Q2 2020 Air Canada Earnings Call
All participants please stand by your conference is ready to begin.
Good morning, ladies and gentlemen, welcome to the Air Canada Second quarter 2020 conference call I would now like to turn the meeting over to Kathleen Murphy. Please go ahead Ms Murphy.
Thank you money and good morning, everyone. Thank you for joining us on our second quarter calls with me. This morning are killing living ask you, a president and Chief Executive Officer, I too, so I could be chief Executive Officer, and Chief Financial Officer.
I think it met our executive Vice President and Chief Commercial Officer, and Craig luxury I Executive Vice President of operations.
On today's call, killing would begin by giving you an overview of the impacted the corporate 19 pandemic related government travel restrictions on Air Canada.
We have been doing misconduct and how we view the future.
She will touch on travel demand cargo and though tea and Mike will provide you with the visibility on current plans regarding burn rate liquidity and feed before turning it back to Karen.
Well then open it up to questions like the analysts I live by questions for fixed income family.
Before we get started please note that certain statements made on this call a forward looking within the meaning of applicable securities laws.
This call to open this call all the way to deficits and non-GAAP measures.
Please refer to a second quite a press release and Mdna. The cautionary statements. We got relating to forward looking information and for the contributions at non-GAAP measures to GAAP results and they've got nothing to convene color, but Caitlin.
Thank you Kathy a good morning, everyone and thank you for joining us for a second quarter call. This morning.
As with most other major airlines a worldwide there candidates second quarter results confirmed the devastating an unprecedented effect of cobot 19 and related government travel restrictions on our industry and air Canada.
We reported second quarter negative EBITDA of $832 million and an operating loss of $1.555 billion.
Operating revenue declined 89% over the second quarter of 29 teen with strong growth in cargo revenues following an exceptional quarter by the cargo team helping to somewhat soften the blow.
With candidates federal Interprovincial restrictions, we have been amongst which had been amongst the most severe in the world we carried less than 4%.
The customers carried during last year's second quarter.
Revenue passengers carried decline more than 96% compared to a year ago.
I think numbers indicate most commercial aviation in our country has been effectively shut down.
That said Air Canada has taken in continues to take decisive measures both to ensure business continuity and to provide our customers the greatest possible assurance of their health and safety as they begin traveling with us again.
We are confident that these measures will successfully manage through the pandemic and rebuild our airline, especially now that it appears we passed one nader into second quarter and their travel is resuming primarily in the domestic market, albeit very slowly at a markedly reduced level.
Our company is fundamentally very solid.
It's mid March we have raised $5.5 billion in new equity debt and aircraft financings in the capital markets, providing us with over $9 billion in liquidity as of June 30.
The speed in magnitude of this capital raising is also unprecedented.
It is a testament to the confidence capital markets have in our airline and then what we have achieved over the decade.
I commend, our finance and legal teams for their relentless innovative efforts to raise liquidity during such a challenging period.
I'm also reassured by the knowledge they stand ready to do more as we continue to assess additional financing needs.
In addition to building liquidity you have taken decisive action to cut spending and preserve cash, including a major management and frontline workforce reduction.
1.3 billion dollar reduction of our fixed cost and capital investments.
The permanent retirement of 79 aircraft.
Indefinite suspension of certain domestic routes and station closures.
And a reduction in our network seat capacity of 92% in the quarter.
These are some of the painful but necessary steps, we've taken to stabilize our airline and preserve cash and these uncertain times.
And without government industry support.
And as travel restrictions or extended we will look at other opportunities to further reduce cost and capital, including further route suspensions and possible cancellations of Boeing and Airbus aircraft order, including the Airbus eight to 20, the former Bombardier C series manufactured Mirabelle, Quebec.
We are positioning ourselves to emerge even more competitive and nimble as the pandemic receipts or more reasonable size. These measures are introduced to replace the blanket quarantine and other travel restrictions.
To promote customer safety in confidence, we introduced air Canada clean care plus.
Comprehensive multi layered approach to biosafety at all phases of the journey.
We continue to look for ways to add additional there's without waiting to be regulated before doing so.
As well, we have slowly begun to rebuild our network recalling a small number of employees and selectively restoring some of the award winning services.
Placed or Canada, among the world's grade Airlines.
We are prepared and look forward to greeting returning travelers and ensuring there as safe as possible in the circumstances.
Oh for most heartfelt. Thank you door employees for their unwavering commitment to our customers and to our company. During these stressful time.
That our airline has adopted so quickly to the greatest Cataclysms in commercial aviation is proof of both our company's strong culture, and our employees dedication and remarkable abilities and with that I'll turn the call over to Lucy. Thank you Karen and good morning, everyone.
I would also like to thank our passionate and hard working team for continuing to represent the best of Air Canada. During the pandemic, which has impacted so many people around the world and has resulted in the most challenging time, our industry has ever seen.
I'm incredibly proud of the effort commitment and innovation display daily banner team despite the circumstances.
In the second quarter, we felt the full impact as a pandemic and travel restrictions imposed globally, resulting in a passenger revenue decrease of 95% well breeding 8% of our capacity compared to the second quarter and 29 pm.
As discussed on last quarter's call, we significantly scaled back our network, which had grown to 220 airports at the beginning of 2020.
We completely spending or service to the United States to most of me limited or International network defines vital energies to retain key global kinda give any for Canada.
And they do start domestic network to 40 airports from 62, well still continuing to serve all Canadian properties drug and Danny.
Although we are in unchartered territory. Our teams continue to be finer predictive demand recovery models that are informing critical decisions for our network sleep in operation.
<unk> excuse me monitoring the status and travel restrictions in water openings worldwide.
And your confidence in your travel and a multitude of factors that contribute to understanding the nine recovery across all market segments.
Supported by these predictive models, we will progressively in prudently go back our operations as demand begins to recover and this summer we are planning to serve 91 destination close to double the number destinations we operate in may but still less than half of last year.
Despite increasing destinations our third quarter system capacity is expected to be approximately 80% less.
We operated in the third quarter 2019.
We will continue to dynamically adjust the taski considering passenger demand warranty health warning travel restrictions and border closures.
As difficult as he wants to see our network diminished to a show them. What do you. Didnt then we look forward to building back the foundational elements beginning with our domestic operation, we waste, where we have started to see some signs of recovery.
Typically with our transcontinental services and in Western Canada.
We do anticipate domestic recovery will be uneven as the Maritimes continue to be impaired by interprovincial travelers fiction voluntary I'll get back lagged behind the western provinces in terms of reopening or time [noise].
Looking to our transport network, we resumed seriously selected cities in the United States at the end of me and we'll continue to strategically and selectively build back our networks when the third quarter.
Given the number of new daily calls it cases in some states as well as ongoing trial.
Try and wonder travel restrictions and advise me there remains significant uncertainty on timelines for recovery for the U.S. market.
We were pleased to see their European Commission include Canada on that list of countries CDIM low risk.
Along with his conclusion with a recommendation for the European Union member countries to open their borders to Canadian based on an objective science based situational analysis of course in 19 in Canada.
Since then we've seen a number of countries, including Germany, France, Spain, and Italy among others.
Advice and adopt irrational science based approach and we opened their borders to Canada.
To coincide with the easing a border controls in Europe, we have resumed service to several destinations over the Atlantic.
Well, adding back trends I think we are maintaining focus on our hub to hub markets supported by our partnership with the list tons of group as one of these leaders focused European destinations such as Athens, Enron, where we added back to our route networks from Montreal and Toronto earlier this month.
