Hawaiian Holdings Inc (HA) Q1 2020 earnings call dated May 05, 2020
Corporate Participants:
Alanna James — Managing Director, Investor Relations
Peter Ingram — President and Chief Executive Officer
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Brent Overbeek — Senior Vice President, Revenue Management and Network Planning
Analysts:
Joseph DeNardi — Stifel — Analyst
Hunter Keay — Wolfe Research — Analyst
Helane Becker — Cowen — Analyst
Catherine O’Brien — Goldman Sachs — Analyst
Mike Linenberg — Deutsche Bank — Analyst
Steve O’Hara — Sidoti and Company — Analyst
Presentation:
Operator
Thank you for standing by. This is the conference operator. Welcome to the Hawaiian Holdings Incorporated First Quarter Fiscal Year 2020 Earnings Call. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Alanna James, Managing Director of Investor Relations. Please go ahead.
Alanna James — Managing Director, Investor Relations
Thank you, Carl. Hello, everyone and welcome to Hawaiian Holdings first quarter 2020 earnings call. Here with me in Honolulu are Peter Ingram, our President and Chief Executive Officer; and Shannon Okinaka, our Chief Financial Officer. We also have several other members of our management team on the call for the Q&A, including Brent Overbeek, our Senior Vice President of Revenue Management and Network Planning.
Peter will be discussing the overall impact of COVID-19 on our business thus far and our response to the crisis. Shannon will provide an update on our cash and liquidity outlook, as well as discuss our cash preservation efforts. At the end of the prepared remarks, we will open up the call for questions. By now, everyone should have access to our 8-K filing that went out at about 4 o’clock Eastern Time today. If you’ve not seen the 8-K filing, it is available on the Investor Relations page of our website, hawaiianairlines.com.
During our call today, we will 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 Relation — Investor Relations page of our website. As a reminder, the 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. This includes the most recent Annual Report filed on 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
Mahalo, Alanna. Aloha everyone and thank you for joining us today. In the eight weeks since our last call, the world has changed dramatically. We are facing the most significant demand shock in aviation history and an unprecedented and sudden downturn in the global economy due to the coronavirus. Government-mandated travel restrictions, stay-at-home orders and social distancing recommendations have eviscerated demand for air travel and the timeline for recovery remains uncertain. As you have seen in our press release today, COVID-19 has had a significant impact on our financial results.
We reported a loss of $34 million in adjusted net income for the quarter or $0.74 per share. This result reflects a dramatic drop in demand that we experienced on our South Korea and Japan routes in February, which then escalated across our network throughout the month of March. In response to this crisis, we are focusing on what we can control, taking aggressive steps to preserve and enhance liquidity and developing plans to be ready for the resumption of a larger operation when conditions permit.
I’ll walk you through how we’ve responded as the pandemic evolved, and Shannon will provide an update on our cash preservation measures and liquidity outlook. Our actions to deal with the COVID-19 pandemic can be thought of in three broad streams of effort. First, responding to the crisis as it emerged, then stabilizing our operation and our business to sustain a level of nearly zero revenue and flight activity, and finally, taking action to prepare for the resumption of a fuller schedule as the air travel industry starts to recover. I’ll talk a bit today about what we have done and are doing within each of these streams, starting with our immediate response to the crisis as it emerged.
During our conference call with investors on March 9, we outlined the schedule changes we had implemented in South Korea and we’re planning in Japan. Up to that point, demand weakness in the remainder of our geographies was muted. However, you all know by now that the destruction of demand accelerated rapidly from there. Within three weeks, COVID-19 cases escalated rapidly across the globe and severe restrictions on arriving passengers were imposed by governments in New Zealand, Australia, French Polynesia and ultimately here in Hawaii, where the Governor of Hawaii announced a 14-day self quarantine mandate for any incoming traveler, resident or visitor into the state starting from March 26, and for all non-essential Neighbor Island travel starting from April 1.
In response, we reduced our schedule to a bare-bones level operating just two round trips per day to the U.S. Mainland and 16 round trips per day Neighbor Island. As it became clear that the virus had spread beyond Asia and that would — it would be a global crisis, we took quick action to scale back flying, reduce costs and support our liquidity. During March, we were challenged by the rapid evolution of disease spread and demand deterioration, forcing multiple rounds of schedule adjustment and significant guest inconvenience. As the notion of a national grounding of airlines became a legitimate possibility, we developed a plan to ground our entire fleet. This plan ultimately served as the template for the transition to our current schedule, which we implemented following the Hawaii quarantine order.
Since then, we have reintroduced sub-daily service to Incheon, Korea carrying only cargo and a third daily flight to the U.S. Mainland. We expect to maintain this schedule through the month of May. Any increased flying beyond May will be dependent on the timing of a relaxation of the Hawaii quarantine and conditions in specific cities we serve outside Hawaii. With our bare-bones schedule in place, our operational activity entered into a stable phase and we redoubled our focus on stabilizing the business. In this demand environment, flying as little as possible or not at all is the best way to minimize costs. Shannon will detail some of the actions we have taken to make sure costs are as variable as possible and to minimize fixed costs while we manage through this hibernation period and beyond. We have fully drawn down our revolving credit facility as the working capital normally provided by our air traffic liability is diminished.
