Q4 2020 Air Canada Earnings Call
Thanks for the arena.
Morning, everyone and thank you for joining us on our fourth quarter for full year of 2020 for earnings call.
With me this morning, all carriers moving to ask you, a president and Chief Executive Officer.
So our deputy Chief Executive Officer, and Chief Financial Officer, because she get met our executive Vice President and Chief Commercial Officer, and Greg Craig Landry, Our executive Vice President of operations.
On today's call Campbell the games that gives you an overview of the impact of the COVID-19, pandemic and related travel restrictions on Air Canada.
We are enjoying in response and how we view of the future.
So, let's see what the touch on the travel demand of cargo and loyalty and Mike will provide you with visibility on crisp ask regarding cash burn rate and liquidity before turning it back to Canada.
We will then open it up the questions from equity analysts followed by questions from fixed income assets.
Before we get started please note that certain statements made on this call are forward looking within the meaning of applicable securities laws.
This call includes references to non-GAAP measures is the first of all of fourth quarter press release, and MD&A for cautionary statements relating to forward looking information and the reconciliation of non manages.
The GAAP results.
I'm not going to need all of it the camera.
Thank you Cathy good morning, everyone and thank you for joining us on our fourth quarter and full year 2020 earnings call.
In the fourth quarter of 2020, we recorded negative EBITDA of $728 million and an operating loss of 1 billion.
Operating revenue declined 81% over the fourth quarter of 2019 for.
For the full year Air Canada recorded negative EBITDA of slides.
The over $2 billion and an operating loss of nearly $3 8 billion.
Operating revenue for the air fell approximately 70% to $5 8 billion.
From $19 1 billion from the prior year.
While undeniably grim.
The results such as these are being reported the world over in our industry due to the impact of COVID-19, and extremely onerous government imposed travel restrictions quarantines and advisory.
The sixth largest U S carriers recently reported cumulative net losses of USD 34 billion for 2020.
And in Canada, we continue to contend with the patchwork of new and ever changing travel restrictions that are stifling travel demand impacting our ability to operator of plan and even preventing us from formulating reliable financial guidance regarding the usual metrics.
We're engaged directly and through our industry Association and discussions with governments and other key stakeholders about the safe restart of aviation with more effective alternatives to blank of travel restrictions, especially as the pandemic begins to recede and we exit this crisis as we surely will.
In the meantime, rather than allowing ourselves to be paralyzed by Covid calamitous effect, we have been tenacious in our focus implementing and refining and extensive COVID-19 mitigation and recovery plans.
It entails all aspects of our business from our industry, leading additional safety measures for customers employees too.
To diligently managing costs and seeking incremental revenue opportunities.
Raising significant liquidity from capital markets the setting in place the building blocks for success in the post pandemic environment.
Throughout the past year, we've been an industry leader in safety, we took immediate and decisive steps such as halting flights to China, requiring facial coverings for our customers and taking customers temperature prior to boarding well for federal government mandates to do so.
Early on we put in place an industry, leading multi layered biosafety program called Air Canada Clean care Bob.
We've also been early adopters and supporters of science based measures.
Including various forms of Covid tests.
We sponsored the study that was completed during the quarter and that tested international arrivals of Toronto Pearson Airport.
It was the largest study of its kind in the world and was done in partnership with Mcmaster Health labs in the greater Toronto airports authority.
Preliminary results based on 20000 tests found 99% of participants tested negative for COVID-19 of.
The 1%, who did test positive 70% were detected on arrival, while the remaining 30% were detected by of test seven days later.
This shows the testing is highly effective and that of 14 day quarantine is unnecessary for more than 99% of passengers and actually is much less effective than rigorous testing and tracing.
The federal government, which joined the study when it was already underway is now using these results of it evaluates new testing frameworks for the country.
This is very important.
For while vaccines hold great promise, we believe the effective and robust testing is far and away. The most immediate and practical way to protect the communities restart the economy by allowing of returned to some of our normal activities and restore travel.
For this reason, we continue to explore new testing technologies and protocols, including rapid PCR and rapid antigen tests for both employees in the workplace and potentially for customers.
Another fundamental component of our Covid strategy is having the financial wherewithal to withstand the protracted downturn.
We have been intensely managing expenses significantly reducing fixed cost rationalizing our route network and building up our liquidity position.
During the fourth quarter, we closed the share offering that raised an additional $850 million and concluded the sale and leaseback of nine Boeing 737, Max for proceeds of $485 million.
We ended the quarter at 2020 with unrestricted liquidity in excess of $8 billion.
Despite the massive cash burn during the year.
Our ability to raise capital as evidenced of investors have shared our confidence in the resiliency of air Canada and its long term prospects.
We've also been developing new revenue opportunities such as the expansion of Air Canada cargo, which Lucy will discuss later cargo will be an increasingly important part of air Canada as future going forward.
We continue to pursue key programs that will be foundational to our long term success. This included the completion of our new reservation system early in 2020 and the launch in November of our transformed Aeroplan program.
Each of these will be good for customers employees and other stakeholders the.
It will also equip us to compete more effectively in the post pandemic marketplace.
However, we are also of the global carrier competing against other global carriers in a highly competitive and capital intensive industry.
Air Canada is relative strength must be seen in the context of the advantages of our main competitors from other countries enjoy in terms of government support.
IATA estimates governments around the world have provided in excess of $200 billion to their domestic carriers in the sector support.
Recognizing their key economic contributions.
While Canada remains the loan G. Seven countries at the thus far not provided any sector specific support for aviation, thereby threatening in the long term competitiveness of air Canada's airline industry.
I am however.
Very encouraged by the constructive nature of discussions that we've had with the government of Canada on sector specific financial support over the last several weeks.
While theres no assurance at this stage that we will arrive at a definitive agreement on sector support I am more optimistic on this front for the first time.
Late yesterday afternoon, the government of Canada approved our proposed acquisition of Transat subject to a series of detailed conditions.
We understand that many of you may ask questions around the government of Canada approval of our earnings release. This morning, The European Commission status, our next steps around our agreement with <unk>.
The proposed acquisition is a complex and sensitive matter and our ability to expand on the current level of disclosure is framed by various confidentiality governance contractual and other considerations.
As such we will not be providing any additional information at this point in time.
I'd like to conclude this portion of my remarks by expressing my appreciation for and deep gratitude to our employees, who despite the year of turmoil and uncertainty have demonstrated their professionalism and resilience and maintained their focus on serving our customers and transporting them safely.
Over the past decade, as air Canada went from strength to strength with its successful transformation. Our employees always showed their unwavering commitment to our long term vision to our customers and to our airlines success.
But character is the only truly revealed when you encounter adversity and out of the diversity income strength I'm very proud of that despite the year long ravages of COVID-19, our employees dedication and professionalism remain unchanged and their determination to overcome the pandemic is now stronger than ever before.
And with that I will turn it over to Lucy.
Thank you Caitlin and good morning, everyone.
I'd like to thank the incredible people across our airline for the resilience and commitment.
