Q4 and FY 2021 Air Canada Earnings Call

February 18, 2022

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All participants.

Your conference.

Good morning, ladies and gentlemen, and welcome to the Air Canada.

Our fourth quarter and full year 2021 conference call I would now like to turn the meeting over to Brett.

Please go ahead thank.

Thank you mode, Hello, Basel, if you've done that gets him or have you seen S. P ended their mainland here welcome and thank you for joining us on our fourth quarter call of 2021.

With me. This morning are Michael Rousseau, our President and Chief Executive Officer, Amos <unk>, Our executive Vice President and Chief Financial Officer, you speaking at our executive Vice President and Chief Commercial Officer, and Craig Landry, Our executive Vice President and Chief Operations Officer.

On today's call Mike will begin with a brief overview of the quarter.

Lucy will touch on our revenue our network performance 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 then be available until nine am for questions from equity analysts followed by questions from fixed income analysts and of course will remain available for additional questions. After the call through our Investor Relations team.

Before we get started please note that certain statements made on this call maybe forward looking within the meaning of the applicable securities laws.

This call also includes references to non-GAAP measures. Please refer to our fourth 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.

Let's see.

Good morning, everyone Bullshot twos. Thank.

Thank you for joining us on our fourth quarter earnings call today.

While COVID-19 continues to impact our results are above expectation performance in the fourth quarter shows that a recovery is strong and well underway.

Even with the dampening effects of omicron on travel late in 2021, we produced significant year over year and sequential quarterly improvements during the period.

In the quarter, our operating revenue of $2 73, 1 billion exceeded our expectations and we reported EBITDA of $22 million.

While modest is quite significant as it is the first time EBITDA has been positive in seven quarters.

Our operating loss for the quarter was $503 million.

With the additional benefit of strict cost discipline, we reduced our net loss by close to 60% from the prior year.

We reported a net loss of $493 million or $1 38 per share again better than our expectations for our company in the quarter.

Yeah.

I must give credit for these results, whereas do and that is to our team.

The progress we have made rebuilding our airline is only possible through our employees hard work resourcefulness and commitment.

I warmly thank them for their dedication and professionalism, which has been unwavering through two years of a global pandemic.

And despite the latest challenges of omicron in December and beyond their efforts running our airline hundreds of employees gave their time to contribute to communities in need.

They did this in many ways, including by supporting cleanup efforts after the devastating floods in BC.

By donating to their local food bank or by giving holiday gifts to children, who may otherwise not have received any.

I am proud of the culture, we have built and admire our employees for their empathy and their kindness.

There are many encouraging signs with the underlying strength of the recovery during the quarter.

Our advanced ticket sales increased almost $400 million in the fourth quarter and reached 65% of pre pandemic levels in October and November prior to AMR crime.

Revenue passenger miles increased 295% year over year as traffic return.

Our cash flow from operations remained positive and increased from the third quarter.

We ended the year with almost $10 4 billion in unrestricted liquidity, which is about 30% more than that to start of 2021.

Given the strong liquidity position, we terminated the unused credit facilities under the government of Canada financial package.

This leaves only the special refund facility in place.

Contributing to our results were strong performances from all lines of our businesses.

Air Canada cargo reported record annual revenue of nearly $1 5 billion.

Our transformed Aeroplan program generated strong billings in the quarter and launched a number of strategic partnerships with popular brands and.

And Air Canada vacations saw a significant return of business in the quarter with submarkets, achieving bookings above pre pandemic levels.

There are other unmistakable signs of revival. Most importantly, we have recalled and hired more people with 3900 full time equivalent positions added in the quarter.

We've been actively restoring our network and Lucy will speak more about this.

As we move into 2022 expectations are that Covid will recede for this reason and with the government recently announcing the beginning of a phased easing of travel restrictions. We are confident the recovery of our business will continue throughout the balance of the year and beyond.

But before I hand, it over to Lucy I will also like to express my gratitude to our customers.

This includes those who have been flying with US now and the many more who intend to fly with as soon.

As well as those trusting us to ship their cargo.

All of Us at Air Canada value of loyalty and thank you for choosing Air Canada.

Over to Lucy.

You, Mike and good morning, everyone to begin I would also like to thank our carrying employee.

I personally participated in some of the community initiatives Mike outlined.

You see the true heart of Eric.

Canada when you see so many colleagues go above and beyond to elevate I think despite the professional and personal challenges.

Pandemic.

This was especially true with omicron, which impacted their personal lives and their much anticipated harmony.

Thank you for your carrying class.

All of our employees meet me so proud.

In the quarter in line with our expectation, we more than doubled our capacity when compared to same quarter in 2020.

This represented a decrease of about 47% when compared to the same quarter in 2019.

We achieved passenger revenues of just over 2 billion, an increase of about $1 6 billion or more than four times.

In the fourth quarter of 2020.

Traffic progression to be returned following some easing as candidate as travel restrictions and the reopening of the border in the third quarter of 2021.

At the system level traffic measured as revenue passenger miles increased nearly 300% versus the fourth quarter of 2020 with increases across all markets.

At the time, we reported our third quarter results, we were observing meaningful momentum into Q1 2022 and beyond.

Regrettably on the current forced us to reduce our capacity and make several schedule adjustments in the first quarter.

Despite the temporary setback, we are now witnessing strong demand across all geographies with the exception of Asia Pacific.

In fact from a low point in early January we are now observing a steady increase in new bookings as well as a far more stable rate of cancellations.

