Q3 2023 Cargojet Inc Earnings Call
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This conference is being recorded.
It's close to home that don't go as you see.
All participants please standby your meeting is ready to begin good morning, ladies and gentlemen, welcome to the cargo Jet conference call I would now like to turn the meeting, although it's pulling dealer peers have Pauline.
Operator, good morning, everyone and thank you for joining us today for our third quarter results call with me on the call today are age ever Mauney, our president and Chief Executive Officer, Jamie Porteous, Our Chief strategy Officer, Scott caliber, our Chief Financial Officer, Sanjeev, Manny, our Vice President Finance.
After opening remarks about the quarter, we will take questions I would like to point out that certain statements made on this call such as those relating to our forecasted revenues.
Ross and strategic plans are forward looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA adjusted earnings per share and return on invested capital. Please refer to our most recent press release at M. D N a for important assumptions and cautionary statements relating to the forward looking.
Information and for a reconciliation of non-GAAP measures to GAAP income.
I will now turn over the call to H H.
Thank you Paul and good morning, everyone and thank you for joining us on the call today.
Despite the backdrop of macro headwinds and market conditions I'm very pleased with the work.
Yes.
While our EBITA was negatively impacted by fuel surcharge lag.
We were able to do it.
<unk> revenue growth.
Our diversified business model continues to show resilience.
Transportation and logistics industry is the backbone of economic activity.
If the economic activity slows down it affects all forms of transportation rail and grow.
We all feel that impact.
We are seeing an interesting mix of transactions in the market.
As many retailers have already started and their earnings reports stated in their earnings reports.
Spending on discretionary goods is slowing down.
Yeah.
But more of the household dollars are being spent on daily essential goods for us. It's the number of packages that drive our business. So far the growth in the household essential goods.
Is offsetting the declines in the discretionary goods transactions.
But as I have stated before we are not immune to macro factors.
While it's true that we cannot control the aggregate demand.
But there are many areas of business, where we can drive performance.
Let me touch on a few areas, where we are making.
Significant impact.
At the highest level of priority is a cash flow management.
We are continuously finding ways to defer or cancel and several aspects of our Capex plan announced at the Investor day.
Oliver lead decisions had optionality.
Which allowed us to delay or cancel certain aircraft purchase.
As a result, we.
We have significantly reduced over planned capex and there may be more opportunities.
<unk> will provide some color on the Capex a little later on.
Equally important area of focus is cost management I'm seeing examples of cost savings every day.
My team and very encourage with the new Codeshare regality that as setting and at cards.
This stock Mr.
Uh huh.
Some time, given the fact base growth.
We handle during COVID-19 period, but the new market is setting it.
Your mindset is setting and very fast.
He never business the biggest cost driver as capacity utilization. We are very pleased to work closely with our customers to optimize it would not work. So we can avoid flying sub optimized routes and reduced block hours. This is an area of Horst ramped and differentiates us from others.
All client contracts with each of our strategic customers that now the new longer term such as perhaps as much as 22, 2000, 2029 and 2030.
Despite new entrants in the air cargo, we feel confident in our competitive position in both domestic and international markets.
We do not see much of an impact any of these new entrants have made and the Canadian harvesting.
With all these actions undertaken to further strengthen our business model, we are even more confident that our ability to come out stronger on the other hand off the economic cycle.
Therefore cargo gets board just approved a share buyback program to the normal course issuer bid.
We believe that is true opportunity to create value for shareholders by armour.
On shares.
We also announced a 10% increase in dividend payout in line with our previously stated strategy of annual dividend growth.
Our focus on service quality and on time.
Farmers continues to earn customer praise and it'll all remain the bedrock of who we are.
Every team member at the cargo get understand that.
As I always say one thing and.
And we do it well, we do not have to make tradeoffs between passengers a car ever.
Every package.
Fly has first class that include that concludes my prepared comments, but I must add that the on time performance of our quarter. Three this year again was stellar at 99, 5% on time performance and that's what makes the car go get what it is today.
We'll pass on the comments to Scott caliber for.
Business.
Thank you a J and good morning, everyone.
