Hawaiian Holdings

Harout Sahakian, Purvi Mittal, Rakesh Venkatayogi and Shao-Lun Lu

Presented: March 18, 2014
Hawaiian Holdings — Projected Income Statement
For the year ended December 31
($mm, unless noted) 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Revenues
Passenger 1,481 1,767 1,943 2,288 2,521 2,735 3,002 3,408
% of total revenue 90% 90% 90% 90% 90% 90% 90% 90%
Other 170 195 213 251 277 300 330 374
% of total revenue 10% 10% 10% 10% 10% 10% 10% 10%
Total revenues 1,650 1,962 2,156 2,542 2,801 3,039 3,336 3,787

Operating Expenses
Aircraft fuel, including taxes and delivery 513 632 699 737 784 821 867 985
Aircraft rent 113 99 109 127 140 152 167 189
Maintenance materials and repairs 170 184 203 246 271 295 323 367
Wages and benefits 321 377 427 496 546 592 650 738
Depreciation and amortization 66 86 83 102 112 122 137 155
Others 377 457 501 588 647 703 771 875
One-time items 70 0 0 0 0 0 0 0
Total expenses 1,630 1,833 2,022 2,398 2,613 2,805 3,052 3,465
Adjusted Operating Income 90 129 134 145 188 234 283 322

Non-operating Income (Expenses):

Net Interest expense (23) (43) (50) (50) (55) (60) (66) (74)
Capitalized interest 8 11 13 13 15 16 18 20
Other expenses (6) (11) (10) (12) (13) (14) (16) (18)
Income Before Income Taxes 69 86 86 96 134 176 220 250
Income Tax 35% 38% 40% 35% 35% 35% 35% 35%
Net income (loss) (3) 53 52 63 87 114 143 162
Adjusted Net income (loss) 45 53 52 63 87 114 143 162

Source: HA 2013 10-K

Hawaiian Holdings — Projected Balance Sheet

As on December 31, 2013

($mm, unless noted) 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Current Assets
Cash and cash equivalents 304 406 423 432 504 547 600 682
Restricted cash 31 5 19 26 28 31 34 38
Accounts receivable 94 81 74 76 84 91 100 114
Others 70 80 89 102 112 122 133 151
Total Current Assets 500 572 606 636 728 791 868 985
Property and Equipment
Flight equipment 647 1,000 1,300 1,500 1,664 1,696 1,728 1,856
Other property and equipment 263 318 362 415 457 496 544 618
Less: accumulated D&A (182) (249) (327) (400) (416) (424) (432) (464)
Other assets 259 225 224 318 351 381 418 474
Total assets 1,488 1,866 2,164 2,469 2,784 2,939 3,125 3,469

Liabilities and Shareholders' Equity

Current Liabilities
Current maturities of Debt and Capital lease obligations 38 108 62 76 90 103 113 129
Air traffic liability 303 389 409 426 443 451 460 494
Accounts payable 81 82 90 112 118 122 133 151
Others 67 75 98 105 116 126 138 157
Total Current Liabilities 489 654 659 719 766 802 845 931
Long-Term Debt and Capital Lease Obligations 424 553 744 878 980 973 1,001 1,060
Other Liabilities and Deferred Credits 351 390 364 407 448 486 534 606
Total liabilities 1,265 1,597 1,768 2,004 2,194 2,261 2,379 2,597

Shareholders' Equity
Common stock 507 514 524 524 524 524 524 524
Capital in excess of par value 261 265 270 270 270 270 270 270
Accumulated income 64 117 169 232 319 433 576 738
Accumulated other comprehensive loss, net (102) (114) (43) 37 (1) 25 100 137
Total shareholders' equity 222 268 396 465 590 678 746 872

Total liabilities and shareholders' equity 1,487 1,865 2,164 2,469 2,784 2,939 3,125 3,469

