Q2 2023 Air Canada Earnings Call
Good morning, and welcome to Air Canada's second quarter, 2023 results conference call.
All participants are in a listen only mode.
After the Speakers' presentation, we will conduct a question and answer session.
I'll ask a question you'll need to press star followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to <unk> head of Investor Relations. Thank you. Please go ahead.
Thank you Julianne Hello, although if you haven't done that yet.
Welcome and thank you for attending our second quarter earnings call of 2023 joining.
Joining us this morning are Michael Rousseau, our president and CEO , Mark Gallardo, our executive Vice President of revenue on network planning and Jon Deberry, Our new executive Vice President and CFO will come on board John .
Also in the room today are below the Wexler executive Vice President and Chief HR Officer, and public Affairs, Mark Basketball Executive Vice President and Chief Legal Officer, Marc Nasser Executive Vice President of marketing and digital and President and Kevin O'connor Senior Vice President.
All airports on operation control.
To begin Mike will give us a brief overview of the quarter.
Mark will talk about our revenue that work and demand trends and John will touch on financial performance and guidance before turning it back to Mike.
Following this we will take questions from equity analysts.
Our comments and discussion today may contain forward looking information about air Canada's outlook objective and strategies that are based on assumptions and subject to certain risks and uncertainties uncertainties.
Our actual results could differ materially from any stated expectation. Please refer to our forward looking statements and air Canada second quarter news release that is available on air Canada Dot com and on SEDAR and now I'd like to turn over the call to March.
Great. Thank you Valerie and good morning to everyone.
Hi.
Yeah.
Thank you for joining us and John welcome to Air Canada, I look forward to senior leadership of our entire company and the finance organization continued to excel.
Our quarterly operating revenues reached $5 4 billion up 36% from the second quarter of 2022.
Operating income totaled $802 million, a year over year improvement of over $1 billion.
Adjusted EBITDA of $1 2 billion was up by more than $1 billion as well from the same period last year.
Our adjusted EBITDA margin reached 22, 5%.
We carried more than 11 million customers over the quarter that is a 23%.
Greater than in the same period of last year.
Traffic growth outpaced capacity growth was an impressive system load factor nearing 88% in the quarter.
And this continues our load factor reached almost 91% in July reflecting the overall strong summer demand.
<unk> revenues totaled $4 9 billion about 42% higher than a year ago.
As we look ahead advanced bookings remained solid for the balance of 2023 and now into the Q into Q1 2024.
Mark will expand on the demand environment is remarks.
I. Thank the entire team for their dedication to customer service and for collaborating with our partners, who also share the responsibility of ensuring a smooth customer journey.
And I congratulate all employees on delivering a strong quarter and recently, winning some very important awards.
These include the recognition of our people spirit and expertise at the 2023 Skytrax World airline Awards in June .
For Canada, our employees wanted the best airline staff and best airline.
Air Canada Rouge also won Skytrax best low cost airline.
And Air Canada received the inaugural Global Award a worlds world's most family friendly airline.
These are significant as a market leader in leisure travel.
We're all very proud of these awards.
No. There is still work ahead of us.
We have more employees trained better coordination with our key ecosystem partners and improved tools and last summer, which resulted in strong operational results in both April and May.
Yet our June and July operations were not unexpected levels due to several factors.
We are increasing our efforts to protect the customer journey from disruption regardless of the cost.
This includes using any inflows we have in such instances with attrition at our principal regional partner, our global supply chain issues.
We're working to mitigate the effects of situations beyond our control.
Such as increasing disruptive storm activity in our key hubs in markets.
We are confident that our efforts will generate positive outcomes.
Cost discipline and deleveraging remain top priorities for us and John will cover both in more detail.
We ended the quarter with $9 6 billion in cash and cash equivalents and investments.
And early repayment of $650 million in EDC loans in the quarter.
Our cash position enables us to confidently execute our business plans move forward with new initiatives.
Continuously invest in customer service.
I think our customers are entrusting their travel to us and for the loyalty.
We're more determined than ever to deepen this loyalty through elevated customer service.
Mark over to you.
Thanks, Mike and good morning, everyone.
No.
The negative method FCA Mood-altering JJ Lin FC tune Assembly is excellent.
We're.
Pleased with our second quarter performance.
<unk> results in the effectiveness of our network diversification strategy.
So a strong performance in several areas.
And we're excited with what we're seeing.
For Q3, 2023, we plan to increase <unk> 10, this system wide capacity roughly 11% from the same quarter.
Q.
For the full year, we're looking at a year over year capacity increase of about 21% versus.
Hugh.
Now, let me get back to our results.
Passenger revenues reached $4 9 billion in the quarter.
These results stem from the strengthened passenger demand for a wide range of international networks.
Record 6 million revenues and continued Aeroplan redemption.
In the quarter, we saw year over year gains in yield and unit revenues across the board.
Domestic performed to expectations and Theyre.
Transporter revenues, 36% in the second quarter 2020 Q on.
On a 21% capacity increase.
<unk> revenues were above what they were in the second quarters of both 2022 and 2019.
<unk> Q2, 2023 was the strongest since June quarter, our agenda has ever seen.
This traffic is an important contributor towards diversification strategy as it evens out and traditional seasonality peaks and valleys.
<unk>.
We believe that we're still in the early stage of reaching our full potential and leveraging sixth freedom traffic through our hubs.
Further to our strong <unk> performance, our transport network performed above expectation anchored by the initial success of our joint business arrangement with United Airlines.
