Q3 2022 Cargojet Inc Earnings Call
Okay.
Hum.
Hum.
Hum.
Hum.
Okay.
Hum.
[music].
Okay.
Hum.
Hum.
Hum.
Mhm.
Mhm mhm.
Hmm.
Hum.
[music].
Okay.
Hum.
Hum.
Hum.
Hmm.
Sure.
Hum.
Hum.
Hum.
Mhm mhm.
Hum.
Hmm.
Mhm.
Mhm mhm.
Hum.
Hmm.
[music].
Hum.
[music].
Hum.
Hum.
Hum.
Hum.
[music].
Yeah.
Mhm mhm.
Hum.
Mhm.
Mhm.
Mhm mhm.
Hum.
Hum.
[music].
Okay.
Yeah.
Hello, and welcome to cargo Jet Conference call third quarter 2022, My name is Priscilla and I'll be your coordinator for today's event. Please note. This call is being recorded and your lines will be on listen only however, you will have the opportunity to ask questions at the end during the Q&A session. This can be done by pressing star one on your telephone keypad to register your question.
If you require assistance at any point, please press star zero and you'll be connected to an operator I will now handle where you to your host Ms. Pauline Dhillon to begin today's conference. Thank you.
Good morning, everyone and thank you for joining us on this call today, our apologies for the slight delay the service provider was having a few technical issues with me on the call today are a jade Rahmani are president and Chief Executive Officer, Jamie Porteous, Our Chief strategy Officer, Scott caliber, our Chief Financial Officer, and Sanjeev, Manny Our Vice President.
After opening remarks about the quarter, we will open the call for questions.
Would like to point out that certain statements made on this call such as those relating to our forecasted revenues costs and strategic plans are forward looking within the meaning of the applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted earnings per share and return on invested capital.
Please refer to our most recent press release and M. D N a for important assumptions and cautionary statements relating to forward looking information and for reconciliations of GAAP measures to GAAP income.
I'll turn the call over to a J Vermont.
Thank you Paul and good morning, everyone and thank you for joining us joining us this morning for the third quarter earnings call.
I'd like to thank all those who attended our inaugural Investor Day on September 27.
One of the objectives of this event was showcased the passion for that entire cargo to 15.
Oh, we were successful in demonstrating a culture of the leadership team and how our various functions come together each business day, each business night to deliver excellent silver customers.
Despite the risks and volatility expressed in the business News Corp continues to demonstrate growth of revenue our ability to manage costs and the continued high level of customer service as measured by our industry, leading on time performance.
Oregon has left.
Through two downside, we live preparing for a downside scenario back in January 2021.
We strengthened our balance sheet with the 265 million equity issue.
And it was not just the balance sheet. We also focused on strengthening our business model.
We're supplying over business with a significant expansion or do you see them I see in my business.
It is underwritten by strong customer contracts that provide for Trinity revenue.
Centers for additional growth.
We have a strong balance.
With several risk mitigation opportunities to manage revenue operating costs and capital expenditures and an example of how we manage our capex would be the most recent decision to exercise an option to get further Alaska for Boeing Triple seven that was planned for 'twenty 'twenty six.
It's likely 2027.
If things change over the last next 12 to 18 months, we believe that congregate will still be in a position to acquire the eight triple seven.
Oh as originally planned late 'twenty 'twenty six.
Cargo daughters car forget it is not immune to softness in consumer spending shifted recessionary scenario of a couple of years.
However, it is worth noting the carpet got this world its business model that is increasingly based on strategic partnership with its customers.
But by aligning over long term commercial interests, we expect a greater.
Stickiness of volumes with our strategic customers, even if global volumes softened during the recessionary period.
Therefore, we remain cautiously optimistic that the strength of our business model would allow us to manage the volatility better.
One of the concerns that we often hear is what happens to air.
Cargo into passenger aircraft belly capacity returns to pre COVID-19 levels.
Concerns that shippers will revert to usually.
Using belly space as opposed to dedicated airfreight.
Recent debt that the U S shows that TSA checkpoint numbers are approximately 5% of pre pandemic levels.
European flights or within approximately 10% of the paper endemic levels.
As I explained our Investor day, there are many more factors that would determine the utilization of belly space than simple return to flight.
Many airlines are bringing narrow body aircrafts, so cargo friendly by wide bodies, the routes predictability and speed of service all play a role in decision making.
