Q4 2024 Air Canada Earnings Call
Ladies and gentlemen, thank you for standing by my name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the Air Canada fourth quarter and full year 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After this.
Speaker Change: <unk> remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question I can press star one. Thank you I would now like to turn the conference over to Valerie Durant had I've been.
Speaker Change: First our relations and corporate sustainability salary you may begin.
Valerie Durant: Thank you Christa Hello, costume and you've known that subsidy. It is it does get him to message I think that's as Jim has been a welcome and thank you for attending our fourth quarter and year end 'twenty 'twenty four earnings call. Joining us. This morning are Michael Rousseau, our president and CEO, Mark <unk>, our EVP of revenue and network planning and.
Speaker Change: President of cargo and John <unk>, our EVP and CFO.
Valerie Durant: Other executives here with us as well.
Valerie Durant: Our chief Human Resources Officer, and public Affairs, Craig Landry, our Chief Operations Officer, Mike <unk>, Our Chief legal officer, and corporate Secretary and Marc Mazur, our EVP of marketing and digital and present an airplane.
Valerie Durant: After our prepared remarks, we will take questions from equity analysts.
Valerie Durant: I remind you that today's comments and discussion may contain forward looking information about air Canada's outlook objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations.
Speaker Change: Please refer to our forward looking statements and Air Canada Sports border and year end news release available on Air, Canada, Dot Com and on SEDAR, plus and now I'd like to turn the call over to Mike <unk>.
Mike: Thank you Valerie and good morning Mojo.
Speaker Change: Thank you for joining us open earlier than usual.
Speaker Change: Last night, we reported strong fourth quarter and year end results for 2024.
Speaker Change: So did a record full year revenue of $22 3 billion, increasing 2% on a 5% increase in capacity.
Speaker Change: We finished the year with $3 6 billion of adjusted EBITDA.
Speaker Change: Which is just above our adjusted EBITDA guidance communicated on December 17th.
Speaker Change: We also generated free cash flow $1 3 billion and then.
Speaker Change: Adjusted pre tax income of $1 4 billion.
Speaker Change: Yeah.
Speaker Change: These results reflected a strong revenue environment.
Speaker Change: Revenues turned positive in November and December.
Speaker Change: We recovered from declines in Q2 rig.
Speaker Change: We arent committed on executing on our plan.
It demonstrated our ability to adapt and make the most of the opportunities that arise.
Speaker Change: You called out four major achievements.
Speaker Change: First we successfully delivered these strong results by recognizing and making changes we need at the pace and the challenges during the year.
Speaker Change: For instance, the world experienced geopolitical disruption lagging impact from inflation and lingering supply chain issues.
Speaker Change: Necessary, we adjusted of course.
Speaker Change: Resourcefully.
Speaker Change: And capacity to where it makes more sense.
Speaker Change: Second we secured a new agreement with our pilots and significant disruption to our operations.
Speaker Change: It also highlights the commitment of all stakeholders to air Canada's long term success and dedication to customer.
Speaker Change: Third we saw a pronounced operational improvements last year with an eight point gain on on time performance 2023, our drive for operational excellence means continuously on display.
Speaker Change: And finally, we bought back and canceled over 35 million shares completing the normal course issuer bid program that we announced in November.
Speaker Change: I'm immensely proud of these results, which would not have been achieved without everyone at air Canada wasn't just one or two.
Speaker Change: 40000 employees showed the dedication professionalism by safely transmit transporting more than 47 million passengers over the course of the year.
Speaker Change: Commend them for their commitment and their hard work.
Speaker Change: I also thank our customers for their loyalty that air Canada.
Speaker Change: We strive everyday to provide them industry, leading products and services.
Speaker Change: Already the leading premium here in Canada, and we will continue to assert ourselves as a global champion.
Speaker Change: We are fully focused on executing our plan.
Speaker Change: That includes managing through any to any uncertainty pivoting where needed as we pursue our ambitious goals.
Speaker Change: And our recent Investor day, we shared key targets, we set for 2028.
Speaker Change: <unk> $30 billion in operating revenues at least 17% adjusted EBITDA margin.
Speaker Change: 5% free cash flow margin.
Speaker Change: We continue to be disciplined with our decisions as well as agile and <unk>.
Speaker Change: Mark and John will provide more commentary on the year ahead.
Speaker Change: We have all the necessary tools natural used to achieve our goals and we look forward to sharing more updates.
Speaker Change: Thank you mark over to you.
Mike and good morning gondola will.
Speaker Change: We'll come out of Asia.
Speaker Change: <unk> was I believe on the call can be shown.
Speaker Change: <unk> kept PMC masked Indonesia.
Speaker Change: Thank God.
Speaker Change: Thanks to all our employees for their contribution to our quarterly and year end results.
Speaker Change: I'll begin with a quick overview of Q4.
Speaker Change: Operating revenues were more than $5 4 billion up 4% year over year with growth in all revenue categories.
Speaker Change: The year ended with an improved revenue environment as PRASM turned positive in November and December driven by a trans border and Atlantic services.
Speaker Change: It is worth noting that Q4 2024 produced record fourth quarter revenue for our Canada. Despite the impacts felt in the two weeks of October from the Libra uncertainty amongst earlier.
Speaker Change: Looking to the full year passenger.
Speaker Change: Passenger revenues were nearly $20 billion, a 2% increase year over year with significant growth coming from our expansion into Sydney, but most notably in Japan Korea and Hong Kong.
Speaker Change: Specific traffic grew 25% year over year on a yield decline of 6%.
Speaker Change: And within our expectations.
Speaker Change: High end demand bounced in the region and this normalized environment led to pricing stabilization.
Speaker Change: North America also performed well with yields increasing from last year. This is remarkable given the competitive environment in the region.
