Q1 2025 Cargojet Inc Earnings Call
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Speaker Change: [laughter] all participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.
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Speaker Change: This conference is being recorded so it's closer to home, it's always you see.
Speaker Change: All participants please standby your only thing is ready to begin good morning, ladies and gentlemen, welcome to the conference call I want all of that.
Speaker Change: Martin.
Speaker Change: Welcome.
Speaker Change: Go ahead.
Speaker Change: Good morning, everyone and thank you for joining us today on this call with us on the call today are Pauline Dhillon in Jamie Porteous, our co chief Executive officers.
Speaker Change: Many of our Vice President Finance and interim CFO.
Speaker Change: After opening remarks about the quarter.
Speaker Change: Call for questions.
Speaker Change: Like to point out that certain statements made on this call such as those relating to our forecasted revenues costs and strategic plans are forward looking within the meaning of applicable securities laws.
Speaker Change: This call also includes references to non-GAAP measures like adjusted EBITDA adjusted earnings per share and return on invested capital.
Speaker Change: Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to.
Speaker Change: <unk> for <unk>.
Speaker Change: Reconciliations of non-GAAP measures to GAAP income.
Jamie Porteous: I'll now turn the call to Jamie.
Jamie Porteous: Thank you Marty good morning, everyone and thank you for joining us on the call today.
Jamie Porteous: As we've done in the prior quarters, Pauline and I will share our prepared remarks, and then we will open up the call for questions.
Jamie Porteous: Exactly five years ago, our Q1, 2020 press release noted and I quote while the longer term implications on the full impact of COVID-19 remains unknown cargo jet is well positioned to successfully support this new environment, both in the short as well as the long run.
Jamie Porteous: Since then we've seen natural disasters like forest fires in Western Canada disrupt rail traffic lower water levels in the Panama Canal caused ship delays geopolitical conflicts in the middle East and Ukraine cause disruption in supply chains and more recently the further disruption in the retail sector with the arrival of teaming Lin Shen.
Jamie Porteous: Where foreign e-commerce retailers ship product directly from China to global destinations, including Canada.
Jamie Porteous: So it is only fair to ask how has cargo jet navigated these major disruptions since COVID-19.
Jamie Porteous: Five years out our Q1 2025 revenues are more than double the Q1 2020 revenues.
Jamie Porteous: Our adjusted EBITDA in Q1, 2025 is double the adjusted EBITDA in Q1 2020.
Jamie Porteous: Although it is not up to us to comment on the stock price you can look up what the stock price was in Q1 2020 and contrast, it with the performance of cargo jet over the past five years and draw your own conclusions.
Jamie Porteous: Once again, we are now facing yet another global supply chain crisis.
Jamie Porteous: This times this time, its tariffs and global trade war, leading to economic uncertainty.
Jamie Porteous: And it is worth repeating that cargo jet is very well positioned to navigate this rapidly shifting global supply chain environment.
Jamie Porteous: We believe that with the expected decoupling of North American supply chains more cargo will enter Canada directly from China, and southeast Asia to mitigate the United States tariffs.
Jamie Porteous: Canada also lagged well behind other industrialized countries in terms of the penetration rate of online sales as a percentage of overall retail sales.
Jamie Porteous: Enhanced customer trusts, the abundance of options versus physical stores and the ease of use are all contributing to rapid online shopping growth in Canada.
Jamie Porteous: This bodes well for both our domestic and scheduled charter revenue segments.
Jamie Porteous: We are actively pursuing new opportunities and remain at the forefront of helping customers adjust to the new global supply chains.
Jamie Porteous: The portfolio diversification. We started in 2019 has served us extremely well.
Jamie Porteous: For example, softness in our semi segment segment during Q1 was more than offset by the growth in our domestic and charter businesses.
Jamie Porteous: We continue to be cautious and manage our growth capex very prudently and expect to fully deploy the three additional freighters as soon as they are accepted into operation later this year.
Jamie Porteous: As previously announced we are adding four 767 300 freighters and returning one leased 767 200 for a net addition of three aircrafts.
Jamie Porteous: At the same time cargo jet is not immune to the impact of larger economic cycles, and we are continuing to monitor this rapidly changing economic political and inflationary environment, and we can and will adjust our fleet plans accordingly.
Jamie Porteous: During economic slowdowns, we have observed that consumers often substitute or higher priced products with a value offering.