Therefore, despite the capacity created by the return of the belly space in passenger aircrafts shippers continue to move their freight and the dedicated air cargo freighter.
They can depend on the service.
We are pleased to report that in third quarter carpet gets domestic revenue increased 21% compared to compare to previous years.
And where he she might revenue increased by 47% compared to last year.
We remain confident over and of our business model and the ability of our leadership team continues to navigate expected volatile times and we remain squarely focused.
Our long term strategy.
I will now pass on the call to our CFO Scott Cowboy for an update on the business.
Thank you AJ good morning, everyone before I get into the third quarter results I would also like to thank everyone that either attended in person or dialed into our inaugural Investor day on September 27th.
For those that were not able to attend I would encourage you to visit the cargo jet websites, where youll find all the material for this event.
I would now like to share a few thoughts on the business.
In past quarters, we've gone to great lengths outlining the post pandemic era, and what that means to cargo jet the.
Third quarter revenues that HHS mentioned once again confirm that our business model up a more diversified portfolio is proving resilient.
For this update I would like to add more color on the impact of a possible recession on our business.
Cargo jet is prepared for our peak season.
Cargo jets largest customers have secured additional capacity for the fourth quarter.
Our customers are calling this year a controlled peak as opposed to all the uncertainty in the two previous years.
Cargo jet is continuing to add capacity to meet customer requirements.
In July we added a 767 to support revenue growth with a lean into Brazil.
The company just took delivery of two 750 sevens to free up 767 capacities for additional revenue growth.
One of these 760 sevens will be used for a new route between Halifax in Los Angeles. The second 767 will be deployed to manage peak season volumes.
The company will take its next delivery of a 767 300 in January 2023, and it'll be put to work immediately.
The core business is and remains strong.
Despite the short term volatility in e-commerce volumes, we remain bullish in our view on the long term growth cycle of online shopping.
We also believe that any reductions in retail consumer spending will be impacted more severely in the bricks and mortar retail outlets compared to the sophisticated systems used by e-commerce retailers.
In a recession consumers tend to be more price sensitive.
It is our belief that e-commerce retailers are better positioned to meet the expectations of end consumers.
That is why we are excited and feel confident in our long term growth strategy.
Now turning to third quarter results.
We posted another strong quarter with revenue growth of 22, 8% compared to prior year.
While we are pleased with the 21, 2% increase in domestic business and a 47% increase in the CMI business compared to prior year the softness in our all in charter revenue is primarily due to the extraordinarily high volumes carried in 2021 due to COVID-19 related supply is being.
<unk> from Asia.
The adjusted EBITDA for the quarter came in strong at $82 1 million or 35, 3% of revenue compared to $70 $9 billion for the same period in 2021, an increase of 15, 8%.
Adjusted free cash flow for the quarter stood at $47 $9 million, a decrease of $3 $2 million compared to prior year.
I'm barely due to increase in capital expenditures to support our secured growth.
Total capital expenditures in the quarter were $118 $9 billion compared to $58 9 million in the same period in the prior year.
Return on invested capital for the quarter was nine 7%.
At our Investor Day, I mentioned that this would be a bit bumpy at times as we wait for annualized revenue and profitability to catch up with the capital expenditures and the related increase in our invested capital.
As at September 30th cargo jet has invested $292 million in capital expenditures that have not been put into service.
If you adjust for this equipment under development.
The return on invested capital would have closed the quarter at 12, 7%.
On the operational side block hours increased 21, 6% compared to prior year.
The revenue per block hour is consistent to this increase in revenue.
The slight increase in direct cost per block hour is primarily due to fuel costs and the reduction in all in charter revenue.
As planned we grew our air cargo fleet size to 34 aircraft at the end of Q3 2022.
An increase of three freighters in the quarter and an increase of five freighters compared to this time last year.
Our on time performance remained strong at approximately 99, 7%.
Well, we feel confident about the long term growth opportunities cargo jet will continue to watch all of our key metrics very closely.
We will find the right balance between investing in growth managing costs and maintaining a strong balance sheet.
This concludes our opening remarks, and we'll now open the call to any questions.
Okay.
Okay.
Thank you.
Yeah.
Yes.
Ladies and gentlemen, as a reminder, if you would like to ask a question I'll make a contribution on todays call. Please press star one on your telephone keypad.
Should we draw your question. Please press star two we'll pause for a moment to allow everyone an opportunity to signal for questions.