Speaker Change: We manage capacity diligently by adding 20% more capacity to the Pacific and reducing our Atlantic flying in 2024.
Speaker Change: Our network diversity is a key strength of the business and the true form we will continue making dynamic necessary and timely adjustments on our network based on market conditions.
Speaker Change: A combination of factors impacted the performance across the Atlantic in 2024 at March.
Speaker Change: Firstly, we believe that competitive capacity grew at a faster pace than the market could absorbed in the peak summer period.
Speaker Change: Secondly that the geopolitical instability and large sporting events during the European summer impacted traffic and yields and region. However.
Speaker Change: However, as evidenced by our Q4 numbers the pricing environment improved in the second half of the year the.
Speaker Change: And lastly, European travel has extended into the spring and fall shoulder seasons effectively stretching the traditional seasonality of the lab.
Speaker Change: Market.
Speaker Change: The stability in exchange rate versus the year has also been positive for customers traveling to Europe.
Speaker Change: Let's now turn to our sixth freedom strategy.
Speaker Change: It continues to yield robust results with revenues growing 12% year over year.
Speaker Change: Sixth freedom traffic as a core pillar of our commercial strategy and our results signify that geographic advantage of our hubs and reinforce our corresponding long term investments on these flows.
Speaker Change: Our well established premium product yielded great results, increasing 5% from 2023, and reaching 29% of total passenger revenue.
Speaker Change: Cargo Q4 revenues increased 20% year over year as market dynamics progressed through 2024.
Speaker Change: More importantly, this was driven by increased volumes and improve yields.
Speaker Change: Very encouraged by these results.
Speaker Change: And on a full year basis, However, performed solidly recording a 7% increase in revenues to nearly $1 billion in 2024.
Speaker Change: We're very pleased with the progress of our freighter operations.
Speaker Change: Air Canada vacations celebrated its 15th anniversary this week and continue to deliver strong performance with annual revenues exceed those of 2024.
Speaker Change: As we begin 2025, we acknowledged that there are external pressures such as currency and uncertainty on other fronts.
Speaker Change: It's still premature to discuss the potential impact if any of actual or potential regulatory tariffs where possible retaliation.
Speaker Change: We're diligently continuously monitoring customer behavior and market dynamics.
Speaker Change: The shift in the future, we have ample flexibility to respond by moving capacity around as we've always done.
Speaker Change: For now.
Speaker Change: Seeing the.
Speaker Change: The revenue environment, we experienced in Q4 2024, it is continuing into 2025.
Speaker Change: January booking trends are aligned with our expectations. Despite some uncertainties.
Speaker Change: We see encouraging booking trends in yields signals for Q2 and into Q3.
Speaker Change: Keep in mind the shifted Easter from March 'twenty 'twenty four to April 2025, naturally shifts revenues to Q2.
Speaker Change: Which will translate into less relevant compares year over year Q1.
Speaker Change: We are proactively acting in specific markets like certain U S leisure destinations, such as Florida Vegas and Arizona.
Speaker Change: As such we are reducing our capacity exposure to these markets from March onward.
Speaker Change: And we continue to see encouraging signals around six room demand and overall a meaningful rebound in our transatlantic market for the spring and summer seasons.
Speaker Change: Demand for sand market continues to surpass our expectations and the booking curve has shifted to a more close environment.
Speaker Change: As we see recovery on the Atlantic.
Speaker Change: And we'll continue to look at some capacity shifts waste from Asia, where overall market capacity is up substantially.
Speaker Change: The short term effects from specific yield normalization are expected for the next few quarters.
Speaker Change: We have witnessed and continue to anticipate a more disciplined and predictable competitive environment in our core markets.
Speaker Change: Lastly, our revenue management tactics, such as branded fare adjustments are delivering better than expected results.
Speaker Change: As we stated at Investor Day, We believe Air Canada has one of the strongest foundations in our history.
Speaker Change: Our hazard geographically well positioned we are an efficient fleet with global reach enabling sixth freedom growth and diversifying our customer base and points of sale.
Canada's demographic growth combined with decades of past present and future immigration is expected to translate into higher growth international demand.
Speaker Change: Our diverse product range, including our well established premium offerings.
Speaker Change: So broad range of customers globally.
Speaker Change: We are a disciplined and nimble team.
Speaker Change: Proven ability to execute and deliver results.
John: Thank you John and already.
Speaker Change: Thanks, Mark Good morning, everyone Bushel Atlas.
Speaker Change: Special Thanks to our employees for their incredible energy in helping us deliver our results for Q4 and the full year.
Speaker Change: It was truly a great team effort and Gramercy.
Speaker Change: Yes.
Speaker Change: We achieved a record adjusted EBITDA of $696 million in the fourth quarter.
Speaker Change: The margin of 12, 9%, representing a year over year increase of $175 million.
Speaker Change: And almost three percentage points respectively.
This result was largely driven by the strong revenue and favorable fuel environment at the end of the year.
Speaker Change: You heard it from Mark we're encouraged by the early positive signals for our summer schedule.
Speaker Change: In Q4 operating expenses increased 11%.
Speaker Change: This largely reflects the onetime noncash past service pension charge of $490 million, we disclosed last quarter in relation to our new pilot collective agreement.
Speaker Change: This is reflected in the salaries wages and benefits line.
Speaker Change: Adjusting out this nonrecurring charge Q4 expenses were higher by 1% year over year.
Speaker Change: Turning to the full year.
Speaker Change: We generated.
Speaker Change: Adjusted EBITDA of $3 6 billion.
Speaker Change: Which was slightly ahead of our guidance and mostly fueled by the solid revenue performance at the end of the year.
Speaker Change: Adjusted EBITDA margin surpassed 60% in 2024.
