Q1 2022 Air Canada Earnings Call
Please standby your meeting is about to begin.
Good morning, ladies and gentlemen, welcome to the Air Canada first quarter 2022 earnings call.
I would like to turn the meeting over to MS. Valerie Jochen head of Investor Relations. Please go ahead Ms. Joan.
Thank you Donna Hello Basel.
Okay.
Yes, the German vendor welcome and thank you for joining us on our first quarter call of 2022.
Joining us this morning are Michael Rousseau, our President and Chief Executive Officer, Amos because as our executive Vice President and Chief Financial Officer.
He met our executive Vice President and Chief Commercial Officer, and Craig Landry, Our executive Vice President and Chief Operation Officer.
On today's call Mike will begin with a brief overview of the quarter Lucy will touch upon our revenue our network performance Aeroplan.
And Air Canada cargo.
Amos will provide additional details on our financial performance fleet and liquidity and then we will turn it in and then we will return to Mike.
We will then be available until nine am for questions from equity analysts and of course, we will remain available for additional questions. After the call to our Investor Relations team.
Mediately following the analyst Q&A session. Mr cause I've in Calhoun, Vice President and Treasurer will be available to answer questions from term loan b lenders and holders of air Canada bonds.
Before we begin please note that our comments and discussion on today's call may contain forward looking information about air Canada's outlook objectives, and strategies, which are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations I there forever.
For you to our forward looking statement caution in air Canada's first quarter news release, which is available on air Canada Dot com or on SEDAR I will now turn it over to Mike.
Darcy Valerie good morning, everyone.
Thank you for joining us on our first quarter earnings call today.
I'm pleased to report that we exceeded our internal expectations.
Key financial metrics like revenue EBITA and unrestricted liquidity despite the numerous challenges in Q1.
It was an interesting quarter, starting slow due to omicron and ending on a very positive note with the elimination of several travel restrictions.
Resulting in March bookings coming in over 90% of March 2019 levels, obviously, a very positive leading indicators to a much stronger Q2 and Q3 results.
Challenges around inflation higher fuel prices in the us.
Certainty of rising from the conflict between Russia, and Ukraine continue to impact the entire industry.
However, our incredibly strong and best in class management team is managing the risk profile very effectively.
Lucy name as will speak to this in greater detail.
We are very positive on the rest of the year and continued growth over the next several years.
Throughout the pandemic, we focus on core strengths pivoted to take advantage of new opportunities.
Continue to invest in the future.
Formed at a very high level. Despite some of the most restrictive travel restrictions in the world.
For this I must credit our employees and together with our entire leadership team I. Thank them for their hard work over the last two years.
As todays results and our improved operating performance show. Our teams are now showing the same level of determination commitment and passion in executing on our recovery strategy.
Customers continued to return because of the factors I mentioned earlier traffic was down but only marginally.
Busy fourth quarter of last year.
We anticipate a renewed demand for travel and we have been restoring capacity.
We increased it by 2% from the previous quarter and almost 240% from the first quarter of 2021.
This year's first quarter capacity represents about 55% of the first quarter of 2019.
Return of customers is translating into increased revenue.
We reported operating revenue of nearly $2 6 billion in the quarter while.
While down from the previous quarter due to the impact of Omnicom was up significantly from a year ago. When we had revenues of only $729 million.
Yes.
Our transformed Aeroplan program Air, Canada cargo and Air Canada Vacations also contributed to revenues showing the success of our strategy to expand and diversify revenue sources.
We also show cost discipline in the quarter, including from the benefits of our renegotiated maintenance contract and other structural changes we have made.
Our adjusted cost per available seat mile or adjusted CASM declined six 6% from the fourth quarter of 2021.
And we ended the quarter with nearly $10 2 billion in liquidity almost unchanged from December 31 2021.
Our cash position acts in both a defensive and offensive fashion.
Defensively it helps manage the risk of unexpected events, which we saw was extremely important over the past two years.
As we exit the pandemic more importantly, and certainly more exciting.
It also allows us to make strategic investments.
Is the recent announcement to acquire new Airbus <unk> hundred 20, <unk> and the two new additional Boeing 787 freighters.
To better position ourselves for the post pandemic marketplace, while increasing fuel efficiency and our overall cost and margin capabilities.
We held a very successful investor day about a month ago, where we outlined our strengths our strategy and financial goals.
We are deeply committed to achieving our full potential.
And finally before I turn the call over to Lucie.
I would like to mention that we recently hit a milestone by flying more than 100000 customers in a single day for the first time in more than two years.
I, thank our customers for their continued loyalty.
When flying with us are trusting us to ship their cargo.
We are grateful and thank them for choosing our Canada.
And we look forward to welcoming many more of them back on board.
Thank you.
Lucy.
Thank you, Mike and good morning, everyone.
I'm pleased to share that this quarter passenger revenues rose to over $1 9 billion.
Nearly five fold increase compared to the first quarter of 2021.
The increase in passenger revenues applies to all cabin category, especially premium economy, which experienced over six times the revenue.
First quarter of 2022, when compared to the same period in 2021.
At the system level capacity increased nearly 240% while traffic increased close to 418%, which translated into 22 eight percentage point increase in passenger load factor.
Passenger revenue per ASM in the first quarter of 2022 increased over 43% when compared to the first quarter of 2021.
Well, we can see positive trends, we're not yet at 2019 level.
When compared to the first quarter of 2019 first quarter 2022 passenger revenues operating capacity and traffic have experienced a decline of roughly 50%, 45% and 55% respectively.
