Q2 2022 Air Canada Earnings Call
[music].
Okay.
[music].
Please standby your meeting is about to begin.
Good morning, ladies and gentlemen, welcome to the Air Canada second quarter 2022 earnings call.
I would like to turn the meeting over to Valerie.
Please go ahead Mr.
Thank you Donna.
Hello.
And then.
Yes.
Welcome and thank you for joining us on our second quarter call of 2022.
Joining us this morning are Michael Rousseau.
Then chief Executive Officer.
Amos.
Our executive Vice President and Chief Financial Officer.
Alright, executive Vice President and Chief commercial Officer.
And Craig Landry, our executive Vice President and Chief Operations Officer.
After managements overview.
He will be available until nine am for questions from equity analysts after the analyst question and answer session, Mr cause us and yeah.
Vice President and Treasurer, who will be available to answer questions from term loan b lenders and holders of Air Canada.
Before we begin.
Note that our comments and discussions 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 expectation.
I, therefore refer you to our forward looking statements and air Canada second quarters really.
Excuse me.
Which is available on air Canada, Dot com and on SEDAR I will now turn it over to Mike.
Great Mercy.
Everyone. Thank you for joining us on our second quarter earnings call today.
<unk> reported strong results for the second quarter, despite operational challenges in the air transport system.
Credit for these results Kohl's store employees.
The entire leadership team I want to recognize her incredibly hard work.
Tireless efforts dedication and cost and professionalism.
And safely taking care of our customers.
In the second quarter of 2022 alone.
We carried about 70% of the total customers for the full year 2021.
This gives you an idea of the depth, where we came from.
Resurgence.
Seeing in air travel demand.
The industry worldwide is facing unprecedented operating challenges as it emerges from pandemic related restrictions.
In Canada, we have gone from a near two year shutdown of air travel back to capacity levels close to 80% of 2019.
We prepared well ahead of 2022 for a surge in travel demand.
We prudently planned and adjusted our capacity as a similar approach.
As much as we shared our customers' excitement to see them return to air travel.
The surge in demand.
Otherwise tried to capture we stuck to our plan and manage our schedule considerably.
But despite all of the planning the increased traffic has created difficulties for all participants in the air transport system.
That we're seeing around it.
Yeah.
Rather than air Canada had a cascading effect on our own operations, Craig laundry, our EVP and Chief operations Officer will go into further detail about this in a moment.
The entire team of Air Canada has skillfully managing the unchartered waters, a pandemic recovery.
On top of what comes with operating in the airline industry.
Now from a financial perspective, we generated $154 million EBITDA in the quarter.
This is a significant increase from a negative EBITDA of 665 million.
A year ago.
We have been showing because consecutive and year over year improvements for the past several quarters.
But in the second quarter. It became clear that we are a strong demand driven recovery.
Our operating revenue nearly $4 billion in the quarter, an improvement of about $3 1 billion almost five times, what we recorded in the second quarter 2021.
At the same time, we also control cost effectively despite steep rise in fuel expense.
And together, we reported an operating loss of $253 million for the quarter.
Still it was a much narrower loss compared to the operating loss of $1 1 billion in Q2 2021.
We reported positive cash flow from operations and positive free cash flow, that's a fourth quarter in a row and we ended the quarter with $10 5 billion in unrestricted liquidity.
That said I want to assure you that everyone at air Canada's focus on improving our operating performance.
As mentioned relies on many persistence and the operating team such as airports ground handlers caters security screeners customs and air navigation.
Every leak in the air transport system, much worked well for us to succeed so we must all work together.
At the same time, we the airline has the most direct and continuous relationship with travelers.
That is before during and at the end of their journey.
We understand and we feel firsthand the effect that any break machine has on our customers and their plan.
The operational instability, we saw second quarter is of course, not at all business as usual for us or anyone else involved.
We know this has been a difficult period for some of our customers who are looking forward to a long awaited dream vacation or reunion with loved ones.
We acknowledge the answers and.
Options some of our customers have faced and we deeply regret this.
We continue to work closely with our service providers and governments to keep addressing the issues aviation specie, Canada and globally.
And importantly, we are encouraged by the progress made in the past few weeks and we expect continuous improvement in the weeks to come.
Thank you I'll hand, the call over to Craig Dahl.
Good morning, Basel I welcome the opportunity to speak with you this morning.
As Mike mentioned in the second quarter of this year featured some extraordinary operational impacts on our business. So I'd like to take a moment to provide some additional context.
The first thing I'd like to highlight is that in all cases, we view these factors as being temporary in nature and directly related to the unique challenges of the post COVID-19 ramp up.
Never seen demand increase at such a high rate in such a short period of time, particularly having been at a near standstill for almost two years.
The same can be said of the many participants who are all part of the air transport system. These.
These challenges are felt throughout every aspect of the operational delivery chain that supports air travel.
At the same time, while many participants play a unique and a central role in the air Transportation system, we recognize that our customers experienced these interconnected efforts as a single journey.
As Mike pointed out it is the airline that has the most direct relationship with the customer.
We understand the unique role in which that places us and we take that very seriously.
To help illustrate how far we've come from and the magnitude of the travel rebound in the second quarter of 2020. One we operated 20603 flights and carried about 1.2 million customers.
In the second quarter of this year, we operated 84643 flights and carried over $9 1 million customers.
That is an increase of four times for flights operated and almost eight times the customers carried for the same time last year.
In the second quarter, our operating capacity measured by available seat miles was 73% over the same quarter in 2019.
This is somewhat unique when we look at other global markets, where travel recovery grew more evenly throughout 2021 and into 2022.
