shannon Okinaka — Chief Financial Officer

Analysts:

Conor Cunningham — Melius Research — Analyst

Helane Becker — Cowen and Company — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Hillary Cacanando — Deutsche Bank — Analyst

Dan McKenzie — Seaport Global — Analyst

Andrew Didora — Bank of America — Analyst

Chris Stathoulopoulos — Susquehanna International Group — Analyst

Presentation:

Operator

Greetings and welcome to Hawaiian Holdings, Inc Fourth-Quarter and Full-Year 2022 financial results call. [Operator Instructions] It is now my pleasure to introduce your host, Marcy Morita, Managing Director, Investor Relations, Thank you. You may begin.

Marcy Morita — Managing Director, Investor Relations

Thank you, Doug. Hello, everyone, and welcome to Hawaiian Holdings’ Fourth-Quarter and Full-Year 2022 Results Conference Call. Here with me in Honolulu are Peter Ingram, President and Chief Executive Officer; Brent Overbeek, Chief Revenue Officer; and Shannon Okinaka, our Chief Financial Officer. We also have several other members of our management team in attendance for the Q&A.

Peter will provide an overview of our performance, Brent will discuss revenue, and Shannon will discuss costs and the balance sheet. At the end-of-the prepared remarks, we’ll open the call up for questions. By now, everyone should have access to the press release that went out at about four o’clock Eastern Time today. If you have not received the release, it is available on the Investor Relations webpage of our website hawaiianairlines.com.

During our call today, we’ll refer at times to adjusted or non-GAAP numbers and metrics. A detailed reconciliation of GAAP to non-GAAP numbers and metrics can be found at the end of today’s press release posted on the Investor Relations page of our website. As a reminder, following prepared remarks contain forward-looking statements, including statements about our future plans and potential future financial and operating performance. Management may also make additional forward-looking statements in response to your questions.

These statements are subject to risks and uncertainties, and do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to Hawaiian Holdings’ recent filings with the SEC for a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. These include the most recent annual report filed on the Form 10-K, as well as subsequent reports filed on Forms 10-Q and 8-K.

I will now turn the call over to Peter.

Peter Ingram — President and Chief Executive Officer

Hello, Marcy. Hello, everyone, and thank you for joining us today. It’s encouraging to be entering a year where COVID restrictions are no longer hovering over our network. But we know that we have a lot of work ahead of us as our financial performance remains quite a ways from being fully recovered. As we continue to build upon the progress we’ve made, we’ve also embarked on a number of significant initiatives that will strengthen our company and make Hawaiian a better airline for our guests, our community and our shareholders.

I want to start by thanking our team. We’ve been tested over the past few years by a global pandemic, intense competition, and during the waning weeks of 2022, by mother-nature. Through it all, our team has shown their mettle and continued to deliver unrivaled hospitality. Our team cares deeply about our company, our guest and each other. And more than anything else, this is what sets us up for success as we move forward.

Leisure travel demand remained strong. We’ve experienced a full recovery in much of our network, most notably in the largest part of our network between the mainland US and Hawaii. Low fares in the Neighbor Island market have stimulated traffic and we continue to materially outperform our competitor on all of these routes. Australia, New Zealand and South Korea have all seen strong demand recoveries over the course of 2022.

Having said that, despite the removal of COVID travel restrictions in October, Japanese travelers have not yet resumed international travel at a pace comparable to pre-pandemic levels as Brent will discuss in more detail. With the timing of Japanese demand recovery still uncertain, we will need to be nimble. In recent weeks, we’ve made adjustments to slow the deployment of capacity to Japan. While we remain confident that with time the longstanding affinity of Japanese travelers for a Hawaii vacations will manifest, we also need to be pragmatic in putting capacity elsewhere if recovery remains slow. The natural question for investors is to wonder why it has taken Hawaiian longer to return to profitability than other US Airlines.

On the cost side, our outlook relative to 2019, is comparable to others. We are facing cost inflation in a number of categories, including labor. I should emphasize that our cost outlook now includes the impact of new contracts for each of our unionized group since 2020, including the economics of the TA we’ve reached — recently reached with ALPA.

Where our 2022 results and our near-term outlook diverge from our peers is on revenue, not because we are underperforming our competitors on specific routes, but because of the characteristics of the markets in which we compete. We don’t control the timing of demand recovery from Japan. We only make decisions on one side of the Neighbor Island competitive battle. And even in North-America, the North-America to Hawaii market, which is operating profitably, the supply-demand environment relative to 2019 is less favorable than in the domestic 48 and trans-Atlantic markets.

As a result. I can’t project the timing of a return to profitability as precisely as I would like. What we can do and what we are doing is to focus on what we do control. We can focus on operational execution to unlock efficiencies which help offset an inflationary environment. We can invest in a continuum of initiatives to position our company for sustained success. And we can work to win competitive battles and maximize revenue generation in each of our markets. That is our focus. Everyone at Hawaiian is keenly focused on winning in Hawaii.

Last quarter, I talked at length about the competitive situation on our Neighbor Island routes. Based on the most recent information available through DOT reporting, we continue to succeed in earning a disproportionate passenger fare with higher average fares than our competitors, and the gap is substantial. We continue to believe that our place in the community, our product and schedule, our knowledge of the guest and our fabulous employees, give us structural advantages here that will enable us to win. We are Hawaii’s airline. The current battle continues nonetheless, which depresses [Phonetic] near-term financial performance. We’re standing our ground and remain resolute that we will win in the end and emerge stronger on the other side.