We are however, anticipating a turnaround as ticket passenger ticket sales in March 2022.
Close to March 2019 levels in fact advance ticket sales as March 'twenty, one 'twenty two of $3 5 billion exceeded by almost $200 million the March 2019 levels.
This is notable as it continues to show strong customer demand for air Canada, and a very encouraging sign that the recovery continues to gain momentum.
Our operating capacity over the quarter more than tripled from the first quarter of 2021, when significant travel restrictions were in place.
C suite statement of capacity and traffic growth drove a turnaround in passenger revenue.
All markets are up for the first quarter of 2021, most notably the U S Transborder Atlantic and Pacific primarily due to the easing of restrictions when compared to the operating conditions of the first quarter of 2021.
To provide a little more detail.
U S. Transborder passenger revenues of 425 million increased $396 million from the first quarter of 'twenty one.
Atlantic passenger revenues of $464 million increased $377 million from the first quarter of 'twenty one.
And we saw passenger.
Revenues on the Pacific of $98 million increased $82 million compared to the same quarter in 'twenty one.
Keep in mind, however that deploy capacity to the Pacific market remains significantly lower than that of other markets. We serve and this is mainly due to significant travel restrictions.
Key Asian destinations such as China.
We are optimistic that by 'twenty, three 'twenty four Asia Pacific market will rebound.
Countries progressively open their borders to foreign travel.
The increase was also felt that air Canada vacations, where we saw higher volume in ground package sales, which supported the $205 million increase in other revenues from Q1 2021.
With that when the pandemic behind us.
I'd like to spend more time on the forward view as we see a favorable and exciting developing trend and our network rebuild and overall booking posture.
Our continued turnaround will be bolstered by the expansion of our network. This coming summer as we are re launching a new service on for Trans border and five domestic routes and restoring 41 North American.
We plan to operate to 51, Canadian and 46 U S airports this summer.
I think customers the largest network in the most travel options of any Canadian carrier.
With this we expect to return to 90% of our pre pandemic North American capacity this summer.
As mentioned at Investor Day, we are in the business of global connectivity.
We will feature over a thousand connecting city pairs from the United States to our International network. This summer.
It will only grow as we rebuild Asia and launch additional new routes from each of our hubs.
Our expanded network also includes 34 international routes.
Across the Pacific and Atlantic with Deloitte are expected to reach over 90% of 29 2019 as end levels in the second half of this year.
We are pleased with the recovery on the Atlantic This summer and important market for Air Canada.
As we look ahead to our second quarter capacity, we plan to accelerate our recovery and fly roughly 73% of second quarter 2019 ASM capacity.
This summer we will be at nearly 80% of 2019, and we're targeting to be close to full recovery during 2024.
Our strategy of focusing on our hubs and growing their respective global connectivity.
Kissing on sixth freedom transit traffic to and from the United States.
Focusing on leisure VFR travelers will pay dividends.
Our advanced bookings are accelerating and continued to meet our expectations.
While the recovery in business market continues to lag the leisure market. We are seeing signs of an accelerating recovery with steady signs of improvement week over week.
We're also very encouraged by indicators of recovery for small and medium businesses and anticipate further rebound post labor day and into 2023.
Until then we will continue to focus on creating new products and seizing opportunities to mitigate the associated associated yield impact.
In short our exposure is manageable given the size of our premium cabins and the real opportunities we have to tap into other points of sales, while corporate Canada returns.
Okay.
While we await the return of corporate traffic, we're seeing more demand for our premium products from leisure customers in fact, our premium cabin revenue recovery outpace the economy cabin in the first quarter.
We will continue to innovate with our service offering.
Our recent agreement with Porsche is a good example.
<unk>, Canada will be the exclusive vehicle supplier of luxury hybrid and all electric vehicles to the air Canada Chauffeur service in Toronto offer to select signature class customers connecting to Asia, Europe , and South America.
We're also expanding the service for the first time to Vancouver.
And as well our signature suite dining lounge in Toronto reopened during the quarter, while Vancouver will soon follow.
To support demand generation, we're investing more in retail advertising.
Led by our ready to Europe campaign in the first quarter.
And also our holiday AD wanted brands at the 2022 Clio Awards.
Most recognizable international advertising awards, according to time magazine.
We are actively ramping up operations and are confident we have the necessary resources to operate our commercial schedule.
In addition to this we are actively working with our partners the various agencies and airport authorities to make the necessary preparations.
We have waited over two years for this and so have our customers and we are prepared to welcome them back.
Now turning to two important strategic levers of our future aeroplan in cargo.
We're thrilled with Aeroplan performance over the first quarter of 2022 and saw several kpis performing at all time highs.
Our transfer programs digital enhancements and everyday partners are proving attractive and.
In fact, we saw our highest ever new member acquisitions in the first quarter.
Air Redemption bookings were also at an all time high up 19% over the same quarter in 2019.
Program generated gross billing from points sold to third party partners exceeding Q1 2019 levels by 21%.
It is also the first time since the onset of the pandemic that card acquisition volumes exceed pre pandemic levels for all three of our Canadian card issuers.
And we hit another record this quarter with the most points transferred into Aeroplan from other credit card programs showcasing the increasing strength of Aeroplan as U S and international business.
The redesign do you have a planned program.
News to enjoy positive reviews from customers and industry experts in the media.
Last week Aeroplan went to Freddie Awards.
Being recognized for offering the best points redemption ability in the Americas.
Our revenue management and loyalty teams have optimized the program to deliver better value to members.