This allowed us to start new routes, such as Toronto, Sacramento and in many cases restore our pre pandemic frequencies to a variety of routes.
Network.
We're particularly pleased with our international performance.
Representing about 70% of the year over year, increasing passenger RASM.
Demand for transatlantic services was stronger as compared to last year.
Translated into a 19% capacity growth and a nine percentage point increase in load factor.
This year, we restored services, increasing frequencies in certain destinations like Toronto, Rome, and Toronto, London and launch new routes on the European market, including Montreal to Amsterdam to lose in Copenhagen.
We're pleased with the results from our new routes, which met or exceeded expectations.
We saw strength in leisure demand, particularly to markets in southern Europe .
Our strategic partnership with Emirates led to very strong results on our Dubai routes.
And the outlook for <unk> demand continues to be given.
Great.
In the Pacific, we more than doubled our capacity to that of last year.
We restored service digital stock up in Vancouver, and Tokyo Haneda from Toronto.
In fact, we restored more in our full 2019 capacity to Japan.
The higher loads on the Pacific, reaching a 93% load factor.
Reflect continued strong demand.
The growth in capacity and traffic led to strong RASM yield gains, even though capacity to China.
Our Pacific passenger revenues increased two five times compared to the second quarter of 2022.
We also announced new services, such as Vancouver to Singapore and Dubai.
Demonstrating our commitment to rendering Vancouver, as a global international up for Asia Pacific travel from North America.
Our comprehensive network, which is bolstered by our strong international presence.
It's well positioned to capture that we're seeing.
Air Canada vacations continued to see strong demand for leisure travel.
I want to underscore that this demand is an important barometer of leisure demand sentiment.
And this indicator continues to be favorable as compared to both 2022 and 2018.
Another indicator of strength and projected future demand as Aeroplan continued record growth rates, which delivered proportionately strong travel redemptions.
We recently unveiled our most extensive windsor sounds good.
When added frequency and capacity to popular destinations like Los.
Los Cabos and policy count.
In fact, we are increasing our capacity from all of our major hubs to certain destinations.
Aratana cargo extended its network in the quarter, adding services to Punta Cana, San Jose Costa Rica in Basel.
And as we saw with our peers, our cargo business experienced lower volumes and yields in the second quarter of 2023.
This was somewhat expected given the normalization in cargo yields from extraordinary high is the beginning.
So we made good progress expanding our fleet to six three years, three and we had at the end.
Yes.
We're close we're closely watching how this market evolves to capture strategic opportunities.
Our overall cargo diversified revenue streams also set offset some seasonality in the past year.
Now over to you Jon I look very much forward to working closely with you. Thank you.
Thank you Mark I'm thrilled to join you, Mike and Valerie on this call and I'm excited to work with all of you.
Good morning Boys relentless just VW debt on.
<unk> I was wondering if I can answer me, though Canada.
It's truly a pleasure to speak with you today.
It is exciting to join this dynamic industry as well as the passionate and talented air Canada team.
I'm grateful for the warm welcome that I've received and I'm looking forward to building strong relationships with all of you.
On to the results.
I spoke to our financial performance generally and Mark touched on our strong passenger revenues. So I'll begin with our second quarter operating expenses.
These totaled just over $4 $6 billion for the quarter.
Increasing 9% from the second quarter of 2022.
Primarily due to the higher levels of flying and customers we saw in the period.
The increase was partially offset by an 18% decline in aircraft fuel expense stemming from a 31% decrease in jet fuel prices from the same period in 2022.
Overall second quarter adjusted CASM was $13 three.
Roughly one 6% in the second quarter of 2022.
The unit cost was impacted by higher passenger service costs from increased traffic and higher selling costs, which are directly correlated to greater revenues and year over year growth in full time people and employees.
In fact, you'll have noticed that wages salaries and benefits grew 24% in Q2 2023 from the same period a year ago.
This reflects a 2020, 22% growth in fulltime equivalent employees year over year as we rebuild their operations throughout 2022 and hired and trained people to prepare for this summer.
We have now reached a stable levels and employee turnover has normalized to historical rates.
As we continue to grow the airline and add capacity you can expect to see meaningful improvements in productivity.
Our optimized and efficient fleet is central to our strategy.
In the second quarter, we added one Boeing 787 dash nine and one Airbus <unk> hundred <unk>.
Our second quarter delivered strong free cash flow of $965 million.
$537 million more than the same period in 2022.
We ended the quarter with $10 $6 billion in total liquidity and our leverage ratio one seven down from $5. One at the end of last December .
Our strong cash flow and liquidity position allow us to fund our future and to deleverage.
And we've been paying down debt, where it makes the most sense.
The recent EDC loan prepayments.
The repurchase in 2022.
Air Canada's outstanding 4% convertible senior notes resulted in a combined reduction of about $72 million in annual interest expense.
Now, let me turn up to our full year expectations and provide some color as we update our guidance.
Our first half performance was strong we entered the second half with good visibility.
Given $5 7 billion in advanced ticket sales.
<unk> strength in demand and notwithstanding some headwinds that lie ahead.
Are you on cost.
As such we are raising the lower end and narrowing our range on full year EBITDA guidance to between $3 75 and $4 billion.
We also modified our adjusted CASM guidance for 2023.
To reflect our revised full year capacity assumptions and to adjust for various expense items due to the evolving cost environments.
