Q1 2023 Air Canada Earnings Call
Speaker 2: Please stand by. Your conference is ready to begin. Good morning ladies and gentlemen and welcome to the Air Canada First Quarter 2023 Earnings Conference Call. I would now like to turn the meeting over to Ms. Valérie Durand. Please go ahead, Madam Zula. Merci mon, thank you.
Speaker 3: Hello, bonjour et bienvenue à la première revue très mes prières de 2013. Welcome and thank you for joining us on our first quarter earnings call of 2023. Joining us this morning are Michael Russo, our President and CEO , Amos Kazaz, our Executive Vice-President and CFO , and Mark Gallardo, our Executive Vice-President and revenue.
Speaker 3: of revenue and that we're planning.
Speaker 3: Also in the room with us today are Ariel Meulot, Executive Vice President and Chief HR Officer in Public Affairs, Craig Laundrie, Executive Vice President and Chief Operations Officer, Marc Barbeau, Executive Vice President and Chief Legal Officer,
Speaker 3: John DeBert, our incoming Executive Vice President and Chief Financial Officer, and Mark Nazer, Executive Vice President, Marketing and Digital, and President of Aeroplan.
Speaker 3: Mike will provide a brief overview of the quarter. Mark will discuss our revenue, network and trends. Amos will provide more details on our financial performance before turning it back to Mike for an update on our corporate strategy.
Speaker 3: Following management's overview, we will take questions from equity analysts. Mr. Kazaz and Pierre Eau, Vice-President and Treasurer, will also be available for questions from Turn Loan B lenders and holders of Air Canada bonds.
Speaker 3: Note that our Investor Relations team remains available for questions after the call.
Speaker 3: Finally, I would like to note that our comments and discussions on today's call may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties.
Speaker 3: Our actual results could differ materially from any stated expectations.
Speaker 3: Please refer to our forward-looking statement in Air Canada's first quarter news release that is available on aircanada.com and on CDAR. And now I'd like to turn the call over to Mike.
Speaker 4: Well thank you Valerie and good morning. Bonjour à tous.
Speaker 4: Thank you for joining us on our first quarter call today. Merci. Merci.
Speaker 4: I'm extremely pleased that Air Canada began the year so strongly with first quarter operating revenues of $4.9 billion, 90% higher than the first quarter of 2022. This is a record for first quarter revenue numbers.
Speaker 4: Our results exceeded all expectations.
Speaker 4: and as we look to the strong advanced bookings for the remainder of the year, we expect demand to persist.
Speaker 4: For this reason and for the lower than expected fuel costs, we increased our adjusted IBDOG items last week.
Speaker 4: We have the strategy, the fleet, the network, the product, and certainly the people to make the most of the recovery.
Speaker 4: I thank our employees for their great teamwork carrying our customers safely.
Speaker 4: during the quarter.
Speaker 4: The winter and the start of spring can be very challenging in North America, especially Canada.
Speaker 4: Apart from the weather disruptions that can affect all aspects of the air transport system, it usually comes with high traffic flows, particularly with a spring break peak.
Speaker 4: The strong and improving collaboration between our people and our ecosystem partners has been key to our service delivery during this period, and sets our expectation for a continued strong performance through the summer.
Speaker 4: In the quarter, passenger revenues totaled $4.1 billion, which is more than double that of a year ago, and a record for the first quarter.
Speaker 4: We recorded adjusted IBDOG $411 million. That is up $554 million from the same period last year.
Speaker 4: And our adjusted IBDOT margin was 8.4%, one of the strongest among North American network carriers.
Speaker 4: Along with this we remain diligent on costs with adjusted chasm down about
Speaker 4: Cost control is and will remain a top priority for us.
Speaker 4: We ended the quarter with total liquidity of over $10.5 billion.
Speaker 4: This certainly gives us the ability to confidently execute our business plans, to take our company forward and to continue to grow.
Speaker 4: All components of our company contributed during the quarter.
Speaker 4: Air Canada vacations produce remarkable results.
Speaker 4: and air handler cargo continued to expand its network and the fleet.
Speaker 4: I'm also pleased to share today that Aeroplan has already reached its original 2024 target of 7 million active members, despite the effects of the pandemic. In addition, gross billings have increased 50% when compared to the first quarter of 2022
Speaker 4: We're proud of the record-breaking numbers of enrolled members, gross buildings and redemptions in our award-winning loyalty program.
Speaker 4: This is a significant milestone because it speaks to the importance of aeroplane forests.
Speaker 4: A growing membership base also unlocks more partnership possibilities.
Speaker 4: enabling members to enjoy benefits and earn points in their everyday lives.
Speaker 4: A larger customer database and the digital platform create additional opportunities to tailor our redemption offerings.
Speaker 4: All of this translates into a key competitive advantage for us.
Speaker 4: And certainly I think all our customers for their loyalty and for choosing to fly with us.
Speaker 4: Certainly, I thank all our customers for their loyalty and for choosing to fly with us. Before I give the call over to Mark Laredo.
Speaker 4: First, I want to welcome John DeBert to the team.