Jamie Porteous: This has direct implications on how much the consumer spend as far as far less impact on the number of packages being shipped.
Jamie Porteous: Instead of purchasing an 80 dollar parachutes consumers made purchase of $50 per but the shoe still needs to be shipped.
Jamie Porteous: Now for some financial highlights for the quarter.
Jamie Porteous: Total revenue grew by eight 1% to $249 9 million in the quarter a record for the first quarter in the history of cargo that led by very strong year over year growth in both our domestic and charter businesses.
Jamie Porteous: Overall block hours flown only increased by three 3% in Q1, adjusted EBITDA of $80 8 million grew three 1% versus the prior year in line with the expected margin at 32, 3%.
Jamie Porteous: In terms of our capital allocation strategy, we continue to generate strong operating cash flow of $64 8 million in Q1 versus $80 three last million last year, the variance versus last year was largely driven by noncash working capital movement.
Jamie Porteous: More importantly, we maintained our net debt to adjusted EBITDA leverage ratio at two five times as at March 31 2025.
Jamie Porteous: This is within our stated targets.
Jamie Porteous: We achieved this strong leverage ratio despite investing in growth capex and continuing our share buyback program.
Jamie Porteous: During the three months period ended March 31, 2025, the company purchased for cancellation at an aggregate of 272922 voting shares under the NCI for a total cost of $32 2 million.
Jamie Porteous: We also continued to improve to improve the return on invested capital and our dividend policy remains consistent with previous years.
Jamie Porteous: Yeah.
Jamie Porteous: We remain confident that we will continue to identify new opportunities for cargo jet as customers navigate shifting global supply chains.
Jamie Porteous: Our direct exposure to U S. Tariffs is very limited and we remain optimistic about our future. Despite the growing macro economic uncertainty that exists today.
Jamie Porteous: We will continue to leverage our unique mix of domestic Canada network.
Jamie Porteous: My flying and are all in charter segments to maximize aircraft utilization and to grow our revenues and to return value to all cargo jet stakeholders.
Poly: Let me now pass the microphone over to my colleague Poly.
Poly: Thank you, Jamie and good morning, everyone.
Poly: The journey, Jamie spoke about his COVID-19 has been nothing short of remarkable.
Poly: We closed 2019 with total revenues of 486 million and ended 2022 2024 with over a $1 billion in revenue. Likewise 2019, adjusted EBITDA was $156 million and we ended.
Poly: 2024 three.
Poly: 330 million.
Poly: The reason I wanted to share that with you, but just to put the journey of cargo check in context.
Poly: As we scale the business added aircraft pilot maintenance.
Poly: And other team members, new routes and extensive national and international maintenance infrastructure, we have done that while maintaining EBITA margin and a strong discipline on cost management.
Poly: The core tenant of our customer focus continues to be on time performance every member of the cargo jet team knows that our priorities are safety and on time performance.
Poly: I'm very pleased to.
Poly: Report that our Q1 on time performance with 99, 1% for the quarter.
Speaker Change: Managing the hyperactivity period during Covid taught us several lessons.
Speaker Change: Those lessons have you now input and practice and we are in a much stronger position to manage emerging supply chain disruptions and trade wars.
Speaker Change: For example, up until Covid, we had never flown into China.
Speaker Change: Learned not only how to serve the China market, we developed capabilities to support maintenance ground handling partners crew planning and how to optimize the Boeing 767, 300 freighter utilizing Narita Japan.
Speaker Change: Check point.
Speaker Change: When the opportunity came to fly regular China charters, we were ready this.
Speaker Change: Part of our business has proven to be a solid offset the softer global <unk>.
Speaker Change: Demand.
Speaker Change: Emerging dislocation and supply chain will create similar opportunities for cargo check.
Speaker Change: <unk> developed this new muscle we are now actively looking for new opportunities to serve previously unserved destination.
Speaker Change: Cargo jet has become a global leader in the air cargo charter industry.
Speaker Change: Are we are methodically managing our fleet to create capacity and utilization for our new AD hoc charters, while increasing the frequency of scheduled charters to China.
Speaker Change: To support our continued growth we have also launched and I T and finance transformation initiatives.
Speaker Change: <unk> processes to allow faster turnaround times to support all aspects of our business with a particular focus on growing ad hoc charters.
Speaker Change: New talent in finance is looking at streamlining processes that will better result in cost management.
