Hawaiian Holdings, Inc. (NASDAQ:HA) Q3 2021 Earnings Conference Call October 26, 2021 4:30 PM ET

Company Participants

Alanna James - Managing Director of Investor Relations
Peter Ingram - President and Chief Executive Officer
Brent Overbeek - Senior Vice President of Revenue Management and Network Planning
Shannon Okinaka - Chief Financial Officer

Conference Call Participants

Hillary Cacanando - Deutsche Bank
Hunter Keay - Wolfe Research
Conor Cunningham - MKM Partners
Daniel McKenzie - Seaport Global
Catherine O'Brien - Goldman Sachs
Helane Becker - Cowen and Company
Christopher Stathoulopoulos - Susquehanna

Operator

Greetings. Welcome to the Hawaiian Holdings, Inc. Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded.

I will now turn the conference over to your host, Alanna James. You may begin.

Alanna James

Thank you, Kyle. Hello, everyone, and welcome to Hawaiian Holdings third quarter 2021 results conference call. Here with me in Honolulu are Peter Ingram, our President and Chief Executive Officer; Brent Overbeek, our Senior Vice President of Revenue Management and Network Planning; 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 business, including the continued impact of COVID-19 and an update on our priorities for 2021. Brent will provide an update on our commercial performance and trends, and Shannon will provide an update on our cost performance and liquidity. At the end of the prepared remarks, we will open up the call for questions.

By now, everyone should have access to the press release that went out at about 4:00 o’clock Eastern Time today. If you have not received the release, 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 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 statement. 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

Mahalo, Alanna. Aloha, everyone, and thank you for joining us today. This will be Alanna's last call, leading our Investor Relations function as she is moving on to a leadership position in our ESG efforts as our Managing Director for Sustainability Initiatives. Mahalo, Alanna, for stewarding the Investor Relations team through the last 2 unusual years. Ashlee Kishimoto, who many of you on the call will remember, is returning to Investor Relations and will be hosting our calls going forward.

As you have already seen in the financial release we issued earlier this hour, the surge in COVID cases associated with the spread of the Delta variant has dampened our near-term financial performance. As much as we would all prefer to see a straight-line recovery, the environment continues to deliver twists and turns for us to navigate.

While it's disappointing to see the full recovery of our business delayed by a few months, we are absolutely confident that the effects of these conditions are short term, and we are already seeing signs of a solid rebound in our domestic business at the same time as the necessary conditions for recovery of our international operations are falling into place.

With that in mind, we are managing the business for the long term, preparing for an international rebound in the months ahead, focusing on the delivery of outstanding guest experience and moving forward with efforts to better position our balance sheet for the future.

One constant over the course of the pandemic has been the outstanding contributions of our team throughout the business. Constantly evolving conditions have forced us to adapt and overcome, and they have responded with an awe inspiring display of strength and resilience day in and day out by continuing to lead the industry in operational performance by an impressive margin and always keeping the evolving needs of our guests, top of mind. I am honored to be a part of this remarkable team.

The third quarter began with great promise. Unprecedented demand for Hawaii vacations from the Mainland allowed us to operate our largest July schedule ever from this geography. By July, we were operating 115% of pre-pandemic level capacity; and load factors, which had steadily improved in the first half of the year, reached historical levels.

By the tail end of July and into early August, we saw the beginning of the impact of the Delta variant wave of COVID cases as bookings slowed. These conditions continued until mid-August when Hawaii's Governor made public comments asking visitors not to come to Hawaii in light of a pandemic high level of new cases and hospitalizations in our home state. These statements not only further blunted the pace of bookings, but they led to the cancellation of a significant number of reservations, particularly for near-term travel in late August, September and, to a lesser extent, October.

The impact of all of this was a significantly lower final load factor in August and September and a deterioration of the strong booking position for the fourth quarter that we had established prior to the Delta surge.

By the end of September, conditions were solidifying although not yet quite back to where we were in July. The 7-day averages of COVID cases and hospitalizations in Hawaii were clearly in decline, bookings had stabilized and begun to recover and cancellation rates had reverted to more normal levels.

Hawaii now has among the lowest rates of COVID per capita in the U.S. returning to the position we have had through most of the pandemic. Our hospitals have returned to a more normal mode of operations, and we are seeing resurgent interest in Hawaii travel.

On October 19, Governor Ige acknowledged this progress and encouraged visitors to resume travel to Hawaii effective November 1. We have some work to do to recover the bookings we didn't take over the course of this period, and that will affect traffic levels for the fourth quarter, but it's encouraging to see demand back on the mend.