We now expect full year adjusted CASM to land roughly within <unk> five.
Five to one 5% above 2022 levels.
Notwithstanding the fact that this is a full year number I can tell you that leading into Q2, we have made good sequential progress.
We also expect to continue to see further productivity.
<unk> improvements flow into our cost structure through the summer.
In preparing our updated 2023 guidance, we assume that the Canadian dollar will trade on average.
<unk> 34 per U S dollar.
And the price of jet fuel will average $1 <unk> per liter Canadian.
For the full year 2023.
Going forward, we have taken a position to hedge a portion of our Q3 fuel.
You can refer to our public disclosures while for information on this.
As for 'twenty 'twenty four targets, we are not providing updates at this time, we will continue to evaluate them as we progress with our plans and execute on our strategy for the second half of 2023.
Let me now turn it back to Mike. Thank you.
Great. Thank you John .
We're now in the middle of our busiest period of the year our.
Load factors are high this summer, which while positive also adds complexity to running an airline when disruptions occur.
In advance we have made extensive preparations by hiring more people and changing our scheduled to reduce our traffic peaks and smooth customer flows to some degree.
Our employees are more experienced last summer and this has contributed to our operational stability.
Our flight completion level and baggage delivery ratios are stable and.
And we continually evaluating and making adjustments to protect the customer journey.
Air travel ecosystem comprises many persons and we're doing our part to help each partner fulfill their roles for which they are accountable.
We've seen significant improvement in industry metrics over last summer and.
And together, we are committed to strengthening the system.
We are doing so while navigating through an evolving regulatory environment, which is affecting crew availability and ultimately our flying schedule.
Welcome the opportunity to work with Canada's New transport Minister at lower Lucas to bolster the air transport sector.
There are many critical files such as the production of SaaS in Canada to support the net zero by 2050 ambition.
The need to invest in airport infrastructure to safeguard the operational efficiency and support GDP growth.
As well as ensuring airport costs become more competitive with global competitors.
This last matter continues to be a challenge with the recently announced review of the passenger protection regulations and increased costs to be borne by the industry.
Our user pay models not appropriate.
For the current environment.
We've taken other steps that are reinforcing our operation securing interim lift including by partnering with Pal Airlines and signing a wet lease of regional daunting.
But we're also looking further ahead.
We have continued to diversify our network shifting capacity to where we can generate better returns on our aircraft.
The new international routes Mark spoke to.
Our partnerships like the one with Flydubai are key as these will expand customer choice, we flying between Canada and the world.
We anticipate increased immigration will continue to strengthen the vibrant visiting friends and relatives market and contributed to trade further furthering corporate travel opportunities.
We're also transforming the way, we sell and distribute our products by introducing new modern technology options for the travel agency community and additional choices for our joint customers.
These capabilities are supported by IATA is new distribution capability or in D. C.
During the quarter, we expanded our successful longstanding partnership with Amadeus and we announced a strategic distribution and retailing agreement was stable.
These arrangements with combined with other elements of our strategy are already delivering substantially lower distribution costs.
Additionally, they will enable us to scale continuous pricing dynamic offers and other exciting revenue optimization strategies in the quarters ahead.
Our digital investments now extend throughout the customer experience.
This includes increasing the use of technology, such as expanding our biometric facial recognition pilot program for customers to board aircraft and to welcome guests into our languages.
We also continue to integrate AI into our business most recently in our contact centers.
And we've begun renovating cabin interiors, our narrow body fleet upgrading our Wi Fi and in flight entertainment offerings and launching exclusive original program like Mattel and Apple TV plus.
We're elevating the customer experience through key investments, including new lounges, and Maple leaf lounges, San Francisco and a new aspire Air Canada Cafe, Billy Bishop.
Both opening to great reviews from both customers and immediately.
We've also added facilities at Newark, Liberty with a co located language within the United Club.
Our novel model that further builds upon our successful transporter joint venture.
Aeroplan is a key component of customer loyalty continues to grow at record levels on all key metrics.
This success opens incredible opportunities and thrilled the quarter Aeroplan launched new initiatives initiatives promote engagement.
Included new and expanded partnerships with Dell.
<unk> and <unk> for groceries.
Aeroplan success was affirmed at the prestigious Freddie Awards were at lead North American loyalty programs when the airline programs a year best promotion and best redemption ability.
Another aspect of loyalty is a premium that customers place on corporate responsibility.
And throughout the quarter, we announced several initiatives to advance our ESG goals.
One is our partnership with the in service aircraft for global observing systems our egos.
National Research organization that uses commercial aircraft as a platform to monitor climate data.
Through this agreement, we are outfitting and Airbus <unk> hundred 30, aircrafts with special diagnosis diagnostic centers sensors.
We also announced agreements to purchase sustainable aviation fuels in San Francisco in Amsterdam from nesting.
Apart from reducing emissions. These agreements also demonstrate the viability of SaaS and its importance to our industry.
Once again, we urge governments in our country to be part of the global opportunity.
We in Canada need to recognize the potential of SaaS, both commercially and for our environment and invest appropriately in the development of these fuels as other countries do.
We look at corporate responsibility as a whole and our focus on all aspects of our business our people and the communities in which we live and work.
Through this and we continue to pursue our diversity equity and inclusion policies and initiatives.
Our accessibility plan as an example of this affirming our commitment to enhance accessibility for our customers and employees with diverse abilities.
And we're very proud to contribute to Canada's objected to the barrier free by 2040.