Therefore, a stronger than anticipated spring and summer and we are optimistic about demand trends going forward.

We've been actively restoring our network with 118 stations served at the end of 2021.

And the average number of daily flights rising at 665 in December 'twenty, one from 245 in January 2021.

In the fourth quarter, we announced updates to our schedule, which included increasing service.

T South American destinations and Sao Paulo in Bogota, as well excuse me, our Santiago and Buenos Aires.

We began its seasonal service between trying to Incent here Central Domingo Dominican Republic in December .

We also announced new seasonal routes connecting Quebec City in Vancouver, and Calgary that are scheduled to begin later this spring.

I'm also pleased to call it the strong performance of our international network in December .

Understanding that the recovery over the specific continues to lag and remains uncertain I'm destination.

China, we turned our focus elsewhere in Asia continent.

We expanded our services to India with increased frequency to Delhi from Toronto, and a new year round nonstop from material all of which are delivering strong outcomes with Montreal producing exceptional results.

Given its strong cultural and business going to Canada, and a large population India is a key market for us.

This enhanced surveys from Eastern Canada Compliments are daily series from Vancouver, and our strength in India and supports our strategy to capture ESR market demand.

This shows our ability to quickly seize opportunities, where we see good potential.

We also returned to Australia after a 20 month hiatus.

Along with our South American did very well for us in the fourth quarter and reflects our determination to rebuild our international network.

On the Trans border market. We are also very satisfied with our results.

Good resiliency in appetite from a freedom to travel.

We will continue to leverage our competitive strengths, including Aeroplan and its relationship with Chase and American Express and capital one to keep and grow our share of this market.

Going forward. We believe there are continued opportunities for Canada to further expand in the U S market.

We are considering various new route.

The cement our market position as the carrier of choice between Canada and the U S. In addition to further accelerating our sixth freedom traffic strategy.

We are witnessing a stronger than expected demand for travel between the United States and Europe , and we are poised to capture our fair share of this market segment in 2002.

Of course of activity in a recovery.

The domestic market was also resilient in the quarter, especially on the Transcon Hector.

We recognize that there has been various domestic competitive announcements and anticipate the competitive landscape will be dynamic.

Yet we continue to believe that our strategy of focusing connectivity through our hub is a key differentiator and our main competitive advantage.

We are in the business of global traffic flows through our domestic market and.

And while we do not comment on competitors' planned this in our view as an advantage.

We plan to increase our first quarter 2022, eight net capacity by 243% from the same quarter in 2021.

When compared to the same period in 2019 first quarter ASM capacity is expected to decrease by about 44%.

Turning to the business travel, although the return of the corporate market has shifted to the right industry specific and SME businesses have shown some sign of resiliency.

And we anticipate that to continue.

That's why we believe that we will see a rebound in business traveling 2022 when the conditions continue to improve and at corporate Canada returned to outfit and people look to connect in person with stakeholders.

We're consistently hearing from our customers that there is an intent to travel again.

Our service offering is well positioned for traffic volume increases from all markets.

Over the course of 2021 commercial and operations teams work diligently to safely restore our award winning products, including adapting and improving and based on feedback and learning during the pandemic.

For example, we now offer and it got hot food delivery and many of them.

We're testing digital starter country in Toronto.

During the fourth quarter, we completed reopening the entire maple leaf lounge, and caffeine network globally.

Drink Aeroplan, we're pleased with the strong customer engagement levels and above target growth, we are seeing from the redesign program.

Performance of our Cobranded credit cards issued by T D American Express and CIBC have fully recovered over 2019 levels.

Additionally, in 2021, we announced the partnership with Chase and launched a new airplane world They need Mastercard credit card in the United States.

Even prior to the pandemic a key element of our new loyalty strategy was to improve aeroplan appealed for infant when Alicia Congress.

We're pleased to report significant progress as we rolled out new partnerships with Starbucks Uber and LCB last year.

Despite the difficult conditions in the first half we acquired over $1 2 million members in 2021.

Significantly more than in the years prior to re launching the transfer program.

Your friend airplanes, Bruce spilling in December were also very encouraging as they surpassed those of 2019 and redemptions continue to recover IP.

We're making progress towards the goal of earning our way into members everyday lives and further building airplanes as a key tool to support air Canada, and the leisure and VFR travel payments just as it does with business and corporate travelers.

Turning to our Canada cargo October cargo revenue reached $490 million in the fourth quarter of 'twenty, one, which represented an increase of 204 million when compared to the same quarter in 2020.

More than a 160% over the same quarter in 2019.

Air Canada cargo operated over 10000 cargo only flights in 2021.

<unk> to just over 4000 in 2020.

In 2020 , one as Mike mentioned, we nearly reached one 5 billion in cargo revenue for the first time in our history.

Demonstrating our determination to further develop our cargo division we are nearing completion of an expansion of air Canada.

Carnival's cold chain handling, Italy, Toronto Pearson for Pharmaceuticals, and other perishables.

In December we reached another milestone with our first Boeing 767 dedicated freighter beginning operation.

To have three additional Boeing 767 freighters in our fleet by the end of 2022.

The sustained performance of Air Canada Carnival validates our decision to return to fully dedicated cargo aircraft.

The advantage of the growing cargo market.

And dedicated belly space and freighter.

Cargo business is an important part of our recovery and long term growth, helping with seasonality and diversification.

It also serves the supply chain needs with time sensitive carnival in a world that has seen domestic and international shipping challenges throughout 2021.