Source: HA 2013, 2012 10-K

Hawaiian Holdings — Projected Statement of Cash Flows

As on December 31, 2013

($mm, unless noted) 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Operating Activities
Net income (loss) (3) 53 52 63 87 114 143 162
Depreciation and amortization 66 86 83 102 112 122 137 155
Stock-based compensation 4 4 5 6 6 7 7 8
Deferred taxes 44 31 34 41 45 49 53 61
Lease termination charges 70 0 0 0 0 0 0 0
Pension and postretirement benefit cost, net 2 12 13 15 17 18 20 23
Issuance of forward sold miles (9) 0 0 0 0 0 0 0
Other (8) (10) (10) (12) (13) (14) (16) (18)
Changes in operating assets and liabilities 12 136 67 (127) (94) (168) (208) (226)
Net cash provided by operating activities 179 311 243 86 160 127 136 165

Investing Activities
Additions to property and equipment (282) (291) (342) (254) (280) (304) (334) (379)
Proceeds from disposition of property and equipment 0 0 14 0 0 0 0 0
Net cash used in investing activities (282) (291) (328) (254) (280) (304) (334) (379)

Financing Activities
Proceeds from exercise of stock options 0 1 2 3 3 3 3 4
Convertible notes, net 79 0 0 0 0 0 0 0
Long-term borrowings 132 133 243 305 336 365 400 454
Repayments of long-term debt and capital lease obligations (80) (49) (114) (124) (139) (139) (144) (154)
Debt issuance costs (9) (4) (14) (7) (8) (8) (9) (9)
Change in cash collateral for EETC financing 0 0 (16) 0 0 0 0 0
Other 0 (0) 0 0 0 0 0 0
Net cash provided by financing activities 122 81 102 177 192 220 251 295

Net increase (decrease) in cash 19 102 18 9 72 43 53 81

Cash and cash equivalents at beginning of the period 285 304 406 423 432 504 547 600
Cash and cash equivalents at end of period 304 406 423 432 504 547 600 682

Source: 2013 10-k

Hawaiian Holdings — Assumptions

REVENUE PROJECTION

Year ending December 31

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Revenues ($mm) 1,650 1,962 2,156 2,542 2,801 3,039 3,336 3,787
% of growth 19% 10% 18% 10% 9% 10% 14%
Available Seat Miles (ASM) (millions) 12,022 14,660 16,762 19,080 21,232 23,155 25,244 28,740
Number of aircrafts in operation 37 45 47 50 52 53 54 58
Available Seat Miles / Number of aircrafts 325 326 357 382 408 437 467 496
% of growth – 0% 9% 7% 7% 7% 7% 6%
Revenue/ASM ($) 0.14 0.13 0.13 0.13 0.13 0.13 0.13 0.13

INCOME STATEMENT (% OF SALES)

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Interest expense 1.4% 2.2% 2.3% 2.0% 2.0% 2.0% 2.0% 2.0%
Depreciation of flight equipment 4.0% 4.4% 3.9% 4.0% 4.0% 4.0% 4.1% 4.1%
Aircraft Fuel 31.1% 32.2% 32.4% 29.0% 28.0% 27.0% 26.0% 26.0%
Aircraft Rent 6.8% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Wages and Benefits 19.5% 19.2% 19.8% 19.5% 19.5% 19.5% 19.5% 19.5%
Maintenance materials and repairs 10.3% 9.4% 9.4% 9.7% 9.7% 9.7% 9.7% 9.7%
Other operating expenses 22.8% 23.3% 23.2% 23.1% 23.1% 23.1% 23.1% 23.1%
Capitalized interest 0.5% 0.5% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5%
Other non-operating expenses 0.4% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Balance Sheet (% of sales)