We do anticipate recovery will continue to be slow and uneven nobody Atlantic with varying levels of travel restrictions imposed and with Canada is born exposure stealing place for European.
Looking to the Mississippi recovery is highly dependent on the status of border control and trucking mr. team in place throughout Asia, and they seem to be by Canada.
Even the large leisure market them in the Pacific we anticipate that once travel restrictions be into east we will see a relatively strong return of passenger demand.
As we build our global network partnerships will be key to our recovery and a significant competitive advantage.
Really maximizing the value or trans Atlantic joint venture partnership with the misconduct and United Airlines will be with our ramp up and enhance our global customer offering.
We're also evaluating increasing our global partnership portfolio with a focus on traffic diversification once passenger demand begins to recover.
In the second quarter, we received our seventh Airbus 80 20.
Besides and ranges, it's aircrafts helps mitigate the current challenges of alone passenger demand environment and its unique capabilities are going to be cornerstone of our long term recovery.
Customer feedback on the Airbus to 20 has been very positive exceeding our already high expectation.
Oh and of course is a pandemic into the second quarter. We've continued our focus on air freight to meet immediate an exceptional demand for medical equipment critical goods and the regular movement of over time sensitive air cargo.
Since mid March we have upgraded over 2000, Oh cargo international thing.
If you see the big this program we were the first airline only true seats from aircraft to enable cargo capacity in the passenger cabin.
34.777, and three Airbus see 30 aircraft.
Its rapid transformation of our aircraft to meet carbon and that reflects our ability to quickly painted and adapt to the changing dynamics of the industry, while maximizing the use of our feet.
The first time ever cargo revenues exceeded passenger revenues in the corner.
Looking to airline.
Strong headwinds, we continue to be pleased with our results and excitement is building within our company and a monster customer.
Relaunch front, let people down later this year.
Our co brand credit card portfolio has rebounded with lead off the lows seen in March most within most categories outside of travel turning to 2019 level.
Furthermore, we are seeing very little impact on attrition as credit card retention rates are in line with historical norms.
Our innovative travel at home campaign, which aimed to keep airplane membership engaged during a period when they were pointing at home very successful.
Effort, including our first ever by miles campaign, and it exceeded our expectation generating a record number of milestones through our platform partnership.
On top of great take off or from our members. We receive hundreds of notable mention any claim from media and loyalty bloggers, recognizing the creative and thoughtfulness of our promotions and policy changes.
These actions have earned us momentum of goodwill trust and anticipation for the relaunch of Middle class, which remains on track for the fourth quarter and this year.
Look forward to providing more information in coming weeks, demonstrating why we feel on program will be the best in the industry.
The safety of our customers and of our employees is and has always been Paramount and our airline which is why even mentioned we introduced me care upsize, our comprehensive and industry, leading and 10 approach to biosafety throughout the customer journey.
At the airport, we've expanded our country services and introduced virtual feeling to reduce waste time I feel like counters.
Additionally, we implemented pre boarding health screening measures.
Putting a mandatory temperature check and updated or 40 procedures to reduce the amount of time in line warning.
We've also made protected face coverings mandatory for Scott and customer snow to travel journey.
Looking at our check and counters boarding gates and onboard our aircraft.
We recently announced the gradually opening of our me believe soundtrack featuring new biopsy protocols.
Leading enhanced cleaning procedures and new Texas crosses in such as already pre packaged food from her mobile device.
Domestic legally foundry I Toronto Pearson has opened to electrical customers and the domestic make lease lounges, and my child and Vancouver are set to reopen in coming weeks [noise].
We will continue to open other lenders in our network through the fall based on passenger demand.
We're customer care kids, which includes P.P.E.N. hand, sanitizers are distributed to our passengers.
Finally, we designed our product offering and introduce pre package meals are complimentary meals are offered leveraging our culinary power.
Building on our award winning Kevin I mean, if we enhanced our cleaning and sanitation protocols and you said.
Static sprayers throughout the cabin.
After ending a policy guaranteeing M P. Aegean Sea, we introduced new flexible rebooking auction for customers in economy class when their flight is close to capacity in any event. Most flights are currently operating with lesser known factors.
As we continue to refine and improve our team care plaques product and further develop bio safety measures across our appreciation we've partnered with Cleveland Clinic Global Health care leader to provide medical advisory services.
And in addition to our current Careplus efforts, we have also engage Spartan biosite. Another one based bio technology leader in portable D. any testing technology to assess how best to deploy Spartans portable rapid Golden Nike testing technology in any she sector.
Our entire leadership team our people on the front line and those behind the scenes remain laser focused on implementing measures definitely still customer confidence and air travel.
We are proud of the bio safety measures, we've implemented to date and we look forward to continuing to outcome or customers onboard two screens them first hand.
I will pass it off to Mike [noise].
Thank you Lucy and good morning to everyone.
I would also like to think are incredible employees for their dedication during these very demanding and challenging times.
On our last call, we discuss some measures required to stabilize operations and begin recovery process.
One of the critical measures is reasonably liquidity to provide us with more flexibility to meet future challenges.
And potentially take advantage of opportunities to improve the franchise.
It was killed mentioned earlier since his pandemic began we have raised 5.5 billion in liquidity.
This was achieved through several transactions, including secured financings and equity convertible note offerings.
During the quarter unrestricted liquidity amounted to 9.1 billion.
In excess cash totaled 6.8 billion.
As discussed in our Q1 earnings call given that varies covenants, we have I would be comfortable with a minimum cash balance of 2.4 billion on our balance sheet.
[noise], we'd have the uncovered asset pool, excluding the value of Arrow plan and air Canada vacations of approximately 2.5 billion.
We are confident that we do lights as collateral package and other assets, we have to access additional financing facilities.
We've also made progress on reducing our costs in the quarter, including through workforce and fleet reductions.
Continue to lower and defer capital spend.
As discussed in her last earnings call, we initiated the company wide fixed cost reduction in capital reduction in deferral program as a result cool good 19.
It has now reached $1.3 billion.
Got a team dedicated to pursuing additional cost reduction initiatives for cash preservation.
In addition to labor and fleet rightsizing areas of focus or maintenance real estate I T and other fixed cost areas.
Continuing to improve productivity and processes are also key and achieving our objective of be being as being as possible as we come out of this crisis.
We do expect that our breakeven point with meaningful decline. The result of significant work, we're undertaking to permanently reduce our fixed cost structure.
Our investments a more efficient aircraft.
Our decisions to aggressively retire older less efficient aircraft.
And our investments in key customer facing technology, such as Arrow plan and our passenger sales bookings systems and further streamlining and enhancing airport operations.
[noise], excluding depreciation amortization and special items operating expenses decreased almost 2.5 billion or 64% in the second quarter from the same quarter in 2019.
I will now I'll touch briefly on the special items, we reported in the quarter.
We recorded a non cash impairment charge of 330 million of which 295 million was related to the write down of rate of use assets for at least aircraft.
And a reduction of carrying values of owned aircraft.
To provide more color in response to the capacity reductions relates to cope with 19, we are permanently retiring 79 older aircraft from our fleet consisting of Boeing seven six Sevens Airbus three Nineteens Embraer 190 aircraft.
We retired 50 of these aircraft in the quarter, including the entire 767 and he won 90. Please.
Their retirement will simplify our overall fleet reduce our cost structure, and certainly lower or carbon footprint.