I hope that's known to me.

<unk> in Basel good morning, everyone.

Again with a quick financial overview of the fourth quarter.

On a GAAP basis, we recorded an operating loss of $503 million about half of the operating loss of $1 billion in the fourth quarter of 2020.

EBITDA, excluding special items of $22 million improved $750 million compared to the fourth quarter of 2020.

On a year over year capacity increase of 134%.

Operating expenses of three to three 4 billion increased $1 4 billion or 77% from the fourth quarter of 2020.

Despite the operating challenges brought by Omicron and a significant increase in fuel price.

Managed to control costs through our disciplined approach and by the efficiencies and operating leverage achieved through our recovery plan.

So for the sake of time as we only have an hour including for your questions.

Will only cite those categories that have the most notable variance in the quarter and that's of course begins with fuel.

<unk> expenses of $665 million increased $478 million from the fourth quarter of 2020 the.

The increase was a result of a 67% increase in jet fuel prices.

Net of 32 million favorable variance in foreign exchange.

With the higher volume of flying we also consume more fuel compared to the same quarter in 2020.

We remain vigilant on the price of fuel, but we have not changed our view on hedging and they're not doing so at this time.

Wages salaries and benefits of $666 million increased $169 million or 31% from the fourth quarter of 2020.

The increase was driven by an increase of 41% and full time employees related to the increased operation.

We are glad to see our colleagues returned to work.

In the fourth quarter of 2021 regional airlines expense, excluding fuel and aircraft ownership of $342 million increased $97 million or 40%.

The increase was primarily driven by higher expenses due to the higher volume of flying compared to the same period in 2020, but was partially offset by savings from the consolidation of regional flying.

Depreciation and amortization expense of $399 million in the quarter $36 million or 8% lower than the fourth quarter of 2020.

<unk> reflected the accelerated retirement of certain older aircraft from our fleet.

Partially offset by the addition of new Airbus <unk> hundred 2300, and Boeing 737, Max Eights.

In the fourth quarter of 2021 aircraft maintenance expense was $226 million up 22% from the same period in 2020.

The increase was primarily due to the higher volume of flying compared to the same period in 2020.

And to a lesser degree updated end of lease cost estimates related to an aircraft return to lessor in 2021.

Turning to the full year operating expenses of roughly $9 4 billion decreased $160 million or 2% when compared to 2020.

Still a direct year over year comparison of total operating expenses is not necessarily meaningful as we operated a preterm pandemic schedule for most of the first two months of 2020.

Special items recorded in 2021 amounted to a net operating expense reduction of $31 million compared to a net operating expense reduction of $116 million recorded in 2020.

Yeah.

As for our fleet as we reflect on this past year's extreme turbulence, yes, the pandemic had a devastating impact on our industry, but it also accelerated innovation, including sustainability initiatives that contributed to our climate plan ambitions.

For example, as a response to the surge in demand for air cargo space, We innovated by operating all cargo flights using passenger aircraft as well as some buoying Triple 700, 300, <unk> and Airbus <unk> hundred <unk>.

Temporarily converted into all cargo configuration.

We plan to have all temporarily converted triple Sevens and <unk> hundred <unk> back into passenger configuration by the end of 2022.

We accelerated our fleet renewal by moving up the delivery of four Max's from 2022 to the fourth quarter of 2021 for a total of seven aircrafts delivered last year.

The remaining nine Max eight aircraft are expected to be delivered by the end by the end of the second quarter of 2022, reaching a total of 40 Max eights in the fleet.

We also took delivery of three 8% <unk> in Q4 at the end of 2021, we had 27, 8% to 23 hundreds in 2022, we expect to have six more enter the fleet.

Additionally, we plan to add 12, more 800 twenty's to the fleet.

Six will be delivered in 2024, and six and 2025.

These are the 12 aircraft that we had previously determined we would not be purchasing this.

This will bring our <unk> hundred 20 fleet count to 45 by the end of 2025.

If you have not yet experienced traveling on this aircraft. We look forward to welcoming you onboard soon you will be impressed.

Finally, we exercised options for the purchase of $3 787 Dash nine aircrafts.

Scheduled to be delivered this year and in 2023.

Turning to liquidity, we began the quarter with about $14 4 billion of unrestricted liquidity, which included 4 billion available under our government credit facilities and $900 million and revolvers.

November 2021, as Mike mentioned, we withdrew from the government of Canada financial support.

Remember that none of the near 4 billion available under the secure a revolving and unsecured non revolving credit facilities was ever drawn.

We elected to terminate these as we were entitled to now only the special facility dedicated to support refunds of Nonrefundable tickets remains in place. It has a seven year term and carries an interest rate of about one 2%.

Total draws from the three funds facility amounted to close to $1 3 billion and draws ended in November of 2021.

Last spring, we issued about $14 5 million warrants to the government are exercisable for the purchase of an equal number of air Canada shares.

Half of these warrants vested upon the implementation of the government of Canada financial package.

The other half is now canceled as it was conditional on draws we could've done under the unsecured credit facilities that we terminated.

Air Canada has the right to repurchase and cancel divested warrants, which we did in January at a fair market value price of about $82 million.

At the end of the fourth quarter.

Unrestricted liquidity amounted to $10 4 billion practically unchanged from the beginning of the quarter, excluding the now canceled government facilities.

Additional information about our liquidity and financing transactions can be found in our financial statements and MD&A, which are now posted on our website and filed on SEDAR.