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Cash and cash equivalend 71.7% 20.7% 19.6% 17.0% 18.0% 18.0% 18.0% 18.0%
Restricted cash 1.9% 0.3% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0%
Accounts receivable 5.7% 4.1% 3.4% 3.0% 3.0% 3.0% 3.0% 3.0%
Other current assets 4.3% 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 4.0%
Other property and equipment 15.9% 16.2% 16.8% 16.3% 16.3% 16.3% 16.3% 16.3%
Other assets 15.7% 11.5% 10.4% 12.5% 12.5% 12.5% 12.5% 12.5%
Current maturities of Debt and Capital lease obligations 2.3% 5.5% 2.9% 3.0% 3.2% 3.4% 3.4% 3.4%
Long-Term Debt and Capital Lease Obligations 25.7% 28.2% 34.5% 34.5% 35.0% 32.0% 30.0% 28.0%
Accounts payable 4.9% 4.2% 4.2% 4.4% 4.2% 4.0% 4.0% 4.0%
Other current liabilities 4.1% 3.8% 4.5% 4.1% 4.1% 4.1% 4.1% 4.1%
Other Liabilities and Deferred Credits 21.3% 19.9% 16.9% 16.0% 16.0% 16.0% 16.0% 16.0%

Balance sheet (Multiplier of aircraft)

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Flight equipment 17 22 28 30 32 32 32 32
accumulated D&A 5 6 7 8 8 8 8 8
Air traffic liability 8 9 9 9 9 9 9 9

Cash Flow Statement (% of sales unless noted otherwise)

2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Stock-based compensation 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Deferred taxes 2.7% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
Pension and postretirement benefit cost, net 0.1% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%
Other operating activities 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Additions to property and equipment 17.1% 14.8% 15.9% 10.0% 10.0% 10.0% 10.0% 10.0%
Proceeds from exercise of stock options 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Long-term borrowings 8.0% 6.8% 11.3% 12.0% 12.0% 12.0% 12.0% 12.0%
Debt repayment/debt financing 17.3% 7.4% 14.1% 12.9% 12.9% 12.9% 12.9% 12.9%
Debt issue cost/LT Borrowings 6.6% 2.9% 5.7% 6.0% 6.0% 6.0% 6.0% 6.0%
Hawaiian Holdings — Cost of Capital
Date HA Price S&P 500 HA Return S&P return SUMMARY OUTPUT
Share Price (as of 3/15/14) $13.60 3/3/2014 13.49 1,846 12.0% (0.7%)
Shares outstanding (millions) 52 2/3/2014 12.04 1,859 18.5% 4.3% Regression Statistics
Market Capitalization 713 1/2/2014 10.16 1,783 5.5% (3.6%) Multiple R 0.3689065354
Market value of debt 806 12/2/2013 9.63 1,848 5.6% 2.4% R Square 0.1360920319
11/1/2013 9.12 1,806 10.7% 2.8% Adjusted R Square 0.110682974
Weight of Equity 47% 10/1/2013 8.24 1,757 10.8% 4.5% Standard Error 0.1032240661
Weight of Debt 53% 9/3/2013 7.44 1,682 6.3% 3.0% Observations 36
8/1/2013 7.00 1,633 (8.4%) (3.1%)
Cost of equity Weight 7/1/2013 7.64 1,686 25.0% 4.9% ANOVA
CAPM return 8.58% 90% Realized Return of HA 130.99% 6/3/2013 6.11 1,606 2.5% (1.5%) df SS MS F Significance F
Realized return 32.19% 10% Realized Annual Return of HA 32.19% 5/1/2013 5.96 1,631 8.6% 2.1% Regression 1 0.0570697619 0.05707 5.356044 0.026824
Weighted cost of equity 10.94% 4/1/2013 5.49 1,598 (4.9%) 1.8% Residual 34 0.3622770663 0.010655
3/1/2013 5.77 1,569 1.8% 3.6% Total 35 0.4193468282
Composite cost of debt 2.90% CAPM 2/1/2013 5.67 1,515 (1.7%) 1.1%
Risk Free Rate 3% 1/2/2013 5.77 1,498 (12.2%) 5.0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Market Risk Premium 5% 12/3/2012 6.57 1,426 5.3% 0.7% Intercept 0.0174399856 0.0178513884 0.976954 0.335492 -0.018838 0.053718 -0.018838 0.053718
Effective tax rate 35.0% Beta 1.12 11/1/2012 6.24 1,416 5.2% 0.3% S&P return 1.1165434309 0.4824513799 2.314313 0.026824 0.136084 2.097003 0.136084 2.097003
WACC 6.13% Return on Equity 8.58% 10/1/2012 5.93 1,412 6.1% (2.0%)
Other Business risk premium* 2% 9/4/2012 5.59 1,441 (5.7%) 2.4%
Adjusted WACC 8.13% 8/1/2012 5.93 1,407 (6.9%) 2.0%
7/2/2012 6.37 1,379 (2.2%) 1.3%
*Note: Rising interest rate risk and businesst risk, sales volatility and etc. 6/1/2012 6.51 1,362 12.6% 4.0%
5/1/2012 5.78 1,310 2.1% (6.3%)
4/2/2012 5.66 1,398 8.2% (0.7%)
Source: Yahoo Finance and Bloomberg 3/1/2012 5.23 1,408 (1.5%) 3.1%
2/1/2012 5.31 1,366 (23.7%) 4.1%
1/3/2012 6.96 1,312 20.0% 4.4%
12/1/2011 5.80 1,258 (2.5%) 0.9%
11/1/2011 5.95 1,247 11.2% (0.5%)
10/3/2011 5.35 1,253 27.1% 10.8%
9/1/2011 4.21 1,131 0.7% (7.2%)
8/1/2011 4.18 1,219 (11.1%) (5.7%)
7/1/2011 4.70 1,292 (17.5%) (2.1%)
6/1/2011 5.70 1,321 2.9% (1.8%)
5/2/2011 5.54 1,345 (5.1%) (1.4%)
4/1/2011 5.84 1,364 (2.8%) 2.8%
3/14/2011 6.01 1,326 – –
Hawaiian Holdings — Residual Income Valuation