Speaker Change: With close to two times in highly skilled committed professional diverse team members.
Speaker Change: That power cargo jet every day, we are launching a national workforce engagement and support initiatives.
Speaker Change: It's a critical infrastructure provider to national and global carriers. Our team members are on the front lines 24, seven 365 days of the year.
Speaker Change: Maintaining strong engagement and supporting our team to deliver.
Speaker Change: The customer product is a top personal priority for Jamie and I. We are extremely proud of the team's contribution and express our heartfelt gratitude for their continued dedication and success, while continuously focusing on safety and delivering on time for fun.
Speaker Change: Customers.
Speaker Change: Once again, we thank you for joining us. This morning, we will now open for questions.
Speaker Change: Thank you we will now take questions from the telephone lines into your other question. Please press Star One you may consult your question at that time by pressing star two.
Speaker Change: One of this time if your other question there would be a very small swipe off to spend with just stuff all that questions. Thank you for your patience.
Speaker Change: Well I'll take the first question from Kamran Duck, some from National Bank Financial. Please go ahead.
Kamran Duck: Yeah. Thanks, good morning.
Speaker Change: Just a question about I guess the.
Speaker Change: A CMI revenue.
Speaker Change: You indicated in the MD&A just about Hillary some aircraft.
Speaker Change: It'd be shifted from Asian routes to South American routes, but it's pretty big drop off sequentially.
Speaker Change: And the revenue that you see them I just wonder if you can talk about about that change and how you see that the CMI business.
Speaker Change: <unk> for the rest of the year.
Speaker Change: Hey, good morning, Cameron. Thanks, Thanks for joining thanks for asking the question, Yes, I mean, we expected and I think we talked to everybody in.
Speaker Change: In advance of the year that we expected some softness in the CMI flying particularly related to the global routes. We operate for DHL. We have just to be clear. We're operating the same number of aircraft that were contracted to operated in 2024 in 2025 and the only difference in the roots as you suggest is the structure of the routes where.
Speaker Change: The customer will routinely.
Speaker Change: Typically with DHL very routinely depending on demand in certain geographic locations of the world will request that we switched the aircraft to higher demand locations from lower demand locations that happens fairly regularly not with the entire fleet, but with a significant portion of the fleet and the only difference in the revenue this year again the number of.
Speaker Change: Aircrafts has remained constant and the only difference being that reached the stage length of the roots of those aircraft are flying are lower this year than they were last year, which results in look because revenue was based on on typically on the revenue.
Speaker Change: On a dollar rate per block hour that we charge for the CMI flying with a minimum number of hours per month. So we're still well above those minimums, but we don't get the benefit of the incremental revenue that we enjoy when the aircraft are on one longer stage length routes.
Speaker Change: Okay and is your expectation that that.
Speaker Change: Those aircraft or continue on those same sort of broodings through 2025, and we don't anticipate any reduction in the number of aircraft that were operating on a new CMI basis for the remainder of 2025 and it remains to be seen on what routes those will be on existing routes or if demand if demand increases in the latter half of the year. There is the potential we could.
Speaker Change: The ship some of those to longer stage length routes okay.
Speaker Change: Secondly from me you've indicated that you're maybe seeing some new opportunities emerging particularly as it relates to you know some of the tariff chaos, we've seen and perhaps direct shipping to Canada as opposed to be in the US Can you just maybe discuss any specifics of what the opportunity set might be for you on that type of that type of.
Speaker Change: Okay.
Speaker Change: Yeah, one of the I mean, one of the most obvious ones is the increased in frequency that we're flying with our scheduled charter service out of China into Canada, mainly into Vancouver, with some extensions into Hamilton with with our Chinese customer, which is all carrying traffic for Chinese ecommerce supply producers like like <unk> and churn.
Speaker Change: I'm, particularly chemo, mostly coming into the Canadian domestic market. That's what our customer is focused on so they're they're not subject to the impact of the <unk>.
Speaker Change: Any impact on lower volumes into the U S because of potential reductions, there's de minimis or or increasing tariffs between the U S.
Speaker Change: In China in that case don't apply on the Canadian market and then we've been leveraging similar to how we leverage the domestic Canadian network with that customer to connect Chinese ecommerce traffic to multiple located so the 16 or 15 other cities that we operate in Canada that we can connect to off the charter flights into Vancouver to our domestic network. We've also leveraged.
