Q3 2022 Air Canada Earnings Call
Okay.
All participants please standby your conference is ready to begin <unk>.
Ladies and gentlemen, and welcome to the Air Canada third quarter, 2022nd earnings Conference call I would now like to turn the meeting over to MS. Studies. Please go ahead Ms. Angela.
Thank you Mark.
Oh.
And that was in place.
Yes.
Welcome and thank you for joining us on our third quarter.
Warner call of 22000.
Sorry, that's early 2000.
And 'twenty two thank you joining us for this call are Mike <unk>, our president and Chief Executive Officer, Amos because as our executive Vice President and Chief Financial Officer, and just thinking that our executive Vice President and Chief Commercial Officer.
With us this morning are Craig Landry Executive Vice President and Chief Operations Officer, and Matt Saffell Executive Vice President and Chief Legal Officer.
After managements review, we will be available until until 10 am Pacific time, Eastern time, excuse me for questions from equity analysts.
After the question and answer session, Mr. Because I haven't capitalized vice President's and Cheshire, who will be available to answer questions from term loan b lenders and holders of air Canada bonds.
Before we begin please note that our comments and discussion on today's call may contain forward looking information about air Canada business.
Objectives, and strategies, which are based on assumptions and subject to risks and uncertainties.
Our actual results could differ materially from any stated expectation.
Please refer to our third quarter.
Disclosure for cautionary statements regarding forward looking relating to forward looking information.
I will now turn it over to Mike.
Messi Valerie and good morning, everyone.
Thank you for joining us on the call today.
We are very pleased with our third quarter financial results.
An important step in our recovery as we reported quarterly operating income of $644 million.
With a strong operating margin of 12, 1%.
This is our first positive quarterly operating income since the pandemic began in early 2020.
EBITDA increased by more than $1 1 billion.
And we saw very significant revenue growth with quarterly revenue of $5 3 billion about two five times from the $2 1 billion a year ago on a capacity growth of 130%.
In fact, that's around 96% of our Q3 2019 revenue levels, even with some restrictions still present, notably in Asia.
Meanwhile, we held a firm line on costs and manage through a challenging fuel environment.
With the growth in operating operating capacity, resulting in better aircraft utilization adjusted CASM improved by 38% when compared to the third quarter of last year.
We reported positive net cash flow from operations for the fifth quarter in a row.
We ended the quarter with just over $10 2 billion in total liquidity.
Of course these results are linked to the return of travel.
Which remains on a progressive recovery as we predicted it would be.
This quarter, we safely transported 11 5 million customers.
Give that some perspective that is more than double the same quarter of last year and close to 90% of all customers carried in 2021.
Over the.
<unk>, we continue to restore our extensive network.
Improved operational performance progressively deploy.
Deploy our modern and efficient fleet and enhanced our products and services.
This propelled by the incredible team work of our employees is what is behind these financial results.
Covid has been one of the industry's greatest challenges in both severity and duration.
Yeah throughout the pandemic and now still and despite the personal challenges that may have had to face our employees have stayed focused on our customers.
And on positioning our company for recovery.
I am incredibly proud of them.
Behalf of the entire leadership team.
Everyone for their hard work.
Now we are well into our winter operation preparations.
With customers booking holiday and winter getaway travel.
I have full confidence in our ability to carry them safely and conveniently.
We continue to staff up and trained and are applying lessons learned during the summer to elevate our customer service.
This includes working with our third party service providers upon who we rely.
As well many technology initiatives, we implemented over the last two years will remain in place because they improve the customer experience.
Our recent online customer self booking tool is one good example.
Our key operational metrics, including flight completion, and baggage handling are now back to pre pandemic levels.
Air Canada is emerging from the pandemic stronger more resilient and more adaptable.
We are certainly well positioned to capitalize on the ongoing recovery.
And with that I'll turn the call over to Lucy.
Thank you Mike.
Everyone.
Mike spoke to are very encouraging returned to operating profit.
I'll expand on that topic by first discussing our passenger revenues, surpassing four 8 billion.
Nearly three fold increase from the third quarter of 2021.
After some of the most trying times in aviation history, we now see that travel is back but its strong momentum.
In the third quarter of 2022 traffic and total operating capacity more than doubled year over year.
This resulted in a 50% increase in passenger load factor.
I'd like to emphasize that while we operated 79% of 2019 third quarter capacity.
We recovered to 94% of the passenger revenues compared to the same period.
This revenue performance resulted from a healthy yield environment.
A fair mix in all cabins and solid premium cabin performance.
The diversification of our network also contributed to this as it enabled us to offset some of the remaining post pandemic challenges.
Such as ongoing travel restrictions in Asia, and overflight limitations impacting our India operations.
