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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2008

For the transition period from       to

Commission file number 1-31443

HAWAIIAN HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(808) 835-3700

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal

Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes  o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes   x  No

As of July 25, 2008, 47,581,476 shares of the registrant’s common stock were outstanding.

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Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended June 30, 2008

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PART I. FINANCIAL INFORMATION

ITEM 1.                   FINANCIAL STATEMENTS.

Hawaiian Holdings, Inc.

Consolidated Statements of Operations (in thousands, except per share data) (unaudited)

See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.

Consolidated Balance Sheets (in thousands, except share data)

See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)

See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies

Business and Basis of Presentation

Hawaiian Holdings, Inc. (the Company or Holdings) is a holding company incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and is engaged primarily in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands and between the Hawaiian Islands and certain cities in the Western United States, the South Pacific, Australia and the Philippines. As of June 30, 2008, Hawaiian operated a fleet of 11 Boeing 717-200 aircraft for its interisland routes and a fleet of 18 Boeing 767-300 aircraft primarily for its transpacific, South Pacific, Australia, Asia and charter routes.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments unless otherwise disclosed, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations common to the airline industry and Hawaiian, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

2. Litigation Settlement

In February 2006, Hawaiian filed a complaint in the United States Bankruptcy Court for the District of Hawaii against Mesa Air Group, Inc. (Mesa), alleging that Mesa breached a confidentiality agreement by retaining and misusing confidential and proprietary information that had been provided by Hawaiian to Mesa in 2004, pursuant to a process that was established by the Bankruptcy Court to facilitate Hawaiian’s efforts to solicit potential investment in connection with a Chapter 11 plan of reorganization. On October 30, 2007, following a trial, the Bankruptcy Court ruled in favor of Hawaiian, awarding Hawaiian $80 million for damages incurred to date, and ordering that Mesa pay Hawaiian post-judgment interest and reasonable attorney fees. On April 30, 2008, Hawaiian and Mesa reached a settlement on this litigation, whereby Hawaiian would receive a cash payment of $52.5 million and Mesa would withdraw its appeal of Hawaiian’s judgment.  On May 5, 2008, Hawaiian received full payment of the $52.5 million settlement, and as a result, recognized a gain equal to the proceeds received, during the second quarter of 2008.

3. Earnings Per Share

Options and other equity awards to acquire approximately 0.7 million and 1.3 million shares of the Company’s common stock were not included in the calculation of diluted net income per common share for the three and six months ended June 30, 2008, respectively, because the effect of including the options would have been antidilutive.  Options and other equity awards to acquire approximately 2.9 million shares of the Company’s common stock were not included in the

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calculation of diluted net loss per common share for the three and six months ended June 30, 2007 because the effect of including the options and other equity awards would have been antidilutive.  In addition, 6.0 million shares of the Company’s common stock issuable upon exercise of common stock warrants were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2008 and 9.5 million shares of the Company’s common stock issuable upon exercise of common stock warrants were excluded from the computation of diluted net loss per common stock share for the three and six months ended June 30, 2007 because the effect of including the warrants would have been antidilutive.

4. Fair Value Measurements

Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, (SFAS 157) for financial instruments, as required.  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires enhanced disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements; rather it specifies valuation methods and disclosures to be applied when fair value measurements are required under existing or future accounting pronouncements.

SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – Observable inputs such as quoted prices in active markets;

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumption.

As of June 30, 2008, the Company held certain assets that are required to be measured at fair value on a recurring basis.  These included the Company’s cash equivalents, fuel derivatives and short and long-term investments.

The Company’s investments in auction rate security instruments are classified as available for sale securities and reflected at fair value.  At June 30, 2008, the Company held $42.8 million in auction rate security tax-exempt bond investments at par value. The contractual maturities for these auction rate securities are approximately 20 years with an interest rate  currently equal to the seven-day LIBOR plus 1.50% which is reset every seven days.  Typically, the fair value of auction rate security investments approximates par value due to the frequent interest rate resets and liquidation opportunities offered by the auction process. However, starting in the first quarter of 2008, the auction events for these instruments held by the Company experienced failures.  While the Company continues to earn interest on its auction rate security investments at the maximum contractual rate, these investments are not currently auctioning on a regular basis and therefore, do not currently have a readily determinable market value. Accordingly, the estimated fair value of auction rate securities no longer approximates par value.