Speaker Change: The relationship we have with DHL to allow that customer to connect Dhl's global network of which cargo jet fly has many of the aircrafts are good example, being we cannot we retuned routinely carry traffic out of Vancouver that came in on our charter aircrafts on our aircraft that we operate for DHL through their global hub in Cincinnati onto Mexico City bypasses the U.
Speaker Change: Traveled through the U S. But it is not destined to the U S. So it's not subject to the same impact.
Speaker Change: Okay.
Speaker Change: That's great color I'll pass along thanks very much.
Speaker Change: Thanks, Kevin.
Betsy Yang: The next question is from Betsy Yang.
Speaker Change: <unk>. Please go ahead.
Yeah.
Speaker Change: Oh, good morning, guys. Thanks for taking my question.
Speaker Change: On the floor.
Speaker Change: So my first question is on the sequence.
Speaker Change: Right.
Speaker Change: How much flexibility you have.
Speaker Change: Hmm.
Speaker Change: Eight of state macroeconomic backdrop right Joe.
Speaker Change: Yeah. Good morning, Betty Thanks for thanks for the question.
Speaker Change: You are asking in terms of our overall fleet plan on our plan as we stated in the MD&A was to is adding four aircraft net three aircraft this year with one return.
Speaker Change: But as I noted in my prepared remarks, you know, we always look for options and triggers that we can pull to look at either adding additional aircrafts over and above what we currently are planning, if if demand increases or being able to redeploy those existing aircrafts.
Speaker Change: And two other areas if demand is lower than we think so we have several options that we could look at it in terms of we have.
Speaker Change: As an example, we have two aircrafts in our 767 fleet that are unique powered by certain type of engine, which which Pratt Whitney engines, which are unique in the fleet.
Speaker Change: We have engine overhaul its coming up on the fleet, including those two aircrafts, where it's a little a little bit more cost prohibitive, but in the rest of our fleet. So we're looking at is there an option for us to sell those two aircrafts and return a return in return for another 767 that matches the rest of the fleet, they're both they're both options right now not something that we'd definitive.
Speaker Change: We looked at but there are things that we're always considering to mitigate the impact.
Speaker Change: Impact of demands, which is a little uncertain right now and just to add to Jamie's point, you know with the aircraft types that we have we're able to replace the 767 5757, depending on demand and volumes.
Speaker Change: Thank you for sharing that.
Speaker Change: And just secondly from me.
Speaker Change: Block hours.
Speaker Change: There's a lot more rigs for essentially flat year over year this quarter I guess.
Speaker Change: Gross.
Speaker Change: And even though Tony.
Speaker Change: We'll see.
Speaker Change: This imply.
Speaker Change: Mr. Hudson It gets us into a thinking yield.
Speaker Change: Yeah, I think it's I think what it really demonstrates is as we've said many times is sort of the resiliency of our business and the uniqueness of the you know the three independent business segments that we operate and how as I noted in my prepared remarks, how softness in the <unk> that we had that we saw in the quarter. It was more than offset by increased funding we had increased.
Speaker Change: Are you you're absolutely right.
Speaker Change: Block hours in the quarter relatively flat, we flew about 17000 block hours in the quarter, which is very similar to last year, but the mix of those hours was down significantly on an HDMI basis was up.
Speaker Change: Probably 10 or 12% on the domestic overnight network to support the 16% revenue growth we saw in the domestic sector and obviously it was up significantly on the charter business. Both on an AD hoc, which was more than double what we did last year and certainly the Chinese flying which we didn't have in the first quarter of last year at all but that's that mix helped us offset the soft.
Speaker Change: In one segment by the strength in the other two.
Speaker Change: Thanks, a lot I'll pass the line.
Maltose Brockman: Thank you next question is from Maltose Brockman RBC capital markets. Please go ahead, yeah, thanks very much operator.
Maltose Brockman: Good morning, everyone. So anyway, hey, good morning on your on your Capex plan and I guess it can you've already disclosed your new fleet change in an aircraft ads is there any change at all though in guidance that you had provided previously on your maintenance Capex and growth Capex breakdown for 'twenty.
Speaker Change: 25, Ah Hi, Walter Sanjiv here no b.
Walter: Italy are consistent with what we have provided after the year end.
Walter: In that call it aslef nowadays no change in our forecast either in maintenance Capex all in growth Capex is still.
Walter: Continuing with the but she has afford aircraft and it turned off all the one leased aircraft and maintenance capex around $160 million to $180 million.