We also took a workforce reduction of approximately 20000 employees or 50% of our stuff.
This was achieved through layoffs terminations voluntary separations early retirements and specialties.
We recorded a provision of $112 million related to these arrangements.
In April in response to challenges posed by called the 19, the government to Canada introduce the can eat Canada emergency wage subs to your cubes available to qualify and Canadian companies across all industrial sectors that have suffered significant revenue losses.
In the second quarter, we received or crude net payments of 202 million to cover a portion of our employee wages.
In mid July the government, Canada announced to the program would be redesign and extended to December 2020.
We intend to continue to participate in this program subject to meeting the eligibility requirements.
The minor benefit of the program is included in our definition of net cash burn.
Before getting started with the critical measure of net cash burn I would like to reiterate our definition.
Our Cana defines net cash burn as net cash flows from operating financing and investing activities, but excludes proceeds from new financings.
Lump sum debt maturity. It was made in March 2020 in any future loves lump sum debt maturities, which we have refinanced or replaced the amount.
The cash burn also excludes movements between cash and short term a long term investments.
Net cash burn the second quarter, 2020 was 1.7 billion or approximately $19 million per day.
This was in line with our expectations.
Through the stabilization of working capital and through significant measures I addressed earlier to reduce cash burn the daily net cash burn improved as we progressed through the quarter.
Looking ahead at the third quarter, despite higher capital expenditures, primarily related to new aircraft acquisitions, which will or or have been finance, we estimate net cash burn to be 15 million to $17 million per day.
This net cash burn projection includes $4 million per day in capital expenditures, which is approximately double the Q2, actual and $5 million per day and lease and debt service costs approximately the same level is Q2.
The Q3 guidance assumes a moderate improvement and travel demand as we move through the quarter as well as to lifting of certain government mandiant restrictions and the opening of certain international borders.
We will not be providing guidance on Q4 cash burn at this time, given the uncertainty regarding border closures in the 14 day quarantine.
And before turning it back to kill the night I want to provide a brief update on income tax accounting.
You accounting rules create a very high hurdle for the recognition of deferred tax assets. As a result, cobot 19, there's considerable negative accounting evidence relating to losses incurred in 2020.
As such and in keeping with our historically conservative approach. It was decided that the net deferred tax asset would not be recognized commencing in the second quarter.
The future income tax deductions arline unrecognized deferred income tax assets remain available for use in the future to reduce taxable income.
To further complicate matters, despite having significant operating losses, the net tax asset derecognition resulted in an accounting.
Income tax expense of 271 million in the quarter, which is not reflective of any underlying net tax loss.
To conclude I'm very confident that with our strong management team in support of our talented and dedicated employees and other stakeholders. We can successfully manage through these tremendously challenging times.
And with that I'll turn it back to kill him.
[noise]. Thank you Mike.
With the passenger revenue and passengers carried down more than 95%.
Today's results underscore the tremendous urgency.
For governments in Canada to take reasonable steps to begin to safely reopened our country and revive aviation much in the way other countries have been able to.
At present, there exist no fewer than for overlapping barriers to travel and economic recovery imposed by governments in Canada.
These include a blanket restriction on all foreign travelers.
Clearly the complete closure of the counter U.S. border.
Blanket quarantine rules, including for Canadians, regardless of the infection rate in the country of travel.
Interprovincial travel barriers and consistent with kind of its charter rates.
And Canadian government global travel advisories to avoid all non essential travel, which prevent travelers from securing travel insurance.
Together these measures constitute one of the most severe aviation locked down regimes in the world.
Well needed an appropriate at the outset in March.
These constraints still remain in place unadjusted, despite the availability of more targeted measures that can achieve legitimate public health objectives.
And their combined effect has been to decimate the airline business and prevent the possibility of any real recovery at a time of otherwise fragile demand.
And if so survey conducted in July found that corn teams, both that destination and upon returning home represents the biggest barrier to travel right now along with the government's active discouragement of nonessential travel.
As we have largely flat the curve in Canada and in many countries increasingly these blanket prohibitions or less effectively combat in covance.
And more inhibiting an economic recovery, especially in a country with more than 12% unemployment.
Scientific research has shown there's little risk of any communicable disease being transmitted onboard modern aircraft as the quality of aircraft cabin airs carefully controlled this is according to IMS data the whr and many other experts.
Canada needs to find a responsible way to coexist with Covance 19 until there's a vaccine.
That is why we have worked so diligently and establishing the new bio health and consistent safety guidelines that Lucy spoke of.
Really at the forefront of biosafety globally not waiting for regulators.
That is why we have entered into partnerships with private testing firms and it made specific sites based proposals to government to ease some of these restrictions.
[noise] Air Canada alone generates about $50 billion in total economic output in Canada, which represents around 2% of GDP.
Prior to covert 19, we directly employed 38000 people plus 6000, it at our regional Airlines.
We support about 34000, retirees and their families who count on us for their pensions.
And we indirectly support 190000, other jobs and spin off industries, such as tourism ground transport companies airports manufacturing.
Aerospace food and beverage and countless other suppliers.
This economic activity is critical to Canada, and millions of Canadians as well as many communities depend on our company or not this economic activity.
Virtually all at the top 20 airlines in the World. Our competitors have received tens of billions of dollars through sector specific support programs from their governments well no such programs have been made available thus far in Canada.
Canada uniquely combines no such support with the most severe measures that in Pete recovery.
To contend with this challenging thus far managed to raise adequate liquidity to go it alone despite having been virtually shut down.
But now we need to be permitted to prudently in cautiously do some business and the way other airlines in other countries are and in a way that respect that respect legitimate public health objectives.
So we will continue to push in that direction.
Last week, even the Whr said that economies have to reopen and trade has to resume.
Other gtwenty countries with infection rates under control, including all of the European Union have managed to science based approaches in a gradual and coordinated manner, we need to as well.
Turning to our proposed acquisition of transaction.
As you know we have made our filings with the Canadian and European regulators.
The European Commission is in its phase to review and has suspended the timeline, while awaiting certain information from the parties.
The Minister of Transport of Canada has received the reports from the commissioner of competition.
And from officials and officials from transport Canada.
And the regulatory process as following its of course.
Transport has provided to notices transaction say has provided to notices of extension of the closing date.
Which ultimately cannot extend beyond December 27 2020.
We intend to this point to reserve further comment on this transaction.
To conclude.
As we've said previously we expect the recovery to take at least three years.
And we're doing everything absolutely everything in our power to ensure that this airline that we have built with hard work collaboration energy over the last decade into one of the world leaders and into a global champion, we'll continue to not only survive but thrive.
Although we will emerge smaller.
With fewer aircraft.
You are people.
You were cities served and slimmed down overall operations.
We will be nimbler and more competitive.
I have no doubt that the vision and entrepreneurial culture that guided us through a decade of incredible success.
I think a global network carrier anchored by three strong hubs to capture global traffic still holds.
And while the recovery will take time I've every faith that our skilled management team and dedicated employees have the fortitude and resourcefulness to rebuild the dedication energy and passion.
Thank you and I'll be pleased to take some questions.
Thank you.
We'll now take questions from the telephone line. If you have a question Andrew using his speakerphone. Please lift your handset before making your selection.
If you have a question. Please press star one on your telephone keypad, if at any time you wish to cancel your question. Please press the pound fine.
Please press star one at this time, if you have a question there will be a brief pause whether participants register thank you for your patience.
Your first question is from Walter Spracklin of RBC capital markets. Please go ahead and.