Speaker Change: Despite a year over year decline of $396 million and adjusted EBITDA and a two percentage point margin compression from 2023 two.
Speaker Change: 2024 was a solid year, but up against compare tough compares and acceptable rebound in 2023.
Speaker Change: Our operating expenses grew 7%.
Speaker Change: Salaries wages and benefits were up 11% year over year.
Speaker Change: During the one time pension charge mentioned earlier.
Speaker Change: Fuel prices were a tailwind averaging $1 <unk> per liter in 2024 versus $1 12 and 2023.
Speaker Change: Dsm's per employee increased one 4% in 2024 year over year.
Speaker Change: This illustrates early stage productivity gains in our business.
Speaker Change: Unit turning to unit cost.
Speaker Change: Adjusted CASM increased two 3% year over year in line with our full year expectations.
Speaker Change: We remain focused on managing controllable costs and delivering productivity gains as we grow.
Speaker Change: 2024 produced another solid year of free cash flow generation.
Speaker Change: We delivered $3 $9 billion in cash from operations.
Speaker Change: One 3 billion in free cash flow.
Speaker Change: Effectively producing a dollar of cash for every dollar of adjusted net income.
Speaker Change: After our planned fleet.
Speaker Change: May refer to our disclosure for details.
Speaker Change: Note that the 787 dash tens are shifting to the right and we have revised our Boeing 737, Max leases and now expect a total of seven aircrafts to enter service in 2025.
Speaker Change: During 2024, we executed our capital allocation priorities exactly as planned.
Speaker Change: We continue to improve our balance sheet being down approximately $2 billion in debt.
Speaker Change: We refinanced and repriced our term loan b.
Speaker Change: And we can.
Speaker Change: We deployed $473 million of excess liquidity purchase more than 20 million shares for cancellation.
Speaker Change: And earlier this week, we completed the full repurchase of shares allowable under the NCI P. We announced on our Q3 call in November 2024.
Speaker Change: We expect to further reduce our fully diluted share count by cash settling outstanding convertible notes that mature in July of 2025.
Speaker Change: As highlighted at our recent Investor day.
Speaker Change: Aim to reduce our diluted outstanding share count from $376 million at the end of the third quarter of 2024 to 300 million or less by 2028.
Speaker Change: Our objectives are clear.
Speaker Change: Invest in the airline to fund our future to allow ourselves to grow revenues and expand margins.
Speaker Change: To protect our balance sheet strength by focusing on free cash flow generation.
Speaker Change: To maintain net leverage below two turns.
Speaker Change: And.
Speaker Change: Excess liquidity to create shareholder value.
Speaker Change: Today, we maintain the 2025 guidance, we provided at Investor day.
Speaker Change: We will continue to monitor the economic environment, including the potential impact of tariffs if any.
Speaker Change: I remind you that our current guidance does not assume any such impact direct or indirect.
Speaker Change: As a matter of discipline, we rely on our robust fact based process to make our decisions.
Speaker Change: Focus on what we know and control.
Speaker Change: While being mindful of external forces that may affect our plan throughout.
Speaker Change: So here's what we know from the current environment and the outcome of our process.
Speaker Change: First.
Speaker Change: As Mark said the revenue environment experienced in Q4 2024 is continuing into 2025.
Speaker Change: Demand remains stable and we see positive booking trends and yield signals for Q2 and into Q3.
Speaker Change: Second.
Speaker Change: The fuel environment is favorable and is holding in a relatively stable range in U S dollars.
Speaker Change: We also have a well established disciplined and agile fuel procurement process multiple and flexible sources across the globe.
Speaker Change: Allowing us to diversify supply.
Speaker Change: Third.
Speaker Change: We have a well established foreign exchange hedging program in which we hedge approximately 70% of our U S. Dollar cash flow requirements on an 18 month rolling basis.
Speaker Change: As at year end, we had an outstanding FX derivatives settling in 2025 and 2026.
Speaker Change: Just at maturity $6 9 billion U S dollars at a weighted average rate of $1 35 per U S. Dollar.
Speaker Change: While our adjusted EBITDA is sensitive to currency fluctuations and the cash flow hedging program does protect free cash flow volatility.
Speaker Change: Yeah.
Speaker Change: We are disciplined and agile we have fleet flexibility are strong and resilient balance sheet and a responsible risk profile.
Speaker Change: We are prepared to adapt promptly to tackling potential changes or challenges.
Speaker Change: We remain committed to our plan.
Mike: Thank you and with that over to you Mike.
Mike: Great. Thank you John.
Mike: The clear message of our fourth quarter and full year results is that air Canada is pursuing strategic plan and advancing on its commitments.
Mike: How many actually use for competing effectively are key to our plan and give us the agility course, correct when needed.
Mike: These include our strong balance sheet Global network, modern fleet and digital capability strong partnerships and leading products and services, especially in premium as.
Mike: Well its aeroplan and his best travel loyalty program.
Mike: In fact, our award winning loyalty program had another record year, reaching new highs in active members.
Mike: Redemption volumes and third party gross billings, which rose 10% to $1 8 billion in 2020.
Mike: We're also pleased that Aeroplan and continue building upon its industry, leading roster of partners launch of Manulife.
Mike: Expanding Marriott partnership in 2024.
Mike: We have other incredible attributions well. These include our decisive management team and highly motivated employees, who are bound together by a strong corporate culture and their outstanding commitment to execution and dedication to customer service excellence.
Mike: We are in a great position to build on last year's remarkable success.
Mike: Our disciplined and dedicated team is well prepared to effectively manage any uncertainty and external pressures.
Mike: The demand environment continues to be favorable and we are poised to capitalize on opportunities.
Mike: To adapt and thrive in an ever changing aviation industry.