Walter: That was it.
Walter: He spent doing this evening.
Walter: And in terms of the new aircraft coming on Jamie I don't know if you have an update on when you expect them to come in in and when they come in when the when the next one comes out I guess it does it does it get deployed immediately onto a CMI and we'll see a lift in a CMI or are you deploying that elsewhere. Just curious so that we model kind of D C.
Walter: Am I pick up or the or the revenue pick up from the aircraft as they come in.
Walter: Our aircraft are scheduled to come in my one is almost ready and will be deployed in service on May seven other one is expect it to be deployed.
Walter: Deployed on May 27th so basically ability of gas will be deployed in the month of me they can get moved to a little bit.
Walter: On there can be a little bit delay on the deployment, but as of Dec is the target the third aircraft, which is a battery converter.
Walter: We are planning to lease it to 21 year.
Walter: As if that is all the process up.
Walter: And we are just waiting for the right perfect and.
Walter: Just add Walter two centuries to note that.
Walter: The first aircraft that comes in in May is really to replace the leased aircrafts that were returning around the same time. So there's no pause as you know theres no revenue impact on that you won't see any any impact on revenue until the second half of the year.
Walter: And that will go mainly into ACM is where we'll see that revenue come in.
Walter: Okay.
Walter: Okay.
Walter: So your you mentioned your buyback.
Walter: Any change in strategy on buyback or is it your intention to complete the remainder of your authority.
Walter: Just any views there.
Walter: As of now there is no change in.
Walter: Our strategy.
Walter: We haven't and CIB it off until November.
Walter: We will see other fund.
Walter: Eligibility and holiday market reacts and you've got to think about decisions. Accordingly, we are very conscious that itself but.
Walter: Net debt to EBITDA ratio as well so considering that we will take decisions hasn't been.
Walter: Perfect well last question going back to a prior question is that in your answer to change with regards to mix and the type of revenue that led to a real even though your block hours stay the same your revenue was up quite a bit and meaning your your your revenue per block hour, taking meaningful increased 16% year over year.
Walter: We look to the rest of the year do you expect that mix to revert back to where it was before in other words that revenue per block hour should we model that coming back down or do we keep the because if we keep the our volume estimates and intact.
Walter: A 15% growth on our revenue per block hour at least to a pretty big lift in revenue just want to make sure that are you expecting that mix to kind of that lift now that we're seeing in the revenue per block hour to stay steady for the rest of the year.
Walter: And already there, but stay steady relative.
Walter: Similar to prior seasonality or do we see it kind of step back down.
Walter: I think Walter it's a little early for us to be able to predict the balance of the year. I mean, we were very it was.
Walter: We're very pleased with somewhat surprised with the demand growth on the domestic business in the first quarter as you know 16%.
Walter: Growth in the first quarter year over year is somewhat unprecedented for us again.
Walter: Noted in my prepared remarks.
Walter: Definitely it indications, it's been driven by ecommerce growth in Canada of course.
Walter: When we reviewed our first quarter results and talk to customers. The feedback that we're getting from all of them as ecommerce demand in Canada.
Walter: More and more retailers are improving their online platforms and as I've mentioned in the prepared remarks, it's the product offering and the ease of use is increasing whether that's that's sustainable and continues for the balance of the year. We certainly hope it does I think it's a little premature now based on the.
Walter: Uncertainty around around the around the economy overall.
Jamie Porteous: <unk> and consumer spending and how that translate so we're I think we're gonna take the more cautious approach for the balance of the year, Yeah, Yeah, I'm, just going to Echo what Jamie said there Walter you know, it's hard to predict volumes for the rest of the year at this point in time with the current backdrop of tariffs then the economic uncertainty.
Walter: Yeah I guess.
Walter: How many free transportation companies showed 16% growth in and.
Walter: And I guess, you're not seeing any major.
Walter: Customer indications, saying that was a one off in the first quarter.
Walter: You brace it to come down in the second you're not you're not telling us that you are you seeing any major shifts in customer.
Walter: Reservations on your block hour system.
Walter: But you're just not in a position to say, it's going to stay for the rest of the year given the uncertainty yeah. I think yeah, I think youre absolutely right. Walter I think there's so much uncertainty that nobody has that answer to that specific question perfect. Okay. That's all my questions. Thanks, very much thanks, Mark here.