I know all of you are looking for more guidance, but you will need to be patient and wait a few more weeks until our investor day at the end of March.

Also plan to showcase more about our key assets and competitive attributes.

Finally, I will close by echoing, Mike and Lucy and thanking our employees, while I have discussed the financial elements of our results.

The culture, we have built propelled by their empathy dedication and desire to elevate our customers and each other.

<unk> for the intrinsic value of our company.

I'll now turn the call back over to Mike.

Great and thank you Amy.

We said during our previous quarterly earnings call in early November that the recovery of our company was underway.

Today's fourth quarter results showed this recovery is robust sustainable.

And continues gaining strength.

Tuesday's announcement by the federal government, notably the changes in travel advisories and the removal of quarantine for children under 12 years old is also an important step forward for travelers our industry.

And for the Canadian economy, which relies on trade and tourism.

But more needs to be done.

Other countries have moved to eliminate pre departure testing requirements for fully vaccinated travelers.

And the scientific evidence suggest now is the time for Canada to do the same.

As provinces across Canada are announcing comprehensive reopening plans.

We are confident that border measures will continue to ease in the near future.

If borrowers and large public events can reopen at full capacity.

Some provinces, such as Quebec, and Ontario can put an end to the vaccination vaccination passport.

There is no reason to signal out travel.

Canada's economic recovery won't happen without the full contribution of the aviation industry.

For our part we can contribute as a Canadian global champion.

It is a status we achieved prior to COVID-19 by focusing on revenue enhancement and cost transformation, leveraging our international network customer engagement and cultural change.

Our company is fundamentally solid.

Now the world is showing us that we are ready for takeoff.

And it is time for us to embark on our next chapter.

As we emerge from the pandemic, we will stay true to what has defined air Canada, while at the same time pushing ourselves do things differently.

This will include making strategic investments and being creative to seize new opportunities.

We will aim to rise higher to elevate everything about our business.

I will detail. This further at our upcoming Investor day on March 30th but for now let me touch on some of the key assets and competitive attributes that we will leverage.

Chief among these is our power to make meaningful connections something our country and world Longs for following the isolation of the pandemic years.

Our fast and growing network is unrivaled in Canada and compares favorably to any in the world for connectivity and convenience.

Combined with our networks of our JV and Star Alliance partners, we can offer customers easy access to virtually any destination on the euro.

We also have the ideal fleet to operate this network.

Pandemic accelerated our fleet renewal plans, allowing us to exit certain aging and less efficient aircraft.

At the same time, we sped up the delivery of new narrow body models and built out our international fleet.

Third we have a strong brand product and people recognized by numerous awards in 2021, notably Skytrax Award for best airline staff in both Canada and North America.

Customer service products and experience will remain a central focus.

Another significant attribute as aeroplan it as Canada's leading travel loyalty program and offers powerful inducements for travelers to choose our airlines the.

The transform programs added emphasis on the visiting friends and relatives market is key as this market is leading the recovery.

In our industry.

And finally, there is air Canada strengthened commitment to sound environmental social and governance practices.

<unk> is increasingly important to our investors customers employees and other stakeholders.

During the past year, we set an ambitious target of net zero emissions by 2050.

As well we are committed to support the development of alternative fuels and other technologies to reduce emissions.

In the quarter, we were the first Canadian carrier to join the aviation climate Task Force are new not not for profit organization of 10 Global Airlines and the Boston Consulting group. It aims to accelerate research and innovation and Decarbonization technologies.

The same ability is something I take a deep personal interest in as I believe we all do.

The governance of our company starting with our deeply committed board of directors is aligned to ensure ESG continues to be integral to air Canada's decision, making in the future.

And all of these and other ways. Our company is very well prepared to thrive in a post pandemic world.

Strategies and competitive attributes we have put in place puts us at the forefront of the recovery of our industry.

Which I believe will result in a strong recovery of our equity value.

Thank you and now we have time for questions.

Thank you Mike and thank you for joining us today in closing we are glad to confirm once again, our investor days planned to be held in person on March 30th in Toronto.

That sounds like that's what pays off oxycodone on tenants have been definitely some derivative confirmed making a question gentlemen design just SaaS people ask the.

I don't want to.

We're now ready for questions. Once again in the interest of time and in order to be fair to all we kindly ask that you each limit yourself to two questions or one question and one follow up so do you have any additional questions. We invite you to contact our investor relations team over to you mode.

Thank you Ms.

We will now take questions from the telephone lines. If you have any questions and you are using a speaker phone. Please lift your handset before making a selection.

I have a question. Please press star one on your devices keypad you make.

So on your question at any time by pressing star too. Please.

Press Star one at this time, if you have any questions.

We follow all participants register for questions. We thank you for your patience.

Our first question is from Jimmy Baker from Jpmorgan. Please go ahead.

Oh, yes, good morning, everybody. So we've spoken in the past about capacity rationalization and some of the longer haul international markets and the possibility that it could lead to higher international margins.

Down the road than what you enjoyed pre COVID-19 .

You monitor capacity being added back.

Some of these longer haul markets how does it.

Compare to what you were.

Thinking about this topic earlier in the pandemic.

And it needs to be.

We're behind what your expectations were in line.

Overall commentary.

Hi, it's Sam.

Lucy.

First on the international front.

No.

Over the course of the last two years, we had a significant reduction in our Asian network.

We focused on on the Trans Atlantic, but we also focused on markets, where we knew during this environment, where there's significant demand in Canada, particularly in some of these VFR markets, where we knew we would be able to to be successful. So over the course of the last.