Mike: Thank you.
Valerie Durant: And we will now be pleased to take your questions. Valerie. Thank you Mike. Thank you very much for joining us on our Q4 and one year ago. This morning.
Speaker Change: We remind you to please restrict yourself to one question and one follow up please.
Speaker Change: Oh Madison plugged in the wall.
Speaker Change: Symantec.
Speaker Change: And.
Speaker Change: And the lines now.
Speaker Change: And Kevin you didn't get a follow up continue at Crystal.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again Crestar. One. Your first question comes from the line of Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang: Hi, Thanks, Good morning, Thanks for taking my question.
Speaker Change: Maybe I can just dig into some of the demand comments, you've made and maybe specifically on the booking curve as we kind of look out.
Kevin Chiang: Maybe into into Q2 Q3, you mentioned.
Speaker Change: Yield environment looks good.
Speaker Change: But maybe just on the booking curve is trending relative to maybe.
Speaker Change: Prior year's end.
Speaker Change: Did mention it sounds like you're you're you're adjusting some of the capacity to U S leisure markets.
Speaker Change: Is that a function of.
Speaker Change: Some shift in and Katie consumer behavior flying into the U S. Given all that's happened.
Speaker Change: With with with tariffs and is that capacity being.
Speaker Change: Put into other markets, youre, seeing better growth or or or maybe just proactively adjusting.
Speaker Change: Adjusting for other reasons or any color there would be helpful.
Kevin Chiang: Sure Good morning, Kevin.
Speaker Change: <unk>, the booking outlook and booking curve looks pretty similar to last year. One notable differences. The fact that Easter shifted from March to April this year, so that changes the dynamic a little bit capable for Q2.
Speaker Change: We are proactively looking at capacity to use leisure destinations.
Speaker Change: And we feel that we've got enough opportunity elsewhere in the network to redeploying that capacity.
Speaker Change: There might be some opportunities domestic and we see some opportunity in some leisure markets as well.
Speaker Change: So.
Speaker Change: If we do see some softness on the U S side, because we're not seeing it close in just yet.
Speaker Change: And offset it with some simple changes.
Speaker Change: Okay. That's helpful and then.
Speaker Change: Maybe just in terms of mix.
Speaker Change: The second question here.
Speaker Change: I guess, what the weaker FX.
Speaker Change: How does that change your revenue management system, whether it's point of sell out of the U S or or sixth freedom traffic.
Speaker Change: Yes.
Speaker Change: Are you seeing more dollar U S dollar revenue.
Speaker Change: <unk> flowing through your revenue line.
Speaker Change: Something proactively youre doing just just to adjust for the FX environment.
Speaker Change: No absolutely in our revenue management systems are very sophisticated and like we said Investor day, we can.
Speaker Change: Change our revenue management algorithms to be much more open to U S inbound traffic and as well U S sixth freedom traffic, which going into Q2 and Q3 look very favorable.
Speaker Change: So certainly an area of opportunity for us.
Speaker Change: Perfect. Thank you.
Speaker Change: Your next question comes from the line of Savi sites with Raymond James. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Thank you and good morning, and just can I ask about like what Youre seeing on the corporate side I know you did you got it.
Speaker Change: Concerted effort on <unk>.
Speaker Change: Extend the SME accounts and and then you have all disconnect geopolitical noise and curious what you've seen in the first quarter and then what you are seeing here in the first quarter in terms of corporate travel demand and how that's progressing.
Don: Yes, Don Thanks.
Don: Good question for for Q4, we did witness was stronger than expected.
Don: Bounce back in corporate travel.
Don: In some cases.
Don: Almost double digits better year over year.
Don: Like we said largely experienced in the transport sector and going into Q1, we see that continuing.
Don: And in terms of our SME SMB program, where we are.
Don: We're above.
Don: The targets right now internally so that's favorable.
Don: Okay helpful. Thank you.
Don: If I had my only.
Don: Seasonality question, just a follow up.
Don:
Don: The H Yale you can afford ticket sales historically, that's been a pretty big ship kind of move up from the third quarter, the fourth quarter, but last year and this year. It looks like a great pretty flat and I was just wondering if there's anything different.
Don: You know that that's driving that kind of seasonality change it and your air traffic liability.
Speaker Change: Hey, Savi I refer to Q4 2000 and for Q4 'twenty five.
Don: Q4 24.
Don: The the way the line item moved in the balance sheet is quite different than it has in the past years. Its the kind of forward sales ticket line item.
Don: And we can take an order and come back to cash.
Speaker Change: Maybe speak to the battery and I'm not sure I got the question on weekend I'll follow up with you Sami.
Don: Sounds good thank you.
Speaker Change: Your next question comes from the line of <unk> Gupta with Scotiabank. Please go ahead.
Speaker Change: Thanks, Pat and good morning, everyone.
Speaker Change: I just wanted to follow up on that.
Speaker Change: The assumptions you guys stopped for 2025, obviously clearly.
Speaker Change: The Canadian dollar had weekend.
Speaker Change: That's how rebounding. So maybe you can kind of matches, our expectation or assumption, but on the field side I'm. Just curious I think you talked about diversifying supply in my opinion.
Speaker Change: Your hedging fuel as well so just wanted to kind of pick your brain in terms. So how should we think about the fuel price volatility. This year likely ended the fuel price in the market that we see is running higher than your assumptions. So how do you how do you find confidence in keeping that assumption.
Speaker Change: Yeah.
Speaker Change: Spots running right around midnight views on.
Speaker Change: Fuel so ex FX, so FX is.
Speaker Change: Its own.
