Q4 2019 Earnings Call

Good morning, ladies and gentlemen, welcome to the Cargojet sports corner yearend results conference call.

I'll turn the meeting older Pauline Jelen. Please go ahead mr. Alan Thank you operator, good morning, everyone and thank you for joining us on the call today on the call our AJ Romani, President and Chief Executive Officer, Jamie <unk>, Chief Commercial Officer, and John Kim Chief Financial Officer. After opening remarks by aging Jamie we will.

Open the lines for questions.

At this point I'd like to point out that certain statements on this call such as those relating to our forecasted revenues cost and strategic plans are forward looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITDAR. Please refer to our most recent press release and M. DNA for important assumptions in cautionary.

Statements relating to forward looking information there for reconciliations of non-GAAP measures to GAAP income I turn the call over to AJ for his comments.

Thank you Pauline and thank you everyone for joining us this morning, another <unk> point.

I'm very pleased to report another successful peak season delivered by targets team.

Good volumes and Onpoint solid performance.

We delivered strong quarter with 9.2% revenue growth.

Eating fuel surcharges in seemed governed margins and you adjusted EBITDA by 17.4% over last year.

As I've mentioned before we are focused on growing each segment for business.

You'd overnight work.

<unk> network, you see in my or charters.

We believe there a growth opportunities in Egypt for segment.

Fourth quarters, if you you exactly or diversification strategy in action, but I'd mention ever Freebies conference one.

Despite softness in the airline business from various international.

Increase.

Commerce.

I mean very strong.

In quarter four results show that.

Jamie will make more comments on this right after myself.

We continue to see a song strong shift in shopping patterns, one day prime by Amazon has been a great game changer, whether E commerce industry as other retailers they catch up.

What online shopping has now moved to a seven day week shopping patterns and is now.

Allowing us to maximize asset utilization and improved margins.

Yeah, I don't know still lags behind us.

And the international World out there on ecommerce shopping as a percentage of total cheers.

There is plenty of opportunity for Canada the goal.

And then B E commerce space in the coming years.

She's been growth means tremendous focus.

Delivery and on time performance.

The focus on quality and.

The especially when the weather is very bad.

Maintenance fee works extremely hard to make sure about over Fleeted means popcorn.

And once again I'm pleased to report that quarter tweak order for our on time performance was.

Exceeded our contract killer <unk> commitments and was over 98%.

A key metric for customers because they have built there.

First and last mile networks that rely on our ability to meet our commitments.

Yeah, we're developing a culture of continuous improvement this means managing our costs and cash flow prudently with an eye towards strengthening the bad.

As we look back in 2019, it has been passport national year for part of it yet.

We do we delivered a solid 10% growth and overall revenues excluding fuel surcharges.

This growth was achieved through strong overnight business, while strengthening our east get my.

That posted a growth of 40%, 44% over full year.

Entered into strategic relationships with the long term growth what do you ever debentures early to further strengthen our balance sheet.

And we invested in the business lay a solid foundation for coming here.

I am.

As excited about part of the gets future as I was when we first started the business 20 years ago.

Once again, thanks for joining us this morning.

We will continue to do build over business in all segments diversification of.

New business lines and.

Our opportunities will be key for US now I will ask Jamie do share his thoughts on our fourth quarter.

Yes.

Thanks, Good morning, everyone.

Q4 continues to see tremendous growth in E commerce demand on their overnight that works both directly from retailers, such as Amazon and indirectly from integrators and legacy careers the participate in ecommerce space in Canada.

We also saw the continued growth and expansion of our higher margin dedicated they see a my business with the addition of our six three which began at the beginning of the quarter.

This revenue growth was partially offset by declines a domestic overnight network volumes outside the ecommerce space and to lower overall air cargo demand globally. As a result of continuing international trade challenges and lower economic activity and more recently the impacted the corona virus, especially on volumes out of Asia.

We saw this reflected in the reduced demand for our scheduled international and AD hoc charter services and to lower interline revenues during the quarter.

Hi, Jay Jay mentioned, we were proactive in reducing this is spending some of our schedule that international routes to Cologne in South America in the third quarter as a result at this lower demand the reduction in operating expenses were reflected in overall margin improvements shown in Q4.

As they do you also noted we operated a very successful peak period in 2019 with record volumes and record on time performance achieved on our overnight network [noise].

Average domestic <unk> network revenue per operating day increased 4.2% from the previous year.

Ecommerce continues to be the driving force in our overnight network growth, we continue to operate or Sunday night flights during Q4 and operated additional dedicated charters during the period to meet this growing demand.

Ecommerce will continue to provide tremendous growth opportunities in 2020 as online retail sales continued to grow in Canada, and we plan on continue to capitalize on this growth by offering value added services on a domestic network and by continuing to grow our they see it might revenues in charter business.