Given that trends have quickly started to move back in a positive direction, we think that this Delta variant interlude will be remembered as a short-term setback on the road to fulsome recovery.

As we've discussed on prior calls, the part of our business for which recovery has been most elusive is international, where restrictions on cross-border travel continue to stifle demand. What is encouraging now is that the necessary preconditions for recovery are falling into place. Most importantly, vaccination rates in Japan, South Korea, Australia and New Zealand, which lagged the U.S. in the early part of 2021, have dramatically accelerated.

In Japan, which is the most important international country in our network, 70% of the population is now fully vaccinated and 77% has received at least their first dose. These numbers compare to 57% and 66% for the U.S. and 71% and 79% in Hawaii.

Similarly, we expect in the weeks ahead that vaccination rates in our other important international markets will meet and most likely exceed U.S. levels. This environment sets the stage for a relaxation of restrictive cross-border travel policies that have been in place throughout the pandemic.

Notably, New South Wales in Australia has announced the elimination of quarantine requirements for vaccinated travelers beginning in November, allowing us to recommence service to Sydney in mid-December for the first time since March of 2020. This is a harbinger of expected policy relaxations in the Asia Pacific region in the months ahead and particularly notable given that Australia previously had some of the strictest COVID travel restrictions of major nations.

We expect quarantine requirements to be shortened or eliminated, replaced by vaccination and/or testing requirements. When this happens, pent-up demand for leisure travel should be unleashed in our international markets, paralleling the experience we have already seen for domestic travel.

People want to travel, especially for leisure. The confinement associated with this pandemic is unprecedented in our lifetime. And when domestic travel restrictions have been relaxed in the U.S. and elsewhere, leisure demand has responded quickly. I am confident the international experience will be similar.

We continue to ready ourselves for this eventuality, making sure that we are prepared with staffing, training and fleet to take advantage of demand while delivering the operational performance that our guests expect of Hawaiian Airlines. We are planning for the addition of more international flying to our schedule beginning in late December and ramping up through the first quarter of next year.

Given that the policy environment is still evolving, we expect that the recovery of international demand will have a limited impact on our fourth quarter financial results, but we expect a more material recovery in 2022.

Elsewhere in our business, we experienced a number of notable events in the past quarter. Hawaiian was proud to respond to the activation of the Civil Reserve Air Fleet for just the third time in the history of the craft program. Our team helped relocate refugees from the Afghanistan evacuation to a new life in the United States, an experience that was extremely moving for all those involved. We also continue to use aircraft and crews that are temporarily surplus from our scheduled operations to support charter flights for the U.S. military and other customers.

In addition, we marked a notable milestone with the opening of the new Mauka Concourse at our Honolulu hub. The Mauka gates represent the first major expansion at our home airport in 28 years with the ability to simultaneously serve 11 narrowbody or 6 wide-body aircraft. In conjunction with ongoing projects to improve our lobby experience in Honolulu, we are taking meaningful steps to enhance our award-winning guest service.

We're also taking concrete steps to reduce our debt levels. Most notably, by conducting a tender offer for the A and B tranches of our 2020 EETC issuances. As our investors are aware, our focus through 2020 and into the early part of 2021 was bolstering our liquidity to manage through the COVID crisis.

While COVID is still with us, we have a clearer line of sight today to long-term recovery and the tender offer is an important first step towards restoring our balance sheet to a superior long-term position. All of this fits in the theme of focusing on the long term even as we look to manage near-term performance in a turbulent environment.

As we navigate the day-to-day twists and turns of our current environment, it is easy to forget that just a little over a year ago, it was impossible to travel to Hawaii without enduring a 14-day quarantine. Now we have seen our mainland business recover and are confident that it will recover again from the recent dip. Conditions are falling into place for a recovery of our international franchise.

By the middle of next year, we expect to restore system capacity to pre-pandemic levels and beyond, justified by the full restoration of demand for travel to Hawaii. And through it all, I'm immensely proud to share this journey with a fantastic team of aviation professionals who are laser-focused on serving the needs of our guests. As we close out this year of recovery over the next couple of months, we are looking ahead to even better days in 2022.

With that, let me turn the call over to Brent to discuss our commercial performance in more detail.

Brent Overbeek

Thank you, Peter, and aloha, everyone. Our third quarter revenue performance was better than our updated guidance range as the impact of the Delta variant, while significant, was not quite as bad as we anticipated when we provided our updated guidance. We also had a noncash accounting adjustment that increased revenue by about $10 million.