Speaker 4: I believe many of you know him and all of you will and should have the opportunity to meet him over the next several weeks.
Speaker 4: I also want to welcome Mark Lardo and Mark Nazer to their first analyst calls.
Speaker 4: Both became executive vice presidents a couple weeks ago, leading all commercial and digital areas.
Speaker 4: They are excellent leaders and will be critical to both our short-term and long-term future.
Speaker 4: And I will save my comments about Amos for the end of the call. Mark, over to you.
Speaker 5: Thank you, Mike. Bonjour à tous. Good morning, everyone. C'est un plaisir des parmi vous enjourd'hui.
Speaker 5: Mike touched on our record operating revenues. Passenger revenues more than doubled from the first quarter of 2022.
Speaker 5: with about half the increase coming from international and sun markets.
Speaker 5: The domestic market is performing as expected and transatlantic demand remains very strong. We are maximizing on the depth and reach of our diversified network to our hubs and the extensive connectivity they offer globally.
Speaker 5: Aside from strong results from transatlantic and sun markets, flights to Australia and Japan performed very well, with the latter in particular back to 2019 levels.
Speaker 5: Seasonal routes like Vancouver and Bangkok clearly demonstrate that our network diversification strategy is working.
Speaker 5: This also counterbalances traditional seasonal patterns.
Speaker 5: Our average fares have increased above economic indicators.
Speaker 5: signaling that demand is not only strong, but that customer decisions around travel have evolved.
Speaker 5: Our Prima-Cabin Strength continues.
Speaker 5: to put this in perspective.
Speaker 5: The year-over-year growth in revenues from premium cabins represented 30% of the total increase in passenger revenues from Q1 2022 and it represented 49% of the passenger revenue growth versus Q1 2019.
Speaker 5: Our kind of vacations also produced remarkable results this quarter, even surpassing those in the first quarter of 2019.
Speaker 5: demonstrating the strong value proposition of its product.
Speaker 5: elevated by a team that clearly rose to the challenge.
Speaker 5: You will recall that in January 2022, in response to the emergence and impact of the Omicron variant, Air Canada's suspended flights to certain Caribbean destinations,
Speaker 5: from January to April 2022.
Speaker 5: Our customers were eager to return to these previously unavailable sun destinations.
Speaker 5: And to capture this demand, we have successfully positioned Air Canada Vacations as a leading Canadian vacation brand.
Speaker 5: Looking ahead to the rest of the year, we continue to see solid advanced bookings in all markets.
Speaker 5: The system book load factor is trending ahead of 2019.
Speaker 5: And as we look into summer, our new routes to Copenhagen, Toulouse, Brussels and Amsterdam are performing to or above expectations.
Speaker 5: We continue to deepen our relationships with our partners and expect Six Freedom traffic to continue to contribute favorably. And we are seeing a significant improvement in yield stemming from these partnerships.
Speaker 5: These partnerships also allow us to further balance our seasonality as American and Canadian travel profiles are highly complementary.
Speaker 5: This will allow us to maximize our STIX freedom potential.
Speaker 5: People want to travel. Seasonality and customer segments are changing post-pandemic.
Speaker 5: There are two other related points that I'd like to emphasize.
Speaker 5: First, the importance of immigration and second, how this leads to visiting friends and relatives.
Speaker 5: Apart from its critical importance to our economy, immigration has a multiplier effect on the number of Canadians who travel to see their loved ones abroad and vice versa. As a global carrier, we connect Canada to the world and will continue to explore new routes that serve our current and future customers.
Speaker 5: A good example is our Vancouver to Dubai route, which is one of our latest additions to the network.
Speaker 5: It gives us access to regions such as Southeast Asia from which many immigrants in Canada and foreign students originate. We also foresee good future opportunities in the China and India markets.
Speaker 5: Finally, we continue to grow and deploy our cargo fleet.
Speaker 5: This has opened up additional opportunities in Baville and other European cities lately.
Speaker 5: Our cargo strategy is core to our diversification focus as it continues to create value, carrying cargo from global freight lanes onto our wider passenger network in the domestic North America and other international markets.
Speaker 5: This new and diversified revenue stream also counters some of the seasonality of the passenger business.
Speaker 5: and is a key component of our future commercial strategy.
Speaker 5: key component of our future commercial strategy. I will now pass it over to Amos. Thank you.
Speaker 6: Thank you Mark. Bonjour. Good morning everyone.
Speaker 6: Like Mike and Mark, I too am very pleased with our results for the first quarter.
Speaker 6: Alas, this is my final earnings call. I've enjoyed all of them and will miss discussing our results with you as we continue our recovery and will be following Air Canada's progress from the sidelines very closely.
Speaker 6: Last week, we updated guidance on certain key metrics for the year, including capacity, adjusted chasm, and adjusted ibidah.
Speaker 6: Although our capacity has remained relatively stable, you will have noticed a change in our cost expectations.
Speaker 6: In short, we're in a different cost environment as we've spoken about.
Speaker 6: This is not isolated to air Canada. It is being experienced across the industry.
Speaker 6: And, of course, the anticipated growth in earnings and higher than expected traffic have an impact on our unit costs for the year.
