Q3 2021 Air Canada Earnings Call
Yeah.
All participants please standby your conference is ready to begin.
Joining ladies and gentlemen, welcome to the Air Canada third quarter 2021 conference call I would now like to during the meeting over to Valerie.
Please go ahead Ms John.
Thank you Amy Hello, Boswell have you've done it wasn't because he must be determined here welcome and thank you for joining us on our third quarter call of 2021.
With me. This morning are Michael Rousseau, our President and Chief Executive Officer, Amos gives us our executive Vice President and Chief Financial Officer Siggi met.
Yet, our executive Vice President and Chief Commercial Officer, and Craig Landry, Our executive Vice President and Chief Operations Officer.
On today's call.
Excuse me Mike.
Mike will begin with a brief overview of the quarter.
Lucy will touch on travel demand, our network Aeroplan and Air Canada cargo.
This will provide additional details on our financial performance fleet and liquidity and then turn it back to Mike. We will we will then be available until nine a M for questions from equity analysts followed by questions from fixed income analysts and of course, we will remain available for additional questions. After the call to our investor.
Relations team.
Before we get started please note that certain statements made on this call maybe forward looking within the meaning of applicable securities law.
This call also includes references to non-GAAP measures. Please refer to our third quarter press release, and MD&A for important assumptions and cautionary statements relating to forward looking information and reconciliations of non-GAAP measures to GAAP results I will now turn it over to Mike.
Great. Thank you Valerie and good morning to everyone and thank you for joining us on our third quarter call.
Although the pandemic continues to impact our industry.
The results from the quarter clearly demonstrate that our airline is making great progress and is now in recovery mode.
First and foremost this is due to the hard work of our employees and their commitment to taking care of our customers.
Along with the task of restoring our business. Our employees have also had to contend with industry wide challenges as we rely on multiple partners in the air transport ecosystem to bring our complex industry back online.
I, thank our employees and commend them for their determination to rebuild our business.
I am very proud to see them win awards and global recognition for their efforts.
We are very encouraged by the favorable revenue and traffic trends of the third quarter.
There were strong increases in key passenger geographic segments, a record cargo performance, surpassing $1 billion in revenues on a year to date basis.
Significant improvements in both air Canada vacations and Aeroplan.
Along with these positive tailwind we control cost effectively.
The net cash flow of $153 million, we reported for the quarter was materially better than expected.
And greatly improved from the third quarter of 2020.
We cut our operating loss by more than 50% from a year ago to $364 million and our operating revenue almost tripled to $2 1 billion.
Another major accomplishment in the quarter was the completion of a series of financing transactions in August which yielded $7 1 billion in gross proceeds.
This provided a significant amount of additional liquidity lowered our cost of borrowing and extended the maturities of our corporate debt, giving us greater flexibility.
With these new financing agreements in place we ended the quarter with more than $14 4 billion of liquidity.
Which about $9 5 billion is available on our balance sheet.
Apart from the practical benefits of having these resources available.
Our balance sheet liquidity and our confidence that conveys is a core element of our long term prospects as we rebuild our airline.
Moreover, we continue to rebuild our network, we announced new domestic U S son, and international services and more recently a return to popular seasonal destinations in Europe next summer.
Another very positive and welcome indicator of the recovery is that we have already recalled more than 10000 employees since the start of the year.
Before I turn it over to Lucy in addition to again, taking our employees and the management team I would also like to thank our valued customers for their loyalty.
We are delighted to be flying them again, and we look forward to welcoming many more of them back onboard Air Canada.
Thank you and over to you Lucy.
Thank you Mike.
To begin I too would like to thank our passionate employees, who worked tirelessly as we won't come to our customers back and were recognized with several distinction at this year's Skytrax awards, including for Covid airline excellent.
Airline staff in North America, and if that isn't it.
America.
In the quarter, we achieved passenger revenues of over one 6 billion, an increase of about $1 1 billion or more than tripled compared to the third quarter of 2020.
Generally in line with our expectation we operated at nearly 87% more capacity in the third quarter of 2020.
66% less when compared to the third quarter of 2019.
Well exciting with the easing of candidate as travel restrictions and the reopening of the border to fully vaccinated foreign nationals.
Our third quarter, because actually represented a sequential growth of 100.
78% from the previous quarter, making a meaningful point in a recovery.
At the system level and exceeding our expectation.
I think measured as revenue.
Passenger miles increased nearly 215%.
Third quarter of 2020.
As.
<unk> by the steep ramp up in demand this quarter, our recovery is most effectively underway.
We're witnessing a strong rebound in VFR and leisure traffic remains strong.
And then in North America across the Atlantic and defend destination.
In contrast, the recovery over the Pacific is lagging given ongoing border closures.
Strict restrictions still in place in many countries we fly to.
We continue to believe we can offset it with opportunities in other geographies, which I will touch on in a few minutes.
Although the corporate market is slower to return than we had previously hoped and faster than expected rebound in overall demand is driving optimistic expectations for the fourth quarter.
2022 as well.
We continue to believe that we will see a significant rebound in business travel in 2022 led by SME and corporate Canada returns too often.
To underscore our continued network rebuild this summer we were proud to ease into service to 50 markets across Canada with August and September domestic capacity at around two thirds of what it was in 2019.