Speaker Change: Element, but on the U S dollar basis, where we're kind of hovering in the mid Ninety's. Our expectation is that it's moved around the front end of the year was a little bit harder. So January did come in a bit heavy in terms of the fuel price, but it settled in now I think WP is somewhere around 70 $172.
Speaker Change: That's kind of consistent with the way we see the year.
Speaker Change: The forward curve would suggest that's going to come down a little further we really haven't reflected that.
Speaker Change: The long term so our 95 goals for the year. So I think we're reflecting more or less the current environment.
Speaker Change: And as I said FX apart.
Speaker Change: The FX side, we'll watch this as volatile.
Speaker Change: Right now we have a 140 expectations trading around 142 unchanged.
Speaker Change: We'll see how this all plays out.
Speaker Change: We have some some ability within the range as well to absorb some of that.
Speaker Change: Okay, and just to be clear John there's no active hedging in place for Q1.
John: Yes, no sudden governor on that so thank you Sunil.
Speaker Change: We hedged through the backend of last year we.
Speaker Change: We did so kind of middle of the year last year, and we have nothing in place right now.
Speaker Change: Okay, perfect. Thanks, and if I could follow up on Capex, if I look at the total projected expenditure table <unk>.
Speaker Change: In the MD&A.
Speaker Change: It's showing.
Speaker Change: Q3, and a half ish billion dollar of Capex for 2005, and then ramps up to four three and four nine in the outer years.
Speaker Change: You kind of remind us I think at the Investor Day, I think you were looking at some $3 billion of sale leaseback transactions. So assists projected capex stable not a selective on those sale leasebacks and how should we think about the actual net capex number.
Speaker Change: Yes, yeah. Good question, so a couple of things.
Speaker Change: Kind of high level points here, we had about $18 billion as we mentioned between.
Speaker Change: <unk> 2004 through through 2018, Capex remains largely intact as a few pieces move around we also have an FX impact in the current reporting period and FX closed the year a little bit.
Speaker Change: Or is that current balance sheet rates to project all of Capex. So.
Speaker Change: In the long term that'll that'll be a little bit of a tailwind.
Speaker Change: Hopefully FX stabilizes in the longer period, but on the so the numbers are kind of intact with the investor day, all of those kind of.
Speaker Change: Is bound to that plan that we've talked about the.
Speaker Change: The sales leasebacks are not put into a projected able when they're contracted and we may look at that differently, but.
Speaker Change: At this point in time, you have the growth Capex.
Speaker Change: So to your point.
Speaker Change: We will offer some flexibility, especially in the peak capex year as intended.
Speaker Change: And it will also.
Speaker Change: Bring back some balance to our fleet in terms of leased assets, which we like because it provides flexibility for us to manage through agile with some agility through some periods, where there is volatility.
Speaker Change: Okay. Thanks for the answers thank you.
Speaker Change: Your next your next question comes from the line of Matthew Li with Canaccord Genuity. Please go ahead.
Matthew Li: Hi, Thanks for taking my question just in terms of capital priorities I know you've talked about taking out the convert in cash but are there other ways you might consider returning capital to shareholders, whether that's dividend or an earlier in Europe no of the buyback.
Speaker Change: Yes so.
Speaker Change: I'll take both on here so the first thing.
Speaker Change: We've just completed a program some $800 million deployed on share buybacks over that period. So I think it's a great first step and very much aligned with what we had.
Speaker Change: I want to do is we started off 2004.
Speaker Change: We do have an opportunity here with the convertible so we'll take advantage of that thats. Another around 400 million Canadian that gets deployed so it's another substantial amount.
Speaker Change: Get back to.
Speaker Change: Anti dilutive actions.
Speaker Change: I guess in the.
Speaker Change: And the kind of mid term so as we look through the back end of 'twenty five early to say now, but our plan. It was clear when we presented to you in December that we expect to continually look for opportunities to return capital to shareholders and we will so we will have an opportunity at the end of this year from a calendar point of view at the 12 months.
Speaker Change: November 25 to look at another and CIB and at this point in time that would be our base assumption our base plan. So so there is another set of actions.
Speaker Change: And beyond that in things like dividend and so nothing is ruled out but I don't think that thats. The plan for the mid term we are going to do.
Speaker Change: We wanted to do on the on the share count make sure that we invest in the airlines. So we can get the growth and the margin expansion that we were looking for and then obviously when we're generating consistent cash flow a lot of optionality.
Speaker Change: That's helpful, but theres no way to do a buyback more quickly than the one year Mark.
Speaker Change: In November this year.
Speaker Change: Yes, nothing practical.
We don't we don't have a plan to do anything special like that at this point in time, we will take advantage of what's coming up here in the first.
Speaker Change: First half on via the convertible.
Speaker Change: Alright sounds good thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jamie Baker with JP Morgan. Please go ahead.
Jamie Baker: Hey, good morning, everybody. So just following up on some of John's prepared remarks, there are a couple of months since investor day and.
Speaker Change: Look like everybody else on the call I'm, just trying to square how some of your full year assumptions may have changed internally.
Jamie Baker: You addressed fuel.
Jamie Baker: The FX tariffs and what the market is obviously well aware of all of those.
Jamie Baker: My question is whether you can point to any specific offsetting improvements.
Jamie Baker: That have taken place that we might have missed or maybe some EBIT.
Jamie Baker: Even more incremental corporate demand resilience nemo above and beyond what you spoke to savvy about just now anything like that.
Jamie Baker: Any specific positives in the last two months that you can make us aware because it just it.
Jamie Baker: It seems like.
Jamie Baker: <unk> is off to a rocky start.
Jamie Baker: Yes.
Jamie Baker: I wouldn't say, it's off the right starting to say that.
Jamie Baker: By and large.
Speaker Change: Yes, a lot of a lot of.
Jamie Baker: A lot of drama and so all those things matter, but.