Our network diversification not only makes us less dependent on any one geography sector to drive overall performance. It also gives us options to better balance our seasonality.
With further easing of travel restrictions and recovery well on its way our transatlantic markets performed exceptionally well.
Atlantic passenger revenues were just shy of $1 8 billion.
An increase of nearly $1 4 billion or about four six times to third quarter of 2021.
I'm extremely pleased to highlight that third quarter 2022 Atlantic passenger revenues surpass those of the third quarter of 2019 by 10%, even though we operated 91% of 2019 skus be capacity.
All of our Atlanta, even snap or exceeded our expectations, which gives us a lot of confidence hence our decision to expand our summer 2023 offering with the addition of new European services to Brussels from Toronto, as well as Copenhagen introduced from Montreal.
The latter is probably not only for leisure, but also by corporate customers as it is strategically links to global aerospace centers.
We also competed well at home.
Despite a very aggressive domestic Canada landscape domestic passenger revenues performed above expectation and amounted to about $1 5 billion, 90% increase from the third quarter of 2021.
By comparison these revenues represent 95% of those in the same period in 2019 on 85% of the operated capacity.
Are there any meals each increased 12% when compared to the same quarter in 2019.
With the increasing demand and more routes and frequencies available U S. Transborder passenger revenues of $915 million increased $624 million or 250% from the third quarter of 2021.
When compared to 2019 U S. Transborder passenger revenues were 92% of those in the same period in 2019, an 89% of the 2019 operated capacity.
Our sixth freedom demand throughout the quarter remained robust.
Over the last two quarters, we've seen solid improvements compared to our internal targets as well as meaningful improvements versus 2019.
In fact, we hit a record in this traffic via hubs over the quarter.
As we look ahead, we're observing steady growth for U S originating traffic to the Atlantic and the Pacific.
With U S traffic continuing to trend upwards and given the strength of the U S currency.
Expect our Transborder network to continue performing well generating strong revenues from point of sale USA.
Our recently expanded joint venture with our long time partner of United Airlines will also enable us both to expand our network reach and better serve our customers. We are very very pleased with this partnership.
Turning to the Pacific revenues increased $382 million from $112 million in the same quarter a year ago.
Citing a better operating environment after the easing of some restrictions, albeit that was limited to certain countries.
Looking forward, we expect an improvement in this market as restrictions ease.
Those recently announced to Japan, and Hong Kong.
Our passenger revenues also produce better results of $285 million.
That is an increase of about three six times from the same period in 2021.
This reflects the increased demand in all cabins and greater availability of routes and frequencies across our Caribbean Central and South American networks.
Finally, other revenues of $223 million in the third quarter of 2022 or more than double the third quarter of 2021 due to the higher volume of revenues at Air Canada vacations.
We have invested over the years and a suite of tools that allows us to better predict demand and optimize our revenue potential.
Spiked the devastating past two years, we have continue to forge ahead with our revenue acceleration roadmap and each tools allow us to quickly react and face to changing demand and booking profile of the new normal with confidence.
As we added to prime Sunshine looking to Q4, and even Q1 2023, we continue to see very strong leisure and some demand exceeding 2019 levels.
You'll recall that in the first six months of 2021 sites to Mexico, and the Caribbean were suspended and travel restrictions were still ever present. The following winter. So many customers are eagle eager to return to travel.
Since our last review with you.
<unk> changes in booking behavior for both leisure and corporate travel.
Booking curve is becoming a bit longer than post pandemic.
<unk> are lengthening and we could see travel patterns changing to accommodate a combination of business and leisure travel.
In terms of corporate demand. This will return to the office was once once thought to keep people from traveling.
We now see that even the hybrid worker is returning to travel to re engaging firsthand with colleagues customers and suppliers.
You will recall that we saw an important return of this type of travel in June .
Post Labor day, we've also seen positive improvements from those two levels and we expect premium economy business class revenues and trips for business to continue to grow.
Fact that revenue recovery of premium cabins has outpaced economy cabins, which speaks to our ability to successfully develop new market cabinets.
Advance ticket sales were also strong in the third quarter, reaching 95% of 2019 levels for the same period.
For the fourth quarter of 2022, we plan to increase our capacity to approximately 85% of the same quarter in 2019.
In addition to our new strategic routes to Europe , and the U S. The recently announced resumption of services to Japan and increased frequencies to key international destination for summer 'twenty three will also stimulate additional future bookings.
Another change we've taken note of is the rise of premium leisure travel.
In the third quarter of 2022 passenger revenues for premium economy cabin increased four times.
Business and economy cabins revenues increased three times, each when compared to the third quarter of 2021.
Passenger revenues for our premium cabins combined increased about 11% versus the third quarter of 2019.
