Q2 2025 Air Canada Earnings Call
Krista: My name is Krista and I will be your conference operator today.
Krista: At this time, I would like to welcome everyone to the Air Canada second quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise.
Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the Air Canada Second Quarter 2025 Results Conference Call.
Krista: After the speaker's 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 would like to withdraw your question, press star one again. Thank you.
Valérie Durand: And I would now like to turn the conference over to Valerie Durand, Head of Investor Relations and Corporate Sustainability. Valerie, you may begin.
All lines have been placed on mute to prevent any background noise. After the speaker's 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 1 on your telephone keypad. And if you would like to withdraw your question, press star 1 again. Thank you. And I would now like to turn the conference over to Valerie Durand, Head of Investor Relations and Corporate Sustainability.
Valérie Durand: Thank you, Christa.
Celery, you may begin.
Valérie Durand: Hello, bonjour et bienvenue à notre revue des résultats du deuxième trimestre 2025. Welcome and thank you for attending our second quarter 2025 earnings call. Joining us this morning are Michael Rousseau, our President and CEO, Mark Galardo, our EVP and Chief Commercial Officer and President of Cargo, and John Deibert, our EVP and CFO. Other executives are with us as well. Arielle Meloul, our Chief Human Resources Officer and Public Affairs, Craig Landry, our Chief Innovation Officer and President of Aeroplan, Mark Barbeau, our Chief Legal Officer and Corporate Secretary, and Mark Nasr, our EVP and Chief Operations Officer.
Valérie Durand: After our prepared remarks, we will take questions from equity analysts.
Thank you Krista. Hello welcome and thank you for attending our second quarter 2025 earnings call joining us. This morning are Michael Russo, our president and CEO Mark Gallardo or EVP and chief commercial officer and president of cargo and John debert our EVP and CFO. Other executives are with us as well. Our Chief Human Resources officer and public affairs. Craig laundry, our chief Innovation officer and president of Aero plan. Our chief legal officer and corporate secretary and Mark mazur our EVP and chief operations officer.
Valérie Durand: 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.
After our prepared remarks, we will take questions from equity analysts.
Valérie Durand: Please refer to our forward-looking caution in Air Canada's second quarter 2025 news release available on aircanada.com and on CDAR Plus.
Michael Rousseau: And now I'd like to turn the call over to Mike. Thank you, Valerie, and good morning, bonjour. Thank you all for joining us.
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 subjects to risks and uncertainties. Our actual results could differ materially from any stated expectations, please refer to our forward-looking caution in Air Canada's second quarter, 2025 news release available on are canada.com and on Cedar plus. And now I'd like to turn the call over to Mike.
Thank you, Valerie, and good morning, Bo. Thank you all for joining us.
Michael Rousseau: I'd like to first thank our employees for their commitment to excellence, passion, and dedication to customer service, all of which enabled us to be named the best airline in North America, and the most awarded Canadian carrier at the 2025 Skytrax World Airline Awards in June. I was so proud to see their professionalism recognized at the Paris Air Show. And as a founding member of Star Alliance, we are proud that Star has yet been named world again, world's best airline alliance at the same time. As we've discussed in the past, we are focused on improving the customer experience, leveraging technologies, process and training.
I'd like to first thank our employees for their commitment to Excellence, passion, and dedication to customer service, all of which enabled us to be named the best airline in North America and the most awarded Canadian carrier at the 2025, skytrack World Airline Awards in June
I was so proud to see their professionalism recognized at the Paris Air Show.
And as a founding member of Star Alliance, we are proud that star has yet been named world again, world's best airline alliance at the same time.
Michael Rousseau: We have significantly improved the customer experience over the past couple years, resulting in high NPS scores and strong on-time performance. And we have much more to do, all of which is expected to generate even greater loyalty, enhanced revenue and cost performance.
As we've discussed in the past, we are focused on improving the customer experience, leveraging technologies, processes, and training.
On-time performance.
And we have much more to do all of which is expected to generate even greater loyalty, enhanced revenue and cost performance.