We also significantly increased our capacity to the United States.
<unk> services at 34 destinations and up to 202085 points.
Starting with the reopening of the border to fully vaccinated American travelers.
In August and September we were virtually the only carrier to Egypt, Queensland Board capacity, which gave US a first mover advantage as demand rebounded.
Well they define our position as the largest foreign carrier in the United States is fundamental to our commercial strategy.
A strong VFR and leisure demand observed a summer gave us confidence to announce our summer 2022 plan.
Serious genetic 30 transatlantic destinations, including the return to leisure focused innovation with seasonal service to Barcelona, Neeson, Ventas and year round service to key markets such as Amsterdam deal in Copenhagen.
Given its strong cultural and isn't it time to Canada, India remains a key market for us. So we were pleased to be able to restart operations when the Canadian government lifted the ban on passenger flights on September 27.
We also recently increased our Toronto to Delhi, 10 weekly flight and long.
Last week, we began our new three weekly Montreal, the galleys to coincide with this year's Diwali celebrations.
This enhanced service from Eastern Canada complements our daily service from Vancouver, and our strength in India supports our strategy to capture VFR market demand.
Looking at South America as countries continue to reopen we are increasing our presence in several key markets. This winter with enhanced service from Toronto, and Montreal, and the resumption of our service to Santiago from Toronto.
Also we will serve one of the dairy with one stop service from Toronto, and Montreal connecting to downtown.
I'd like to underscore that despite a slower than expected opening of the specific market.
Incredibly diversified international network, along with the Moto multicultural population in Canada. It gives us flexibility to deploy capacity in a variety of global markets.
While there is uncertainty of when we will return to normal capacity levels in markets, such as China and Hong Kong.
I'll set the slower as you wrap up to profitable and exciting alternatives in India, and Middle East South America and Africa.
Turning to our Air Canada cargo result, we achieved a record 366 million revenue for the third quarter, which represented an increase of 150 million or just over 69% compared to the same quarter in 2020, and honored and $89 million or more than double over the same quarter in 2019.
Year to date as Mike mentioned, we've now surpassed $1 billion in cargo revenues for the first time in our history.
Joining a small group of passenger carriers around the globe to I've ever achieved such a milestone.
Together with the leadership team I extend my congratulations to our colleagues at Air Canada cargo, who continued to progress adapt and innovate.
In addition to our record quarter, we recently broke ground on a 30000 square foot temperature control facility in Toronto, providing a world class cold chain environment for pharmaceuticals, and perishable shipment at our largest hub.
Investment in infrastructure, along with our dedicated Boeing 767 freighter fleet gives us the ability to continue to rapidly expand our cargo capabilities and capitalize on our strategically placed cargo hubs across the globe.
Okay.
Turning to Aeroplan, we were proud to receive the excellent management award at the Golden Loyalty Award recognizing the success of Aeroplan strategic transformation.
We also achieved strong third quarter results driven by gross billings from <unk> sold in the quarter, increasing 50% year over year.
Growth in member enrollment and strong credit card engagement in fact average card spend and new card acquisition are both higher than 2019 pre pandemic levels.
When we relaunched the program last year, we made a commitment to earn our way into customers' everyday lives.
Our boats and our new landmark partnership with the LCBO launching in the fourth quarter are central to delivering on that promise.
Bringing in new members and deepening our relationships with existing members.
Looking ahead, we will be launching our new chief co brand card in the United States in the fourth quarter and also expect to announce additional and expanded partnerships.
Thank you and with that I would count on it.
Thank you Lucy and bond sure. Good morning, everyone I'm delighted to be discussing these results with you.
A quick general overview.
EBITDA improved $487 million compared to the third quarter of 2020 with a negative EBITDA of 67 million in the third quarter of 2021 with the last two months of the third quarter, each generating positive EBITDA, excluding special items on.
On a GAAP basis, we recorded an operating loss of 364 million in the third quarter of 2021 compared to an operating loss of $785 million in the third quarter of 2020.
Operating expenses increased $925 million or 60% from the third quarter of 2020 on a capacity increase of 87% for a total of about $2 4 billion in the third quarter of 2021.
Turning to certain major expense categories in the quarter.
Fuel expense increased $297 million or 170% from the third quarter of 2020.
The increase reflects the higher volume of fuel liters consumed driven by increased flying year over year as well as the impact of $180 million from a 39% increase in the fuel cost per liter net of a favorable foreign exchange rate variance of 31 million due to due to the strengthening of the Canadian dollar.
Wages salaries and benefits increased $117 million or 25% on an FTE increase of 24% year over year.
Regional airlines expense, excluding fuel increased $114 million or 58%.
Primarily due to the higher levels of flying versus the third quarter of last year.
Depreciation and amortization expense in the third quarter was $400 million.
$23 million or 5% lower from the same period last year, reflecting the accelerated retirement of certain older aircraft from our fleet.
Partially offset this quarter by the addition of new Airbus <unk> hundred 20 dash three hundreds and spare engines.
Aircraft maintenance expense was 153 million up $108 million from the third quarter of 2020.
The increase was mainly due to maintenance provision reductions of $72 million recorded in the third quarter of 2020.