We're pleased with the performance of our premium cabins and we are diligently working to restore our offering with new adopted offerings to our new reality.
Aeroplan is also performing extremely well.
It remains a key component of our customer acquisition retention and marketing strategies.
Separately Aeroplan TPI set records in the corner.
We enrolled over 950000, new members this quarter and members continue to engage with our retail partners at levels beyond the initial expectations.
Gross billings from points sold to third parties also came in at an all time high up nearly 30% over 2019 for.
Reflecting success with new client acquisition and spending levels on the existing base.
Air Canada Carnival continues to play an important role.
We'll see that revenues declined by 22% from the third quarter of 2021 get this remains about 59% above 2019 levels.
This reduction was anticipated as it was mainly due to lower traffic and the Pacific market and reduced cargo activities. As we have returned all the temporary converted aircraft to passenger service.
In addition, you'll recall that Argo yields were extraordinarily high at the beginning of the pandemic with the rapid.
The rapid surge in demand for air cargo paired with the reduced capacity, resulting from the grounding of wide body aircraft worldwide.
Our growing 767 freighter fleet and investment in long range Triple seven wide body freighters.
Combined with the belly space from a robust passenger network will allow us to continue to offer one of the most flexible and optimal cargo operations in the Americas.
We also continue to actively explore future opportunities as we see the possibilities to capture more market share.
In addition to the freighters, we continued to fund our cargo future by investing in new technologies and solutions.
Kevin the cargo has also become the first North American carrier she joined the cargo wise platform, allowing customers to have real time access to scheduled pricing and bookings so with that I will now pass it on to Amos for his update.
<unk> C Boswell good morning, everyone.
First I'll provide a quick overview of certain financial elements, we're calling out for this quarter.
In the third quarter, we had operating expenses of $4 7 billion, an increase of $2 2 billion from the third quarter of 2021.
It goes without saying that return of travel increased.
Our year over year flying and consequently impacted all line items.
Aircraft fuel expense was $1 6 billion in the third quarter, an increase of $1 1 billion.
That is nearly three and a half times higher than third quarter of 2021.
In fact, the cost of fuel per leader has increased by over 80% from the third quarter of 'twenty one.
Another element, we must consider to a lesser extent is an unfavorable foreign exchange variance, which also contributed to the fuel expense increase.
To monitor fuel price volatility.
We have been primarily addressing the fuel price increase through pricing actions and through our revenue management levers.
Overall, our adjusted CASM of 11 six <unk>.
Improved by 38% in the third quarter compared to the same period in 2021.
It is also a sequential decrease from the $13 one.
In the second quarter of 2022.
When compared to the third quarter of 2019 adjust.
Adjusted CASM increased 14, 8%.
Looking at nonoperating expenses, the weakening of the Canadian dollar also impacted long term debt and lease obligations.
This is the primary reason behind the loss on foreign exchange of $951 million in the third quarter.
Versus losses of $136 million in the third quarter of 2021.
It is important to note however that the bulk of this recorded foreign exchange loss 862 million to be precise is the result of noncash remeasurement of long term debt and lease obligations.
Therefore, any foreign exchange impact will only be realized when we actually pay such debt obligations.
We do have a foreign exchange hedging structures in place and the commercial focus areas like increasing sixth freedom traffic and Aeroplan as continued international growth.
So provide a growing natural currency hedge.
As for liquidity at the end of the third quarter total liquidity was $10 2 billion comprised of cash cash equivalents short and long term investments.
It also included the amounts available under our Undrawn credit facilities as well as product held in trust by Air Canada vacations.
This considers the capital expenditures over the quarter as well as the repurchase of U S $207 million aggregate principal of our outstanding 4% convertible senior notes due in 2025.
Repurchase was done for an aggregate cash price of approximately U S $249 million, including accrued interest.
Following this repurchase U S $540 million aggregate principal amount of notes remain outstanding.
We are well above our targeted minimum total liquidity balance of $5 billion.
Our main priorities for the use of cash remains funding for our growth and deleveraging.
Now for some updates on our fleet.
All 40, Boeing Max aircraft on firm order have been delivered.
We now have 31, 8% to 20% of fleet and expect to be at 32 33 by December 31.
As you know we have firm orders for $45 20.
The deliveries of 12 aircrafts are expected to occur in 2024 through 2025.
And this week, we announced the conversion of the options for firm orders for an additional 15, 8% to <unk>.
These are expected to be delivered in 2026, and bringing the total <unk> hundred 20 fleet to 60 aircrafts.
Our <unk> hundred 20, and Max deliveries.
Complemented with our recently announced 30 <unk> hundred 21, XLR aircraft will complete the renewal of our narrow body fleet.