Speaker 6: And of course, the anticipated growth in earnings and higher than expected traffic have an impact on our unit costs for the year. Now, turning to our results.
Speaker 6: Total operating expenses increase 57% from the first quarter of 2022, largely due to increased passenger revenue, traffic and capacity.
Speaker 6: More details on certain light items are outlined in the first quarter MDNA, which was published this morning.
Speaker 6: Our first quarter adjusted Ibadah of 411 million was better than expectations on a continuing strong revenue environment as explained by Mike.
Speaker 6: fuel costs were also lower than expected in the first quarter, coming in at a dollar point two eight five cents per liter but still higher than Q1 of 2022 by thirty percent
Speaker 6: That said, as always, we continue to maintain a strong focus on cost discipline.
Speaker 6: Adjusted chasm was about 7% lower than a year ago.
Speaker 6: in Q1 of 2022.
Speaker 6: This adjustment represented six percentage points on adjusted chasm, and if we excluded from Q1 2022, our year-over-year adjusted chasm variance would have improved about 13%.
Speaker 6: We are determined to stay on track with our objectives and we are managing our business for the long term.
Speaker 6: Asked to our liquidity and dem.
Speaker 6: Our 10.5 billion in total liquidity consisted of 9.5 billion on the balance sheet and 1 billion available under undrawn credit facilities.
Speaker 6: It increased generated free cash flow of 987 million in the quarter.
Speaker 6: 896 million more than a year ago.
Speaker 6: We remain committed in investing in our future for sustained profitability, including by further deliveraging our balance sheet.
Speaker 6: Net debt at the end of the quarter decreased about 1 billion from the end of 2022 due to the increase in liquidity and debt reduction.
Speaker 6: The leverage ratio at March 31, 2023 was 3.2 times or a 1.9 turn improvement compared to December 31, 2022, which gets us closer to our goal.
Speaker 6: The average ratio at March 31, 2023 was 3.2 times or a 1.9 turn improvement compared to December 31, 2022, which gets us closer to our goal. Now forward on our fleet and other expenditures.
Speaker 6: As planned during the quarter, we brought back a Boeing 777-300, added interim lift with an Airbus A330, and we added a sixth Boeing 767 freighter to the fleet. We plan to add one more freighter to the fleet this year.
Speaker 6: 1.787-9 Greenliner was delivered in April , and you expect one more this year. We welcome our 33rd Airbus A220 into the fleet.
Speaker 6: Deliveries for the remaining 27 aircraft on firm order are planned between 2024 and 2026.
Speaker 6: The Airbus 8 321 XLR deliveries are now scheduled to begin in 2025 with the final aircraft scheduled to arrive in 2028.
Speaker 6: We also continue to invest in technology to improve the customer experience and optimize our processes.
Speaker 6: In April , we announced a significant change to how we distribute our content and work with travel agencies.
Speaker 6: At its center, the new distribution capability, or NDC, will offer agencies more options to connect with Air Canada with additional content to sell and will enable advances in our revenue management roadmap, such as continuous pricing.
Speaker 6: This program and our new commercial arrangements with industry providers also create cost transformation opportunities.
Speaker 6: We are building for our future success and with every investment being made, which will then foster sustained benefits.
Speaker 6: So, our committed and planned capital commitments now currently sit at around 1.6 billion for the remainder of 2023 and 1.9 billion for 2024.
Speaker 6: As to our 2024 targets.
Speaker 6: We'll continue evaluating them as you progress on our plan and execute and execute on our strategic priorities.
Speaker 6: Any updates will be provided in due course.
Speaker 6: And finally, the aggregate solvency surplus in Air Canada's domestic registered pension plans has been estimated at $4.6 billion.
Speaker 4: Thank you. Back to you Mike. Great. Thank you, Amos.
Speaker 4: Thank you back to you Mike. Great. Thank you Amos. Again, we are very pleased with the results of the first quarter.
Speaker 4: But as any sports fan knows, one good period or strong quarter doesn't mean you can relax for the rest of the game.
Speaker 4: For this reason, we intend to remain tightly focused on our operations, taking care of our customers, and staying diligent on costs through the balance of the year and beyond. We are very encouraged by indications for the coming quarters, which are all positive.
Speaker 4: Our cash loan, the first quarter reflects in parts from advanced ticket sales.
Speaker 4: yields which improved in the quarter by about 9% from a year ago also remain strong.
Speaker 4: Yields which improved in the quarter by about 9% from a year ago also remain strong. Keep this momentum going.
Speaker 4: We remain steadfastly focused on elevating the customer experience.
Speaker 4: This includes new programs and training to support our employees and investments in new offerings for our customers.
Speaker 4: We're introducing new and renovated lounges and we have also improved onboard meals.
Speaker 4: More recently, we announced a landmark partnership with Bell that will improve our in-flight offering through expanded live TV entertainment and the introduction of free Wi-Fi messaging services on all Wi-Fi equipped flights worldwide.
Speaker 4: This partnership will also enable us to introduce new Bell Point accrual opportunities for Aero Plan members.