We're also pleased to deal with one of our most popular community activities Air Canada operated three dreams take quite missions in the second quarter volume children from Winnipeg, Halifax in Toronto to Florida <unk>.
<unk> is a trip of a lifetime.
Another slide such flights are scheduled for the rest of the year.
The Air Canada Foundation continues to elevate communities in Canada in the second quarter first the $1 6 million at raised last year and Ian charities to help children spread their wings.
I invite you to visit the Foundation's website and read recently published impact report to get an in depth look at the magnitude of <unk> reach.
As these examples show aside from producing solid financial results Air Canada has a significant positive impact on our communities and does a lot of good for all stakeholders.
This is ingrained in our core values of care and empathy and contributes to our employees' commitment and motivation to work hard everyday to meet expectation.
Even when we face difficulties.
It cannot be said, how often enough how proud we are of this.
We are determined to rise higher in an increasingly complex industry and environment.
He is really striving to meet our customers and other stakeholder expectations.
Thank you to our employees, our investors our customers and our suppliers.
Their support is key for securing a bright and sustainable future.
And with that I'll turn it back to Valerie thank.
Thank you Mike and thank you all for joining us this morning.
I can answer that is MSA.
We're now ready to take your questions should you require further details. Following this call our Investor Relations team is available for support back to using yes.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up thank you.
Our first question comes from Helane Becker from Cowen. Please go ahead. Your line is open.
Thanks, very much operator, hi, everybody and thank you very much for the time.
Oh sure.
I just have a car.
I just have a couple of questions. The first question has to do with.
With cargo.
We're seeing Fedex and UBS and the U S and we're seeing cargo volumes decline and you mentioned that in your prepared remarks I'm. Just wondering is it too aggressive to have six aircraft in service and maybe three was right.
Or how are you really thinking about cargo over the next few years in this declining volume and then and then I have another unrelated question.
Sure Good morning, Alain it's far less.
So on the on the cargo through your GTS. It's important to note that our strategy here is more of a long term focus.
And the strategy is meant to be resilient.
To go through the ups and downs.
The cargo market is.
So to that extent.
The longer term.
And the view of the three years since the screen Green free into a positive connected onshore extensive passenger.
The Lee business.
We see a lot of.
Good long term prospects and that strategy really optimize our bellies.
On our on our passenger business accent.
Although we have some challenges near term focus is really medium to long term.
Okay. That's that's helpful. And then the other question actually came from a client this morning.
You know I wish.
And I know this to be a fact too I was looking at on time performance and air Canada tends to be in the bottom half of the crowd not not sure if north American airlines not not sure how impactful that is but when you think about your operations.
And you think about you know your customers.
What's the compensation you have to do and how are you thinking about.
Improving on time performance in.
In an environment, where things are really busy.
Hey, good morning, Glenn It's Mike.
So that's.
That's a big question and something that we're very very focused on first of all there are compensation rules under the APR.
You are here in Canada, if we're delayed by more than X number of hours.
We paid customers.
Much like much like Europe and factors some changes going into the APR right now that will make it much more aligned to European model.
That's one aspect and then we also fulfill our obligations.
Under that.
System.
We.
We're spending a lot of time, improving our on time performance.
And again in April and May were very solid.
June and July for a whole bunch of reasons a lot of.
Mobile like severe weather in Toronto, Montreal, and East coast of the United States, where we have large franchises.
Effected our effected our otp.
But we're powering through that and building in more resiliency to the operation and I spoke in my prepared remarks bulk some of the things we've already done and we will continue to elevate.
That's our strategy and certainly an objective of ours.
<unk> approved otp. So that we are we don't have articles like we had yes. Good morning.
Okay. That's very helpful. Thanks, Mike.
Our next question comes from Kevin Chiang from CIBC. Please go ahead. Your line is open.
Hi, good morning. Thanks, Thanks for taking my question.
Maybe if I could just.
Your guidance and I know this is maybe overly simplistic, especially given all of that is happening as you come out of the pandemic.
You have a labor.
Negotiations have come in in the back half of the year, but if I look at historically at least pre pandemic.
Q3, EBITDA was anywhere from one six to one seven times, what you did in Q2 versus you know.
More than double.
If I apply that seasonality it seems like you are tracking.
At the very upper end of your guide and maybe maybe through it anyhow summer plays out which sounds like it's very strong.
Just wondering how we should think about the puts and takes us to maybe why his.
Historical seasonality or that range might not hold or maybe it's just conservatism in your outlook.
Local or maybe it's a little bit of a buffer because of the liberty negotiations.
If you can frame how you think about the back half of the year given what you've done in the first half of the year.
Good morning, Kevin It's Mike I'll start with a couple of comments and ill turn it over to John .
Some further comments.
Okay.
We provided guidance for a long time for the company and obviously our objective is to ensure that we make the guidance.
There are a lot of factors involved in putting guidance together as an evolving environment as I said in my prepared comments.
Q2.
The work that Mark and others have done here has allowed us to do better in Q2.
With especially with the sixth freedom traffic.
<unk> is typically or beneficial to Q2, then Q3.
And so so that's a good thing from a seasonality perspective from our perspective, So that's issue number one.
And then issue number two we are seeing rising fuel prices and so we had to ensure that we recovered the sensitivity.
Rising fuel prices, but John Yeah, I think.
Mike.