Michael Rousseau: For the second quarter, our revenues were $5.6 billion. Operating income reached $418 million, and adjusted EBITDA was $909 million, with an adjusted EBITDA margin of 16.1%. We are generally pleased with our results, especially when considering 2025 has not been business as usual to date. We have effectively navigated through challenges in various geographies and demonstrated the strength and resiliency of our business and commercial strategy. We achieved these results by exercising discipline capacity management, taking quick action to capitalize on the strength of our diverse network, and capturing the demand for premium products. We carried on with the strategic expansion of our international network with new flights designed to provide easy connections for Canadians and international travelers and to take advantage of cargo opportunities.
For the second quarter, our revenues were 5.6 billion.
Operating income reached 418 million and adjusted ibida was 909 million with an adjusted ibida margin of 16.1%.
We are generally pleased with our results, especially when considering 2025 has not been business as usual to date.
We have a effectively navigated through challenges in various geographies and demonstrated the strength and resiliency of our business and Commercial strategy.
We achieved these results by exercising discipline capacity management, taking quick action to capitalize on the diverse Network and capturing the demand for premium products.
Michael Rousseau: Mark will speak more about this later. Our 2Q results were supported by Air Canada Cargo, Air Canada Vacations and AeroPlan, all vital to our diversified business. AeroPlan received three top prestigious Freddie Awards in the airline category. Best Program of the Year, Best Elite Program, and Best Promotion for AeroPlan's 40th anniversary. Aeroplan continues to grow, with third-party gross billings increasing 7% year-over-year. It also expanded its partnerships by adding Chexie, an innovative Canadian founded fintech platform.
We carried on with the strategic expansion of our international network, with new flights designed to provide easy connections for Canadians and international travelers, and to take advantage of cargo opportunities. Mark will speak more about this later.
Our Q2 results were supported by Air Canada, cargo, Air Canada Vacations, and the airline's overall plan. All vital to our diversified business.
They're all plan received 3 top prestigious Freddy Awards in the airline category, best program of the Year best Elite program and best promotion for Aero plans, 40th anniversary.
Aeroplan continues to grow the third party gross Billings increasing 7% year-over-year.
Michael Rousseau: This will allow members to earn rewards on payments for services like rent, bills and tax For more information, visit www.fema.gov During the quarter, we also launched fast free Wi-Fi for all Aeroplan members in North America. We are a leader in this increasingly competitive space for business and premium travelers with an offer that is reliable and more consistent than any other North American network carrier.
Partnerships by adding Chexy and Innovative Canadian have founded a fintech platform. This will allow members to earn rewards on payments for services like rent, bills, and taxes.
during the quarter, we also launched fast free Wi-Fi for all Aeroplan members in North America,
Michael Rousseau: Acting further, our commitment to enhancing shareholder returns, we completed our 500 million SIB in the quarter, reducing some pandemic-induced share dilution. We remain deeply committed to executing on our long-term strategic plan. Our focus remains on creating lasting value for our shareholders while fostering an inclusive, forward-thinking culture that drives our collective, sustainable success. We are confident in our business outlook and our ability to execute and we are reaffirming our full year guidance.
We are a leader in this increasingly competitive space for business and premium Travelers with an offer that is reliable and more consistent than any other North American Network carrier.
Acting further our commitment to enhancing shareholder returns. We completed our 500 million sib in the quarter. Reducing some pandemic induced, share dilution.
We remain deeply committed to executing on our long-term, strategic plan. Our Focus remains on creating lasting value for for our shareholders. While fostering, an inclusive Forward Thinking culture that drives our Collective sustainable success
Michael Rousseau: Before I turn it over to Mark, I'd like to thank our employees for looking after and safely transporting more than 11 million customers in the second quarter. I'm grateful for our customers' loyalty as well, which we look to earn every day.
We are confident in our business outlook and our ability to execute, and we are reaffirming our full-year guidance.
Before I turn it over to Mark, I'd like to thank our employees for looking after and safely transporting more than 11 million customers in the second quarter.
Michael Rousseau: Thank you, merci.
Mark Galardo: Over to you, Mark. Thanks, Mike. And good morning, everyone.
I'm grateful for our customers' loyalty as well, which we look to earn every day. Thank you. Merci. Over to you, Mark.