In Canada and how.
And in a much shorter period as travel restrictions were in place for a longer period holding back pent up demand that much longer.
That said the operational challenges our industry is facing are not limited to air Canada or the Canadian market as we can see very similar operational challenges being faced by airlines in the USA Europe and elsewhere.
Bill we assumed an increase in demand in the order we are seeing when we developed our 2022 scheduled yet as Mike mentioned, we've prudently planned and adjusted our capacity as the summer approach and managed our schedule conservatively, all while ramping up our operations.
Our first phase of preparation began in August of last year, where we saw some significant increases of close in demand, indicating what we could expect for our peak travel period in Q2 and Q3 of this year.
Rather than seasonally pause hiring as we would naturally have done after the <unk> 2021 summer peak.
We doubled down by recalling hiring and training at our scale, we had never done before throughout the summer and the fall and then all through the winter period, including through the Omicron wave and when tight travel restrictions were still in place.
As a result, and after more than nine months of preparation we entered the peak summer travel period at close to 90% of our pre pandemic staffing levels, while prudently planning to operate about 80% of our pre pandemic schedule during that period.
As we said for air travel will be successful a wide range of service providers much comes Muslim together, often behind the scenes to deliver services that form a chain.
Normally this chain is very strong.
However, during this period. This structure that's successful air travel relies on began showing varying size of unprecedented instability.
These effects were primarily driven by resourcing challenges and it could be seen in airport security screening, Canada and U S border customs processing air traffic control maintenance providers equipment supply chains aircraft catering and fueling partners just to name a few.
An additional challenge for US has been a series of mechanical failures at the airport baggage handling systems at some of our key hubs.
Resulting in bags, not reaching our baggage handling agents in time for players of departures.
This kind of instability in the delivery chain has a direct impact on our operations. It creates flight delays and flight cancellations and increased instances of missed connections and mishandled bags in.
Churn this creates multiple knock on effects, where aircraft and crew are out of position for their next plant site activities and demand for airport infrastructures, such as gaze resulted in backlogs and congestion.
Customers, who missed their flights needs to be revoked and bags and need to be reintroduced into the system to reunite with their owners.
Collectively resulted in a higher level of activity than was planned which itself overtime further contributes to knock on effects.
I should also point out that what is often overlooked is that even given these circumstances. We are moving as many as 140000 customers a day safely to where they want to go.
For the second quarter, we had a flight completion rate of 96, 3% system wide for international overseas flights flight completion was at 99, 2% for the quarter.
And even with significant challenges we've experienced on the baggage handling side, we saw a baggage handling rate of 97, 7% for the quarter.
At the same time, given the volume of customers. We carry we know that even this level of performance leave too many customers affected.
The second phase of our stability efforts was implemented earlier this year was well received customer initiatives, including enhanced notifications, new self serve re accommodation tools free same day standby options for earlier flights within Canada, and trans border markets and the ability for customers to voluntarily increase their connection side that our Toronto Pearson.
We also increased our minimum connection times on some flights adjusted our schedule to reduce volume at peak times and refine the timing of select international and Trans border flights to provide additional operational flexibility.
And more recently in a third phase we proactively removed an average of 154 daily flights from the schedule. This represents about 8% of our scheduled flight system wide for July and August .
The emphasis was on easing pressure at our Toronto and Montreal hubs at peak travel times.
These reductions were undertaken over and above your internal efforts taken by Air Canada and were designed to address the instability of the overall air transport system in the peak summer travel period.
They were also intended to drive meaningful staffing relief in airports to increase narrow body overnight availability for maintenance to improve startup performance and to facilitate aircraft catering and grooming activities and we're not stopping there are operations control operations systems operation control team is collaborating with other.
He branches to focus on key flights during peak connection banks.
We are reviewing certain ancillary policies and services that can ease our operation in the immediate term.
As a result of these measures and the increased focus and support being seen everywhere through the and air transport system, we've already seen improvements on all key operational metrics.
To close as Mike said at the beginning this has not been business as usual at Air Canada, and we remain confident these factors are temporary in nature.
You can also see that despite our careful planning and subsequent mitigation efforts, we did not achieve an acceptable level of operational stability and for that we apologize for affected customers and employees.
I can assure everyone. However that our highest priority throughout the company has been and remains to work with all participants in the travel journey to remove any remaining instability and to return our operation to pre pandemic levels of stability.
Now over to Lucie for a commercial update.
Thank you Greg and.
Good morning, everyone.
Mike spoke to our operating revenues.
But I'll begin by saying that these recovered to about 84% of those in the second quarter of 2019.
As Greg described Air Canada had one of the steepest ramp ups when compared to any major network airline in the western World.
What's really important to call out is when we compare to pre pandemic times, even though we operated less capacity with 73% from the same quarter in 2019 to be exact.
Passenger revenues were 8% in the second quarter of 2019.
Also 2022 second quarter events ticket sales reached 94% of those in the same quarter of 2019.
Thanks in part to a very strong revenue performance in the month of June two.
Q2, 2022 passenger revenue sorts of over $3 4 billion.
Average fares across the system were up 12% in Q2 versus Q2, 2019 and 13% for June alone.
It reflects directly says we affected in relation to the higher price of fuel.
When comparing to 2019, you will see call. It the base periods was severely impacted by the disruptions caused by the grounding of the Max 737.
This removes capacity in 2019 pushed passenger yields up to unprecedented levels.
Given this comparison, we're very proud of our revenue results.
On the International fund results exceeded our expectation.
At Investor Day, we mentioned the importance of sixth freedom traffic tied to traffic.