Two years, we focused on some of those markets.

The markets in the Middle East, we talked about India and truly those markets exceeded our expectations and it leaves us very confident.

For the future as it pertains to those who now as you look into 2022, and we're actually now starting or a revamp of our international network and keeping in mind that when we started to reintroduce some of the Trans Atlantic Flying It was based on the fact that we ensured that we had connectivity in.

Our Star Alliance and to our joint venture partner hubs.

So we leverage that and now we are adding markets, where we can clearly see that a from a point of sale Canada demand.

It's solid.

And where we also have opportunity for inbound so we've done this progressively.

But I can tell you that based on advanced bookings.

What we're seeing on our international network. We have every reason to believe that it's going to be.

It's going to be very successful for us in this summer so advanced bookings are boding well.

The advanced.

Yields in terms of.

Selling price on those markets as well.

Is very very encouraging, but we were very prudent but again, we were able to.

Add on progressively and I think by the time, we reach this summer we have a very very solid solid international network now on the Asia front as we know we expect we've said we expect that this will take longer.

But nevertheless, we found out there opportunities during that time.

Perfect. Thank you for that and a quick follow up.

What we're seeing is that corporate travelers tend to be booking further in advance where leisure the leisure booking curve is sort of uncharacteristically weak at the moment.

How do you think this actually plays out with yields.

Seems like Theres yield upside as more corporate travelers.

Looking closer in but possibly we use or downside as consumers increasingly have the confidence to book further out.

The first is that what Youre also seeing and then any thoughts on this dynamic it seems like the two booking curves.

Sort of swapped places where how.

You'd expect them to be shaped pre COVID-19 .

There's no doubt the ICC this there's no doubt that in.

2021.

And even now when we look at the booking curve there is no doubt that even for leisure traffic.

That is much much closer comes in much much closer than what we would have observed in 2019.

But having said that now that we're heading into the second quarter.

We are now starting to see and I think a lot of it has to do of course with lifting the restrictions customers now have confidence that they can book their summer.

Got it.

And their travel plans are not going to be impacted so we're starting to see a little bit of a shift.

Now.

The basic principle for US is always you know we manage the higher yield.

The highest yielding.

Segment first so as.

As we look for business.

<unk>.

We've been monitoring these trends for quite some time and we in fact monitored daily as soon as we start to see that in fact, the business demand is looking to return.

We will we will be in a position to make sure that we can manage both of those segments.

I think.

The last week or so and.

It's really been the first indication, where we're actually starting to see confidence in terms of booking a little bit further out for leisure.

Interesting okay.

Thanks for all the color or not see in a few weeks.

Thank you following question is from Stephen Trent from Citi.

Please go ahead.

Hi, good morning, and thank you very much for taking my questions.

Just a quick one or two for me when I think about it.

So it would be a post pandemic recovery I was intrigued.

You mentioned your Star Alliance partners and <unk>.

And given this might be a question for Lucie given what you guys are seeing in terms of.

Maybe a slower recovery and manage business travel I mean, not just you everybody do you think that some of that medium to longer term growth could come more from the jv's and from the Star Alliance.

Well.

There's no doubt that from it from a JV perspective, if you consider a plus flat. So the partnership that we have with those kinds of family and with United We've been working alongside these two carriers for several several years and of course through the pandemic.

Been able to lap.

To better align with theirs.

No doubt that as we recover some of these markets.

There is an opportunity for us to capture some interline traffic that comes from other stock partners or even other interline partners. So.

Any time, our network planning planning team.

If you have any international route.

We always look at the makeup and where we can actually drive that traffic.

There is no doubt that as we move forward, we're very much aligned with our with our JV partners and it also provides us the ability to really understand what's happening in other jurisdictions, we were talking about corporate a little bit earlier, we can actually see what's happening in the U S. As far as business traffic recovery, we can see what's happening in Europe and.

In terms of you know.

Demand levels for travel into North America. So it's very helpful for us.

<unk>, what we are what we see in the future, but theres no doubt that we work very very closely with that with our star partners and of course with our JV partner.

Oh Super appreciate that Lucy and just my one very quick.

Second question some of your U S peers.

It had been kind of from a configuration perspective shifting some.

Capacity from economy to kind of premium economy.

Refresh my memory.

To what degree.

Air Canada is also deploying that kind of strategy. Thank you.

Well, we have so far.

In terms of.

Product offering we of course have some.

Premium and we also have a <unk> product.

Across our across our network.

And I would just say one other thing here.

For us and even before the pandemic, we spent a fair amount of time looking at multiple a multitude of opportunities for us to capture different premium segments, particularly in the leisure and VFR markets.

So as we headed into the pandemic, we were able to actually.

Offset some of the yield pressure that we felt because there was no corporate travel.

With that.

Hawaii ancillary sales for seat back purchases.

Leisure.

So J class for example, so this is not something that is.

Yeah.

Came out of the pandemic. This is something that we've been working on for some time and of course, all our aircrafts are equipped as well with DIY products.

Thank you.

Following question is from Andrew <unk> from Bank of America. Please go ahead.

Andrew.

Uh huh.

Please go ahead.

Hi, good morning, everyone.

Can you hear me yes.

Okay.

Question for <unk> can.

Can you remind us what the permanent cost savings that you've taken out of the business since 2019 and yeah with your new fleet profile do you think those cost saves.

Provide the efficiency to get your CASM X back towards pre pandemic levels here.