Speaker Change: Thank you. The next question is from Alex Lee from CIBC. Please go ahead.
Alex Lee: Hi, Thanks for taking my question. The first question I have is on the labor cost. So you'll note that it's down year over year.
Speaker Change: Chuck let him share based incentive cost and lower controllable costs. I was just wondering how much of that was specifically due to the lower trading cost and as such Q1 labor cost per head count exactly right for the unit.
Chuck: Yeah, Good morning, Alex things.
Speaker Change: So your question. Thanks for joining us I know we saw we definitely saw an improvement as we noted last year that we saw a spike in our overall labor cost in the middle of last year early part of the middle of last year, certainly as we took on the additional China flying and particularly with our with our crew costs, but I believe in the quarter. Our crew costs came down about 12%, which was what we anticipated.
Speaker Change: We said, we thought we would see that spike in overall labor costs in 2025.
Speaker Change: Come down and normalize through the first half of 2025, which is what we're beginning to see.
Speaker Change: And to add to that Ron Yes, your comment on share based comp that since our share price dropped from 107 to 82 part of our incentive program to pilots are in yes based on ship share.
Speaker Change: Dsos, so it'll be up been revalued at alert.
Speaker Change: And I guess my classmate too that can answer that also affected the cost.
Speaker Change: Great. Thank you and another question I have is.
Speaker Change: Sure.
Speaker Change: The cargo market have you seen any changes in how this has impacted the competitive environment no. We didn't even see them enter those cargo market. So the party in the cargo America, there's really not an impact on us.
Speaker Change: Alright, Okay. Thanks, and the last question is looking back I don't think we've ever seen I can one domestic revenue up or down.
Speaker Change: QUADRA.
Speaker Change: Is there anything you'd call out that drove this performance I know you mentioned.
Speaker Change: Increase in E. Commerce is there anything else no I think that's probably where you're right, but it's our best record first quarter revenues sequentially over.
Speaker Change: A good quarter over the fourth quarter of 2025 as compared to previous years, but the biggest the biggest the two biggest drivers were the 16% increase in domestic revenue that we saw during the quarter and of course, the impact of the doubling of our AD hoc charter business quarter over quarter as we continue to be successful in winning new business in that in that.
Speaker Change: Sector and of course, the scheduled charter business from China, which we didn't have in Q1 of 'twenty 'twenty four it started in May 10th of 2024 was the first place.
Speaker Change: Great. Thank you I'll pass the line.
Speaker Change: Thank you.
Speaker Change: Question is from David Ocampo <unk> Securities. Please go ahead.
Speaker Change: Thanks, Good morning, everyone I just wanted to circle back Firstly I hear on Ken's question on the PMI.
Speaker Change: Just on the shorter ROTC to South America or at least at a lower margin than the international routes or should we be thinking about them still in the low 30% range.
Speaker Change: No David There is no real difference the only difference is in the number of block hours.
Speaker Change: Typically you see them I without getting into a detailed structure of that.
Speaker Change: Customer contracts, but a traditional Asia my contract is structured with a customer based on an aircraft type the customer requires.
Speaker Change: That we price out typically on a rate per block hour with a minimum number of block hours similar to our domestic network in some ways, but with a minimum number of block hours per month at the customer needs to pay for it that provides us with the return that we require for the investments we've made in the aircraft and then the customer determines the route that that aircraft flies. So if if.
Speaker Change: You know the typical <unk> contracts are basically anywhere a minimum anywhere from 200 to 250 block hours per month, if the customer chooses to put it on a route that flies exactly that number of months. So those are the type of returns that we would the margins that we would get on that business would be typical to what we've historically got we get the benefit in in you know it.
Speaker Change: High demand when there is.
Speaker Change: Global Air cargo demand is at a premium or are at a heightened level and customers are geographically at a at a higher level and the customer requires the aircraft to fly on a route let's say from from the from North America to Europe, or North America to Asia, which are long stage length route that may generate three or 400.
Speaker Change: Block hours per month, we get the incremental revenue there's no. There's no change in the rate. There is no different there is no discount for more hours or higher rate for lower hours, when we get the benefit of the incremental hours under higher route, but when we and we've had that we've had that happened in the past we haven't we've never had never been given credit for the incremental revenue when we were flying the longer stage routes, but when.
Speaker Change: Demand changes as it has in the customer changes the aircraft's Fortunately, we don't reduce the number of aircraft that we're operating like other cargo carriers may have experienced when we move when the customer changes it to a lower.