Entering the year with a strong balance sheet and a cash balance above our long-term target put us in a relatively advantageous position as the crisis emerged. The CARES Act Payroll Support Program will help sustain our payrolls through the summer, aided by the voluntary leaves taken by many of our employees. We’ve applied for the Economic Relief Loan Program and will decide how much of this funding to access in the months ahead. We are also evaluating opportunities to use our unencumbered aircraft to access funding in private capital markets with certain of these opportunities likely to be executed in the current quarter.
In assessing these options, we seek to preserve as much long-term flexibility as possible even as we take action to address the immediate term funding needs of the business. Stated more clearly, flexibility on being able to repay debt and fortify our balance sheet as conditions evolve are among our priorities. The final stream of work may ultimately prove to be the most important in successfully managing through this crisis. Modeling the pace of recovery and demand at this point is virtually impossible. Doing so would rely on assumptions for which we cannot provide any degree of certainty.
Instead, our planning teams are evaluating multiple scenarios of quarantine duration and pace of subsequent recovery. It is against this backdrop that we will continue to assess our liquidity needs and manage our cost structure. Our fleet and network model provides us flexibility when we begin to build back. It’s likely the Inter-Island quarantine restrictions will be relaxed before the restrictions on longer-haul arrivals. When long-haul demand resumes, our ability to connect to the Neighbor Island network will allow us to serve O&D markets that won’t yet support direct service. And our A321neos offer a lower capacity options for markets that haven’t yet built back to the point where they can support wide-body flying. It’s too early to say exactly how this will evolve, but we have levers to pull and are thinking through the phases when the market recovers.
What is clear to us is that demand is not going to quickly snap back to the levels seen before the pandemic. As of yesterday, May 4, book load factor is in the mid-20s for the third quarter of 2020, which is a mid-teens load factor point difference below a more normal year. Bookings are also building at a much slower pace and are far more susceptible than normal to erosion. In addition to the obvious economic effects of the pandemic on our future guests, Hawaiian and our industry will have to earn the confidence of our guests and the communities we serve, so that travel can resume at scale, while fording [Phonetic] the spread of infection.
Like other airlines, we are enhancing the sanitation procedures for our aircraft, including the use of electrostatic foggers to disinfect aircraft services. We are acquiring all guest-facing employees to wear face coverings and have adjusted procedures to facilitate increased spacing between guests on aircraft. We have announced a requirement for all guests to wear face coverings throughout their journey, which will be effective later this week and in place until further notice. And we will revise product offerings and various policies as necessary. More fundamentally though, even if we can eliminate the transmission of the virus while guests are in our care, we must address the fact that transporting people between communities raises the risk of geographic spread. Our Hawaii home has been very successful in minimizing the extent of outbreak. Hospitals have not been overwhelmed, and daily case counts have peaked in the low-30s have been in the low single-digits in recent weeks.
By acting quickly and aggressively, we are as close to COVID-free as any place in the country. At the same time, we have led the nation in unemployment claims on a per capita basis. Hotels, restaurants and bars are shuttered and everyday activities for residents, as well as guests are severely curtailed. Our community is faced with a fundamental conflict between the desire to relax restrictions on movement and economic activity, while simultaneously trying to ensure that the new wave of cases is not introduced. Part of the solution to this problem is beyond the scope of the airline industry. Communities like ours need testing capability, contact tracing resources and treatment capabilities to manage cases as economic activity resumes.
Within the scope of the travel and tourism sector, we will need to do our part. I expect changes in passenger screening to be part of this. While testing all travelers for COVID-19 is infeasible, given current technology and resources, we can look to some of the practices introduced in Asia in response to SARS as a model to emulate. We are working with governments, tourism industry partners and the business community to help shape this future and we look forward to progressing on this swiftly, but thoughtfully, so that we can again begin to welcome the visitors who are and will remain the lifeblood of Hawaii’s economy.
Throughout this challenging and uncertain period, my colleagues throughout the company have been nothing short of remarkable. In the face of uncertainty and worry, they have continued to live the values that we share each and every day. Even as they face hardship and challenges in their own lives, scores of our employees have volunteered time to answer phones when our reservation lines were overwhelmed and to deliver meals to the elderly as demands on food banks reach levels not previously seen. Over half of our employees have sacrificed compensation by taking voluntary leaves, voluntary schedule reductions or in the case of our executives, voluntary pay reductions. I would particularly like to thank the leaders of our collective bargaining units for the spirit of collaboration they have demonstrated as we have worked to address this crisis. My message to this unparalleled team has been consistent. We will get through this and we will get through it together.