Good morning, Andrew Youre trying to get ahead of the story for the end of the end of March nice try.

We'll have more to say about that at the end of at the end of the.

And at the end of March share at Investor Day.

The savings that we had driven out of the.

During it driven out of the company during the course of the pandemic and the recovery.

We're.

<unk>.

Yeah.

It was.

About 800 with the split up was about the 800 in terms of the operating expenses that came on they came on down.

And then later on as we layered on top of that we also had the savings from was it moved into consolidating.

The regional carrier with Sky regional and jazz and consolidate flying and that generate another 400 million over a period of 15 years, but it was front weighted about $50 million for the first four years five years, and then 15 million thereafter.

Those are sort of the large headline stories from back in the early recovery days, but that doesn't mean that we've stopped on any cost reductions we continue to look.

Look for opportunities and continue to leverage up what we have progressed through that time.

And just to add good morning, Andrew It's Mike just to add to that I mean, we went into the pandemic with a couple of key objectives and we have always done a great job on cost management as you know and frankly, our CASM ex.

Going into the pandemic.

It was very comparable to the U S Airlines CASM ex.

On a currency neutral basis. Despite the fact that we were much smaller or roughly half the size, but we went in with the objective to try and lower our fixed cost structure of the company and lowered the breakeven point from us.

From one of our prospective you want.

And we've accomplished that and we will provide more information about that at Investor day.

And just on retail and.

And just one more piece on that just as you look at the all the fleet changes, which really sort of went to changing also some of the cost structure is in.

You know look we've accelerated the fleet deployment of the.

<unk> hundred <unk>, and maxes, which on average were 12% to 15% lower unit costs in the aircraft. They replace so again, all going towards generating and driving down lower breakeven point.

That's great I'll stay tuned for more detail for the end of March.

My second question.

Lucy.

There has been.

International has been a topic of conversation so far I was interested to hear that your sixth freedom traffic that you started commenting about your sixth freedom traffic certainly.

Seems like it's returning sooner than I would've thought in terms of your share here into the peak summer.

Are you seeing similar share to where you were pre pandemic already I think your goals pre pandemic were 33, 5%.

Of the total traffic just curious what youre seeing there in terms of sixth freedom traffic. Thanks.

Hum.

As opposed to looking at it from a share perspective, keeping keeping in mind that our international network as.

It's a different makeup than what we had in 2019, but if we look at pure volume.

For this summer and how our advanced bookings are building on the sixth freedom side of the business I would tell you that in many markets. We're actually ahead of where we were.

And.

Needless to say, we have been very very.

Got it.

Focused on our Transborder network as well to make sure that we have very good connectivity that we have a really good product for sixth freedom markets for connections to and from the United States and.

Based on what we're seeing.

We're quite optimistic that it's going to perform quite well for us in the summer and.

And in fact, you know we have.

Given ourselves some in.

Internal stretch goals here, because theres no doubt that with the product we have.

And the schedule that we have.

Design is scheduled for this summer.

There is an opportunity for us here so anyway.

We're very much focused on focused on this.

Thank you everyone.

Thank you all following question is from Kevin Chiang from CIBC. Please go ahead.

I'll just keep it to one.

I was just trying to get a sense of how you think about using some of your excess unrestricted liquidity now, but it feels like.

We're more comfortable with.

Suddenly in front of you.

Today at something like 7 billion excess unrestricted liquidity silicon gross debt.

Youre looking for the near term or was there further about that.

Youre looking at in terms of the recovery before you start.

Delevering more aggressively here.

Hey, good morning, Kevin It's Sheamus.

Right, where we're sitting on obviously some solid liquidity here, which we feel is important to have as we go through the recovery period.

We are doing right now in terms of beginning stages of putting the liquidity to use cash to use and delivering is purchasing aircraft with cash so the max's.

That I've spoken about are all.

Being paid for with cash so that's sort of our first use of.

I mean, I guess you can.

Must say then the second part of that a small part was the.

Purchasing of the warrants that were outstanding.

Besides that we have continued to look at opportunities. There is nothing really close in that would say.

As a standout opportunity.

But we'll continue to evaluate as time goes by and see how the recovery progresses and our views on cash going forward.

Yeah, I mean, Kevin it's Mike I think we've got tremendous flexibility as you know we've always been conservative so we typically like to hold.

Probably a little more than average cash on the balance sheet.

You look at our desk schedule and what Amos and his team has done pushing out the debt schedule with the all in interest rate at sub 4%.

We're very very comfortable to take our time to find the best possible opportunities to deploy deploy our cash.

I'll leave it there. Thank you very much have a great weekend everybody.

Thank you.

Our following question is from Becca.

From Cowen. Please go ahead.

Thanks, very much operator, hi, everybody and thank you for the time on.

On the 78th seventh are you confident that you're going to get those aircraft.

This year and once Boeing is able to deliver does transport, Canada have to do anything to certify the aircraft in Canada.

Hey, good morning, Helane, it's Amos.

We're fairly confident in the Boeing schedule.

Dave.

We haven't started delivery again, yet and I think you saw the news recently that FAA needs to sign off on deliveries just as they have they are doing now with the maxes.

But we're fairly confident that we will get our when we have one scheduled for delivery. This year and then two in 2023.

There is a lot of parked aircraft. There. So it's it's it's not a question of going down the production line. Its more of just getting approvals and to start deliveries so feel fairly confident about that.

And then on TC there isn't any additional TC, we prove that I'm aware that they have now said they want to take a second look at this so right now.