Thank you it I'll now turn the call back over to the operator for any questions [noise].

Thanks.

We'll now take questions on the telephone line if you have a question.

Hi, good fun.

Before making your selection if you have a question. Please press star one on your telephone keypad accounts for the questions. Please press the pound.

The press Star one at this time, if you have a question there will be a precise all participants register thank you for your patience.

Your first question is from David Campbell from Cormark Securities. Please go ahead.

Good morning, everyone.

Well David.

Hey, Jay you touched on this in your opening remarks, but on the flying you're doing outside your traditional core market.

How are the discussions with your customers progressing I imagine Amazon is extremely receptive, but how large can this be are we thinking kind of a daily flight on all days a week.

So you know I didn't want things David is that what is the core market for us the core market at this stage does not mean, just overnight core core for US we used to use that because that was the only line of business we had.

And now we have diversified.

Look at Ricardo business other you see it might business and every one of them.

When you're doing one third of your business in other markets. They all become quoted.

So you know I want to figure that misconception that.

Focused on every line of business and I realize this quarter for us.

As far as Amazon is concerned.

The.

We have been a cousin.

2015.

Do some special charter flights for them on certain like for example peak period or whether it's.

Brian day sale or.

Any events back to school sale.

But also.

A big customer on the overnight as well so they kind of common who you want to call every business core business is it coming to the core charter business and the quality of into the core overnight business as well so.

You know and there is still growing so.

Ecommerce is growing tremendously fast in this country trying to catch up with the rest of the world.

Do you need to service them.

Yes.

And I read your other customers up apart from Amazon or they are interested in the daytime flights as well.

You know what data right now do you time flights or we do do we do operate Datang flight to Western Canada for other customers and what we operate for Amazon is not.

The two separate flights.

But at the end of the day, if there's space left over.

You know, we would definitely market into other customers, which means that so revenue for us and we couldn't do or.

Involves pause if we can absolutely.

So it's kind of when when we haven't had that situation you got because as you do the charters that pretty full.

Got it makes sense.

And on the new hours of service rules for pilots the costs are going to increase this year do you guys have a sense on how much pricing will increase from this initiative in 2020.

Well we are.

You know gone to our customers.

And implemented a pilot study a surcharge.

You know most of them having implement it as a couple of data.

Terms off you know when people give you increases they want to make sure that.

You know they come and are they have some audit rights into looking at.

If you're asking other pilot went up cost pathway, fivemillion and we want to spread among the customer base.

To see pesticides are kind of done their due diligence, they're looking at our numbers that we expect those would be sorted out sorted out within the next 30 days.

So.

You know cost increases by customers that are never easy, but I think a good part of this cost increases that.

Everybody is aware of the safety issues.

Regarding pilots why this.

Surcharges going in.

And at the end of the day everybody also knows that there is a big pilot shortage in the country and.

Basically we will recover all of our costs.

You know, it's a matter of like.

So that I wanted to the due diligence by a couple of with customers.

It was over we should we should be in good shape.

So it's the right way to think about that since you're going to get your traditional cost inflation on your contracts Pos say another yes.

They they are they are independent off this.

So it sounds like.

Okay, that's all from mail and color.

Thank you.

Next question is from Kevin Chiang from Sabby. Please go ahead.

Yeah. Thanks for taking my question here, maybe sort of follow on on that last question from from David.

If I look at your your margin expansion on the EBITDA lawn and an accounted for under some higher for 60 noise.

You are up about a 180 basis points. If my math is correct year over year end 2019.

Despite some of those.

Those pilots to cost you would have incurred.

I think of 2020.

Sure I think margins being or margin expansion being being greater than that as as you mentioned, you implement somebody surcharges or or or or is the runway as the run rate. We've seen this you're kind of a good run rate over the next.

You know, we Kevin as you know the margins are very very important.

You had some routes that are flying like Voca, CALIMA, which kind of a was a strategy that we wanted to go forward and expand in that area, but unfortunately because of the.

International trade down from China connectivity to go because he my was.

Lower our margins by lower.

With that flight out and get that plane and put into a higher margin AC of my business. So the focus is certainly on improving margins for us.

We have shown and that was one of the reasons we.

What we did and.

Any opportunities that Oh, we get we got we try to increase the margins and now.

Recovery of the pilot so it's hard because some of it staged over certain mom wants to fully comes into it back into into a factor that person, whereas you can certainly.

It's back to see.

Fairly a decent margin in Queens.

Yeah and.

Overall.

Okay.

That's helpful and that I didn't notice.

Your your fleet schedule is up one for 2020 to 2022.