Total revenue was down 33% compared to the third quarter of 2019 on a 21% decline in capacity. Passenger revenue was down 35% year over 2 years, while other revenue was down just 10%, driven by strong performance in loyalty, charters and cargo.

As Peter mentioned, the quarter started off strong in North America. Despite elevated competitive capacity, our North America traffic volumes and passenger revenue exceeded 2019 levels in July. At the same -- at the time of our last call at the end of July, our book load factors for August and September were roughly in line with 2019 levels. But as we moved through the quarter, we saw traffic volumes decline with the increase in the prevalence of the Delta variant and public officials’ comments discouraging travel to Hawaii.

Commensurate with the slowdown in bookings, we also experienced an increase in sale activity and lower sale fares initiated by a few of our competitors. Over the past several weeks, we've seen an improvement in booking activity and the sale levels have begun to show nominal signs of improvement.

As we move forward, we're hopeful that as load factor continues -- as load tractor deficits continue to ease, we'll see pricing firm up a bit more. While we've seen pressure -- pricing pressure in the main cabin, front cabin demand and pricing has held up relatively well. In both July and August, front cabin PRASM was up double-digits compared to the same months in 2019.

We don't think we'll get back to those levels of improvement over the next couple of months. But as we work our way through the fourth quarter, we continue to expect stronger relative performance in the front cabin. Not surprisingly, our ancillary revenue streams that are tied to passenger volumes, such as Extra Comfort and Bags have seen a commensurate decline in revenue over the back half of the third quarter.

Credit card revenue held up well. Credit card spend was strong during the quarter. And while we did see a temporary slowdown in digital credit card acquisitions as bookings softened, in-flight acquisitions remained strong throughout the quarter.

Looking ahead to the fourth quarter, the impact of the Delta variant and the Governor's comments were significant. In the short term, we went from being ahead by 4 points on our fourth quarter advanced book load factor compared to 2019 to where we are now down double digits. Advanced bookings have firmed up, and we are seeing positive build relative to 2019 for the past few weeks.

As Peter highlighted in his opening remarks, we've weathered a short-term setback, which doesn't change our long-term view of success moving forward. The recovery of our business was also impacted by the Delta variant. We operated about 76% of our 2019 capacity in the third quarter, but at much lower load factors than previously anticipated. We have trimmed capacity in the fourth quarter from our previous expectations and expect to operate about 72% of our 2019 capacity.

Booking trends have improved over the past several weeks in Neighbor Island. And while October has been a difficult month, we are optimistic that booking trends will continue to improve as case counts have come down on the Mainland and particularly here in Hawaii.

In our international geography, we've seen an easing of travel restrictions in Australia, and we're excited to reinstate 5x weekly service to Sydney, Australia starting in mid-December. By then, vaccinated Australian citizens will no longer be subject to quarantine upon returning to Australia.

While we don't have perfect clarity on the timing of our other international markets opening up, we're undoubtedly much closer than when we spoke in July. Vaccination rates have been increasing in each of our key international geographies and now exceed that of the U.S. Mainland.

Furthermore, there's been a dramatic drop in case counts, particularly in Japan. We're encouraged that The Biden Administration has announced that vaccinated foreign travelers will be able to enter the U.S. starting November 8 and have encouraged the State of Hawaii to align its safe travels program with federal requirements.

While timing for reopening may still be uncertain for some of our markets, what we do know is that similar to our domestic markets, there is pent-up demand for leisure travel. Hawaii and Hawaiian are well positioned with the brand, safety and quality of experience to capitalize on this expected increase in demand.

Overall, for the fourth quarter, we expect that system capacity will be down 18% to 21% compared to the fourth quarter of 2019 and revenue to be down between 32% to 37%. Unsurprisingly, the nominal decline from our third quarter 2021 performance is driven by advanced booking loss during the time when the Delta variant was surging as well as the Governor's comments discouraging guests from travel to Hawaii until November 1.

We're encouraged that we're on the road to recovery despite some temporary setbacks. We're confident that demand will continue to rebound in North America and Neighbor Island and accelerate in international once conditions permit. We've got a great product, strong brand, exceptional team and a winning formula for long-term success.

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

Shannon Okinaka

Thanks, Brent, and thanks, everyone, for joining us today. For the third quarter, we reported an adjusted net loss of $48.7 million or $0.95 per share. We closed the quarter with $2 billion in cash and short-term investments or $2.2 billion in liquidity, including our undrawn revolver. Our adjusted net debt as of September 30 was $885 million or about $90 million lower than the pre-pandemic balance at the end of 2019.

