TEAM MEMBERSSHAO-LUN LUPURVI MITTAL

HAROUT SAHAKIAN RAKESH

VENKATAYOGIPresented March 18, 2014

HAWAIIAN HOLDINGS

(HA)

• Business Overview

• Macro-Economic & Industry Overview

• Technical Analysis

• Financial Ratios

• Valuation

• Recommendation

AGENDA

• Incorporated in January 1929

• 5249 employees

• Market Cap : 712.95 M

• 208 operating flights as of December 31,2013

Business :• Engaged in the scheduled air transportation of passengers and cargo • Operating geographic locations -

a) Neighbor Island : amongst the Hawaiian Islands

b) North America : between the Hawaiian Islands and certain cities in the United States

c) International : between the Hawaiian Islands and the South Pacific, Australia, New Zealand and Asia

Current Fleet:

18 Boeing 717-200 aircraft

12 Boeing 767-300 aircraft

14 Airbus A330-200 aircraft

COMPANY BUSINESS OVERVIEW

North America

45%

Neighbor Island25%

International operations

30%

2013 Geographical revenue

North America Neighbor Island International operations

Source: HA 10-K Report

HA ROUTES & BUSINESS PARTNERS

Source: Hawaiianairlines.com

Added planes:

• Added five new A330-200

• Added one ATR 42

• Retired four Boeing 767-300

Added routes:• Honolulu to Auckland, New Zealand in March 2013

• Honolulu to Sendai, Japan launched in June 2103

RECENT FACTS OF 2013

2010 2011 2012 2013 $-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$1,310,093

$1,650,459

$1,962,353 $2,155,865

Revenue Trend

1Q13 2Q13 3Q13 4Q13$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Operating Revenue

Source: HA 10-K Report

Maui <-> Los Angeles in July 2014

Los Angeles <-> Kona Summer of 2014

Los Angeles <-> Lihu'e Summer of 2014

Oakland <-> Kona Summer of 2014

Oakland <->Lihu'e Summer of 2014

Honolulu -> Beijing, China in April 2014

ROUTE EXPANSION IN 2014Delivery Year A330-200 A321neo

A350XWB-800 Total

2014 5 　 　 5

2015 3 　 　 3

2016 　 　 　 　

2017 　 3 2 5

2018 　 6 2 8

2019 　 6 1 7

2020 　 1 1 2

　 8 16 6 30

NEW PLANES DELIVERY

FORWARD OUTLOOK IN 2014

Source: Company Website HAL Reports 2013 Fourth Quarter and Full year Financial Results

MACRO-ECONOMIC &

INDUSTRY OVERVIEW

EXTERNAL FACTORS Per Capita Spending: Greater number of people

returning to work and improved housing will mean consumers are willing to spend on purchases delayed due to recession

Forecast Value for 2018: $37,249

2013-2018 Compound Growth: 2.5%

World Price of Oil: Price of oil is forecast to continue to decline in 2014 due to stagnant global demand ; also difference in oil prices around $2.

Forecasted Value for 2018: $114.92 per barrel

2013-2018 Compound Growth: 2.2%

Consumer Spending: With job growth expected to improve steadily over the five years to 2019, coupled with normalizing credit conditions, long term historical growth rate will reassert itself

Forecasted Value for 2019: $12.64 trillion

2014-2019 Compound Growth: 2.79%

Source: IBIS World Airlines Industry Report

INDUSTRY FORECAST

US personal consumption expenditures for US airlines are forecasted to grow at annual compound rate of 4% between 2014 to 2018.

Source: Mergent Insight research

INDUSTRY OPPORTUNITIESEmerging Market Growth• Emerging markets experiencing higher growth than established economies

Ancillary Fees• $40 billion annually from baggage fees, seat assignments, travel services

Fuel-Efficient Aircraft• New upcoming Boeings are 13% more efficient

Internet Ticket Sales• Major revenues from online sales which is easier and comparable

Frequent Flier sales to businesses• Partnering with credit card companies and hotels expands their business horizons

Efficiencies with electronic documents• Paperless ticketing and bar coding substantially reduces costs

Source: Mergent Insight Research report on Airlines

HAWAII 2014 ARRIVALS AT A GLANCE

U.S. West35%

U.S. East22% Japan

19%

Canada11%

All Other14%

Visitor arrivals by Air

U.S. West U.S. East Japan Canada All Other

　 Visitors arrivals forecast to Hawaii by air

　 2014 2015 2016

　 Annual growth Annual growth Annual growthUS West 1.4% 1.3% 1.4%US East 1.0% 1.3% 1.2%Japan 2.4% 1.8% 1.8%

Canada 1.5% 1.4% 1.3%Europe 2.0% 2.0% 2.0%Ocenia 3.9% 1.5% 1.3%China 20.9% 20.0% 15.0%Korea 8.9% 10.0% 7.0%Others 0.0% 1.0% 1.0%

Source: Hawaii Tourism Authority 2014 forecast outlook

PORTER’S FIVE FORCES FOR HARivalry CompetitionHIGH

• Competitive factors: price, frequency, on-time reliability, market affiliations• Honolulu is not the origin but a destination of passenger traffic

Supplier’s bargaining powerMED-

HIGH

• Too much dependency on third party contractors for facilities, code sharing, reservations, ground facilities

• Deal for frequent flyer program with Barclays Bank

Buyer’s

bargainin

g power

MEDIUM

• Large market players entering market providing competitive prices from various other locations• Cheaper inter-island getaways lead to medium risk for HA

Substitutes

MED-LOW

• Aquatic travel between islands becoming more apparent• Government looking to provide and cater to the peoples demand for cheaper getaways