Speaker 4: Customer choice of routeings and destinations also keeps expanding and we're offering more convenient travel options through new partnerships like our deep and transporter business with United Airlines and our strategic partnership with Emeralds.
Speaker 4: For Aeroplan, we have introduced an attractive new partner in our agreement with Parkland and its popular brands across the country like Ultramar and Chevron.
Speaker 4: We've also expanded our partnership with Uber to include grocery and retail delivery, creating more earning and redemption options for members. A key element of elevating customer experience is continued investment in new digital technologies.
Speaker 4: Beyond NDC, which Amos touched on, this includes new dynamic boarding passes, biometric face facial recognition technology in airports, and pre-order meals through our website and mobile app.
Speaker 4: We also continue to advance our ESG initiatives. This includes diversity, equity, and inclusion, community partnerships, and official languages, all of which bind air candidates to communities that serve, and are critical to air candidate's culture.
Speaker 4: One very bright note in this vein is that for the first time since 2020, we operated dreams take flight excursions with flights from Winnipeg, Halifax and Toronto this spring.
Speaker 4: Dream State Flight is run by generous volunteers, many of them Air Canada employees and retirees. It takes children that are faced with challenges in their lives to a magical place for a day of wish fulfillment .
Speaker 4: Eight dreams flights are planned for this year from across Canada, and in total we will collectively make an expect at 1000 wishes come true. On the environmental front, we recently announced a new SAF purchase agreement that will see his increase in use of alternative fuels by five times.
Speaker 4: We're in the primarily stages of SAF use, but this agreement is one more step towards our ambitious commitment to reach net zero emissions by 2050.
Speaker 4: The School of Centerpiece or Climate Action Plan is very important to all stakeholders, including investors.
Speaker 4: who takes a stand-ability into account when making investment decisions. However, we face an uneven competitive landscape.
Speaker 4: including in the Sustainable Aviation Fules area.
Speaker 4: Other countries have adopted various mandates and incentives to perform their production adoption.
Speaker 4: This is not about climate action. It's about remaining competitive and continuing to fuel our Canadian economy. To make this happen, government involvement and support is required as we see in other countries.
Speaker 4: We are excited about all business opportunities ahead, including those Mark touched on earlier regarding India and China, which we are exploring keeping in mind the current environment and its constraints.
Speaker 4: Ultimately, our objective is to connect Canada with the world safely.
Speaker 4: and we are very proud of the role we play in Canada. We create jobs and contribute to Canada's social and economic development.
Speaker 4: In closing, I want to acknowledge the incredible contributions of Amos over the past 13 years. He has been a critical senior leader involved in virtually every key decision.
Speaker 4: He was instrumental in bringing home significant strategic conditions such as the acquisition of Aero Plan and the subsequent credit card negotiations with our partner banks.
Speaker 4: He has created so much value for our Canada, just not dealing with the most complex issues with creativity and a work ethic second to none, but also representing Air Canada with absolute care and class. He built an incredible team, leading with empathy and mentoring many more, leaving Air Canada with a solid foundation. In a personal note, he has been a strong partner for me and a great friend.
Speaker 4: We all wish him the very, very best. And with that Valerie will now really take questions.
Speaker 3: Thank you, Mike. And thank you all for joining us this morning. We are now ready for your question. Keep in mind you may always reach out to our investor relations team. Should you require further details? Over to you, mode.
Speaker 2: Thank you. We will not take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. You may can solve your question at any time by pressing star two. If you have a question, please press star one on your device's keypad.
Speaker 2: These press star one at this time, if you have a question, then we'll be briefed for our participants for just a few questions. We thank you for your patience.
Speaker 2: Our first question is from Andrew D'Dora from Bank of America. Please go ahead.
Speaker 7: Hi, good morning everyone. So Mike, the $561 million in other revenues was much stronger than we anticipated. I know there's a lot of seasonality in this figure with 1Q the strongest. But was there anything in that figure that might, you know,
Speaker 7: might be one time or would alter kind of the way this trends throughout the year.
Speaker 4: Good morning, Andrews. Mike, no, there's certainly no one-time issues in that number. That really reflects the commentary we've made around ACV and Aero Plan. Yep, okay. Makes sense. And then, like I know, balance sheet repair is a top priority.
Speaker 7: I think pre-pandemic you really didn't get aggressive in capital returns via the buyback until you got to about a turn of leverage. Should we think about the, if the same way or the COVID change of the way you're thinking about balance sheet and capital returns? Thank you. And I have a great question. No, the leveraging remains a top priority for us.
Speaker 4: And, you know, we're on a path to get back to where we were pre-pandemic. And again, that remains a top priority for us.
Speaker 4: And we're on a path to get back to where we were pre-pandemic. And again, that remains the top priority for us. All right. Thank you.
Speaker 2: Thank you. I'll be following questions from Kevin Chang from CIBC. Please go ahead.
Speaker 7: I have to take my question and I can grab some on your pending retirement. I was going to have a great work with you and John can grab some on joining Air Canada here.
Speaker 7: Maybe just my first question on seasonality, you know, historically we've seen, I know before in a unique environment, but historically Q1 has been your lowest.