Also driving a 30% increase in yield on redemption tickets when compared to 2019.
Extra cargo.
The high demand for cargo, especially in the Pacific market combined with our new Freedom Flying has led to a strong performance in this area.
In the first quarter of 'twenty, two cargo revenues of $398 million increased $117 million or about 42% from the first quarter of 'twenty one.
Looking ahead, we expect this to soften as we reconfigure aircraft back to passenger configuration and receive our new freighter aircraft.
Cargo team is working diligently to prepare for the future freighter deliveries scheduled over the remainder of the year.
We'll speak to you about the changes in the fleet, but just before I turn it over to him I will quickly go over a few other updates.
Canada cargo has expanded its freighter network to Europe , and Atlantic, Canada, beginning with the startup service to Halifax This month.
Service to Frankfurt Cologne in stumble in Madrid is expected to begin in May. Thanks to addition of a second Boeing 767, 300 D. R. Frater.
To build our presence in additional space for cargo bookings, especially from freight forwarders.
Kennedy's cargoes capacity is now available on several platforms that allow real time pricing and E booking for customers such as web cargo cargo AI and an expanded presence on cargo on.
This is part of a continued adaptation Digitization and investment by Air Canada Carnival and its commercial strategy during the COVID-19 pandemic.
I also take this opportunity to thank our employees across our company, who are giving our recovery efforts there al as we welcome our customer back and aimed to rise higher together.
With that I will pass it on Duane.
Thank you Lucy.
Good morning, everyone.
First let's take a quick look at the financial overview of the quarter.
On a GAAP basis, we recorded operating revenues of $2 $5 73 billion compared to the first quarter operating revenues of $729 million in 2021, an increase of 184 4 billion or about three and a half times.
Paired to the first quarter of 2019.
Operating revenues decreased 186, 1 billion or 42% due to the impact of the COVID-19 pandemic.
EBITDA, excluding special items of negative 143 million improved $620 million from the first quarter of 2021.
For 2022, we continue to expect an annual EBITDA margin of about 8% to 11%.
Operating expenses for the first quarter were $3 123 billion.
1234, 5 billion increase from the first quarter of 2021.
Can largely be attributed to year over year growth in operating capacity as.
As well as to the impact of the increase in jet fuel prices.
For 2022, we continue to expect our adjusted CASM to remain about 13% to 15% above 2019 levels.
I will now touch on the more notable year over year variances in operating expenses in the first quarter of 2022 compared to the first quarter of 2021.
Beginning with fuel in the first quarter of 22 fuel expense of $750 million increased by $550 million from the first quarter of 'twenty one.
This is following a 57% increase in jet fuel prices as well as more jet fuel leaders used because of the higher volume of flying compared to the first quarter of 'twenty one.
Since the beginning of April we have seen a rapid increase in the price of jet fuel with record crack spreads as market forces have driven jet fuel in particular to record highs.
We expect this to continue through another month or so and then become more normalized albeit still high.
We believe that much of this increase can be recovered through fares.
The revenue optimization tools as well as through our continuing focus on cost reduction initiatives.
We now expect the price of jet fuel will average $1 24 per liter for the full year of 2022.
As our recovery continues restrictions ease and customers fly again, we've been able to call back employees and welcome new colleagues.
Illustrate on a full time equivalent basis Air Canada, and its subsidiaries had over 27000 active employees in the first quarter of 'twenty two.
Versus just a little over 16000 employees in the first quarter of 'twenty one.
This was the primary reason for the rise of $179 million or 34% from the first quarter of 2021.
For wages salaries and benefits.
Over the quarter regional airlines expense, excluding fuel and ownership costs also increased to $121 million or 62% from the first quarter of 'twenty one.
Again, the increase is primarily driven by higher expenses due to higher volume of flying compared to the first quarter of 'twenty, one and continues to be partially offset by savings from the consolidation of regional flying.
Aircraft maintenance expense of $26 million decreased by $124 million or 83% from the first quarter of 'twenty one.
Part thanks to an amended agreement between Air Canada, and a third party maintenance provider.
As a result of favorable adjustment of 159 million was recorded in aircraft maintenance expense.
The adjustment to maintenance accruals and the recognition of future credits that will be available under the amended agreement.
This agreement not only provides a significant Korean period cost savings it right sizes future costs and gives us more flexibility on future maintenance events and fleet decisions.
Turning to our fleet.
Early in the pandemic as a response to the surge in demand for air cargo space.
By operating all cargo flights using passenger aircrafts temporarily converted into an all cargo configuration.
Six of those blank triple seven three hundreds and three Airbus <unk> hundred <unk> were returned to passenger service over the quarter with one more of each aircraft type to be converted back to passenger service by year end.
On the other hand, we've acquired two new Boeing 767, 300 ER freighters.
That will be added to the fleet this year. These.
These additional freighters are expected to enter service in 2023.
We took delivery of three Max eights over the quarter and now have 34 in the fleet.
We purchased these three aircraft with cash we also took delivery of 1% to 20, bringing the total to 28 in the fleet.
An additional six Max eights will be introduced as well as $5 two twenties, bringing those totals to 40 and 33, respectively by the end of this year.
We announced we will be introducing 30, Airbus 321, <unk> and we have selected IAE to supply Pratt and Whitney PW 1100, G Dash GM engines spares and related maintenance services.
Ken will be purchased and the other 20 will be lease with deliveries expected to begin in the first half of 2024 and concluding in 2027.
So there are now four aircraft added since our 26, Airbus 321, XL or order that was announced last month.