The Company used a discounted cash flow model to determine the estimated fair value of its investment in auction rate securities as of June 30, 2008. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, including a liquidity discount, timing and amount of cash flows and expected holding periods of the auction rate securities. The discount rate assumption is based on the credit quality of the underlying investments and related insurance enhancements and a factor to further discount the investments for the illiquidity currently present in the market for these securities. Based on this assessment of fair value, and as a result of the temporary declines in fair value for the Company’s auction rate securities, which the Company attributes to liquidity issues rather than credit issues, the Company has recorded an unrealized loss of $1.2 million to accumulated other comprehensive income as of June 30, 2008.

Subsequent to the second quarter of 2008, the Company sold $5.0 million in auction rate securities and received a mandatory redemption payment of $1.2 million in July 2008.  As a result of these transactions, the Company classified $6.2 million of the auction rate securities in short-term investments as of June 30, 2008.  Aside from these transactions, the Company continues to believe that the market for these instruments may take in excess of twelve months to fully recover.  As a result, the Company continues to classify the remaining investments as long-term investments in the unaudited Consolidated Balance Sheet at June 30, 2008.  Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other

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comprehensive income.  At this time, because the Company has the ability and intent to hold these securities until recovery of their value, the Company does not believe the securities are other-than-temporarily impaired or that the failures of the auction process will have a material impact on the Company’s liquidity or financial position.  The Company continues to monitor the market for auction rate securities and consider its impact, if any, on the fair value of the investment.  If the Company determines that any future valuation adjustment was other than temporary, it would record a charge to earnings as appropriate.

The table below presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2008 (in thousands):

*Fuel derivative contracts are reflected in prepaid expenses and other in the unaudited Consolidated Balance Sheets.

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS 157 at June 30, 2008 (in thousands):

5. Employee Benefit Plans

Net periodic defined pension and other postemployment and postretirement benefit expense for the three and six months ended June 30, 2008 and 2007 included the following components (in thousands):

During the three months ended June 30, 2008, the Company determined that there was an error in its Retirement Plan for Pilots of Hawaiian Airlines, Inc., which was not discovered until the accrual of new benefits ceased for certain plan participants effective on January 1, 2008, which caused the Company’s Accumulated pension and other postretirement benefit obligation and Goodwill to be understated by $3.5 million.  The impact to employee benefits expense was negligible for all periods.  Because the impact of the error was not material to the Company’s financial statement for either the current or prior periods, the Company has corrected its accounting for the accumulated pension benefit obligation during the three months ended June 30, 2008.

The Company made scheduled contributions of $4.0 million during the three and six months ended June 30, 2008, and expects to make contributions in the amount of $1.7 million during the remainder of 2008.

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6. Fuel Hedge Contracts

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel.  To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments such as heating oil futures contracts, jet fuel forward contracts and crude oil caps.  During the three and six months ended June 30, 2008, the Company has primarily used heating oil futures contracts and crude oil caps to hedge against its aircraft fuel expense.  These derivative instruments were not designated as effective hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) for hedge accounting treatment.  As a result, any changes in fair value of these derivative instruments are marked-to-market through other nonoperating (income) expense in the period of change.

During the three and six months ended June 30, 2007, the Company hedged its aircraft fuel expense utilizing jet fuel forward contracts which were designated as cash flow hedges under SFAS 133.  All periodic changes in fair value of these effective jet fuel forward contracts were recorded in accumulated other comprehensive income and recognized as a component of aircraft fuel expense when the underlying fuel being hedged was consumed.  Any ineffective portion of a change in fair value was immediately recognized into earnings as a component of other nonoperating (income) expense.

The table below shows the amount of realized and unrealized gains and losses that were recognized during the three and six months ended June 30, 2008 and June 30, 2007 and where those gains and losses were recorded in the unaudited Consolidated Statements of Operations (in thousands).

During the three and six months ended June 30, 2008, the Company recognized $8.9 million and $14.5 million of gains related to the increase in market value of heating oil futures contracts and crude oil caps that were not designated for hedge accounting under SFAS 133 and were marked-to-market.  Of this amount, $3.5 million and $4.9 million represents unrealized gains related to contracts settling in future periods for the three and six months ended June 30, 2008, respectively.  For the three and six months ended June 30, 2008, $8.3 million and $12.9 million were realized on settled fuel derivative contracts, respectively.  During the three and six months ended June 30, 2007, the Company recognized $1.0 million and $1.7 million, respectively, related to the portion of the change in fair value of Hawaiian’s jet fuel forward contracts excluded from hedge effectiveness.