June 2022 represented a record months.
Absolute six medium customer and your candidates history.
We'll continue to focus on further growing this traffic segment.
And I was with China, and Hong Kong remained relatively closed it continued to be encouraged by our Pacific results, especially in Australia.
And while the domestic market was very competitive our extensive remaining network gave us an advantage in all markets and communities we serve.
If we look at the second quarter of 2019, our sixth freedom traffic between the U S and Atlantic accounted for approximately 5% of our total revenues.
In Q2 2022, it was 6%.
We saw the biggest demand coming June where these crews from 7% of our system revenues in June 2019 to about 10% in June 2022.
Additionally in June the candidate has elapsed market was within 91% of the revenues produced in June 2019, and domestic was 92% of June 2019.
During 2022 shows the fastest acceleration towards 2019, we've seen since the onset of the COVID-19 pandemic.
Cargo revenues declined by 16% from the second quarter of 2020, one due to yield normalization and less cargo only flying in the Pacific region.
This was partially offset by volume growth and revenue gains in other regions.
We now have two Boeing 767 freighter aircraft in service and are expecting seven in service by the end of 2023.
In July we agreed to purchase two new Boeing seven freighter aircraft with deliveries expected in 2024.
We also used our freighters to deliver aid and medical supplies to support the cleaning refugees.
Or.
Employees volunteered to support this mission.
We continue to experience very strong airplane's performance.
The second quarter of 2020 to be most records set in Q1 with several kpis setting new all time high.
In the first quarter, we had seen our highest ever new member acquisition and we surpassed this again with close to 835000, new enrollments in the second quarter.
We also saw higher spend and solid acquisition on our co brand card portfolio, which helped deliver a 15% lift in gross billings from flake sold in the second quarter of 2019, despite the effect of lower interchange rates from 2020.
N redemption bookings and yields were also at an all time high.
Finally, our new retail partners.
To just drive strong engagement, while additional leading brands seek to establish partnership arrangements with aerospace.
Now looking ahead as I discussed earlier demand was solid in June and this is continuing into the third quarter.
At this moment, we are not seeing any noticeable impact from market forecast.
Possible economic slowdown.
Our advanced bookings going into Q4 remains strong with book load factor is projected to be in line with 2019 levels.
In fact in many southern in leisure markets. We are currently running ahead of 2019.
For the third quarter, we plan to increase our capacity to approximately 79% of third quarter 2019 for.
For the full year of 2022, we expect Capri, approximately 74% of 2019 capacity left.
Premium traffic also remains strong focus more on premium leisure travelers.
We started seeing signs of recovery in corporate travel in March of 2022, and this accelerated to two went from close to 40% of 2019 levels to over 60% by the end of June .
We expect the corporate traffic to continue its rebound post labor day building on the strength we saw in June .
Despite the challenges Craig's focus we continue to focus on strategic initiatives to bolster our future results.
We're pleased with our recent announcements regarding our joint venture on Trans border markets with our longtime partner United Airlines.
We're also looking forward to our new co chair arrangements with Emirates. This winter, we will also commence service to Bangkok, and restore services to Mumbai and Lima.
And now onto Amos for more updates.
[noise] massive Lucy bushel good morning, everyone.
First a quick financial overview of this quarter.
It goes without saying that such a renewed interest in travelling increased our flying and therefore resulted in increases in nearly all line items.
Most importantly from a unit economics perspective, our PRASM or unit revenue increased 59%.
And our adjusted CASM improved or in this case decreased 68% in the second quarter of 2022 compared to the same period in 2021.
Managing these metrics is a key focus as we work to restoring our EBITDA margin.
Fuel expense of $1 5 billion increased $1 2 billion due to 116% increase in the price of jet fuel coupled with the significant increase in flying as seen this quarter.
Fuel expenses represented about 53% of the total Opex increase.
We are encouraged by the recent decline in the price of fuel and as always continue to actively manage this line item closely.
Wages salaries and benefits of 749 million.
Increased 252 million or 51% from the second quarter of 2021.
Due to a 79% increase in full time equivalents.
This was anticipated with the recall of thousands of our employees as well as the recruitment we've undertaken to support the increase in flying volume year over year, including the planned schedule for the remainder of the year.
For 2022, we now expect adjusted CASM to be about 15% to 17% above 2019 levels.
The variance to prior guidance is mainly due to an increase in the number of customers carry.
Which translates into higher passenger service and distribution costs.
To a lesser extent it also attributable to an increase in wages salaries and benefits.
Now turning to our fleet.
At the end of the second quarter 30, Airbus eight to 28 300 aircraft had been delivered.
With three aircraft yet to be delivered by the end of this year.
Also 39, Max Eights had been delivered with wanted to be delivered in the third quarter, completing our fleet of 40 Boeing Max eights.
As for liquidity, we ended the second quarter with unrestricted liquidity of $10 5 billion up from $10 2 billion at the end of the prior quarter, which includes 972 million and Undrawn revolvers.
In the second quarter, we generated 441 million and free cash flow.
Which is an improvement of just over 2 billion from the same quarter in 'twenty one.
And reflects the higher net cash flows from operations and strong advanced ticket sales.
We continue to require an estimated minimum unrestricted liquidity balance of 5 billion.
To support our ongoing business operations, which also includes a buffer to manage costs risks and unplanned disruptions.
Minimum unrestricted liquidity includes funds available under our credit facilities.
I'll now pass it back over to Mike.
Thank you Amos.
Current challenges facing the entire global airline industry, including Air Canada are certainly the focus of our immediate attention.
As you heard from Craig we are working with our partners to resolve the issues affecting our industry.