I'll start with our tender offer. The EETC tender is our first step towards strengthening our balance sheet. While our adjusted net debt continues to be lower than pre-pandemic levels, the negative carry of the excess cash weighs on our income statement.

Now that the path to cash generation and profitability is clearer, we're comfortable that our current cash balance exceeds our needs and the tender for our EETC notes provides an opportunity to reduce our debt. Although it is a relatively small portion of our total debt balance, lowering the balance of our highest interest-bearing EETC notes will provide valuable interest expense savings.

If we repurchased 50% of each of the 2020 EETC tranches, we will save $8 million in interest expense next year. We expect to have the results of the tender by November 1. In addition to paying contractual debt maturities and investing in our business, we'll continue to look for opportunities to use our excess cash to produce positive future returns.

For the third quarter, our total operating expenses, excluding special items, were down about 15% compared to the same period in 2019 on a 21% decline in capacity. This result is at the better end of our updated expectations and was due to favorability across a variety of cost categories.

Given the in fuel prices, we're providing our fourth quarter operating expense guidance metric, excluding fuel. We expect our fourth quarter total operating costs, excluding fuel and special items, to be down about 7% to 11% compared to the fourth quarter of 2019 on 18% to 21% lower capacity. These figures do not include any assumptions related to our amendable labor contracts.

With capacity essentially flat quarter-over-quarter, the corresponding increase in ex-fuel operating expenses is primarily driven by costs related to capacity readiness as we position ourselves for the resumption of more substantial international service. We're also expecting some smaller increases in technology equipment purchases, volume of heavy maintenance events and contractual wage increases.

The slight pause in our recovery will result in some excess labor in the fourth quarter, which we're opting to maintain to stay on target for our international recovery expected in the next few months. We're forecasting our fuel price per gallon for the fourth quarter to increase to $2.41, which we expect to increase our total operating expenses by about $18 million compared to the prior quarter.

Looking further ahead, we're focused on improving margins and investing in the long-term success of our business, including technology initiatives that will position us to be agile in responding to market demands. We also recently made the decision to continue investing in our growth, extending 2 of our A330 leases that were due to expire in 2021 for 2 more years, which positions the 787 deliveries that we're expecting in 2022 as growth aircraft rather than replacement.

We intend to share more details on our 2022 planning assumptions and outlook, including ASMs, CASM ex and CapEx at an investor call to be held in mid-December. We'll provide more information regarding the investor call in the coming weeks.

While we're disappointed that the negative headwinds of the Delta variant have temporarily interrupted our recovery, we're confident in the strength of our business model, the resilience of demand for travel to Hawaii and our success over the long term.

And with that, we can open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is from Michael Linenberg from Deutsche Bank.

Hillary Cacanando

This is Hillary actually calling in for Mike. I just had a question on the liquidity. So with the cash tender offer for your [7.375% and 11.25%], it looks like you're on the path to a great deleveraging strategy. And just wanted to find out if you kind of go over your deleveraging strategy going forward because you had mentioned last quarter that you have 2 buckets of debt where you have interest rates that were too cheap to pay down and the other one with where you would incur penalty for prepayment. So I guess, going forward, it is cash tender and buying back that one of your strategies or how should we think about that going forward? And what your normalized liquidity will be going forward as well?

Shannon Okinaka

Yes. Thanks, Hillary, this is Shannon. Yes, you're right. We do have some limitations on what we can do at this point on delevering, as you mentioned. We have a lot of debt with really low interest rate that really doesn't make sense to prepay. And outside of the EETCs, some of the -- a little higher rate debt has make-whole provisions and some penalties that make it noneconomic to repay. So yes, the tender is our first step. We're also being very creative about how we use our cash. We are investing in technology initiatives as well as growth.

The next question, I think, really that we'll have to answer from a liquidity and leverage perspective is how we're going to pay for the 787s, and we do have a lot of excess cash on our books right now. So of course, one of the options is to pay for the -- at least for the first 2 787s with cash.

But we do have, over the next few years, a fairly regular amount of just natural maturity payments on our debt that will help us with our leverage and to also decrease the interest expense. We haven't quite yet established a new leverage target. I can't imagine. I don't think it would be significantly different than our pre-pandemic leverage target, which was 1.5x to 2.5x our debt-to-EBITDA, but we haven't reestablished in the target. So I think that's pretty safe to use for now.