The Company records the derivative financial instruments, all of which are fuel hedge contracts, on the balance sheet at their fair value.  As of June 30, 2008, the fair value of the derivative financial instruments totaled $4.9 million and was reflected in prepaid expenses and other in the unaudited Consolidated Balance Sheet.

7. Income Taxes

The Company did not record an income tax benefit or an income tax expense for the three and six months ended June 30, 2008.  Based on results to date and current forecasts, the Company does not expect taxable income for the year ending December 31, 2008 (and has a full valuation allowance as discussed below).  The projected taxable loss for the year is triggered primarily by accelerated tax depreciation of aircraft that we acquired during 2006.  The Company recorded an income tax benefit of $1.3 million and $9.2 million for the comparable three and six month periods in 2007, respectively.

Utilization of the Company’s deferred tax assets is generally based on the Company’s ability to generate taxable income in future years. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the Company’s deferred tax assets will not be realized. The ultimate realization of the Company’s deferred tax assets is dependent upon its ability to generate future taxable income during the periods in which

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those temporary differences become deductible, or the future utilization of resulting net operating loss carryforwards prior to expiration.  As of June 30, 2008, the Company recognized a full valuation allowance on its deferred tax assets.

In October 2006, the Internal Revenue Service (IRS) issued a Revenue Agent’s Report summarizing the income tax examination changes for tax year 2003.  Most issues related to the examination of Hawaiian’s 2003 federal income tax return have been resolved and agreed upon.  Examination issues for 2003 that were not resolved and agreed upon were brought to the Appeals Office of the IRS.  In March 2008, the Appeals Office of the IRS presented a settlement proposal for the remaining examination issues related to the audit of the Company’s 2003 tax return which the Company agreed to accept.  The settlement proposal decreased the anticipated federal taxes receivable from the IRS of $1.1 million by approximately $0.9 million.  Since the examination related to a tax period prior to the effective date of Hawaiian’s plan of reorganization, a decrease in federal taxes receivable has been recorded with an offsetting increase to goodwill.  In May 2008, the final settlement was executed by the Company and the Appeals Office of the IRS.  The Company is currently awaiting the IRS’s release of the federal taxes receivable.

8. Comprehensive Income (Loss)

Total comprehensive income (loss) for the three and six months ended June 30, 2008 and 2007 included the following (in thousands):

9. Commitments and Contingent Liabilities

Litigation and Contingencies

The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of such proceedings will have a material effect upon the Company’s financial statements.

Credit Card Holdback

Under Hawaiian’s credit card processing agreements, certain proceeds from advance ticket sales are held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in the Company’s unaudited Consolidated Balance Sheets, totaled $56.1 million at June 30, 2008. The funds are interest-bearing and are subsequently made available to the Company as air travel is provided. The agreement with Hawaiian’s largest credit card processor (Credit Card Agreement) also contains financial triggers which require, among other things, that we maintain a minimum amount of unrestricted cash and short-term investments (Unrestricted Cash Trigger), and maintain certain levels of debt service coverage and operating income. Under the terms of the Credit Card Agreement, the level of credit card holdback is subject to adjustment based on these specific financial triggers. Through a supplement to the Credit Card Agreement, the Company is allowed to include the full amount of the failed auction rate securities in the calculation of the Unrestricted Cash Trigger through the term of the agreement ending December 31, 2008 provided that a AAA rating from Standard & Poor’s (S&P) assigned to such securities is maintained as of the quarter ended immediately preceding the measurement date, regardless of their long-term classification on our unaudited Consolidated Balance Sheets. The current rating of the security is AA, which is comprised of an A+ rating for the issuer and a bond insurance supplement which increases the rating to AA. Generally, if a AAA rating from S&P is not maintained, then the qualifying value of these securities is reduced by up to 10% of their then par value for purposes of the calculation of the Unrestricted Cash Trigger, until such rating falls below an A level rating, at which point the securities would no longer qualify for inclusion in the calculation of the Unrestricted Cash Trigger. As of June 30, 2008, the auction rate securities will qualify in the calculation of Unrestricted Cash at 95% of their par value.  The Company believes the likelihood of these securities falling below an A level rating is remote, although there can be no assurance as to this outcome.