We also have purchase rights to acquire an additional 15 of these 320 <unk> between 2027 and 2030.
Turning to liquidity, we began the quarter with about $10 4 billion of unrestricted liquidity, which included $950 million and Undrawn revolvers.
During the quarter, we generated $59 million in free cash flow an improvement of one two to 1 billion when compared to the same period last year, reflecting higher net cash flows from operations and strong advance ticket sales.
We ended the quarter with nearly $10 2 billion in unrestricted liquidity close to 2021 year end levels.
This was comprised of cash and cash equivalents short and long term investments of $9 to one 2 billion and $950 million available under our Undrawn credit facilities.
Going forward, we estimate that we require a minimum unrestricted liquidity balance of $5 billion to support ongoing business operations.
Also includes a larger buffer to manage cost risk and unplanned disruptions.
Unrestricted liquidity and funds available under our credit facilities.
I will close by thanking our employees for their efforts and dedication I will now turn the call back over to Mike.
Great and thank you Amy.
Traffics returning revenues are growing our networks being restored.
Our finances, including our liquidity position are very strong.
Furthermore, we're continuing to invest to build our own highly competitive position we already enjoy.
In the emerging post pandemic marketplace.
To maintain and accelerate our momentum we have begun a new strategic focus to drive continuous improvement called rise higher.
He is guiding our actions and as part of our strategic decision, making as we move through the recovery and beyond.
Vice higher builds on our corporate priorities aiming to increase revenue, while controlling costs expanding internationally engaging employees and delivering superior customer service.
Our announcement of the acquisition of 30 Airbus 300, <unk> is a good example of rise higher in action with all four pillars working in a coordinated fashion.
The fuel efficiency of these aircrafts will reduce operating costs as Lucy said this long range opens new market opportunities internationally.
New aircraft have been welcomed by employees as a signal optimism about our future while providing many additional benefits.
We know customers will love the new aircraft with the state of the art amenities.
As we have leveraged and conducted several focus groups.
This is important because we're putting particular emphasis on the third pillar of rise higher elevating the customer experience.
The customer journeys, where all priorities converge this is especially relevant in the ever more competitive world in which we operate.
Where customer service will be a key distinguishing selling point for airlines.
We plan to remain a recognized market leader in this respect and elevate our game.
The 320 <unk>.
<unk> will also enable us to reduce our carbon footprint.
Customers, along with investors employees and other stakeholders are holding brands incorporations to greater account on sustainability issues.
There has been a leader in this critically important area and we will continue to set the standard.
It is our responsibility to do so.
We want to set an example for other airlines to follow and join a collective effort.
Theyre, Kansas deeply committed to meeting is ESG goals for example, despite the pandemic.
We carried on with environmental programs and even strengthened them by adopting last year a goal of net zero emissions by 2050.
Through our leaves US travel program, we are sourcing sustainable aviation fuel, allowing us to reduce greenhouse gas emissions at the source.
And just last week to Mark Earth day, we dedicated sustainable aviation fuel to four commercial flights departing from San Francisco to our major hubs and funnel Vancouver Calgary Montreal.
As part of this we're also enhancing our disclosure.
<unk> to our annual citizens of the World CSR report in 2022, we will we will be releasing our first Tcf D report to increase reporting our climate related financial information.
And ESG is about more than just the environment. It also includes other contributions that corporations can and must make to the communities. They serve.
For this reason we are very proud last week to announce we will be donating $100 million aeroplan points to help your cranium come to Canada.
And just yesterday, we also carry the second cargo shipment of humanitarian supplies for your crane with over 100 employee volunteers, helping assemble to belief packages.
In closing it is difficult to describe fully the excitement and optimism. We're all feeling as we look to our path forward.
We continue our recoveries with arguably the most solid foundation in air Canada's existence.
Mkay concrete by extraordinary efforts and talents of our employees who are deeply thank for their low dedication and trust.
Through our cost discipline ingrained in our DNA investments in our fleet, our hubs global network and loyalty partnerships, our revenue management and other other technologies as well as our product and especially our windows. One culture, we are poised to not only exceed but to enhance our leadership position in all the key building blocks we have spoken.
Well today.
And with that I'll turn it back now to Valerie.
Thank you Mike and thank you all for joining us today.
That sounds like that that's all.
I think all in all I'm kind of hop in here.
We are now ready for questions and the interest of time and in order to be fair to all we kindly ask that each limit yourself to two questions or one question and one follow up should you have additional questions. We invite you to contact us at Investor Relations over to you Donna.
Thank you we will now take questions from the telephone lines. If you have a question and using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad to cancel the question. Please press Star two please press star one at this time, if you have a question.
There'll be a brief pause so participants register thank you for your patience.
And the first question is from Kevin Chiang from CIBC. Please go ahead.
Oh.
Good morning, everybody.
Taking my question here.
Maybe.
You talked about increasing your fuel price assumption and some of the levers you're pulling order, placing is first and foremost, but I guess just wondering how you are thinking about fuel hedging, especially as you look out into the summer and expectations of a continued recovery in demand.
And then secondly, just maybe flexibility around your purchasing strategy saw.
Jet fuel prices reached record levels earlier this.
This month in New York Harbor.
Able to adjust our purchasing strategy to help maybe average down.
Your exposure to that to that to that market.
Okay. Good morning, Kevin Thanks.
For those questions and certainly.
Fuel has been something we've.
Turning to watch very very closely.
With respect to hedging, we arent hedged and one of the problems in terms of hedging right now is the fuel price.