We will now take our first question from Kamran Dockson from National Bank. Please go ahead. Your line is open.
Thanks, very much good morning, I guess I just want a question early on the on the outlook. It sounds like your Q4 your customers are still pretty pretty optimistic about the volumes, but I'm wondering if there's any indications as we look into Q1 or you or is it really too early for some of your customers to kind of look that far ahead.
Hey, good morning, Cameron it's Jamie.
Just on the three statements of the business of the business I would say certainly on the <unk> side, we're not expecting any softness in Q4 and going into 2023 is as.
As Scott pointed out during his opening remarks, we have significant we'll see the full year effect next year of a few significant ACI my roots that we started in 2022, primarily the one to Brazil that we started in July and a new route that we start between Europe , Halifax, and and Los Angeles This week.
Well as the other aircraft that were taking delivery of next year that will go into service. So that will remain strong the domestic business. It was a little stronger results in Q3 than we were expecting that the trend year to date for the first six months, we were running about 15% ahead of our year over year on the domestic revenue a little surprised that the increase in Q3.
Three our forecast from our domestic customers are.
Scott said is for a more controlled peak period, but certainly we expect.
A significant increase continued year over year increase going into 2023 as you said I think it may be a little premature to expect.
I think we'll continue to grow at the same 15% to 20% level year over year in 2023, I expect we'll see some softness.
But again I think we've said before softness is not negative growth instead of 15% to 20% growth, maybe we see high single digit or low double digit growth, but one area that we're that we're seeing some although we've seen a nice bounce back in Q4 is at the early part of Q4 has been on our charter business. We're running in Q3 sort of in the range of $15 million to $20 million per.
After that we had indicated would be sort of a normal run rate we were above that in the first two quarters kind of in that range in the third quarter, primarily because of some softness we saw globally, especially out of Asia, but we're seeing some strong demand right now although the international which is also part of that segment is impacted by lower yields, particularly out of Europe because of the valley.
Are you of the euro against the U S dollar had inflation in Europe . So that's the one area, where we're seeing some softness.
Okay. That's very helpful. The second question I had was on the AD hoc. So you answered that thanks very much.
Yes.
Thank you.
I'll now move on to our next question from David I'll come tell from core Mark Securities. Please go ahead. Your line is open.
Hi, Thanks, good morning, everyone.
A J you talked a little bit about.
Your flexibility in terms of deferring Capex, which is the which is a few years out but maybe you guys can speak a little bit about your flexibility in the near term in the event that you guys do you see a slowdown.
And then maybe layering on to that maybe for Scott <unk>.
<unk> still hold at these levels if volumes do fall by call it five or 10% into next year.
Yes, so our.
Our fleet plan as you probably have seen in Investor day, and some of the other communications are basically adding.
760 Sevens three.
302 over fleet and those are primarily committed to acm's reward.
So we do have an option of two aircraft deferral for 2023 as well. So if things were to slow down. There is two aircrafts that we can either shift to 2024 or cancel them altogether. So we do have and that's almost $100 million.
Slightly even more so there is some flexibility in the two 767 that we.
We can exercise in the next year to postpone it before it or cancel it.
And also on the Triple seven we also mentioned that we have already deferred one and we have the option to defer another one so we could be.
If things go.
Got really bad out there.
We certainly have at least I.
We mentioned at the Investor day, $150 million to $200 million that we can deploy.
But I think after coming back and looking at it. We also made other contingency plan and we can certainly deferred maybe twice as much. We said we could so we still looking at it working at it but yes, we have some flexibility in that area.
Okay. Yeah. Good morning, David just on the margins and yes, we do believe we can maintain these margins and really there is three main reasons.
On the direct cost side, we do have the ability to manage those block hours and we do it daily already but obviously in a recession, we'd have to to potentially execute more frequently and that's combining flights rationalizing flights getting a little bit more creative with Triangulated freights, but just to manage our our block.
Block hours Accordingly, if there is any change.
In the SG&A.
We've already made decisions, we've got a hiring freeze right now.
Were not much different than any company right now that's really looking at their what they can manage and.
And we're not traveling we're doing all those things just to manage our costs in anticipation, but really the third thing that's most.
Critical in terms of us maintaining margins is this growth revenue that we're bringing on is spreading our fixed cost over a greater revenue base. So we have that fixed cost absorption benefit that as long as we keep adding this growth revenue that we've secured it's going to dilute those fixed costs over a greater revenue and that's really going to help us maintain our margins.