We continue to navigate through the devastating impact of the pandemic.
Passenger demand in the fourth quarter continued to be dramatically impacted as many countries coped with the second wave of Covid cases.
The result, our passenger revenues in the quarter decreased by 88%, while the operating 23 percentage of our capacity compared to the same quarter in 2019.
These results closed down for the most challenging year Air Canada, and our industry has ever faced.
Our passenger revenues for the year, which eclipsed $17 2 billion in 2019 dropped by over 75% or $12 9 billion, which is even more staggering when considering the negative impact of the pandemic and travel restrictions and non begin until March.
Turning the corner into the first quarter of the new year, where we were planning a significantly reduced operation descent destination, including Mexico, Costa Rica, and the Caribbean, We abruptly suspended all sites to this region for travel until April 30.
Together with the other Canadian Airlines, we agreed to do this at the request of US anticipate the government of Canada in its effort to curb the spread of COVID-19, and its variants.
And address concerns around spring break channel.
Our focus quickly turned to repatriation efforts to bring Canadian Tom.
The suspension of our Sun network the company of the announcement of two new major drivers of restrictions.
In late January and testing protocol is introduced requiring all incoming passengers to Canada to provide of negative COVID-19 test trying to morning.
And more recently, the Canadian government announced the implementation of mandatory testing upon arrival with an active three day hotel <unk> at the travelers' expense, while they wait for their test results.
Following both of these announcements we saw an immediate impact on rate of cancellations for bookings on hand, as well as further slowdown for future bookings.
In order to mitigate further cash burn and best the liner capacity with new levels of anticipated demand, we immediately announced further cuts to our planned first quarter of capacity.
In the first quarter of 2021, we now expect to operate approximately 17% of our capacity compared to the same quarter in 2020, and approximately 15% when compared to the same quarter of 2019.
We will continue to dynamically adjust capacity and take other measures as required.
We've been strong advocates of testing and will continue to seek all measures possible to ensure the safety of our employees and of our customers.
While it is widely recognized net international travel is linked to less than two percentage of Covid cases in Canada. It is also important to note that the new measures are in addition to the traveling restriction.
The government of Canada has had in place since March 2020, which are some of the most stringent in the world.
This is an important factor when considering the different end market recoveries between air Canada in the major U S Airlines and underscores why this is not any credible comparison.
Our reality is that even domestic travel remains largely stifled with the Atlantic provinces, and Manitoba still requiring a 14 day quarantine for Interprovincial travel.
Foreign nationals have been barred from entering the country since March for non essential region and all of arrivals in the country, including Canadians have been required to quarantine for 14 days.
In addition to the multiple layers of travel restrictions in place.
Gideon have also been warned not to travel by both the government and the media.
For additional context, many of our domestic competitors in Canada were forced to cease operations for periods of 2020.
However, as these restrictions are eased and provide for a safe path to recovery and once vaccines are widely distributed we are confident we will retain our market leadership position.
Prior to the pandemic, we successfully and consistently executed on our commercial strategy we.
We develop competitive advantages that will be foundational to our recovery and will equip us to emerge stronger and nimbler.
We are ready to build back our airline and welcome and customer demand.
We understand the recovery will take time, and we will proceed strategically always realistic yet optimistic.
Our modern and efficient fleet has been further simplified with fewer fleet types of overhaul and is going to be a competitive advantage and a recovery.
Our moving 77 aircraft remains the cornerstone of our international fleet, serving non tablet and select core markets that makeup of our current skeleton network.
Within North America, we are fully leveraging our new Airbus <unk> hundred 20 aircraft and we won't come back our Boeing 737, Max into service on February one after received all of the necessary regulatory approvals.
These aircraft represent the backbone of our fleet and will enable the gradual redevelopment of our network.
Throughout the pandemic, our agility has been on full display and our ability to accurately and effectively allocate capacity to see unique market opportunities will be pivotal in various customer segments begin to recover.
In light of the more resilient visiting friends and relatives are VFR market segment.
We entered into a new commercial agreement with Qatar Airways, facilitating our non stop service from Toronto to dollar which commenced in mid December.
In addition to dollar we will be launching our seasonal nonstop service to Cairo from Montreal of this summer to sort of another market with the highest concentration of VFR traffic.
In December we offered customers are all business class Air Canada jet experience to popular holiday destinations in the standard of use.
U S market.
These initiatives along with our expansion into unique markets illustrates our agility and our ability to quickly pivot and capture opportunities that arise.
With customer and employee safety of the forefront we have demonstrated industry leadership in developing our clean Careplus program.
We've also undertaken several medical collaborations to continue advancing biosafety across the customer journey, and our business, including with the Cleveland clinic to advise on our efforts and with shoppers drug Mart to provide our customers the opportunity to take of pre departure of Covid debt at select locations in Ontario, BC and Alberta.
Among several other.
Innovative collaboration.
We are also the first Canadian airlines to offer customers, the safety and convenience of avoiding using facial biometrics.
The technology is now available for customers departing from San Francisco International Airport, and we plan to expand it to other U S. Airports soon and we'll explore of viable options for expansion into Canada.
To recognize our achievements and biosafety last month, we received the Diamond certification from the airline passenger experience association or apex.
This unrelenting focus on safety will remain a focal point to our product offering and we will continue to strive to be leaders in deploying brand safety technology as it becomes available.
In November 2020, we successfully launched our transform Aeroplan program and the seamless cutover to state of the art technology platform.
Delivering what we believe to be best in class loyalty program, which will serve as another foundational element to our recovery.
The program has garnered very positive feedback and engagement since its inception.
During the quarter to support our loyalty effort, we secured additional strategic anchor partnerships, including with J P. Morgan Chase in the U S.
These new partnerships will deliver loyalty member growth and additional revenue and we look forward to revealing more of them in 2021.
Looking to airplanes performance in the fourth quarter member engagement and activity continued to show resiliency.
Co brand credit card spend continues to recover with categories. Most impacted by the pandemic such as travel largely offset by other categories. For example, the retail E commerce.
Overall spend for the quarter was within the 13% of last year's level, while card retention rates continued to be in line with historical norms.
Looking to our cargo performance, our cargo revenue of $286 million in the fourth quarter represented an increase of 100 million or 63% compared to the same quarter in 2019.
With global Air freight demand remaining strong we ended the year, having operated over 4200 on cargo international planes.
In December alone, we operated over 150, all cargo flights per week, using a combination of <unk> 77, going triple seven aircrafts as well as for converted Boeing Triple seven and three converted Airbus <unk> hundred 30 aircrafts.
This line was necessary to support our customers during the peak holiday season, demonstrating our commitment to serving our customers and fulfilling their needs while maintaining the critical air freight supply chain in the midst of the pandemic.
As a result of our quick pivot to all cargo flights at the onset of the pandemic and with close coordination in partnership with our customers our cargo business delivered more than $920 million of revenue in 2020 or 28%.
From 2019.
Yeah.
As we discussed last quarter, we're very excited with our entry into E commerce sector launching our first deliveries directly to people's homes in the fourth quarter.