I’ll now turn the call over to Shannon to give you an update on our cash and liquidity situation.
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Thanks, Peter, and thanks everyone for joining us today. I would also like to express my gratitude to all my colleagues who are working tirelessly to serve and respond to our guests, our community and each other in the true spirit of Malama and Aloha. A special thanks to those in the back office, who are running hundreds of models to support our decision-making and to help us run the business. We closed the quarter with $815 million in cash and short-term investments, which is up from $619 million at December 31, and includes the $235 million we drew down from our revolver in March.
With largely idle operations, revenues down more than 90% in recent weeks and a significant portion of our costs fixed, we are aggressively working to preserve cash. In addition to the variable cost savings from schedule reductions, including fuel, landing fees and passenger servicing costs, we’re working to eliminate or defer non-critical spends. We have consolidated airport facilities in Honolulu and worked with the State of Hawaii to reduce airport costs. We’ve released external contractors, negotiated significant payment deferrals and minimized marketing, advertising and other discretionary spends. We have also suspended our share buybacks and dividend programs. While requirements of the CARES Act funding restrict our ability to involuntarily furlough or reduce pay rates, we implemented voluntary leave options of varying lengths and timing across our organization. These programs are critical as we know that the Payroll Support Program monies from the federal government cover less than 80% of our budgeted payroll and benefits through September 30.
Over 50% of our employees have participated in our voluntary leave programs for which we are deeply grateful. Through our schedule reductions, the elimination or deferral of spend and voluntary leave programs, we estimate that we have removed approximately 57% of our costs in the second quarter compared to our original plan. We estimate our average daily cash burn on expenditures, excluding CARES Act funding, capex and refunds to be about $3.6 million per day, declining from an average of $4.5 million at the beginning of the quarter to about $3.1 million per day at the end of the quarter.
Turning to capex, we have deferred $50 [Phonetic] million of non-aircraft capex, which results in about $180 million to $200 million of capex for 2020. Aircraft capex includes PDPs for 787s and a single A321neo delivery that was originally scheduled for March. Prior to the impact of COVID-19, our intent was to pay for this delivery from our cash reserves. However, in light of the dramatic change in industry circumstances, we have worked with Airbus to delay acceptance of this aircraft to the second quarter to allow us time to secure financing, which will result in a net cash inflow. We are also planning to retire and part out one of our higher cycle 717 aircraft, which will bring meaningful maintenance cost savings over the next several years and cash savings in the immediate term.
In addition to reducing costs and capex, we’re actively managing our air traffic liability, which as of March 31 is $624 million, of which about one-third is related to travel in the second quarter of 2020. While we have modified some of our policies, such as deferring ticket expiration dates and waiving change fees to encourage guests to be booked for a later date. A portion of that liability continues to be at risk of cash refund as we have reduced our operations and canceled flights.
We have refunded about $40 million to $45 million on average in each of March and April. While we expect the itineraries eligible for refund to decline as we build back our schedules and manage reaccommodations, we are mindful of the needs of our guests knowing that as we emerge from this difficult period, our guests will remember how they were treated when times were most challenging. We’re also aggressively exploring options to raise cash by financing a portion of our unencumbered aircraft, which consists of 11 A321s, two A330s, 14 717s and eight ATRs and have a market value of approximately $800 million [Phonetic]. We expect to raise at least $270 million in financing in the second quarter as the A321neo in particular continues to be highly financeable although at a higher cost than the financing we secured in 2019. We also expect to receive $292 million through the Payroll Support Program, of which $263 million will be received in the second quarter.
In a scenario where we are successful with our aircraft financing efforts and refunds follow a similar trend for the remainder of the quarter, we’re modeling our liquidity at the end of the second quarter to be about $1 billion. We also applied for $364 million of Economic Relief Loans available through the CARES Act, which can be an alternative source of financing. We began the quarter with a strong balance sheet, but with the demand recovery timeline uncertain, raising and preserving cash is our top financial priority. Our team is focused on managing through this crisis, looking for ways to minimize our cash outflow during this time and securing new sources of funding.
And with that, I’ll turn the call back over to Peter before we take questions.
Peter Ingram — President and Chief Executive Officer
Thanks, Shannon. As you have seen the situation we are facing is severe. Despite the CARES Act and our own cash preservation initiatives, no airline can withstand a zero revenue environment indefinitely. We need demand for air travel to return and the infrastructure and policies to facilitate this. When that happens, we will be prepared to ramp up our operations, rightsize our business to meet demand for travel to from and within Hawaii and deliver our outstanding service with Aloha.
Before I conclude, let me briefly acknowledge a few other important items. First, in mid-March, we received the final order from the DOT denying our application for antitrust immunity with JAL. While the DOT deemed our partnership with JAL as pro-competitive, they were looking for further clarification regarding the governance of JV, including the integration of ZIPAIR, JAL’s low-cost subsidiary, our capacity plans and the information technology development required to achieve public benefits.