Is your Q3, your Q3 up DNA it looks like all the all the Capex so spent in.

Last year, so if I look at your your Capex into into 2020, you remind me what we should be thinking in terms of in terms of what that number looks like even with the fleet or the adjustment to the fleet schedule. Yeah, we're looking at quite a cap it.

I mean hundred 210 million.

Probably 100 million what makes me happy here.

Keep in mind that lease we at we bought any aircraft.

70, 673 hundred which we've got a very good deals from Canada.

Apart this aircraft for parts.

Our strategy.

When we looked at every all four aircrafts have been deployed.

So that means that left us.

Aircraft floor.

Charter opportunities and expansion of new routes.

And I think.

Then we can <unk>, so we decided to convert that aircraft into cargo rather than part at four parts. Because there is the aircraft are in short supply today.

Yes, so to the border companies for Amazon keeps driving up anything that's come for sale.

I wanted an opportunity we said, okay, we're not going to cut this up apart, but less than voted to cargo.

And have an aircraft ready for growth charters.

I can.

Usually say that right now im going to China market, who you opens.

There is going to be a tremendous demand for cargo that as being backlog over there for bond.

Okay, and we are already getting so many inquiries about we'd be able to do two flights a week to China two flights a week to China and you know weve.

Sincerely hope that that's half is ready for us it ready to go and take.

Take advantage of strategic opportunities in the marketplace. Our experience has been Kevin every time, we call an aircraft to spare aircraft fine and finding the right I mean that as the nice problem to have that you always find work, but that's fair a copy and that's fair is not spare anymore. So we are getting this aircraft converted wasn't.

None of our plans, but we felt that.

If we don't.

Go out and convert does have a growth and our plans and other opportunities.

Can be very limited, especially when do you couldn't have charters.

What happens is that next time people fall other people so.

We are being proactive and this expansion of one more aircraft at this time.

That's helpful. Maybe just last one from me.

Jim you mentioned.

Just think something to talk from to conduct the Corona virus.

But in your first quarter Interline and maybe some of your charter business there but.

I think of your domestic network revenue now it sounds like E commerce, given the Tailwinds there, you're you're probably offsetting any interline weakness with E. Commerce volume, so you're kind of neutral youre. Your all in charter revenue, you've kind of shrunk dot given what you've been seeing in the market over the past year. So.

As a quarter virus something that we should be anticipating being at least is it is it a headwind to earnings that that we'll see in the next quarter or too is that something you can offset and then as age imagine if you have all this backed up volume from Asia coming in the back out for the year is that over and above kind of a normal run rate revenue you can get on annual basis.

Yeah, Kevin I think.

The as you're aware the interline volume as a percentage of overall revenue on our domestic is it's not great. So it was already low because of.

Low international Global Air cargo demand that we were that we were seeing in 2019, it's just been compound it a little more by the Corona virus in 2000.

As we go into 2020, just when we thought it was coming back a little bit.

But but that.

Far being overshadowed by by significant continued ecommerce growth.

And to try and and the cargo business.

You know for the rest of the world anything in my as well correct.

Okay. That's it for me thanks for taking my questions.

Thanks, Kevin Thank you.

The next question is from Walter Spracklin from RBC capital markets. Please go ahead, thanks very much good morning, everyone.

Hi, there so the volume side, we do you know what we thought ecommerce we kind of lumped into your overnight cargo, but you were kinda, indicating that you know some of that will now.

On a go into your all in charter revenue and that certainly came in higher than we expected.

Oh, no Walter just to clarify any charters that we do on the domestic network.

For customers, let's say in peak that comes through domestic revenues.

Okay. So that goes into the overnight even though.

Yeah that was [noise], which we called the domestic demand.

Got it okay.

Okay that makes sense. So when we look at your break down the all in charter. We he has been down year over year, a lot of the it due to what you'd been.

Some of the a the movement as a as you'd mentioned.

Are you indicate in your prepared remarks that you expect every every category to grow this year or am I reading that.

The all in charter revenue component is likely or expected to be up in 2020 is that right.

Well there was two reasons why some of this charter business was down in 2019 because of the global trade disputes and secondly, now as we were seeing the recovery out of the trade disputes or satellite or being settled or bills to satellite.

We saw that were on wireless soda, it's that that market. So.

We have already as we said had many calls to say can you give us three four flights a week and China, even in a couple of weeks. When this thing opens up or in a month. So we know that demand is going to be very heavy for that kind of oh flights.

You asked the question can you expect to grow upon all segments of our business. Yeah, I, we expect certainty that the Carter business, especially after the I've seen enough with their own Elias and global tree trade deals being pan because they will at some stage have to sign a global trade, whether China you asked.

You got to U.S. so.