Mark Galardo: Bonjour à tous.
Mark Galardo: J'aimerais d'abord remercier nos employés. Thanks to our employees for delivering these results. Before I begin, I'd like to echo Mike's comments and congratulate our employees on the SkyTrack recognition. C'est un grand honneur de pouvoir féliciter nos employés pour les prix Skytrax bien mérités. This second quarter was not business as usual. We navigated through a period of significant economic and geopolitical uncertainty, and we contended with reduced demand for transborder travel, an evolving geopolitical landscape affecting the Middle East and India, increased competition in China, Hong Kong, and some currency fluctuations. Ultimately, we delivered solid results with our prize and yield performance leading North American network carriers.
Thanks, Mike, and good morning, everyone.
Thanks for your employees for delivering these results.
before I begin, I'd like to Echo Mike's comments and congratulate our employees on the sky track recognitions
This second quarter was not business as usual.
We navigated to a period of significant economic and geopolitical uncertainty. And we contended with reduced demand for transport to travel and evolving, geopolitical landscape affecting the Middle East and India.
Increased competition in China. Hong Kong and some currency fluctuations.
Mark Galardo: The overall Q2 performance further validates our commercial fees. Our network and customer diversity, in tandem with our strong foundations, enables Air Canada to better adapt to evolving market conditions. The main highlights of Q2 were the strong performance in the transatlantic, the growth of our six freedom segments and the continued and sustained demand for our premium product. Overall, our operating revenues increased 2% year-over-year to $5.6 billion. TRASM declined 0.5% year-over-year, with growth in cargo and other revenues offsetting some of the decline in unit passenger revenues. On the passenger side of the business, our revenues rose 1% on a 2.5% increase in capacity.
Ultimately, we delivered solid results with our prize in yield performance. Leading North American network carriers.
the overall, Q2 performance performance further validates, our commercial thesis,
Our network and customer diversity, in tandem with our strong foundations, enables Air Canada to better adapt to evolving market conditions.
The main highlights of Q2 were the strong performance in the transatlantic.
The growth of our 6, Freedom segment, and the continued and sustained demand for our premium products.
Overall, our Oprah, our operating revenues increased 2% year-over-year to 5.6 billion.
Trauma declined, a half percent year-over-year with growth in cargo and other revenues. Offsetting some of the decline in unit passenger revenues,
Mark Galardo: We made the right early calls to match our capacity to the evolving demand landscape, and our diversified network and disciplined capacity management supported strong performance in international overall. Notably, the Atlantic and Latin American markets saw revenue growth of 5% and 11% respectively, driving a 2% unit revenue increase in these markets. And as anticipated, demand continues to grow off-peak towards Southern Europe as our customers take advantage of milder temperatures and fewer crowds. The shift of Easter into the second quarter this year also supported the growth in these markets. Across the Pacific, we continue to see increased competitive capacity, pressuring yields in the region, primarily from China and Hong Kong.
On the passenger side of the business, our revenues rose 1% on a 2.5% increase in capacity.
We made the right early calls to match our capacity to the evolving demand landscape.
In a diversified Network and disciplined capacity management supported strong performance in international overall.
The Atlantic and Latin American markets saw revenue growth of 5% and 11%, respectively, driving a 2% unit revenue increase in these markets.
Continues to grow off peak towards southern Europe as our customers. Take advantage of milder temperatures and fewer crowds.
The shift of Easter into the second quarter this year also supported the growth in these markets.
Mark Galardo: This translated into lower unit revenues as overall industry supply and demand continue to normalize. We are very pleased with our six freedom revenues, which grew 17% with strong performance in the Atlantic and Pacific markets. Sixth Freedom Traffic is growth is core to our revenue growth strategy. In the transborder market, we continue to see less demand for trips to the U.S. revenues declined 11% on 8% less capacity, despite stronger yields year over year, in part, due to lower industry capacity in the market. The year-over-year decline in bookings is consistent with our previous commentary. Ending with domestic, we observed industry capacity growth amid redeployments from the transborder market.
Across the Pacific. We continue to see increased competitive capacity. Pressuring yields in the region primarily from China and Hong Kong this translated into lower unit revenues, as overall industry supply and demand continue to normalize.