Our application was denied without prejudice, which means that we can reapply if we choose to do so. We have been solely focused on managing the COVID-19 crisis since we received the news from the DOT. We remain committed to the strong Japan franchise we have built and look to grow on this foundation over the long-term. The absence of the JV does not diminish our enthusiasm for our long-term Japan prospects. I’d also like to address our plans with respect to our 787 order. We remain committed to the 787 as our flagship aircraft for the future. This aircraft will be an incredible asset for us as we develop our business through this decade and beyond. But with the uncertainty inherent in the current environment and the complexity, cost and capital investment associated with adding a new fleet type, our previously intended first half of 2021 entry into service is no longer appropriate.
As a result, we have engaged with Boeing in discussions to determine whether our 787 deliveries can be rephased. This dialog is ongoing, so we won’t be able to provide more specifics on these plans at this time. The final item I want to share is the important milestone that we reached [Technical Issues]. After more than three years of negotiations, we reached an agreement with our Flight Attendants’ Union on a new five-year contract. We are pleased to provide our exceptional flight attendants with a contract that offers market wages, while also addressing some provisions that limited our ability to operate as productively as we need to.
More than ever, it is important that our team is unified in confronting the challenges ahead of us, so it is great to have this long overdue agreement in place. And as I said earlier, our entire team has been fantastic as this unprecedented crisis for our industry has evolved. As difficult as this period has been, I have never been prouder to be a part of this team. Our employees are my heroes and they give me great confidence that we will have brighter days ahead.
Operator, we’re now ready for questions.
Questions and Answers:
Operator
Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Joseph DeNardi of Stifel. Please go ahead.
Joseph DeNardi — Stifel — Analyst
Yeah, thanks. Peter, can you just talk about maybe the — the — some of your conversations with the state in terms of how they’re thinking about restrictions going forward and kind of what you think needs to be put in place in order for folks to feel comfortable coming out there sometime soon? Thank you.
Peter Ingram — President and Chief Executive Officer
Yeah, it’s something we’ve been spending a lot of time on. The discussions are continuing to evolve. I think we’ve clearly with the case count as low as it has been recently, I think there is pretty broad recognition that some relaxation of restrictions in the community are due. And we started to see some low-risk activities opened up notably for some of the people in the room with me, golf courses began to open up this past weekend. And so bit by bit, we are going to start see — seeing things coming back in the weeks ahead.
Air travel is one that, that for the reasons I articulated on the call is something that people are concerned about, particularly as we bring people into the state. I think we are probably not very far away from some relaxation of the Neighbor Island quarantine restrictions for people just traveling on purely Neighbor Island itinerary recognizing that, that the COVID case count is not a problem on any of the islands, and so I think each of the counties is starting to think about that. In terms of some of the longer-haul flying, which is the vast majority of our business and really the core of the tourism business that is the backbone of our economy and the thing that’s going to drive employment back up to somewhere better than it is right now.
I think there are a number of calls for testing of all incoming travelers, but I think there is a broad realization of that not being feasible in an environment where in most of this country, there isn’t enough testing capability specific for COVID-19 testing to even make sure that all the healthcare providers and first responders have adequate testing. And so the notion that we’re going to be able to scale that up and deliver that for people getting on airplanes in the near-term is not feasible.
And so I think it really is a layered and phased approach. And one of the models we’ve shared with people from our own experience is thinking about the response from a security perspective after 9/11, where it was not one single element of change that was introduced, but it was layers of security and protection to make sure that you could get an environment where people were overall safe and comfortable. And so I mentioned treatment capability and community contact tracing, testing, not just for air travelers, but for people in the community as a way to make sure that as you reintroduce this activity, you don’t get hospitals to the point where they are overwhelmed and the community is able to deal with it. So that’s a sort of a bit of a character of how this discussion has gone. What that means in terms of timing, I can’t tell you of any specificity yet. That is — it’s not our call to make ultimately, and I think it may — there may be some evolution by geography that we see over time. That’s sort of high-level, Joe, I think that’s what we’re seeing. I hope that is responsive to your question.
Joseph DeNardi — Stifel — Analyst
Yeah, that’s helpful. And then maybe just, I didn’t hear a whole lot in terms of kind of structural changes to the fleet on the other side of this. And so can you talk a little bit about to the extent that you think the long-haul piece of the business comes back later, I mean, how much time do you give that before you have to rethink what the fleet should look like in the context of cash conservation and liquidity? Thank you.
Peter Ingram — President and Chief Executive Officer
Yeah. So with respect to our fleet, one of the things as you know that we have done in recent years is, we have been addressing the evolution of our fleet on a proactive basis, and completed the transition out of our aging 767-300 fleet and added the A321neo to our fleet over the last few years. So what that leaves us with, particularly on the long-haul side of our business is a very young fleet, and there is nothing that is sort of sitting out there with a natural retirement date in the next few years, so we can accelerate to bring capacity down.