Yeah, Thanks, very much and good morning, everyone.
Walter.
So I'd like to start with UK, Ireland, I think a in the last call. You had a you had looked out or the next few years and peg that three year timeframe for your view on the recovery of this this a of your sector I Didnt hear any update there I have heard that.
Being extended by a number of a number of industry.
Associations and so on and then I I listen to your use of the word permanent in your sleep recovery and on certain routes.
On that basis, what what is your view longer term and has it changed with regards to how quickly and how long it will take for the for the airline industry to recover.
Yeah. This extremely.
Important question, Walter and I'd say that says it's of course is a it continues to be somewhat of a moving target.
So what we said at the last quarter, which was of course, you know very shortly a relatively shortly after the pandemic was declared we said we expect it to be at least three years.
And I think we were one of the first that came out and had that type of a timeframe and sadly you know that has.
Been proven to be correct I think lots of other carriers have now said the same thing at least three years than I add to the end of the airline Association as you know that has said about 220 2030 carriers.
In the World I Gotta came a couple of days ago, and said that they considered to be four years.
And so Weve you know, we've always been saying minimum three years, but but it could well be longer than three years, we think that up.
You know when we talk about somebody's permanent changes that we're making a we've taken out these 79 aircraft from the fleet permanently.
But of course, we do have aircraft on order and we will have optionality as to the speed with which we start rebuilding our fleet.
And that we expect to be smaller coming out of this in other words you look at the next.
Over the next three years, we will be smaller than we were over the last three years.
But that doesn't mean that a you know at the end of that three year period, if there's a vaccine and if the travel has returned to some semblance of normal that we can't start coming within the sort of environment that we have in 29 team, but we're not a you know we're not calling this as a definitive three year timeframe, we're continuing to stick with the minimum three years.
And right now at a is out there at four years, so that's sort of what the.
He is the best summary of the industry I can give you at this stage.
I appreciate those comments when.
Second question here is on booking trends.
It seems on the I don't know if you can give us indication on the most recent here into the third quarter I know some talk among your peers is is that it has stalled here a little bit well. My key question with regards to booking trends is is there any factors that you've seen in your booking trends that will give you in.
Insight as to the new mix of leisure versus business and in particular are you seeing leisure Rouge coming back faster than what you would consider to be your typical business business roots. Okay. No again, good good question, a lot, but I'll start and I'll turn it over to Lucy. So you know we remember we said last time also that we expected the recovery.
Going this order, we said a domestic first leisure second business third international fourth and that is still largely the way. We are seeing things of course, the speed with which this is occurring is slower than we would otherwise have.
Hoped of course.
But we aren't we are seeing it in that order to maybe I'll turn it over to lose who can provide a bit more color eyeball intensity.
So for sure in looking at a booking trends for the future that domestic network continues to be and the one that is performing Beth.
But what we do see.
In the domestic sector is mostly at leisure traffic.
Our things some sectors.
Performing a little bit better left from the corporate and point of view, some a few industry, but by and large and vast majority the content.
In fact at leisure traffic and see if our as well on international markets at the markets that we have introduced we did launch those because we felt that there was more fee if our potential particularly on the I'm trying to try antibody market. When you refer to the term as style bookings that may have stalled.
I think most airlines actually reported I seem to there.
Near the end of June.
We did see acuity week period, where the booking philosophy with that rather flat.
But as we look to the future again on the domestic network, we're seeing a little bit of fat little downside rebound.
Okay.
Well, the having a that Walter courses. They you know the.
A return of corporate travel of course is also influence somewhat by but by the practices and policies of when.
You know banks and other organizations are returning to work and as you see some some organizations are now.
Planning to not returned to work until early in 2021, and so that also has a bit of a moving target in terms of the return of corporate travel.
Appreciate that Oh I'd can squeeze one last question here in the <unk> cash burn.
It seems to be when I look at your peers the cash burn levels on a relative basis are improving faster. My question is whether this is due to a demand in reopening quicker in those jurisdictions or is there some structural expense.
Consideration with your company that would would prevent a quicker cash burn. Thank you.
Good morning, Walters, Mike I mean, that's a difficult question because every airline has a pacific different characteristics around refund policy around opening of markets.
Around mix of international versus domestic business.
As you know we were very quick in reducing the footprint of the company.
From a labor and from a a fleet perspective.
The U.S. Airlines, obviously with the cares program have not done so other than on the fleet side.
And so it's very very difficult to the benchmark I mean, we were making strong progress on our fixed cost structure and our fixed cost structure as a percent of our overall cost cost structure is very similar to where the U.S. Airlines are and again, we were we've already taken out roughly 20% of our fixed costs. That's one of our key levers.
In lowering the cash burn and we'll continue to see a some improvement over the next we'll wilan as such that's driving a lower cash burn Q3 versus Q2.
[noise] appreciate the time is always stay healthy.
Thanks.
Thank you.
The following question is from a Hunter Kaye of Wolfe Research. Please go ahead.
Good morning, everybody. Thank you.
[music].
Colin.
How are your frustrations with these travel restrictions complicating federally discussion and what what's sort of conditions would be sufficient for you to churn off the idea of taking aid and because I I'm. Just wondering if there's a scenario here are worth is a comes but it just prolongs the government's sort of entitlement, if that's bad word to use but it.
Prolongs the government's desire to keep things closed how do these to work together.
Look you know we they work together you know very very much hand in hand, a hunter.
The our perspective here is that Oh, we look at what's going on elsewhere in the World. You know these are airlines that we compete with of course, the U.S. carriers and all the European carriers and all the.
All of the Asian carriers, and as we've been building our international footprint.
That those are all competitors and so they're either have been you know support programs industry specific support programs. All other cares program in a in other markets and of course, we know Lufthansa air, France, KLM et cetera, et cetera, and benefit from very very similar programs, Singapore Airlines. So so this goes on and off.
Got it on other parts of the world as.
The other parts the world of also had a more a rational I would say science based approach to opening markets and that means that doesn't mean, a free for all and we know that the UK faced very.
Contentious discussion around the impose imposition of their corn team.
But our perspective is that it should be one or both but it cannot be neither and I think this is what we continued to be advocating for Oh, we Ah Ah. We really are amongst the only I think we're the only carrier that as that in amongst the top 20 of the world other than to state owned Airlines.
That are in there.
I think we're the only carrier amongst the top 20 that a has received no no financial support to package like a industry package.
And you know probably when we look at the restrictions that exists the a travel restrictions the border restrictions that exist in the countries that those large 20 carriers are it I suspect that are they all have Oh, you know more science based measures that allow for some level of travel. So we are actually talking in discussions and I would say.
Just as you know that there are active discussions going on but of course you know this is influenced by bye bye policy and by various other geopolitical drivers that Ah you know that that are a unique I would say to Canada and the minority government.
Thank you.
And Lucy you mentioned.
We're going to focus on traffic diversification through partnerships.
Can you. Please elaborate on that and then a separate but related question, how does a plus plus factor in to your long term transatlantic vision. After coated thank you very much.
Hi.
Very good question. So first can you touch about you touched on that the joint venture that we have.
No more than ever our partnership with 10, this tens and United over the Atlantic is more solid NACHER and in fact in the development of our network that.
Key to our strategy is really to focus on hub to hub market, where we can actually.
Get a feed from from our partners those tends that lets tend to family when we speak about traffic diversification. We're also looking.
You know in great detail in terms of where.