This program in cooperation with local retailer takes advantage of our domestic passenger network facilitating the end to end distribution of ecommerce goods across Canada and offers logistics and delivery solutions for online retailers that are simply faster and easier than whats available to Canadian online shoppers and today.
We expect to efficiently launch a new branded platform soon.
We intend to keep building the cargo business and last quarter, we announced our plan to convert and utilize our own <unk>.
767 aircrafts to dedicated freighters.
Since our announcement, we've worked with our pilot group to help facilitate of flying structure that will allow us to effectively compete in the market and reached an agreement with our pilots in the quarter in support of these initiatives.
Our first two freighters are expected to be in service in time for this year's fourth quarter peak air freight season.
In closing I'd like to reiterate that Air Canada is commercial foundation as arguably never been more solid than it is today for.
For the first time in nearly two decades Air Canada will have the fully modernized narrow body fleet comprised of the versatile and fuel efficient Airbus <unk> hundred 20, and Boeing 737 Max.
These will allow us to operate within the domestic and transborder market with compelling economics.
Our wide body fleet as best in class seating density with the lowest dependency on premium revenue, which allows us to excel in the recovery period, where VFR and leisure travel rebound quickest.
Our hubs of Toronto, Vancouver, and Montreal, each have a large and diverse multicultural population base that enables a quicker recovery relative to competing hubs on the North America continent.
Unlike Australia, New Zealand, Canada geography sits right in the middle of two of the busiest travel quarter in the world in the U S to Europe and U S to Pacific market nearly all commercial flights on these segments Overfly Canadian Air space, and we will continue to push to ensure we receive our fair share of these traffic flows through our hub.
Yes.
This represents not only of major element of our recovery strategy. It is also an example of how Canada as a country can best compete in the global aviation market.
We also have solid global airline partnerships, namely in the form of our trend of Atlantic <unk>, plus joint venture with the Lufthansa group in the United Airlines, which will ensure we access as many markets as possible on the one stop basis as we seek to rebuild our network over the coming years.
Our services to the Lufthansa hubs in Europe have consistently performed well for us throughout the decade, and we expect this to continue for the foreseeable future.
As mentioned on previous calls Air Canada seeking to add additional global airline partnerships, which will further propel our recovery.
Despite the temporary grounding of Air Canada Rouge. It will continue to play a major role in our network with particular focus on North America leisure market, where it helped us sustain and profitably grow our leisure flying over the decade.
Lastly, as Ive mentioned, our investments in cargo will allow us to further diversify and add additional strength to our revenue stream and ensure we capitalize on the booming global E Commerce freight segment.
With this solid foundation, coupled with customer experience enhancements achieved through the launch of our new reservations and departure control systems I can unequivocally say that air Canada is ready for the recovery and well positioned to compete in the post COVID-19 and macro environment. We are very much looking forward to welcoming our.
<unk> back on board with that I will pass it off to Mike.
Yes.
Thank you Lucy and I would like to thank everyone for joining us on the call today.
I offer a heartfelt. Thank you for our employees for their deep commitment and hard work throw of a very challenging 2020.
Your unwavering dedication to our customers and the airline has been and will continue to be a key strength and instrumental in our recovery.
In the first quarter of 2020, we initiated the <unk>.
The wide fixed cost reduction of capital reduction deferral program as a result of COVID-19.
Our initial goal was $500 million I'm pleased to report that we completed this program, having achieved reductions or deferrals of $1 7 billion for 2020.
Fixed costs will reduce the number of areas, including wages and salaries maintenance airport user fees real estate technology and regional Airlines.
Improving productivity and processes also contributed to lowering our fixed cost structure.
The certainly our objective as we recover to keep the majority of the fixed costs that we've eliminated from creeping back in.
Thereby lowering our breakeven point and enhancing operating margins.
We have an incredible team in place dedicated to pursuing additional cost reduction initiatives for cash preservation in.
And this focus will continue into the future.
The management and disciplined cost control of part of our DNA and our key elements of our recovery plan.
Our investments of more efficient aircrafts, our decisions to aggressively retire older less efficient aircraft and our investments in key customer facing technology, such as the Aeroplan and passenger sales booking systems and further streamlining and enhancing air for operations also contributed and will continue to lower.
Our fixed operating expenses.
As we adjust capacity to better align with the market our team remains centered on managing fixed and variable cost efficiently.
In assessing any opportunity we have for diversifying our operating revenue.
I'll touch now briefly on our operating expenses in the quarter.
From a capacity reduction of 77%, excluding depreciation and amortization of the special events fourth quarter of 2020 operating expenses decreased almost $2 2 billion or 59% from the same quarter of 2019.
We just salary and benefits were 500 sort of $1 million or 38% below the fourth quarter of 2019.
Driven by a 46% decline in our full time equivalent employees.
The major management and frontline workforce reductions, we completed the 2020 were difficult, but necessary step in reducing costs and preserving cash.
For the fourth quarter of 2020, we conclude two financing transactions the first being the sale and leaseback of nine Boeing 707, Max for total proceeds of $485 million.
Towards the end of the quarter and equity offering.
Proceeds of 850 million than.
And then subsequent to year end, we raised an additional $62 million through the exercise of the overallotment option by the underwriters.
Furthermore, we recently extended the maturities of our U S 600 million dollar in Canadian $200 million revolving lines of credit by one year.
Since the pandemic began we've raised almost $7 billion through drawdowns of credit facilities and the secured financings equity convertible note offerings in the sale leaseback transactions I just mentioned.
We ended the year with $8 billion of unrestricted liquidity, providing us operational flexibility and certainty of supporting our COVID-19 recovery plan.
Our unencumbered asset pool, excluding the value of Aeroplan theyre kind of applications and aircraft are kind of cargo total approximately one point of a 1 billion at December 31.
This pool of comprised of accounts receivable spare engines spare parts inventory some aircraft simulators and real estate.
The decrease of approximately 100 million and the value of this pool since we last reported this number in November was primarily due to the impact of a stronger Canadian dollar versus the U S. Dollar.
Certainly confident that we can utilize as collateral package and other assets should we need to access additional financing facilities.
Turning to the cash burn.
In the fourth quarter of 2020, net cash burn of $1 4 billion of approximately $50 million per day on average was in line with our expectations.
Net cash burn after including proceeds of the aircraft financing related to the delivery of the five Airbus <unk> hundred 20 aircraft for the fourth quarter of 2020 was $12 million per day on average.
For 2021, we've updated our definition of on net cash burn to include net financing proceeds received related to aircraft deliveries of.
The six proceeds reduced net cash flows related to investing investing investing activities.
Looking for the first quarter, we estimate net cash burn of $15 million to $17 billion per day on average.
This net cash flow projection includes 4 million per day in lease and debt service costs and $2 million per day in net capital expenditures.
The increased projected net cash burn versus the fourth quarter average net cash flow of $12 million per day is primarily due to lower EBITDA and lower advanced ticket sales and other working capital items. In addition, the net capital expenditure.