Also, among our key imperatives this year is to firmly reestablish an efficient operating rhythm. 2022 was marked by an unprecedented level of hiring and training throughout our organization as we rebuilt our network after the pandemic. Almost 20% of my over 7,000 teammates have joined our company since the beginning of 2022. Being in rebuilding mode meant that we sometimes accepted ways of working that were not optimally efficient at scale. For 2023, the focus is on operating more reliably, consistently and efficiently. Something that is good for both our guests and our cost structure, countering inflationary pressure in a number of areas.

Over the past few months, we have not performed to our standards operationally. The root causes are not a function of our decisions but it is our responsibility to overcome external forces and deliver the level of service and reliability our guests expect. Since October, on-time performance at our Honolulu hub has been undermined by construction on a primary arrivals runway and the air traffic control programs that constrain arrivals into the airport. These changes have disproportionately affected short-haul Neighbor Island plates. As a consequence, our reliability has fallen below our high standards and we’ve been forced to make adjustments to our schedule to stabilize operations.

This construction will continue into the second-quarter and will continue to challenge our operations for the next few months. We’ve adjusted our schedule to add block time and have created schedule recovery buffers on our lines of flying. As a result of these changes, and an intense focus on daily reliability by our operations team, we’ve seen considerable improvement in performance over the past two months. But even with these changes, it will be a day-to-day battle during the construction period to manage through the capacity constraints at our primary hub, and we will be more susceptible than usual to weather our mechanical disruptions. A huge mahalo goes out to our teams in the trenches who are working everyday to deliver on our customer promise.

We are also not immune to global supply-chain challenges. Since late last year, we have encountered constraints on the availability of A321 expansions for which Pratt & Whitney’s MRO supply-chain has been unable to keep pace. Most recently, this has resulted in two of our 18 A321s being grounded for an extended period, awaiting available serviceable engines. Here again, we have made adjustments to protect the integrity of our schedules, but not without operational challenges and associated revenue and cost headwinds. As we deal with these near-term challenges, we remain keenly focused on completing an extensive list of initiatives that will position Hawaiian for long-term success.

Our team is deep in preparation for the launch of freighter operations for Amazon later this year. Over the next few months, we will also be — we will also complete the insourcing of certain elements of the maintenance programs for our A330 fleet, for which we have relied on a third-party for over a decade. This will improve our cost structure overtime and immediately give us more control over fleet reliability and performance. While separate from the Amazon initiative, taking on this in-sourcing at the same time as we’re adding at least 10 freighters to our A330 fleet, makes it even more timely.

We’re putting mobile technology in the hands of more of our employees to make us more operationally nimble and to allow us to serve our guests better with real-time information. And in April, we will go-live with our new passenger service system. Not only does this unshackle us from a core system that has limited our pace of innovation, it also has served as a catalyst to accelerate transformation of our technology; streamlining the connections between the PSS and other systems, enabling better use of data and providing an opportunity to modernize code for our e-commerce platform. This year, we will begin cycling our long-haul fleet through the installation of StarLink inflight connectivity, which will position us as a global leader in offering free, fast and frictionless Internet to all our guests.

We’re also pleased to have reached terms on a four-year pilot working agreement with ALPA this month. Since this agreement is currently out for a ratification vote, we won’t be commenting on the specific terms of the contract, but we have reflected the expected economic impact of the agreement and the guidance we’re sharing today. Should our pilots ratify the agreement, we will have reached new contract terms with all of our organized labor groups since 2020 and none of our contracts will become amendable prior to 2025.

So we have a lot to do in a year with significant challenges in some of our core markets. While we might wish for these initiatives to be a bit more spread-out, you don’t always get to choose when the opportunity presents. And I believe the priorities I just mentioned will be transformational for our company. 2023 promises to be an exciting year and I am fortunate to have an unbelievably talented team to tackle the challenges and opportunities. Let me turn it over now to Brent to go over our commercial performance in more detail.

Brent Overbeek — Chief Revenue Officer

Thank you, Peter. Aloha, everyone. During 2022, we saw robust demand for travel to Hawaii from North-America and our international markets, excluding Japan. Strong performance by our premium and ancillary products. We saw overall PRASM surpassed 2019 due to the strength in these areas. Our ability to be flexible and adapt our network and schedule to address a dynamic environment served us well. Overall, fourth-quarter revenue performance was in-line with what we anticipated, despite the operational challenges we faced in the last two weeks of the year.

Although ASMs, were down 6% from 2019 due to a slower-than-expected rebuild in Japan, our system RASM was up versus 2019, demonstrating the continued strength we see in our US Mainland to Hawaii routes and International routes, excluding Japan. Consistent with our expectations, approximately $25 million of passenger revenue was attributable to spoilage from pandemic era credits that expired at the end of December. A level that we do not expect to see going forward.

The resilience of the leisure market was evident in our domestic travel demand. US Mainland to Hawaii, total passenger revenue was up 29% on 9% more capacity compared to the fourth-quarter of 2019, with load factors remaining in the high 80s. We achieved this revenue growth despite 11% more industry capacity between the US mainland and Hawaii than in 2019.