Escalation has really driven a lot by the crack spreads the crack spreads are just that.
The levels, we haven't seen historically and I didn't even know how far back you can look to see actual you've ever seen those sorts of crack spreads and you can't really and you cant hedge crack spreads so.
There really isn't much we can do in terms of hedging the crack spread and then the underlying fuel price whether at <unk> or Brent hedging at this point with the volatility in the marketplace. It doesn't make sense, it's not really attractive for us to hedge.
That said our major competitors.
Arent hedging either so in an environment where.
For the most part are.
Our competitors arent hedged the ability to pass on.
Increases in.
In fairs, and manage through optimization and cost discipline is really sort of what's key to how we are trying to manage through the.
Through this.
Dislocation of the market pricing.
And then you brought up your other part of the question on New York Harbor exposure.
That is something again, we try to take a couple of actions to mitigate that first we tried to move some additional fuel into Ontario from Prairie's Suberic such successful in doing some of that we also then tanker it as much as we could so we are carrying additional fuel into various east coast station.
<unk> and into the Caribbean.
Again to help hedge and deal with the dislocation in New York Harbor pricing. So we tried to be agile and address the issues as much as we could.
And.
With that we're continuing to keep a close sign at the New York harbors pricing has come down.
Got a little bit of ways to go but we're feeling fairly good position right now.
That's great color and maybe just.
A follow up here I noticed you're backing out later costs in your adjusted CASM.
How should I think about that $11 million that were pulling out of.
Q1 is that.
That's what the incremental cost you are counting to learn to dedicated.
Although business versus May.
Maybe the cargo business.
Prior to the pandemic, which utilized the belly capacity I guess, the costing a lot lower than I would have imagined imagine bookings started off of dedicated later.
Later operation.
Yes, it is right now.
Specifically sort of as we're looking at the dedicated freighters. So it's a small amount right now.
As additional freighters come on then we'll see that you'll see that number grow a bit.
Okay. That's helpful. Thank you very much.
Okay.
Thank you. The next question is from Kamran Derksen from National Bank Financial. Please go ahead.
Thanks, very much good morning.
Just a question on rising interest rates.
There's a couple of different potential impacts for air Canada. So maybe a question for <unk>. What is I guess, an acceleration of interest rate hikes here mean, I guess for your cash pension.
Payment expectations.
And also for your interest expense I mean, I think for the most part your debt is mostly fixed but I think you do have some variable rate exposure. There. So maybe you can just talk about the impact of rising interest rates.
Yes, good morning.
Kamran so on on.
On interest rates sort of the if you take a look at pensions right now we have a surplus I think has reported about $4 7 billion dollar pension surplus.
And interest rates in that environment in certain extent certainly help help that.
Surplus if you will so no real impact that we see on pensions.
And if we look then at the rest of our debt profile.
Right now.
Our.
Fixed to floating is about 73% fixed and 27% floating so in a rising interest rate environment, we are really fairly well protected.
So that's that's the color I can offer on that.
Do you have do you have any I guess interest rate swaps on the variable portion or is that basically kind of unhedged.
Unhedged and if you want to look sort of at a sensitivity on if it was another 1% increase in <unk>.
And interest rates on the floating rate floating portion of our debt.
Equivalent to about $45 million.
Per year annually.
Okay, perfect and just.
Quick question, just operationally I mean, I see that Pearson airport is undergoing a runway rehabilitation.
One of the busier runways, there any concerns I guess around.
Impact on your operations from that this summer.
It's Amos again that Carmen so no no impact on the operations, we've been working very closely with GTA Pearson folks and NAV, Canada with respect to still being able to maintain operational capability on that runway and capacity.
So do not see an impact at all.
Okay very good thanks very much.
Thank you. The next question is from Walter <unk> from RBC capital markets. Please go ahead, hey, thanks, very much operator, good morning, everyone.
I guess my first question.
Business travel trends I know in your Investor Day, you had indicated Lucie mentioned, 75%, 80% of 2019 levels by 2023, and then kind of back to normal by 2024 and just following up on that.
That's a key area of focus you mentioned that it's recovering but is there any.
Is there any way for us to track that where are you right now as a percentage of 2019, so that we can.
See how far you are from that.
The ramp up.
As we as we go through the year is out to 2023 and 24 in other words, what percentage of total business total travel would you say a business travel are we at versus 2019 today.
Hi.
Let's see.
So first I would say.
Now we sit at approximately minus 50% than where we would've been at in 2019.
And of course domestic and trans border are the two largest services, where we have corporate fitness and the reason why.
In my comments during the year.
I did.
Show, some large signs of optimism here.
It's twofold, if I look at May and June so if I project, a little bit further we're already seeing ourselves passing that threshold.
Minus 40% or so.
And secondly, when we look at indicators.
Small and medium business travel.
So basically customers would be flying short duration.
When there is one single passenger on P&I for example.
And even if we don't have contractual agreements with some of these.
We are seeing that that traffic is coming back.
So.
For North America, we're going to see steady progress and I think by the time, we reach September and October .
We could be in the minus 30% minus 20% range within North America.
International might take a little bit longer.
The good thing for US is from an international point of view because we've also.
<unk> or <unk>.
Schedule, our transport reschedule. It also gives us the opportunity to go and capture some of this demand in the United States, which of course has recovered faster than they are.
The demand in Canada, but I would say of all segments were.
We're very excited to see the return it would be in this in this area because we are definitely seeing signs of a recovery. Okay. That's very encouraging. Thank you Lucy my follow up question here is on fuel.