As a result of the updated end of lease cost estimates.
The remaining increase is mainly due to the higher volume of flying year over year.
As for our fleet, we exercised options for the purchase of three Boeing 787 Dash nine aircrafts scheduled to be delivered in 2022 and 2023.
As for our narrow body fleet, we elected to proceed with the purchase of an additional two Airbus <unk> hundred 20, <unk> 300, aircrafts with expected delivery in 2024.
These two are part of the 12 aircraft that we had previously determined would not be purchased.
This brings our 820 firm orders to 35 with three 8% to 20 aircrafts scheduled for delivery in Q4.
In October we reached an agreement with Boeing to accelerate the delivery of four 737, Max eight aircraft into the fourth quarter of 2021 from 2022.
The remaining nine Max eight aircraft are now expected to be delivered by the end of the second quarter of 2022, reaching a total of 4700 37, Max eights in the narrow body fleet.
These two aircraft types as the cornerstone of our narrow body fleet.
Along with our wide bodies, we will have a very cost efficient fleet, but also one that meaningfully contributes to our climate action plan ambitions.
Illustrating the growing confidence we have in the recovery the planned aircraft deliveries scheduled in the fourth quarter will be purchased with available cash.
Turning to liquidity since the onset of the pandemic, we have taken measures required to stabilize operations and to prepare for the recovery process.
Since March 2020.
We have raised significant liquidity.
Still we cannot be certain of the length or depth of the downturn. This is why our support agreement in April with the government of Canada, what's important.
It made available up to $4 billion in standby financing through fully repayable loan facilities to.
To date, we have not drawn down on any of these repayable loans in place nor do we intend to except to support refunds of nonrefundable tickets through a separate unsecured credit facility of up to $1 4 billion, which carries an interest rate of about one 2%.
As of September 30th roughly $1 $2 billion has been drawn under this facility.
This refund process is nearly complete and draws under this facility may continue up until November 30th as eligible refunds are paid.
There is still too early to discuss whether we will opt out of the government financing facilities, which we continue to view as an added layer of insurance.
At the beginning of the quarter, our unrestricted liquidity amounted to close to $9 8 billion.
Our financing transactions completed during the third quarter alone increased our liquidity approximately $4 4 billion.
At the end of the third quarter unrestricted liquidity was $14 4 billion and consisted of about $9 5 billion in cash cash equivalents short and long term investments with about $4 9 billion available under our Undrawn credit facilities and.
Additional information about our liquidity and financing transactions can be found in our financial statements and MD&A, which were posted on our website and filed on SEDAR. This morning.
I am encouraged by the approved by the improved financial results and seeing our colleagues return is invaluable to me.
Thank you for your attention and to everyone at Air Canada as we achieved these results together I will now turn it back over to Mike.
Thank you Amos.
In summary, we have finally realized in the third quarter clear signs of <unk> potential.
Progress and recovery.
We remain confident that these trends will continue.
The direction over time will be upward, although it may be uneven.
In the meantime, we're not simply waiting for Covid to disappear.
We are instead working hard to leverage our own abilities and strategic advantages to accelerate the recovery.
And further secure our leadership position in the competitive marketplace now taking shape.
Our transformed Aeroplan program stands among these strengths.
The program is unmatched certainly in Canada, and clearly distinguishes us from our competitors.
He will be instrumental in fostering customer loyalty and also will be a significant financial contributor.
The second strength is air Canada cargo, which like Aeroplan is also proving itself to be an important revenue generator.
They're kinda cargo will soon take a transformational step with the arrival later this quarter or the first of our planned eight dedicated freighter aircraft.
Last few months, not only shown cargos value and diversifying our revenue, but demand for our services can be expected to continue.
Due to the increased e-commerce demand and persistent bottlenecks and other cargo modes.
Third we have carried on with our fleet renewal throughout the pandemic our.
Our fleet is right sized and ideally configured to compete in the post pandemic market.
Moreover, the removal of older aircraft and the replacement by more efficient models reduces our footprint advances our sustainability goals and helps us meet our climate plan objectives.
To this end, we continue to advance towards our targets and collaborate with other innovative initiatives such as the Lee Bliss travel program.
We recently launched with a corporate customers with Deloitte a significant corporate customer first on board.
Another attribute is our new reservation system.
Because of the pandemic, we have yet to realize the full benefits of the major multiyear investment.
Now it positions us to better capture business and the resurgent travel market by giving us greater ability to serve our customers.
Our inventory and work with partner carriers.
In addition, we have added many customer centric digital improvements to the overall system and we will continue to invest to improve the overall customer experience.
Finally, the award winning corporate culture, we have built and cultivated over the past decade.
And resilience teamwork and empathy is a key strength.
This is our culture that allowed us to pivot quickly and make important decisions early in the pandemic.
This positive culture combined with the appeal of air Canada's iconic brands is enabling us to bounce back and reinvent ourselves to seize the many opportunities in the post COVID-19 marketplace.
It has carried us through the pandemic and will propel us out of it.
We have worked with many partners and stakeholders to safely open up borders and travel to allow the overall Canadian economy to recover and grow.
Air Canada contributes over 2% of GDP.