So from our standpoint that leads us to a point where I don’t think we are necessarily going to reduce fleet further, but obviously, if we’re — as we’re rightsizing capacity, one of the levers we can then use is to reduce utilization of the fleet and manage capacity down in that standpoint. I think we’re comfortable with the ownership cost structure that we have on those aircraft. As Shannon alluded to, we can use the fact that we do have a young fleet with value and we’ve got equity in that fleet as a source of liquidity as we’re managing through this, but we’re not out there thinking that we should take some number of aircraft and sell them right now into a weak market. I think we would more likely manage that through utilization in the near to medium-term.
Joseph DeNardi — Stifel — Analyst
Thanks, Peter.
Operator
The next question comes from Hunter Keay of Wolfe Research. Please go ahead.
Hunter Keay — Wolfe Research — Analyst
Hi, everybody. Thanks for the time.
Peter Ingram — President and Chief Executive Officer
Hi, Hunter.
Hunter Keay — Wolfe Research — Analyst
That book load factor you talked about in 3Q, that actually wasn’t that bad. It sounded like to me, I’m kind of curious when you feel good enough about it being — and I know what you said, it’s susceptible to change in people canceling and booking incentives, I get all that, but when do you actually feel good enough about it being sticky enough to where you can actually sort of start comfortably relying on it via schedules, do you actually have to see these people get on the airplane, I mean, how much volatility are you expecting in that booking number, and how do you know when it’s actually real or like I said, do you actually just wait to see how many people get on the plane?
Peter Ingram — President and Chief Executive Officer
Yeah, let me start on that and then see if maybe Brent has some thoughts on top of that. But I think the first thing, I’m glad you heard the caveat about it being susceptible to change, because that was in the prepared remarks for a reason. I think the first thing we need to be able to make that reasonably sticky is to not have a quarantine, because a quarantine is an incredible disincentive for someone who is planning to come for Hawaii for a week spending the entire time in the hotel is not the reason they bought that ticket in the first place.
So without a removal of the quarantine, the — none of that is real. I think once we do have a removal of the quarantine, I think there will be an interest in people traveling. I think as — I think as on the one hand you’ve got people’s concerns about getting out and interacting with people and moving around again, but on the other hand, I think people are tired of being cooped up. And to the extent that they’ve got the flexibility and the economic wherewithal to do it, they’re going to want to travel, and Hawaii is going to be an appealing place like it always is, but even more so now perhaps because this is a place where the effects of this horrible disease haven’t ravaged it as much. So I think that is the environment we’re facing. It will evolve a lot in the next little while. And I don’t think you can expect a summer of ’80s and ’90s load factor like we have in normal times, but I do think there is an opportunity for us to build once we are able to open up again.
Brent Overbeek — Senior Vice President, Revenue Management and Network Planning
Yeah, I — hey, Hunter, it’s Brent.
Hunter Keay — Wolfe Research — Analyst
Hey, Brent.
Brent Overbeek — Senior Vice President, Revenue Management and Network Planning
I think Peter’s comments are right — right on point in terms of the most important element will really be kind of the timing in terms of relaxation of the quarantine. We do have a bit more of a base built just given our booking curve relative to other folks. And I think some of that is clearly at risk depending on what happens in terms of timing of the quarantine. I think speaking to kind of consumer behavior, we’ve still seen some interest in terms of bookings in 3Q, but more of that is probably started to shift out into 4Q, obviously that’s subject to change based on what we see around the timing and any relaxation of the quarantine. And I would say, I guess, the only other thing at this point is, it’s probably the domestic market seems to be holding up a little greater interest than our international markets at this point, yeah.
Hunter Keay — Wolfe Research — Analyst
Okay.
Peter Ingram — President and Chief Executive Officer
And just one last thought I’d add, Hunter, and there is no precise way to measure this. But one of the things we’ve been thinking about and as we discuss it with people in the community, we’re anxious that we don’t open too soon and too fast either, because when the quarantine is removed and we start having more economic activity, we’d like it to stay removed and to continue to have economic activity and not have to toggle back and forth in restrictions, because I think that would be very disruptive to consumer intent and demand if there was uncertainty about what the conditions were going to be.
So we want to be thoughtful about this. We want the state and local and federal officials to be thoughtful about how they manage this. And hopefully, we can — as a community we can work through that balance in the period ahead and get things to a point, where we have something that more resembles what it was in the past, although I don’t think we go back to things like they used to be right and anytime in the near-term.
Hunter Keay — Wolfe Research — Analyst
Right. Thanks, guys. And then in the last recession, Hawaiian decided that you guys needed to really diversify the network, which you did. Do you see something like that happening after this recession is over?