Speaker 7: load factor quarter and you obviously had a very strong Q1 in 2023. Just wondering how you think about utilization rates as you get through the remainder of the year. Do you think you hold here as you add capacity? Do you think it actually grinds higher and exhibits historical seasonal patterns? Just give it a pick up the message.
Speaker 5: markets and I think you see some of the results of that in Q1 and going forward we expect to have that same type of performance in Q2 in particular on the strength of some of the decisions we made on our network and of course Six Street and traffic that's helping us be seasonalized the business going forward.
Speaker 7: That's a great point and that's helpful. And then my second question, I'd be curious to wonder, you know, you hit a milestone here with Aeroplan 7 million members. I guess what's the target moving from here, is it 7 to 9, 7 to 10, and then just wondering how much the chase... it's a really good set of alerts so far.
Speaker 7: partnership might have accelerated that membership growth as you expand to the program into the US. Sure. Good morning. It's Mark Nasser and thanks for the question. So we will release new targets for aeroplane, but we're not prepared to do that this morning. So stay tuned, but we do believe that there is additional growth available from the program and from the business.
Speaker 4: In terms of the U.S. Chase has been a great partner and the performance from that relationship has exceeded our expectations. I think on the last call, Amos also talked about in general how the international business of aeroplane has grown.
Speaker 7: significant more quickly than the Canadian business while the Canadian businesses go as well. Other than that, we don't segment out specific performance of partners. That's helpful. Again, congrats, Emerson and John . Thank you for taking the patients.
Speaker 7: more quickly than the Canadian business while the Canadian business has grown as well. Other than that, we don't segment out specific performance of partners. That's helpful. Again, congrats Amos and John . Thank you for taking my questions. Thanks, Kevin.
Speaker 4: Thank you. I'll put on a link question. Is some Jamie Baker from JP Morgan? Please go ahead. Hey, good morning. This is James on for Jamie Mark. I just want to talk about the rating agency sensitivities. If you can remind us what those are given, the positive outlook changes you.
you received over the quarter. And if you just remind us of the internal leverage targets, if you think ending at 3.2 this quarter is sufficient to receive those upgrades. Yes, a good morning, James. Samus. So in terms of our target are.
The target that we had out there for 2024 was one and a half times term. So right now we're down to 3.2. We had 1.9-turn improvement in the quarter, so we'll continue our progress there. I think we're...
in good shape as we look at that and that clearly deleveraging remains our priority. As far as the rating agencies, you know, it always takes them a bit longer to catch up with the performance. And so it's not automatic as soon as we hit our leverage ratio or, let's say if we get to investment grade credit rating, you know, metrics sometimes of one times or, you know, we were before.
point eight times you know back at the end of 2019. So you know there from the rating agencies what they want to see is continued strong performance and I think the performance we have this year will continue to inform them in their decision-making process.
Right now, in terms of our chasm guidance that we've provided, it really includes everything that we know of us now and our assumptions going forward on all of the cost line items. And we just don't break all of that out, but it has our perspective for what we know now. Got it. I appreciate the questions. Thanks. Thank you. Thank you. I'll find a way in question. Let's go ahead.
Congrats for both Amos and John . And Amos, way to go on a high note here. So the load factor is almost 85% into one. I think that's the highest that we've ever seen for a Q1. And Mark talked about the durability of the demand going forward. I'm wondering how you're thinking about your lift capacity going into next year if we continue to see the strength in demand. Are you looking to add some lifts? Is there an opportunity in the leasing market? How are you thinking about the lift capacity going into next year?
Hi, Faddy. Thank you very much for the comment. Yes, it is. It's nice to go out on a high note here. So listen, overall, you know, we continue to always hunt for lift as we said before in our in our process, you know, when we see recovery and strong demand, you know, we have the ability to go out and search for
additional interim lift and we're constantly in the market looking for lift and we'll see our ability to bring that in and be able to line up with what Mark has on network plans. Okay, but there is consideration to adding some lift to the current existing fleet right now.
Yeah, you know giving the demand okay
Yeah, you know, given the demand. Okay. Okay. Okay. My.
Quick question, second question. You know, obviously your balance sheet position has gotten a lot better, but your interest cost is still, you know, I think just over 200 million this quarter. Is there an opportunity to start making a dent in some of the higher...
interest-bearing secured loans or good ventures to kind of cut into this cash outflow.
Yeah, it's a good question, Fadi. As we look at that, we have a couple of items that are... A couple of... Themosphere cooler.
Loans that are floating rate and so certainly that's some of the EDC loans that you see out there You know there's always an opportunity to pay those down, but again, we'll be sort of look at it overall weighted average
cost it's essentially about 4.4% you know on a weighted average basis. Some of the higher notes that we have out there we continue to take a closer look at and see if there's opportunities to pay that down. Again trying to keep within our perspective of always of deleveraging and looking for the right opportunities.