I would like to start with more details in regards to H H comment about the Capex reduction.
We have so far reached a reduction in capital expenditures of $450 million.
The original plan included eight Boeing Triple Sevens the.
The first four to support growth with strategic customers in the last four for what we've referred to as general growth.
What has been cancelled is the last four triple Sevens.
The sale of the remaining feedstock was completed in the third quarter.
It should be noted that we continue to hold the conversion slots for the triple seven designated for general growth.
Conversions that could take place in 2025 and 2026.
The deposit for these conversions is not material.
This allows for additional optionality in the event the market turns and cargo jet to successful in securing long term contractual revenue.
We have also lifted four Boeing seven five sevens for sale.
H a commented on the second quarter earnings call that we had a surplus of 750 sevens and that we were exploring our options.
While these are listed for sale, we will continue to entertain dry lease opportunities and we are pursuing other opportunities such as scheduled charters AD hoc charters and any opportunities that may arise during the fourth quarter peak season.
The sale of the Boeing Triple seven feedstock and the potential sale of the four Boeing 750 Sevens converted freighters.
Is the $450 million I referred to earlier.
As J J noted, we continue to monitor the market conditions, and we will explore additional opportunities for further reductions if need be.
At the end of the day, we anticipate.
The vast majority of growth Capex will be completed towards the end of 'twenty 'twenty four.
Maintenance Capex will continue to be in the range that we have previously disclosed.
With the changes in future growth Capex. This now brings me to my next point.
The company now expects to return to normalized free cash flow and the timing it sooner than previously expected.
We are excited to start to purchase and cancel common shares.
At these current share prices a share buyback program is likely to be highly accretive.
Given that cargo jet can delever quickly we are confident that cargo jet that level will be managed to ensure that we continue to have a strong balance sheet.
Along with the intent to purchase shares. We are also excited to increase our dividend by 10%.
Cargo jet has a long track work track record of increasing dividends.
This increase reinforces our commitment to return value to our shareholders.
The last topic that I would like to update you on is our progress with managing costs.
The third quarter was a challenging quarter as jet fuel prices increased over 30% throughout the quarter.
As we have mentioned in the past our mechanism for fuel surcharge revenue has a two month lag.
Overtime changes in jet fuel prices are neutral to profitability.
When the price of jet fuel increases, we have an adverse impact to profitability.
The inverse is true when jet fuel prices reduce.
The best way to assess cargo jets progress imagine cost would be to calculate direct cost per block hour.
Direct expenses, excluding fuel depreciation and amortization.
When doing this the direct cost per block hour in the third quarter is flat to the second quarter.
For a more granular view of our cost structure.
I'd like to bring your attention to one of our cost saving initiatives.
Earlier in the year one of these initiatives was to sell our smaller passenger aircraft.
These were required to reposition pilots at a time when commercial flights were not reliable or even available.
The savings from not using owned passenger aircraft is reflected in the line in our direct expenses called aircraft costs.
There is a partial offset to these savings and the crew line within our direct expenses as pilots now are able to fly on commercial flights.
It is best to look at aircraft cost and crew costs in aggregate.
When you do that you will see that these costs are $1 $8 million lower than the prior year.
You will see a slight increase in our run rate compared to the second quarter of 2023.
The reason for this small increase in the third quarter is that a new long term incentive plan was implemented for pilots that have been most recently hired.
Cargo jet has a long term incentive plan as a tool to maintain industry leading pilot retention.
Investing for this new program for recent hires goes out to the third quarter of 2029.
In conclusion as management prepares for any lift in revenue for the fourth quarter peak season any potential left.
We are confident that we will continue to manage costs in any scenario.
This concludes our prepared remarks, I will now hand, the call over to AJ for any questions.
Operator, please open the lines for Q&A. Thank.
Thank you we will now take questions from the telephone lines. If your other question and you're using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your device does keep them you Mccann saw your question at any time by pressing Star two please press star one at this time, if you have a question.
It will be a brief pause while participant with just thoughtful questions. Thank you for your patience.
We'll now take the first question is from much Julie Canaccord Genuity. Please go ahead.