2022 was also a strong year for our international markets outside of Japan. In July, we resumed service to Auckland and pent-up demand to and from New Zealand drove strong RASM gains. On the back-half of the year, Korean PRASM returned to pre-pandemic performance levels and we continue to experience very strong demand in the Sydney market.

Unlike our other international markets, Japan’s ramp-up has been slower than we anticipated when it began reopening. This difference can be attributed to three primary factors. First, Japanese consumers have exhibited a degree of conservatism in returning to the long-haul international market — international travel. Second, the Japanese government is encouraging major domestic travel agencies there to promote domestic travel in lieu of international travel. And lastly, the weakness of the yen has made it more expensive to travel to Hawaii now than it was prior to the pandemic. The relationship of Japanese travelers to Hawaii is a strong one and Hawaii is still a cherished an aspirational destination, more so than other international destinations. This drives our belief that the weakness in demand is transitory and that we will be well-positioned to fully serve Japan to Hawaii market when demand returns.

Moving on to the Neighbor Islands, it continues to be a challenging market from a fare perspective. Our competitor is no longer offering $39 last seat availability as they were for much of the second-half of 2022, but low fares are widely available in the market. We continue to manage yields above $39 when possible and the low fares have had the near-term effect of stimulating demand. We continue to offer the best service and schedule in the market and we are seeing positive signs that our strategy is paying-off.

The most recent DOT statistics show that for the third-quarter, our load factor was 22 points higher than our competitor and our average share of roughly $51 was nearly double there’s. While our ticket PRASM of — while our PRASM of $29.03 was well below our historical standards, it vastly exceeded our competitors $10.06 result.

With our premium products demand remained strong, both domestically and internationally. For the fourth-quarter, North-America premium cabin unit revenue improved over 30% compared to 2019. In the longer-term, we’re excited about both expanding our premium offerings with the arrival of our first Boeing 787-900 at the end of 2023. The 787 fleet will offer 34 lie flat seats versus the 18 seats on our A330s, as well as additional extra comfort seats.

Ancillary revenue remains strong. We saw continued momentum in Extra Comfort sales. Our newer preferred seat option performed in-line with our expectations and we launched this product for international flights during the second-half of 2022 with promising initial results. Among other successful products, our co-branded credit card had another record quarter and year with spend up over 19% compared to the fourth-quarter of 2019. This program is uniquely designed to reward people who love Hawaii and those who live here. We’ve also implemented a new benefit for cardholders, a second free checked bag.

Our cargo team had its best fourth-quarter on record, which contributed over $34 million in revenue, driven by strong yields from the international market. We do anticipate our cargo activity to slow moderately as we head into 2023, as international yields continued to decline. Additionally, we don’t have any charter flying in 2023 for the US Postal Service, as we did for the first three quarters of 2022.

As Peter mentioned, we will face some operational challenges associated with the maintenance of our A321 engines. With the reduced schedule to and from Japan, we have the ability to shift our A330 aircraft to cover A321 routes. That results in a heavier A330 schedule into North-America for the first-quarter than we would normally plan in shoulder season. While that allows us to maintain service in well-performing mainland markets, we’re not optimized on gauge and that will have an unfavorable impact on first-quarter 2023 RASM. We continue to work with Pratt & Whitney and anticipate improvement in the quarters ahead.

Our first-quarter 2023 capacity is forecast to be approximately 15% higher than the same-period in 2022, Compared to the first-quarter 2022, we plan on operating a slightly lower capacity for our North-America routes, higher in the Neighbor Islands, and substantially more in international markets where our network rebuild was only starting to take shape in early 2022. The first-quarter of 2022 had some unique pandemic related challenges, so we expect the difference of it versus 2022 to narrow as we progress throughout the rest of the year.

At the end of last year, we saw some softness in North-America bookings for travel in the first-quarter of 2023, but these have improved over recent weeks, and we’re encouraged with booking intakes, even with some fares discounting initiated by other carriers. We are now forecasting first-quarter 2023 PRASM to be up approximately 15% compared to the first-quarter of 2022. As with capacity, we expect 2023 PRASM to be closer to 2022 levels in future quarters. We look-forward to strengthening our international and US Mainland to Hawaii markets, rebuilding our presence in Japan and continuing to be the airline of choice for Neighbor Island travel.

2023 does not come without challenges in some of these markets, but we are equipped to be nimble as we review demand and opportunities. We have a well thought-out product lineup for our market, a strong brand and a team that is second to none. I’d like to thank our amazing team for their outstanding efforts, not just during the quarter, but during the entire year. We’ve had some challenging weeks to wrap-up the year and it’s great to see everyone pulled together.

With that, I’ll turn the call over to Shannon.

Shannon Okinaka — Chief Financial Officer

Thanks, Brent. [Foreign Speech] Happy New Year, and thank you for joining us today as we walk-through our fourth-quarter and full-year results, share our 2023 first-quarter and full-year outlook, and talk about initiatives that we have on the horizon.