Will allow us to deliver our standard of customer service once again on a consistent basis.
At the same time, we also know we must run our business with a view to the future.
Means that we continue working to position ourselves in a highly competitive.
Industry, leading in the post pandemic global airline sector.
Involves executing on our long term strategy.
Investing for the future and making new plants to take our business to the next level.
As of quarter ended we made two significant commercial announcements Lucy spoke about.
All of these was the joint business arrangement with United Airlines.
The agreement will offer customers more choice and greater convenience and enable us to better optimize our hubs as scheduled.
We'll also strengthen our leadership in the all important transporter market and broaden our global network connectivity.
We also agreed to work closer together to advance our sustainability objectives.
The second is our strategic partnership with Emirates.
Still finalizing this arrangement, but we intend to establish a codeshare relationship later in 2022.
This too will be more choices and convenience for our customers and further extend our global reach.
International expansion is one of our key priorities coming out of the pandemic.
It's also why we have selectively added new destinations within our network.
In addition to new service to Bangkok, and returning to Mumbai in Lima, We have restarted services to Australia and this winter are returning to New Zealand.
And for our Western Canada customers. So we're launching a new service between Vancouver, and Miami as well as between Edmonton and Cancun.
Similarly Air Canada cargo extended its reach in a quarter with new services from Halifax and to Madrid.
I'll cover our cargo operation also continues to innovate in other ways to better service customers, including innovative digital offerings for a more seamless user friendly experience.
In the quarter, we won five awards for excellence in leisure and lifestyle travel, which is important given the leisure travel is leading the recovery.
Another significant recognition came when Aeroplan, one two Freddie awards, which recognize our loyalty programs are best for redemptions and as the top trending program.
Aeroplan remains key to the company for customer acquisition and retention.
And our strategy to increase air Canada's appeal through strong partnerships took another step forward with a nearly a dozen new or expanded agreements in the works during the quarter.
Many of which will be announced in the current quarter.
An important milestone we're celebrating the 10th anniversary of the Air Canada Foundation.
Apart from the good has done helping tens of thousands of children over the years. The foundation also reinforces the air Canada's greater commitment and leadership to ESG.
In this respect another significant film was the recent announcement that we will work with Airbus and select other carriers on advanced carbon capture technology.
If successful this will help contribute to Arkansas long term goal of achieving net zero emissions.
All of these and the other actions we've taken during the quarter as a proof that air Canada is set to rise higher in a post pandemic world.
While contending with immediate challenges we have maintained our focus on long term goal of being an airline as agile as resilient and the industry leader in all aspects of our business and.
And with that I'll return the call to valleys.
Thank you Mike and thank you all for joining us today.
It sounded like that's bad films on them and that's happened.
We are now ready for questions and the interest of time, we kindly ask that you each limit yourself to two questions or one question and one follow up.
You have additional questions. We invite you to contact us at Investor Relations.
Over to you Donna.
Thank you will.
We will now take questions from the telephone lines. If you have a question.
Speakerphone, please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad.
Thanks for 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 Savi <unk> from Raymond James. Please go ahead.
Hey, good morning.
First question just can I ask you about kind of the cargo business and how that's going and in particularly.
Was curious about the strategy is can I get a new triple seven freighters in terms about new versus kind of using converted as well as kind of introducing a second fleet type that operation, which I would think increases complexity and cost.
Okay.
Well, thanks, good morning, Savviest Seamus thanks.
Thanks for the question there so yes as you as you saw we did announce the two new triple seven freighters with those triple seven freighters do is as we see the demand from our customer segments and markets is the ability to carry additional tonnage. So right now as you look at a set of six seven carriers.
56000.
56 ton 56000 tons of.
Cargo and a triple seven has about the trouble that capability, but more importantly, also from a size and dimension perspective into the into the market.
Additionally, so we see sort of strong demand that really the growth in the market that we really need the additional capacity that a triple seven offers.
And yes, it does add some additional complexity, but we do have triple sevens in our base fleet. So it doesn't really introduce a new pilot type if you will and introduction. So we can use the efficiencies that we have in our current triple seven.
Abilities from a maintenance perspective, operating perspective pilot and so forth and certainly from ground equipment and really sort of it doesn't really require any additional investments that would add.
Add complexity of introducing lets say a brand new fleet type if we were to go and buy at 747 freighter for example.
And from a perspective of return we certainly looked at this obviously your ownership cost as much higher as our approach to this business had been with 760 Sevens.
Used owned aircraft, if you will at low ownership costs.
We believe the return that we can get on the Triple seven certainly justifies the investment.
That's helpful and if I might ask and secondly, just how are you seeing any kind of a high lets me that in a bigger way from air Canada to the U S kind of using that E. D to implement visa I was just kind of curious I know, there's no risk of having the same issues that you're having in the U S. But.
I was wondering if you know if there was any risk of some of the issues you're being spilling over to Canada.
Hey, good morning, it's Mike.
No we're not seeing any attrition of our pilot.
Palette base to U S or any other country, we still are an unbelievably attractive employer.
For pilots and so we do not face the challenges are.
Some of the U S carriers right.
Other carriers around the world facing.
Got it thank you.
Thank you. The next question is from Walter <unk> from RBC capital markets. Please go ahead. Thanks very much operator, good morning, everyone. So I guess my first question is on on competition. You. We've heard that question right now is retrench to the west end.
It's kind of stopped taking 787.
New delivery of 780 Sevens, just curious how that is impacting how your capacity rolls out both internationally and domestically.
Domestically whether the.