Hey morning, guys I wanted to first ask about the ACM My business can you maybe just talk to you about the decrease quarter over quarter and year over year any one time items impacting our Mercer was that just specific sites screening rerouted.
And maybe do you feel confident that DHL exco come in to take on those new aircraft coming in 'twenty one.
Yeah. Good morning, Mathew, Jamie I can take that one for you the reduction in an H.
Semi revenue during the quarter. It was just a reflection of the Dutch.
The shorter stage length average stage length of the routes of the aircraft that we fly for DHL. If you recall last year when demand out of China was very strong we were operating two aircrafts on a CMI basis for DHL from Shanghai to Vancouver to Cincinnati and when that demand dropped in the fourth quarter. They had a shift those aircrafts in north American and South American routes. So it's just a refresh.
At the same number of aircrafts were operating this year as we were operating last year just on shorter stage like threats. That's the only reason for the difference.
Yes, we are confident that we will continue to grow the relationship with DHL with additional aircraft next year.
Great and then maybe in terms of Capex I think in your MD&A you mentioned.
The bulk will be done by the end of 2024.
Can you help us think about the magnitude of the step down going into 'twenty five.
Hi, Matt It's Scott here I can take that one really most of it should be done towards the end of 'twenty four there will be some carryover into 2025, but when were doing these conversions most predominantly it's the first for triple Sevens, we're making progress payments at different milestones throughout that.
Conversion process, so we're going to be pretty close to the end of that conversions clock process. So most of those costs will already be incurred in 2020 for it but there definitely will be some small carryover into 2025, but not not all that material.
Well under $50 million kind of thing.
That'd be fair.
On the consulting side, yeah, Yeah. That's helpful. Thanks.
Thank you next question is from cannot Gupta from Scotiabank. Please go ahead.
Yeah.
Thanks Al Good morning, everyone.
So just wanted to follow up on that Capex question, Scott kept getting help us explain the math on the net $200 million growth Capex.
Six more aircraft coming in like for clothes that home center with some fixed sounds between now and 'twenty four and then you have some more feedstock that's left to be sold or monetized at some sound bites them.
What are you using for the remaining cash outflow for aircraft purchases once it isn't that the offset to that song sales.
Yeah really at this time Kona market, it's really all about the triple Sevens.
The progress payments through to completion.
And I don't think we are converting the two 767 school network that you were talking about it yeah. We have that owned as feedstock right now, but we haven't made commitments to convert those at this time, so they're definitely on hold and we haven't we have no plans to convert the two 760 sevens.
Any further at this time.
I see okay, well what about B on these pending asset sales you have but what's the cash inflow from those asset sales.
I'm sorry can you repeat that question you broke up a bit there Kona, sorry, yeah I'm, saying.
Aircraft sales that you were planning something that you still have some more to do what's the cash inflow that's left to come in.
Well, we're done selling our feedstock for them how to sell three of the last four trucks seven we never had any investment for that eighth triple seven so really we had number five six and seven we communicated in Q1 that these assets were held for sale for disposal.
And we get that through from Q1 Q2. It was finished in Q3, there's a little bit of cash flow coming in in Q4, just for the insurance proceeds so you'll see a little bit held there just from a cash flow perspective, but that just came in subsequent to quarter end.
I know you were talking about the 757.
The four of those generally speaking that you know there's always changes that the market conditions always change, but generally speaking we would expect something like $120 million for those four fully converted 750 sevens.
Okay. Thank you for that and then.
Just to follow up on the peak season.
So the commentary you guys made there and the disclosure was you were expecting it to be muted. This year, just just comparing versus last year's peak season. That's also seen muted.
Would you put the seasons to be similar in both years or you think this year to speak season could be even worse than last year.
Good morning, calling out because Jamie no. We don't expect it to be worse, we would expect it to the forecast that we've had.
So the consensus from our customers that they expect similar volumes in the peak of this year to peak of 2022. So I think if memory serves me right I think our Q4 volumes were up about 10% to 15% over Q3 of last year and we would expect similar to this year.
Okay, that's great I'll turn the call over thank you.