And in September we are excited to announce our agreement for the purchase of 30 E. F. F 30 electric hybrid aircraft. In addition to an equity investment of USD 5 million and heart aerospace the <unk>.
First of such aircraft is expected to enter service in 2028.
I will now pass it back over to Mike.
Thank you Amos.
With a number of very important strategic initiatives in place we are taking action to seize the opportunities we see before us.
Most evident of these is the ongoing rebuilding of our network.
Including for both passenger travel and cargo.
Lucy spoke of the announcement of our expanded some reschedule and the restoration of several previously suspended routes.
You have been adding capacity carefully.
For the full year 2022, we expect our capacity to be about 73% of our 2019 pre pandemic schedule.
The support of our expansion, we are deepening existing relationships with key partners.
Such as through our Trans border agreement with United Airlines.
We also found a new partner to extend our reach even further by negotiating a codeshare arrangement with Emirates announced in July .
This is a significant partnership that will offer our customers access to even more destinations in Canada and the Americas.
It also opens up many new route combinations for travelers across Emirates Air Canada's extensive networks and the Americas Middle East Africa and Asia.
I know, there's a central aspect of our strategic plan as our fleet renewal program, which aim has provided an update on.
Our new aircraft or a more cost effective than those that they replace increase our capabilities and strengthen our competitiveness.
Theyre also contributed to our greenhouse gas emission reduction targets that are part of our climate action plan.
Our decision to acquire 3300 hybrid aircraft from cart hurt aerospace underscores our commitment to invest in new Green technologies.
This is also why we committed with Airbus in July to work alongside other carriers on carbon capture technology.
And more recently, we secured choose as a new partner for our customer offset program.
In addition, we are continuously examining all elements of the customer journey to enhance the travel experience.
Yesterday, we announced a suite of new product approved.
From lounges to onboard dining.
To make travel more enjoyable for the air Canada customers.
Aeroplan is also a key area of focus.
Program is outperforming our internal targets.
Return of travel it is winning awards, including for the best redemption ability is the top trending program at their Freddie Awards and more recently, the best earning and redemption ability at the frequent traveler People's Awards.
Aeroplan continues to strengthen its value proposition.
One example, being with US this recent wholesale savers program significantly broadens the program's ground offering.
The quarter also saw other advances related to ESG.
Our commitment to safety first always says as well as our use of technology to promote workplace safety were recognized by the occupational health and safety owners, where we won in the <unk> culture and best use of safety technology categories.
The area of employee engagement or Canada was named one of Canada's best employers for diversity by Forbes.
We were also recognized at the annual Canadian huge our awards for having the best corporate social responsibility strategy.
And just announced the expansion of our scholarships for women and aviation by joining forces with our partner CAE.
This is of great importance to our company as it is for our many stakeholders.
Proud we maintained our ESG initiatives, despite the pressures of a global pandemic.
In fact on account of ESG is increasing relevance to the investment community. We also published our first TC FD report for climate related disclosures in August .
And our annual citizens of World Report was also released days later.
Outlines our overall ESG achievements for 2021 and our ongoing commitments.
Again, both reports are available on our website.
And finally this quarter, we marked the fifth anniversary of Air Canada's first commercial flight from Vancouver to Seattle.
Since that time generations of employees through hard work together built a global brand around safety innovation and customer service excellence.
We are looking forward to the next chapter and are committed to continue earning our customers' loyalty by providing safe dependable and consistently better service.
We stand on a very robust foundation and with the financial results announced today are investments in strategic plan. We know we have a bright future and connecting Canada and the world.
Back to you Valerie Thank you Mike and thank you all for joining us this morning.
Mmm film that talents to continental tenants have been we are now ready for questions in the interest of time, we kindly ask that you limit yourself to two questions or one question and one follow up.
Should you have any additional questions. We invite you to contact us at Investor Relations.
Over to you.
Thank you we will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before making your selection.
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You May get sold your question at any time by pressing star two.
Please press star one at this time, if you have a question.
Beef Boswell participants with just a quick question. We thank you for your patience.
Our first question is from Kamran.
<unk> from National Bank financial Please go ahead.
Yes, thanks very much good morning.
You talked a bit about I guess the outlook, especially for demand.
Sun destinations can you could you talk about what maybe what youre seeing on the yield front in Q4, especially as we move into the I guess the peak Christmas season are you seeing any kind of change.
Positive or negative on yields.
In Q4.
Yes.
Let's see.
Certainly as we look forward we're not we're.
We're not observing any softening on the yield side.
In fact.
Based on the.
Book increase.
The yields are holding the average fares are holding.
As we.
We continue with the recovery here. There is also other opportunities for us to to push up yield a little bit.