We are very pleased with our 6, Freedom revenues, which grew 17% with strong performance in the Atlantic and Pacific Market.
6. Freedom traffic growth is core to our revenue growth strategy.
In the transborder market, we continue to see less demand for trips to the U.S.
Revenues declined 11% on 8% less capacity.
Despite stronger yields year-over-year in part due to lower industry capacity in the market.
The year-over-year decline in bookings is consistent with our previous commentary.
Mark Galardo: We kept a strong and steady presence and offered more options for travelers to explore the country. increasing capacity on key leisure destinations. Passenger revenues grew 3% year-over-year with a 2% decline in unit revenue. Shifting to cabins where demand for our premium products was quite strong. Premium cabin revenues grew 5% year over year with robust performance in international markets. Premium revenue is represented close to 31% of total passenger revenues in the second quarter, which is an expansion of more than one percentage point year over year. Overall, and fundamental to our passenger revenue results was our diverse network, our agility and aligning capacity, shifting demand, our leading premium and brand affair offerings and our revenue management capabilities.
Ending with domestic. We observed industry capacity growth and made amid redeployment from the transborder market.
We kept a strong and steady presence and offered more options for travelers to explore the country.
Increasing capacity on key Leisure destinations.
Passenger revenues, grew, 3%. Year-over-year with a 2% decline in unit revenues.
Shifting to cabins, where demand for our premium products was quite strong.
Premium cabin revenues grew 5% year-over-year, with robust performance in international markets.
Prem premium revenues represented close to 31% of total passenger revenues in the second quarter, which is an expansion of more than 1 percentage point year over year.
Mark Galardo: We are pleased with the outcome of this quarter. Now over to cargo where revenues increased 10% to $253 million in the quarter as shippers continue to adjust the global trade landscape. We anticipate a more normal environment for the rest of the year. Other revenues also performed strongly in the quarter. This was due to a solid performance at Air Canada vacations, with higher ground package revenues and increased non-air revenues related to aeroplanes. We have built a strong revenue base at ACB on which we'll expand in the second half as travelers seek out new and exciting destinations.
Overall and fundamental to our passenger Revenue. Results was our diverse Network our agility in the lining capacity of Shifting, demand are leading premium and brand Affair offerings and our Revenue management capabilities. We are pleased with the outcome of this quarter.
Now over to Cargo where revenues increase 10% to 253 million in the quarter as shippers, continue to adjust the global trade landscape.
We anticipate a more normal environment for the rest of the year.
Other revenues also perform strongly in the quarter.
This was due to a solid performance at Air, Canada vacations, with Higher Ground package, revenues and increased non-air revenues related to Aeroplan.
Mark Galardo: We see strong momentum for the Sun market for the balance of the year. And the excitement was evident in the second quarter as we expanded the breadth of our network towards Naples, Porto, Prague, and Manila. Our flights between Vancouver and Manila now link Canada and the Philippines year round, solidifying our position in North America's airlines serving the most nonstop destinations in Southeast Asia. We also restarted flights to London Heathrow from Ottawa and Osaka from Toronto, launched flights to Edinburgh from Montreal, and enhanced our rail connections in Germany with a co-chair on Lufthansa Express Rail.
We have built a strong revenue base with ACV, on which we'll expand in the second half as travelers seek out new and exciting destinations.
We see strong momentum for the sun market for the balance of the year.
And the excitement was evident in the second quarter as we expanded the breadth of our Network towards Naples, Porto, Prague and Manila.
Our flights between Vancouver and Manila Now. Link Canada and the Philippines year round solidifying, our position in North America's Airlines serving the most nonstop destinations in Southeast Asia.
We also restart a flights to London Heathrow from Ottawa and Osaka from Toronto.
Launch flights to Edinburgh from Montreal and enhance our real connections in Germany with a co-chair on Lufthansa Express Rail.