Whether you are rethinking how you're rolling out domestic and are you taking advantage of how you're rolling out international given western let's move there and and related to that obviously as porters expansion.
With their drug purchase program.
The focus on the east and does that also have any implications on on how you're how you're coming out with a with your capacity plans over the next couple of years.
Good morning, Walter It's Mike.
So as you know it's always difficult to have these type of discussions.
On the competitive environment.
I certainly we've watched very carefully in and analyze both westjet smooth and porters moves.
It doesn't change our strategy.
We are.
Our expansion International will continue we believe we have a leading product.
The international markets.
And as well as domestically.
Got a great fleet with two twenties, and Max's and regional.
So we will continue to compete very very effectively.
It's both west yet as they are it's even more capacity to the west and as quarter as more capacity into the east.
Right.
Okay.
Like any competitor were watching what others do in the marketplace.
But we're very comfortable with our expansion plans and how we compete in the market.
Okay, that's great understanding of the difficulty in discussing that on a on a public call for sure set.
Second question here on the challenges that you're facing from an operational standpoint, and the recent a recent weeks or months.
I know I know, it's easy to point the finger at Air Canada, but I know, it's it's not you know, it's certainly I think the ecosystem of your overall of the travel network that you mentioned is really play herein.
By extension you know, while it's not all certainly not all your fault. It's also not under your control on the rebound or the improvement of it.
How much risk do you consider to be that if others outside of air Canada. Other of your partners outside of Air Canada I mean.
The infrastructure the ER.
Uh huh.
<unk>.
The players in the custom side security lines, and so on if they're not able to improve their level of service how much does that put at risk. Your your own plans for this year and next year in terms of.
Grow growing back the capacity toward your prior pandemic levels.
Uh huh.
So Walter we don't see.
Much risk at all because we were working very very closely with all of those partners and we know they're deeply engaged deeply committed to restoring collectively the same service levels that we had at least for 2019, if not not improvement.
We're working very very closely with all of those partners on a constant basis looking for solutions again that me and hopefully will improve our performance levels. As we go forward. It would take some time a water I'm not and we're not as a leadership team concern given the engagement and the commitment from all our.
<unk>, including our Canada, obviously to go to work together to that.
To go to restore the service levels.
And again, Walter as Craig said, and I said I think in our comments, we are seeing improvements in operational metrics right. Now baggage is improving on time performance is improving cancellations or are being reduced and that is a collective effort and were working together over the last.
X number of months to to ensure that we can deliver a consistent service level to our customers.
That's very encouraging okay. Thank you very much.
Yeah.
Thank you.
Next question is from Carnegie.
From Scotiabank. Please go ahead.
Thank you and good morning, everyone.
My first question is on the booking side just wanted to understand.
What's sort of the mix you are seeing between shallow credits aeroplan points and cash purchases as well any color on the booking curve out of them.
Hi.
Let's see.
Let me start maybe I'll, just expand a little bit on the comment I made in that in some of the opening remarks.
Corporate perspective, where.
Now looking at approximately 60% of what we would have had them in in 2019, so the mix of business in premium traffic other than from leisure.
Premium is increasing.
With respect to redemptions and.
We have a golden opportunity here, because we have two means for customers to be able to access our inventory when they book redemption. So we are seeing a higher mix of Aeroplan members every D me for not only leisure but across the across the the network.
But I would say that roughly 80% of our revenues are generated by non aeroplan.
Non aeroplan bookings.
Okay. That's great. Thank you and then maybe just a broader question, perhaps for Mike into sort of a coach or you.
You've been hiring a lot of people and recalling a lot of employees obviously in media outlets as we all know I've been writing about call. No. You know some of the airlines frontline employee morale is due to frustration and soundly public obviously quality center wait times have been long et cetera, how do you how do you motivate employees in these times and maintain the poll.
Sure on the brand.
It's a great question.
And we're very aware and sensitive to that issue.
So we're doing a number of things to help all of our employees, including our frontline employees.
And we just did an engagement a study of our survey and our engagement levels. If that's hopefully a good reflection of culture. We are still very strong compared to 2019, and so that was encouraging that one we have and we know we have incredible employees.
And to the.
The initiatives, we're putting in place.
Whether there.
Bonuses or or pizza or or just walking around management and and.
And in a ton of communications from the leadership group are working.
What.
What we expected.
Okay. That's great. Thank you.
Thank you next question is from Jamie Baker from Jpmorgan. Please go ahead.
Hey.
Good morning, everybody. So just a quick question on the air traffic liability it increased materially from the first quarter to the second to what appears to be a record.
<unk> seen this elsewhere.
Is whether this is solely indicative of future demand and there were no accounting changes breakage assumptions in there that changed.
Just confirming that.
Good morning, Jamie famous no. It's really it's the demand and there really no other accounting changes or any changes in the breakage or any sort of assumptions.
Sort of changed with that I would say there was probably one other aspect of that is also driving the increase to articulate our air ticket liability. Our ticket sales is essentially is yields are higher as well. So that is also contributing to the increase in what you see there.
The balance sheet.
And would you forecast another build from the second to third quarter, which would be a bit unusual or are we at the point, where we should sort of revert or begin reverting closer to what the pre COVID-19 trend looked like for this particular metric.
Yeah, I think that's a that's a safe assumption there that Jamie.
I don't think it'll build beyond sort of what we see here.
It'll just more revert back to a more.
Traditional change from Q2 Q3 into Q4.
Okay. That's perfect. Thank you very much.
Thank you. The next question is from Kevin Chiang from CIBC. Please go ahead.
Hi, Thanks for taking my question here.