Now, interestingly, when the cash balances that we have right now and liquidity is really providing also a very large offset in terms of interest income. So there's a little bit of, when we look at the interest expense and the interest income, there's a couple of months sort of lag delay between the ability really to cover that. So our perspective on having a strong liquidity and looking for the right opportunities to pay down debt. a
It's sort of is balancing each other out a little bit at this point. So we aren't, again, just want to continue to see perspective of the recovery, the pace of the recovery, and then we'll make more determined measures in terms of...
each other out a little bit at this point. So we aren't, again, just want to continue to see perspective of the recovery, the pace of the recovery, and then we'll, you know, make more determined measures in terms of taking other...
early debt reduction opportunities or paying off some floating rates. And just to add to that, Fatties, Mike, I mean, we're very comfortable with our balance. I mean, 70% of our debts fix rate debt into Amos's point, a fairly low interest rate, 30% floating, which we have time to make decisions on as to whether we pay it down or not.
And as AIM said, we have a tremendous offset in interest income that with higher interest rates that are all obviously providing more value to us as well.
I appreciate that. Thank you. Thank you. Following question is from Chris Murray from ATB Capital Markets. Please go ahead. Yeah, thank you folks. Good morning. I'm Amos. Let me extend my congratulations to you on our retirement well-earned. I guess just starting with the booking curves and thinking about this a little bit. You made the comment in the MD&A about the...
point now where you can kind of declare business travels back full on to what you're expecting?
Hi Chris, it's Mark. Let me take that in a few bite-sized chunks here. First point is that you're correct, we are seeing a significant uptake in the business cabin recovery and it's primarily driven by a combination of leisure travel but in particular redemptions on the aeroplane side in retail. We've got a nice mix going on.
in 2023 that we didn't have in 2019 and that's bearing fruit in Q1 this year. From a corporate perspective, the recovery has plateaued a little bit, but what we're really encouraged to see is the non-contracted business traffic continuing to recover significantly.
So that's giving us some further encouragement about our prospects in the business cabin going forward. Okay, that's helpful. Thank you. And then I guess my next question is just thinking about, you know, Rouge and how you've used that in the past. Certainly Rouge was a part of the...
the significant capacity reduction. How do we think about how you're going to use that in future, especially as you're still it looks like pretty capacity constrained, or is that something that maybe you'll bring in the 321 XLRs and bring that in? Any thoughts you have around the strength and leisure?
How do you deploy that and use that as a tool now with maybe some of the ULCCs also starting to get more active? Yeah, excellent question. So, Rouge is a key and will remain a key part of our strategy going forward. We saw during the pandemic making Rouge a narrow-body operator focused on the North America market.
and getting some of the seasonality out of that business was the way forward. And we continue to see a strong opportunity for Rouge to grow in North America. On leisure markets, you saw the strength of the ECD performance in Q1, but also helping us in this sort of intense competitive dynamic.
that we find ourselves in. So all this to say, there is a very strong hazelnut date for Roo's going forward. Okay, I'll leave it there. Thanks, folks. And I must congratulations once again. Thank you very much, Chris. Thank you. Following question is from Camron Thurtson, from National Bank Financial. Please go ahead.
Yeah, thanks. Good morning and let me echo my congratulations to Amis as well and welcome John to the AC team. So I wanted to ask Amis maybe a question about free cash flow. You know, it's a really exceptional performance in Q1. I mean, you've opted your EBITDA guidance for 2023 by you know, $1 billion. It feels...
that these are the $2.4 billion in cumulative free cash flow you've got as kind of a target. It feels too low. I know you're not, you know, looking to update targets here, but maybe some commentary around, you know, the free cash flow kind of expectations for the next two years because it looks like it's going to be, you know, much stronger than what you would have originally anticipated.
Good morning, Cameron. Thank you very much for the question. You know, you're right. I'm not really ready at this point to provide guidance on that. And it gets into our 2024 target. And look, we've talked really about sort of the key elements here that are driving the performance. And I would, you know, ultimately then flow through into free cash flow.
Don't get too far ahead of our skis on this. Certainly it's been the strong demand, continued strong recovery, advanced bookings, and of course earnings at the end of the day, which is driving also significant part of the free cash flow. So, you know, right now is, you know, we look at through the year, given the strong demand and from what you've seen from our guidance.
It will clearly push forward on cash flow and free cash flow, but not ready to revisit that target at this point. We will continue to do our planning and then we will update.
Okay, fair enough. Maybe second question, just on employment levels, just looking at the full-time equivalent numbers, your staff is kind of well ahead of what we saw in 2019, and that's despite running a much smaller operation. I'm just wondering if this is a new norm, I mean, should we, do you have enough, I guess, employees to be able to do that?
our priority as we came through the pandemic and the resulting ramp-up phase was operational stability. Obviously we were in an environment that presented a lot of unique challenges. One of the key strategies we've deployed to try to address that has been through resourcing. To an extent, we have added hopefully more resources than we needed.
As the level of capacity gets closer to 2019 levels, there are certain efficiencies that are automatically coming through that and the remainder now becomes a key area of focus for us throughout the remainder of the year and beyond.
Okay, that's great. Thanks very much. Thank you. Our following question is from Walter Strackling from RBC Capital Markets. Please go ahead.
Yeah, thanks very much and yes, good luck, Gamerson, John . We're going to work with you again. That would be great. So let me turn to my question. Just to hear first on capacity and...