Canada can access the when dealing with referring to I some orders.
Being opened.
Although Canadian you know foreigners cannot come to Canada Canadians do have the ability to visit some countries in Europe.
Because we don't slide those markets nonstop, we still have the ability to interline partnerships can be able to capture those markets. So when we talk about traffic that diversification, we had opportunities well bolster somebody interline agreements that we currently have and also develop new ones as well that environment.
Teams because as we said earlier, we don't anticipate pet we will be returning to all these international markets for several years, but those markets are still available to us just connecting over.
Another trans Atlantic Gateway. So from that perspective, you know we are pursuing opportunities with other into ice that can give us feet on some of the markets that we had some of the markets that we operate and the same holds true for Asia, there's opportunities for US for example in Japan to expense under fire.
China agreements and of course for the Trans border network very similar strategy, where you know we work very closely with United and again, our trust transport network as it stands today, if you know hub to hub. So we do feed into a United together as they see into ours.
Thank you both.
Thanks Hunter.
Thank you.
The following question is from Andrew Eudora of Bank of America. Please go ahead.
Hi, Good morning, everyone, Mike I think one of the differences in your cash burn relative to you as carriers.
Is the fact that you do not include the aircraft Capex that is already financed.
If I wanted to puts your cash burn on par with your with your U.S. peers.
Can you.
Tell us what of the 4 million per day Capex in your cash burn numbers for Threeq you how much of that is already financed.
Yes, you're right Andrew we've taken a more conservative.
Definition for cash burn more of a gross level rather than net financing level.
I don't have that number off the top my head, we can get that number two.
Pulses call there will be some improvement in cash burn if we if we include the aircraft financing amount for Q3.
And deep and do you have a sense of what's coming in in Q3 is has already been a part of that bridge financing.
It parts and that's part of the that's part of the complexity or some of those aircrafts may be covered with the bridge financing and some of them or may not be and we just need to go back and separate those numbers, but I don't think them I don't think the impact will be large to do that cash burn for Q3.
Okay I can follow up with Kathy offline and then my second question for Caitlin.
Your rate being one of the first to speak of a multiyear recovery period for the airline industry.
Interested as we were four or five months into the the pandemic wouldn't like to hear your thoughts on how you think this is all going to structurally change the airline industry over time and hard work if at all thank you.
Right.
I think that there will be there will be some structural changes for some period of time, you know I think that the entire industry will be smaller.
Overall, so that's that that is all markets.
I think that the industry. When you look at the total number of Ah Hey, I sense that are going to be put out there. My sense is that it will be smaller for some period of time. When you look at the at the real discretionary travel that a that occurred that that Ah Ah. We had some influx of so many of you know low cost carriers. It came at the Mark.
At that stimulate demand and that led to competitive products like our room product that came out there.
Created for example in our case, so many more markets in Europe that had direct access now some of that traffic will be served with connections over the hubs. So you. What that does is that does take a couple of steps backwards because of course, we were building. These these great hubs over the last wild and I think the same the same thing on the phone from a small.
Moving on will occur in many other countries of the world. When we look at the when we look at the Gulf carriers, you know a massive expansion Emirates had to have in Qatar you know you wonder whether it without having a domestic markets in their case. It was all connecting traffic whether that connecting traffic model continues to exist at that same.
That same pace, Singapore Airlines similar thing so when you look at it on a global basis.
That one can conclude that the industry will be smaller for some period of time you look at the Latin America.
Of course, my sort of restructuring now they're likely to come a smaller carriers. So so all that to say that's why when I say that we will be smaller, but we expect the industry to be smaller and therefore, if you know as our counted it comes out of this.
We can be a nimble competitive a carrier that it's going to be with a younger fleets are having taken up to 79 older aircraft. So it will have a very very competitive airline in a smaller environment, but as my expectation that the industry will be smaller and some of this up and you know I think you'll continue to see a rich.
Turn to.
A real focus on the on the hubs or because you know the hub traffic for the larger carriers will be that's much more valuable.
Thank you.
Thank you.
The following question is from savvy shit of Raymond James. Please go ahead.
Hey, good morning.
First question on you mentioned that 25% of fixed costs have been removed isn't a fair assumptions and say that then if you kind of get 75% of where you are in 2019 2018 that youre, yes cost would be similar to better Q. What we saw back then.
First of all welcome to your first a quarterly call. It's nice to have you.
You know again I made a comment in my in my prepared remarks that we do think Oh.
As we go forward and as we were as the market recovers and we continue to to improve that our cost structure will be more competitive for a whole number reasons and one of the one of those reasons is the point you make is that our we've taken a lot of fixed costs out of the company a lot of hard work.
And we don't plan to put those fixed costs back into into into the into our structure.
And so I can't compare back to 2018 to two Nike.
On CASM basis, but certainly we believe we'll have a better CASM.
As we go forward on a relative basis as as revenue comes back.
Is there a certain level where it needs to.
Come back to it you can I get to that ideal yeah. We will have you mean would have to work out what that breakeven point is I don't have that picking off the top my head, but Ah, but certainly as as the recovery matures, we'll hit that point.
Hopefully the next two years.
And I appreciate the commentary about like what you're seeing in demand I, just kind of curious what you're seeing from a competitor standpoint, you if you're seeing discipline from your competitors in that generally you know what the within Canada, what the what the competitive landscape looks currently.
Well I assume that the competitive environment here is.
Influence a little bit by the fact that one of the domestic competitors here part Airlines has had a chosen not to operate over the last number of months and so they took out their capacity from the market entirely.
But I would say our other main and transaction, which has some domestic activity to basically the position flights and to get.
Ready for some of their international operations. They also had ceased operations.
So it was really largely domestically westjet and ourselves and I would say that when we look at the share of capacity. It has not materially changed from what it was prior to this so.
I would say that it has not a neither neither a carrier has a soft to use the pandemic as a way of gaining market share.
Appreciate the color. Thank you.
Thank you.
The following question is from Kevin Chiang of CBC. Please go ahead.
Hi, good morning, Thanks for taking my question.
Maybe Lucy you talked about the rollout of <unk> loyalty program I'm, just wondering maybe how your thoughts have changed about and world class and as you roll that out later this year. If you think business travel are their lives the recovery or maybe is impaired overall.
I've got change how you think about upon longer term.
Educate Kevin maybe I'll start then I'll turn 'em tenants are the same so you know.
Aeroplan for us as a as a long term investment here. So it's not you know it is not going to be influenced at all by what we're seeing in terms of short term corporate travel demand at all at all at all.
We've been building a aeroplan since our acquisition into <unk>, and we're going to be the leasing the details some of the details of that in mid August, but but we've been building it with a vision to be extremely compelling.
And you know even in the a and the height of the pandemic we had.
Some some of our loyal Oh plan the members.
Purchasing or points on the discounted basis for future travel and so on us over so we know there's a lot of excitement about it so we're not changing any of our thinking whatsoever.
Terms of.
In terms of the short term impact of this.
And we'll still rollout with a the features that we were planning to do we're not we've not made any changes at all but in terms of healthy demand.
You know the relative demand will be influenced by but by a reply I don't know who's going to have any any anything to that well the seasoning is <unk>.
Well the much greater opportunity for us first of all on market segmentation will be able to do a much better job in terms of fighting the fight off <unk> customers.
The information that will be available to last 20 airplanes.
It also must have the ability task.
Many many.
Selling having action offers as well for customers.
Commercial pointed either you know huge benefits for us right and Kevin just to bring it.