Rising fuel prices, but maintaining your EBITDA guidance.
Suggestive that youre able to pass that on through higher and higher ticket are fair prices.
Do you think theres a limit to that.
And do you have any any indication or any sense of what the cause I guess.
One hand, <unk> got some pent up demand thats, making the traveler almost price agnostic, but I guess the concern is how long does that last when the pent up demand is satisfied if fuel prices remain high do you think do you think travelers are going to be willing to pay higher ticket prices.
After the pent up demand is satisfied.
Just.
A couple of comments on that there's there's no doubt that as we.
Work to mitigate the incremental cost of fuel here favorite is one thing and obviously we continue to.
You don't do all possible.
To recover either through base fare fuel surcharges are even revisiting some of our ancillary revenues.
But where.
Where the opportunity lies as well for us it's to really do our very best to manage the yield here. So there is no doubt that may be for some segments of the market.
The.
The demand may be more challenged.
With fares, but theres still opportunities for us.
To be able to bring in more money here.
<unk> you.
Using other leavers then Jeff.
Just the basic share increase there is no doubt the trends are very very price sensitive market.
And also given the competitive environment in Canada, we need to manage that we need to manage that wisely here, but we do have means to be able to better mix et cetera to bring incremental revenue in the door to compensate for the escalating cost of fuel.
Very helpful. Thank you very much looser.
Thank you. The next question is from kind of a group different Scotia Bank. Please go ahead.
Thanks, operator, and good morning, everyone.
In the first question.
Advanced ticket sale liability I think you guys pointed out it's above March 2019 levels. It looks like it's 5% above.
Just wondering if the booking curve suggests that passenger revenue could exceed pre pandemic levels. This summer are you seeing bookings more so driven by 2023 demand.
I would I would like to think that it could exceed 2019 levels, but.
We're planning to have capacity in the range of minus 20% approximately for the summer.
So to reach 2019 levels this summer.
Would not be achievable.
As a result of that but perhaps by the time we.
Okay.
Early Q1, maybe Q1 or early Q2 of next year.
We could reach that but we wouldn't reach 2019 levels. This summer.
Okay. Thanks, and a quick follow up on Walter's question can demand elasticity.
Just wanted to understand historically speaking on the TV.
Different and unprecedented times here, but historically speaking.
At what point have you seen the.
The amount of that elasticity come into play.
You have seen fuel pricing.
Taxes go up steadily.
Not coming down quite materially and that has impacted demand just trying to.
Put some context behind it.
We can see the elasticity come at this time.
Good morning, it's Mike.
Let me try and take that one because it's a very difficult question because typically fuel prices are very volatile periods.
Instability.
No.
Obviously as you know have had.
<unk> had relatively stable fuel prices up until the Ukraine crisis. The last time it was volatile during the financial crisis of 2008 2009.
And so that whole debate about demand.
The city is very very difficult to provide color on because we've had a fairly stable environment between those in the last 10 years.
Lucy's group.
Is excellent at.
At putting in place all the levers that you spoke about in the last question and ensuring that we meet our demand.
Objectives, and Thats, a constant retooling and revamping of our of our practices.
And so it's so chronic I.
I'm not trying to avoid the question. It's just that it's very difficult to to have.
Answer a question, we're really fuel prices only been volatile.
Unstable environment, which.
Which impacts demand and so many other ways frankly.
And I would say the point that was made earlier, we are in a period of pent up demand right now and we're very very cognizant of that.
And that's why we're being very prudent on capacity management.
As we as we grow back into 2019 levels.
That makes sense, Mike, Thanks, and hopefully that will come down in the next month or so.
If you can or discussion with them.
Thank you. The next question is from Justin Church from BMO. Please go ahead.
I missed the Russo and air Canada, as a whole very impressive quarter.
As Air Canada may be aware, there is still a barrier with certain individuals that are unable to bolt on our air Canada flight and fly domestic or international flights as burner vaccination status.
Covid restrictions, even more as air Canada expect even higher ticket sales.
Positively trend higher is there.
Currently approximately 6 million Canadians thereabouts, unable to board and Air Canada flight.
Put a vaccination policy does Aragon and expect the Canadian government to drop these mandates can you provide any insight and.
Or if when and how.
How will that impact ticket sales going forward.
Mr Russo and appreciate your time.
Okay, well thank you for the question.
One we don't we don't think those two events are connected.
Regarding our higher ticket prices.
Potentially unvaccinated passengers flying.
As to your question second part of the question as to the government Canada is considering this right now and they're reviewing situations like most countries are around the world.
As to mass mandate and.
In vaccine.
Requirements.
And but again the government.
We'll review that in due course, it make to make a decision.
And.
We'll be asked our opinion at some point in time, and we will provide that but again. This is what many countries around the world are doing right now.
Thank you for that.
A quick follow up question as well.
Point in time in terms of pricing power will you.
Put the switch in terms of increasing ticket prices.
Obviously air Canada revenues tripled and I'm just curious as to.
When you will potentially do that.
Well as we spoke about before and some of the earlier questions pricing.
Pricing is a dynamic.
Situation based on competitive pressures.
So pricing does change all the time.
Somewhat due to cost inputs as we spoke about regarding oil prices, but really it's a function of the competitive environment that we're in.
The rise in revenue is primarily.
The result of increased traffic.
Thank you.
Yes. Thank you so much.
Thank you. The next question is from Savi <unk> from Raymond James. Please go ahead.
Hey, good morning.
Just lastly, if I might just follow up on that.
Color you provided on business.