Hillary Cacanando

Okay. Great. That's helpful. And then just one more question on your international routes. It's great to hear that Japan is about 70% vaccinated and your expectations for international recovery for next year is definitely -- has improved. And so I wanted to find out, last quarter, you said you expect South Korea and Japan to lead the recovery and Australia and New Zealand to lag, is that still the case? Or since you're opening up the market -- the Sydney market again, has that changed?

Peter Ingram

Obviously, with the restart of Sydney, we've seen an update on that. And it was really a positive surprise to see Australia move as quickly towards reopening. So we think that really does set the stage for further reopening. The conditions are falling into place everywhere. I think, is the main message that we want to make sure we've delivered.

And there are some elections coming up in Japan that are probably going to set up a decision-making environment for the policymakers coupled with the high vaccination rates and the very low case counts that we think there is a good prospect for positive news from Japan in the coming weeks.

Operator

Our next question is from Hunter Keay from Wolfe Research.

Hunter Keay

Peter, 2 quick ones, unrelated. And I'll accept 1 sentence answers if you are up for it. And then I got a little bit more of an involved one after that. First one, pre-COVID, what percentage of your passengers were under age 12?

Peter Ingram

I'm going to hand that to Brent to see if...

Hunter Keay

Why don't you look that up and I'll ask you another one, if that's cool. And then the question I have for you, Peter, is a second quick one is, yes or no. Are you contractually permitted to walk away from the 787s because of Boeing's production problems?

Peter Ingram

We are not unless they were to delay delivery to the point when it kicks in delay provisions. But since we have rephased those deliveries to only begin in 2022, I do not expect that condition to be in place.

Hunter Keay

Got it. Okay. And then, Brent, I'll give you another couple of minutes on this other question. The last question I had, the state tax on hotel rooms that Hawaii is going to impose, why do you think that's happening?

Peter Ingram

Yes. I think there's a variety of things. I think a lot of it had to do with some of the financial challenges of the state faced and with the economic impacts of the pandemic and created an environment where they were looking for places to raise money. Unfortunately, taxing of visitors traveling into states is one of the easiest pockets to reach into for policymakers, and we've seen that a few times in recent years. So I think that's probably the biggest impact. I think it was really about -- more about getting money for the general fund.

Hunter Keay

Okay. And then, Brent, if you have that answer on Page 12?

Brent Overbeek

I don't have at my fingertips, but we did look at it slightly different on the international side, Hunter, and I assume that's where your question is emanating from. When we looked -- we looked at what percentage of customers had a -- someone in their traveling party under 12. So i.e., if the parents with a kid under 12, they probably wouldn't travel without the child.

And I want to say in most of our international geographies, that was in kind of the high teens, low 20s when you look across kind of all of the geographies. I would also temper that with the thought that the vaccinations are now here in the U.S. where we seem to be very close to approval for people 6 to 11 to be able to get the vaccines and that would alter those percentages as well.

Hunter Keay

Yes, that was kind of the thing that hold music you had was absolutely wild before the call started, like a rave.

Peter Ingram

I'm sorry we didn't get to enjoy it on our end.

Operator

Our next question is from Conor Cunningham with MKM Partners.

Conor Cunningham

I want to echo the music as well. I think it was a Star Wars theme song. It was quite interesting. Just on the -- on international, in general, is there a scenario in which you see a full-blown recovery to 2019 levels? And then if you do see a recovery of that nature, what's the potential CASM-ex tailwind that you get just from having an international network back?

Peter Ingram

My base case expectation is a full recovery to 2019 levels. So absolutely, there's a scenario.

Conor Cunningham

Okay. And that's by -- sorry.

Shannon Okinaka

No, go ahead, Conor.

Conor Cunningham

Is that by mid-20? Like I'm just trying to get the sense of the timeline, like I mean, obviously, there's a waiting game that still needs to happen here. But like is it like basically you're fully back the second that everything opens up. I'm just trying to get expectations around that. Sorry.

Peter Ingram

Yes. I think we can be there in the back half of '22. Yes.

Brent Overbeek

I think as we've looked at things, we would certainly kind of -- depending on the timing, we would build into it and by -- ideally by kind of summer of '22, we'll be back to a full network.

Shannon Okinaka

And on the CASM-ex side of your question, Conor, obviously, yes, the addition of international piece of our network will reduce our CASM ex. And I still hold firm to -- given the same network as 2019, we would have very similar CASM ex levels. Next year is a little -- we've got some different kinds of headwinds with the 787 prep and the cost for ramp-up of the 787. But generally speaking, yes, our CASM ex will respond favorably with the international resumption.