<unk> $1 million per day compared to the fourth quarter of 2020.
Just turning the pensions.
At the end of 2020 Air Canada had assets of $23 9 billion and has defined benefit pension plans more than double what they were in <unk>.
2009.
And the plans continued to see strong investment returns in 2020 with an average rate of return of 17, 6% of first desktop performance.
As you know several years ago, we implemented a new strategy focused on reducing the risks associated with our pension plans by matching the pension liabilities with fixed income products.
Reducing a significant portion of the interest rate risk associated with these plans.
Net of diversifying our return seeking portfolio to continue generating the strong returns needed to pay pensions.
This risk mitigation strategy has been a success.
Not only does it help protect employee and retard defined benefit pensions, but it resulted in our domestic registered pension plans reporting solvency surpluses over the last five years.
Which in turn the reduces our annual pension funding costs.
Fact, we either one of the pension risk Management award in 2020 due to the success of our strategy.
On the preliminary basis at the start of 2021, the aggregate solvency surplus of our Canadian defined pension plan was $3 billion.
An increase of 400 million from January one 2020.
Before turning it over the Killen I'd like to think of employees once again for their dedication the hard work I am.
<unk> confident that together, we can successfully manage through these tremendously challenging times and rebuild air Canada into global champion.
I look forward to my new role as President and Chief Executive Officer of Air Canada. It has truly been a privilege to work with Kale and over the last several years.
And I am extremely grateful for his vote of confidence and that of the board of directors.
Of that I'll turn it back to Canada.
Thank you Mike.
As you are all aware of this is by final analyst call for my retirement.
So it seems appropriate that I conclude with a few remarks on why I am absolutely confident about the future of our company under the extremely capable leadership of Mike and the entire senior leadership team.
And by the very strong financial position, we've managed to achieve.
Above all of it must be remembered that the effects of COVID-19 are transitory.
Whereas the solid foundation built over the past 12 years our permanent.
Our airline has been transformed and all of its aspects.
It will emerge from the pandemic still of Canadian Global champion for the powerful footprint and brand.
There's little doubt that we will rebuild our global network.
Over the past decade, we had effectively doubled our airlines reach to more than 100 international destinations before COVID-19 forced a retrenchment of retrenchment that I know is temporary.
At the peak, we were one of a handful of carriers to serve all six inhabited continents, and we will return to this again.
Already even admit amidst the seemingly relentless cutbacks we have begun taking tentative steps such as our new partnership with Qatar Airways and the planned new service to the Cairo.
Helping in the rebuild will be our Star Alliance partners and our revenue sharing joint venture with air China across the Pacific and a plus plus on the Atlantic and.
In addition, we of a wealth of Codeshare and interline agreements that give us access to every corner of the Earth.
To best serve this network, we have rationalized our fleet, we've removed 79 older aircraft and added next generation fuel efficient aircraft.
We are the improving our operating economics. This will also help us meet our environmental and other ESG goals in the interest of all stakeholders and rightly of increasing importance to the investment community.
Our wide body fleet includes the Boeing Triple seven aircraft with its competitive CASM in the seat configuration ideally suited to the high volume leisure and VFR market that we expect to rebound first.
These are complemented by the Boeing 787 aircraft with a slower operating cost mid sized capacity and range flexibility.
We're also renewing the narrow body fleet.
We're replacing older less efficient aircraft with modern and fuel efficient Airbus <unk> hundred 20, and Boeing 737, Max aircraft types.
The age of twenties range capabilities, and economics create greater deployment of opportunities, enabling air Canada to serve new markets youll suited to larger narrow body aircraft.
This month, we returned the Boeing 737 to service its range gives us added network flexibility maintenance cost advantages and greater fuel efficiency, then the aging narrow body aircraft they are replacing.
Further supporting our network, our Air Canada, Toronto Global hub as Lucy mentioned in its gateway hubs of Vancouver, and Montreal, not only are these hubs well positioned to capture global traffic close but have the benefit of a strong local multicultural population base to help sustain our international network with both origin and destination traffic.
Despite the severe restrictions imposed by COVID-19, we have not forgotten the vital and differentiate the importance of customer service, we provide of customer experience enhanced by competitive products and services, including lie flat seats of the signature class cabin concierge services Maple leaf lounges, and the air Canada signature suites onboard amenities such.
As in flight Entertainment, the Wi Fi in a range of the fare products tailored to appeal to each market segment.
Prior to COVID-19 Air Canada was named Best airline in North America for eight of 10 years and it remains north America's only for Star network carrier by Skytrax, our focus on customer friendly innovation is carried on throughout Covid with new touch lifts the airport services and technology like biometric boarding.
These innovations will remain in place post COVID-19, because they are convenient and can speed airport passage.
Further enriching the customer experience and security loyalty will be the transformed Aeroplan program. We launched in November. The programme now offers a wide range of new features such as improved volume on quite rewards aeroplan badly sharing the ability to use aeroplan points for travel extra such as cabin upgrades and in flight Wi Fi.
And expanded merchandise rewards.
Elite status members of access to new benefits, including priority of rewards and status paths.
To further leverage our loyalty program and drive profitability of there are new Aeroplan co branded credit card issued by TD Bank of American Express and CIBC.
In late 2020 of JP, Morgan Chase and Air Canada announced the strategic partnership that will make the exclusive issuer of the airlines the Aeroplan U S credit card, giving us wider access to the U S loyalty market.
Air Canada has many other attribute some of which such as our rich heritage predate our transformation.
But the final elements.
But frankly I regard as most important of all is the entrepreneurial culture that has taken deep root at our airline.
That culture, and the strong commitment and just do it mindset of our employees is now ingrained in our DNA and was fully on display as we responded to the Covid crisis.
So while my tenure is ending I know that air Canada has continued pursuit of excellence with Mike's leadership, we'll not at.
Air Canada will continue to innovate and evolve always focused on safety and the customer and enhancing new products and services.
Thank you and now we'd be pleased to take some questions operator.
Thank you.
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The first question is from Qunar for <unk> with Scotiabank. Please go ahead.
Thanks, and good morning, everyone. Good morning.
Good morning. My first question is on the Q1 cash flow guidance.
So we obviously know the Mexico credit in flight suspensions the analysis.
There is some incremental international droughts.
Just wondering if this guidance reflects the new hotel quarantine rules that has been proposed by the government.
Not sure of that has been implemented yet, but just curious as to your thoughts of what's included in this guidance and is there any conservatism baked in case some of these decisions of our rules do not materialize.
Good morning, it's Mike.
We have estimated the impact of that and it is included in our guidance.
Okay, Thanks, Mike and any sense on when the rule is going to be an effect of the hotel quantity.
We would say over the next couple of weeks and the government of indicators.
Sort of Notionally mid February which of course is where we are now, but I would say as Mike says over the next couple of weeks and it's possible that we could see announcements very shortly.
Okay, Thanks, and the law.
Long term question for him.
Lapse on the fleet.