Is that as volumes or revenue I was just kind of curious what youre seeing on the on the yield front because as in the U S at least.
We're finally seeing kind of a business yields up year over year up versus 2019.
The numbers that I provided earlier that was traffic.
But on the yield side.
In Canada as well.
We are seeing positive yields versus 2019 for returning corporate travel.
Maybe not to the same extent as obviously because the demand levels are much higher in the U S.
But definitely.
Our corporate travel is also a positive year over year versus 2019.
No. That's helpful and then my follow up on the maintenance.
The new agreement and the savings there just wondering if <unk> just seems like a adjustment. So how should we think about kind of the benefit going forward.
And is that different than what you had kind of anticipated as you thought about 2022, CASM ex and beyond.
Good morning, Savi. Thanks for the question.
It's really for the most part.
So it is clearly sort of driven in terms of took us longer to reach the agreement with a third party provider. So we had been accruing maintenance expenses going forward based on <unk>.
Previous contract rates and then through the negotiations. We then essentially we're able to now recognize the benefits of the new agreements, which then will benefit us obviously in this quarter and then going forward.
In ongoing maintenance events.
Relative to maintenance Capex no real change in that so what we had assumed before.
We're quite off the top of my head what we had provided.
There is really there is no material change in that.
So on the on the unit cost as you walked us through.
How that unit cost expectation for unit costs in 2022, and beyond is that still pretty consistent that even with this savings yes.
Yes that is a pretty consistent we had an idea that was happening but so it is consistent with what we had seen.
Thank you.
Okay.
Thank you. The next question is from Stephen Trent from Citi. Please go ahead.
Good morning, everybody and thanks for taking my question.
I was intrigued by.
Your ESG.
Comments and <unk>.
<unk> four <unk>.
Increased disclosure.
When I think about your hiring pilots mechanics flight attendants.
And even managerial positions are there any kind of long term guidepost, we should think about.
With respect to the carriers efforts to onboard women and minorities.
Yeah.
Go ahead.
We're going to pass. This question Great question. Thank you for the question, we're going to pass this question to Ariel Who's our exact VP of HR, who is leading the charge on.
On the issue that you spoke about.
Hello, Good morning.
It's a really good question, because it's something that we keep an eye on all the time.
The fact that the world is changing a little bit in hiring maybe a little bit more difficult doesn't mean that we're going to put this in any way on the back burner.
Always continue to have an eye on diversity.
As we hire.
And that's frankly at every level of the company.
<unk> are very proudly diverse already.
We proudly bilingual which is part of our diversity efforts.
And that will continue so we don't see any of the challenges or the fact that it maybe a little bit higher to attract talent as a reason to take a backseat.
Okay. That's super helpful. I really appreciate the color and I'll, let someone else ask a question. Thank you.
Thank you. The next question is from Andrew <unk> from Bank of America. Please go ahead.
Hey, good morning, everyone.
I guess, Jim clearly here in the U S Airlines.
Airlines are having some operational problems due to labor and pilot availability beginning to see.
Few issues over in Europe , as well can you maybe speak to what Youre seeing.
Within Canada on the Labor front and are there any limitations that you see to your ability to keep restoring.
Your network at your planned pace because of.
Because of any kind of labor disruptions that'll.
That would be helpful. Thanks.
Great question, Andrew and good morning, good to hear from you.
Short answer is we're not seeing any barriers for us to be able to get back to where we were in 2019 from a capacity perspective.
Pilots.
Are not an issue for air Canada, given given our number of wide bodies that we have in the fleet very attractive employer to come too.
And as you probably remember we kept all of our pilots on payroll through the pandemic and kept them trained and so that allowed us to recover.
Quicker as the businesses come back.
There's no doubt.
There are some areas Canadian labor market is tight.
And so there are some positions under.
Under the wing potentially that are a little bit more difficult to recruit for right now but again.
Our operations team led by Craig laundry.
Is spending a lot of time staffing up for the summertime.
And we're not seeing any issues.
Attracting and retaining and training.
The staff that we need to run this summer.
Got it that's helpful and then.
Last one for me.
So you were able to eke out a little bit of free cash flow in <unk>.
Don't really tough environment.
Maybe some lumpiness in Capex going forward is there any reason to think you cannot generate more consistent positive free cash flow on a quarterly basis from here.
Given what you see in the recovery.
Hi, Andrew Good morning, its famous as we.
We look at free cash flow, we had our Investor day, We gave you sort of our view in terms of our long term.
Cash flow generation here on a.
Looking more specifically guidance in the quarters, we arent really prepared to do that at this point in time, giving a little bit of volatility and of course, we have a lot of capex investments one of the things as you know that we're doing to begin our deleveraging efforts is basically not take on additional debt. So as we spoke.
Max's we're paying cash for them, we're looking at really.
Spending our cash on investments in aircraft rather than financing them. So don't want to try to get ahead here and give you sort of a quarterly perspective as we as we really look at is we consider it really over the long term right now so as soon as we have any more guidance to give on a quarterly basis, we will introduce that but for now.
Not ready to.
Okay.
Great. Thanks, everyone.
Thank you. The next question is from Chris Murray from <unk> Capital markets. Please go ahead.
Yes, thanks folks good morning.
Just thinking about air Canada vacations in passenger revenues.
Certainly a good step up in Q1.
Not all the way back.
But just thinking about how ACB is going to evolve maybe into Q2 Q3, I guess two pieces of this one as we're probably rotating more to more leisure traffic or are we going to see additional package shopping I'm just trying to understand maybe the advanced ticket bookings is there more is it fair to think that theres more packages in that <unk>.