Correct me if I'm wrong it feels like as I travel I see the time to destination seems to be lengthened a little bit versus if I remember it correctly for some of my flights pre-COVID is that you building in some buffer on on
you know increase capacity at no cost effectively if if indeed you you have done that if you you know get any color another be great
Hi Walter, it's Mark Aloro. So you are correct, good observation. Our times are longer. Just so we go back to the pre-pandemic, our OTP was always towards the bottom of the rankings.
and we've decided to increase those block percentiles so that we, at least at the first point, get to somewhere in the middle of the pack in terms of OTP rankings. And we're starting to see the result of those block percentile changes. That being said, we don't foresee us changing those percentiles but we certainly don't want to be at the bottom of the OTP rankings going forward.
So we're pleased with the percentile that we've shown so far. Okay, that makes sense. Okay, and then on the cost side, I know you're comparing to last year now, but even if I do go back and compare to pre-COVID, you are running meaningfully higher CASMx. And I know there's some inflation there, but...
It can't be just inflation given the magnitude. My question there is, is this systemic? Do you think that once again, can we get back down to somewhere around pre-COVID levels? I mean, that would suggest a very meaningful decline over time, or is there something systemic to cost that?
Look, it's a new paradigm, a new world we're living in, and the guidance that you're giving out to 2014 is probably the best kind of run rate guidance to go, 2024, the best run rate guidance to use going forward.
Yeah, good morning, Walter. I think, you know, it's the latter there. At the end of the day, the cost world is different. We're in a different dynamic than we were pre-COVID. When you just look at all the fundamental inputs into running the business. Does that mean that we take our eye off costs? Absolutely not. You know, we talked about before on the calls, the impact on productivity as we higher up in advance of building up capacity.
So there's some elements that are transitory, but for the most part, the underlying input costs to the business have gone up. But then also, you know, keep in mind that we're also generating higher revenue and traffic beyond 2019 levels, which is then driving the other element of higher costs.
So, you know, fundamentally there are elements that are driven by the underlying revenue side of the business and on the cost side we have inputs that we know from food costs, ground handling, items we've spoken about before that in this environment we continue to look for ways to offset them and we will always be focused on...
cost discipline, you know within the organization and targets for everyone to try to always do better and improve productivity and that will happen as we continue to ramp back up and get back to 2019 capacity levels. Just a follow-up on that Amos, as the now taking away the X and including fuel and as fuel costs came down Is there an automatic factor that brings your pricing down? I know you have some surcharges in place, but is there
And you know there isn't sort of pressure right now. We have strong demand environment. There is capacity that is limited from OEMs ability to
to put new aircraft out in the marketplace. So fundamentally in this environment, there isn't that pressure, and fundamentally we need to recover our costs, and as that volatility remains in fuel.
we don't really see a long-term trend that sort of says fuel is down at $50 a barrel and that changes that one of the critical input costs. I think, Walter, just to expand on that, and it's always a difficult discussion talking about pricing anywhere, we price the market and we have...
As you know, tons of competition both domestically and internationally, and so we are price competitive. And certainly, as Amos said, input costs like fuel remain a component of our overall decision process, as it does other airlines, I assume. But we are competitive with the marketplace. Yeah, that's a very fair point. Appreciate the time and good luck, Amos, again. Thank you, Walter.
Thank you. Our following question is from Konark Gupta from Scotiabank. Please go ahead. Thanks operator. Good morning everyone and I extend my congratulations to Amos and John as well. So my first question is on the guidance you guys provided last week up by $1 billion for 2023.
I know you said demand and fuel, and I'm pretty sure you have a pretty good handle on demand from the booking curve you are seeing. Can you provide some context on where the spot jet fuel prices are today relative to your full year assumption of $1.09 per liter, and have you factored in any contingency plan should fuel prices rebound again? Good morning, Konrad. Right now in our guidance we...
it's not something that we're sort of taking to the point that we included a lower fuel forecast, lower spot as our longer term guidance for 2023. So $1.09 is pretty much where we see it right now. As you noted, it's trading a little bit lower.
but that's just a transitory point in time. But fundamentally, again, as we talked about before, the breast mechanism to adjust for...
the volatility and the higher fuel price is through pricing and in a strong demand environment that has been helpful in terms of being able to recover the cost of fuel. As you saw, quarter over quarter...
fuel cost is up 30%. So you look at the pricing environment and demand environment, so being able to recover that was sort of critical to our earnings.
That's great, Kilar Amos. Thank you. And then my second question is on the competitive landscape. I think we are seeing some new entrants in the market and even the not so new entrants are planning significant capacity expansion from their perspective. On the other hand, you have your primary competitor which has scaled back from eastern Canada to some degree.
I'll start. Maybe Mark can fill in.
Again, like pricing, it's difficult for us to talk about competition. We're competitive, we're watching very closely obviously the expansion of certain carriers within Canada and there's no doubt Canada is seeing an influx of narrow body capacity today and certainly planned over the next several years.