We finished 2022 with an adjusted EBITDA of $25.6 million for the fourth-quarter and adjusted EBITDA loss of $31.0 million for the full-year. This equates to an adjusted loss of $0.49 per share for the fourth-quarter and $4.08 per share for all of 2022. These fourth-quarter results are slightly better-than-expected due to the strong demand in North-America and certain international markets, partially offset by the competitive Neighbor Island market and slower buildup in Japan.

Our fourth-quarter unit cost, excluding fuel and non-recurring items, were up 14.2% compared to 2019, which was in-line with our expectations. As mentioned on the last call, we saw increases in wage rates and airport rents, and as expected, we also incurred costs related to future growth opportunities, such as startup and pilot training costs for our new cargo flying for Amazon and the induction of our 787 later this year.

Regarding the 787s, we recently-announced the amendment of our deal with Boeing, which solidified our delivery schedule and increased our order with Boeing of 10 to 12 aircraft. We’re very excited about the delivery of our first 787 aircraft, which is scheduled for the fourth-quarter of this year. Several factors influenced our decision to add two more 787s to the order, including the exceptional revenue-generating capability of the larger premium cabin and increase in overall seat count. In addition, the 787 delivery schedule will provide flexibility in our growth rate as we decide whether to extend or return A330s when leases expire. Our next four A330 lease expirations occur in 2024.

The finalization of the 787 delivery schedule resulted in just over $70 million of capital expenditures, moving from 2022 into 2023. We now expect 2023 aircraft related capex to be in the range of $290 million to $300 million. In addition, we expect our 2023 non-aircraft related capex to be in the range of $40 million to $80 million, which is higher-than-normal due to preparation for the 787 induction and the in-sourcing of our A330 maintenance.

Our investment in technology and facility initiatives will also be slightly higher than 2022. Notable facility investments include reconstruction of the security checkpoints at Honolulu Airport for better throughput and guest experience and new below-the-wing workspaces to increase the efficiency of our operations in the new Mouka [Phonetic] Terminal at Honolulu.

Looking at costs going-forward, it’s clear that our costs will remain structurally higher than pre pandemic levels, much of which is driven by industry-wide cost inflation. To address this, we’re focused on productivity above people and assets, as well as on revenue-generating capability. While we did not expect to be at pre-pandemic levels of productivity this year, we believe that our investments and the recovery of our network position will yield sizable improvement in the future. And as we start-up our new Amazon service and enter the 787s into service, we’ll reap the revenue benefits and grow shareholder value.

For the first-quarter, we expect our unit cost, ex-fuel and special items, to be about flat to the same-period in 2022, and that’s low-single digits on a percentage basis for the full-year compared to 2022. This includes our estimate for the cost of implementing the new ALPA TA effective March 1. The primary drivers behind the increase in unit cost are training of our pilots for the Amazon flying and for the new 7807 fleet, contractual rate increases in our power by the hour agreements, and a more intensive heavy maintenance schedule for our A321s.

2023 is a year in which we are making substantial investments in our fleet, technology and guest experience, which reflect in both our operating costs and capital expenditures. These initiatives are building blocks to make Hawaiian Airlines a stronger business. And as we get back to operational excellence and fight to win in our markets, our investments in technology and product are going to better enable our frontline team to deliver the Aloha and hospitality that is one of our primary competitive advantages. Having faced the challenges of the last few years, we have renewed energy around innovation to improve our revenue-generating capability and manage our costs. We’re excited about our future as we lay the foundation that will set us up for success.

With that, we can open up the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Conor Cunningham with Melius Research. Please proceed with your questions.

Conor Cunningham — Melius Research — Analyst

Hey, everyone. Thank you for the time. I’m just going to the 1Q RASM guidance. I’m a little confused on what’s kind of happening there. So you talked a little bit about higher utilization kind of impacting the results there or the outlook there, but just when I think quarter-over-quarter, it implies a pretty massive step-down versus historical trends. I was just wondering if you could maybe provide a little color on what’s kind of happening there? And then, why you expect it to snap-back in the remaining quarters after? Thank you.

Brent Overbeek — Chief Revenue Officer

Well, I mean, we guided, Conor, to year-over-year, and not over the sequential-quarter. I do think we’ve got some different moving pieces as you look-through. We talked through some of the changes in spoilage in particular as you move through the quarter. And like I mentioned, we saw a little bit of softness in the front part of the quarter, particularly in North-America in addition to some of those up [Indecipherable].

Conor Cunningham — Melius Research — Analyst

So it’s basically a function of just like a larger spoilage in 1Q and then it kind of normalizing for like high-level take?

Peter Ingram — President and Chief Executive Officer

On a sequential quarter-over-quarter basis, we see that from 4Q to 1Q, but from a year-over-year perspective, it will be a little bit different, yes.

Conor Cunningham — Melius Research — Analyst

Okay, all right. That makes sense. And then, just your cost cadence is going to be probably a little bit different than some of your other peers. I realize you have the final contract in your numbers, but I was wondering if you could just provide a little sort of color around the Amazon cost build there? I would imagine it’s much more second-half weighted, but I’m just trying to figure out the lumpiness that’s going to happen through 2023. Thank you.