So it looks like you have already removed about 46 aircraft out of the planned 79, and I think youre keeping some air bus of <unk> 19 for some more time, so the 34 aircrafts coming between call. It eight to one of the add backs through 2023, and probably the 33, 8019th going out or the.
Timeframe.
Looks like the feed price should be stable net current levels for mainline and Rouge.
And that would be about 20% versus the pre pandemic levels for the question.
I understand the Max was grounded in 2019 before the pandemic, but how much of the pre pandemic capacity can you achieve the 20% of smaller fleet and the long term.
Yeah.
It's Mike again, great question, and something that we've been heavily focused on because we want to balance flexibility with the with the recovery plan as well.
There is no doubt the Airbus <unk> hundred 19, which we owned for the most part provide a fair amount of flexibility over the next couple of years. There are good aircraft for us.
And the again do provided the fair amount of flexibility.
Specifically ask your question the current fleet plans as it sits.
Does get us back fairly close to 2019 levels.
And we're comfortable with that because we can all if the recovery happens quicker, which we hope it does.
There are planes available in the marketplace that we can chase and we will we know where those planes are and we will certainly take full advantage of that but we think we found the right balance between.
The risk management and taking full advantage of of quickly recover.
Okay that makes sense and the last one for me.
You mentioned about the operating leverage given the fixed cost you have taken out of the system and intention to not.
Fully creep.
Creep back those fixed costs some of them in the recovery takes place.
Can you help us understand.
How do you look at the the long term picture with the fleet plan you said.
Gives you a full capacity.
The greatest profit table that sit in that scenario compared to the 19% of so you had pre pandemic or is it possible because of the aeroplan.
Being more incremental here, perhaps in the Max coming back do you think the margin probably has more upside beyond the 19%, but this capacity.
Certainly we can't provide the guidance right now, but certainly a lot of the key elements of our in place our fixed cost structure is down we are we have much more efficient planes in our fleet and we have a much stronger aeroplan program to leverage.
So certainly our objective is to enhance margins.
As we recover and we certainly seem to have the use of strategic initiatives to do so.
That's great. Thanks for the color.
Thank you.
The next question is from Andrew <unk> with Wolfe Research. Please go ahead.
Oh, Hi, I think that's me actually.
Good morning, everybody.
This is hunter so let's see.
If we.
Assume business travel gradually improves over the next few years, how are your views on how the long haul premium cabin market demand will evolve along with it.
Hi, it's out of it.
So.
We definitely assume that the business traffic will return and we feel certainly for the North America market strength.
We're going to ask.
The perfect product with the <unk> and the 730 Sevens.
Basically there.
GAAP.
Product for premium and on the international front on the long haul and markets. We are in a bit of a unique opportunity here because of our cabins. When you look at the actual local debt we have on our wide body airplanes, we're perfectly positioned to be able to see this demand ramp up but also at the same time take advantage of.
The more VFR market, so because of our low point in the Permian long haul markets are still efficient.
We feel that we will we will be in a very good position when the demand starts to return.
Thank you the C and then yeah.
I was wondering if you might talk briefly about.
The potential for government aid in the context of what's on the table and we saw slowing obviously reached an agreement and I think they had a framework of some some customer refunds embedded in there. If you could talk about that maybe as a template for how you guys are framing of the conversation then fold in any conversations you may be having about potential domestic.
Stick testing mandates if thats on the table of you've heard anything about that thanks. So much of it is all 800 of scale. So.
Yes, I mean, I'll tell you what I can and obviously there are some restrictions around what our cash so basically the <unk>.
Government announced in November the desire to get into dialog with the larger carriers to try to establish a framework for our sector specific program that was announced on or about November the sixth.
But I would say that this is why I referenced in the press release of today that really for the first time, we view that the discussion.
Got too.
The more advanced nature over the last several weeks. So we had not previously made any statements about our expectations with respect of their views on sector support.
Today, we felt comfortable to include that statement in our release of this morning and of course I referenced it as well in the.
In my comments to the analyst community.
So what does that mean that means that basically the discussions have picked up the pace that I would characterize as more of a negotiation that is more in line with something that leads to an outcome.
And I'm more confident that there can be an outcome now than I was say a month ago.
But of course for the usual caveats as I indicated both in the release and in my remarks, there's no guarantee but really for the first time I'm confident that does include the three policy related considerations. The government mentioned in November which we restated in our press release of this morning, mainly.
Yes.
And agreement on refunds.
And understanding on the.
The regional routes and a return to regional some of the regional markets.
As well as some form of support for the aerospace sector and so those are forming part of the discussion of course of the can't elaborate on any of those three but our expectation is that there will be.
Something on all of those three debt will come up.
Think of.
Of our discussions.
Are of course different our financial position of different size of different of our global footprint and our regional footprint is different and then suddenly and so I think the kind of agreement that we're looking to establish the different than what they would have had I would say.
And that's probably as much as I can say on the topic at this stage of Hunter.
On the second point on the on the testing.
We have as you heard in my remarks, we are proud of ourselves of really being at the forefront of.
Of what it's going on in Canada, and the testing environment.
Did the largest.
It's kind of in the World test with the Mcmaster Health Labs unrivaled testing that had the <unk>.
This amount of data very rich data that is now being assessed.
And we really believe that the debt.
The silver bullet here is a.
Very very.
The effective.
Testing protocol debt.
That replaces the blanket restrictions of replacement the quarantine and we've been making that case to the government we've been making it the both privately and publicly.
We have tremendous amount of science behind our data.
Is that really the next step is to ensure that we have something that shows that the quarantine kind of in the first instance be reduced.
Consistent with the.
The various authorities, including the WHI.
The CDC and so a lot of the day.
These are all.
Center for disease control.
These are all indicators that the quarantine is more appropriate five to seven.
And so we will continue to make that case and with testing on arrival.
It does provide a lot of flexibility to ensure that we quarantine the people who need to be warranty who have summit.
Some of them.
Traces of the infection.
And to.
Of the buyers I should say and to and to let the people who are not.
I don't have the virus go.
So we're happy reduce quarantine so those discussions are ongoing.
Part of the discussion around the.
The Sun destinations and you saw that both in our remarks as well as of the Prime Minister's remarks, those that are interested in reading the prime Minister's remarks around the Earth.
All of the Prime Minister of clearly indicated in his remarks around the suspension of the Sun destinations that working collaboratively with the Canadian carriers, it will be seen as being a walkway to replacing the.
The right time.
The.
The lack of travel restrictions quarantines.
Of the prohibition.
The testing regime.
And science based measures and so that is directionally, where this has to go.
Right now of the update as of April 30 is the date by which.
We expect the best the Sun destinations the restrictions are lifted of quite frankly, thats. The date by which we expect that there will be improved dynamic with respect to testing replacing.
To some degree for teens.
Thank you Carolyn.
Yes.
Thank you.
The next question is from Kevin Chiang with CIBC. Please go ahead.
Thank you for taking my question and congratulations against killing on the retirement here.
The.
Maybe mid of Lucy just just on your cargo comments, obviously that has been a silver lining for for the airlines in 2020 you of the.