Let's see you mentioned 60, and Tropicana had a record month in June .
I guess I'd be interested in what youre seeing as we look out through the balance of the year in terms of sixth freedom traffic and food off on some some negative press in terms of.
What's happening at those two airports.
And then maybe just a bigger picture just what does it mean that I did.
Our relationship with a deepening relationship do in terms of its increasingly greater revenue opportunities.
Okay. So maybe I'll take the first question with respect to think Sweden. So as you know.
Several months, we've been speaking about are the focus that we have here to grow our presence in this segment. So what we've seen in June .
The record I think we also have a confidence that as we move forward.
Set aside seasonality a little bit here, and we will still be able to produce much better numbers on the 16 in front that we had in 2019. So I think you know we've unlocked some opportunities here.
You know relatively speaking compared to the summer time.
Maybe not be as large.
But regardless I think our presence there is going to be much better theres no doubt that with some of the cancellations that we observed in some of our transport or market. It did impact our sixth freedom traffic, but again, we view this as temporary.
You know because we are confident that in some of those issues.
Get that.
Corrected in the short term and the reality of it is the market in the United States is so large and you know theres opportunity for us to continue to grow in this segment. So if there's one thing that we're really pleased about for this quarter.
Is that how we were able to really unlock some opportunities for for ourselves in the U S.
On your second question regarding the.
The joint agreement with United Airlines.
Is really for the trans border sector.
But that's the Halo effect of that is as we work better and closer with United in terms of the schedule and design equal of course, you know provide more times.
Time, Warner Fine it'll provide a better schedule and you know the halo effect of that will be that we may have a better schedule to offer for sixth freedom. We have you know.
We may have more markets.
That will be able to offer but to the JV.
He's really for trans border keeping in mind that we have the joint venture with United and.
Turns out for the Trans Atlantic market, So the sixth freedom.
Right.
No sector is covered under the joint venture that we have with United and Lufthansa.
So overall for six feed them I think we're in a very good place, we're very pleased with that.
With these rates these numbers like we're also very excited about the future.
That's that's very helpful. And then just a follow up from an earlier question just on the on the Triple seven freighters.
Is there any change in your broader cargo strategy as you bring all of these.
Bigger aircraft that can fly farther off as they take on more capacity.
What end markets, you're pursuing or something else that you're contemplating today versus maybe.
Maybe six months ago at the time of your Investor Day.
Yeah, no. Thanks, Kevin it's Amos.
I mean, one of the things that certainly with the 787, it's ranged limited and certainly there's a big market in Asia that we serve you know right now through belly space.
And through the schedule, but we see that as really as a growing opportunity. So the triple sevens really enable us to round.
Round out the network and from a range perspective, and lift and lift capability.
Okay. That's it for me.
Okay.
Thank you. The next question is from Kamran Dirkson from National Bank Financial. Please go ahead.
Yeah. Thanks, very much good morning, I, just wanted to come back to the it'd be United Oh, United Airlines agreement.
But I'm just wondering if you can go into a little more detail on what sort of the incremental changes are with your relationship with United with this new agreement I mean, you mentioned some scheduled design improvements, but what else are you able to do with disagreement now that maybe you weren't doing previously.
Okay. So.
In the current agreement.
And with that API with antitrust immunity, we were able to coordinate on schedule and to coordinate on price of course with the exception of if you carve off markets that exist.
But in the new agreement, we will be sharing in the risk and it never more so.
In the future you can expect to see a schedule that's more optimized you know in the current context.
Context at times, we may have found ourselves in a situation, where we had wingtip to win pick flying or schedule wasn't necessarily optimized for trans border, but the fact that we go into an agreement where we're actually going to be sharing some of them. They're bad news in some of the risk it will really allow us to be able to expand.
Which means you know.
Perhaps new markets more flying more choice more option for for customers.
In this new agreement you will see things that will Nate.
After that or also for customers in the current platform. We don't have for example, one to one class mapping, which means that at times customers will find distinct between air Canada and United These are all things that we're going to be able to do under the new agreement, which a will.
Make it better for us to be able to maximize revenue. So it would be good for both airlines, but at the same time. They will also be good for for customers and of course, you know we're fully integrated in terms of a redemption programs.
But certainly this this new joint venture will allow us to really broaden the reach that we have that on the transporter routes.
Okay, and if I could just ask about maybe the I guess the regulatory approval of this I mean has anything changed on that front because I know in the past there's been some some issues from the regulator on on that.
The transport of JV, you tried to do in the past I'm. Just wondering has anything changed or is this just a kind of agreement is designed to fully comply with the existing rules.
No no nothing has changed I mean, it's a we still have some of the car.
Carve out markets that were a.
Part of the agreement with the Canadian Competition Bureau.
And.
Now the joint venture is approved for Alright, a revenue share model.
But there's nothing there's nothing different.
No okay.
Okay. No that's helpful. Thanks very much.
Thank you. The next question is from Chris Murray from <unk> Capital markets. Please go ahead.
Thanks, Good morning folks.
Turning back to your cost guidance I'm, just trying to understand a couple of things.
You talked about CASM X, but you're also talking about being able to get back to that 8% to 11%.
Margin can you talk a little bit about some.
Some of the cost impacts you're facing.
And your ability to offset that.
With yield right now I'm, just trying to try to dovetail, how all this kind of moves through the.
Balance of the year.
Good morning, Christopher famous so looking over in terms of the guidance certainly we had a slow start to the year with Q1, we had on the crown sort of facing us it was a.
The slow ramp up second part if you've seen sort of the results here.
So you know as.
You can see from what we've been able to do in terms of yield.