Jamie Baker: We.
Jamie Baker: In simple terms I think we're seeing solid demand and solid yield particular into Q2 and early signals for Q3 and.
Jamie Baker: And I think that.
Jamie Baker: Those things are giving us relative amount of confidence on that on holding our guidance for the year so that.
Jamie Baker: All things considered I think.
Jamie Baker: We feel relatively good about where we stand today and we can foresee that things that we won't speculate on tariffs and other things you all mentioned.
Speaker Change: Economically, but that's our view and our mark wants to add anything here, but now Jamie just maybe the rebound on the on the Atlantic performance for Q2, Q3 might be more favorable than initially anticipated yield environment guys.
Speaker Change: It's pretty pretty robust and of course, our focus on unique niches such extreme traffic as possible.
Speaker Change: Okay very helpful and then just quickly.
Speaker Change: Quickly on the share count.
Speaker Change: I was a bit surprised that the year end share count was or was not a little bit lower could just be that.
Speaker Change: <unk>.
Speaker Change: Internal calculations, but I don't know was there any stock based compensation that might have sort of figured into the final count and apologies in advance if I missed this in the notes.
Speaker Change: Yes, no I think maybe it's the weighted average that youre looking at and that we would have had a very little effect because youre looking at like 11 months that would have been pretty static and then you would have had one month. So I looked at the same thing I think it's a weighted average.
Speaker Change: Impacted really as we get off that should.
Speaker Change: That should be better obviously than in 'twenty five.
Speaker Change: A lot of those share for what $20 million versus the 50 and the <unk>.
Speaker Change: First quarter here, so that should get better quickly.
Speaker Change: Okay perfect. Thank you gentlemen.
Speaker Change: Sure.
Speaker Change: Your next question comes from the line of Stephen Trent with Citi. Please go ahead.
Stephen Trent: Alright, Thank you everybody and I appreciate you taking my questions.
Stephen Trent: Just wanted to follow up a little bit on the.
Stephen Trent: Jet fuel curious not look I think if I heard you correctly.
Stephen Trent: In terms of your FX exposure.
Speaker Change: Youre hedging 70%.
Stephen Trent: Our FX exposure 18 months forward so.
Stephen Trent: Am I correct in thinking that this exposure is at least somewhat giving us some protection.
Stephen Trent: On your refueling expenses.
Stephen Trent: Outside of Canada, I wasn't sure from chasing my tail on this one but I just wanted to understand a bit more thank you.
Stephen Trent: Yes. Thanks for the question Steven So just maybe take a minute just to give you. Some some maybe some simple color on the hedging program. We look out 18 months, we look for the net.
Stephen Trent: We have a net use outflow obviously, so we do have some inflows, but obviously fuel is U S dollar denominated a lot of maintenance as well some.
Stephen Trent: Some station costs in the U S. So we look at the net net basis for every Penny that's worth about.
Stephen Trent: So about a $4 billion.
Stephen Trent: So on that so it's about $40 million.
Stephen Trent: Any movement on FX the way to think about this is that the hedging program really as an economic hedge.
<unk>.
Stephen Trent: Cost in <unk>.
Stephen Trent: Median.
Stephen Trent: On the cost line, particularly for example, if you look at adjusted CASM will absorb and we will have to reflect that.
Stephen Trent: So we take some pain on the P&L on an adjusted basis, because the gains on our derivatives will fall below the line. So they get adjusted out now what I need you to understand that is most important is that.
Stephen Trent: Okay.
Stephen Trent: The economic hedges the cash flow hedges to protect cash flows as I settle into a market at a $1 42, or <unk> 41, or 40 threes on hedges that are call. It 138 or something on average we are going to get the cash flow benefit of that and that does protect the free cash flow.
Stephen Trent: For the business.
Stephen Trent: In the in the short to medium term of course right. It's an 18 month program. If you look through the next three months, we're probably 90% plus hedged as you go further out on the curve. It comes down in the overall is 70. So as you go out a year year and a half youre getting below that 70 average, but the point here is that it protects the business and protects cash flows it allows us to.
Stephen Trent: To adjust make decisions but.
Stephen Trent: But at the same time, you will see it in the.
Stephen Trent: In the earnings number, especially on the adjusted side and so just pay attention to that.
John: I appreciate that John Thats Super helpful.
Stephen Trent: And for my follow up just.
Stephen Trent: Really quickly sort of when we think about.
Stephen Trent: The unit revenue environment starts for the first quarter.
Stephen Trent: Any high level view on what that looks like if you sort of normalize the year on year trend for the Easter calendar shift.
Speaker Change: And for 29 days last February versus 28 this year. Thank you.
Mark: Hi, Stephen This is mark just on the inner emphasizing you should expect to have.
Mark: Positive unit revenue Q1, but again the calendar Ization of Q1 this year versus last year makes the comparable a little bit.
Mark: <unk>.
Mark: As we go into Q2, Q3, that's where I think you should expect a bit more opportunity.
Speaker Change: Okay I appreciate that thank you.
Chris Murray: Your next question comes from the line of Chris Murray with <unk> TB capital markets. Please go ahead.
Chris Murray: Yeah. Thanks, guys good morning.
Chris Murray: Just maybe thinking about other parts of the operating revenue cargo other also a couple.
Chris Murray: Couple of quick questions. One we haven't seen a lot of movement around great flows and tariffs.
Chris Murray: Any commentary you guys may have on how to think about the cargo business, even near term or as we go into 'twenty five and then you did mention that you were pulling down some leisure capacity into like the U S south destinations.
Chris Murray: Is that can be redeployed into other vacations.
Chris Murray: Vacation destinations or should we be thinking that vacations may be slowing as we go through the year.
Chris Murray: Hi, Chris just.