Peter Ingram

And I would say we're not giving specific '22 guidance today. Part of the reason we're going to schedule a call in December to talk to everyone is to give the policymakers a little bit more time to evolve the policy environment, and that will hopefully give us a clearer picture of what our outlook will be for the ramp-up of capacity in '22. We may not know everything by December, but we're hoping to know more than we do today.

Conor Cunningham

Okay. Great. And then I don't think you touched on it, but just like how the newer markets that you launched to the Mainland like so Orlando, Austin, Long Beach? Like how have those been pulling up? Are they a drag on your revenue performance? Are they at system averages? I'm just curious if there's an additional tailwind from that as we look into 2022 as well?

Peter Ingram

So I think some of the -- the West Coast stuff came on and was pretty much in line with our performance. Again, kind of our known brand in California, not a lot of market awareness that we needed to drive there. Those 2 came out, and they're largely in line with our more typical West Coast performance. We've been really encouraged with Austin and Orlando. They have a little more seasonality in them than some of our West Coast markets. But overall, those are performing well. And we think as we continue to build brand awareness in those markets, we'll continue to benefit from that.

Operator

Our next question is from Dan McKenzie with Seaport Global.

Daniel McKenzie

I guess my first question really is for Brent. And I guess, Brent, I'm just wondering if you can help us reconcile what's in the schedules data versus the revenue guide because at least what I've seen in the schedules is a steep recovery to Japan in December. So it's almost like the schedules are anticipating the announcement that you guys referenced in your script, and I'm seeing something similar to in other places. And so I guess what I'm just trying to wonder, does the capacity guide include this return of capacity and the revenue guide does not? Or if you can just help us tie what's there publicly versus what your outlook is?

Brent Overbeek

Yes. I guess we'd have to kind of reconcile with what you've got on capacity numbers. We've got kind of a gradual ramp-up in Japan as we move into December. We were hoping to do a little bit more, but we postponed a little bit of that. And so maybe we can take that offline and reconcile that. But yes.

Daniel McKenzie

Yes. And that really was my next question is how -- let's say you get the green light from Japan, how quickly could you add back the flying? Does it -- do you have the people in place now? I mean is the operation set the go button once you get the green light?

Brent Overbeek

Yes. We certainly have crude capability and airplane capability. And as we've been working through our planning scenarios into the first quarter of '22 and into the summer of '22, we continue to kind of build that out. And so I don't think we would be ready to snap back to our historical levels of Japan flying within a month. But as demand built up over the course of the front half of the year, I think we would certainly build into that.

Daniel McKenzie

I see. And then if you can just, kind of a housecleaning question, just remind us, maybe this will be for Shannon, where our full time equivalents today versus the third quarter of 2019? And where do those need to be? And is that, at this point, a constraint to how you're thinking about the schedule you want to fly, say, in the first quarter or in the summer of next year?

Shannon Okinaka

Dan, I don't have those exact numbers. I know that our FTEs are still lower. We'll pull up the exact numbers for you and give you that information offline.

Brent Overbeek

Let me answer that a little bit more generally. I mean we are down several hundred, I would say, employees relative to where we were in 2019. But in anticipation of the recovery of our capacity that we're building to, we have a hiring in place as well. Just over the last couple of weeks, we graduated our first flight attendant class since the beginning of the pandemic.

And I would add as a personal note, it was quite gratifying to see this class because a number of them were training to be flight attendants in March of 2020, and we suspended that class and those folks have come back to us now, and I'm proud to have them as part of our team.

We had our first pilot class that we've graduated since the beginning of the pandemic. We've been hiring in our airport operations. So we are actively working on recruiting front, understanding that we did have some people leave the company permanently in the early part of the pandemic, and we're positioned to recruit and train and meet the requirements we need to deliver the operation that our guests expect.

Operator

Our next question is from Catherine O'Brien with Goldman Sachs.

Catherine O'Brien

So it sounds like your decision to extend those 2 A330s was due to your view on demand, but was the uncertain timing of when 787 deliveries will begin again a factor at all? And then should we think about wide-body net growth next year, all being focused on international growth? Or was any part of this decision to keep some of those mainland routes you started during the pandemic?

Peter Ingram

So let me sort of put it in context. Our 787 order for which we've got 10 firm orders has always been considered to be a combination of replacement and growth. So one of the things we've always looked at was to make a decision whether an incremental delivery is going to be a growth aircraft or replace a retiring A330 is something that we've got the flexibility to do over time.