Two coming in later this year I believe at the correct me, if I'm wrong, but I think you've allocated up to potentially seven 760 sevens that could be converted overtime. Just wondering how you think of the timeline of converting more of aircraft to take advantage of the elevated.
The strong freight market, both domestically and internationally and what are the things that we should be looking for as you make that decision of expanding the fleet for.
More than two.
Sure.
So youre correct in fact of the number is seven.
We are looking to.
To do.
One other comment though on the cargo from keeping in mind net debt.
As we progressed through this.
This period here, we have maintained some of our international services.
And even if.
Some of the onset international flights the passenger demand may be a little bit low and we continue to operate those sites in many cases, because we have.
An opportunity on the on the cargo front, so as we navigate our way through the arrival of the 760 Sevens, we continue to have opportunity with Kelly on flights that we operate in.
GAAP conversions over time for the.
The following.
Yes.
Okay. Okay.
Kevin.
Kevin It's Mike just to provide a little more color on the conversions I mean, we'd love to have all seven of an operating by the end of next year.
These are typically a little bit of a longer process and slots are not really the available, but we are certainly working on having all of seven up and running by by the by Q4 of next year.
Oh, that's perfect that's very helpful.
Maybe just the last one for me here and I'll turn it over on the Air All play partnership with J P. Morgan.
We're looking at top of two to the U S market share within the loyalty program.
Just wondering if there's anything I can look for in terms of how you think about sixth freedom traffic coming out of <unk>.
Coming out of the pandemic and maybe specifically how you think about your Transborder network and the recovery is that in the area of maybe greater strength is that what I should be reading into it as I think about this this pushed by the aeroplan into the U S.
Yes, Kevin let me I'll start and I'll turn it over to the CIB, Yes, exactly look I think the for US we know the the sixth freedom traffic has been a big part of our decade now of the.
It's very very specific strategic driver of that we identified went after.
As we built our international network of <unk>.
Freedom market from the U S was the very big component of that and it served us extremely well get off.
The flight.
Quite the many of our European destination of lot of U S traffic onboard.
For sure we would love to return to those days, but obviously with the border restrictions as they are and the complexity, we know that thats going to take a little bit of time to to recover.
As the as the.
The recovery occurs as the border restrictions are lifted we certainly expect aeroplan in the chase partnership to be a key tool to giving some sort of reverts to the sixth freedom traffic, but certainly our expectation is that it's not an overnight kind of of think circuit of all travel restrictions are in place, let's get it up go ahead.
Anything for that and there's the one thing that is wellness.
Keeping in mind that the recovery will be not just in Canada, obviously, the recovery will be around the world.
So for for US when you compare what we can offer in the one stock basis connecting over Canada.
Basically it becomes the product it's very similar to what many of the U S carriers are going to be operating as they also recover so theres less non stop flying.
Which also means that for us the opportunities in the bigger and as we start to rebuild our Transborder network and where.
Going to do that with obviously and I on the 16 of market as well so we'll be sure of that as we reintroduced our transport are fine.
Connects well into our international product.
Absolutely no doubt debt as we move forward this will be a bigger opportunity even than it was in the past for us.
Thank you for the insight thank you.
Thanks Bill.
Thank you the.
The next question is from Walter <unk> with RBC capital markets. Please go ahead, yes, thanks, very much and the best of luck there Kevin on your on your retirement.
Yes, it should show.
Let's ignore trends add altogether and just ask the question of if the government were to Institute a price.
The price monitoring mechanism.
How would it do that.
No so first of all.
The.
We would view any restriction on the pricing is obviously being some form of reregulation of pricing, which would not be a good dynamic all around but if one was to institute.
Monitoring system of monitoring system means of sort of of reporting as to how the markets have evolved over some period of time snapshot of the period of time and I think that that is all of that debt.
The references okay.
Sort of retrospective analysis of price yes.
Yeah, Okay, Okay that makes the.
That makes sense.
Kevin when you look at all of our micro liters.
Would either.
When you look at the different government support.
Packages or frameworks that had been provided around the world in different jurisdictions.
Ones would you say would fit very well for air Canada, and the Canadian context.
The other words.
What seems to two two in your mind.
B of reasonable achievable and very effective Gov.
Government support program that you've seen some in another jurisdiction.
I think.
For the one that's closest to our hearts as some of some modification of the U S Cares Act.
That had to do two different pieces, obviously a fairly.
Aggressive payroll support program and then a.
The loan program.
Over five year period.
And so the.
We compete with the U S Airlines. So we think that a similar program maybe with some Canadian modifications would the best suit the airline industry up here in Canada.
The thing that I would ask Walter to that debt.
You also have to bear in mind timing at the time place and circumstance for like now we're talking about a year later, the almost a year later than the U S.
<unk> talked about and received the cares program, which means that you end up doing things.
And the consequence of that decision and so the things that we had to do last year, including burning the amount of liquidity taking of aircraft as we have allowing other competitors and you've heard of.
Sales and other Canadian carriers make the statement that several.
The international and U S competitors managed to continue growing and improving relative relatively speaking of that shrunk in market.
So.
That has to be taken into account as well of the fact that we're talking about this one year later than most of the other.
The large carriers of the world received support from their governments and so that debt.
It has to be looked at through that lens, because what might have otherwise been acceptable a year ago, maybe different at this point in time.
That makes sense.
Just on cargo.
I've looked at your 760 Sevens, primarily as dedicated toward your international cargo opportunity you're talking now about an E commerce that sounds like the domestic but that's that seems to be.
Belly capacity aimed toward the E commerce customer correct me, if I'm wrong, and if thats the case, what how would that impact you.
The regular passenger business in other words, if it's different than the belly capacity that you provided before whatever makes the different different is that going to negative at all negatively impact your passenger airline capabilities.
Walter It's Mike.
Youre right in your assumptions.
But we do not believe of any impact on our passenger because we do have excess space available in our bellies going across the country.
And so we're looking at utilizing that asset much more efficiently as we go forward.
Yes, I would just add as well if you look at.
Some of the core markets within domestic Canada Transcon. For example, we already have wide body aircrafts that operate on some of those rooms to accommodate kind of net cargo demand and we still have plenty of room to be able to accommodate it would not have an impact on our north American network. It all right.
Thank you very much and just a housekeeping you included cash financing in your cash burn can you indicate how much cash funding of our financing is included in your new guidance for Q1.
I think it's $2 million of day 2 million of debt. Okay. That's all my questions. Thanks for thanks, very much everyone. Thanks, Walter for the rest of it.
Here, we have the hartkopf of about five to 10 because of our bike.
Are needed.
Our board meeting so just to be mindful of the thanks for the questions.
Thank you.
The next question is from Savi <unk> with Raymond James. Please go ahead.
Hey, good morning, everybody.
The follow up on the answers to Hunter's question on the testing, replacing quarantines on April theory, yet some of them if you could.
And kind of share what's magical about that day. It is is that when you think that's sufficient supply of an infrastructure in place as debt.