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As of June 30, 2008, the holdback was at the contractual level of 40% of the applicable credit card air traffic liability. However, based on the results of the Company as of June 30, 2008, the holdback subsequently decreased to 25% and as a result, on August 4, 2008, $17.5 million of the holdback was released to the Company.  Such amount is however included in restricted cash as of June 30, 2008.  If these specific financial triggers are not met in the future, or if the auction rate securities no longer qualify for inclusion in the calculation of the Unrestricted Cash Trigger and the Company is unable to obtain a waiver of, or otherwise mitigate the increase in restriction of cash, the holdback could increase to an amount up to 100% of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash.

ITEM 2.                                               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance.  These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business environment which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.

Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

·      aviation fuel costs;

·      economic conditions generally;

·      our dependence on tourist travel;

·      competition in the interisland market;

·      the effects of seasonality and cyclicality;

·      the concentration of our business in Hawaii;

·      the competitive advantages held by network carriers in the transpacific markets;

·      the effects of new entrants into the transpacific and interisland markets;

·      competitive pressures on pricing (particularly from lower-cost competitors);

·      demand for transportation in the markets in which we operate;

·      the impact of our substantial financial and operating leverage;

·      our ability to comply with financial covenants;

·      the competitiveness of our labor costs;

·      our relationship with our employees and possible work stoppages;

·      our ability to attract, motivate and retain key executives and other employees;

·      increasing dependence on technologies to operate our business;

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·      our reliance on other companies for facilities and services (including, without limitation, aircraft maintenance, code sharing, reservations, computer services, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training);

·      our fleet concentration in out-of-production Boeing 717-200 aircraft;

·      our new long-term commitments with aircraft and engine manufacturers and eventual financing arrangements;

·      the impact of indebtedness on our financial condition and results of operations;

·      the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack;

·      increases in aircraft maintenance costs due to the aging and increased utilization of our fleet, and the possible unavailability of other aircraft;

·      bankruptcies in the airline industry and the possible negative impact such bankruptcies might have on fares and excess capacity;

·      government legislation and regulation, including the Aviation and Transportation Security Act and other similar regulations;

·      changes that may be required by the Federal Aviation Administration or other regulators to Hawaiian’s aircraft or operations;

·      the impact of possible aircraft incidents;

·      the impact of possible outbreaks of disease;

·      the impact of possible disruptions due to unpredictable weather and environmental concerns;

·      changes in competition in all of the markets we serve which may impact the level of fares and capacity that we are able to offer in order to remain competitive;

·      the cost and availability of insurance, including aircraft insurance;

·      security-related costs and regulation;

·      consumer perceptions of our services compared to other airlines; and

·      other risks and uncertainties set forth from time to time in our reports to the Securities and Exchange Commission, included under “Risk Factors” in our Annual Reports on Form 10-K.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this quarterly report.

Overview

Our Company

Hawaiian Holdings, Inc. (the Company or Holdings) is a holding company incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and became the Company’s indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002.  Hawaiian became a Delaware corporation and the Company’s direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005 as is described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2007.

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We are engaged primarily in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the interisland market) and between the Hawaiian Islands and certain cities in the Western United States (the transpacific market) and the South Pacific, Australia and Asia. In April 2008, Hawaiian began service to Manila, Philippines and in May 2008, Hawaiian began service to Oakland, California.  Hawaiian is the largest airline headquartered in Hawaii and the seventeenth largest domestic airline in the United States.  As of June 30, 2008, Hawaiian’s operating fleet consisted of 11 leased Boeing 717-200 aircraft, 11 leased Boeing 767-300 aircraft and seven owned Boeing 767-300 aircraft.  As of June 30, 2008, Hawaiian has signed Letters of Intent for four leased Boeing 717-200 aircraft to be added to our current fleet during the third and fourth quarters of 2008, three leased Airbus A330-200 aircraft to be added to our fleet starting in 2011, two of which will replace existing Boeing 767-300 aircraft upon their lease expirations and lease extensions for four Boeing 767-300 aircraft in order for their expiration dates to coincide with our incoming Airbus A330-200 aircraft.  Based in Honolulu, Hawaiian had approximately 3,670 active employees as of June 30, 2008.

General information about us is available at http://www.hawaiianair.com/about/.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.