Shannon Okinaka — Chief Financial Officer

Thanks, Carter. This is Shannon. I’ll start. Yes, we do have it — we haven’t broken this piece out. We do have a good amount of pilot training going right now and it’s kind of combined with the preparation for 787s as well, because we of course have one pilot training plan, which includes getting ready for both. So that is definitely in our first-quarter costs in our guidance. As we move throughout the year, I don’t — that training kind of stays at that rate, but we will be, to your point, adding in more costs as we get ready and get closer to flying for Amazon. Once we are actually flying the airplanes and we can specifically identify costs related to the Amazon flying. I’ll try to point that out, but for right now, it is somewhat intermingled with all of the other things that we’re planning for.

Conor Cunningham — Melius Research — Analyst

Okay, thank you.

Operator

Our next question comes from the line of Helane Becker with. Cowen and Company. Please proceed with your question.

Helane Becker — Cowen and Company — Analyst

Thanks very much, operator. Hi, everybody. Peter, you said a number that I wanted to double-check. How many people did you say you’ve hired in the last year?

Peter Ingram — President and Chief Executive Officer

I said about 20%. Just a hair under 20% of our employees on payroll today have joined the company since the beginning of 2022.

Helane Becker — Cowen and Company — Analyst

Right. Right. So that’s — you only have about, what, 7,000, 7,500? So that’s a significant amount of new talent that’s been trained in the last one year. So when do you think they hit their productivity levels that contribute to the bottom-line?

Peter Ingram — President and Chief Executive Officer

I think for a lot of the groups, Helane, you get the productivity fairly quickly. You’re always wanting to do more training, probably over the course or part of the year last year, If you think about our airports organization, we would have people who were trained on certain functions, but they weren’t necessarily training to be cross utilized across the operation. And as we get more of that training done, it makes you a little bit more efficient and adaptable in the day-to-day operation. So that I would say is the story in that part of the business.

With flight attendants, for us, we are fully staffed to be able to operate, a, not only the schedule we’re operating today. We’re not planning on having any material hiring of flight attendants this year, although we had a lot last year. There it’s just really a question of having the ASMs back, which is to a certain extent a function of getting our widebodies flying to Japan, getting the A321s back in the operation at full force would be helpful, and sort of full — flying the full capacity that we have. So in terms of — that’s what really is the one limiting factor on efficiency there. And then, as Shannon was alluding to with regards to pilots, we still have a lot of training this year, and we did a lot of training last year.

And as we work to position through, so that we have the right staffing for the initial tranche of the freighter aircraft and work to move people through the training cycles to get equipped for the 787s coming on later this year, we’ll still have some unproductive time in terms of pilots spending time in training rather than flying revenue block hours for us and that is going to continue really throughout this year and probably start to level out some next year. But as we are in growth mode with the freighters, we’ll still have some — some of that carry-on activity beyond, I would say, a normal steady-state level, even as we go into 2024.

Helane Becker — Cowen and Company — Analyst

Okay. That’s hugely helpful. Thanks, Peter. And then, just for my follow-up question on the Japan routes. I know the DOT rejected the initial alliance that you had put forth, would you consider circling back around and applying for an alliance again, or JV, or however you want to term it, with Japan Air to sort of in the short-term anyway improve those results?

Peter Ingram — President and Chief Executive Officer

Yes. So we’ve continued our commercial relationship with Japan Airlines and we still work closely with them on codeshare and interline and some frequent-flyer reciprocity. We’re doing that without the antitrust immunity protection that you get from an approved antitrust immunized joint-venture with DOT. So that constrains a little bit how much we can optimize that relationship and how closely we can work with JAL.

For the time-being, that is our plan going-forward is to continue working on that way. We still have the opportunity to go back to DOT at some point and we spent some time in 2020 when the ATI application was turned down, trying to understand the concerns the DOT had. And obviously, the time came when we wanted to reapply, we would hopefully be in a good position to be able to address those and structure the partnership in a way that made sense in terms of how DOT looks at it. So, no immediate plans to go and make a filing there but it is still something that we have the ability to go back and take another look at again.

Helane Becker — Cowen and Company — Analyst

That’s great. Thanks. All hugely helpful as usual. Thanks, Peter.

Peter Ingram — President and Chief Executive Officer

All right. Thanks, Helane.

Operator

Our next question comes from the line of Catherine O’Brien with Goldman Sachs. Please proceed with your question.

Catherine O’Brien — Goldman Sachs — Analyst

Hey. Good afternoon, everyone. Good to be back this quarter. So I just wanted to circle back on the first-quarter revenue outlook, if you’ll allow me? A quick clarification first. Brent, was your comment that 1Q passenger revenue will be up 15% but trend toward flat, was that on your total system or is that just North-America to Hawaii routes?

Brent Overbeek — Chief Revenue Officer

That was system PRASM.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, got it. And then, looking back, historically, load factors are usually pretty flattish between fourth-quarter and first-quarter. So if we assume the same for this year, maybe that’s wrong, maybe that’s right, but that means yields are down year-over-year versus last year when we had that pretty material Omicron impact? Is that just like more competitive inter-island? Or is there a stage linked impact we should be thinking about given the international add-back?

Brent Overbeek — Chief Revenue Officer

Yes. I mean, there is a really big 1Q year-over-year change on the international side. Our international capacity is up, I believe almost 70% in terms of 1Q. So, it’s a really difficult kind of transition from a comp perspective, Katy, and I think that — a lot of that will smooth out as we get into 2Q and beyond.