Those are all pending deals and eventually they will get sign.

So we expect that the business will come back to normal and those are gone and that will be ever mostly interline business force them to charter business second.

Okay. So for our growth for ER overnight business or a domestic business, let's call. It.

Yes, ecommerce is growing we certainly expect to grow Paul.

Back particular business.

For sure because countries still behind us and other countries by at least.

You know.

Double double digits growth as expected over the next five years and and the E. Commerce. So we expect that segment to grow as well.

The third segment is that you see in my segment and as I said every time he had a spare aircraft if the onto an easy I might.

And.

We continue.

The keep talking to other customers and you know because of the service, we provide and the flexibility.

We continue to find routes that.

Oh, better if you might out that are.

Profitable and we can do those and I expect that you know we will continue to monitor that situation I don't have at <unk> wrote that I can announced today, but as you know as any company would do we continue to look for those opportunities and and when we when we look for certain opportunities the go to.

At the time, we fine.

Okay.

Well I guess in another words job, we expect all lines of business.

Okay.

Walter It's John just just keep in mind, we still had bogot on Lima, those all in charters in the first couple of quarters and part of the third quarter last year. So those those.

That revenue stream I won't be there for the first these for the first two quarters of this year. So you'll still see that parents show probably you will see a negative trend in the first half and then assuming all these other issues are gone by the first half ended we should see growth in the back half all the all in <unk> side, Yeah, that's what I would add Andrea.

In fact actually you know when when global trade improve we expect Mogadore Lee.

Who come back up as well because a.

Topic flows all over the world improves then be steroid use about it so you know.

Through the demand comes back like used to be two years ago, you could be Bakken bad business as well.

And then on the domestic side are you you had very good <unk> very strong growth last year up 11% and it kind of moderated this year and even here in peak up for just over 4% for total of 2.5% roughly for the year. So obviously E commerce is a big.

Driver, but largely being offset by by by some of the declines were seeing in the domestic business related to those other issues as we look out to next year.

Is it you could always it more likely we'll see a growth rate similar to 2019 or again, assuming some of the recovery and so the other issues in the early indirect impact that will have on domestic or could we see closer to your 2018 or run rate well, we certainly expect that the growth of Ah 2020 wouldn't be.

Goes up to 2019.

The biggest one of the biggest drivers in other domestic overnight business was also the interline business.

We got from many international carriers moving domestically. So if we maintained what we got on E Commerce, an add on the interline stuff as we said that a little situation stabilizes.

You could go back in 2018 type of growth indefinitely.

But it also depends on how quickly right now, but you do so restrictive even before that there were no wires and now it's gone back to Oh, So the interline business.

As a kind of our gravy freight that moves on.

Utilize sectors and becoming higher margin.

And a higher revenue so that part when it comes back along with the ecommerce growth I think.

You can certainly expect that.

Revenues would go up and the growth could go walk to the 2017 18 level, so probably more prudent at this point to split the difference in call. It kind of mid single digit rather than yes, yes, because we take a few months for it to come back, but we were totally expect that.

You know.

The trade once it gets normal will.

Make a big difference fair enough. That's all my question, thanks, very much rate Im sorry.

Just to highlight that this is part of the reason about a year and a half ago, we got on the strategy off.

A few flying for just overnight and do we see a my and charters and others. So that we produce the dependence on one particular sectors that are in a major way and moved to other other lines of businesses and that.

Paying off dividends for us as you can see from growth on the other areas makes sense, Okay and Walters, Jamie just to add to it just comes the other thing that was fairly significant that we saw.

Certainly the last half of 2019 was I know, we don't report individual customers revenues, obviously, but there's certainly a difference between ecommerce revenue that we get directly from retailers or indirectly from sort of those legacy carriers that participated in E commerce space and some of those that don't the ones that don't participate in ecommerce space.

Certainly seen a softening of their volumes overall on the device.

Okay. Thank you very much.

Thanks.

Our next question is from.

From Scotiabank.

Thanks, and good morning, everyone.

So you're just wanted to get some more context on the 4% volume growth in Q4, especially because some of your top customers were calling out they significant double digit volume growth in the peak season. So I'm like I understand obviously, there's a softness in international and some you know non E commerce domestic any through our own something.

Looking at least help us understand how the ecommerce from these core customers.

You know shakes out compared to other guys.

Yeah gave me go it.

Yes.

That's what I can give you and in terms of our overall as you know we don't report individual customers volumes, but on the on the interline side and on the general cargo business I would it would I would have submitted we were 25% to 30% reductions in volumes year over year as a result of all of the the impact about various factors that age and I mentioned earlier.