You covered you're covered in the comment on Q2, I think that Q2 was was an exceptionally strong quarter and it is true that seasonality is always the case that Q3 will come off quite stronger than Q2, but Q2 a year. This year was very strong and I think from that point of view.
Applying maybe the one six wouldnt totally apply in the same way that you may have done so in the past.
So when you look at full year guidance Mike.
Said it well.
We've moved up the range because we feel strongly that.
The demand environment is holding the way we expected first half performance.
What has been has been quite good and Q2 has given us the confidence to move up the range, but.
I'm not sure that.
$2 50.
Space that we have left there I think is the right one.
Okay.
That's great color, maybe if I can just follow up on the on the cargo question.
You discussed the 760 Sevens you have but what does what's happened in the cargo market recently have you rethinking what your plans are for the triple <unk> that come in.
Next year and beyond.
Or you think you need to add more capacity on top of what you would have liked as a long term clients still support that.
Okay.
Kevin It's Mike.
So like Mark said.
Question from Alan.
This is a long term play from our perspective.
And there is a.
Strong synergy of <unk> <unk>.
Alex.
Cargo from from our freighters onto our are narrow bodies go across Canada.
Yes.
And so we see that as a very very viable business strategy as we go forward.
Again.
Q2 like other other cargo operators was not not.
Very strong.
Some some decline post pandemic.
And we had budgeted that frankly is expected that.
So we're we're going to continue to add capacity over the next.
The next little while as per our business plan.
And.
We're comfortable that we can.
Make sufficient use of that capacity.
Perfect. That's it for me. Thank you for taking my questions.
The next question comes from <unk> <unk> from BMO capital markets. Please go ahead. Your line is open.
Good morning, Thank you and John welcome to these calls.
Yeah.
I have a question on the CASM.
Im not sure how to characterize it but ultimately I'm trying to think about.
If there is a way for you to explain to us.
How much of these CASM inflationary pressures are.
Core inflation in wages.
Overall economy and how much of these pressures on CASM, we're seeing are a function of just the aviation ecosystem being.
Underperforming its normal fluidity and.
And John I think you've talked about potential for productivity game going into.
Like how should we think about the trajectory.
Your CASM.
And more fluid or you kind of.
Normalized environment, how much of the increase in that government of loss.
A couple of years as you ramped up capacity has been a function of those maybe triangular during issues longer term.
Yeah. Thanks, <unk>, So I think more color will come as we look forward when we look at 'twenty four but just to give you. Some some color on this now I think we're roughly I think 6500 employees from the summer of last year to the summer of this year and I think thats, maybe a little bit of what you're referring to.
Well Thats, certainly what im referring to in my commentary on productivity we will.
We will grow into some of that capacity, but it was important for us to get ahead of it year or for the summer of 'twenty three and I think it's proved to be the right decision and we've seen very significant loads and what have you.
And then obviously the traffic and we're being rewarded for their efforts.
That is a piece of the cost structure that I think will.
Alleviate a little bit relative to CASM as we as we grow.
There are some elements that it has a different cost environment.
Just something that we I think we absorbed into our own business planning here regulatory changes the duty times things like this are a little part of that structural change.
And then ultimately I think that we have seen like everybody else some inflation.
Forget some of the costs in our CASM is also coming from cost that are very revenue correlated right. So it's kind of the good that the what you pay for when you get that volume and traffic and we're seeing more premium cabin and thats, helping as well overall profitability, but it's a more costly component of <unk>.
The airlines as well as we are.
We support those customers with premium.
So altogether I guess.
The last piece I'll, maybe just stay there before I wrap up as we did take a bit of a touchdown on net.
The capacity in the year you saw we went from 23% year over year growth down to 21%.
There's a few things that are impacting that some of the regional.
Challenges with just.
Availability.
And some of our own fleet.
Just availability with respect to some of the aircraft.
That they were trying to put back in service the Triple seven for example.
And some of those 800 twenty's.
So mentioned.
So all of that does impact us as well when you look at the CASM expectation I would say that over time will heal itself, but when and how that will take a little longer.
Looking at 2024.
We'll be looking at ourselves internally here for productivity that should come from the overall cost structure as we grow in and we do expect also that the whole ecosystem will do better and that will help our cost as well.
Okay, just a couple of follow up.
I know you're not guiding to 'twenty four but do you still have.
Visibility or plan to ramp up capacity.
I think it was 100% of 2019 previously or is that not.
The right framework to think about.
For 2024 at this point then we should wait for your guidance and just can.
The first question.
I wanted to say like why go back on the hedging you have been kind of not hedging for quite some time and you manage to move that towards pricing and why did you decide to kind of hedge fuel again now.
Okay great.
You haven't left off at all from the last time, we talked I guess, let me cover both of those very quickly so.
So.
You you asked about hedging into one prior to that was about.
Wafer capacity I think you. So yes, we do obviously, we do have plans.
And.
Scheduled capacity to come online for 2024, so we will grow back towards those 2019 levels. My sense, you should wait for 2000 for guidance to be more conclusive, but I think my sense is that we get to 19 levels through the year at some point, we hit that base will it be on a full year basis, we will see.
Let's let's get through the next couple of months here.
And then we will see how we can that we can get a better bead on it but certainly our intent here.
<unk> is to bring it to 90 levels in 'twenty four.
And then go from there.
The question on hedging.
The simply say that.
When we looked at.
Let's call it the end of Q2.
Looked at Q3 bookings are very solid.
And we have no speculative kind of.
Sector, but we looked at fuel and that kind of stable.