Catherine O’Brien — Goldman Sachs — Analyst

That makes a lot of sense. And then, Peter, I know this wasn’t very firm guidance but last quarter you spoke to low-single and mid-single-digit growth on a full-year basis versus 2019, just like in the Q&A, so understandably not super firm. But your guidance today points to very slightly down, maybe up 2% if I’m doing that math right. Can you just walk us through the underlying change versus your prior expectations? Is that just all Japan offset by the new Cook Island [Phonetic] flight or is there a pull out anywhere else in the network, maybe given some of the competitive situation? Thanks so much for the time.

Peter Ingram — President and Chief Executive Officer

Yes. So a lot of that is certainly driven by Japan, slowing the pace of our return to service there. I think in an ideal situation, ideal circumstance, if we were flying Japan less intensely, we might have been a little bit more aggressive than we are planning right now in terms of redeploying capacity to other more productive markets. And to a certain extent, that’s a function of the aircraft availability that I alluded to with our 321s not being as available as we would like and having a little bit of uncertainty there. If that uncertainty can be alleviated, that would give us an opportunity to make a couple of adds at least seasonally elsewhere in the network. And then, of course, if we saw a rapid change in Japan, we’d love to come back there a little more quickly. But that’s most of what has changed since we talked about the numbers three months ago.

Catherine O’Brien — Goldman Sachs — Analyst

Very helpful. Thank you.

Peter Ingram — President and Chief Executive Officer

Sure. Welcome back.

Operator

Our next question comes from the line of Hillary Cacanando with Deutsche Bank. Please proceed with your question.

Hillary Cacanando — Deutsche Bank — Analyst

Hi, thanks for taking my questions. So you mentioned three reasons why Japanese markets have been weak, that Japanese consumers are exhibiting conservatism, Japanese government promoting domestic travel over international, Japanese Yen being weaker. So could you kind of just give us a high-level view, your view of the Japanese leisure market? For example, why are Japanese consumers being more conservative than before? What will change that? And do you expect the government to start promoting international travel, that kind of thing, just your high-level view of that market?

Peter Ingram — President and Chief Executive Officer

Yes. Sure, Hillary. Maybe I can just sort of reiterate and emphasize some of the things that Brent talked about. I do think some of this is a national temperament issue and Japan was one of the more conservative places in the world in terms of dealing with the pandemic and maintaining a fairly high-level of caution, that was frankly contrary to how some restrictive policies were considered by the population in the United States, there was a lot more acceptance, and even to certain amount of popularity of the level of restrictions. And so, I think it is perhaps not entirely surprising, but it is taking a little bit more time to embrace traveling internationally.

The folks in Japan have been traveling for leisure domestically and some of that has been stimulated by some incentive programs to try and encourage domestic tourism as an economic stimulus opportunity. And frankly, the existence, ongoing existence of those programs is perhaps shifting some of the behavior towards domestic opportunity — travel opportunities versus international. And I do think as those programs go away, that should be less of a factor. And then, of course, Brent talked about the exchange rate, where the yen has depreciated relative to the dollar, which hurts the spending power of Japanese coming to the United States.

So I think the middle one of those, the travel incentives for domestic travel probably normalizes fairly quickly over-time. The general sentiment towards travel and comfort is going to be a gradual thing and your guess is as good as mine on how the currency exchange goal is going-forward. But the good news is there, we’re at least in a better place than we were. We were as high as 150 yen to the dollar a few months ago, now it’s been back more in the, plus or minus, from 130 range. So that’s still higher than when it was before.

One thing I’ll just point out, and I’m — our crystal ball has not been very reliable when it comes to predicting the return of Japan travel and so we’re hesitant to stick our necks out and point to a specific date, but there is one bit of policy news that was announced this week that I think is on the margin, encouraging, and that is that Japan is reclassifying COVID and their sort of treatment of diseases to be treated more like the seasonal flu as opposed to being treated like much more severe diseases and that goes into place in May and will help contribute. I don’t think it’s going to be a silver bullet, but I think it contributes to that evolution of the sentiment and more comfort around getting back into the rhythm of international travel.

Hillary Cacanando — Deutsche Bank — Analyst

Got it. Thank you. That was really insightful. Thank you very much. And then, just one more question. You deferred delivery of 10 Boeing aircrafts with deliveries expected to start in the fourth quarter. So if you continue to experience delays from the OEMs, will that impact your planned schedule this year, if you have any contingency plans in-place to continue to see delivery delays from Boeing, Airbus and engine manufacturers, maybe like perhaps via leasing or like any other contingency plans or you think you are in good shape when it comes the fleet plan, even if there are delays?

Peter Ingram — President and Chief Executive Officer

Yes. So, we reset the delivery schedule with Boeing with the new agreement. We don’t have any 787 ASM contribution in 2023 in our plan. We expect to take the first airplane before the end of the year and have it in service in early 2024.

Given the freshness of the delivery forecast on which that deal, which is basically right now about a month old, I think we’ve got a pretty good level of confidence about Boeing’s ability to deliver on that and we do expect to get a couple of 787s in service in the early part of next year. We don’t have any other deliveries we’re expecting this year aside from the A330 freighters, which is contingent on getting them out of the transition program from a passenger airplane to a freighter airplane, which is the responsibility of our partner on that.