Peter Ingram — President and Chief Executive Officer
Yeah, look, I think there will be a number of things that this opens up our eyes about. And perhaps in the long-term has us thinking about them differently. I don’t think those and I can — I’m not going to give you everything that’s rattling through my head as I think about that right now, but I would say — I don’t think those are 2020, 2021 sort of decisions. But I think this is something I sure wasn’t smart enough to see coming, and it does cause you to step back and pause and say, are there things that you could have had in place to have helped a little bit to manage through something like that and does that change how we think about our business for the long-term. And those are things, once we get a little bit more solid ground under our feet, I’m sure we will spend some time thinking about.
Hunter Keay — Wolfe Research — Analyst
Thank you.
Operator
The next question comes from Helane Becker from Cowen. Please go ahead.
Helane Becker — Cowen — Analyst
Thanks very much, operator, and thank you very much, Peter and Shannon and Brent for your time. So here’s my one — I have two questions actually. My first question is, in the press release you say that you have 7,500 people and then you say that half took the leave. Is that — does that mean that 3,700 took the leave or does that mean you had 15,000 and now you have 7,500 left?
Peter Ingram — President and Chief Executive Officer
No, we have…
Helane Becker — Cowen — Analyst
Sorry.
Peter Ingram — President and Chief Executive Officer
We have 7,500. We have roughly 7,500 employees at the company. About half of those employees, a little more than half of those employees have taken some form of voluntary option. And those voluntary options range from people taking leaves that range from two weeks at a time to six months at a time. It is — it includes crew members taking reduced schedules that, that involve a reduction of hours and not working. So it’s a variety of different things that add up to half of the 7,500 people participating and driving some pretty significant and important savings for us.
Helane Becker — Cowen — Analyst
Okay. And then my other question is just an explanation from, I guess, Shannon on the taxes where you have the tax — you talked about the tax related to the CARES Act. I kind of was surprised to see that in the first quarter as opposed to the second quarter. So I was kind of wondering if you could just explain that to me?
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Right. So yeah, there is a lot going on in the tax piece, and this is related to income taxes, not ticket taxes, I believe, Helane, you’re referring to. So our effective tax rate looks really odd this quarter, because the CARES Act, if you recall, the Tax Relief and Jobs Act, again, it seems like a long time ago, eliminated the tax loss carried back, you could only carry forward your losses, but with the CARES Act, you can now carry it back. So we are — we — when we implemented the previous tax at we had to lower all of our calculated items to the new tax rate. So, if you recall, we were more at a 35%, 38% tax rate and then we went down to a 21-ish%, but now that we’re carrying it back to those previous years, we get the benefit of the higher tax rate. So it’s just the deferred tax asset being revalued. So it’s on the income taxes, not ticket taxes, and it’s just a result of being able to carry it back — being able to carry the losses out.
Helane Becker — Cowen — Analyst
Right, okay, okay. Thanks, Shannon. I just didn’t — I just didn’t understand that what happened there. So I appreciate it. And actually I’m good with the rest of my questions for now. Thank you.
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Great, thank you [Phonetic], Helane.
Peter Ingram — President and Chief Executive Officer
Right.
Operator
The next question comes from Catherine O’Brien from Goldman Sachs. Please go ahead.
Catherine O’Brien — Goldman Sachs — Analyst
Hi, everyone. Thank you so much for the time. So just a couple of quick ones here. On your current wide-body fleet, understanding you can’t — you’re not in a place to discuss your order book. But any thoughts on how you’re going to redeploy your current wide-bodies in your fleet in the event that the rebound in demand on your international routes to Asia-Pac is more extended than the rebound in the domestic U.S.? Just any thoughts there, I realize you said that you would reduce utilization likely rather than retire any aircraft in the fleet. So just wondering like how are you thinking about incorporating those potentially into your domestic network or should we expect to see some of those remain grounded over the medium-term? Thanks.
Peter Ingram — President and Chief Executive Officer
Yeah. So, Catherine, you broke up a little bit, but I think the question was about how we’re thinking about redeploying the wide-bodies in particular as the international network doesn’t fully rebound. And that is — that is a good question and I think it is one for which the answer in the short to medium-term might end up being different than the answer in the longer-term. And of course, in the longer-term, we do have more retirement capabilities because as get out a couple of years, we’ve got some lease returns coming up or lease termination opportunities coming up, which would allow us to make different decisions about how many total we want to have.
I think certainly — virtually are all around — I think all of our international flying requires us to have the range of the wide-body aircraft, so that’s all wide-body. If we need less for the international piece of the business, there are some places domestically, where the demand is deep enough, but it might benefit from that and where we have demand for cargo that helps. But I think we’re — I can tell you we’re going to be very mindful of not just forcing capacity into markets where there is not demand just because we have aircraft available. And so that is where we would play the utilization card to make sure we’re matching supply and demand in an appropriate basis for whatever market conditions are going to be a few months down the road. Brent, anything to add to that?