Yeah.
Got it that makes sense and then on the charter revenue, Jamie you talked a little bit about this but.
$15 million quarterly run rate here now that the new normal I think before you guys were talking about something in the kind of closer to $20 million range.
Yeah, I think going forward in $2023 $15 million to $20 million is still a sort of.
Normal run rate for the charter business Q4 is always a little bit different.
Not that the demand is not there. The demand is is usually very strong in the fourth quarter for AD hoc charter revenues and the only thing that restricts us from making.
Or achieving those revenue levels is the availability of aircraft and crews because we normally have those dedicated to the domestic and the HDMI peak volume needs. So that would be the only question in the fourth quarter.
And then just as a modeling question for a 15% growth that you guys saw in your domestic business.
What was the breakdown between volumes and pricing there.
Yeah.
Okay.
The 15th.
15th there was 21% in the quarter is I think at 17, 5% year to date for the first three quarters.
Most of all of that is volume related.
As you know most of the domestic revenues are contractual so rather than us theres some CPI increases throughout the year.
On the anniversary date of those major agreements, but the majority of it would be volume.
Got it okay. Thanks, so much I'll hand, the line over.
Thank you David.
We will now move on to our next participant Chris Murray from <unk> Capital markets. Please go ahead. Your line is open.
Yes, thanks folks good morning.
Couple of things just on the CMI contracts. So just maybe trying to understand the that.
That new contract historically, you've set for 767 contract you're somewhere in the neighborhood of 11 or $12 million to us is that about the right way to think about that contract.
Yes, I think this one youre talking about the one we're starting this week, Chris Yeah, exactly yes, it's probably a little higher than that because it's a much longer range it's actually.
Rerouting and existing aircraft that we're flying from Europe to <unk>.
Cincinnati and adding the new aircraft and Criss crossing the two and they fly from Lipsig in Germany.
Sure.
<unk> hub.
Into Halifax, and then onto Los Angeles, and then from Los Angeles back to East Midlands in the U K and then onto it lipstick. So it's a significant so I think it's seven just over 7000 block hours per year for two aircraft, which would be a little higher than the average so it would be probably more yes.
More in the mid $15 million range in terms of revenue.
Okay U S. So that's good.
Canadian.
Okay.
And then you also mentioned that you have.
Got it and an additional six seven you think theres all that will free up early next year should we also assume that that will take a route similar to that.
And again for DHL.
Well I think the best way to do it if you averaged out $12 million because some routes are longer some shorter.
We average them out and I think that's that's a good average to go with.
Around 12 million Bucks.
Alright Thats helpful. Thank you.
And then maybe maybe to ask the question a slightly different way thinking about demand forecast into 2023, how much visibility do you have right now from your partners.
Their 2023 plans.
Even on a on a schedule of lien basis.
That gives you some confidence that 23 years at least shaping up to be okay. At this point.
Well you know all I can tell you is nobody is requested any downgrades to space or are.
We are going to be down or are we going to be lower so we published over schedules.
You know, we just published time for the peak in a weaker.
We just put publishing and all indications so far we've met people on the peak peak side of things, but nobody has indicated any sort of.
The contract reduced our footprint for that matter.
Any any kind of reduction has not been requested so.
We will get into some planning sessions, because everybody's kind of no concern about the peak right now to get that out of the way I think early January we regroup with some of our customers and look at it but normally they give us an indication, but we haven't seen anything from anybody yet.
Okay.
At this so.
Okay. That's helpful. Thank you I'll pass along.
Thank you.
We will now move on to Matthew Lee from Canaccord. Please go ahead. Your line is open.
Hi, good morning, guys.
Maybe we can just start with some and then the cost side I noticed that ground handling was up substantially in Q3 year over year is that more to do with increased wages or maybe labor shortages and how do you see that impacting Q4 if at all.
Yes.
Yes, it's up a bit but revenue is also up as well because we have one revenue stream.
It is providing this service.
Amazon would be the best example, so there even though it's up theres revenue, that's up as well that tickets coated in our domestic revenue.
Right, but maybe from a perspective of hiring people for the Christmas holiday, Yes, So a couple of them.
Yeah. So there is some part time.
Supplementation of labor, which is a bit higher than normal costs.
We also have.
Some wage increases that.