Stabilized at a low level and despite some pressure.
Oil cuts and what have you and so we bought that.
Just good to protect what was already sold tickets in terms of the fuel component of it and so we took a position to hedge some of that Q3 demand.
And.
Relative to a bigger comment on different philosophy or strategy I would say not.
So just say that I think it was a prudent thing to do.
In an environment, where taking a position on fuel for Q3 that were kind of suite already sold through the fuel is already sold through our ticket.
It was the right thing to do and it just locked in at least some portion of that.
Of that dynamic.
Huron and we'll just kind of continue to probably the behavior much the way we have in the past.
Have a different view, then we'll talk about that as well.
Thank you.
Our next question comes from Kamran Dukson from National Bank Financial. Please go ahead. Your line is open.
Thanks, Good morning, maybe a couple of demand.
<unk>.
Clearly the demand is very very strong events ticket sales.
Well above what we would have seen pre pandemic I'm just wondering if youre seeing any signs of.
Of weakness, particularly in the domestic market I mean, we've seen some of the U S carriers sight, maybe a little too much capacity that's in the <unk> and the network given where the demand is just wondering if youre seeing any of that in your in your advanced bookings.
Okay.
Hey, good morning, it's Mark.
On the domestic network.
One of the things that we said is one of the strengths of our domestic network connecting.
Network that we have to retreat highest that gives us access to a wide geography. So.
<unk>.
The domestic indicators continue to look stable.
And we're feeling.
Generally pleased about what we saw in Q2, but going forward. It continues to be relatively simple.
Yeah.
Okay, and maybe just a follow on to that is around business travel I mean must have some visibility now in the post labor day.
Demand are you seeing.
Any signs of that picking up can you sort of a stable we've seen the last few quarters.
Yes in fact, we are seeing a slight uptick in.
Two sort of channels one is certain managed corporate.
That's been roughly at that minus 30% range for quite some time, so we're seeing a slight uptick there, but what's more encouraging.
The non contracted corporate SMB small business and that's recovering much quicker.
And quicker than anticipated so we're starting to see post labor relations in free funds a signal there.
Okay. No. That's that's great to hear thanks, thanks very much.
Our next question comes from Walter <unk> from RBC Capital markets. Please go ahead. Your line is open.
Yes, thanks, very much operator, and good morning, everyone and welcome John to the call.
I wanted to I wanted to turn to load factors here and tied in with the new configuration Your fleet.
And in the service a little bit of the on time service issues that you've had and correlate to what I'm looking for is <unk>.
<unk> got a different fleet than you've had previously does that mean.
Can run at higher load factors.
Forward on.
On a long term basis.
Or in your efforts to improve your on time do you have to bring load factors down I'm, what I'm trying to do is see if.
Load factors that we assume going forward can be sustainably higher than where they were pre pandemic or again do you have to bring them down in order to address the service issues.
Hi, Walter it's Mike.
Interesting question.
We don't think there's a high correlation between high load factors and OTC performance.
So we think we can run at 84% or 88%.
Aka that materially impact.
On time performance. It may impact if we have to cancel flight, we've got less seats to put people on.
But it shouldnt affect materially otp comps.
Can we run at those levels going forward.
Yes.
Yes.
It.
But it does mean potentially that we're still in traffic.
And and so that is why we're bringing some more capacity on.
On site, because we'd like to.
And sure we don't spill good traffic basically to our competitors.
So there is a balance there too to some degree.
Okay.
That makes it okay. Thank you and my second question is coming back to cargo and.
One of your answers to cargo really makes sense to me that you've got some really good opportunities to scale some of that cargo into your to make it much more economical into your belly as opposed to on your dedicated freighters.
I guess my question is are you still targeting the same number of freighters that you were targeting previously and is there an opportunity.
With the tight labor environment to achieve some of the goals you had with your freighters, but not necessarily with with freighters owned by you.
Yes.
Possibly but.
We're not we're not spending a lot of time thinking about that that option right now right now we're really focused on improving the performance of our freighters.
And obviously, bringing the freezers into the operation.
Okay fair enough. Thanks, very much for the time appreciate it.
Our next question comes from Stephen Trent from Citi. Please go ahead. Your line is open.
Hi, Yes. Good morning can you guys hear me by the way.
Yes.
Okay, sorry, and just having some trouble with my phone.
You for taking my questions.
Just one thing there first you know my heart goes out to you guys up north with the terrible wildfires and what have you.
I'm wondering if.
Those events have had any impact on your operations have you had to reroute.
Have you at the transport fire crew and maybe there's been some incremental flow.
Network, just wanted to get a sense of that thank you.
Good morning, Mike.
Thanks for the question.
Obviously given our.
Given our community perspective, we'll do whatever we can we are doing whatever we can to support.
That's the situation.
As it is affecting our operation.
<unk>.
We didn't call it out as an issue frankly.
Yes.
Mostly on the regional side.
So is it hasn't had much of an impact to.
To date.
I appreciate that Mike Thanks, very much and just one other quick question.
I appreciate what you've mentioned about the airports Andy.
Sort of pay system and the Canadian airports.
In order to have a change occur there is this something that.
Bob.
Mr Trudeau.
Makes some kind of decree and changes.
Would it have to be something that would.
To pass through.
A long legislative process of some kind.
Okay.
You've asked me a question I can spend another half hour on responding there have been several studies there have been several studies by very.