To to a conclusion I mean, when we when mark outlined a new airplane program back at Investor Day, you're and a half girl.
One of the key ingredients the key objectives was to broaden the program beyond the business market.
And and you know you will see with the benefits and features that we're going to be announcing in the next couple of weeks, but this program will have much wider acceptance across all market segments as Lucy this was referring to.
And you know and also he is going to still be incredible program for the business traveler and for the high frequency travel traveler, but we're also going to trying to expand the market to two or to a broader a broader audience.
So that's good color there. Thank you all for the answer that maybe my second question here, just just turning to your fleet.
You are you taking the steps to reduce the mainline and loosely quite significantly but when I looked at the engine. It looks we've taken mine aircraft out of Air Canada Express just wondering how you're thinking about your that band or your regional your regional fleet do you feel that the number you exited Q2 with is.
Is the right size and the right make up or do you think the portfolio when the size with that but they're kind of EXPAREL sleep continues to need to shrink your similar to your your main widened.
Yeah.
I'll just start.
Kevin It's 14 Nok nine it because they were also the the beach aircraft out of that came out a in addition to the nine in addition to the nine a dash eight three hundreds. We also had the the five beach aircraft that came out until such 14, that's related to that was a 14 reduction.
That related to the 30, a root suspensions.
And Mike well just comment on the fact that we are looking at the right sizing of the regional network as well.
So we're spending productive time with a with.
Primarily chorus going through the fleet size.
We already had a strategy to to lower the number of planes, but increase this you know keep the seat count. The same so we were going to exit the kind of the two kills point the beach aircraft.
The 37, Cedars and some of the 50 seaters overtime and focus on you know the the E 170, fives and Crj nine hundreds and the queues, which are in the 70 plus seat range that was always our strategy, Kevin and we don't see a change in that strategy going forward.
We will have to though all see focus on on the number of of aircraft, but certainly our strategy of going to Oh.
Piracy count.
Aircraft and a lower number Finns is still still in place.
Thank you very much for the <unk> have a great weekend.
Good.
Thank you.
The following question is from Chris Maria <unk> can be capital markets. Please go ahead.
Folks I'm, just I guess thinking about what the strategy is longer term for the company what do you think about.
No I think at one point, killing we talked about Canada itself is a fairly small market and one of the ways to be able to build their Canada for life or better term was used to six freedom model and you've talked about hubs and so I'm wondering what do you think about the shrinking of the airline or at least.
Calls and Rightsizing of the airline to demand.
Do we think about air Canada is strategy goals going forward is that sort of do you end up retreating back to you know we're here to serve Canadians go into the rest of the world or do you maintain.
The idea around six freedom and I guess, maybe even elaborating on that.
Any kind of made the comment about.
Flow into hubs is going to become increasingly more important but at the same time, we're seeing you guys reduce connectivity in the regional networks. So just maybe help of square you know, what's kind of short term versus where where we think.
The strategy goes over the next couple of years.
Right right I mean, obviously as you know it we're not to given the.
Oh, Thanks for this call, we're not going to share all of our commercial strategy as you'd appreciate that Chris So I'll keep the comments a fairly a general but I can say the following look first of all the a as a hub strategy and the gate global Gateway strategy.
It has not changed and so big picture a you know the air Canada is a network carrier.
And Air Canada trades in in a in a global traffic flows and Ah you know that as the the I would say the continued strategy for the company in terms of what we're doing with any specific markets you know the regional roots and all that that represented a.
A small.
A portion of a connections from Canadian markets of course, you know so this is a this is something that we'll we'll look to see have the right aircraft on the right route with Rightsizing and some of those markets are very very small for us and we weren't the best.
Carrier to serve them, but you know.
Our vision on on our main three Canadian hubs and our international Gateway partners.
Hasn't changed at all.
And when I talk about the fact that you know you.
Ticket. Typical example is that a you know we would have before you know service from one of the one of the Canadian cities with Roos to call. It a secondary European city direct.
You'll see a fewer those you know for the next few years, you'll see fewer those because the demand will be less and so for the traffic that wants to go to a you know call. It a a place like.
I don't know a Manchester places like that we'll do it with a with a connection as opposed to with the direct service and I think that without getting into any specific Ruth because again that would be commercially sensitive you can envisage that that's the focus.
For the flows will be over hubs and I think that that you know that doesn't mean that we won't get back to the strategy of Ah you know.
And continuing leisure leisure flights direct bypassing the hubs, but but that's that's a went up the ways. We're looking at it and the Trans border you know obviously the trans border is completely shut down right now they're kind of is the largest a carrier into the United States. We were certain 53 cities in the United States.
Once we get beyond the Canada U.S. border closure, we expect to return to that end to end to reaffirm our strength.
Into the United States and that is a key driver the six freedom strategy and that will absolutely continue so it's a it's a shrinking of the strategy a pairing of Oh. The you know some of the hub bypass.
It seems that we had but it's certainly by no stretches the imagination is it an abandonment of that because.
Well, we like our domestic business our domestic business you know, it's less than one third of what it isn't broker or kind of did last year and so we have.
Every ambition to continue a you know establishing the global the global network carrier that we became.
Fair enough and then I don't know who wants to take this one but as we think about the restart.
<unk> granted Q twos.
We'll call it an anomaly and just leave it at that but how do we think about the balance you're going to be able to strike between capacity and traffic and I guess, what I'm thinking about here is you know load factors and I think we've had a lot of discussion around.
Do you start to factor with a two third load factor, a narrow bodies or something like that.
But I think that.
Can you just maybe help us understand even as you're going to run maybe 20% of your normalized capacity.
In Q3, you know your ability to flex gauge.
In order to keep loads that at least reasonable or at least commercially viable levels.
Yes.
Let me put this way.
Chris you need to throw out every single basis in which you looked at the Oh the industry as far as I'm concerned for the foreseeable future as we are living through this pandemic.
I'll tell you why one.
Load factor here becomes largely irrelevant.
We're going to be making estimates of how much capacity to put into the market right now based on a new combination of demand that is based on customer confidence to fly intertwined with opening a border restrictions and a and quarantine. So.
As a totally different metric than the you know sort of historic relationship between you know how much capacity you put out and how many passengers are actually filling the C.
I think that you know, we actually are using artificial intelligence drivers to help us understand how that demand comes back into the marketplace, but a you know you you have to understand that actually even though people are booking in some cases, depending on what a government might do it where you might have a you know what you're seeing this a recent phenomenon between you know space.
Pain, and ER and the UK, where the UK all of a sudden imposes a florentine on on a on travelers from Spain. So.
Flexibility here is going to be key our objective over the course of the next.
Period of time and call. It a year. If you wanted to try to put a estimate of how much time that would be.
It will be to try to optimize revenue.
No not optimized load factor.
And we're going to be looking to ensure that we get you know enough revenue in the door that starts are mitigating the cash burn.
Because it's going to be an unusual and no abnormal environment and so any of the historic drivers of any of the historic drivers of of Oh capacity and load and so on are gonna be completely thrown.
The other thing so he suffered flexibility this is where do we get an opportunity to to optimize so you say one flexibility is what aircraft you put on and in some cases, we'll see if the demand is greater and we the you know we see is coming back and we see a you know and it's on a given a wrote me Mike you know up gauge a wide body aircraft from.
332, 77 for example.