We have different ancillary center going back into the market.
Corporate travel profiles are changing a little bit so.
To answer your question I would say no. There is no softening on the yield side as we look at as we look forward.
Okay. That's good to hear and my second question is I guess sort of related to the Aeroplan. Obviously this has been a huge success. You mentioned 950000 members added in Q3 I guess my question is.
I'm, just wondering how you sort of balance.
Through the program the growth of the membership and some of the benefits that frequent Flyers severe Canada kind of I guess learned to expect.
I ask the question just because.
Membership growth I assume it's putting some limits on.
The allowance is getting getting busy things like that.
I noticed last night, there's a boat.
I guess, reducing the mountain membership.
Lounge access for certain tiers of frequent flyer. So I'm just wondering how you sort of balance the growth in the program.
And I guess the benefits that come from it.
That's a very good question and that I think we have to look at it.
There is more longer term.
Benefit our program changes that we've done.
And this followed that.
Focus groups et cetera listening to our customers and we adapted the program to meet customers' needs now in the short term post recovery and you highlight.
At <unk>.
That phenomenon that we are observing which is the lounge capacity and it's something that a lot of airlines are are experiencing as well. This is a short term.
Issue.
And.
We have made changes to the benefits with respect to access to the allowance for some of our members and we will continue to do those kinds of things, but I think the fact that the program is growing and that we are increasing membership.
Obviously it.
Is it very positive.
As a very positive for Canada, I mean, it's positive from a redemption point of view.
As you know with the airplane program now customers have access to 100% of the seats.
So as you say, it's something that we do we do need to we do need to balance, but I think we're in that we're in a pretty good position as we continue our recovery here.
Okay. That's very helpful. Thanks very much.
Thank you I was.
The following question is from Kevin Chiang from CIBC. Please go ahead.
Thanks for taking my question.
Maybe if I just look at the domestic.
If I look at the yields.
Outside of some anomalies during the pandemic to be the highest.
We've seen it and you mentioned the strict affairs sticky, but I'm wondering.
Are you seeing any demand destruction.
A more price sensitive customers or is that creating an opening for.
So the competition, obviously a number of you all these things are looking to start up here in Canada.
Just wondering what you're seeing across the booking curve.
Just given the overall domestic performance looks to be very strong.
There's a couple of things certainly for for domestic.
When you look at the yield one thing thats quite important for us certainly as domestic some of the yield change versus 2019 is also impacted by stage length. So if you look at the network that we're flying domestically.
We have a lot of long haul flying a lot of transcon flying which is which is very good it's coming and it's very solid.
Solid average fares.
When you look at deep that domestic yield it does push the yield down to a little bit.
When you look at the makeup of the traffic within the domestic network. So first there.
We do have a leisure component and.
From what we're observing the leisure yields even for travel within domestic are holding.
We have also.
So as you know a fair amount of corporate traffic that slides across our domestic network.
Very.
Encouraging signs, particularly on the corporate side for long haul traffic that has returned very nicely and yields are solid there as well.
One area that we think will come back.
And may take a little bit longer it's the short haul corporate business, which of course is that.
High yielding for us as well that's been a little bit slower.
And also we have to keep in mind that our domestic network also connect a lot higher.
And network, which in other geographies where yields are also.
Healthy and the market is absorbing the increase it is having a positive impact on our our domestic domestic service as well.
Okay. That's helpful. And then maybe maybe just with all the currency moves.
The strengthening U S dollar.
Turning euro are you seeing that impact travel patterns are you seeing that as a tailwind for sixth freedom are you seeing increasing demand.
Point of sale, Canada.
Canada or the U S into Europe , just real quick.
Significant currency moves we've seen in the past few months here.
I mean recently observing.
<unk>.
Good recovery point of sale U S and as I noted in my remarks, even for sixth freedom traffic traffic originating in the U S guest.
Destined to international destinations with a record for us So certainly point of sale U S is certainly.
It's certainly very positive.
Okay I'll leave it there. Thank you very much congrats I think it's great.
Thank you.
Following question is from MS. Debbie site from Raymond James. Please go ahead.
Hey, good morning.
Kind of curious if you can give some kind of early indications on how youre thinking about 2023.
Kind of given the transport of JV it looks like Youre planning on some good growth across there and are you still thinking about kind of getting back to like 90, and 95% capacity by the summer or has that kind of moved up given how strong these days.
Good morning, Savi, it's Mike.
So we will provide first of all first guidance like we have in the past.
When we released our year end results, we're still tweaking the schedule with the scheduled <unk>.
Place right now.
It does show growth in.
And you've seen each quarters in.
In 2020 to sequentially increase from 73%, 79%, 85% in Q4.
But again, we'll provide more color and clarity.