He is responsible for a significant number of indirect jobs and connect people and businesses around the world.
We welcome the new measures announced by the government of Canada to protect the health and safety of employees and the traveling public and are committed to implementing these new measures effectively.
Our employees have done their part with now over 96% fully vaccinated.
The employees, who are not vaccinated or do not have a medical or other permitted exemption had been put on an unpaid leave.
Yeah.
We do believe however that with a combination of the new travel policy and high vaccination rates with the general public.
The pre departure PCR test is unnecessary and we will continue to advocate for its elimination.
I understand and acknowledge this has been a difficult 20 months for our shareholders.
And I thank them for their trust in patients.
Although our share price is now significantly higher than the low over the last 20 months, we believe it has much more potential.
We've made difficult decisions to dilute our equity base in order to maintain a reasonable capital structure positioning us for future growth.
We are in recovery mode with positive indicators like bookings point to a much stronger 2022.
I have full confidence that leveraging all of our competitive strengths, including our people and culture will result, as well with a very strong recovery in our equity value.
Thank you.
Thank you, Mike and thank you for joining us today.
Closing I'm glad to announce that our next Investor day will take place on March 30th in Toronto, We look forward to reconnecting with you in person and are excited to showcase the actions, we have taken and outline the plans and targets we will be implementing to further strengthen our company.
In the meantime should you have any questions. We invite you to contact our Investor Relations team.
I know it sounded like that that's all I'll say go home home kind of hop in.
Definitely not insensitive. It then I'll sneak in a question John Tsai outside unit crushing at the home.
And then that was.
With the guests.
Thank you we are now ready for your questions over to you had any.
Thank you we will now take questions from the telephone lines. If you have a question and you're using a speaker phone. Please lift your handset before making your selection.
A question. Please press star one on your tablet devices keypad you may cancel your question at any time by pressing star two.
Please press star one at this time, if you have a question there will be brief pause while the participants register for questions. Thank you for your patience.
My first question is from Chris Murray with <unk> capital markets. Please go ahead.
Thanks folks.
I was just wondering if you could maybe elaborate a little bit on your commentary around booking curves and your thoughts around what we should be looking for Q4 and into Q1.
Hi, it's Lucie.
So first.
With respect to.
And it's nice bookings.
We have seen that certainly in the last two months or so a very solid ramp up particularly on the domestic.
Trans Atlantic and some market point in fact in some of those areas. We're actually seeing booking levels that are equal to what we would observed in that in 2019. So.
With respect to those geographies that bookings are coming in and solve it.
I do have to say, though that on top of that Faintheart Mackenzie booking velocity generally now comes in within 60.
60 days from from departure.
From what we've been observing and as we look at the curves were very confident that that the capacity that we have in place for Q4 for the in the geographies that I spoke about and also Q1.
Is shaping up very very nicely.
Yes.
Got it.
Sorry.
No no go ahead.
No I was just going to add the same also holds true as we look at the summer.
Summer 2022, and we're also very encouraged with what we're seeing.
In terms of how the Trans Atlantic markets are also building.
Okay. Thank you.
The one other question that I've been getting a little bit is around fuel prices.
You did mentioned that maybe the curves a little shorter can you talk a little bit about your ability to price fares in such a way as to reflect higher fuel prices.
Well, it's a it's not necessarily easy, but listen you know the way that we're managing through this obviously, we're very we're very conscious of the escalating costs.
Cost of fuel and our goal has always been to maximize revenue onboard we have leverage that we can play with when we have a lot of flexibility flexibility with that branded fares, we have a lot of flexibility to introduce new sources of revenues.
But at the same time, it's important for us to remain competitive but we are.
More more focused on our ability to optimize revenues.
So the environment is quite competitive but at the same time.
It's incumbent on us to use the levers we have to be able to push up the yield.
Where possible.
Okay.
My last question just on the fleet.
It seems like just looking at the aircraft that youre, adding.
There is some expectation on your part maybe a little more optimistic view than maybe previous quarters can you talk a little bit about your thought process around adding additional aircraft at this point.
And how you think that you'd be able to use those aircraft to the network.
Yeah, Good morning, Chris It's Amos.
Yeah. So you're right you can see there our optimism a little bit as we have better line of sight on the recovery.
In reviewing our fleet plan going forward going forward you know we can we retired a considerable number of aircraft and where we were versus 2019.
It took a lot of capacity out and so making those decisions now when we have much stronger liquidity when we see a path ahead.
It enables us to take decisions on the fleet various pieces of the fleet that are either need renewal or provide the opportunity for growth.
As we see demand returning.
It's one that I can't give you the magic plan here, Chris, but I think you'll see.
You've seen that by the results we've talked about today in terms of accelerating some deliveries edition of the 8% to 23, hundreds which is really prudent proven to be an excellent aircraft for our.
The domestic network.
We have.
Have options as we look ahead to.
The recovery and then we'll see how where demand lies and what opportunities make it <unk>.
Reasonable for us to build business cases to further invest capital.
Alright thats helpful. Thanks local terminal.
Thank you our next.
Question is from Savi <unk> with Raymond James. Please go ahead.
Hey, good morning, everyone. Just first of all I just kind of curious if you could provide and I know, it's not exact but at a high level you know what.