Recent Events

Current Environment

During the second quarter of 2008, the cost of aircraft fuel continued to escalate, averaging $3.63 per gallon and increasing 81.0% over the same period in 2007.  The cost of fuel has become the largest operating expense for the majority of the domestic carriers and, combined with weakness in the U.S. economy, has significantly affected the airline industry as a whole.  Continuing from the first quarter of 2008, domestic carriers have announced drastic changes to their businesses, including announcements of significant reductions in flight schedules with corresponding reductions in staff and grounding of airplanes in order to decrease overall capacity, allowing carriers to charge higher fares.  In addition, many airlines are charging for various ancillary items, including additional charges for checked baggage, charges for preferred seating on the aircraft, food service, and other miscellaneous items.

Despite initiatives to restructure operations, several airlines, including some of our competitors, have filed for bankruptcy protection.  Aloha Airlines (Aloha), ATA Airlines (ATA), Skybus Airlines (Skybus) and Frontier Airlines all filed for bankruptcy protection during March and April 2008, with Aloha, ATA and Skybus terminating their passenger service operations.

The Hawaii Market

While we are experiencing the same business challenges as the other domestic carriers with the increase in the cost of aircraft fuel, the recent events that took place within the Hawaii market have enabled us to continue to increase our capacity.  With Aloha and ATA both ceasing their passenger service operations in March and April 2008, the Hawaii market experienced significant capacity reductions both in the transpacific and interisland operations.  Aloha provided approximately 40% of the total capacity of the interisland market as well as approximately 6% of the total seat capacity from Hawaii to the West Coast, i.e. those markets generally competitive with our transpacific operations.  Aloha previously had service to Sacramento, San Diego, Santa Ana and Oakland, California and Reno and Las Vegas, Nevada.  ATA provided approximately 12% of total seat capacity or approximately 11 daily flights from Hawaii to the West Coast, including Los Angeles and Oakland, California, Las Vegas, Nevada and Phoenix, Arizona.

Since Aloha ceased its interisland passenger service operations at the end of March 2008, we have maintained an increased schedule in the interisland market, operating approximately 150 daily interisland flights between the islands of Oahu, Kauai, Maui and the Big Island.  Expansion of our flight capacity has been accomplished by increasing utilization of the existing interisland aircraft fleet, as well as deploying our spare Boeing 767-300 to interisland operations on a limited basis.  In order to more effectively and more efficiently serve the interisland market, we have signed Letters of Intent to lease four additional Boeing 717 aircraft to support our interisland operations.  We expect these aircraft to be added to our fleet beginning in the third and fourth quarters of 2008.

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On May 1, 2008, we commenced nonstop daily service between Honolulu and Oakland, California in response to Aloha’s and ATA’s cessation of operations to this West Coast city.  The addition of this service was facilitated by the reallocation of aircraft capacity from other West Coast markets.  Aloha and ATA had both previously provided direct daily service between Honolulu and Oakland.  We continue to evaluate opportunities to adjust capacity and the markets we serve in the transpacific markets.

In conjunction with our increased operations, we have hired approximately 340 additional employees as of June 30, 2008, many of whom were previously employed by Aloha in the capacity of pilots, flight attendants, ramp agents and maintenance technicians.

Other Significant Events

On April 30, 2008, Hawaiian and Mesa Air Group, Inc. (Mesa) reached a settlement on their outstanding litigation, whereby Hawaiian received a cash payment of $52.5 million and Mesa withdrew its appeal of Hawaiian’s judgment.  See Note 2 in the Notes to the Consolidated Financial Statements.

On April 14, 2008, Hawaiian launched its nonstop service to Manila, Philippines with four scheduled round trip flights per week between Manila and Honolulu.  We are currently the only U.S. carrier providing nonstop service between Manila and Honolulu.

Hawaiian signed a frequent flyer agreement with Delta Air Lines (Delta), effective March 17, 2008, enabling members of HawaiianMiles to earn and redeem miles on all Delta flights systemwide, with reciprocal benefits for Delta’s SkyMiles members, allowing them to earn and redeem miles for travel on all interisland flights operated by Hawaiian within the State of Hawaii, as well as for travel to and from Sydney, Australia and Manila, Philippines.

Hawaiian signed a codeshare and frequent flyer agreement with United Airlines (United), effective May 15, 2008, providing for more effective connections of United’s passengers to our interisland flights and enabling United’s Mileage Plus members to accrue and redeem frequent flyer miles on Hawaiian’s interisland connections.

On June 2, 2008, Hawaiian began trading on the NASDAQ Global Market under the symbol “HA”.  Additionally, on June 30, 2008, Hawaiian was added to the Russell 3000(R) Index, which is market cap weighted and measures the performance of the common stock of the largest 3000 companies incorporated in the United States and its territories.