And we're doing that a already knows but looking at the marketplace. We also optimize for cargo demand cargo as you saw in the second quarter became a key driver for some of these markets and so some of the when you look at Hong Kong as a market. We continue to operate a Hong Kong with relatively low passenger demand because cargo demand.
And is strong enough market.
So the passenger load factor on a Hong Kong is much much less relevant then it would be on a on another market. So you have a series a completely different drivers for establishing what we're trying to do now and the number one objective what we're trying to do as mitigate as minimize cash burn well.
I forget the Oncaspar once we get to some level of a new normal where you know presumably in a in a post oh vaccine environment that we can start re optimizing you know again.
The other driver our operational requirements without by simplifying the fleet will make some of the operational requirements work because the cost of operating some of these flights.
It's not optimal we need to have you know maintenance and flight off.
Cost drivers that come into an analysis of what aircraft, we're putting on onto a given route when we when you're dealing with such a with such a low loads, we need to keep our pilots certified.
Keep me to keep the aircraft rotating so you're seeing all of these say I'd say moving targets, that's why I say I think that.
Anything that this I try to say this to our people and I'd encourage you know the more thoughtful analysts to take the same approach is to say any correlation that we previously had between.
Between capacity and load factor.
Respectfully suggest needs to be a thrown in the bed.
Okay Fair enough I'm just my last question, Mike can you just give us a bit of an update on advanced ticket sales and I guess, what I'm trying to understand is.
What proportion of those advanced ticket sales are still in refundable tickets.
So I guess, what what proportion is still I guess subject to refund and you would in the last call you know had some thoughts around.
How the advanced ticket sales on the bookings could flow maybe thinking that you can you maybe improvements as bookings improve as we get through the back half the year.
Any additional thoughts around that would be.
Good morning, Chris.
So.
Yes, our advanced ticket sales are at roughly 2.2 billion.
For our balance sheet.
We're not can provide any color on on what the breakdown what that is you know at this point in time. It's also a lot lower weve provided over a billion dollars in refunds.
Since the pandemic started.
And and so as a result, our advanced ticket sales are also much lower than last year. It given and also given the fact that sales outlook in our capacity outlook is is what it is.
Again, as the market improves and as we add more capacity and this is more traffic, we'll see some improvement in in advanced ticket sales.
I think customers are booking a little bit closer to two departure of than what we've seen in the past and again to kilns point.
The metrics, we've seen the characteristics we've seen of the airline industry in the past are changing and we're we're modifying our approach to.
Hey, Youve answers we cannot of that.
Okay. Thanks.
Thank you.
The following question is.
Same Becker of Cowen. Please go ahead.
Thanks, very much operator or things also team for letting me get my question and I appreciate your time.
Caitlin.
Now I just was wondering.
I think Toronto in particular was hit very hard in the Sars epidemic or pandemic.
And you know there are pandemics, probably every decade, but this is the first time governments when so far as to close borders and shut down the industry and I. Appreciate all the numbers that you cited with respect to how important aviation and air China in particular are to the government when when you talk to.
You know transport, Canada, and the Prime Minister.
Let me tell you I mean why are the refusing to move.
Yes, you know, we're shutting down and that's the end of that.
[laughter] well help Helane, it's it's a great question I'd almost encourage you to to oppose it addresses today [laughter], but no I think that.
The the government moved quickly here and.
Pick a decisive action to shut travel down in March.
I remember you will remember this air Canada was amongst the first in the world too.
Sort of Ah Ah raise a red flag with respect to the risk of this pandemic in January when we pulled out of China.
We pulled out of China on January 29.
Well ahead of you know any action having been taken in Canada. We encourage you know Canada two to two frankly take action with respect to the other Chinese carriers coming into Canada. Following got because we are we felt were exposing our passengers and our customers trying to derisk that we start flying to try to at a fixed cost and mix.
And a loss of revenue to us.
You know after that we also moved quickly to stop applying to Italy Wendy.
When the or the virus and spread to Italy, a and then you know you remember there was a brief period of time or Iran.
Travelers to Iran were affected so so we were moved very very quickly and we advised the government during that timeframe. They chose at that stage to not do anything following the advisory if the WH, though a which WH on the early stages had been advising against border closures as you might recall, so when Canada shut it down to shut down entirely.
And that was the right decision I have to have to agree with the decision having been taken does that help to deal with this and flattened the curve more quickly here that in other places of course, including in the United States and I think so that was the right call that but but the idea that we have stayed at exactly the same position since.
March is the part that I find on acceptable because of course, we aren't we are now migrating from a health crisis into a fairly severe economic crisis.
If we don't start opening the economy to more meaningful way and of course, you know we've seen the impact of Ah Ah you know a job losses, not only a in our company or in our industry, but across.
Across the sector, we see the impact that you know that that a company like their Canada has on the economy and that's why we constantly remind them of that and so what I take issue with is not that it was shutdown as tightly as it was shutdown in March I take issue with the fact that has not been opened up on a much more thoughtful scientific.
Basis, which which would allow for some level of a business to be done you know many many Canadians are right to us and tell us that they want us to travel and the biggest impediment than we did our own polling of is the biggest impediment or the quarantined because they do you have a a two week holiday and then you have to go back.
To work you can't go for a two week holiday that have a 14 day quarantine because you can't take a month you know if you have kids that have to go to school you can't do that and take a month. If you have to go back to school you can do that and go back to school. So you know the core team is the biggest impediments to this and so we've been very both.
But we agreed with the government in March.
We think now is it time for science based measures that would have an approach similar to what the U.S. done which is to say you know with countries that have had a like.
Replication rate of the virus those are the countries that should be permitted to.
Operate without working.
Thank you very much stops very thoughtful answer and I appreciate being overtime to get my question.
Thanks, Mike.
Hey, thanks.
Thank you.
The following question is from Cameron Doerksen of National Bank Financial. Please go ahead.
Thank you good morning.
Just one question for me I guess sort of I think about one of the competitive advantages there Canada has its its that you have very good slot positions.
The the slot restricted airports are more congested airports I mean, if I.
This is going to be sort of an extended period, where you're going to flying a lot less internationally.
Is there any risk that you could sort of lose that competitive advantage over time.
There, but there's no risk.
There is no risk that we will give up any of our saw any way shape or form we know the value that our slots have oh, we have a very capable people in our network planning team who are.
You know watching the various rules and working without a with the.
The various jurisdictions slot coordinators et cetera to ensure that getting a they've been all kinds of exemptions that have been granted in different markets. We're all over it and there's a there's no risk of that.
And we also have a partner is in some cases that have operated thoughts.
In our cases, where where.
In some cases, where we had been unable to but we have theres no risk of that.
Okay excellent that's all for me thanks, very much Thanksgiving.
Thank you.
The following question is from Jamie Baker of Jpmorgan. Please go ahead.
Hey, good morning, everybody up you know a follow up on travel restrictions being lifted how quick is the typical leisure response. So you know if we think about Canada being on the you say placed at least for your citizens when that happens was there an immediate surge in bookings is it a more tepid uptake.
Rick do you have to advertise or consumers themselves focused I got I guess I'm really just trying to assess the eagerness and willingness of consumers to travel once the regulatory impediment is removed.
Yeah.
Jamie I'll, just I'll start off with your comment a bit more in depth look there's no question that there is pent up demand to talk about the pent up demand, but there's pent up demand that we saw it.
Immediately as the Europeans are permitted a Canadian due to a two travel without foreign Jane in Europe, We saw that immediately and you know our numbers of course, you know over the last call. It three four weeks are materially better than our numbers over the previous three four weeks and we're seeing it on a daily basis.