As on December 31, 2013

($mm, unless noted) 2013A 2014E 2015E 2016E 2017E 2018E
Net Income 52 63 87 114 143 162
Book Value of Common Equity 396 465 590 678 746 872
Beginning BV of Common Equity 396 465 590 678 746
(Beginning BV of Equity) X (Cost of Equity) 43 51 65 74 82
Residual Income 19 36 50 69 81
Discount Period: 1 2 3 4 5
Present Value of Residual Income 17 30 37 45 48

Return on Common Equity:

Cost of Equity: 11% Implied Share Price Sensitivity Analysis
Present Value of Equity Calculations:
Current Value of Common Equity: 396
Sum of PV of Residual Income: 177 Terminal Growth Rate
Terminal Growth Rate: 3% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
Estimated Year 5 NI to Common: 162 9.4% 23.53 24.51 25.63 26.92 28.43 30.22 32.37
Residual Income Terminal Value: 902 9.9% 21.91 22.72 23.64 24.69 25.91 27.33 29.01
PV of Res. Inc. Terminal Value: 537 Cos 10.4% 20.49 21.17 21.93 22.80 23.79 24.93 26.27
Present Value of Equity: 1,110 of 10.9% 19.26 19.83 20.47 21.18 21.99 22.92 24.00
Shares Outstanding: 52 Equ 11.4% 18.18 18.66 19.19 19.79 20.46 21.22 22.09
Implied Share Price: 21.18 11.9% 17.23 17.63 18.08 18.58 19.14 19.76 20.47
12.4% 16.38 16.73 17.11 17.52 17.99 18.51 19.09
Hawaiian Holdings — Company Comparables

Date 3/15/2014
Currency USD

CY Revenue ($mm) CY EBITDA ($mm) CY EPS ($) CY BPS ($)