Thank you. The next question is from Kamran Duck from National Bank Financial. Please go ahead.
Yeah. Thanks, very much good morning, just to go back to the I guess, the 757, a pending sale of one.
$120 million you talked about do you have a.
Do you I guess, you have some confidence you'll be able to sell those planes in the next 12 months.
Okay.
Definitely.
You know we are in ongoing discussions there are also available for.
Do you see them either are also available for charters as a matter of fact, you know in peak, we are bringing one of them back because we have a number of charters that we already booked so.
Although they are parked for sale, we still use them.
And and.
We feel that.
You know if we don't get $120 million is not.
We're not fixated honest, it's somewhere close enough that there won't be a deal done at some point, but keep in mind Kathryn there's also.
These aircraft are brand new conversions.
Very good exits.
So what's the worst case scenario if the market doesn't have any need for these aircraft I can tell you that spare part the landing gear. The engines are worth over $8 million on these aircrafts, which we would take them out and put it on our existing fleet to do for maintenance Capex. So.
It doesn't give us any sleepless nights that are each aircraft, but not so as of today.
So we do have an alternate use we don't have to send over engines for overhauls.
A very overhauled eight brand new engine sitting on these aircraft Rosebery.
I think years avionics.
Flops.
So much stuff sitting on these aircraft, but if you were to start taking parts of a parts costs would come down number of engine overhauls would come down and we could get as high as I said 80 $580 million to $90 million reduction in Capex by just losing those parks.
That's all obviously the worst case scenario of a backup.
Right, Okay that makes a lot of sense.
Secondly for me just on the all in charter like another you'll quite strong quarter for you.
Just wondering if you can talk about.
Business looks for the next few quarters I mean, I know typically in Q4 you'd be busy with.
You're using the aircraft are on your your schedule business, but.
How is that business evolving in the all the all in AD hoc charter business.
It still continues very strong Cameron and we expect a sort of a trend that we had in Q3 Q2 and.
Q3 to continue in Q4 as we have the extra aircraft available an extra flight crews to take on additional life. That's one of the reasons for the strength, but demand is still very strong on the AD hoc charter segment of our business and the fact that we have aircraft available and crews available literally 24 hours a day, we're taking advantage of those opportunities and you should see that trend continue.
In Q4, and even into the new year.
Okay. So we should think about I mean, it was just a.
Very strong Q4 last year for that line item should we should probably expect a similar strong performance does Q4, yeah that would be fair I would expect that.
Alright, that's it for me thanks very much.
Thank you. The next question is from Kevin Chiang from CIBC. Please go ahead.
Thanks, Thanks for taking my question.
Just as a clarification.
The 200 million in growth capex or growth.
Growth Capex.
You highlighted in your MD&A for 'twenty 'twenty four is I'm assuming that that's that's.
I guess, assuming the sale of the southern five sevenths of $120 million worth of proceeds or.
Or how should I be thinking about I guess, yeah, Kevin that's right. That's net of proceeds so that's net capex net of any sale proceeds.
Okay. Okay. That's helpful.
And then I guess with the NCI, just wondering how youre thinking about.
Deploying that.
Is it primarily taking the proceeds from these asset sales to repurchase shares.
Focusing on a certain leverage ratio before you start.
Buying stock at these levels.
I understand and I agree that it's all about how the accretive don't down where your stock is today, but just wondering how you're thinking about the deploying capital towards the CIB over the following 12 months here.
It's definitely a combination of those two things Kevin.
We do have at these share prices, obviously, we've got to.
Some value by buying back shares we're going to have a a bit of tolerance to it for a little bit more leverage than what we typically targeted in the past and the reason being is because how quickly we can delever and now that we're getting reasonably close to the end of this growth capex. It just adds to the certainty.
With everything that settled into a run rate that we can expand a little bit on leverage and so we are absolutely the sale of 750 Sevens.
It helps with leverage and it creates more capacity to buyback more shares.
Okay.
Last one for me the domestic.
Nicely up quarter over quarter.
And then in the prepared remarks, you talked about working with your customers to deal with there.