Certainly the E commerce growth, we saw us significant double digit growth both directly from retailers indirectly from again for those legacy carriers that participate in the ecommerce space, where we saw you know sort of single digit declines in overall demand from sort of just the general Courier business.

Okay, and that's that's very helpful. Jamie.

And then secondly, DHL a that they are a set of biggest I guess, maybe it easy am I guess some are there.

Yeah, there are investing heavily at Hamilton Airport, and I think they're expecting like double digit volume growth in cross border. So I know you got six is he might routes so far and what are the conversations like a and the opportunity say in the year I had a into somebody's HMI routes and what do you need more era.

For the discipline that growth.

Well he was certainly getting 1767, 300, ready, which will help us new charters or if there's a new route that comes available Oh, we are certainly a very.

Copper forming for DHL, they certainly want to like us and they want to expand the relationship with us but keep in mind, we are somewhat limited with our licensing that we can fly for transborder flights or we can fly from U.S. to other countries, we cannot do drop U.S.

At this stage, because we had we not license to fly.

In the U.S. as a as a U.S. carrier. So you know whatever opportunities from U.S. to international.

We get the first call as they expand their business. We certainly are have been expanding with them.

And we certainly expect that we had on the topped the list to get expansion opportunities would be a child because of her service record and.

Relationships.

And.

As I said, we don't have any specific routes or discussions with them, but we.

We are meat.

Talking to them on weekly or monthly basis about opportunities into improving.

How we can help them save some money on certain routes and like I said ways and.

You know, we will definitely continue to follow them and we have also been talking to other customers about expanding.

A recent my business as well that's a key thing for us.

Okay. That's great. Thanks, usually.

On the 767 300, a that that I think Kevin had a question on that you added a are you from the up the otherwise that he signed last year, that's coming from Air Canada.

It's not for domestic like media flights or is that for some other aspect well first of all it will act as a spare aircraft. Because we are we have spare a cop 767 200 with just kind of short so first it would be act as a.

As a spare aircraft or network second part of it will be used for charters.

And third part of it as.

Today, we signed up an AC at my business. It will be gone and then we'll look for another spare so that's been our out or team for the past three to four years that we go you need a spare cough and the next thing you know as we have sold that spare aircraft were out.

And that's exactly what I anticipate.

If the history is any indication it will certainly be.

The same route that we.

We have enough aircraft that enough, where our nightly business because remember we can also repeat those aircraft would be flights.

So.

This particular aircraft is not mark or domestic because we have enough capacity and we can repeat the existing aircraft. This is spare aircraft first charter aircraft on AD hoc second and number three if you've got an opportunity to plug it into an ATM I wrote this aircraft has gone.

Okay. That's that's perfect and then I think John you talked about a capex numbers for this year and the AG as well and then I've just wanted to understand how do you think about the split between made and then some growth Capex I mean, how much of that hundred 200, denim and all Capex is coming from aircraft additions this year.

Hi, Mark I think this year, we're looking at roughly 50.

55 million of maintenance Capex.

The rest as growth.

So in terms of that additional aircraft you know probably.

Okay, and we're getting three aircraft deliveries today are this year. The first 767 200 came in about two weeks ago, we're getting another 767 200 out a conversion.

Probably by the end of March or Middle of April and then the 673 hundred is scheduled to come out of conversion say September October.

So altogether, yeah, we're looking at say $50 million of growth Capex $50 million of maintenance Capex those are pretty broad figures in terms of our current plan.

Okay. That's perfect and then lastly from me a on the number of operating days, obviously like we have one extra day. This year right. If you can help us understand what do you think about the number of operating base and have you are you do you plan to update the definition now that you know kind of E. Commerce is kind of expanding so I think it's still a monday the toasty largely speaking.

Yeah, there you're right. There's one extra operating days this year I think because of the the a leap year.

In terms of changing the definition of operating day, I'm I'm, a little hesitant to do that only because it serves as sort about.

A good reference point to do to Paris comparisons to previous years, if we did.

I think it's it's probably more useful and look I'll I'll ask you and the other Atlas whether it's more useful for us to change that definition, but I think right now it serves a really good purpose in terms of showing relative.

Performance and revenue growth year over year.

Got it doesn't make sense perfect. Thanks.

My question. Thank you.

Thank you.

Next question is from Mona Nazir from Laurentian Bank. Please go ahead.

Good morning, and thank you for taking my questions [noise].

Good morning, somebody person just a clarification set them looking at the corner and 18% to 27% increasing chini costs is that primarily from the initiative that you are taking around the new fatigue regulation would that be correct.

No Mona that the G.N.A. I think we have quite a large variance coming out of the Oh, the warrant deal with Amazon there there.

Right. That's the way you do the accounting.

It's not crack if I'm reading that.