And then, the other area where I’ve talked a couple of times about some risk to aircraft availability is not so much around aircraft deliveries, but it’s the supply chain for spare engines, particularly on the 321 where we know we’re already running short and have airplanes that are unavailable to us in the near-term as a result.

Hillary Cacanando — Deutsche Bank — Analyst

Thank you. Thank you very much.

Peter Ingram — President and Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Dan McKenzie with Seaport Global. Please proceed with your question.

Dan McKenzie — Seaport Global — Analyst

Hi, thanks for the time here. So going back to the script, investing in the continuum of initiatives, starting with, I guess, premium revenue. I just wondered if you can help us understand what capabilities you’re gaining in 2023 versus what you were doing in 2022? So the IT limitations that go away and the percent of the revenue picture that the IT improvements are touching here.

Peter Ingram — President and Chief Executive Officer

So I don’t think the Amadeus, which gives us materially different capabilities in terms of managing front cabin as we look into ’23. I do think the things that will continue to benefit from, obviously, we’ve executed very well on the revenue management side, that’s a capability we will continue to have going-forward. We’ll have an annualization of our preferred seats products that we launched last year that will hit, it’s kind of long-term run-rate and a lot of initiatives that we had around Extra Comfort and seeing optimization. We think some of those have some more growth as we look into 2023.

Dan McKenzie — Seaport Global — Analyst

I see. Okay. Next question here. I think if I heard you correctly, it sounds like the three biggest drags on the business are a slower recovery in Japan, the inter-island dynamic, and then the airport challenges at Honolulu. And I’m just wondering if you can just help us understand just how big a drag these three components are? And so, I guess, if one of these were to flip, what could that really mean? And then, finally, the suboptimal schedule at Honolulu, how many points of revenue is that overhang that’s embedded into the first-quarter guide here?

Peter Ingram — President and Chief Executive Officer

I’d just say, Dan, the first two of those, the Neighbor Island competitive dynamic and the slower recovery in Japan, they are much more impactful in terms of the near-term financial performance than the operating challenges at Honolulu. We’ve been able to make adjustments to the scheduled to stabilize the operation without having to stay-in a material amount of capacity, and particularly, as we as we get beyond the construction period, we think that will become even more stable. But it’s not costing us economically so much as it is sort of challenging our teams on a day-to day basis and causing a few hairs to go gray as we battle through some of the challenges, especially as we did in October and November where our performance was particularly pressured before we could get the scheduled changes in-place.

I would say, in addition to the two big revenue dynamics that are in-place, Neighbor Island and Japan, the other thing that does constrain us a little bit is the aircraft availability. And do we have as many airplanes as we want to fly and serve demand, particularly in the peak time of the year in the summer? And if we can — we’re going to continue to work with our partners at Pratt, who have been a good partner with us over the year to see if we can get a little bit more certainty and hopefully a little bit more aircraft availability in the summer which would allow us to get some of the revenue back that we’re leaving on the table if we don’t have aircrafts flying.

Dan McKenzie — Seaport Global — Analyst

I see. Okay, thanks for the time you guys.

Peter Ingram — President and Chief Executive Officer

Yes. Thanks, Dan.

Operator

Our next question comes from the line of Andrew Didora with Bank of America. Please proceed with your question.

Andrew Didora — Bank of America — Analyst

Hey, good afternoon, everyone. Brent, first question for you. In your prepared remarks, you spoke a bit about some modest softness in Mainland to Hawaii, I believe. Why do you think that is? And how are you seeing — what are you seeing out of your competitors? How are they behaving on that route as everyone tries to vie for the strong leisure consumer?

Brent Overbeek — Chief Revenue Officer

Yes. I think we clearly saw some real strength in the fall last year. We started to see as we came in the holidays, things were slowing down a little bit for 4Q, but we had that in our forecast. The front part of 1Q, I will say, we saw bookings slow a little bit. Early on in the year, we saw some promotional fares that got a little more aggressive than what we had seen in some of the shoulder periods for the fall.

However, since we’ve really come back from the New Year, I am pretty encouraged with some of the progress we’ve seen on the traffic front and we’ve seen some real positive builds. We’ve seen some of the levels of discounting abate versus where they were early on in the year. So I think we’re trending in the right direction.

Andrew Didora — Bank of America — Analyst

Got it. Thank you. And then, Shannon, I think you said that you include the pilot contract as of March 1, did I hear that correctly? And given that it’s partial quarter, could you just give us a sense of what the quarterly labor impact is through 2023?

Shannon Okinaka — Chief Financial Officer

Sure. Thanks, Andrew. Yes, you did hear that correct. If the pilots do ratify the agreement, it’ll be effective — the rates will be effective March 1, which is why we’ve included it from there. So the effect of the contract, which is more than just rates, but for the first quarter, I think we’ve added a little over half a point for the impact to the first quarter. I think for the full-year, it’s a little over 1.5 points from the ALPA contract. And again, that’s 10 months of the year, not 12.

Andrew Didora — Bank of America — Analyst

Right. Okay. And look, I know it’s hard to forecast an exact inflection in earnings power here, but until you get there, how should we think about potential cash burn here over the next several quarters?