You're seeing I know, you mentioned leisure and VFR, our taking the lead but kind of curious where kind of leisure levels are versus 2019 and the various entities.
What you might be seeing from a business level as well.
So.
Never won against Sterling.
In this heavily to talk about corporate permit.
There's no doubt that.
In that in Canada domestic Canada.
It led the way in terms of corporate business.
We are lagging behind what we are observing in the United States.
We're pretty confident that.
Come 2022, and corporate Canada returns two to their offices.
Business travel should should return, but no doubt that for us business has lagged a little bit.
On the flip side, we've from the very beginning focused on some of these leisure and VFR markets and from the onset of this pandemic. When we entered those markets. We also focused on capturing premium leisure opportunities soldiers. Many segments are many markets that we actually offer.
We continue to operate where we were able to produce some pretty good results in the premium cabins. So although it may not be corporate.
It was still an avenue for us to be able to.
Can we expand in those areas, which of course leads that we've done and when we look at some of these markets. When we commented a bit earlier and some of these leisure markets. We're actually anticipating that by the time, we reach Q1 or Q2, we will actually be at 2019 levels.
At times bookings, particularly in the Sun region.
Very very good leisure markets are performing very very well.
And in some of the VFR markets and I'll touch on India. For example, but there are quite a few like that we're in.
We.
Introduced for example, new routes Montreal Deli was just recently launched.
We're extremely confident that.
Those markets will continue to perform very very well for us.
And just following up on that let's say it is I appreciate the color.
Is there for.
From a business standpoint are you hearing anything from your corporate clients. That's taken a win or you know how much they plan on traveling in 2022.
Well I mean, it's difficult to assess I mean, you will see when the bookings start to come in I mean, I have to say domestically, we see improvement week over week.
But not.
Not it's not as fast.
I would like to see.
And we're seeing similar trends on the trans border markets.
Corporate business is starting again transport or it's just a little bit slower than we would like on the international markets.
It will take a little bit more time.
Makes sense.
If I might on the on the cargo front could you provide just a timing of when the AC 30, then.
The triple seven build back from cargo and passenger operations and is.
Is that a is it kind of the introduction of the kind of a dedicated freighter is going to be sufficient to offset kind of the loss production on that side.
Yes.
Mike indicated earlier for the freighters will.
Start coming into service at the end of <unk>.
This year and then obviously programs to lead the freighters will be.
Coming into service over time.
Starting in the first quarter of 2022.
Some of the aircrafts that are not configured to accommodate cargo will return to passenger but at the same time, we have to keep in mind that we're launching.
Several new international routes, which actually means that we will also have that lease space for cargo.
I think overall, if you look at how the plant is going to transition.
Should be and that we should be in very good shape.
Great. Thank you I appreciate the color.
Thank you. Our next question is from Walter <unk> with RBC capital markets. Please go ahead, yeah. Thanks, very much good morning, everyone.
So I'd like to go back to the trends.
Necessarily near term trends as indicated by your booking curve, but just conceptually you know theres a lot of.
Discussion about when the airline industry will be back to 2019 levels on an overall basis.
Let's call it both leisure and business travel and I guess, there was a little bit of pessimism early in early days talking 'twenty 2025 or later.
No that's translated into.
Some optimistic views on 2023.
Or earlier.
My question, maybe to Mike is is there anything that.
That you would comment about those industry views on.
The return to pre pandemic levels and in.
In particular.
Would your fleet as it is.
As it is ramping up now.
Permit you to be as early as 2023 on a complete return to pre pandemic ASM could you be there by 2023, if industry conditions warrant do you believe that 2023 years.
Is that even though shot here given everything that you're seeing going forward.
Good morning Walter.
Obviously theres no textbook.
This type of recovery.
Any history.
There's no doubt, we're very encouraged by what we see and there is no doubt that the length of the recovery has moved him.
From a consensus of 2025 to at least 2024 and maybe 2023.
And I think that's gonna be loosely talked about different bye bye business versus leisure.
To answer your question are we ready for a faster recovery.
For the most part yes.
His name is talked about we were very conservative in how we managed our fleet.
Through the pandemic.
We are but we provided ourselves options to grow quickly and you've seen us step into some of those options.
In Q3.
So we believe that we can get almost all the way back to 2019 capacity by 2023 with what we have today.
And with some of the options that we have and promise.
Okay, that's great.
Can you can you update us I know.
I think I touched on this last quarter, but the competitive landscape and.
The risk that you see.
New or smaller players Hughes dependent make rebound is there effort too.
To establish themselves in.
In the Canadian domestic marketplace.
In a way different than they otherwise would have had the pandemic not happened and are you seeing any evidence.
From that from smaller players and is there anything that is different in terms of western competitive response to the way they are coming back and rebuilding their their operation that would give you any cause for concern.
Yes, a very high level, we're not surprised by anything we see in the marketplace at this point in time.
The players are are are very competitive.
But as we talked about in our presentation, we have incredible strengths that we're going to continue to leverage.
Two.
To maintain our leadership position on the markets that we operate in.
And again, we have one of our key strengths with Aeroplan.
It's been.
Taylor, just not for the business market, but for the leisure market as well and with some of the key features that we've added.