Price ($) % 52-Week Market Cap ($mm) Enterprise Value ($mm)

Ticker Company Name 3/15/2014 High 3/15/2014 Net Debt ($mm) 3/15/2014 2013A 2014E 2015E 2013A 2014E 2015E 2013A 2014E 2015E 2013A
US
JBLU JetBlue Airways Corporation 8.68 91.9 2,566 1,961 4,527 5,441 6,008 6,474 707 961 1,046 0.50 0.71 0.81 7.22
ALK Alaska Air Group, Inc. 91.49 99.5 6,290 -442 5,848 4,964 5,293 5,582 908 1,134 1,226 5.41 6.59 7.42 29.51
ALGT Allegiant Airlines 107.77 93.9 2,004 -117 1,887 996 1,124 1,253 237 255 290 5.28 5.55 6.60 20.42
LUV Southwest Airlines 23.92 99.0 16,792 -332 16,460 17,699 18,273 18,964 2,231 2,846 3,060 1.13 1.37 1.56 10.47
UAL United Continental Holdings, Inc. 44.40 90.2 16,497 7,288 23,785 38,279 39,745 41,416 3,386 4,825 5,601 1.84 4.28 5.62 8.24
AAL American Airlines Group Inc. 36.34 91.1 17,135 11,381 28,516 26,743 42,991 45,086 2,978 6,945 7,541 3.96 4.59 5.27 (10.46)
DAL Delta Air Lines Inc. 34.12 95.2 28,981 8,208 37,189 37,773 39,625 41,169 5,074 6,203 6,717 1.93 2.60 2.98 13.79
Mean
Median

RoW
SEHK:753 Air China Limited 0.61 67.3 7,617 11,839 19,455 16,723 18,381 20,460 2,918 3,376 3,992 0.00 0.06 0.08 0.7
TSE:9201 Japan Airlines Co., Ltd. 49.07 82.8 8,897 -2,012 6,886 12,237 12,898 13,089 na 2,456 2,524 5.24 7.69 7.87 35.05
ASX:QAN Qantas 0.98 57.1 2,128 2,976 5,105 13,919 14,169 14,555 1,237 1,149 1,562 (0.06) (0.21) (0.04) 2.28
KOSE:A003490 Korean Airlines 33.30 84.9 1,819 13,136 14,956 11,114 11,390 11,951 na 1,816 1,953 0.00 (0.30) 1.56 44.4
Mean
Median

HA Hawaiian Holdings Inc. 13.60 93.2 713 298 1,096 2,156 2,542 2,801 217 247 300 0.99 1.20 1.66 7.56

Source: Capital IQ and Company Filings

Weights on
Company Name multiple
JetBlue Airways 15.00%
Alaska Air 15.00%
Allegiant Airlines 15.00%
Southwest Airlines 15.00%
United 10.00%
American Airlines 10.00%
Delta Air Lines 10.00% Shares Outstanding (millions) 52.4
RoW 10.00%
100.0%

Implied Price per Share

Weighted average (using

Multiple Multiple Value Weight Mean Median subjective weights)
P/E 17.4x 15% $18.43 $17.94 $17.72
Forward P/E 13.4x 20% $16.97 $16.97 $16.86
EV/Revenue 1.1x 15% $44.12 $40.51 $44.37
EV/EBITDA 7.2x 15% $29.22 $28.77 $28.10
Forward EV/EBITDA 5.5x 20% $26.70 $25.32 $26.96
P/B 2.7x 15% $24.89 $21.10 $20.08
Implied Price per Share 100% $26.23 $24.71 $25.30
 RPM ASM RPM Yield ASM Yield Passenger Load Total
EV / CY Revenue EV / CY EBITDA P/E P/B (millions) (millions) (cents) (cents) Factor (%) Total Debt Assets Debt/Assets