More in line with what the industry has done so yeah. There is that that always plays a part.
Okay. Thanks, I'll pass the line.
Thank you.
We will now move on to our next participant Kevin Chiang from CIBC. Please go ahead. Your line is open.
Okay.
Hi, good morning. Thanks, Thanks for taking my question.
Good morning.
Scott you mentioned, a hiring freeze which which.
It makes sense to be prudent here given all the uncertainty you know when I look at your head count just over 1700.
Should I think of that being kind of a good run rate I guess for the next few quarters or is there some seasonal lift here as you prepare for it.
Peak season, and if I could just.
If you could also share maybe how much of that labor is what I call unproductive pilots that are training that aren't yet.
Able to fly with me, which I suspect.
Provides a margin lift that they.
You get into the planes.
Yes, so Kevin right now we have about 60 to 70 pilot expat are not productive there and trade.
And most of them are dedicated to the.
The <unk> contracts that we have pending and secondly, we also you know.
By hiring.
More.
Pilots, we also get more flexibility right now we could be paying a lot of overtime for charters and some of the other stuff. So that comes back in line as well we have our own simulator now so that's going to save US a lot of travel days between for the pilots they were going to Miami of Vancouver.
To get on a simulator.
Other companies training.
So we will gain some efficiencies in that area, but certainly.
No.
Whereas the other employees are concerned the only people we will add if some part timers and the peak time too, which we always do every peak because the volumes are.
Actually higher than the normal period. So, yes, we will be adding some part time labor, but we don't anticipate to add.
Any full time on the on the labor side, but there are a couple of open positions. We have on the executive side that needs to be filled but generally the highest squeezes for growth right now, but we're just being prudent.
For not hiring any permanent people at this time.
That's very helpful color and maybe just.
My last question and then a question I don't think that is.
Is there a risk do you see what's the modal shift in a downturn, we've seen significant declines in <unk>.
Ground transportation, causing a lot of people point to the weakening truckload market I know that's more of a U S phenomenon, but do you see a risk there that that some of you there.
Customers could could shift volumes from air freight to ground.
As rates fall.
Ladder mode.
Kevin I mean, there's always a risk when when you know ground fleet round trade is cheaper in certain <unk> staff.
But keep in mind, the majority of our customer bases like time sensitive stuff. So if you look at spare part market. If you look at the computer part so computers already chips or medical supplies are.
Which is a lot of fresh broader use and lobsters and no matter what price you can brown.
Does that business fundamental business that flies does not shift.
There might be an odd 510000 pound shipment that normally went to air and now it's gone down while we don't see that as a major shift to from our base business, because we will use us when they need to use us and thats.
Nobody's going to risk going to.
Number one and nobody is going to go risk to a belly passenger on domestic because you could be 24 to 48 hours and the product will be audited by the time it got there or somebody.
Somebody could be needing that product in the knee or room in Vancouver, or somebody spare parts that are needed for <unk>.
Cars and stuff like that so you know we are.
And a very time sensitive market and we don't compete with those.
Occasional occasionally when rehab space left over and we might take on a standby shipment that would've gone by truck and that kind of stuff, but that is not our primary business.
That's that's great color. Thank you very much and best of luck as you got through peak season here.
Thank you Kevin.
We will now move on to connect.
From Scotia Bank. Please go ahead your line is open.
Thank you operator, good morning, everyone.
Good morning, just wanted to ask that morning.
Just wanted to ask first on the fleet schedule.
So I noticed on the fleet plan, there's been some pull forward.
75700, <unk> sell it sounds like it's probably one or two quarters of shift I am talking here.
Much but any any thoughts why you have to get in these aircrafts earlier is because the customer pull or is it because of the supplier's push.
They have prepared these aircraft earlier than expected.
750 Sevens were our plan was to get those as soon as possible. So they can free up the 700 acceptance.
There's two advantages of putting the 757.
Keep in mind that you know.
Our goal is to improve on our domestic service, which is already runs at a phenomenal 98, 5% on time performance, but now with the seven introduction of 757.
We have more direct flights to more stations to invest and Easton recurrence that we ever had so for example from Hamilton now we can offer direct service to every major city without stopping and went back.
Same thing going to the east coast as well. So there is a lot of advantages to.
To service enhancements, where.
We can give our customers a little later cutoff time. So they can continue to pick up even delayed oclock at night and still bring it to us at midnight and then we can ship it direct now.