And so.
I won't spend a lot of time on aeroplan, but against one of our key strengths and how we're going to compete on a go forward basis.
But again, we're not seeing anything in the marketplace that surprises us perfect and just last question here and this is on one of your strengths as well as your access to our labor pool that.
Through your.
Agreement with jazz I think gives you a competitive advantage in a time when labor, particularly pilot shortages exist is that a fair.
Do you see that as a real competitive advantage and is that working in your favor.
Probably not now given but maybe perhaps you can give a little bit of discussion, but it is the pilot shortage a real thing right. Now do you have an advantage there and do you think it will limit the potential growth opportunity that your competitors might might be looking for but can't achieve because they don't have access to pilots.
So two parts to that question up one let me, let's be clear, we do not see a pilot shortage full.
Full stop.
We're very comfortable with our numbers.
Are you comfortable with our ability to recruit if we if we need.
Extra pilots.
And second part is on the jazz up flow agreement. It did certainly worked well before the pandemic. We also haven't.
Dealt with it during the pandemic and but it was a.
It will be as we go forward an important tool for us to.
Two pilots move up through the system.
Okay. That's all my questions. Thanks, very much for the time.
Okay.
Thank you. Our next question is from corner Gupta with Scotiabank. Please go ahead.
Thanks, operator, and good morning, everyone.
So maybe the first question perhaps.
Perhaps more for Ams.
Like for Q3.
It's just kind of wondering like whats a pretty remarkable achievement.
Exceeding your.
Cash burn guidance by 500, plus about a dollar.
Can you help us understand how much of that kind of beat our surprise versus your own expectation actually came in from from earning sources working capital.
Good morning, CT Gov.
The majority of it really came in from stronger earnings from EBITDA, We had set in terms of our a couple of months there.
So it beat our expectations and then again it sort of comes back to what Bill Lucia has spoken about in terms of travel demand coming in much closer closer booking cycle, and all which we knew it had been shortening up.
As we've seen during the course of the pandemic, but.
A lot of activity in the months.
Within the quarter so the.
The majority of that increase in cash flow is from.
From earnings and then the other part is then from bookings from advanced ticket sales.
Thanks for that Dennis.
And then perhaps the Lucy for Q4.
You guys are expecting 47% decline in capacity since 2019.
That kind of suggests I think the ASM is going to be much higher in Q4 than Q3.
Where do you anticipate that capacity increase quarter over quarter are coming from largely.
Am I guessing right, if it's going to be more like some destination.
And transporter.
You still have some leg up and domestic and kind of thought about it.
Okay.
Yeah, so basically.
Yes for sure.
And that's traditional going into the fourth and first quarter at the end of two services, where we're seeing a pretty rapid ramp up with BBVA U S. Transborder routes.
As we indicated earlier, we launched several new routes.
On the Trans border front and also on the Trans Atlantic that was that really the areas, where we see the biggest the biggest backlog going into the winter.
Okay. Thanks.
And then with respect to.
In the fourth quarter I understand you guys are not providing guidance for cash flows and cash button.
But if we can at least help us understand directionally.
City and demand seems to be going up heading into Q4 than Q3.
But on the other side of the equation you have fuel obviously consumption will likely go up at that incremental flying but fuel prices also going up from Q3.
So there's some puts and takes from Q4 versus Q3, and then I don't know if you have any comments on the subsidy benefits if you're anticipating anything there. So is there anything else that we should be thinking about when evaluating Q4 cash flow profile versus Q3.
No not much else I think Clark you really touched on really the highlight the puts and takes that there will be going into that into Q4. So.
I think again, you're sort of seeing our confidence we have strong liquidity and so.
Our strong liquidity is we're focused on the recovery and rebuilding the network and growing.
Growing back.
Thanks, and then last thing for me.
Like if you go back to 2019, I think some 20% of your passenger revenue came from.
Gabe I think.
So the remainder was more like leisure and.
Maybe some corporate travel back in the in the coach.
Now as you pointed out our Lucy like Q1 Q2 of this year.
But can you just travel can be much closer to 2019.
So how much like what portion of the 2019% of revenue are we talking about here that going back to 2019 level.
What is the remaining leases.
Let me see if I can maybe break it down here.
Yeah, right so in years past.
Ultimately the split.
But now with the sort of a change in the makeup of the room for sure corporate will have a much smaller percentage in 2022.
But what we need to consider it.
These opportunities that we've been able to unlock with premium leisure Jay.
New ancillary sales for example.
Opportunities for us to get more revenue.
To the premium cabins those are all.
And I should also add the improvements that we're seeing not only with the aeroplan redemption demand, but also the aeroplan redemption yields as well.
Are far exceeding our expectations.
The mix of revenue will change over time, but.
We're assuming that by the time the corporate demand in mid 2022.
It comes back hopefully, we'll get back to him on that mix, but in the meantime, there are other opportunities for us to compensate.
That's good color. Thank you so much that's all for me. Thank you for that.
Thank you. Our next question is from Helane Becker with Cowen. Please go ahead.
Oh, thanks, very much operator, hi, everybody and thank you very much for the time.
Yes.
Yeah.
Huge increases in premium leisure.
People buying up to that.
Premiums and.