Mark Galardo: And as we zone in on the second half of the year, there are three components that support our view. First, we continue to witness strong demand for our international network through the end of the year and into early Q1 2026. As booking trends continues to evolve, we see greater relative strength in the fall and early winter periods versus historical norms. Secondly, we've made continuous adjustments to our hub airport schedules and operations to better favor six freedom travel, reducing elapsed travel times and improving our overall competitiveness in the market. Third, with A220s progressively returning to line operations, our upcoming schedules offers enhanced network coverage and schedule quality.
And as we Zone in on the second half of the Year, there are 3 components that support our view.
First, we continue to witness strong demand for international Network, through the end of the year and into early q1 2026.
As booking Trends continues to evolve, we see greater relative strengths in the fall and early winter periods versus historical norms.
Secondly, we've made continuous adjustments to our hub airport schedules and operations to better favor freedom of travel, reducing elapsed travel times and improving our overall competitiveness in the market.
Mark Galardo: This will unlock greater connecting opportunities to our international network. And further, as we discussed at our last Investor Day, we continue to implement Brandon's Fair and other revenue improvement initiatives. We are in the early innings of these enhancements and we're seeing promising initial results. As of today and across the system, we anticipate a stable demand and yield environment for the fall. We continue to see slight pressure on the economy cabin yields, which we expect will be offset by premium cabin strength. The fourth quarter traditionally has a shorter booking curve, so still relatively early to provide additional colour, but we will continue to use our proven playbook to manage and deliver on our plan.
Third with 8,220 is progressively returning to line operations. Our upcoming schedules offer enhanced network coverage and schedule quality. This will unlock greater connecting opportunities to our international network.
And further as we discuss at our last investor day, we continue to implement branded fair and other Revenue Improvement initiatives. We are in the early Innings of early Innings of these enhancements and we're seeing promising initial results.
As of today, and across the system, we anticipate a stable demand and yield environment for the fall.
We continue to see slight pressure on the can economy cabin yields, which we expect will be offset by premium cabin strength.
The fourth quarter traditionally, has a shorter booking curve, so still relatively early to provide additional color.
But we will continue to use our proven Playbook to manage and deliver on our plans.
Mark Galardo: We are closely monitoring the state of the Canada-U.S. sector, where we see a decrease in overall market capacity. We retain ample flexibility to respond to changing market conditions. We look forward to recently announced expansion into Latin America, returning to Rio and Lima and adding Guatemala to the network. These additions, along with the routes we've already mentioned, leverage the strength of our brand and our hubs to further diversify our revenue streams and create more six freedom opportunities. In terms of capacity, we expect capacity to increase between 3.25 and 3.75% in Q3. We reaffirmed our expectation for the full year capacity to grow between one and three percent.
We are closely monitoring the state of the Canada-U.S. sector, where we see a decrease in overall market capacity.
We retain ample flexibility to respond to changing market conditions.
We look forward to our recently announced expansion into Latin America, returning to Rio and Lima, and adding Guatemala to the network.
These additions along with the roots we've already mentioned, Leverage The Brand and our hubs. To further diversify our revenue streams and create more 6, Freedom opportunities.
In terms of capacity, we expect capacity to increase between 3.25% and 3.75% in Q3.
We reaffirmed our expectation for the full year capacity to grow between 1 and 3%.
Mark Galardo: Looking beyond 2025, we eagerly anticipate the arrival of our first Airbus A321XLR in 2026. We have exciting plans for this game-changing aircraft, which is poised to unlock new and profitable market opportunities. Stay tuned as we plan to unveil our summer 2026 XLR destination in the coming weeks. We are confident in our growth opportunities fueled by Canadian demographics, six freedom network expansion and market leading products and offerings. We are executing our long-term plan rooted in Air Canada's proven commercial strategy and anchored on our diverse network, our competitive fleet and well-positioned hubs, all of which are supported by investments and propelled by a strong team that can execute.
Looking Beyond 2025, we eagerly anticipate the arrival of our first Airbus a321xlr in 2026.
We have exciting plans for this game-changing aircraft, which is poised to unlock new and profitable market opportunities.
Stay tuned as we plan to unveil our summer 2026 XLR destination in the coming weeks.
We are confident in our growth opportunities, fueled by Canadian demographics.
6. Freedom, network expansion, and market-leading products and offerings.
We are executing our long-term plan rooted in Air Canada's proven commercial strategy and anchored on our diverse network, competitive fleet, and well-positioned hubs.