Direct shipments also improved service because they are not translating or theres no deicing delays in Winnebago Calgary. So those are some of the advantages of direct ship flying it's no different than when you are applying to Vancouver going we're gonna Paygo Calgary Youre stopping over same thing the shipments out. So that's why we are replacing those.
Aircrafts and second thing is we take the 760 sevens that are gonna be freed up and deployed in the ACI and the charters and some of the international markets. We are taking off so it's it helps both ways, but what I mentioned on the fleet plan was that we do have the option.
Two deferred the two 760 sevens that was scheduled to come in midyear next year into either the following year or cancel them altogether.
Yeah.
Makes sense, thanks and.
That's a good segue to my next question actually so you mentioned a J I think at the Investor Day, you were saying as I said, a $150 million to $200 million of capex that can be deferred or maybe even a council.
I agree and then you're saying that could be potentially double.
Yes.
Easily do go up to $300 million of things Scott.
If you hear bad news of next year.
You know we are in a position to trim that.
Right.
Is there any penalty associated with that death prologue cancellation, I mean like what would be some.
And in the whole scheme of things, it's now going to be material I'm talking if I go for another $150 million or cancel that could be in the neighborhood of 5 million Bucks. So that's not going to be material I mean, I'd, rather take the 5 million Bucks <unk> don't need to spend $150 million.
That's a no brainer so.
That's.
It's as I said, it's not a material number.
Got it.
Makes sense and last one for me.
So you have your Investor Day, you guys were talking about how you see.
Is that okay.
EBITDA and revenues et cetera, kind of ramp up to EBITDA 500, plus.
In 2012, 2026 that you get more aircraft coming in.
With respect to sort of be the bridge to that 2026 guidance you provided.
Zero rate you kind of think about how you get there like is it a linear curve through 2020. Thanks. So you will see maybe some sort of a slower growth in the early use have been stronger growth in the later years.
Well you know what what are the things is that we are very.
We read the papers, we talk to people, we see the industry and we know that you know next year or the year after it could be a bit rocky and with headwinds and turbulence.
Coming in the shipping and capital. So we know that you know.
Our fleet plan, our our workforce with solid and delivering.
When the need arises so.
Next year or two years, that's why we have the option to defer some.
Some of those expenses.
The first half of the aircraft, obviously, the revenue and revenue.
Revenue side also gets a little bit deferment.
We feel that.
We have a strong enough balance sheet and liquidity position is.
Almost like $1 billion. So we don't feel that we do not.
You know we are going to go down called leave everybody went down we are in the best position that anybody in the marketplace.
Two two.
The weather the storm so I think that your question how the curve is going to follow I think it's kind of difficult one to answer but whichever way. It as follows we are prepared I think that's the key thing.
But you should take from this.
Okay perfect. Thanks for the answers thank you.
Thank you, we'll now move onto Walter <unk> from RBC capital markets. Please go ahead. Your line is open.
Yes, thanks, very much operator, good morning, everyone. So I wanted to ask a little bit on <unk> and the potential evolution of your of your customer base, there and I know.
Yeah, you bet <unk> been pretty focused on DHL, they've been they've been buying a lot of your capacity they've indicated that they would like more than you have been happy to service them there.
For anyone that would like to see a little bit more customer diversification I know there is a lot out there that suggests others would be interested as well do you think youre going to see more a more diverse customer base and your ACR by law line over time or are you.
DHL just.
Due to either contractual commitments you made with them in that and that agreement or other reasons are you you're devoting most of your spirit available capacity as it comes online too.
Sure.
So you know Walter you know.
I'm all about diversification that that's why we went from domestic.
Do we <unk> Bourbon irrational.
And same thing I believe in the customer base as well.
We totally are open for diversification, yes, we do a lot of.
DHL and to be honest with you we have commitments with DHL that.
Because of our performance we are always at the top couple of carriers for them.
And the and the strategic partnership we have so right now the aircraft we have coming in this year and early next year.
We are committed to DHL now.
We are also you know there's no reason why we we are quoting.
For other customers as well, but to be honest with you. We can't at this stage go on and take US seriously one year deal available in Europe far East Theres not a week goes by where we don't get an email and we've got $200 a month in flying from you know Hong Kong to Manila and we.
We just not in a position to entertain some of that <unk>.
And that work I must tell you it's not only profitability is good for us.