Speaker Change: Firstly on the cargo side and as you know 2009 form as Atlas a banner year for non Covid year and as we go into 2025 Q1, we see that continuing.
Speaker Change: The cargo market has shown close in that it's tough to say exactly when <unk> will look like but observing any potential shifts in and train our geography and right now at this time there is nothing to comment on.
Speaker Change: On the capacity question.
Speaker Change: We do have the redeployment opportunity if required in some markets, where you see a lot of demand.
Speaker Change: Interest right now in the booking curve is much more closely in the.
Speaker Change: I've seen the last couple of years and there could be an opportunity for instance in domestic Canadian theatre markets is welcoming some gauge around.
Speaker Change: Okay.
Speaker Change: And then just maybe turning to operating expenses.
Speaker Change: I guess, there's a couple pieces of this one we talked a little bit about <unk>.
Speaker Change: Or are starting to see some improvement in some of the metrics now does the pilot agreements.
Speaker Change: Pilot agreement is in place.
Speaker Change: How are you finding some of the cost.
Speaker Change: It's moving around.
Speaker Change: And are you seeing the advantages you thought you would get.
Speaker Change: But you kind of laid out at the Investor day.
Speaker Change: Yes, I think I think we got we had some productivity already demonstrated in 2024 and I think we're going to continue to gain that productivity is weak.
Speaker Change: As we grow some.
Speaker Change: Some scale in the airline.
Speaker Change: The next couple of years, I mean, I think 2025, and we went through some of this in detail, but we're bringing a lot of narrow body.
Speaker Change: That's going to help our sixth freedom business as well as bring back some capacity, but you get more and more cost effective scale. When you bring in the larger aircraft <unk> hundred 20 ones and especially the 780 sevens that'll be more of a 'twenty six 'twenty seven.
Speaker Change: <unk>.
Speaker Change: Technology continues to.
Speaker Change: Progressed, well on deploying technology through the business.
Speaker Change: And we're making investments that we feel very confident about with respect to giving our employees tools and capability to its were effectively sold.
Speaker Change: We feel good about our ability to generate both productivity and unit costs.
Speaker Change: And we still have some inflationary impacts in 2025 is one of the years, where we're going to kind of.
Speaker Change: Still have some pressure.
Speaker Change: <unk>.
Speaker Change: We have the labor agreement to.
Speaker Change: To complete and we have the impact so just the year over year on via the pilot agreement that would kind of be fully effective this year.
Speaker Change: Beyond that maintenance has always been a bit of a tough.
Speaker Change: Environment and continues to be that right.
Speaker Change: Right now.
Speaker Change: And the long term as we get a modern fleet, we expect that to be alleviated a little bit as well. So we're managing all parts of the business and I think we remain focused on keeping costs in check.
Speaker Change: That will certainly be an important part of our margin expansion 25, there's going to be a bit of compression, but feel good about 'twenty six 'twenty seven.
Speaker Change: Great. Okay. Thanks Ross.
Speaker Change: Your next question comes from the line of Andrew <unk> with Bank of America. Please go ahead.
Andrew: Hey, good morning, everyone.
Speaker Change: So I understand the current environment is fluid, but if we were to see you continue to cut more capacity. So maybe John can you give us some guideposts on how we should think about the CASM impact from those cuts.
Speaker Change: As one point of capacity one point of CASM or is the relationship.
Speaker Change: Just curious on how to think about that.
Speaker Change: Well, it's a bit of tough math to do on the phone with you right now I probably have done it.
Speaker Change: Enough times, but.
Speaker Change: I won't I won't give you a translation here now.
Speaker Change: We're going to we're going to stay agile.
Speaker Change: We also keep an eye on both right I mean, we can we can manage both and we have shown that last year was a good example of that we took some capacity out and we were very proactive in how we manage cost and we delivered on all of our expectations and I would say and then some.
Speaker Change: So.
Speaker Change: You can't foresee all environment, So I am not going to give you.
Speaker Change: <unk> guarantee across the board what I am going to tell you is that we put 14 a quarter 14 five for sure. If you dig out some ASM, so thats going to get a little bit of pressure at the same time, we're going to stay very focused on that.
Speaker Change: Pushing and pushing the <unk>.
Speaker Change: Jewelry in the business and making responsible decisions.
Speaker Change: So that we can we can keep cost well managed and we can talk about it with some kind of a go.
Speaker Change: Conversion, maybe I'll give some thoughts you can always talk offline on that.
Speaker Change: Okay, Great I'll follow up offline on that one and then just my question is philosophically on the buyback I certainly know that the team's view on the valuation of the stock, but just curious if there was any management conversation about maybe not buying the Max amount.
Speaker Change: Given day just.
Speaker Change: So just given how volatile the macro environment was to start start the year just curious on your thoughts there. Thank you.
Speaker Change: It's done right, so I'm not going to speculate on what we do.
Speaker Change: What we felt was the right thing to do and.
Speaker Change: I think that in.
Speaker Change: In the long term I feel thats going to paid off being.
Speaker Change: Smart decision.
Speaker Change: Disciplined matters and second guessing I guess is.
But this is volatility that will work its way through the system I think the bigger picture is that we feel very confident about.
Speaker Change: Creating value for shareholders.
Speaker Change: That includes deploying capital.
Speaker Change: When it's available and.
Speaker Change: And making sure that.
Speaker Change: We grow the <unk>.
Speaker Change: Revenue in the earnings.
Speaker Change: The rest will take care of itself.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Cameron <unk> with National Bank Financial. Please go ahead.
Cameron: Yeah. Thanks, Good morning, just maybe to start just a clarification just around I guess your.
Cameron: Comments around pulling back some capacity on some of the U S leisure destinations.