John Deibert: Thank you. Merci, John, and over to you.
all of which are supported by investments and propelled by a strong team that can execute.
Thank you, merci, John. And over to you.
John Deibert: Thanks, Mark.
John Deibert: Good morning, everyone. Bonjour à tous. A shout out to our employees for their commitment to delighting our customers and executing in a challenging environment in Q2. Un gros merci à toute l'équipe. Félicitations pour la reconnaissance de Skytrax et vos efforts exceptionnels. In the second quarter, we reported an operating income of $418 million and adjusted EBITDA of $909 million. with an adjusted EBITDA margin of 16.1%. Operating expenses grew 3%, supporting capacity and traffic growth, absorbing the impact of a weaker Canadian dollar while benefiting from the lower jet fuel prices, which declined 16% year-over-year in Q2. This includes a hedging gain of $19 million realized in the quarter.
Thanks Mark. Good morning everyone. A shout out to our employees for their commitment. To delighting our customers and executing in a challenging environment in Q2.
In the second quarter, we reported an operating income of 418 million and adjusted ibida of 909 million.
With an adjusted ibida margin of 16.1%.
Operating expenses grew 3%, supporting capacity and traffic growth, absorbing the impact of a weaker Canadian dollar while benefiting from the lower jet fuel prices, which declined 16% year-over-year in Q2.
John Deibert: With fuel prices trending up in the last month, it's worth noting that we have a hedging position for approximately 17% of the anticipated purchases of jet fuel for the third quarter at levels below current spot prices. Q2 adjusted CASM of $0.144 increased 6.4% year over year, primarily due to higher unit labor costs and to a lesser extent, higher depreciation, airport and navigation fees, and catering. This was partially offset by a 2.5% year-over-year growth in capacity and labor-related and infrastructure productivity gains.
this includes a hedging gain of 19 million realized in the quarter.
with fuel, with fuel prices, trending up in the last month, it's worth noting that we have a hedging position for approximately, 17% of the anticipated purchases of jet fuel for the third quarter at levels below, current spot prices
Q2 adjusted CASM of 14.4 cents increased 6.4% year-over-year, primarily due to higher unit and labor costs, and to a lesser extent, higher depreciation airport and navigation fees, and catering.
This was partially offset by a 2.5% year-over-year. Growth in capacity and labor related and infrastructure productivity gains.
John Deibert: diving into cost elements a little further. Note that labour expenses increased 16% year-over-year on less than 1% headcount growth. while largely in line with our expectations and planning. Year-over-year compares in overall labour costs will be challenging in Q2 and Q3. The main reasons for this include, first, The realized and estimated impacts of achieved and anticipated new collective agreements with our pilots ratified in Q4 2024. and our flight attendants currently being negotiated. Second, the non-cash impact of the recent share price appreciation in Q2 on stock-based compensation accounting expense. And finally, we saw some year-over-year volatility in other payroll and wage accruals.
Diving into cost elements, a little further.
Note that labor expenses increased by 16% year-over-year, with less than 1% growth in headcount.
While largely in line with our expectations and planning.
Year-over-year Compares in overall. Labor costs will be challenging in Q2 and Q3
the main reasons for this include,
First.
The realized and estimated impacts of achieved and anticipated. New Collective agreements with our Pilots ratified in Q4 2024.
And our flight attendants are currently being negotiated.
Second, the non-cash impact of the recent share price appreciation in Q2 on stock, based compensation accounting expense.
And finally, we saw some year-over-year volatility in other payroll and wage approvals.
John Deibert: As we have said in prior calls, we expect some unit cost pressures to continue as cost escalation makes its way through the system on items such as labor, airport and navigation fees, depreciation and maintenance. And when focusing on year-over-year comparisons for adjusted chasm in Q3 specifically, keep in mind the favorable cost adjustments recorded in Q3 2024. We are proactively driving management's actions to limit these increases. We are making strong progress on our $150 million cost reduction program and expect to deliver most of the targeted savings in full year 2025. We're also focused on developing and implementing sustainable unit cost improvement strategies, as we outlined in our December 2024 investor.