Changing needs and maybe just what did you see in Q3 versus what you saw in Q2 on the domestic side.
And then just any color on the comments around the globe.
Adapting to the changing needs of your customers is that primarily around the the shifting schedule, you've talked about or or or you're looking to help your customers that other ways.
Hey, good morning, Kevin and Jamie.
Working with our customers. It was really in adjusting the schedule to allow us to reduce work hours and reduced the capacity that we fly on the domestic to more closely meet the demand.
The domestic revenue you're right. It was a quarter over quarter. We saw good increase the trend is certainly good I think in Q.
In Q3, we were in terms of total weight in our chargeable weight, we were were flat year over year.
100 million pounds on the domestic network and that compares to I think we were down.
10% in Q2 year over year, and we were down 12% in Q1 of this year versus the previous year. So sequentially. The trend is moving in the right direction and it is a good positive sign moving into Q4 for peak season. This year.
So it's just underlying demand is improving sequentially, but that's okay.
Good that's a good point I'll leave it there. Thank you very much for taking my questions. Thanks, Kevin.
Thank you. The next question is from Tim James from TD Cowen. Please go ahead.
Thank you very much I'm good morning.
I just wanted to first of all Jamie if you could just.
Talk about why do you think the the AD hoc charter business. It seems to me and correct me if I'm wrong that it's you know what's pleasantly strong I'm just wondering what is it that's keeping the market relatively strong for you is it just because you've got the capacity available. So that you can kind of use that in the market or is there something in the demand.
NAND environment, that's it's creating more strength than you would've anticipated no I think Tim that the demand is always there are our limit we've been limited.
During most years were limited.
Our capability to react to that demand because we traditionally have or historically you know we don't have any aircrafts that are debit or flight crews that we dedicate to the AD hoc charter business. It's all utilizing existing aircrafts that are part of either our domestic or I used to get my revenue segments and the flight crews that are that are part of those segments. So you know.
A normal.
A more normal year, our availability is somewhat limited, it's usually two weekends and.
During the day when those aircraft are flying in the domestic network or on a on a CMI.
The segment, but this year you know what.
Additional aircraft availability in our fleet because of some of the reductions we did to the domestic flying we've had aircraft and crews available 24 hours a day seven days a week. So that's led us to be able to.
Not just quote on on.
All the available charters, but actually to to successfully.
When that business perform those charters the demand.
To be very strong. It's it's just we haven't necessarily had the aircraft out there to be able to react to it in previous years.
Okay.
The other factor is when the markets for airfreight and any general cargo.
You see the slowness that we are seeing in the marketplace charters normally pick up because a lot of people.
Have urgent needs for goods to get there because they they're not shipping regular airfreight, they're not shipping regular truck freight and all of a sudden they need something they need to fly it out so they would rather spend on a charter on an AD hoc basis that would be that.
All day long. So there is some correlation to when the market slows down to charters do pick up.
Okay. Thank you my second question and maybe I'll lead AD hoc charter out of this question, but just in terms of the rest of the business.
Could you comment on what if anything you would say has changed in your outlook. Since you reported the second quarter and correct me if I'm wrong, I think you'd kind of anticipated a muted peak season, which you're talking about now but is there anything whether it's pricing related or volume related.
Either in the sort of the way DHL is is a it's setting up your your capacity or whether it's in the domestic market just anything that's changed in your sort of outlook from three months ago.
Oh, let me start and then Jamie can add some color to it well what we have noticed is that the global shipping is down and its 90% of the impact is coming from the far East Asia, China market.
No.
You know a lot of Chinese product and just not only comes to North America goes to South America. It goes through.
A lot of places. So you know our customers are primarily the big lots to tell us.
The China business was down 40%.
So that's that's what sort of dictates a lot of.
Pacific a north American movement, especially with European movements intra Canada, a lot of it American.
American to Mexico. So so that's what we have noticed that that's if that slowness now was there we will all be a little I'll be doing well and that also if you look at some of the ocean lines results.
You'll see that they are you know are having the same issues of not having enough.
Volumes to go when it all starts with that side of the globe.
Especially in China, where the business is slow out there the rest of the world I find it to be very slow and in other areas.