Yes, so oh from 19% right. So we break down the of the components best United but the the costs associated with the pilot that's all indirect cost.

Okay, and so if I'm just going back I gave comments on the majority of that.

Uptake from new for keep regulation has been passed through at this point would that is that correct well majority of it has been pass through and a couple of them are.

Process of being audits and make sure we're costs are right in and out so that due diligence is happening and should be.

You know were policies that this is the cost to that pass through.

Relation and how should we shared with every customer but no exceptions. So okay.

Once we go through the due diligence we don't see it we don't anticipate any.

Okay. So I think that's going to the last call transcript.

With one or two major customer its remaining so that would likely be the theme at this point.

Yes.

Perfect.

My second question is looking.

Overall demand and you touched on it in your prepared remark.

And you just provided some numbers in regard to quantifying the reduction of interline kind of go in Korea, which I found very helpful. I'm just wondering looking.

Overall.

Got it continued to be very weak for the month to month of January in the ongoing Corona Byron what are you seeing for Twentytwenty at this point if you look at Q2.

Q1 in Q2, it's looking like these declines might stick or do you feel that the situation is improving.

Jamie.

No I think you would expect that we would continue to see similar results in terms of volumes that we saw Q.

The letter I know Q4 going into it into other first quarter 2020 and going forward.

Okay.

Perfect and lastly from me. This is just more of a housekeeping item, but I'm. Just wondering just if you have to be so I just saw a number of onetime items from the m. kinase, though.

That's included in the FTD and something that line, including the fair value adjustment for had a Warrington FX. So if you could.

We could take it offline, it's well yeah, I think one of the probably the adjustments I expect everyone's making is the any any gain or loss on the warrant a.

Liability.

And so yes, I think in the U.S that can swing in a quarter by $10 million pretax.

I think that's probably the only significant adjustment I would make okay.

Thank you.

Thank you.

Next question is from doesn't Taylor from Canaccord Genuity. Please go ahead.

Yes. Thank you good morning, everyone.

I want to pick up.

The line of questioning related to the seven day week shipping you you ran that through peak season can you talk about.

How many days, we you know you're running presently and then the conversations you're having about returning to seven day a week shipping this year at some point or permanently.

Jamie.

Yeah, we've been.

In 2020, we've continued to operate or said we added a seconds.

Sunday flight to in the late third quarter early fourth quarter of 2020 in those two flights on weekends from Hamilton to Western Canada continue.

We plan on continuing those throughout 2020 will add what do we had a Saturday flight or whether we had additional morning flights will be dependent on volume, but I fully anticipate that will be up operate we say seven days a week I'm not sure Saturday will be there.

Until some of the.

Online retailers have sufficient final mile delivery capabilities on a Sunday at points in Western Canada, but we definitely.

Continued with the two flight minimum the two flights on Sundays throughout 2020, I'm sure that will grow by time, we get to the end of it with an addition, additional daytime plates as well.

That's that's great color switching gears, a you talked about your Capex I think.

Taking a bit of a capex holiday this year related <unk> relative to last year anyways.

Can you talk looking out a little further can you talk about whether there's any aircraft in the fleet that or you feel are approaching end of life for any you know chunky items that you expect to you know we should take into consideration that are on the horizon.

I know, we don't anticipate any aircraft that are going to do their car at anytime soon.

You know we're reinvesting these aircrafts, we at least gets back on a go 10 plus years, maybe up to 15 so.

Our fleet is fairly young from the cargo perspective.

It's in good shape.

Great take great care of it and we expect them.

Our lives.

No no no sort of.

Yes, there could be.

In addition of aircraft because if you're getting more business, but not because of replacement of Africa.

Okay. That's helpful. Last question is just a housekeeping I guess, the a added surcharges related to a pilot putty <unk> regulations to those flows through the.

The core revenue or are those broken out with along with the fuel surcharges kind of below that core revenue line John.

Yeah, I think it depends on our contract with the customer I would expect that most of the fatigue surcharge will come through this will categorize as surcharge.

But yeah of course, you have a customer where you negotiate the increase through their base rate than yeah. Then that then we don't split that out.

It's it's been a bit of an internal debate I guess, whether or not we actually should even separate the surcharges from the gross revenue, but it's something that we've always done.

But there are anomalies, where.

You know you won't see the surcharge coming through the surcharge line.

And then when you lap the contract or something like that it would kind of move it up into what you consider core base rate yeah. Yeah. Yeah. So it's you know it probably over the years it has become less useful because of the <unk>. The way that are our contracts have evolved.

Understood.

Thank you I'll pass one.

Yeah.

Yes.

The next question is from Christian.

Correct.

[noise] Thanks, good morning.