February when we speak to the marketplace.
We're still tweaking a couple of things right now.
Okay, and maybe just.
On that then for my second question just.
What's the capability or the top end of given the assets and the people that you have and I'm curious I think I saw that there was an offer made to pilot recently that got slowed down and I think it had some kind of maybe pay improvements but in return for some trading flexibility I was kind of.
Yes.
Where you are in terms of the ability to flex up and also maybe what you were trying to achieve with that offer.
Yes.
It's a good question, we certainly have the ability to flex up.
The.
Our negotiations with our pilots.
It would have given us a little more flexibility at the end of the day, but.
But still even with what we currently have in front of US both for aircraft and people.
We can certainly flex up.
Next year.
Okay.
Is there kind of a.
Is that flex up to back to 2019 levels above 2019 levels. So we never expected to get to 2019 levels in 2023 and sort of a long range plan that was more of a 'twenty four.
Objective.
But certainly like I said, we're still looking at opportunities, where we can flex up we put a very.
Aggressive summer schedule with new locations and resumption of.
Services that we had suspended.
So we like where we are right now.
As we look into early next year from a demand perspective from a yield perspective and from a capacity perspective, but again, we'll provide more color in February when we speak to the market.
Appreciate the color. Thank you.
Thank you I'm following question is from Chris.
ATB capital markets. Please go ahead.
Yes, Thanks folks maybe just following on that question from Savi, a little bit thinking about fleet and I'm thinking about a couple of things with the Pacific market. One of the one of the arguments for having the triple seven was to handle some of those higher capacity markets.
And I'm also thinking about 8% to 20, a little bit. So so a couple of questions here.
And what was the Pacific market start shifting a little bit.
Is there an opportunity or a thought around redeploying the triple sevens into different markets or in different ways, and then thinking about the 820 <unk> just to start.
A couple of the other operators have talked about.
Airbus building, a larger variant to that is that something you might be interested in and if so.
Could you convert some of these auctions that are in the out years, maybe to a larger larger gauge.
Hi, it's <unk> on the on your question regarding the Triple Sevens and in fact, we are doing that and so we have as a result of that.
Some of the issues with China some of the issues with the oversight.
Impacting our India, we have aligned.
Align the networking and down.
<unk> made some move with the Triple seven and we're also always looking for opportunities as well to be able to.
Better balanced and remove some seasonality you know where we have the.
<unk> two.
You know look for new markets.
During winter operations Bangkok. For example, this is a perfect example of that that will be starting in December so as we look to add.
We navigate our way through the recovery and we see.
<unk> scratch to rebalance that and.
Look to redeploy some of the triple seven it is something that we that we actively do.
Hey, good morning, Chris that's a miss on your question on the larger variance potentially of.
The EA series the <unk> 'twenty should we have the 100 300.
Rumors of Dash 500, it really doesn't fit within our fleet makeup as it is if you recall if you look now look at our fleet. We've got the two <unk> that's sort of next size up as the Max's and then beyond that is the <unk>. So really fairly much covered what we need from a narrow body perspective as I spoke about in our in my remarks there.
From.
Fleet replacement and renewal perspective.
Okay. That's helpful.
And then just moving on maybe just talking a little bit about.
You touched a little bit on labor, but I guess next year it might be a bit of a bit of a topic do you have some I guess some contracts and 24.
As you're thinking about a lot of these.
Different moving parts as you get restarted and maybe think about the next phase of growth.
How do you think the negotiations on the labor front.
Youre positioned.
Next year I mean.
Over the last few years have been there's been different variations on a theme but.
How how should we be thinking about the process.
As we go as we go into next year.
Chris This is Mike.
Difficult for us to speculate is hoping you're going to have our first contract with the pilots ends in September 2024.
And so it's difficult for us to speculate here.
How those conversations are going to go we enjoy a strong relationship.
We are recovering very quickly.
And.
We will engage in discussions with them at the appropriate time.
And see where it goes I mean honestly.
A lot of U S Airlines are currently negotiating with labor groups.
We're not gonna be any different we're coming off our 10 year agreements.
Have been very successful for the company and all the employees of the company.
We'll engage at the proper time with the with <unk> and other unions as well.
Contracts come up.
Okay.
Okay. Thanks folks.
Thank you.
Following question is from Stephen Trent from Citi. Please go ahead.
Thank you everybody and I appreciate you taking my question.
Just two quick ones maybe.
Maybe the first one for you you mentioned <unk>.
Ex hedging.
And I was wondering if you could maybe give a little more.
Excuse me I'm, sorry, a little more color on.
Whether thats kind of primarily focused on the leases in that or.
How do you think about the program operationally.
Thank you.