Yes, our international presence is growing as well but.
Absolutely not in a position to take that on because of the pilot situation.
Because we've got so many of them in training and second part is that we have commitments with DHL right now that.
We need to meet but you.
We have taken on work for a month towards 60 days here and there just from other suppliers.
Other customers and we will continue to do that but yes, our strategy would be that.
When the Triple seven comes at we are only permitted with four aircraft with DHL and we would certainly.
We have a lot of inquiries on those and then that would be the diversification time.
<unk>.
Two to expand over a CMI business.
That makes sense.
Speaking of staying on the topic of customers.
I assume you're continuing your negotiations with your larger ones. The ups's pure leaders and so on is there any anything that is contentious anything thats a matter of debate is there you know.
Does your customer what I kind of just see how the economy plays out before locking in a locking in something.
What are the main.
Sticking points if any.
That you are having with either U P. S pure later or so.
Theres no sticking points.
We have successfully renewed with every customer I mean with Canada post in fuel related group.
A three year extension as you see remember even to the.
Seven year deal that we sign so that was a 10 year agreement and I think that.
You know I think everybody is kind of little bit focused on peak are you. We have had initial round of conversations we always do that's our normal procedure, but I just want to remind everybody, we still like more than two and a half years away on all of those contracts.
No.
Preliminary discussions have had both parties have expressed interest in working with each other so there is no issues, there's no material issues that we know off.
Are we the goal.
You know, we just need to get focused on peak and after peak we saw.
Something happens before Pete here would be great, but everybody's kind of now starting for as of November and December .
The only thing we focus on is the extra flights and how are we going to cover the beacon to be honest with you.
As I said, we've got still two and a half years.
And.
And to answer your question.
Again, there is no issues that we're aware off.
That are any contentious and renewables.
Okay, and then Jamie you mentioned.
Growth still being solid not double digit, but you're obviously lapping youre still able to.
Get high single digit for next year I'm just wondering.
To be too specific the fourth quarter, but I know you did you had a huge ramp in the fourth quarter of last year and I'm just curious as to whether that's a difficult compare I mean I had built in some negative growth on that because you were up you know Europe .
20 to over 20% and in block hour volume in the fourth quarter of 2021.
Does that high single digit still apply to the fourth quarter 2022 even even on that difficult compare or should we look at it with a little bit more of a <unk>.
Given that.
Given that the growth was so high in the fourth quarter of 2001.
Yes, I think it's going to be a little more challenging in fourth quarter 2022 than it was last year, you're right. We had a phenomenal fourth quarter last year.
Based on the trends that we're seeing in the first three quarters on the domestic revenue I think it's going to be a good fourth quarter, but I think some of those macro.
Economic factors are going to impact Q4 this year.
So instead of you you're up 20%, 30% can you still do double digit in.
In the fourth quarter here this year.
Yes, I think so but I think it'll be below sort of be in the range of what we've experienced year to date in Q1 to three.
Okay, Alright, Thats all my questions. Thanks, very much and good luck on peak season.
Thanks Walter.
Thank you once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Your host AWS. There is no further questions at this time I would like to turn the conference back to you for any additional or closing remarks. Thank you.
Thank you everybody for joining us I appreciate it.
Sorry, I am very sorry, we have one participant claims blanking right now that it will be king James from TD Securities.
Okay.
Please go ahead, Sir your line is open.
Alright. Thanks.
Good morning, I'm, just wondering if you could talk a little bit about the.
The domestic environment and just any I know you've addressed it regularly.
In the past given what some of the competitors are doing in the domestic market, but any update on kind of what youre seeing in terms of of their aggressiveness.
In pricing in going after volumes any any changes on that front.
No good morning, Tim Jamie nothing at all actually and if you look at it.
Yes, certainly from West jet standpoints, they don't even have their two freighters certified or on their operating certificate in Canada and don't expect anything to happen until sometime next year. So no no impact from them at all and equally from Air Canada with the three freighters that they're operating as we expected and suggested you know those are being flown mostly on international routes to supply.
Belly cargo capacity that they didn't have so really no competitive threat to the domestic business that I think.
A good indicator of that would've been the renewal that we did earlier this at the beginning of 2022, along with multiyear basis on both the TFR international contracts and the and lower health care contract, where both of them were just simple simple extensions of existing agreements that were ending in 2022.
It's really no consideration for what any other domestic player was doing in Canada.