Turning back and looking maybe at at some of your comments around our own volumes, but also thinking about your at your economic depends I was wondering if if you've had any opportunities to maybe.

And your direct relationships in E commerce with with any other clients I know you're seeing the growth come through other channels and into your network, but I'm just wondering.

If you if you had any thoughts about how that might progress in 2020.

Well one of the things is that we have a policy that we do not like two or go out and expand our commercial and business relationship with our customers.

Customers. So you know if we go out to some retailers that are already shipping to over existing customers.

It won't be there yet to go there.

But in the marketplace Amazon becomes a different story because of their size and their needs and their demands because no one who your company can serve as their demands and they.

I have always had a policy and strategy of having direct relationships with a carrier as they have gone in and U.S. So if he were to go after.

Sample of Wal Mart back would already be a customer for one or for customers.

And we do not encouraged that and we do not.

It would be kind of reading your own customers.

Cannibalizing from get on.

Airplane in your own customers and.

We do not believe.

And not a discrete but we don't believe in doing that and we will never go.

So [laughter].

Go ahead.

No I was just gonna say like <unk>, former yesterday was talking about having a change their network down in the U.S. in order to get some cost. So there's this was sort of summer somewhat similar commentary around what Amazon was was talking about so just wondering I I know you're me probably not looking to to go in and move some customers around what I'm. Just wondering if the customers are starting to come to you in saying are there different ways that we can run.

Our model.

No I don't think anybody's large enough to keep in mind, the country's very day, where a large in size.

We have a fortune time zones, and Newfoundland, Victoria, seven and a half hour flight.

Density off our country and except for a few cities is very low.

For anybody to go out and service.

16 major cities at five in the morning, or and middle of the night, it's very very difficult. So it's not economical.

That's a single.

Back to work, but a few planes for one customer those will cover.

This kind of geographical area.

And.

Wouldn't be economical for anybody to look in that direction.

Okay. Thanks.

Just one other housekeeping question John on the on the adjustment to the warrant is there any tax impact on that one or is this just straight up cost.

Yeah, there's no tax effect on the on the warrants.

Okay, Thanks folks I'll turn over.

Thank you.

Next question from Jan.

Echelon wealth partners. Please go ahead.

Hi, guys. Good morning, Thanks for taking my question.

I guess can you speak to what you're seeing so far in Q1 on a cross border perspective and.

How would the bands the company is an additional eight see my possibilities and this year.

Jamie.

Hi, Good morning, John look up.

I mean, we obviously continue to have dialogue with both existing AC my customers, primarily DHL other potential customers that.

That we could potentially provide service for and as I noted before it's kind of one of the reasons why we made the decision to convert that aircraft that we had bought mainly for the engines earlier this year in anticipation of of being able to take on some more business. So nothing to report at this point, but we're actively pursuing additional routes.

Okay awesome. Thanks for that and then in terms of the upcoming election in the U.S. this year or any of your customer showing any possible cost for like hesitation committing traditional routes or additional like volumes until like they have certainty into the trade policies of the success.

Candidate.

You know what nobody's ever brought up this issue and nobody has had any concerns on base.

As a matter of fact that customers are looking forward to sort of define degree.

Deals that radios that had been pending.

And everybody's kind of trying to gear up for when that.

Deals get sign.

We started getting their normal Fargo from international destinations, which we call it interline and other oil.

Going so no no sort of a hesitation on the election cited.

Okay, Great and then just a housekeeping item for me.

John in terms of expected tax rate for 20 played more of a range for us.

Yeah, no. It's the same i. I think that tax rate roughly 27% that's.

We are definitely.

On the like with.

We use the same tax rate in our financial statements and we disclose it so no change in the tax rate.

Okay. Thanks, guys to work. Thank you. Thank you.

Your next question is from common Dirksen come National Bank financial Please go ahead.

Thanks, Good morning, <unk>, just maybe a question on the a again on the fleet I mean, you guys done a pretty good job and been able to source.

Sevensix sevens due to keep growing when necessary. It does seem like go into the market is continuing to get more more challenging on finding feedstock for for cargo aircraft I'm just wondering if.

You guys see at any point. This is gonna be a limitation on on potential growth are you still pretty confident you'll be able to source planes.

In future years.

We don't anticipate any problems because there's over two to 300 aircraft that are going to come into the market over the next couple of years. These are 767 300.

But also keep in mind that as the business grows we will also start looking at Triple seven 200 back would be ready there would be 15 years old a 20 years old at the passing of market and we will be looking where do those aircraft Kerry doubled the payload off.

7673, hundreds so you know the next us there's already talk in discussions with various.

Conversion companies that are looking for launch customers to look at triples, having 200.

Right now we are certainly a lot of year two years away from that because as the business schools.

You can.