And I'm wondering are you seeing the same thing.
In your markets as well kind of taking on the <unk>.
<unk> of the seats that you would have been selling to corporates.
And as you can see yes, we are actually if.
If you look at the recovery by cabin.
Our premium revenues and py revenues.
Clearly when you look at it from a.
Both year over year, those two cabins and recovered faster than the wide cabinet. So.
So for the reasons that you mentioned like so for example, these new premium opportunities.
In the past, we would not us.
No.
We would not.
We use the word chase, but I mean, this kind of environment.
These were new markets for us and obviously the potential there. So we did everything we could to cowen capturing and at the same time our ability to.
Put in more of our planned traffic in our premium cabins are testing all kinds of things.
The aeroplan team to see how we could continue.
Continue to improve the utilization of the cabin. So needless to say you know in the past it was a bit easier because that was at corporate as a portion of the demand for corporate and we now have a return on an interim.
Not planting those seeds is also very critical and we found opportunities and new markets to be able to capture those that those revenues.
Thanks, that's very helpful. And then I just have a question about fuel.
And maybe for Ams. This is for you.
Do you think about rising fuel costs do you think about it.
Hedging.
Separately or hedging in conjunction with the Canadian dollar against the U S. Dollar like how should we think about fuel cost in a rising fuel environment.
Yeah.
Good morning, Helane, it's nice to hear you again.
Yes, so look we look at both elements obviously, the advantages disadvantage of a strong Canadian dollar weaker Canadian dollar given the fuel price and all but what we looked at most carefully and decisions to to hedge is actually what's happening then with when the premium to hedge but then what is the curve.
Doing and you know right now the curve is in backwardation.
Backwardation, if you look at a year price per barrel drops $12. So it's hard to find yourself in a position here, where we're hedging makes economic sense. As you know we've always approached this from a conservative standpoint, just as an insurance policy to deal with.
The booking curve now with the booking curve is.
Much shorter much tighter and so sort of that opportunity there to catch a little bit of insurance there.
Is is less.
It's meaningful in the in the short term. So I think it goes back to how loosely talked about before on how we look at the rising fuel environment than what we do to optimize.
Kevin revenue.
Okay. That's very helpful. Alright. Thanks team. That's all very helpful have a nice day.
Sure.
Thank you.
Next question is from Tim James with TD Securities. Please go ahead.
Alright, Thank you and good morning, everyone.
Okay.
I guess my first question.
You see maybe you mentioned that youre seeing certain markets could be back in 2019 levels in the first quarter of next year I think that was what you mentioned.
And you cited some destinations as an example is that when you see returning to 2019 levels that in terms of traffic or revenue or more bulk.
Its actually both but.
When we're looking at the advanced bookings. So that's the point that we were making the here in the year when we actually look at bookings that are generated.
Our non <unk> services.
For the first quarter.
The amount of bookings that were taking on a daily basis is in line with what we would have captured in 2019.
So we may not quite yet at 2019 loan packages that goes by in terms of bookings velocity.
Actually capturing the same amount of bookings as we would have at that time and I have to say on that on the yield front as <unk>.
Certainly at this time.
And again, we know about the fuel issue cells of course, where.
We're doing everything that we can too.
<unk> two.
Fair enough where possible.
We're very conscious of TNT in the environment, but certainly understand that.
Curtis shaping up very nicely.
Okay. That's helpful. Thank you.
I guess and forgive me if you touched on this I know you were asked about the pilot shortage, specifically, but are there any sort of throughout the organization related to whether it's COVID-19 or people being away from work or are there any sort of labor availability challenges that you're facing today or are you feeling good.
About your position and the.
The availability of all the employees that you need as you ramp up capacity.
Good morning, Craig Landry here.
Yeah as you know.
Certainly the what we're finding is we're recalling our employees that we get a very strong response.
As Mike has mentioned earlier, we've recall over 10000 employees back into the company since the beginning of the year.
We continue into the fourth quarter to bring more employees in and we've already begun.
New hiring employees.
To come into the company as a fresh new employees as well so what we're seeing so far is a very strong response to that there's a lot of appetite and a lot of interest from two to.
I want to work at our Canada, and we've not observed any challenge that you've seen other airlines, having in terms of their struggle to meet their schedule demands in fact, we've.
We've been able to successfully operate.
Well in the high 90% of all of our flights.
As as planned in the schedule. So we're not observing the same challenges you're seeing elsewhere.
Okay. That's helpful. Thank you Craig.
Just wanted to turn return than two 2 million apartment about the movement or the uptake of it.
Of a premium.
<unk> seating and even into the business cabin of leisure travelers.
Do you have any historical data that provides insight into how sticky that move could be bye bye leisure travelers into sort of a higher price point like.
Do you think it's likely that they will revert to.
Sort of more traditional buying patterns and once conditions normalize whether that's next year 23 or 24.
Or do you think there's a tendency for people to kind of stay.
Stay at a higher price point once they kind of tested it out.
Do I see your question in terms of.
Having access to some of the historical data.
There is no doubt that some markets and we did have a little bit of history in years past.
And also we're.
<unk> able to use the.
The data that we have for some markets that we operate in and.
Sort of replicate what that might look like in some other markets. So from that perspective, we did down a little bit of information to be able to use.