The impairments from the vaccine front or kind of just exiting winter season, just wondering why why April 30th right. So that's of great questions. So first of all of the April 30th.
<unk> with the fact that that was the data set was.
The requested by government in connection with our that the Canadian industry, the spending flying to the Sun destinations for the Caribbean and Mexico.
We also have looked at that data is being the reasonable data that instead of sort of from our perspective.
As a reasonable proxy for a date by which we get out of the colder winter season and get into some are dynamic.
And also allowing for enough time to establish more comprehensive testing capabilities because of this does take some time and cannot be done overnight. So.
Given the government's request on April 30, being the Sun destinations the government statements around the summer being a period of time, where we will open up to domestic Canada, because remember we still have restrictions in many of the provinces of Canada. So we need to open up domestic Canada for travel freely and as well at that.
The enough time to establish.
Testing capability of because of course, if we start on it today on February 12 by April 30th.
With the.
Good hard work, we should have enough certainly at the at the key airports.
Canada that doesn't mean that it will be completely likely will not be completely eliminated, but we do see the the potential for it to go to of five to seven day quarantine, which is consistent as I say with the CDC and WHI of another recommendations like the so it's a transitional phase so it's a little bit of all of the above of what you said, it's the combination of heading from winter to summer.
The combination of giving enough time to establish testing capabilities.
Distant with the date that the government established on the suspension of Sun destinations.
And really a good segue into having.
Sort of not not losing a second summer of.
Travel for the industry.
That makes sense.
So as we think the.
The things open up I, just kind of curious as capacity starts coming back.
What should we expect in terms of cost of and I'm sure. The is crew training to get current again and the fleets that are grounded how should we think about kind of the cost ramp heading into the summer well it's true.
Over to Mike, but I think I think thats the.
We've done, especially with our pilot and especially because of the fact of Theyre also training for the seven for seven Max.
If you look at the total number of employees that Air Canada has kept on the payroll remember we've kept about 50% of our employees on the payroll, even though we're operating at less assets and 20% in fact break out 10% of our 2019 levels. If the 50% of our employees are kept so so we're.
We're mindful to ensure that we are training to that the ability to ramp back up as things turn of debt, obviously, while keeping our costs relatively under control with with the benefit of the accused program, we're able to keep more of people employed and at the same time to keep more of our.
Keep more of our crews our pilots and flight attendants per.
<unk>.
Yeah, just to add a little more detail I mean, there'll be some small incremental cost and material cost on maintenance to bring the planes out of the other storage.
But for the most part of the scale and said we've kept our pilots current and so there should not be the significant ramp up of costs as we as we grow back into the market.
Helpful. All right, Thanks, and the sessions for the next chapter of Cowen. Thank you so much of it.
Thank you the.
Next question is from Tim James with TD Securities. Please go ahead.
Oh, Thanks, and good morning, everyone.
Yeah.
I guess just my first question looking at the Max switch.
Started service.
Recently, and you've obviously been often bookings on it.
You're seeing any customer hesitation E booking away from the Max flying or or is it too difficult to gauge at this point given the low overall traffic levels.
No for sure of the traffic levels are lower but we are seeing no no negative customer reaction.
Okay, I think the simple as that I think obviously.
Of our crews.
Were well trained we ended up taking our time before we introducing it.
So thus.
Thus far we've seen nothing in terms of customer reaction and Kevin if I can just add debt.
In anticipation of the return we also had very transparent communication with our customers.
And we had policies ready of customers did feel a little bit on EPS.
And we were prepared to that.
And to be able to offer changes on site, but.
Since the start since the return to service we have had.
The no request to do that.
Okay, Great. That's good my next question I'm just wondering.
Maybe a question for Mike just start when they supposedly the could you reflect back on 2020 overall and talk about how the airline was able to flex down cost.
Which was really impressive I think when we look back but relative to your expectations back in March and April when Im sure you were kind of scrambling to figure out what could be done.
What ended up being different where you share them with even more.
Changes that you were able to make or was it more challenging than maybe we should you know, let's exclude the labor from the conversation here and maybe just focus on other notable parts of the cost structure.
Yes.
Youre right, Tim the original target of 500 and in hindsight was certainly.
Certainly.
Not as aggressive as we otherwise could have put in place.
But I think a couple of things one our teams have done a great job with our partners.
The <unk> contracts.
Either to reduce the cost structure or to transfer of fixed costs into variable costs and so both of those initiatives reduce the overall fixed cost structure and obviously it is an eye opening.
<unk> for the for any airline.
And certainly the objective is to make more of the cost structure variable.
Given the the multiplying we're doing and so I think I think that second bucket of making fixed costs more variable was the.
One that we probably over exceeded our expectations on and with the large part of the difference and getting the one points of 1 billion was also capital reductions or deferrals, but half of the capital reduction of deferrals hospitals cost reductions.
And we are certainly aggressive.
<unk> had some difficult discussions with Boeing and with Airbus on moving some of the fleets and for pushing them to the right.
And so I think it's.
Hard to estimate those type of benefits of going into the but it's certainly I think from the capital perspective and from the moving fixed into variable perspective, we exceeded our expectations.
The other thing to attempt to bear in mind is that we of course didn't know the depth of the length of this of course as the year on the ended up 7% cut deeper and deeper and again I'm talking about the labor I'm talking about the as Mike said all of the areas.
On track for our relationships moving things to variable.
And of course, some of the $1 seven as the.
The capital deferrals as well right.
And then we ended up doing the same thing for 2021, and 2022 already with respect of our aircraft and Boeing and Airbus.
Capital Removals, and so we ended up going on of Berry.
The bank coming to the conclusion of this is going to be remember we said early on is going to be three years.
People are surprised the came out that early with that prediction, but we said we're going to at least three years and so we ended up progressively taken steps throughout the year to ensure that we would have the financial backdrop not only in 2020, but also the 'twenty 'twenty one of 2022.
Okay. Thank you.
Just one more quick question, if I might just want to return you've talked a little bit of both.
Travel corporate travel I'm just are you hearing any indications from the corporate travel departments in terms of future intentions.
And then sort of any thoughts you might have on what business travel will look like in two years relative to what it was in 2019.
At this point in time.
We're in contact obviously with our corporate customers on a regular basis.
As it stands we know that many of us have policies in place.
To limit travel.
Business travel, but at this point, we're not hearing any.
I see.
The feedback that things will be extended further I mean, we do know that business travel will take longer to return, but when it does the ramp up the ramp up should be.
Relatively growth, but at least at this point in time I mean, obviously the corporate demand is.
Still at the same levels as it was during 2020 of those very very little.
Okay, great. Thank you Lucy.
Thanks, Jeff.
Thank you.
And the next question is from Chris Murray with <unk> capital markets. Please go ahead.
Thanks folks good morning.
Congratulations on your retirement.
First question, maybe for Mike So.
So Mike you've got about 1 billion to debt. The current right now which is a bit of a higher number than previous years.
So a couple of a couple of thoughts on this as you as we move through the year.