Eliminate.

Two aircraft of 767 300 with one simple seven two hundreds so.

I think.

You go on and right now there is a temporary kind of short age because of.

Zone has not reached the potential off all the flying they want to do themselves with their aircraft. So you know there is a bit of.

Shortage, but.

But.

That means that a few million dollars higher price and at the present time, but I think within the next this year, we anticipate that will totally.

Become normal.

We don't anticipate more supply coming in the next couple of years, then that would be demand. So we don't anticipate aircraft shortage that was limited what gold.

Okay No. That's a that's great I just secondly for me.

Just on Air Canada mentioned on their their quarterly conference call earlier this week that they had.

Captured a bit more domestic cargo business I guess as an offset to some of the weakness they've seen on the international side I'm guessing they're going after volumes that are not really core to you are not competitive at all but just wonder if you can comment on any impact you've seen competitively within Canada any any changes there or any of the network airlines potentially pursuing any.

Domestic cargo business that might affect you.

Well there in a very different market than us, we do sensitive overnight E commerce.

And you know, we do stuff like spare parts, we do a fresh bodies, we do see food we do.

Critical medical supplies because once they have to be there are Canada services operate.

Yeah security jurisdictions that gets a bit of mine for them. So their product line, what they handle domestic cargo.

I've always handle that and you know I'm sure. There's a few pounds that cross between each other but mostly there in a very sort of different space that pricing levels, a different best service levels of everything.

And you know we.

Our service is very fine and and it's 99% there is not dependent on passenger load.

That's the Offloading cargo can be offloaded, so they they play in a very different market.

And.

And do so we don't you have not seen any kind of major.

Yeah.

Whatsoever that has impacted us existing okay. No. That's that's great. That's all for me thanks very much.

Thank you.

Would you have one final question.

<unk> Amazon. Please go ahead.

Yeah.

Hey agendas.

Morning. So my question is kinda along the lines, where you spoke about Amazon in E Commerce.

Key drivers for the growth like can you talk a lot like the other customers, though like that played a role in this improved Q for profits.

Oh no other customers.

I mean, a Amazon uses a lot of our customers for.

You know E commerce shipping as well and they've been growing.

At pretty low paying right.

As as the growth because you know anytime we have met with Amazon they'll always told us that no one carrier can.

Handle that girls and they have some very aggressive growth plans for Canada.

And.

You know with the help of the other number of.

Customers that handle Amazon on our network and Rehandling Amazon directly I think we've been able to fulfill.

The demand very nicely.

We expect that.

You know Amazon will grow with our customers and whatever cells.

And had no one company can handle there's different product lines that Amazon ships, whether it's picked up in deliveries acquired over is only middle mile required. So there's so many variables that I think there's room for everybody to go.

<unk>.

Thank you are also like someone mentioned up for the you know the problem geography in Canada and bad, but that's all you know.

Any plans when it's been expanding on the lifestyle like the French and don't pick what might be claims, but you know like small planes and just you know tapping into those markets like any space and Thats the most [noise].

You know, we certainly will look at selected markets to look into a network off somewhat smaller Blaine like a seventh we sevens are even crj freighters are 80, our freighters.

You know, it's a we do want to build a now.

Obviously, we would like at that kind of a network to be built in conjunction with all customers because let's say if we put on a flight to enjoy a British Columbia, just with 5000 pounds, it's not going to pay a so our obviously in the future a in the very near future. We are looking at.

Speaking to our customers to see pick a tenant for all major cities in Canada that are not service. It at the present time like for example, a city like alone all our Victoria out get back city. The secondary cities and we will we will do or we are in the middle of talking to our customers about.

You know if there is enough demand and what kind of size of aircraft would fit now the key for US is that we want to make sure that we have one type of aircraft, if you're able to get into that business rather than 10 different pockets in training and spare part. So yes, we certainly plan to expand in that area.

But also.

Go a little bit cautiously to make sure that we're not putting on at 20000 pound aircraft. When there was only 5000 pound sort of capacity available.

We wouldn't grow into every market for example, we don't go us.

You wouldn't see us going into.

Kingstone, Ontario for 2000 pounds, a night, but certainly places like as I said.

Oh, yeah, convexity and that kind of paces are certainly on the map.

And.

Hopefully 2020 over the year, but we.

Start looking at expanding into those reaching those routes on a select basis, if we can drama.

And carry the same principle off.

Multi customers.

Hello network.

Extending beyond our.

16 major spaces.

No I.

Thank you so much that there was just from my side.

Yes.

Thank you no further questions at this time.

Let me back to Mr., Alan Thank you everyone for joining us on the call today any questions or any other information he wants and needs you can reach out to extrapolate how did that.

Thank you.

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