As we have said in Prior calls, we expect some unit cost pressures to continue. As cost. Escalation makes its way through the system on items such as labor airport and navigation fees.
The appreciation and maintenance.
And when focusing on year-over-year comparisons for adjusted Chasm and Q3 specifically,
Keep in mind the favorable cost adjustments recorded in Q3 2024.
We are proactively driving management actions to limit these increases. We are making strong progress on our $150 million Cost Reduction Program and expect to deliver most of the targeted savings in full year 2025.
We're also focused on developing and implementing sustainable unit cost improvement strategies, as we outlined in our December 2024 Investor Day.
John Deibert: For full year 2025, while we do see some pressure to the upper end of the range, we maintain our full year adjusted chasm guide of $14.25 to $14.50.
14.5 cents.
John Deibert: turning to free cash flow generation, balance sheet management and capital allocation. Cash From Operations reached $895 million, showing strong conversion of EBITDA to cash from operations over the past 12 months. aligning well to our long-term target. In Q2, we generated a free cash flow of $183 million, $268 million lower year-over-year, largely due to higher planned CapEx. Year to date, free cash flow was $1 billion at the end of the first half of 2025, giving us confidence in our free cash flow target for full year 2025. Moving on to our balance sheet, total liquidity was $8.4 billion, down about $1 billion from the first quarter.
Turning to free cash flow generation, balance sheet management, and capital allocation.
Cash from operations reached $895 million, showing strong conversion of EBITDA to cash from operations over the past 12 months.
Aligning. Well to our long-term targets.
In Q2, we generated free cash flow of 183 million.
$268 million lower year-over-year, largely due to higher plant capex.
Year to date. Free cash flow was 1 billion at the end of the first half of 2025, giving us confidence in our free cash flow Target for full year 2025.
Moving on to our balance sheet. Total liquidity was 8.4 billion down about 1 billion dollars from the first quarter.
John Deibert: This was largely due to cash used for financing activities, reflecting the reduction of debt and lease liabilities and funds used to purchase shares for cancellation. Leverage ratio remains stable at 1.4 as at June 30, 2025, emphasizing the strength of our balance sheet, and that it is well within our 2x or less leverage target. highlighted at our last Investor Day. In Q2, we made another very important step in our shareholder return program by launching and completing a $500 million substantial issuer bid, repurchasing 26.6 million shares at $18.87. As you may recall, we have earmarked up to $2 billion for share buyback initiatives from 2024 through 2028.
This was largely due to cash used for financing activities, reflecting the reduction of debt and Lease liabilities and funds used to purchase shares for cancellation.
Leverage ratio made stable at 1.4 as of June 30, 2025, emphasizing the strength of our balance sheet and that it is well within our 2X or less leverage target.
Highlighted at our last investor day.
In Q2, we made another very important step in our shareholder return program by launching and completing a hundred million dollar substantial issuer bid for purchasing 26.6 million shares at $18.80.
John Deibert: In aggregate, the Q3 2024 NCIB and the Q2 SIB have returned $1.3 billion to shareholders. and we have purchased more than 62 million shares for cancellation. At June 30th, the total issued in outstanding shares were approximately $296 million. And after the quarter ended, we repaid in full the balance of the convertible notes for a total amount of approximately $382 million, including accrued interest. The notes were cancelled and their associated potentially issuable shares will not be a consideration in computing the dilutive earnings per share for future quarters, except for the year-to-date calculation for the period to July 1st, 2025.
As you may recall, we have earmarked up to $2 billion for share buyback initiatives from 2024 through 2028.
In aggregate, the Q3 2024 ncib and the Q2 sib have returned 1.3 billion dollars to shareholders. And we have purchased more than 62 million shares for cancellation.
At June 30th. The total issued in outstanding shares were approximately 296 million.
And after the quarter ended, we were paid in full the balance of the convertible notes for a total amount of 380 approximately 382 million, including a crude interest.
The notes were canceled and their Associated. Potentially issuable shares will not be a consideration in Computing. The diluted earnings per share for future quarters except for the year-to-date calculation for the period to July 1st 2025.