As we push back the 787 orders, we did have the potential to shrink a little bit in 2022 by letting A330s be returned at the end of their lease. But as we saw the recovery coming this year and particularly the strong domestic recovery we've seen, we made the judgment that we didn't want to shrink in 2022. The cost of those lease renewals is considerably lower than what we were paying before, just given how the market has been on the A330s.

And so it was a fairly easy decision to us to keep those airplanes in the fold, allow us to have the flexibility to fully grow back our international schedule as the demand recovers, which is our expectation. And then we will continue, as we take 787s at the end of 2022 and into '23 and beyond, to face those incremental decisions of replacement or growth based on the conditions that we see at the time.

Catherine O'Brien

Got it. And then maybe just one on the revenue side. Of course, the biggest driver of revenue momentum for here will be demand recovery, and it sounds like there's a lot of green shoots on international hopefully coming. But can you remind us of what Hawaiian specific initiatives we should be thinking about as demand starts to normalize over the coming quarters in terms of -- I know you guys are working on some merchandising things and a couple of other things. Would just be great to get reminded of what we should be keeping an eye out for in 2022?

Peter Ingram

Yes. Thanks, Catie. Yes, certainly, we've got a new RMS coming in the front part of the year. As you mentioned, we've got some merchandising initiatives underway, and those are things that we'll cover off as well as some distribution initiatives underway. And those are some of the things we'll cover off a little bit more in greater detail in the December update.

Operator

Our next question is from Helane Becker with Cowen.

Helane Becker

I have 2 questions. One is on the labor side. So great that you're able to hire folks and that you've got flight attendant in, pilot classes going on. I know I think, Shannon, you mentioned that your cost guidance excludes any labor contracts that are open. Can you just maybe talk about like your thoughts regarding timing of getting these contracts done? Are people still not necessarily willing to negotiate or are they willing and you're just not reaching an agreement? How should we think about that?

Brent Overbeek

Yes. Let me take that one, Helane. So we -- as you know, we don't have an amendable contract with our flight attendants. We settled that agreement in the early part of 2020, actually, I think it was in May 2020, we came to terms. So we're under contract with the AFA for our flight attending group through 2025.

Our pilot contract becomes amendable next summer, summer of 2022. And we are already in preliminary discussions around that. Our goal would be to have an agreement in place by the amendable date. We've preferred not to have amendable contracts hanging out for a long period of time. Obviously, that is something that is not unilaterally in our control.

We have to make sure we do that in a context where it's a sensible agreement for both us and for the labor unions. But that's what we would like to do, and we're already in some discussions on that, and we expect that to accelerate in the early part of next year.

The 2 contracts that we do have amendable right now, one is with the IM and that -- they represent our airport employees and our maintenance group. That contract became amendable at the end of last year. We had in 2020 -- or in 2019, actually, we had entered into some expedited negotiations with the goal of getting a deal before the amendable date. That was sort of tossed up in the air by the onset of the pandemic, but we have resumed those talks this year. We have not yet reached an agreement.

We are close on a very, very large number of issues, and we still have some distance between us on a handful of important issues. And our hope would be that we can find a resolution to that and not have to go into full Section 6 negotiations, which will take a more extended period of time, but we haven't brought that to close just yet.

And then we've got a contract with our dispatchers union, they're represented by the TW. That became amendable the middle of this year. And we're in negotiations now hoping to come to terms on that. There's still a variety of -- a pretty wide variety of issues that need to be resolved.

Philosophically, if I just step back at it, I reiterate again, our preference is to negotiate the terms of deals by the amendable date. That preference has not historically been realized, and we would like to change that over time. Obviously, it requires us coming to terms that make sense economically for the long term for the company and it makes sense for -- or it can only work if we can come to terms that work for both parties. But we would prefer to get that done.

I think the unions have a similar motives, but it's always difficult when you get into the intricacies of a specific discussion to see if you can accomplish the goal of getting it done by the amendable date.

Helane Becker

That's actually very helpful. And then I just have a kind of unrelated question. As you think about the market reopening, I mean, it's kind of been open, all this is the issue of the governor and people not booking in blah, blah, blah. As you think about kind of reopening in major ways on Monday, is there -- are there enough -- I don't know if it's Airbnbs or hotel rooms or service personnel, rental cars, just things that people -- that were shortages earlier in the pandemic as things started to reopen that people will expect as they return to the island?