Yeah, Okay, just adding to that Tim on specifically on the on our domestic business as I mentioned earlier.
That's one of the questions earlier, you know sequentially quarter over quarter, we've seen.
Good trend, where we're where you were flat year over year versus Q3 of last year, we were down close to 12% at the beginning of the year on the domestic business and we have adjusted our block hours are flying on our costs Accordingly.
To maintain our margins in Asia My businesses I also mentioned earlier.
Told me lower because of the average stage length because the flights are are less than they were when we were flying to China last year, a couple of aircraft for DHL, but in both those segments you know all the customers whether it's in Asia My customer a domestic customer have minimum minimum volume or minute minimum revenue guarantees in there. They are all well above those minimums. So.
And it was seen a positive trend again also not that it has.
Direct correlation to our business, but another global trend I think IATA reported either their reports lag by a couple of months, but I know in July.
They had reported that global air cargo demand was only down <unk>, 8% and then in August for the first time in 19 months overall demand grew by one 5% not a big number but but the trend is certainly in the right direction.
Okay. Thank you very much.
Thank you. The next question is from Chris Murray a T V capital markets. Please go ahead.
Yes, thanks folks good morning.
Jeremy really talking about 'twenty for an early look into the end of the year.
How are we thinking about or what are you getting back from your customers around the different moving parts around.
Both both AC am I in the domestic business.
I think everybody is still a little cautious about what 'twenty 'twenty four is going to look like in terms of volumes.
I think we would expect.
With the annual rate escalators that we have on the anniversary date of all the major agreements both domestic and do you see them I know, you'll see a bit of an uptick in revenues just volumes remained flat.
And you know the organic growth you know I would say, we're factoring probably mid single digit percentage growth on the domestic business year over year.
And something similar on the ACF.
Yes.
Okay, and any new contracts that we should be thinking about that may come into play.
Not right now and we continue to you know obviously, a big part of our Asia.
Business is DHL and we continue to work with them and grow with them and we have other we just renewed Canadian north which is a smaller Asia. My agreement that we have five aircrafts that we operate between Ottawa and would've taken a callaway during the day.
We renewed that for several years.
Continue to pursue other opportunities with various customers, but nothing nothing imminent.
My other question is around margins and I'm not sure who wants to take this one I guess in Q3, there was sort of the the legs.
Fuel surcharge pricing coming through the system I'd assume that might catch up in Q4, but maybe get some color on that that'd be great, but was with the volumes that you're looking at year over year, but some of the other initiatives. It sounds like on the cost profile, how should we be thinking about E.
EBITDA and EBITDA margin this year and any thoughts about you know even if we say to your point, maybe kind of mid single digit type growth next year do you think that margins have a reasonable chance of expanding as we go into 2024.
Maybe I'll take the first part of that question, Chris and then I'll hand, it over to Jamie with that quality of revenue mix issue for next year.
That fuel surcharge, yes that at all because we all saw that happening throughout the quarter.
Steady increase in jet fuel prices and then that that's statistics, Canada index that guides our fuel surcharge program now you're asking about Q4, we still have several weeks left in Q4, and that's that's what really hurts US is that weekly change in jet fuel prices. Each week, we have that inflation immediately and then of course it takes that.
Two months for it to catch up so, but yeah, you're right. The first part of Q4.
It's going the other way, which is great, but we still don't know what it's going to happen to the end of the year and then you talked about normalized EBITDA margin, excluding that feel impact and there's a couple of ways to look at that again, the one that I talked about earlier was just look at our direct expenses, excluding the fuel and depreciation just to make it simple.
And then you'll see that everything is in line with what you would have expected with Q2, so implying that margin would be the same because really all that happened on the revenue line is that fuel surcharge lag generally speaking and I guess, Chris another a frame of reference maybe just make sense of this because it is you know.
When you look at rail or trucking they have a one month lag and Thats still a big issue for these types of companies, but with us with a two month lag. It just makes it so much more significant in our quarterly numbers and that's what you saw in Q3, but it's no different than what you saw in Q4 last year in Q1 earlier this year.