Brent Overbeek — Senior Vice President, Revenue Management and Network Planning
No, I think that — I think that covers. So I think we’ve got depending on how things evolve, the ability to particularly use Honolulu as a hub and be able to leverage the cargo capabilities that Peter mentioned on the 330s and connecting to our Neighbor Island network, I think give us some unique opportunities should the opportunities exist, but we’ll have a plan consistent with what Peter had mentioned.
Catherine O’Brien — Goldman Sachs — Analyst
Understood. Maybe one quick follow-up to that one and then I have a second one, but when do those lease terminations on wide-bodies start to happen?
Peter Ingram — President and Chief Executive Officer
We’ve got some starting in about 2022, I believe.
Catherine O’Brien — Goldman Sachs — Analyst
Okay, great. And then maybe just on your air traffic liability, it seems like over the past from airlines we’ve heard from so far, most have been noting that very little of their March quarter-end ATL will be subject to further cash refunds with the majority that’s left for future travel going to wind up as vouchers. Is that similar for Hawaiian or is there something we should be keeping in mind with respect to your fairly large percentage of tickets sold internationally and just being that the majority of those are foreign point-of-sale? Thanks.
Peter Ingram — President and Chief Executive Officer
Yeah, so I don’t know exactly what it looks like for other carriers, so I’ll just speak to what ours is. The biggest susceptibility of that to refund is when we cancel flying and don’t have a reaccommodation option for people. And our policy is that when we do not operate the flight, we provide a refund, whether — and if a guest were to call us back having changed their own and then we subsequently cancel the flight, our policy is that we will refund. And so to the extent in particular that the quarantine order extends out further and it doesn’t make sense for us to operate as much of our schedule then we have some exposure to the future refunds. Shannon and Brent and their teams have spent a ton of time on this. So let me just see if they have any other comments to add to that.
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Yeah. I would just add a little bit. If you look at our network structure versus some of the other carriers, there are many routes that we fly once per day, which makes it really difficult to reaccommodate people when we have like the quarantine restrictions. If you have a flight fly — a route that, that flies five times, 10 times a day, you can reduce a significant portion of that capacity but still be able to reaccommodate passengers. So I would just say due to our size and our network and our frequencies, it becomes a little harder to reaccommodate. And again, we are balancing our cash needs with the needs of our guests because we needed people to want to come back to us once the quarantine is lifted, that’s all I’d add.
Peter Ingram — President and Chief Executive Officer
Yeah. And we did — we have done things as Shannon mentioned in her remarks as well to provide more flexibility for people who do want to travel with us in the future. So extending the time period over what you can use your credits gives people a little bit more flexibility and certainty and some of those have been successful. So we’re certainly mindful of it and we’re managing it as best we can.
Catherine O’Brien — Goldman Sachs — Analyst
Understood. That makes sense. Thank you.
Peter Ingram — President and Chief Executive Officer
Sure.
Operator
The next question comes from Mike Linenberg from Deutsche Bank. Please go ahead.
Mike Linenberg — Deutsche Bank — Analyst
Hey, everyone. Hey, Peter the comments that you made about sort of rephasing in the introduction of the 787, can you talk about just — because I know you haven’t put out your K yet, but what pre-delivery deposits you currently have with Boeing? And I know Shannon I think you even mentioned that 787 PDPs were part of your capex for this year, what’s the magnitude of that?
Peter Ingram — President and Chief Executive Officer
I don’t know that the Q will have a specific number that you’re going to be able to see on that. It’s — it’s a material number, and this is as we look at the things that single decisions that have a very material impact on our cash flow over the next 12 months to 24 months, this is the biggest single one we can manage. So it…
Mike Linenberg — Deutsche Bank — Analyst
Yeah, that’s what I thought.
Peter Ingram — President and Chief Executive Officer
We’re not doing this for a couple of dollars and we do want those airplanes absolutely for the long-term.
Mike Linenberg — Deutsche Bank — Analyst
Okay.
Shannon Okinaka — Executive Vice President and Chief Financial Officer
And I would just say, Mike, that we continue to include it in our model until we feel like we’ve progressed with Boeing far enough to be able to take it out. So most of our models not — if not all have the PDPs still in there, which is why I reported it the way I did.
Mike Linenberg — Deutsche Bank — Analyst
Okay. No, no, that’s super helpful. And then just my second question and maybe this is Peter and maybe even Brent. I sort of think back in times past when we hit a demand crisis. It was always tougher for an airline like Hawaiian where it was just the narrow-bodies were Neighbor Island and wide-bodies were long-haul and Hawaii West Coast, and yet here we are facing a significant fall-off in demand and yet you have the perfect vehicle here, the A321neo, which would be a great airplane as you ramp up back into service, except for potentially one issue which is, this whole social distancing mandate.