Yes, good morning, Stephen so on the on our FX, we have an 18 month hedge book, if you will on currency, which basically covers about 60% of our needs. We don't really hedge on the on our debt side, because again thats sort of dropdowns.
Driven by maturity dates and so forth, which are longer you know up to $2025 $6 27.
So our program is really focused on 18 months and that really covers pretty much all of our operating expenses of U S.
Dollar denominated operating expenses.
Certainly doesn't quite cover fuel, but from a fuel perspective, we're managing that through essentially.
Fair increases so our book is.
That's how our approaches to foreign exchange.
Hedging and then of course, the natural hedges that we get from U S point of sale revenues.
Aeroplan as well and other currencies, which are then also converted into U S dollars.
Yes.
Okay Super I really appreciate that Jeff.
Just really quickly.
Broadly speaking when we think about your alliances.
Any sort of high level view on how you might quantify how much revenue growth you might expect from the United Airlines partnership in terms of maybe incremental top line growth. Thank you.
It's a little bit.
It's a little bit difficult to assess that way, but let me let me tell you, particularly.
With respect to the agreement with.
United We've got a very solid.
Relationship with United for for a long time. This next phase, though with the transporter venture well.
We will certainly.
Help us from a clinic.
<unk> for corporate.
<unk>.
Is that.
That type of travel.
But this will also be very very beneficial for our customers.
This advancement in the JV there are a lot of benefits, where we look to offer reciprocal.
And it hits on that.
Each on each other.
So it gets a little bit difficult to lap.
Comment on exactly what the revenue growth would be as a result of the joint venture but.
Certainly this this takes us up.
An extra notch here certainly the best joint venture.
Trans border by far.
Okay I really appreciate that.
Thanks for the time today.
Thank you.
The following question is from <unk> Gupta from Scotiabank. Please go ahead.
Yeah.
Sure.
Hello. This is Amanda I'm, calling this associates. My question is how do you plan to approach capital allocation.
<unk> purchasing aircraft.
And do you have any flexibility to retire some debt.
Yeah, good morning, seamless so on.
Approach of capital allocation.
Really as you said capex funding our growth and our second priority is on deleveraging and so you saw some activity this quarter here.
This last quarter, I should say, where we pay down.
We bought back.
$215 million roughly of the U S.
U S dollar denominated.
Converts and so are there other opportunities it's something that we continue to look at there are a number of items that.
That we're exploring but again, our focus would be to deleverage as we as we've outlined before we do carry a bit of excess cash as you've seen from our numbers.
But.
We will continue to explore wherever there is an opportunity we will step into it and delever.
Thank you no further questions.
Thank you. The following question is from Andrew <unk> from Bank of America. Please go ahead.
Hi, good morning, everyone.
First question for Cmos.
Yes.
$1 33 per liter fuel guide for the full.
Full year.
It seems a little bit high I know FX influences that number.
It implies a four Q kind of per liter metric thats kind of a high one of the highest on the yield for the quarter.
Just curious can you kind of walk us through how you built up to that number.
Yeah. Good morning, Andrew So we have fuel fuel prices not my favorite the area certainly is.
Has been challenging.
We continue to see a lot of volatility essentially in New York Harbor pricing.
And you're seeing you saw the spikes earlier back in April and May.
And then again, a couple of weeks ago, which spiked again and continue to spike given essentially availability pipeline tank.
Tankers, all of sort of east coast refining capability.
That's dislocation continues to be extremely volatile and then the crack spreads are are really have not returned anywhere near to their historic levels and continue to remain at really stubbornly high prices $50 to $60 on crack spreads so.
When we looked at it at the time, we were putting our forecast together.
Give us a volatility.
Built it up based on what we're seeing at that point.
New York Harbor pricing, our exposure to that given our east coast.
Our east coast.
<unk>.
Based off of New York Harbor pricing.
So that's really what's driving that.
Driving the price of fuel per liter up the whole volatility in New York and New York Harbor.
Got it.
What percentage of your <unk> do you get from that is Benchmarked off of New York Harbor.
So roughly about 45% of our fuel is exposed to New York Harbor pricing fairly much everything from Toronto, All the way out is now what we do to manage and mitigate that will take a couple of a number of actions one from a tanker capability flights with.
If you will to dispatch and a second areas.
We continue to actually rail if you will from the west from the prairie's over to east coast into our storage facilities, there to help mitigate the impact of pricing and continue to sort of explore other options are bringing in.
<unk> largest fuels up from the Gulf Coast.
Up north here so.
Lots of actions there to try and mitigate this but right. Now. This is that's the exposure that we have Andrew.
Got it okay that was a little bit higher than I would've thought. Thank you for that second question.
Mike I know you reiterated your full year EBITDA outlook.