And so this they leisure demand versus can can you know react pretty quickly. We also feel that submarkets. The traditional summer period is actually going to be extended this year. That's that's going to go into September October where it may have ended at the end of August and so it's getting to that happens we see that's occurring and we've also had some good.
Variances with markets like the Caribbean, So maybe Lucy just that one or two costs again, the added content I wanted to make it one thing that we are definitely seeing is how close and the booking window is.
[laughter] possible to bleed and booking window is shorter now that we carry only leisure traffic and wise when we actually had an extended his traffic. So I think can I take in any of the corn hany from there to see something like that.
Hi, we assume that dynamic happening then we would be pretty quick.
That's helpful and second for Mike You know, you're one of the very few management's that's willing to discuss your minimum structural liquidity.
I'm not asking a question because were concerned about it I just love to know.
If that figure may have evolved over time, you know given shifts in booking patterns. The composition of the ATM, though how it might evolve going forward or is it solely a function of covenants as you alluded in your prepared remarks.
Good morning, Jamie No I think it's a ladder is solely the result the covenants.
Okay, and then just a quick follow up should we just assume all aircraft Capex is financed it's it's really just a question that timing.
Yes, that's okay fair assumption.
Perfect. Thanks for squeezing me and take care everybody.
[noise]. Thank you.
The following question is from Tim James from TD Securities. Please go ahead.
Hi, Thanks, and good morning.
Kevin I liked your comments about throwing our approach to the relationship between capacity and load factor.
And then as you say my bins are actually already fairly full with other approaches to your line for [laughter]. So there isn't much room, but I wanted to ask episodes.
The your view of liquidity, Mike going forward.
And when you look at your base case recovery scenario whatever that might be.
If if that continues to play out here over the next year or two years.
Is your liquidity, where it sits today is that sufficient for that scenario like should we assume we need to have another pulled back or a a worsening in demand in order for you to feel more liquidity as required.
Could you.
Even if things play out the way you expect me you add more liquidity.
[noise] different question, but I've been very fair question, Tim and good morning.
We obviously were very busy in Q2, raising liquidity to the levels.
We will you see that you into Q2.
You know, we can run many different scenarios and certainly I would say the 9.1 billion can cover many scenarios, but we are very fluid here and we continued to update our our financial scenarios.
And we will step into the market, if we see a need to the other thing as you always node weve been very conservative balance sheet perspective, and so if I have too much liquidity I don't consider that a bad thing because I can you some that excess liquidity when the market stabilizes to repay debt.
If I, so choose and so we've given ourselves some flexibility to do that as well.
And so having more liquidity on our balance sheet is not a bad thing from our perspective as long as we have the ability to to pay down debt and lower lowered the overall leverage ratio.
So I get it Tim's a very fluid situation, we were very successful in Q2, raising what we raised a keeping us higher degree of comfort as we go forward.
But we will continue to tomorrow to the market and make adjustments on certainly on on a weekly basis. It also take care.
Other you know the other factor, which again lot of as we say a lot of.
Paradigms are finding their way into the into the waste spend these days, but when we look at a scenario like this where you say is here and then tire industry not just a you know our company or not just our country, but entire industry and how long will capital markets have an appetite to to fund the into.
Straight you look at so many companies like no Virgin <unk> Bridge, Australia, let the last time and South African Airways tie Airways and saw and so forth you know Theres no question that our strong balance sheet has given us an advantage here and Mike and team took full advantage and the second quarter of.
Being able to use that balance sheet to raise additional liquidity and that absolutely is the right call and that's the thing that's given us a you know the the ability to to now look at what are some of the other drivers that give us more flexibility.
To go forward and I would say that Oh, the higher the liquidity and will continue to talk to government to see whether there's a opportunity for a sector specific programs et cetera, et cetera, but you know liquidity is the number one driver as we go through this very difficult period.
Okay. Thank you and just one final question.
Do you think that or is any risk of the CTG changing it stands with respect to cash refunds versus travel vouchers or canceled flights.
I will look you know the C.T.A.C.T.A. spoke a clearly on the topic.
And at this point to Tim I've got no reason to believe that they'll change that.
Okay. Thank you very much.
Good.
Thank you.
The following question is from Konark Gupta of Scotiabank. Please go ahead.
Thanks. Good morning, hopefully you can hear me okay. After the technical difficulties I've been Chris.
Yes, we can hear loud and clear cut our perfect Thanksgiving I said, the money and so I have a few questions here. Thanks for squeezing man.
Average didnt cash, but I can I can see its 17 million dollar and Q2, excluding the capex and now you're projecting that to go down to 11 to 13 million dollar on the same basis.
And help us understand what goes through cash flow exiting June and do you expect improvement each month or to get the Super Junction.
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Okay Fair question, we're not going to provide month by month, because there's so many changes from a working capital perspective for example, when we received the cues payment.
So it's not indicative.
There's no doubt that improved on it as as you know as bookings improved as a cost reductions came in place.
But but to provide you the quantum would be misleading.
From our perspective.
No that's there Mike and stuff and so it's on the Q3 projection I think you mentioned I think it depends on obviously set them markets fielding and all that don't like how much of the cash burn in Q3, you would say is predicated on but Canada U.S. border the opening for non essential trouble.
Yeah, we're not assuming the U.S. border open.
In Q3.
Okay, Yeah, I think right now it's supposed to be opening at the end of August unless it sounds obviously right yeah, Yeah, I mean, it it may it may I.
I, probably unlikely, but we're not assuming that in our in our financial modeling.
Okay, that's great and on the Capex side, that's I saw the capital commitments table as tools, a 3 billion dollar capex and 2021, including uncommitted Capex getting help from but they could dial into sustaining capex and boring something sound by a religious capex.
Yeah, we we I would say the 3 billion.
In in 2021 is a very very conservative number it's based on very conserve assumptions about how many planes were going to take in those that delivery schedule for the 77 is not yet finalized.
So we've we've almost assumed on almost a worst case scenario from a delivery perspective, we we do believe as we continue discussions with Boeing that that will be that we spread over a little longer period of time and and that capital that $3 billion will drop next year.
And also as I mentioned earlier I think this is also one of the what are the things that have to be assessed in relation to the BP duration of the the a travel restrictions and the a availability or lack of availability of the industry specific.
Programs here, because obviously that could affect our appetite to take any aircraft.
After this year.
Right no I understand but I was just comparing 21 to 22 and I was wondering if there's any backs delivery assumptions and frankly.
No no.
Okay. Thanks, and lastly from me so it looks like you have the most 50 aircraft out of books of the planned 79 overtime and what is fine for the remaining 29 aircraft. The looks like they're all 18 19 and have you recognized any cash proceeds from a feel off and you're the only occur.
No we haven't sold any aircraft yet we're not.
The 319 were going to hold those a little bit longer because most of our own does as you as you mentioned they give us a little bit flexibility to a two to gauge up or to add more capacity and they're very very low cost from our perspective.
And so right now our focus is returning six sevens and returning the air the Embraer one nineties.
And we'll deal with the three three nineteens little bit later.
Okay last with that thank you everyone.
Take care.
Thank you there no further questions registered at this time I'll turn the meeting back over to MS. Murphy.
Thank you Melanie and thank you for joining us on our call today. Thank you very much.
Thank you.
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Okay, that's because it had been.
She was funny.
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I missed that up on 55.
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Okay.
Uh huh.
Yes.