Speaker Change: A shorter route which is still still above or at or above the minimums were still protected but you see less incremental revenue, but the margins are similar.
Speaker Change: Got it that is very helpful color and then just last one for me. When you guys are thinking about a potential new routes to previously Unserved markets is that something that you guys could service with your existing fleet as you kind of take the network or does it actually require converting some of the airframes that you have into it.
Speaker Change: Cargo freighters.
Speaker Change: We were using the current tap the current trains that we have there. There's no difference there that's why we want to cross utilize the fleet that we have and a good example, just add to <unk> comments on that would be the you know the.
Speaker Change: Experience that we've had recently in the last year with our China flying we didn't take on that that flying by going out and acquiring additional aircraft to do it we did it with the existing capacity.
Speaker Change: Capacity the existing infrastructure the existing fleet that we had and then once we were able to build that business up from as you remember the way announced that last year. It was for three frequencies per week on a three year agreement. We rapidly grew to five or six frequency isn't to get us to the 700 frequency and with the commitment from the customer.
Speaker Change: That's the only point, where we would add.
Speaker Change: Aircrafts to accommodate.
Speaker Change: Commented our growth.
Speaker Change: I guess Oh at.
Speaker Change: What point.
Would you have to increase your volumes.
Speaker Change: To the point, where you would actually have to ask her to add freighters is it 5%, 10% just just trying to get Oh, I think I think we I think we were very good at demonstrating in 2024 look going into 2024, where we werent, adding any aircraft to our fleet and we are very confident that we could grow the revenues, 10% to 15% in each of our revenue segments, which we do.
Speaker Change: Men's which we clearly demonstrated we were we had the K, but I think we grew in excess of that.
Speaker Change: Using the existing fleet.
Speaker Change: That really led us into the decision to invest in further aircraft acquisitions to enable us to continue to grow at those levels. So we're very confident but not saying that we're going to grow at that level with the first quarter is a very good example, the fact that we were able to grow 16% on the domestic business and more than double our charter business. We did that with the existing fleet you know part of the capability was offset with the.
Speaker Change: Block hours that we were flying on the semi business, but we're very confident that we can grow I'm not saying that we're going to grow our business at those levels for the balance of the year considering the environment that we're in but we're very confident that we could with the existing fleet and we have the right fleet and we have the ability to utilize the freight de fleet them as required or needed by customers.
Speaker Change: And for the growth that we're experiencing as jamey pointed out.
Speaker Change: Oh, that's perfect. Thanks, Pauline Thanksgiving I'll hop back in queue.
Speaker Change: Thank you.
James: Next question is from James.
Speaker Change: From TD Cowen. Please go ahead.
Speaker Change: Thanks, very much good morning, everyone.
Speaker Change: I just want a return actually to Walter's.
Speaker Change: Question on the the the.
Speaker Change: The revenue per block hour and I know you kind of indicated obviously in this environment, it's really tough to think about the rest of the year, but the.
Speaker Change: This 16% year over year increase if we are thinking forward I assume a component of that is simple simply kind of annual price increases and then the balance.
Speaker Change: Is based on higher loads on the aircraft is that the right way of thinking about that and just so that we can then make our own assumptions on those two fronts sort of through the balance of the year to kind of think about the trend.
Speaker Change: Yeah, no our pricing increases are contracting year theyre not necessarily at the beginning of the year.
Speaker Change: But on a year over year basis than they would be there would be pricing benefit as part of that 16% increase I assume sure. Yeah. If everything stays constant we get you know, 2% to 3% CPI inflation increase.
Speaker Change: On all of our major Chipotle instead on all of our major contracts typically on the anniversary, which.
Speaker Change: David of the agreement the agreement, which are obviously, we we purposely ensured that there are different times of the year that they don't expire on the same on December 31st as an example.
Speaker Change: But we you know, we're seeing incremental growth in demand over and above that.
Speaker Change: Okay, Great. Thank you and then my second question, just again coming back to crew costs and thinking about crew cost per block hour, we talked about them year over year, but when you think about them on a sequential basis down almost 20% versus the fourth quarter and.
Speaker Change: Correct me, if I'm wrong, but the share price change in the fourth quarter was somewhat similar to the first quarter. So I'm.
Speaker Change: I'm, assuming that the impact of share based comp maybe wasn't that different between the two so.