Very intelligent committees and very knowledgeable committees of both our business model up here our airport model.
Recommending certain changes.
There is other options available.
But it would take.
Change in law basically.
That would take some time.
I would say the pandemics.
Really is expose the weakness of our user pay model.
And and.
We are pushing hard.
To ensure that our airport infrastructure system continues to support operational efficiencies investments and and also growth.
And.
The airports, obviously suffered through the pandemic taking on greater depth.
And and so do we.
So it would be important for the government.
To support that type of growth opportunity.
With some injection.
To accelerate.
Some of the objectives, we have in mind, let I'd also goes to SaaS.
As I said in my prepared comments.
Okay I appreciate the color. Thank you very much.
Our next question comes from Chris Murray from <unk> Capital markets. Please go ahead. Your line is open.
Yes, thanks folks good morning.
Ill turn it back to the sixth freedom traffic a little bit can we talk a little bit of both.
Maybe what are the drivers that I think got you to this number this quarter.
Guess, what I'm trying to figure out is how much it is and sort of tied to the fact that the U S market itself has been pretty tighter observed been something going on that maybe has changed sixth freedom in the hospital, while b that aeroplan or something else that you guys have been working on.
It's mark.
A combination of reasons.
One of the things that we did that.
<unk> really change the structure of our networks in our operation top airports to maximize six region should.
We picked up perhaps a little bit.
To really facilitate.
That traffic flow and.
And we're starting to see results basically almost every single geography.
Almost every single month.
<unk> hundred 60 <unk> network.
Network, which is something we didn't necessarily do as well.
Okay.
Okay.
Good morning, it's Mark Massar, just to add one thing.
And in which <unk> is growing the fastest at the United States and between that and our relationships principally with Jpmorgan. We're also able to introduce the brand and our product and service proposition to Americans more effectively than we were able to previously.
Okay.
Helpful.
My other question just pointing to the regional network.
Historically this has been kind of.
Slow and steady, but certainly with what we're seeing in the job done.
I guess a couple of questions on this I mean is this.
A function of aircraft or people or what's one of the regional network, that's really affecting its performance as much as it is and does this change.
Change in can you are looking to have to do.
Historically considered a regional lift inside air, Canada, or maybe a different.
View on strategy as we go forward.
Hey, Chris Mike.
I don't think the strategy's changed Theres, a transitional challenge right now with pilot availability.
A series of factors.
Cause.
Stress on pilot availability at that level at entry level.
One light duty times came in which cause all airlines to Canada to add 10% to 15% more pilots to fly the same schedule.
Given the new rules around flight duty time.
Two we have a lot of new entrants into Canada. All of the same time, who are flying bigger airplanes.
And afford to pay more money.
And then three during the pandemic.
We have a very very elaborate school system pilot school system here in Canada.
Which with which our original partners is heavily involved in and that didn't provide the supply normally would so we have this <unk>.
The perfect storm that exist at this point in time.
And so that has caused.
Our regional partners or lose more pilots than the otherwise higher attrition.
And so as a result.
We've had to make some modifications to the schedule.
We're working hard with our partner.
Jazz on solving that problem right now and it will be solved.
It will take some time to transition.
On the on the operational side, if we have disruptions weather disruptions or anything else, we would typically have.
Want to cancel a jazz flight.
And perhaps less customers.
Canceling.
Triple seven for example, and so you will see higher in weather and other disruptions you will see higher cancellations or the jazz fleet, which makes it difficult for them to operate because they've got albeit with those customers on another plane in the next couple of hours and the next day.
That is trying to minimize the impact to our customer.
And weather weather related disruptions.
Okay.
I'll leave it there thank you.
Our next question comes from Sevan precise from Raymond James. Please go ahead. Your line is open.
Hey, good morning, everyone.
I know you've been doing kind of rolling out MDC.
In other areas of <unk>.
<unk> I was wondering if you could talk about that a little bit more especially in the sense of kind of where we really see the benefits of that is that revenue or costs.
And.
The timeline of that.
When we might see some of these can benefit from <unk>.
For sure good morning, as Marc Nasser, So theres four principal elements to our distribution strategy that we rolled out during the quarter. The first is all new technology supported by MVC, including a variety of options for travel agencies anywhere in the world connected or Canada.
Second is improved and expanded commercial agreements where its not just the TFS as we've already announced sabre and Amadeus, but also direct agreements with many of our large agency partners that allows for more efficiency in terms of cost perspective.
It expands our products that are on their shelf in particular ancillary revenue products opening them up really for the first time in a meaningful way to third party sales.
And then the third is content differentiation, so you've seen a lot of this and other markets, but now we have content that's exclusively available via NBC in just the beginnings of that will expand over time, causing more of a shift to those channels and the final one the fourth element is the TCR the distribution cost recovery program so bookings.
Now that are conducted through the less efficient older technology at a faster platforms in the ges incur a cost recovery.
So all those four things together are driving both decreased costs as well as increased revenue Mike talked about the fact that our distribution cost are not materially lower it affects both RASM and CASM. So there are some.
Zone.
Thats taken out but Theres also a lot of in terms of the VCR of RASM offset.
Because as we assess it ECR, even though it's mendez of cost recovery accounts in the top line.
In terms of kind of timeline of Kevin.
And this doesn't kind of turn on on day, one how should we think about this building up over the next two three years.
Sure. So the TCR is fully rolled out globally and all points of sale already.
That's what led us to make a comment Mike's comments in the opening there.