Nothing to my knowledge that Tc will have.

Another review of the 787.

Okay. That's helpful. Thank you and then for my follow up question is just a point of clarification on testing to go into Canada.

Your sixth freedom flying.

People have to test to make those connecting flights.

And.

Right right I mean did you have to like test like a lot.

To enter Canada until leave Canada.

I mean, I'm asking because it might impact the number of people who would want to travel through one of your city is on one of your sixth freedom flying.

Ireland.

Andrew here the testing requirement there is no additional testing requirement for connections through candidate would be determined by their country of origin in country of destination.

Okay.

Okay. That's very helpful. Thanks, everybody.

Thank you well following question is from Savi <unk> from Raymond James. Please go ahead.

Hey, good morning, everyone Lucy perfect I might ask.

I'll follow up on the strong spring summer commentary.

Curious, how you're thinking about capacity restoration by geographic entity as you head into the summer kind of what level versus 2019, we can see.

I don't think.

Provide the specific numbers, but what I can say.

Let's start by the Pacific for the simple reason that as I mentioned, a little bit earlier. This is the one area which is.

We view will take the longest to hit stores. So you can assume that.

Capacity levels on the Asia Pacific markets will not show a meaningful recovery.

But within the North America.

With American network for domestic and Transborder.

We will be.

Slightly behind 2019.

We will progressively ramp up.

And on the transatlantic network.

We anticipate a caution here.

The fact that we are also operating incremental India are much longer haul flying.

We should.

We will probably be in the minus.

Minus 30 or so range.

Definitely a ramp up.

Commences, obviously in April and by the time, we hit a may and June is when youre going to see most of our international flights, particularly on the Trans Atlantic Network.

Start start service and.

We'll have a full ramp up for our summer peak.

That's very helpful. Thank you and and Amos.

Ask you whats the diluted share count following the warrant buybacks.

Ah I think.

Hang on.

Let me give let me get back to you with that I don't have that off the top of my head here.

Alright, alright, thanks Erin.

Thank you. Following question is from Walter <unk> from RBC capital markets. Please go ahead.

Thanks, so much operator, and good morning, everyone.

I guess, when we were chatting with your partners.

Of course aviation.

About the cadence of on <unk>, and how we had signs of very positive signs as we ended the year or sorry, as we started the quarter fourth quarter, while mccrone having.

You come in at the end of the quarter and then guiding down for the first.

Our question on the call was what indication, even though we have that.

Is that normal.

One is temporary and that we're going to actually see a very significant resurgence.

The rank answer was very interesting in that they said.

You were looking for 87% block hours that were 87% of the second quarter.

In 2019 for the second quarter of 2022.

Understanding regional is a different beast than your overall network, but 87% seems like a pretty interesting number is there any anything that you are you seeing that obviously you are seeing that in the regional how would that 87% in regional compare to the rest of your network, perhaps international Cross border.

Good morning, Walter It's Mike.

Okay.

Certainly some indication, but it is not the strongest proxy for our capacity growth from Q1 to Q2.

There is no delta is loosely saying there.

Prepared remarks, we're seeing strong growth.

Before Omnifone hit then it was almost a very quiet period for better part of a month month and a half with a lot of cancellations, but over the last month or so we have started seeing strong growth strong momentum in bookings absent obviously Asia.

And certainly we've.

We've been speaking to chorus, and jazz about their or their support but again I would not take their comments as a clear proxy to our Q2 capacity guidance.

Okay.

When you look at your workforce.

And I know you were youre looking at reductions compared to 2019, but when you look at your head Count for example, what should we model.

When we get back to let's say the same.

Capacity as you had in 2019.

Would we model roughly the same employee head count or is there some.

Savings that you use and synergies that you were able to achieve.

To achieve that we won't have the same head count.

In that recovery year full recovery here as we had in 2019.

Hey, Walter it's Mike again, another good question around capacity.

So so we have looked at efficiencies and so.

We are staffing up right now as we spoke about for a strong summer stronger summer.

When we get back to 2019 levels were hoping.

<unk> objective is to be slightly under from a from a head count perspective, showing some of the efficiencies we've gained over the over the last little while so.

So I don't I don't think we will.

On ASM ASM I don't think it will be at the same head count.

Number will be slightly lower but certainly we look to continue to grow and beyond 2019 levels and that we will continue to add staff.

At that level.

That makes sense appreciate the time, thank you very much.

Thank you.

The following question is from Kamran.

From National Bank financial Please go ahead.

Yeah. Thanks, good morning.

Just kind of a question on corporate travel I guess.

I Wonder if you could maybe comment on.

How much of that would be covered for you.

Prior to the onset of AUM across I'm thinking kind of in the October November timeframe, and I guess associated with that what are you seeing.

In recent weeks I mean, we've obviously got some more announcements around.

Provinces.

Allowing returned to work so I'm just wondering if you've seen any meaningful pick up in the corporate travel market or corporate travel bookings just in recent weeks.

All right well listen you're absolutely correct when.

We were starting to see a little bit of improvement in the in the corporate sector, particularly for travel within North America and of course when the army.

Omi Con and hit and you know.

Travel restrictions became.

Somewhat tighter here and that pretty much stopped but couple of things I wanted to comment on there are some sectors in Canada that have shown resiliency throughout the entire pandemic. If you think <unk>.

Traction engineering Theres some sectors.

Our corporate traffic that has.

Continued to travel of course in that fraction of what we would have experienced in 19.