Speaker Change: And in March I understood wondering if that is something that is kind of in anticipation of weaker demand or is that a reaction to anything youre seeing like in the very near term here as a result of people booking away from U S for whatever reasons I'm just trying to understand if thats, an anticipatory thing or is that something a reaction to what youre seeing in the market.
Cameron: Hi, Cameron.
Speaker Change: It is we are anticipating.
Speaker Change: Proactively added it could be a slowdown we don't see right now.
Speaker Change: Our near term bookings in the U S. We don't see any major slowdown or anything substantial that would change our view of the market that being said if we.
Speaker Change: Derisk this a little bit.
Speaker Change: It moves and EBIT proactive and with capacity to other sectors, we see strength and if that's the right move right now in this context.
Speaker Change: Okay, that's great and maybe a second question just on I guess aircraft availability I know Theres, obviously been these engine related issues that are grounded aircraft. Just wondering in the last few months, if anything has improved or gotten worse on that front.
Speaker Change: Your thoughts on what we should expect for the year on aircraft availability.
Speaker Change: Yes.
Speaker Change: Particularly <unk>.
Speaker Change: <unk>.
Speaker Change: The biggest challenge I would say with respect to the.
Speaker Change: The aircraft availability again.
Speaker Change: We're working closely with Brad.
Speaker Change: We see very often we track a plan together and.
Speaker Change: We believe we're going to see some some improvement through the year and we expect the summer to be a better summer than it was last year for sure.
Speaker Change: We've made a couple of investments as well as on the spare engines.
Speaker Change: Cross the fleet, where we thought we had some.
Speaker Change: Some some.
Speaker Change: Some exposure just to try to improve.
Speaker Change: The variability of aircraft. So we're trying to do some self help as well.
Speaker Change: But it's a combination of things one are our maintenance organization just as very tracks is very tightly, but we do have senior level meetings with Pratt on a regular basis to make sure that all parts of that system are supporting us directly and then we did deploy a little bit of capital to make sure that we help ourselves as well so.
Speaker Change: Theres no promises, but I feel pretty good about how we're approaching it meaning five I think should be better in the summer, but it was.
Speaker Change: Okay that sounds good I appreciate the time thanks.
Speaker Change: Your next question comes from the line of Tom Fitzgerald with TD Cowen. Please go ahead.
Tom Fitzgerald: Hi, everyone. Thanks for the time, how would you characterize the domestic competitive capacity environment right. Now the view is mainly rationale or are there any pockets of oversupply.
Speaker Change: Okay.
Speaker Change: That's an interesting question in the near term as we look into March and April.
Speaker Change: Got.
Speaker Change: It is our view that the domestic market.
Speaker Change: Overcapacity, we see some of our competitors, adding capacity level that might be beyond what the market can absorb short term.
Speaker Change: But as we go into later Q2 into Q3 right now it looks like a pretty balanced market and there can be an opportunity in that market.
Speaker Change: Especially if we lose some capacity from U S leisure destinations, but in the near term.
Speaker Change: No real.
Speaker Change: The supply and demand imbalance to be.
Speaker Change: A little bit less optimal.
Speaker Change: Okay. Thanks, that's very helpful color and then probably.
Speaker Change: If I missed this I'm wondering early responses, but could you confirm if the CASM ex guidance includes assumption for a flight attendant deal.
Speaker Change: Yes.
Speaker Change: What we did last year right.
Speaker Change: We make an assumption and we've embedded that in our full year.
Speaker Change: Earnings guidance as well as.
Speaker Change: By the fault of the CASM guidance.
Speaker Change: And it included as you did last year.
Speaker Change: Yes.
Speaker Change: Okay. Thank you so much that's very helpful. Appreciate the time.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Greg Konrad with Jefferies. Please go ahead.
Greg Konrad: Good morning.
Greg Konrad: Maybe just to follow up I mean, you mentioned some of the capacity redeployment with a potential redeployment to the Canadian leisure market can you, maybe just talk a little bit more about what youre seeing competitively in some of the opportunities in the Canadian market.
Greg Konrad: Sure so in the short term.
Greg Konrad: As I just answered the question I think in the domestic Canadian market.
Greg Konrad: For late Q1 early Q2, we see substantial market capacity increase which is.
Greg Konrad: Maybe above what the market concerned short term, but as we go into later Q2 and early Q3.
Greg Konrad: This supply demand balancing speed a bit more optimal and we think there is an opportunity and some Canadian leisure markets and with limited capacity and as well the sudden market looks very strong all the way through the booking curve and it can be an opportunities while for us to move the capacity. There I guess these are these are tweaks.
Greg Konrad: Two are <unk>.
Greg Konrad: Central offset of the U S leisure areas.
Greg Konrad: Situations.
And then maybe just given all the pieces you kind of talked about corporate and some of the different pieces. I know you had pretty good premium growth in 2024, just given some of the moving pieces I mean, how are you thinking about premium in 2025, and maybe how thats embedded in the numbers.
Greg Konrad: No. We think it continues to be strong I think we have a good opportunity to further capitalize on that.
Greg Konrad: And as well not only with the premium segment as well with some of our branded fare initiatives.
To drive and manufacture some revenue here so that combination I think gives us some talent.
Greg Konrad: Thank you.
Greg Konrad: Yes.
Valerie Durant: And that concludes our question and answer session I will now turn the conference back over to Valerie for closing comments.
Valerie Durant: Thank you Krista. Thank you once again for joining us on our call. This morning should you have any follow up questions. Please don't hesitate to contact us at Investor Relations.
Valerie Durant: If I may some accrued a news app for all.
Speaker Change: And I think that.
Speaker Change: <unk> seen any decline in contact okay that sounds like that's the facts.
And have a great day until Lantus.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].