We're very cognizant of that. The fact that we're so well diversified around the world and with different businesses like ACV, Aeroplan and Cargo gives us comfort that we'll continue to do very well. Certainly there will be some pressure domestically and we're aware of that and we plan for that.
and the hubs that we've built in Canada, makes us a little bit less exposed to this type of competitive phenomenon as other players would be. So we're feeling pretty good about our position in the domestic market and so far, we're pleased with the results that we're seeing on domestic. Yeah, that's great, Claire. If we can squeeze just one quick one. I understand on the balance sheet, with the what's odd looking games and other gaming inducements, does all start toop? And if they're not playing on the table, what's going on with those 2 my replacing 2 Canvas games
The leverage ratio target is 1.5 still for 2024. I know if I take your current net debt and take your 2023 EBITDA guidance, I'm like you'd probably be close to 1.6, 1.7 by the end of this year before even you get more free cash flow. So my question really is, like the stock remains pretty low here compared to the US.
peers. Is share buyback even like a remote possibility this year or would you say like still like a 2024 event if conditions persist? Conark, thanks for the question but I'll put an end to that. No share buybacks at this point in time. Again we just focused on deleveraging and getting that down.
Thanks, Amos. Thanks and congrats again. Thank you. Thank you. Our following question is from the service site from Raymond James. Please go ahead. Hey, good morning. Amos, congrats on the well-deserved retirement and leaving a high note here. If I might, and maybe to Mark, the operations have kind of significantly improved and you've done a lot to invest in there.
was challenging. There were significant weather events in the first quarter that impacted us not only in Canada but across North America. Everything from ice storms to extreme fog, it was certainly a very challenging quarter operationally as the first quarter can often be. Coming out of the first quarter, looking at our April performance and even into the month of May, there's been significant improvement. We see a lot of the weather events that have been going on in the last quarter, and we're seeing a lot of the weather events that have been going on in the last quarter, and we're seeing a lot of the weather events that have
operational performance at this point that's very much in line with pre-pandemic and is a significant improvement as soon as the very challenging weather subsided, we're able to re-establish, for all the reasons we discussed earlier, a much more stable operation. Jazz is part of that and obviously in the first quarter, to the extent that some of these weather events happen in certain parts of Canada and at different times of day, the Jazz Network was impacted by that, in some cases a bit disproportionate.
were. So is that something maybe the public data is wrong or how should we think about that?
Well, I suppose it perhaps depends what timeframe you're looking at. Certainly in the first quarter, you know, when we have difficult decisions at times to cancel flights to accommodate for restrictions and aircraft traffic control or weather or other related events, there typically would be a lower passenger impact on cancelling a flight that has a small number of passengers.
much larger aircraft with a larger number of passengers. So at times those flights you know can be targeted for a cancellation in a way that's different from our larger wide-body international flights. The recovery of those cancellations is also easier in some cases so it's the right thing to do for our customers. So I think you may have seen that as I mentioned in the first quarter during the disruptive period.
But more recently we're seeing flight completion levels at Jazz very much in line with Air Canada. Understood and I appreciate that and maybe if I can turn to just on the cost line in talking about it, I appreciate the kind of the newer costs that the industry is working with and also maybe cost related to good guys.
in a major line item? I think we see, good morning, Savvy. I think for the most part, we continue to see the pressures that we have around some of the line items, but they're, I think, now holding off. We called that before. Food catering costs, ground handling costs, maintenance we have a good handle on from long-term contracts, IT costs.
I think those are all beginning to, you know, from what we've seen now, stabilizes. We're getting into next rounds of contracts, contract renewals as we've been going through the year there.
beginning to you know from what we've seen now stabilize as we're getting into next rounds of contracts, contract renewals as we've been going through the year there in carrying out some of those.
IT investments and those investments will produce improvements in terms of both costs and productivity and efficiency which net net at the end of the day should actually drive improved performance. I'm not ready to call out what that is but we'll continue to...
look at that as we update our long-term plans and next year's plan and guidance.
look at that as we update our long-term plans and next year's plan and guidance.
pile on Amos' comment on cost. I mean, this is a, as we said, key priority for us. And I think what we need to provide the market, maybe later this year, is a series of initiatives we have that are somewhat centered around new technologies.
and new approaches that will help our cost productivity. And there are a number of different initiatives underway right now, but I think we'll provide the market some more visibility on that. And certainly as we provide the market visibility from 24 throwing globally, 24 cas-m-ex guidance will
provide some background as to why we think that's the case and some of the good things we're doing from an investment perspective.
provide some background as to why we think that's the case and some of the good things we're doing from a from an investment perspective. That's all helpful, Kyle. Thank you.
Thank you. Once again please press star 1 at this time for any questions or comments. Our following question is from Steven Trent from CIDI. Please go ahead. Oh Mr. Trent has just disconnected from the...
We have no further questions registered at this time. I would now like to turn the meeting back over to Ms. Blouin.
Thank you and thank you once again for joining us this morning. Once more, we invite you to contact us at Investor Relations should you have any further questions. Thank you very much and have a nice day.
Thank you very much, thank you, and thank you once again for joining us this morning. Once more, we invite you to contact us at Investor Relations should you have any further questions. Thank you very much and have a nice day. Thank you.
The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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