Speaker Change: With that in mind and again, please correct me if I'm wrong on that but that sequential decline was quite significant.
Speaker Change: We attribute it then too again less overtime and more productive pilots that maybe had been in training and are now generating revenue and then.
Speaker Change: Do we think about Q1 as sort of a new baseline from which to work work forward on I realize there are seasonal differences in sort of food cost per block hour, but is this a new baseline to think about well you know what it is it December Q4 is traditionally as you stated our peak period. It. It's when we have the most flying.
Speaker Change: You know, we do additional charters, if youre aware for various customers. So obviously theres a lot more over time in Q4, just with pilot, but right throughout the organization. We are looking at Q1, we have released more pilots to two the line its something an initiative that we undertook last year, but you know just as fast if you hire pilots.
Speaker Change: Using this pilot and ever changing door do we see do we see the same for the rest of the year and again, it'll it'll really depend on the.
Speaker Change: Economy, if theres more charters, where the charterers are going Q1 is not a run rate at four for a quick cost we shouldn't look at it.
Speaker Change: Yes.
Speaker Change: Okay. Thank you very much playing.
Speaker Change: Thank you once again, please press star one if you have a question.
Speaker Change: The next question is coming back.
Speaker Change: Yes.
Speaker Change: That has been capital. Please go ahead.
Speaker Change: Hey, good morning, Thanks for taking my question just a quick one on.
Speaker Change: Flights from China can you just comment on how many were flown during the quarter was at the <unk>.
Speaker Change: Because it looks like that was what was in Q4.
Speaker Change: No. It was I don't think I'm wondering is is that we don't.
Speaker Change: Necessarily disclose the exact number of flights we fly over the next number of revenue by customer, but we were coming.
Speaker Change: Coming out of two.
Speaker Change: 2024 in the fourth quarter, when we were flying five or six frequencies per week, we would probably average four five excuse me in the first quarter were down slightly in February was soft because there was a two week gap during Chinese new year, where we were down two or three frequencies per week, but we expect to be back up in the second quarter too.
Speaker Change: Two 6% to seven frequencies buoy.
Speaker Change: Okay. Thanks, that's all I had I'll pass along.
Speaker Change: Thank you. The next question is from Steve Emerson from the Raymond James. Please go ahead.
Steve Emerson: Hey, guys. Thanks for the time.
Speaker Change: I want to go back to the demand question again, they've been asked a few different ways, but I think many of the big changes we've seen in the supply chain. It really occurred over the past seven eight week because it's been any notable detection of demand teams across your network over this more recent period relative to the quarter.
Speaker Change: So go ahead I'm, sorry, it's very hard to pin down the demand you know I mean, the global climate is changing everyday tariffs are changing every day again until we stated earlier, we're watching like everyone else we do.
Speaker Change: Utilize our aircraft in our fleet.
Speaker Change: As needed and we step in and do any charters that we can but we don't we can't predict what the next quarter is going to look like or the remainder of this quarter based on on demand.
Speaker Change: Market tariff.
Speaker Change: Okay. That's fair and then maybe just asking another previous question another way.
Speaker Change: There's been a lot of talk about pull forward volumes ahead of tariffs I recognize you're not directly exposed to those given your destination.
Speaker Change: We did see a lot of changes domestically and the manufacturing footprint and a bunch of other things with Canadians preparing to move product across the border in advance. It was there any pull forward benefit you think in the quarter like.
Speaker Change: Now moving and it has happened.
Speaker Change: Certainly not on the domestic side, Steve I think the domestic growth we saw in the quarter was all related to increasing e-commerce.
Speaker Change: <unk> and purchasing by Canadian consumers, the only area that we've seen we do some scheduled and unscheduled, but AD hoc charters for automotive.
Speaker Change: For the automotive industry that we've seen increased activity in the quarter.
Speaker Change: From South and Central America into the U S, which are auto parts that there. They are building inventories in advance of the tariffs, but that's really it's really not a material part of overall business yeah.
Okay very good.
Speaker Change: Huh.
Speaker Change: Yes.
Speaker Change: Thank you yeah, no further questions Richard.
Speaker Change: I would now like to telling me that.
Speaker Change: Dana.
Speaker Change: Thank you operator, and thanks, everyone for joining us today I appreciate you, making the time have a great rest of your day.
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Speaker Change: Uh huh.
Speaker Change: Ladies always this thing.