Shannon Okinaka — Chief Financial Officer

Yes. I think it is a little difficult just to forecast, given we’re hopeful that Japan comes back quicker. I think in the short term, we are just going to be more conservative about how we use our cash. So we’ve got — we’re not — we’re still investing, absolutely, I think that’s very important for our future. But we’re looking at ways to reduce costs, which then conserve cash, but we’re not — I don’t have any major program planned to conserve cash. We still have quite a bit of cash in our bank that we’re going to use to invest in long term initiatives.

Brent Overbeek — Chief Revenue Officer

Yes. And just to add on to that. I think we need to act with urgency to improve our financial condition, but it’s important that we don’t panic. And if you go through how we’re performing competitively in each of the geographies, we are performing well, head to head, against our competitors. In some cases, very, very well. So we don’t want to panic. We don’t want to stop investing, but we have to be — and we’re comfortable with our liquidity position, but we have to be mindful of the fact, the need to act prudently and make good decisions going forward and that’s what you can expect from us in the period ahead.

Andrew Didora — Bank of America — Analyst

Great. Thank you.

Peter Ingram — President and Chief Executive Officer

Thanks, Andrew.

Operator

Our next question comes from the line of Chris Stathoulopoulos with Susquehanna International Group. Please proceed with your question.

Chris Stathoulopoulos — Susquehanna International Group — Analyst

Good afternoon, everyone. So, Peter, I appreciate all the direct comments here. And on the revenue initiatives here, so you have some here with your IT, I think your passenger service system. Your premium cabins, we have Amazon, I believe slated for the back half of this year. Could you talk a little bit about what’s going on outside of Japan, Australia, New Zealand and South Korea?

And then, also, on the competitive landscape, there was a promo that went out today. It looks like the $39 fares for inter-island are still out there and there was a one-way fare here for $255 or so. So when you mentioned on the inter-island piece and you talk about average fares being higher in few reports and that you feel confident about your position. How long are you willing to hold the fares here? And if you could kind of just put some — as we think about some of the revenue initiatives out here and if you could perhaps frame that piece, but also some of these other sale promotions that we see here? Thank you.

Peter Ingram — President and Chief Executive Officer

Yes. Maybe I’ll just sort of start on some of the revenue initiatives and I think Brent touched on a number of these earlier, but over the last year or so, we’ve implemented a new revenue management system and there’s still upside in terms of being able to generate performance from that. We’ve enhanced our capabilities around the pricing of our preferred seats and our extra comfort seats to allow us to be much more dynamic in terms of how we price by the day of week by specific seats on the airplane that are more desirable.

And we saw a lot of progress over the course of the last year in terms of generating returns from that, but I don’t think anyone on our team would argue that we’ve squeezed every last drop of opportunity out of that yet. Some of those things have not been — they were initially rolled out primarily on our North America network, and so there’s opportunity to further rollout, things like preferred seats internationally, which Brent said, we’ve just begun. So there’s a variety of things that we’re continuing to work on and a long list beyond that.

In terms of the PSS itself, it really doesn’t on day one turn on new revenue generating capabilities. I think where the payoff is is longer-term as we modernize the systems that underlie our technology, it just makes it easier for us to adapt and evolve and develop new products and get them into market on a more timely basis. So I think it is — there’s not sort of a flick the switch sort of benefit on the revenue side that comes from that. But I do think there is a broader improvement of capabilities that comes with that.

And then, turning to second part of your question of how we’re going to compete. You’re right, the $39 fares are still out there. It’s not every seat, seven days a week anymore, but it is generally four days a week of $39 and a little bit higher on the weekends and pretty broadly available, although not last seat availability.

And the fact of the matter is we have to continue to compete. We do have better schedule and service and great reliability and great employees, but we all know that you got to be cost competitive and you got to be price competitive in this business. So we’re going to going to continue to compete and we ultimately know that we’re going to be successful.

Chris Stathoulopoulos — Susquehanna International Group — Analyst

Okay, apologies. There was a lot in that first question. Just on the other international point of sale markets, if you could give a little bit color on what you’re seeing there? Thank you.

Peter Ingram — President and Chief Executive Officer

Yes. So I think certainly Australia and New Zealand have had a really, really strong winter strength out of those points of sale, but also really good strength both from volumes and fares for US point-of-sale. We’ve also seen really strong US point-of-sale for Japan and Korea, albeit it represents a much smaller portion of our overall traffic mix, but clearly there’s been some demand there. And then Korea point-of-sale, I would say, has held up pretty well also. So I think overall, we’re pretty encouraged with how those are going. Is there additional runway there? Certainly, we’d like — we think so. And again, I would say front cabin has been exceptionally strong, particularly in the South Pacific where we’ve had a real ability to capture demand at materially higher fares.

Chris Stathoulopoulos — Susquehanna International Group — Analyst

Okay, thank you.

Operator

There are no further questions in the queue, I’d like to hand the call over to Peter Ingram for closing remarks.

Peter Ingram — President and Chief Executive Officer

All right. Thank you, Doug. And mahalo again to everyone for joining us today. We have a lot of important work in the period ahead, and I am very fortunate to be a part of a terrific team. Together, we’re going to face our challenges head-on and seize the many, many opportunities that are ahead of us. We appreciate your interest and look forward to updating you on our progress again in a few months. Aloha.

Operator

[Operator Closing Remarks]