Results of Operations

We had net income of $54.3 million ($1.14 per basic common share and $1.09 per diluted common share) on operating income of $48.5 million for the three months ended June 30, 2008 and net income of $34.4 million ($0.73 per basic common share and $0.71 per diluted common share) on operating income of $26.5 million for the six months ended June 30, 2008.  These results include a one-time litigation settlement of $52.5 million related to Hawaiian’s settlement of its lawsuit with Mesa.

For the three and six months ended June 30, 2008, our total passenger revenue increased by 32.9% and 26.7%, respectively, compared to the same periods in 2007 primarily due to the increase in yields and capacity on our interisland routes and increased yields on our transpacific routes.  The increases in yield results from the current environment whereby most airlines have increased their fares to compensate for fuel costs which significantly increased over last year.  The increase in capacity in our interisland routes is the result of additional flights that were added immediately after Aloha shutdown its interisland operations in the beginning of April 2008.

Our results of operations were significantly affected by increases in our cost of jet fuel and maintenance and materials expense.  For the three and six months ended June 30, 2008, Hawaiian’s cost per available seat mile (ASM) increased by 6.9% and 9.4% from the same periods in 2007, respectively, which includes the benefit of the $52.5 million litigation settlement.  Excluding the litigation settlement, Hawaiian’s cost per ASM increased by 27.7% and 20.0% for the three and six months ended June 30, 2008, respectively, primarily due to the cost of fuel.  Excluding both the litigation settlement and fuel, Hawaiian’s cost per ASM increased 9.4% and 4.9% compared to the same periods in 2007.  The cost of jet fuel is the single largest component of our operating expenses, comprising 45.6% and 39.4% of our total operating expenses for the three and six months ended June 30, 2008 and reflecting a 81.0% and 68.2% increase from the comparable three and six month periods in 2007.  Maintenance materials and repairs expense for the three and six months ended June 30,

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2008 increased by 28.9% and 22.9% over the three and six months ended June 30, 2007 due to the increased utilization of our fleet, the timing of periodic maintenance activities and increased costs for maintenance services and materials.  We were able to alleviate some of these increases with savings in wages and benefits, catering and insurance.

Hawaiian Holdings, Inc.
Statistical Data (unaudited)

(a)             Includes applicable taxes and fees.

Three Months ended June 30, 2008 Compared to Three Months ended June 30, 2007

During the three months ended June 30, 2008, we recognized net income of $54.4 million and operating income of $48.5 million, compared to a net loss of $3.9 million and operating loss of $0.6 million for the same three-month period in 2007.  This significant improvement is primarily due to the recognition of the one-time litigation settlement of $52.5 million related to Hawaiian’s settlement of its lawsuit with Mesa.  Consistent with the other domestic carriers, during the second quarter of 2008, we were able to increase our fares and adjust charges for various incidental services to help offset the increase in the price of fuel.  As a result, our operating revenue per ASM increased by 26.4% on a 3.4% increase in overall capacity.  Excluding the litigation settlement, our unit costs increased by 27.7% which included a 75.0% increase in aircraft fuel cost per ASM.  The significant differences between income and expense items for the second quarters of 2008 and 2007 are discussed below.

Operating Revenue. Operating revenue was $319.2 million for the three months ended June 30, 2008, a 30.7% increase over operating revenue of $244.2 million for the same three-month period in 2007.  Scheduled passenger revenue was $295.2 million for the three months ended June 30, 2008, compared to scheduled passenger revenue of $222.2 million for the same three-month period in 2007.  The detail of changes in revenue is outlined in the table below.

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The significant increase in South Pacific/Australia/Asia ASM’s is a result of the start of our nonstop route between Honolulu and Manila commencing in April 2008 with four flights per week.  Other operating revenue for the three months ended June 30, 2008 was comparable to the three-month period in 2007.  A decrease in charter operating revenue was offset by increases in cargo revenue and incidental revenue.

Operating Expenses. Operating expenses were $270.7 million for the three months ended June 30, 2008, a $10.6 million increase from operating expenses of $244.8 million for the comparable three-month period in 2007.  The increase in operating expenses for the three-month period in 2008 was due primarily to increases in aircraft fuel, maintenance materials and repairs, and wages and benefits, the impact of which was offset by the litigation settlement of $52.5 million.

NM                          Not meaningful