So that's what we're covering in terms of fuel that you know, we're confident and we've.
Confirmed our guidance on our margin. So certainly the last half of the year second half of the year will be when we make it all up if you will.
So again in terms of getting you know two line items, specifically or what's driving that.
The large items that Ive said in my commentary was the additional traffic so all of those areas.
Passenger related expenses distribution, so forth salaries and wages.
All the lines that you see there are really incorporated in that.
X guidance of 15% to 17% so getting down on a line by line basis.
Yes.
Probably not very helpful. At this point Oh.
Oh.
Factors within what we have in guidance both for margin.
For the full year and.
For CASM ex.
Okay.
Just one quick question on the Triple seven purchase just to confirm so are these going to be like brand new aircrafts coming from Boeing or are these new aircraft to you that youre going to convert.
And get the holes either from your own fleet or from a third party fleet.
Now these are our brand new off the production line into into our fleet.
That's great.
Triple Sevens are brand new into the into the fleet. They are not the any of our triple Sevens converted et cetera. These are back to refresh.
Alright, Thank you very much taking my questions.
Yeah.
Thank you. The next question is from James from T. D Securities. Please state your full name and proceed with your question.
So I think that's that's myself, it's Tim James from TD.
Good morning, everyone.
I guess my first question probably for Lucie here.
I'm thinking long term you know I know we're on the process of normalization here, there's still a few things to fall into place on the international travel seen in particular I'm wondering as you look out in and spend what you can see today do you think there are any differences in the opportunities that air Canada has in international travel relative.
To the.
The way the World looked in you know in 2019 before the pandemic do you. If you went back and kind of looked at your route plan.
Network plan pre pandemic would it look any different today just based on the way.
Travel recovery is taking shape and then and maybe it's a two part question. If you could talk about it not only from a geographic perspective, but also from a fair bucket perspective as well.
Hum.
For sure the networks looks a little bit different than even looking ahead.
They look a little bit different and there's a couple of reasons for that one we know that post pandemic.
The VFR market or the.
Leisure markets I've had rebounded much quicker and you know as a result of that we did introduce some routes you know post COVID-19 that we intend to keep.
And if you look for example at the announcement that we recently recently made.
To work closer with them right. This is another.
Demonstration of an opportunity here for us that perhaps in 2019, we would not have contemplated.
The fact that you know we can drill in Dubai and have access to.
Several markets, where there are high immigration.
Demand.
You know from from Canada those are all.
Examples of how we are adapting the network with the new reality, India is another one where you know we plan to expand.
The answer to your question would be yes, you know the network gives you a little bit different now keeping in mind that there are many many markets that are core and you know we have solid relationships with Seth as we mentioned earlier, United and Lufthansa said, if you look at Europe . There are core markets there that we will.
Continue to serve but theres no doubt that as we move forward, we're looking at opportunities too.
You know get into markets that perhaps in 2019, the opportunity would not would not have been there Bangkok is another one that.
We've just announced them and there are many like that there are many there are many like that.
Thank you.
So from your comments.
Is it fair to assume then if we kind of think out two to three years and from Air Canada is kind of view of the world at this point than that you know a greater percentage of revenue will come from VFR market from the leisure market relative to corporate and business I've been travel.
The corporate like we're confident that the corporate demand I mean, whether it's you know 2023 early 2024.
We expect that the corporate revenues will return and keeping in mind for us at Air Canada corporate.
By and large in large part within travel within North America.
There's a smaller content of corporate traffic on international routes to core of corporate trust as domestic whereas.
From an international point of view and I think you'll see it changes over time for sure there will be opportunities for us.
To be able to grow into that.
Some of those some of those market.
Okay.
Okay, and then I guess my second question.
I'm just wondering if your Kennedy was able to differentiate at all.
Quinn normal kind of recurring leisure travel at this point in the are in the recovery and any that might be travel that was delayed.
Or would've otherwise occurred during the pandemic and that's what I'm just trying to get a sense for if you think about or.
If you believe theres any material a bump in demand right now that maybe is not recurring going forward, but it is kind of working its way through the system because it was delayed or maybe there's just extra demands.
As a result of the last couple of years.
I think you know probably what we're seeing now there's no doubt that there's a large pent up demand here, but as we look to the future.
We believe that that that demand will come.
Come back you know leisure travel from Canada to the Sun for example, or.
You know to the Caribbean in the winter that will remain so that theres no doubt now that the there's a bit of a shift.
Like we don't have concerns that once this had phone that there'll be a demand shortage and certainly our advanced bookings don't indicate that and.
And we also spend a fair amount of time working on that.
Demand forecast model to to help us assess where and you know the next opportunities but at this point in time.
Certainly don't believe that.
That this is this you know demand.
Demand has just picked up and that we're gonna.
Safety issues in the future.
Okay. That's that's very helpful. Thank you.
Thank you.
Next question is from Stephen Trent from Citi. Please go ahead.
Good morning, everybody and thanks very much for taking my question.
I actually just had.
Had one it intrigued me that you guys.
Alright doing the.
Agreement with the with Emirates.
And you talked at all about your <unk>.
Freedom strategies going forward.
Is there a cabinet or ever consider.
Going for a while.
Minority investment in a foreign carrier.
We have seen with <unk>.
The U S majors and some of the middle Eastern Airlines given the.
Significant operational dislocation we've seen in <unk>.
History over the last two years.
Good morning, Stephen its Mike that's a real loaded question.
Sorry, it's not our priority.
Let's say, it's just not our priority, we'd rather spend our capital on a one on investments are closer aligned to our strategic plan that we that we've laid out.