<unk>.
And the interesting thing is as we progressed through the pandemic, we were able to come out with new products as well.
Customers have obviously.
Appreciate it.
And I would have shown it in kind.
So my suspicion is some of those products will stake I think there's definitely an opportunity here for more permanent premium products for the leisure traveler.
And I think we.
We're bullish but at the same at the same time, you know you have to sort of test. Some of these models to see to your point what sticks.
I think we had a few.
And finally as you know there are a few things that we tried that didn't work so well, but at the same time.
We were able to unlock some really good opportunities for tour operator traffic.
My suspicion is some of those some of those products will continue we also.
We're quite a bit on our offering for seat selection.
And this is another good story.
Revenue for US we were able to extract good dollars.
And for seed to feed.
In different cabinets and also different speed upgrade programs.
So we've learned a lot through this period and obviously, we're going to look to retain and the products that customers and depreciate it and at the same time, you know there's always a desire for us to find the sweet spot in terms of willingness to pay you now.
And the way you can do that.
Some of these things as well, but I think overall we.
We're pretty confident that some of these projects will have little state.
Okay, Yes, I would think it would be sort of an interesting mark.
Getting opportunity almost for you to have some of those those passengers going to try something a at a higher price point. So I know it was the biggest mistake I ever made paying up to my my kids to supply.
See because.
They did not respond well when I put them at the back of the bus again.
Yeah.
They are not terribly rational so they probably don't.
Like many of your passengers.
If I could just squeeze in one last quick quick comment quick question.
And I know, it's early but any thoughts to sort of what needs to occur in the market to resume guidance on them more.
Normalized basis, and again on Monday, anticipating or expecting it anytime soon but I'm just wondering about your thought process there.
So I think Tim attainments.
I think actually what valor had mentioned at the end is look forward to our March <unk> Investor Day, and I think that's where you'll see us back on sort of our metrics as we had done before of lining out what our aspirations and targets are and provide some more insight as we need a little bit more time Harris were.
Seeing how the recovery is unfolding and putting all that together so stay tuned for March 30th.
Okay. That's great. Thanks, very much Seamus Thank you everyone.
Thank you.
And our next question is from Cameron <unk> with National Bank Financial. Please go ahead.
Thanks.
Yeah.
Maybe just a couple of balance sheet questions for Emmis.
Could you sort of indicated that the the government.
Credit facilities.
You see it as insurance not looking to opt out of it yet is there a cost to you for keeping those facilities in place.
No. Good morning, Cameron no theres no cost to keeping those facilities in place.
I'm talking about the $4 billion in terms of standby credit if you will facilities. The various tranches. There. So no theres no cost to that are the only cost in terms of the programs is what we've drawn down on the.
Refund facility, which is who knows.
Seven year money at one 2% so.
Very low very low cost.
Nancy there to essentially.
Hey, the nonrefundable tickets issued.
Right.
And just another balance sheet question I mean, what's your ability to kind of accelerate debt repayment here I mean.
Obviously, if things do recover as expected here, if you're just sitting with quite a bit of cash on balance sheet, presumably free cash flow is going to go do it for like even more positively. So just talk about your ability to kind of accelerate some of the debt repayments.
Yeah.
Right now sort of limited opportunity to accelerate some but there are other there are some some amount that could be accelerated but it's more specifically around how we sort of go forward in terms of financing and.
And looking at aircraft purchases and looking sort of deleveraging as you've seen here had mentioned, we're purchasing the aircraft with cash coming up so using cash there too.
And Capex investments.
So that's sort of a general flavor right now Cameron.
Just to add to that Cameron's Mike.
And the aim is the team.
The collective team has done a great job.
Putting together the debt structure of the company and the weighted average interest rate for the for the our total debt is sub 4%.
And so there are we've got rid of the high cost debt and so now we're very very comfortable with the with a sub 4%.
Weighted average and so there is there are some floating debt, we could we could pay back but again, we've locked in with rising interest rates, we have locked in a fair amount of that right now.
No that makes sense and just.
Just a second question for me just on the the testing requirements. Mike You mentioned that you or your view is that the PCR pre departure tests unnecessary I think that's a view shared by a lot of people.
But how much of an impediment do you think that is for travel I'm just thinking about sun destinations. If you've got a family of four and you have to get a PCR test at either end of the trip I mean, it's there might be some sticker shock there for some people. So I'm just wondering if that were to go away.
Think of that you want another sort of step change in potential demand recovery.
Theres no doubt camera it would it would help we don't have numbers as to what the incremental demand would be without that without test, but honestly it is.
One we don't believe it's required from a safety perspective, that's the key issue from our perspective, but.
But we certainly would help demand.
We just don't know what that number is.
Okay fair enough that was it for me thanks very much.
Thank you.
That is that all the time, we have for questions I will now turn the meeting over to Mr. Huh.
Thank you very much seven Andy and thank you for joining US today again, we remain available should you have any additional questions through our investor relations team I'm, calling findings and spend in CNS.
Yeah that sounds like there's some difficulty.
Nancy Benjani, Thank you and have a nice day.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Yes.
Sure.
[music].
[music].
[music].
[music].
[music].
[music].