And just wanted to add keep in mind that you know the.
The domestic service like.
I guess mentioned to my earlier.
A question that was asked.
That we are taking the 750 sevens and deploying them domestically, which means direct service. So you know the kind of service that we offer the late departures and early arrivals like you were talking you know any business, that's given to us by midnight, even our one o'clock.
Before four o'clock at their destination.
Kind of hard to beat.
We have 18 aircrafts, probably now I would say deployed into domestic service, so anybody who needs to parallel that.
We'll have to come up with a network there.
It gives late departures early arrivals and covers 18 cities every every night and supplemental lift a daytime if they need it so.
Areas that we have built around over business and strengthening off the network and on time performance.
People come to depend on that it's like your utility you know.
You get up in the morning, and switch a lap on its the powers. There. Similarly, you open your door in your packages out there so you're not chasing anybody in that.
That is where the key to our business and I think you saw some of that yourself and you were there.
On the Investor day.
Okay. That's really helpful. Thank you My next question just sticking with the domestic.
Networking and you've talked provide.
Provided lots of good color on sort of your big customers and their intentions as far as the peak season goes.
Notable youre seeing from.
That that additional space.
He goes out to several hundred smaller customers on anything you're seeing in terms of that.
Demand or that capacity that is being called upon from those customers.
Probably it's a bit early but I can tell you that.
If that demand, it's hard to say I think because the smaller customers also depend on their customers that their order books.
But I can tell you that we do plan our plan is to have that capacity available.
And if for any reason that capacity.
Exceeds what.
What we have we have the ability to scale it up.
And we also have the ability to scale it down to not spend that money of that capacity it doesn't show up.
So we have the 760 sevens two spares available for peak. We also have 757, so we can down scale. It we can upscale it and we can cancel it so I think that.
That's anybody's guess, whether all of those smaller customers, where they're going to be and what theyre going to show up with all indications to us by our bigger customers are they <unk>.
Like not the greatest greatest peaked.
Veeco peak season, but they think theyre going to be steady.
And I think the similar trend can be assumed for the for the smaller customers.
Okay, and then if I could just squeezing one more question turning to <unk>.
The DHL agreement with seven year agreements.
When you announced that I think it was $2 $3 billion, if I'm not mistaken in terms of total revenue potential rate.
From that could you talk through what the.
The economic environment next year means to that dollar figure below sort of put it at risk or just by nature of the way that contract is established to volumes with Newmont agreement.
Move around with loaded having any impact on the dollars per cargo John at the end of the day.
Look I mean.
We always know that nothing is forever right and you know.
If the business everybody has dropped 50% will probably drop maybe 10 or 20% because we are we have a strategic partner you have a long term agreement. So you know.
From what our understanding with DHL has always been because of the high level of performance and the competitive price we.
Provide them.
And we have the strategic agreement with them that they would always.
Try to.
It gave us the route.
That we can handle a number one effectively efficiently given our Canadian license and pilot situation and number two if there was a downturn.
We would be the last one out so.
It's we.
We don't see that worst.
Worst case scenario at this stage.
Yes every.
When you look at Fedex, and UBS and DHL, everybody is going to be down proportionately at some point, but the nature of our strategic agreement help.
Helps us and that's why we did what we did with them is because they will.
Cancel let's say.
Cincinnati.
UK it out with us.
And they would probably replace us with an L. A to Brussels slug or something else. So we and we have been doing that all year long with them, but they they use us where they really need the capacity. So I don't see anything different with them, but again I can't guarantee that they're now going to cancel everybody out and do it.
I need to do if things got really bad, but I think the way of a contract. This structure gives us the comfort level that that we would probably be one of the large carriers can be.
Lot more what happened before we are asked to pack over bags. So.
That's the nature of the contract.
And Thats.
And we are the only operator, who has that kind of contract by the way with DHL. So just so you know that in as well.
Okay. Thank you agents that's very helpful.
Yeah.
Thank you Kim.
It appears there is no further questions at this time I would like to handle it to you.
Thank you.
Thank you everybody for joining us sincerely appreciate it while we prepare for peak.
Pete wishing everybody a great holiday season, and look forward to connecting with you soon thank you.
<unk>.
Thank you everyone you may now disconnect.
Hum.
Hum.
Yes.
[music].
Yeah.
[music].
Hum.
Okay.
Yeah.
[music].
Hum.