Brent Overbeek

I think the conditions are getting better on that. The -- right now, from where we were in July when the domestic business was more than 100% recovered compared to pre-pandemic, there was still some shortage of hotel room availability is not everything that come back online. I think some of the hotels and restaurants and other businesses have had some challenges attracting workers, the staff back up, but that situation has improved over time.

And of course, right now, we've actually -- we backed off some of the occupancy levels that we saw in July. And so there's some room to grow back before you start bumping into the limits.

I think earlier in the pandemic, one of the challenges was restrictions on how many people could go into places like restaurants, those have been evolving local restrictions. And I think with COVID cases going down and hospitalization is down right now, we're moving in a favorable direction in terms of the local policy on that, and that frees things up. But probably the biggest impediment is still staffing on those, but we're not bumping at limits right now.

In terms of rental cars, that was one that was particularly acute early on in the pandemic with the unfortunate breathing space that we got from lower arrivals over the last couple of months. That's provided the time for the fleet to be repositioned. And our earlier expectation was that it would be October, November before the rental car companies -- at least, what they had told us before they could get their fleet back up to the level of more standard service, and here we are at the end of October and into November. So that should be remedying itself as a constraint.

Operator

Our next question is from Christopher Stathoulopoulos with Susquehanna International Group.

Christopher Stathoulopoulos

So I realized you're still setting your plans on CASM ex and are going to give more detail on your December call. But if you could just help us think about the sort of at least some of the pieces here with respect to structural cost savings realized to date and then anything on the productivity side and how we should think about that? Is it fair to say that you think that you can run the airline on fewer FTEs when your ASMs are fully recovered? Or is that perhaps passengers per FTE? Any detail on the productivity piece side would be helpful.

Shannon Okinaka

Yes. Thanks, Chris. Yes, we've done actually quite a bit of work on productivity. What Peter didn't mention as part of our philosophy on the labor agreements is that we believe we should pay competitive wages. And so when we get into negotiations, we don't disagree with unions about paying competitive wages. But what we do look for in labor agreements, in processes and is increasing our efficiency and productivity.

So we've had some -- experienced some productivity improvements from investments in technology and processes. And you can see that really clearly, if you were to look at our airports, labor and our processes, especially in Hawaii, where we have the bulk of our people. We achieved some productivity improvements through our agreement with the Flight Attendants Union. That was really important. You're talking about a number of heads on airplanes. So really important productivity savings there. So I don't have a number for you as far as how much that will impact 2022 CASM, but it works really well to offset some of those contractual wage increases that we talk about every year pretty much.

As far as tailwinds in addition to labor, obviously, with the wide-body market softening, we'll see some good decreases in some of our aircraft ownership costs with the lease extensions that we did this year. We had some structural reductions in costs in our management and administrative costs. Things that we reduced in 2020 that we feel do not have to come back even when we're at full capacity.

We've done a lot of work on our maintenance programs looking at -- especially our -- I think they focused on A321 more recently and looked at how they do their heavy checks and when they do them to reduce cost and gain efficiency there. The reason why we did the tender really at this point is to save on interest expense. So we've got a number of tailwinds which will offset some of the headwinds that we see and we've talked about airport costs increasing and the 787 transition costs. I can quantify some of this better for you in December, but that's just some of the gives and takes that we're looking out in 2022.

Christopher Stathoulopoulos

Is there a general number you can share with respect to the savings on the structural side to date?

Shannon Okinaka

I don't have anything off the top of my head. So we'll look at it and we'll provide more information in December.

Christopher Stathoulopoulos

Okay. And just as a follow-up here. So in your prepared comments, you spoke about the PRASM and the front cabin outpacing the main cabin. How much of that at this point are you weighing that as you plan for 2022? Meaning, is this something that you're discounting and look at it as short term? Or is it something perhaps that's more structural in nature?

Brent Overbeek

I think it's structural. It's something that we saw even pre-pandemic in terms of improving demand for that product and our ability to monetize that. And so we were bullish going into '19 and '20, and we have seen some real improvements in our ability to monetize some of the investments we've made in that cabin. And certainly, as we've come back out of the pandemic, that has remained strong. But looking forward, I anticipate that's going to be a trend that we continue to see.

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Peter Ingram for closing remarks.

Peter Ingram

Mahalo, again, for joining us today. We appreciate your interest and look forward to talking to you in December as well as updating you on our progress again at the end of the next quarter. Thanks, everyone. Aloha.

Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.