And.
And so honestly.
We look very carefully at capital investment with return is.
And we although we've explored that scenario in the past we have not come close to stepping into it for the reasons I just spoke about that we.
Leave our capital is better spent.
On new aircraft and investment in products that are.
A stronger brand.
Okay very clear thanks for taking my question I'll leave it at that.
Thank you.
The next question is from Sadie Shimon from BMO.
Sadie chemo very sorry. Please go ahead.
Yes.
Morning.
So I guess you gave us got them guidance and an EBITDA margin then we can back into some numbers here for <unk>.
Was curious on the P. RASM mm side. It feels like you had several rate increases through the second quarter like is there a way we can figure out or understand what would that Ben B P.
Passenger RASM growth kind of in June or kind of exiting the second quarter versus what you started off with and that's.
Kind of April or early May timeframe.
Yeah, I think he's Patty hi, Mike.
It's Lucy you talked about June was our strongest month of the quarter and so I think you could take from that that there was some acceleration of P. RASM through throughout the quarter with June being the stronger months, reflecting all the initiatives.
Are there other aspects that we put in place.
Okay and.
Maybe one follow up question on the on this demand story in equation I mean, you spend a lot of time thinking about the demand and kind of stuffing up for it and preparing for it.
We ended up doing a kind of a slower economy or even a month, especially on next year.
Do you think that this kind of boost that may cause the company can still drive RPM in drive capacity higher going into 'twenty. How are you thinking about kind of this is macro.
The outlook in the challenging you know story on the economy side buses, how you're kind of planning for the next 12 months not only for the next three or six months.
Yeah, It's Mike again.
Again as long as he said, we're not seeing any evidence in our advanced bookings that theres, a slowdown coming but we like everyone read we read the newspapers, we listened to the economists we run recession scenarios mild recession scenarios and we're quite comfortable with our plan going forward.
Including our agility to two to ramp up or ramp down.
Depending on obviously was unfortunately over the last 20 years, we've had some practice doing this.
And so we're quite comfortable with the leadership team that we could manage.
Any environment.
Come forward, but again, we're not seeing.
Any evidence of a slowdown in your theory is interesting whether the pent up demand continues.
Through a possible mild recession that that may be the case, and but I can assure everyone that we are ready for any scenario that are that.
That exist to take advantage of it.
Okay. Thanks appreciate it.
Okay.
Thank you.
Next question is from Helane Becker from Cowen. Please go ahead.
Oh, thanks, very much for squeezing me in.
So just on the 84000 flights that you were able to do in the second quarter and you know how should we think about that going forward is is that kind of the level you're going to want to do can you do more than that is that is that stretching it anyway.
You should think about doing less because that's a pretty big increase right from the from.
From 2019, and maybe the number of employees has an increase just not so just wondering how we should think about that.
In terms of growth, maybe one year out as opposed to maybe one quarter out.
Well, it's it's Craig I mean, I'll sort of covered from a bit of an operational perspective, I mean, I think the phenomenon. We saw was a little bit of a delay in terms of the timing of some of the resources, we needed to come in versus the acceleration of the ramp up we saw in the second quarter and that kind of led to some of the challenges, but as the quarter finishes and as Mike mentioned earlier.
There is as we come out of the second quarter and are starting to look ahead.
We're feeling a lot more resilient in terms of.
Meeting the operational demands versus what the commercial demand is so you know on a going forward basis. We don't view, we will follow the commercial demand and the capacity that's deployed and we don't anticipate from an operations perspective, they're being.
Any constraint around that.
That's great. Thanks, and then if I could just ask one follow up with M. S. You talked about having free cash flow.
How should we think about the balance sheet and liquidity you mentioned the minimum level that you want to have and in free cash flow.
Deployment in maybe 2023 as opposed to maybe you know again next quarter.
Yeah good morning.
So as you know us we our priority is still on the on the <unk>.
Cash and liquidity.
Our goal right now is delevering and we're doing that through essentially purchasing aircraft with cash and then funding our capital plan, which you're seeing sort of includes the product investments.
Aircraft investments, specifically and other capex items.
They're still really our priorities and then we'll continue to look for opportunities again.
As to Delever.
As we look at cash in cash out next year and continue to sort of recovery.
So.
And our goal as I stated back in Investor day is to get to a leverage ratio of one <unk> by 2024 and the 2024.
So we continue to sort of look at the capital priorities in that order.
That's very helpful. Thanks Seamus.
Thank you.
The next question is from Andrew <unk> from Bank of America. Please go ahead.
Hi, good morning, everyone I'll I'll keep it brief here.
I appreciate all the color that you gave with regards to kind of fares in your booking commentary would you be able to provide give us the revenue cadence across the months of in <unk>. So we can get a sense of what the trajectory was like.
Yes actually.
Hum.
Okay.
Of course.
Thank you Sir.
From April to May So if we look at you know within the quarter. The progression on revenue from April to May was in the 15% range and if we look at from May to June we were almost in the 25% to 30% range. So that they have.
Wrap up for June the results for June really significantly.
During the quarter.
Got it and just one point of clarification did you say the junk fares were up 13% or 30% I couldn't.
I understand.
The average fares were up at 13% at the system level.
Not not 33, okay.
Thank you very much I appreciate it.
Thank you.
No further questions at this time I'd like to turn the meeting back over to Ms. Jenna.
Once again, thank you very much for joining us on our second quarter call. Today should you have any additional questions. We invite you to contact us at Investor Relations.
Thank you and have a great day.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
This conference is no longer being recorded.
Jose Hosni. Please also as you say.