And I’m still trying to square whether or not an A321neo from Hawaii to the West Coast is a more cost-effective way to get there based on where demand is and yet incorporating the aspects of social distancing i.e. how many people can you actually fit on a small narrow-body and trying to separate them out whether it’s one per row or two per row versus a wide-body. And so I’m sure you’re going through that analysis right now about what’s the right airplane in a perfect, a normal garden-variety recession hands down you would want to use the A321neo as you started to rebuild your schedule, but now it just doesn’t seem clear to me. So I’m just — I’m curious sort of your thoughts on that, anything? Thanks. Appreciate taking the time.
Peter Ingram — President and Chief Executive Officer
Yeah, it’s an interesting question. I think we’re not alone in having introduced policies and procedures to provide a little bit more distance for people on the airplane when they’re traveling right now. But right now that is obviously an easier thing to do when across the industry people are carrying load factors that we are absolutely unfamiliar with in recent history certainly.
I do think our expectation is that long-term some of the distancing is not particularly sustainable. I — maybe I’m not creative enough in thinking about different models, but I — I’m pretty decent with math and I kind of understand if we had an industry that had 10% pre-tax profit margins roughly at a time period when we were operating load factors in the high-80s that if you just without fares going way, way up and moving up the demand curve, you’ve got to have pretty full airplanes to have a sustainable industry, and that math works for Hawaiian Airlines, that math works for every airline that we compete with. So I think we’ve got to separate a little bit some of the things that are going in place right now while the entire world is in the throes of this crisis, and what we evolve to as communities throughout the country and throughout the world are able to get the spread of this disease under control and we can start to relax some of the restrictions that we’re putting in place in various aspects of our lives.
Mike Linenberg — Deutsche Bank — Analyst
Okay. Very helpful. Thanks everyone.
Peter Ingram — President and Chief Executive Officer
Thanks, Mike.
Operator
The next question comes from Steve O’Hara from Sidoti and Company. Please go ahead.
Steve O’Hara — Sidoti and Company — Analyst
Hi, good afternoon. Thanks for taking the question.
Peter Ingram — President and Chief Executive Officer
Sure.
Steve O’Hara — Sidoti and Company — Analyst
I — I’m just curious maybe longer-term if you think about the industry overall, assuming demand comes back slowly, but maybe steadily, I mean, what do you — in terms of the competitive landscape and maybe the capacity that’s out there, I mean, would you give a feeling as to the size of the industry maybe versus what you might think normally in terms of capacity or do you think, I mean, I would think there would be some change in service levels for markets that are maybe non-essential to somebody corporation’s route structure or business, but I’m just kind of curious how you think about it longer-term?
Peter Ingram — President and Chief Executive Officer
Yeah. I’ll make a couple of observations and then see if anyone else in the room wants to chime in. I think making a spot estimate on the percentage change in the size of the industry with all of the uncertainty right now is sort of fraught with peril I think and that’s why we’re modeling out a variety of scenarios, so we understand how we respond in a different scenarios, but we just don’t have enough certainty right now to say it’s going to be X percent smaller than it was. And I think that pertains to the markets we serve as well as air travel markets more generally.
I do think that in terms of the competitive environment in to from and within Hawaii, my view has not really changed from what I would have told you six months ago that as we were — we’ve spent time, the good old days when we talked about competition as opposed to how we’re doing to raise liquidity. I would have told you six months ago and I did tell you six months ago that I didn’t expect any our competitors to just abandon flying to Hawaii. I thought it would be part of their networks and they would continue to compete. And I still feel the same way about that and I think it is just a question of what amount of flying is going to make sense in the environment that we are competing in.
And I raised that because that’s a little bit different than 2008, 2009 when we were responding to the global financial crisis when there were a couple of carriers serving Hawaii at that time, but seized flying altogether in the span of about one week. And that meant that there was little adjustment needed by the other participants in this particular part of the market. In fact, in 2008, Hawaiian Airlines was one of the few carriers in the world that actually grew at a time that the overall airline industry was in pretty severe contraction mode. So I don’t think given the strength of the carriers that we have in the markets, whether it’s our U.S. carriers or international carriers that we’re going to see something like that, whether it’s a wholesale withdrawal from the market, but I think people are going to have to adjust as demand is going to be different and how different I don’t know yet, but people are going to have to adjust to a different environment.
Steve O’Hara — Sidoti and Company — Analyst
Okay. No, that’s very helpful. And then maybe just going back to Shannon’s question or I’m sorry, Shannon’s commentary on liquidity. Was that including some action by Boeing or was that excluding that, I wasn’t sure if that was what she said?
Shannon Okinaka — Executive Vice President and Chief Financial Officer
Yeah. I think you’re referring to my comments about ending the second quarter with $1 billion in cash, if that’s the piece, Steve, it doesn’t include any actions by Boeing. I’ve taken contractual obligations from that perspective.
Steve O’Hara — Sidoti and Company — Analyst
Okay. All right. Thank you very much.
Operator
This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Peter Ingram for any closing remarks.
Peter Ingram — President and Chief Executive Officer
Mahalo, again to everyone for joining us today. We appreciate your interest. Aloha.
Operator
[Operator Closing Remarks]