And then NBC itself right now for US is available in Canada, we will rollout, our three or four largest points of sale in the U S.
Before the end of this year and then by the end of next year will be substantially fully rolled out in our online sales globally.
And all of our GDS and agency agreements are global in nature from a footprint of those companies.
That's helpful.
I might just on the Aeroplan.
Zach and pre pandemic I think the thoughtless, Eric lack of Aeroplan was 93 point margin drag for Air Canada.
How much of that is unlocked and now that you have the plan in house and then seeing the real value of that just any kind of revised thoughts on if there's more to kind of margin contribution that you would expect.
First of all so we don't segment out Aeroplan results results excuse me and its impact on our profitability, but what I can say is the program has grown significantly from the point at which we took it over and we're seeing that growth contribute both topline and profitability but.
We just don't segment out to have the results of the business.
Alright, thank you.
Thank you.
Our next question comes from Connor Gupta from Scotiabank. Please go ahead. Your line is open.
Thanks, operator, good morning, everyone.
Wanted to get back to the CASM question.
Is there any specific factor that has been most difficult to predict over the last.
Six seven months, so that kind of spun up costs the guidance to them go up on mcadams side and can you remind us.
CASM targets you laid out for 'twenty three 'twenty four previously.
Any potential implications coming labor agreements.
Okay.
Yes, yes.
No that color for another central maybe Mike in terms of just made this quarter.
Hi, Good morning, it's Mike.
We've modified the guidance on the model.
Partly because of capacity touch partly because of costs.
Coming in place some of which are revenue based costs.
Inflationary based costs.
We're also not going to disclose or talk about pilot agreements.
In there or what's not in there.
Right.
One of the pilot agreements that were talking about.
<unk>.
We as John said, we're continuing to look at productivity, we had to staff up.
Now to ensure that the brand is.
Good a somewhat as possible we've done that we'll see that productivity gains come back to us over the next little while as we grow into it.
And so so different factors, but.
Like I said in my comments and John said in his comments. This is a high high focus area for us and we will continue to look at improvements in productivity using technology and other process improvements.
That said, that's great color, Thanks, and welcome John about.
We're kind of just one more question quickly on the balance sheet.
You guys have done.
Decent progress on rotating some debt early on.
Are there any more opportunities to utilize our excess cash sitting on the balance sheet and obviously free cash flow is kind of running ahead of your expectations, so far and any opportunity to reduce further.
Yes. Thanks for the other question then definitely we will continue to be.
<unk> is an active.
And look for opportunities to take down.
Debt.
Where.
We see opportunities, where it makes economic sense and there are still opportunities for us to do that you've seen us be.
Over the last year between the convertible notes.
The aircraft financing.
In the first in the second quarter.
I think we'll continue to look at opportunities to deploy some of that cash against the more expensive debt. So.
I think our further course.
Alright, thanks for the time.
Thank you.
Our last question will come from Andrew <unk> from Bank of America. Please go ahead. Your line is open.
Hey, good morning, everyone. John just on the fuel guide at first I was a little surprised you lowered it given the run up in crude prices, but the the hedge makes sense I haven't gotten through all the disclosures, but can you give us.
Some color in terms of where you are hedged in three Q on fuel and then what have you assumed in your 108 full.
Full year guide in terms of hedge gains.
Yes, so I would say that the hedge we took in Q3 is the.
As the only assumption we've made so it was it was locked in when we made that assumption or the second half of the year.
It's proving to be now quite favorable to their run rate.
Fuel today.
I think that.
Overall.
The oil prices run up a little bit in the last week or so so I would say that the one way it really reflects kind of the status quo.
Herbs prior guide plus the hedge and the fact that Q2 was actually a little bit better.
And actually it was a lift so that's kind of I would say the big picture Matt.
I said it before I'll just reiterate it again, we feel pretty good about our range. We feel good about all of the components that come into that guide fuel is always going to be a little bit of.
Put and take and it'll kind of drop where it drops, but I'd say that we feel pretty comfortable with that.
The guide range will protect against.
Any kind of real.
Reassessment.
Got it and then.
One.
Big picture question for Mike.
Earlier this week in China opened up some more group travel opportunities. How are you thinking about the build back there what needs to happen and given your success in other markets in the Pacific can you think China will ever get back to where it was pre pandemic.
Hi, it's Andrew.
Andrew and I would like to turn some of those Mr. Mark Im sorry, very close to this this file obviously, China is a very important market to us.
We're planning a four times a week right now.
Pre pandemic, we were applying 35 times a week.
We also now have the rush overflight situations, so it's difficult to us.
A place from Eastern Canada.
Toronto Montreal, primarily.
China without using a rush all devices.
We are we'd like to see that market come back.
Was a strong market for us pre pandemic.
Will it come back to 35 a week.
Certainly not without the wash all reflect situations being removed and.
And we have certainly no visibility on that situation, we hope that happens sooner than later.
But certainly there as that market continues to be a strong market.
We'll expand as we can into that bucket.
And as you said just to piggyback a little bit here. So our desire obviously is to get back to a daily frequency on Shanghai at some point, so restore service to Beijing.
That's from Vancouver.
For the immediate term.
Interesting.
We have no further questions I would like to turn the call back over to Valerie for closing remarks.
Once again, thank you very much for joining us this morning that cycle could go back and it doesn't matter how should you have any further questions. Please do not hesitate to contact.
At that Investor Relations.
We wish you a lovely day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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