How are you thinking about kind.
Kind of the strategy around debt management, you have some of high yield notes that are in there.
And how would you think he would manage.
Some of that debt repayment.
If for instance of the government program it doesn't come to fruition.
Yes, so it's a little bit higher this year because of the $400 million of U S unsecured coming due in April.
Sure.
Normally we would have $800 million of year roughly coming due.
From various amortizations of maturities.
You're absolutely right, Chris our focus right now of the government support package.
And again of skill and.
We've said, we're optimistic that we'll reach a reasonable deal in <unk>.
<unk> share.
Failing that we will look at different alternatives as to whether we want to replace the 400 million or just absorb it.
And also of the debt markets are still open. They are still there are still attractive to air Canada, and we will certainly.
Take full advantage of the if we have to.
Okay.
So I'm kind of trying to think about as we move kind of in the more normal operations moving into 2022, how should we be thinking about.
Your plan on bringing debt back down to kind of payback if you will.
Some of the some of the funds you have had the drawback deal of Covid.
Well.
Of course that will depend on the recovery of as you've seen we've cut back our capital plan over the next couple of years and so I think thats a good first step in taking the cash flow that we would've otherwise we would spend in capex and we will focus on debt.
For years, our focus was balance sheet management and it will continue to be balance sheet management.
We'll always balance the strategic and competitive.
The importance of this company.
But the balance sheet also placed incredible part and so we do not see of taking a different approach going forward than what we've had in the past.
Okay, that's fair and the mill.
The question, maybe Wuxi I don't know if you want to take this one but just trying to understand.
And the new Aeroplan program.
Given the maybe some of your air travel is still going to the respected until maybe the second half of the year can you maybe walk us through about how some of the non air or Aeroplan benefits of work through the system for you guys.
You mean in terms of.
In terms of performance of the types of that yet in terms of it for it.
For the performance really is what I'm trying to understand the as if there was any changes.
In the program that either gives you guys the additional revenue opportunities.
Yes for sure and as I mentioned, a little bit earlier.
In my in my comments, one opportunity for US is when you look at the spend on on the credit card that has shown a lot of resilience so from that from that perspective.
It is a good revenue stream for us and we have further opportunities to be able to announce two announcing that relatively near future. So from that perspective, even if obviously travel is the sector that is most impacted we still have great opportunities on that on.
Are there other areas.
Okay. That's helpful. Thank you very much.
Of course.
Thank you for the next question is from Kamran Jackson with National Bank Financial. Please go ahead.
Thanks for again, thanks, very much good morning, I'll just to maybe just ask one question is I guess for sort of goes back to an earlier question just with regards to I guess, the sort of long haul premium traffic opportunity.
And I guess the question is if VFR traffic is sort of the first to come back or leisure traffic for us to come back on some of these international routes when the when travel restrictions ease does it make any sense to sort of reconfigure the seating in the wide body aircraft of I mean, I'm thinking of sort of premium economy would be.
The product that would be perhaps more in demand in all of the other airlines of kind of indicated that premium economy is a pretty profitable.
The product for them. So I'm just if you can maybe talk about the ability to reconfigure seats within the aircraft.
I think in non U.
That's a great question, but in fact, the the seating.
We currently have on our wide body airplanes is actually.
Perfect for what we are facing so we do have a good.
In terms of <unk>, we have a good.
Seating for premium economy. So we do have potential to be able to get some really good.
The yield opportunity to buy up into the <unk> cabins international and because of our premium cabins are not as large as many other competitors.
We're actually right sized for the demand that we have.
In past years.
We had a pretty significant yield upside compared.
Too many others as the result of that.
So as we go into the future it's actually.
Good opportunity for us to not have to even consider reconfiguring wide body airplanes to better fit the demand what.
What we have is actually going to be.
Perfect for us.
Okay. No. That's that's a great deal of I'll leave it at one question. Thanks very much thanks, Kevin.
Thank you the.
The next question is from Jamie Baker with Jpmorgan. Please go ahead.
Hey, good morning, everybody. Most of my questions have been answered I know, we're short on time. So let me jump right in once you back to 2019 capacity levels. How much improved do you expect your ex fuel cost structure to be Im curious if this analysis takes into account the freighter conversion and the Transat integration.
Yes, Jamie.
We have certainly some internal objectives, we're not ready to share those for the market right now.
So some of the U S Airlines have done.
And it does depend on your assumptions around the crater how big the freighter businesses.
Escalation of costs over that period of time.
But certainly are like.
Like most airlines our objective is to is to become more efficient.
Could you at least give some goalposts does your analysis start in a single digit percentage of category and in double digit category is it all single digit something like that.
We're just not ready at this time to.
Provide that color and second question and I apologize for missing the earlier clarification of the aircraft financing is included in the cash burn guidance. So it's included in that net $2 million of debt. Yes. It is okay perfect. Thank you take care everybody.
Thank you the.
Next question is from Stephen Trent with Citigroup. Please go ahead.
Good morning, everybody and thanks for taking my question most of my questions have been answered as well, but just one quick one for you in the interest of time.
We think about.
ESG goals you.
The Star Alliance partner of South of your border.
For example highlighted some collaboration.
With an electric plane developer.
How are you guys thinking about aside.
Aside from the re fleeting carbon capture of programs are kind of.
The longer term view.
Some color on that what the would be helpful.
Yeah, Stephen it's Mike.
Great question and something we're very very focused on we haven't announced any longer term goals. We've been actually a leader of this area and we are exploring all of the different areas, including alternative fuels, we are working with United on some things as well and sharing some information.
We will over the next little while the spend a fair amount of time looking at.
What kind of goals.
We want publicized and so stay tuned on.
<unk>.
Well, it's providing that information for the marketplace and I'll, just ask I'll ask David to that as well it's calin here.
We as Mike said, we've been the later in the.
In this area.
Course of 2020, we worked quite quiet in this area and all of it of course was as a result of extreme distress debt the airline in the industry with Thunder.
But in addition to alternative fuels, we are actively looking at of carbon capture solution.
Also the same as Mike mentioned this is something that is at the level of not only of Air Canada Executive Committee, but right up to the level of of the board and I think this is one of those that I would say watch this space I know Michael for some great things for the with our.
Environmental <unk>.
The team there.
Very very specific things and I suspect it'll be it'll it'll be unveiled over the coming over the coming months for share. This year, we ask for very specific targets of the industry as you know through the course here.
Which is one level we also have.
Some of the requirements inside Canada.
Some requirements.
And potentially in other jurisdictions like Europe, as well, but we think all of that aside there of some very specific targets that air Canada itself has.
Of which which have been worked on well before the 2020, a year in which were put on pause during 2020.
I appreciate that thank you very much Mike and congrats on your on the time it kill and I appreciate the comparable thanks.
Thanks, so much.
Thank you.
We will conclude the question and answer session I would now like to turn the meeting back over to Ms. Murphy.
Thank you Elena and thanks, everyone for joining us on the top Inc.
Thank you very much.
Thank you.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
<unk>.