But I have to say over the course of the last two weeks or so maybe three weeks, we do see very slow, but we do see progress week over week. So theres no doubt as travel restrictions ease some of the testing requirements become easier Mike spoke about that that obviously you know this was the first step.

More that needs to be done there.

As we also see corporations going back into the office.

We're still in some provinces under <unk>.

Mandatory work from home as soon as people go back into the office.

We can see that the sentiment is there.

Of course, we've been in touch throughout the pandemic with our corporate accounts and with agencies that specialize in the corporate business.

So we hear the feedback. We're just also of course very anxious to start to see the trend and take a bit of a sharper turn here, but theres no doubt that we are seeing some changes, particularly in North America. It's just.

It's much much slower than what we're observing in other sectors.

Okay, and if I could just squeeze in a quick.

A clarification for Amy So I don't know I apologize if you mentioned this but what was the cash that you spend on retiring those warrants in January about $82 million of Cowen.

Okay perfect. Thanks very much.

Thank you. Our following question is from Tim James from TD Securities. Please go ahead.

Thanks, Good morning, everyone.

Returned to an earlier question Michael.

Cash or your very strong cash position and forgive me. If you mentioned this but I'm just wondering if you can provide some thoughts on what is the ideal longer term cash balance for the business now with the change relative to pre pandemic for any particular reason.

Whether it's an absolute dollar value or whether it's relative to revenue, which is a metric I know that you used to reflect on just any thoughts you have on <unk>.

When we get back to normalized conditions, how to think about the ideal cash balance for the company.

Tim It's Mike.

<unk> makes them comes as well because this is a discussion we're having internally and I think every airlines, having internally given given the lessons learned through the pandemic.

And certainly the fact that we were conservative going into the pandemic served as well.

Power through the pandemic.

So I wish I had better answer for you, Tim we're still kind of discussing that internally as to I don't think its going to a percentage of revenue I think it might look more at cost structure potential losses, because we've experience something that was unheard of over the last two years and so we've learned a lot more about.

What kind of insurance, we need to maintain our balance sheet.

Either through operating lines.

Hard cash.

But certainly what we have today is much too high from our perspective and.

But we will we will have.

Do some further analysis.

And see where other airlines are going to some degree as well, but but I think I think still more to come on that very very important question.

Okay. That's the only question I have thank you very much.

Thank you.

I believe that's all the time, we have for the call today for those of you.

Who may have not had the opportunity to ask a question. We invite you to contact us at Investor Relations and wont be happy to take your questions, they're uncovering financing with Cooper LFS MSA.

With <unk> that it gets on Senate as department actively completed.

That message the bench on me.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation.

Yes, that's right.

Okay.

Diluted share count on page no.

Okay.

Yeah.

[music].

Good morning, ladies and gentlemen, and welcome to the Air Canada fourth quarter and full year 2021 can conference call I would now like to turn the meeting over to John .

Go ahead, Mr Huh.

Thank you mode.

Oh Basel, if you've done that gets him or have you seen the SPN determined by their welcome and thank you for joining us on our fourth quarter call of 2021 with me. This morning are Michael Rousseau, Our President and Chief Executive Officer, Amos <unk>, Our executive Vice President and Chief Financial Officer, just speaking at our executive Vice President.

And Chief commercial officer, and Craig Landry, our executive Vice President and Chief Operations Officer.

On today's call Mike will begin with a brief overview of the quarter.

Lucy will touch on our revenue our network performance 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 then be available until nine am 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 through our Investor Relations team.

Before we get started please note that certain statements made on this call may be forward looking within the meaning of applicable securities laws.

Let's see fairly good.

Good morning, everyone Boucher twos.

Thank you for joining us on our fourth quarter earnings call today.

While COVID-19 continues to impact our results are above expectation performance in the fourth quarter shows that our recovery is strong and well underway.

Even with the dampening effects of omicron on travel late in 2021, we produced significant year over year and sequential quarterly improvements during the period.

In the quarter, our operating revenue of $2 73, 1 billion exceeded our expectations and we reported EBITDA of $22 million, which while modest is quite significant as it is the first time EBITDA has been positive in seven quarters.

Our operating loss for the quarter was $503 million.

With the additional benefit of strict cost discipline, we reduced our net loss by close to 60% from the prior year.

We reported a net loss of $493 million.

$1 38 per share.

Again, better than our expectations for our company in the quarter.

Sure.

I must give credit for these results, whereas do and that is to our team.

The progress we have made rebuilding our airline is only possible through our employees hard work <unk>.

<unk> wellness and commitment.

I warmly thank them for their dedication and professionalism, which has been unwavering through two years of a global pandemic.

And despite the latest challenges of omicron in December and beyond their efforts running our airline hundreds of employees gave their time to contribute to communities in need.

They did this many ways, including by supporting cleanup efforts after the devastating floods in BC baidu.

By donating to their local food bank or by giving holiday gifts to children, who may otherwise not have received any.

I am proud of the culture, we have built and admire our employees for their empathy and their kindness.

There were many encouraging signs with the underlying strength of the recovery during the quarter.

Our advanced ticket sales increased almost $400 million in.

In the fourth quarter and reached 65% of pre pandemic levels in October and November prior to AMR crime.

Revenue passenger miles increased 295% year over year as traffic return.

Our cash flow from operations remained positive and increased from the third quarter.

We ended the year with almost $10 4 billion in unrestricted liquidity, which is about 30% more than at the start of 2021.