Threat of new

entrantsLOW

• Deterrents: Decrease in inter-island demand, capital intensive nature; limit to airports• Very difficult to obtain new slots by new company; tough competition amongst existing airlines

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

SWOT Analysis

• Largest airline based in state of Hawaii• Provides services to 20 destinations in the Pacific

and US west coast.• Consistently ranked “on-time” carrier• Unbroken decades of records of safety

• Hawaii too south a point for connection between Asia and US from west

• Relationships with third-party contractors• Ordering of new fleets and already expanded use of

leverage around the same time

• Expansion into the Japanese and South Asian markets

• Only provider of Non-stop services between Seoul, South Korea

• Efficiency Opportunities: Closing of Taipei route

• Volatility of crude oil prices• Increasing expansion of other carriers giving

customers options• Increase in operating expenses and decrease in

net income

FINANCIALS

TECHNICAL ANALYSIS

Source: finance.yahoo.com

ROE – DUPONT METHOD

FY 2013 FY 2012 FY 2011 FY 2010 FY 2009

Tax Burden60.00

% 62.05% 244.82% 134.47% 120.08%

Interest Burden

64.60% 66.29% -1.19% 89.82% 90.42%

Profit Margin 6.20% 6.59% 5.47% 6.97% 9.08%

Asset Turnover 1.07 1.17 1.26 1.22 1.21

Leverage 6.05 6.82 5.20 4.72 8.53

ROE15.56

% 21.63% -1.05% 48.48% 101.75%Source: Bloomberg

INDUSTRY COMPARABLESOperating

Profit per ASM Ex-fuel*

Revenue per ASM* Cost per ASM* Debt/Assets

Regional

Hawaiian Airlines (HA) 3.61 11.47 12.08 37.26%

Allegiant Travel (ALGT) 6.62 12.30 10.31 25.18%

Southwest Airlines (LUV) 4.54 12.69 12.71 14.57%

JetBlue Airlines (JBLU) 4.22 11.46 11.70 35.21%

Alaska Airlines (ALK) 4.19 12.65 11.83 15.21%

Major Airlines

Delta (DAL) 3.34 14.04 14.11 22.98%

United (UAL) 3.27 13.38 14.48 33.71%

Source: *Bloomberg - Industry Analysis (average of Q32012 – Q32013), Capital IQ

COMPARABLE COMPANIES

Southwest Airlines = 15%

Allegiant Travel = 15%

JetBlue Airlines = 15%

Alaska Airlines = 15%

Delta = 10%

United = 10%

American Airlines = 10%

Other: Air China, Japan Air, QANTAS, Korean Air = 10%

COMPARABLE VALUATION

P/E – 15%

Forward P/E – 20%

EV/Revenue – 15%

EV/EBITDA – 15%

Forward EV/EBITDA – 20% P/B – 15%

$25.30

Estimated Share Price

FORECAST ASSUMPTIONS

Source: HA 10K 2013

 2013A 2014E 2015E 2016E 2017E 2018E

Revenues ($mm) 2,156 2,542 2,801 3,039 3,336 3,787

% of growth 10% 18% 10% 9% 10% 14%

Available Seat Miles (ASM) (millions) 16,762 19,080 21,232 23,155 25,244 28,740

Number of aircrafts in operation 47 50 52 53 54 58

Available Seat Miles / Number of aircrafts 357 382 408 437 467 496

% of growth 9% 7% 7% 7% 7% 6%

Revenue/ASM ($) 0.13 0.13 0.13 0.13 0.13 0.13

COST TO CAPITALShare Price (as of 3/15/14) $13.60

Shares outstanding (millions) 52

Market Capitalization 713

Market value of debt 806

Weight of Equity 47%

Weight of Debt 53%

Risk Free Rate 3%

Market Risk Premium 5%

Beta 1.12

Return on Equity (90%) 8.58%

Realized return (10%) 32.19%

Weighted Cost of Equity 10.94%

Cost of Debt 2.90%

Effective tax rate 35.0%

WACC 6.13%

Other Business risk premium 2%

Adjusted WACC 8.13%

Source: Yahoo Finance and Bloomberg

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

Present Value of Residual Income   17 30 37 45 48

Equity Charge

RESIDUAL INCOME VALUATIONCost of Equity 11%

Terminal Growth Rate 3%

Present Value of Equity Calculations

Current Value of Common Equity ($mm) 396

Sum of PV of Residual Income ($mm) 177

1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

9.4% 23.53 24.51 25.63 26.92 28.43 30.22 32.37

9.9% 21.91 22.72 23.64 24.69 25.91 27.33 29.01

10.4% 20.49 21.17 21.93 22.80 23.79 24.93 26.27

10.9% 19.26 19.83 20.47 21.18 21.99 22.92 24.00

11.4% 18.18 18.66 19.19 19.79 20.46 21.22 22.09

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

Terminal Growth Rate

Cost

of

Eq

uit

y

Residual Income Terminal Value ($mm) 902

PV of Res. Inc. Terminal Value ($mm) 537

Present Value of Equity ($mm) 1,110

Shares Outstanding (millions) 52

Implied Share Price ($) 21.18

IMPLIED SHARE PRICE AND DRIVERS

  Weights Implied Share Price

Comps Valuation 50% 25.30

Residual Income Valuation 50% 21.18

Implied Share Price  23.24

Unique Business Model

• Operates in a market with

good growth potential

• Tourism to Hawaii is expected

to increase Capable Management

• Regular monitoring of the

unprofitable routes

• Borrowing debt at low

interest rates

Key Drivers

RECOMMENDATION:BUY 100 SHARES

ATTHE MARKET