2013A 2014E 2015E 2013A 2014E 2015E 2013A 2014E 2015E 2013A 2013A 2013A 2013A 2013A 2013A 2013A 2013A 2013A

0.8 0.8 0.7 6.4 4.7 4.3 17.5 12.3 10.7 1.2 35,836 42,824 15.18 12.71 83.7 2588.0 7350.0 0.4
1.2 1.1 1.0 6.4 5.2 4.8 16.9 13.9 12.3 3.1 28,833 33,672 17.22 14.74 85.6 888.0 5838.0 0.2
1.9 1.7 1.5 8.0 7.4 6.5 20.4 19.4 16.3 5.3 7,129 8,146 13.97 12.23 87.5 234.3 930.2 0.3
0.9 0.9 0.9 7.4 5.8 5.4 21.2 17.4 15.3 2.3 104,348 130,344 16.96 13.58 80.1 2820.0 19345.0 0.1
0.6 0.6 0.6 7.0 4.9 4.2 24.1 10.4 7.9 5.4 205,167 245,354 18.66 15.60 83.6 12409.0 36812.0 0.3
1.1 0.7 0.6 9.6 4.1 3.8 9.2 7.9 6.9 nm 138,878 168,340 19.26 15.89 82.5 20632.0 42278.0 0.5
1.0 0.9 0.9 7.3 6.0 5.5 17.7 13.1 11.5 2.5 194,988 232,740 19.37 16.23 83.8 12011.0 52252.0 0.2
1.1 0.9 0.9 7.4 5.4 4.9 18.1 13.5 11.6 3.3 17.2 14.4 83.8 0.3
1.0 0.9 0.9 7.3 5.2 4.8 17.7 13.1 11.5 2.8 17.2 14.7 83.7 0.3

1.2 1.1 1.0 6.7 5.8 4.9 nm 9.67 7.93 0.9 80,641 100,283 20.74 16.68 80.41 0.0 0.0 na
0.6 0.5 0.5 na 2.8 2.7 9.36 6.39 6.24 1.4 32,672 48,817 37.45 25.07 66.93 1205.6 12412.3 0.1
0.4 0.4 0.4 4.1 4.4 3.3 nm nm nm 0.4 68,916 86,939 20.20 16.01 79.27 5611.9 17869.7 0.3
1.3 1.3 1.3 na 8.2 7.7 nm nm 21.31 0.7 42,773 54,873 25.98 20.25 77.95 0.0 0.0 na
0.9 0.8 0.8 5.4 5.3 4.6 9.4 8.0 11.8 0.9 26.1 19.5 76.1 0.2
0.9 0.8 0.7 5.4 5.1 4.1 9.4 8.0 7.9 0.8 23.4 18.5 78.6 0.2

0.5 0.4 0.4 5.1 4.4 3.7 13.7 11.4 8.2 1.8 13,678 16,762 15.76 12.84 81.5 806.5 2,164.3 0.4
 Implied Share Price Weights
Comps Valuation 25.30 50%
Residual Income Valuation 21.18 50%
Final Implied Share Price 23.24
Hawaiian Holdings – Dupont Analysis

Field Mnemonic
Tax Burden
Net Inc to Comn/Pre-Tax Profit % TAX_BURDEN
Interest Burden
Pre-Tax Profit/EBIT % INT_BURDEN
Operating Margin
EBIT/Revenue % TRAIL_12M_OPER_MARGIN
Asset Turnover
Revenue/Avg Assets ASSET_TURNOVER
Leverage Ratio
Avg Assets/Avg Equity FNCL_LVRG
Return on Equity

Source: Bloomberg
 2013A 2012A 2011A 2010A 2009A

60.01 62.06 244.82 134.48 120.09

64.61 66.30 (1.20) 89.82 90.43

6.20 6.59 5.47 6.97 9.08

1.07 1.17 1.27 1.22 1.21

6.06 6.82 5.20 4.73 8.54

15.6% 21.6% (1.1%) 48.5% 101.8%