Outlook, it seems like a pretty wide set of outcomes for Q.
I must just add fuel is volatile.
Our bias that you have to the high or low end of full year margin outlook.
Hi, Andrew Good morning, Yes, I always have a bias to the high end.
But again, we kept the range in place for the reasons, you spoke about and everything and.
We like where we are.
And we've delivered really solid Q3 results and those trends are moving into Q4 and into next year.
So again, we like where we are in.
Hopefully our results for 2020 to come to the high end.
We'll be able to tell you that in a couple of months.
Okay.
Thank you.
Thanks Pat.
Thank you.
Following question is from Walter <unk> from RBC capital markets. Please go ahead, yeah. Thanks, very much good morning, everyone. So I wanted to come back to the 820.
So you haven't Kevin covered Bombardier for some time, we got intimately close to that aircraft than I do.
I do like it very much as a passenger I think it's ideally suited for your network I mean, correct me if I'm wrong. These long thin routes, especially in AR.
A rebounding environment this kind of hybrid.
Hybrid regional slash narrow body with some nice wide body.
Compliments to it.
Overhead bins, and so forth just makes it to me a really good aircraft for your network and I am curious as to whether you view it as a strategic advantage in Canada, It seems particularly suited to Canada.
If so.
Do you expect.
Do you expect to.
To have an advantage there in Canada can you bring that elsewhere, particularly in the cross border some of that advantage and really focusing in drilling down to see if that's your intention here with this particular aircraft.
Hi, it's.
Lucy.
Absolutely it is a.
Very big competitive advantage for us.
In Canada for capital within domestic.
With the premium cabins.
Sleep.
But the second thing is for trans border not only just for traffic between Canada and the U S. But you can imagine an environment, where we would have 800 twenty's operating.
Trans border sectors connecting to our international network, so for us to be able to continue with.
With our strategy to grow our presence in the <unk> market.
The $2 20 is actually a very very solid solid tool for us.
No doubt even for domestic traffic if you look at the $2 20. It is for sure a competitive advantage and you noted how much you appreciate it.
The service on onboard customers are giving us the very same feedback.
It's very very well received absolutely.
Second question here is on on travel propensity relative to prior seasonal trends.
And certainly coming out of Covid, you were leisure ramped up quite significantly perhaps above seasonal levels.
Business travel still lagging.
We have a few internal metrics on propensity to travel that remain surprisingly high given there's been some disruption in travel plans recently and there is a weakening in the economy and so forth.
But it still seems to remain high on leisure or are you seeing the same thing going into the fourth quarter here that leisure seems to be seasonally high compared to pre pandemic.
And secondly, anything on business travel I know, it's hard to measure, but I know you have good tools to measure that.
Any view as to I know you had expected lucie that to come back up to pretty much normal level almost by 2023, certainly by 2020 for any change in that view on business propensity to travel as well so those two leisure and business. Okay, maybe I'll start with Sam maybe I'll start with the business. So basically we've seen.
Steady improvement month over month.
With respect to two corporate travel.
And.
Certainly we thought post labor day, we see another level of improvement and we did observe that.
The other.
Thing that we've also been able to.
Sort of better understand is this new.
On travel.
Travel that is the purpose of this business, but it's not necessarily contracted with the corporate account and air Canada. So just by looking at the characteristics of some of our customers. We can determine that although they may not be part of the corporate agreement with Air Canada.
We have pretty good.
The insights that they are traveling for purpose business. So for example, we can see deterioration of trips.
Turning a little bit we can see based on that the days of week when travel occurs how many passengers on PNR and et cetera.
Based on that.
I actually also observing some pretty good improvement.
Month over month, so with respect to corporate will we ever return to 2019 levels for pure corporate the way we knew it.
No.
Well, we'll have to wait to see but there's no doubt that we are seeing a new type of a business.
Business traffic here.
Customers, combining a business trip was set with leisure.
Definitely new segments.
That are emerging post pandemic, but I can also say is from an average fair point of view or from a yield perspective corporate demand is also quite solid so.
That's it.
Improving nicely I would say with respect to leisure Theres no doubt that the comment you made at the beginning it's very true.
We continue to see levels for leisure demand, our leisure bookings that exceed 2019.
And that is across most of our leisure routes.
We look to the winter with.
We're quite encouraged we're quite encouraged.
Great color Lucy I really appreciate it thank you.
Yes.
Thank you.
We have no further questions registered at this time I would now like to turn the meeting back over to Mr. Your line.
Thank you mode. Thank you again for joining us. This morning. Once again, if you have any further questions. We invite you to contact us at Investor Relations.
And we wish you a nice day switching Kevin Jeremy.
Thank you the.
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Thank you.
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