Ticket number than they would be normally in most years.
Hi, it's Lucie maybe I'll answer that one.
There is no doubt that even when we look at air Canada vacations, So advanced bookings for our packages.
Four end of Q3, Q4, and well ahead of 2019.
And.
On the ECB front, we have we have two opportunities.
One is obviously with the <unk>.
Margin with respect to the sale of land.
Land packages, which of course, we do extremely well on the Sun and all of a sudden destination and for the summer where we do have an opportunity for say summer.
All the way through to us.
End of October we have an opportunity for air Canada vacations as well.
Two.
So onto the Air Canada, Trans Atlantic network as well.
Air Canada vacations is.
Ready to then to be able to grow their performance on <unk>.
Some of these trans Atlantic routes, but Theres no doubt when you look at the Sun No no concerns there at all volumes are solid margins are solid.
Things are quite good there.
Okay. That's helpful. And then just maybe turning to cargo per second.
Looking at 30% year over year number on yield.
As yourselves and I guess, a number of airlines start bringing back belly capacity, how should we think about that trending at least what youre seeing kind of near to medium term in terms of into.
And to the rest of the year and into next year.
Chris It's Mike.
Another good question.
It's hard to see where that could go but you would think as belly capacity comes back in.
Yields will go back to 19 levels over some period of time that might be a year or two years. It really depends on how quickly the belly capacity comes back into the marketplace, but our expectation our kind of our long range plan is for yields to come back into.
Yes.
In 2019 levels.
The wildcard to some degree is Asia.
And how fast that comes back and what kind of disruptions. They have as you know Asia is a fairly strong cargo market and.
And we've taken full advantage of that but with a with obviously poor shutdowns of Shanghai and potentially Beijing is going to affect some short term performance on cartilage.
Okay. That's helpful. Thanks folks.
Thank you.
The next question is from Tim James from TD Securities. Please go ahead.
Thank you very much good morning, everyone.
I just want to get in one question if I could here.
The aeroplan.
Redemptions in the billings in the quarter was quite intriguing to me, having a quite an impressive result.
You called out the strength relative to 2019.
Wondering if you could characterize a little bit how much of that you think or maybe you've got data on this was related to.
Changes or relatively new program.
How much of it was related to the levers that you can pull and how much of it was just overall sort of behavior related to the recovery.
Okay.
Hi.
I'll try and answer that one for you, it's a little bit of that.
It's a little bit of each factor that you mentioned so first first of all from the from that.
Program point of view.
The fact that we now have.
Much much better.
It means for customers to access redemption. So when we say you know customers can access all seats on all aircrafts.
<unk> gives us flexibility in terms of how we build.
The backend to determine how many miles that customers will actually pay that of course.
If you look at it from a it's almost as if we bought RM into the Aeroplan redemption discipline. That's one thing that's working very well for US number two we're also seeing a mixed in terms of the traffic that we're carrying.
I'd say too from a retention point of view in the past premium redemptions internationally might've been a little bit stifled.
It was a fixed rate fixed grade.
And because we have limited premium.
Hey class capacity.
We were not able to satisfy customer demand simply because the economics were not there with this new model it allows us to be able to.
Produce more volumes in the premium cabin, which we are seeing and that's also been very very positive and of course from a behavior point of view.
And we're very proud of the fact that program is being recognized by our customers.
Because they appreciate the changes we brought to the program.
So from the behavioral point of view there is no doubt that we've made redemptions more accessible.
And certainly coming out of the pandemic.
That's also been helpful but.
When you say are these levels levers that we can control absolutely they are and and I will say to you.
We've only begun to scratch the surface here theres a lot of opportunity for us with.
With redemption.
Without a doubt.
Great. That's very helpful. Thank you.
Thanks, Tim Thank you.
Thank you and we do have a final question from Jimmy Baker from Jpmorgan. Please go ahead.
Hey, good morning, everybody I'll keep it quick just on this question of demand elasticity there.
Came up a few times during Q&A could you just comment on the longer term relationship between Air Canada revenue or if you prefer Canadian industry revenue to Canadian GDP. It's a popular reconciliation everyone uses here in the states.
It does speak to that elasticity question.
Hi, James It's Mike.
There had been in the past relationships of GDP to two to industry revenue.
I'm trying to remember what they were like one point.
Two two to one to.
One point to one point to one two to one basically so I think it's.
I forget what the U S is but I thought it was fairly comparable to the U S environment as well.
And where do you estimate it to be right now, which really is my point because.
Here in the U S. We're so far below what the economy can bear that I think a lot of questions on elasticity or highly misplaced. So I'm just kind of wondering your perspective on that.
We haven't looked at it.
Where we are now but as I said earlier, we know we're in a pent up demand environment.
We're very very that's why we are managing the capacity, where we are we will take full advantage of the opportunity in front of us as we always have but we're also very cognizant of.
That will have to be very agile if things change over the next little while.
Perfect, we're not particularly worried in that regard. Thank you everybody take care.
And there are no further questions I will turn the call back over to Ms. Joan.
Thank you Dana. Thank you again for joining us on our Q1 2022 call. Today. If you have further questions. Please do not hesitate to contact us at the Investor Relations.
Yes, Matt.
<unk> <unk> and that's up and coming soon instrument.
As soon as everything gets downstream ophthalmic dependent contact at all but I still think that C. Bench on me. 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.
Yeah.
Yeah.
This conference is.
No longer being recorded.
<unk> III.
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