Same type of difference the only difference was it was.
A bumpy declined over those two quarters, but so it was just spread over two quarters instead of one quarter going in the opposite direction. So so that's what you can expect over time. It's just one of these things we have to live with but it does prove when you do that that it is neutral to profitability.
So hopefully that helps it is a complicated topic when youre looking at a two month lag over a three month quarter and but those two frames of reference I think that when you do that youll see that that EBITDA margin is stable.
That's helpful and then.
Sorry, Chris I was just going to add that.
No.
I think in the in Q3, what we just reported our EBITDA margins around 30% to 33% and we internally, we just sort of as a as a double.
Double check to that you know we can easily look at what would what should the surcharge revenue had.
Been in the quarter from our customers had to catch them index be been up to date and we charged appropriately in the quarter to reflect the increase in fuel costs and our EBITDA margins are in the mid <unk>, which is where we would expect them to be.
Okay, and then what are your thoughts on 'twenty, four and quality of revenue.
Like I said before I think we're very.
Probably conservative in terms of revenue growth both on the semi business in the domestic business, but we continue.
Oh to operate and DHL continues to to flex the roots that the aircrafts are operating where you're going to have some additional flying as we always do during the fourth quarter and then going into.
Going into 2024, we're still operating the same number of aircraft until we take delivery of the Triple Sevens later in the year for that and barring any change in demand upwards.
Domestic business as I noted earlier, we're probably forecasting mid single digit revenue growth mid to high single digit revenue growth year over year.
And the charter business again, you know we will continue the trend that we've seen.
For most of this year that we anticipate will have available aircrafts you are subject to you know if we sold all four triple Sevens right away or somebody else for some five sevens right away that might restrict the number or lessen the number of aircraft we have available for charters, but based on what we see right now, but we should continue that trend into at least the first couple of quarters of 'twenty four.
Sounds good thanks, guys.
Thank you.
Once again, please press star one on your device keypad, if you other question.
The next question is from Walter Sparkman RBC capital markets. Please go ahead.
Yeah. Thank you very much operator, and good morning, everyone I just want to come back to the margin question to focus in a little bit on on your historical margin and and how that evolves going forward, particularly given I think in prior year prior quarter. As you you did and we're incurring quite a bit of overtime and training course.
Recent quarter, you've had the fuel surcharge lag effect. So if we do look at that volume growth assumption for in the mid single digit range.
Is it possible given your fixed aircraft structure or our route structure that we could have actually quite a material increase in your in your margins in and as is approaching 40% EBITDA margin noted the question here for for a normalized level going forward well Walter if times are good I would say, yes, but looking at that.
Amit trends and you see you know where customers are not competitors.
All of the all of the trends that you've been seeing whether its ocean liner Airlines you know youre seeing youre seeing the revenue drops by 30%, 40% on each margins down by them.
You know so considering that I think we've done very well I don't think we'll hit 40%.
Today's environment, if things were to pick up and things were to improve.
And then obviously, we could look at some of those stuff, but not in today's economic environment understood. Yeah that makes sense and in terms of your your your Capex just to kind of formalize this and the changes you're making to your fleet, presumably your investor day forecast for 2026, no with no long.
Apply in and do you envision updating those now with the new fleet strategy what are your plans there yeah.
Did that in the first quarter of 2024, because you know with the we have as I said, we have sold the feedstock of the four triple Sevens, but we still maintain our conversion slots because I think those would be.
Very handy and they would be valuable if the market improves if not they can be transferred sold our you know something else can negotiate it for it. So I think that we will we are working on a strategy for next year on the fleet Oh for sure and.
As you know they were forced to triple Sevens are committed with your child, whether they come out in the middle of next year or end of next year that they are totally committed at that 25 26, we have two other triple.
Triple Sevens, So we will lay out a full strategy hopefully by the end of the first quarter on our fleet.
Or forecast perfect. Okay. That's all my questions. Thanks very much.
Thank you there are no further question with just sort of at this time.
Thank you operator, thank you everybody, but for attending or.
Quarter three call. We look forward to speaking to you soon have a great day.
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