John Deibert: With the progress made to date and the anti-dilutive capital deployment actions completed, we are confident in achieving our objective to have our fully diluted share count below $300 million by 2028.
With the progress made to date and the anti-dilutive capital deployment actions completed. We are confident in achieving our objective, to our to have our fully diluted share, count below 300 million by 2028.
John Deibert: With our balance sheet in order, our shareholder return program progressing, let's turn to capital allocation towards investment in our fleet, enabling profitable growth. In the quarter, we added three A220s and two 737 MAX aircraft. We expect to receive another five A220s and one 737 MAX by December with CAPEX to be about $3 billion for full year 2025. We have spent approximately $1.4 billion a year today. Deliveries of the A321XLR will begin in 2026, totaling 11 aircraft by the end of the year. We also expect to receive our first two 787-10 aircraft and another four 737 MAX.
With our balance sheet and order our shareholder return program. Progressing, let's turn to Capital allocation towards investment in our Fleet enabling profitable growth.
In the quarter, we added 38220 and 2737 Max aircraft.
We expect to receive another 58 to 20 and 1 737 MAX by December, with capital expenditures expected to be about $3 billion for the full year 2025.
We have spent approximately $1.4 billion a year today.
Deliveries of the a321xlr will begin in 2026. Totaling 11 aircraft by the end of the year.
John Deibert: There are no significant changes to our CapEx expectations for 2026, and the changes in our disclosures are mostly linked to the timing of maintenance events and favorable foreign exchange variants since Q1 2025. Our fleet strategy is financially accretive as it is closely linked to our growth strategy. benefits our customers and drives a superior aircraft economics, scale, efficiency, and network optimization benefits. These new aircraft allow us to initiate new destinations and enhance our existing service and onboard products. As Mark noted, we will be sharing exciting XLR destinations for the 2026 schedule in the coming week. Our entire team is enthusiastically ready to welcome this aircraft type to the fleet.
We also expect to receive our first 278710 aircraft and another 4737 Maxes.
There are no significant changes to our capex expectations for 2026.
And the changes in our disclosures are mostly linked to the timing of Maintenance events and favorable, foreign exchange variants since q1 20125.
Our Fleet strategy is financially accretive as it is closely linked to our growth strategy.
Benefits our customers and drives. Superior aircraft economics, scale, efficiency and network optimization benefits.
These new aircraft allow us to initiate new destinations and enhance our existing service and onboard products.
As Mark noted, we will be sharing exciting XLR destinations for the 2026 schedule in the coming weeks.
Our entire team is enthusiastic and ready to welcome this aircraft type to the fleet.
John Deibert: As we look to the remainder of 2025 and beyond, our confidence in our business outlook remains solid. Today, we reaffirmed our guidance for the full year 2025. We continue to expect 2025 adjusted EBITDA to be between $3.2 and $3.6 billion. We assume jet fuel averaging at $0.92 per liter for 2025, which is expected to represent an impact of about $200 million on the full year from our prior expectation of $0.88 per liter. We now anticipate the Canadian dollar will trade at an average of $1.39 per U.S. dollar for the year. This is lower than the levels seen in the first five months of 2025 and should produce a small EBITDA tailwind to our prior expectations of $1.40 per US dollar.
as we look to the remainder of 2025 and beyond our confidence, in our business, Outlook remains solid,
2025.
We continue to expect 2025 adjusted Evida to be between $3.2 billion and $3.6 billion.
We assume jet fuel averaging at 92 cents per liter for 2025.
Which is expected to represent an impact of about $200 million on the full year from our prior expectation of 88 cents per liter.
We now anticipate the Canadian dollar will trade at an average of ¥139 for the U.S. dollar for the year.
This is lower than the levels. Seen in the first 5 months of 2025 and should produce a small ibida Tailwind to our product expectations of a $1.40 per US dollar.
John Deibert: Our 2025 guidance update continues to assume a marginal Canadian GDP increase aligned with market expectations. As previously mentioned, we continue to expect adjusted CASM to be between $0.1425 and $0.145, and remain focused on managing controllable factors and mitigating industry-wide cost pressures. This includes being disciplined and selective in discretionary spending. seeking and delivering on efficiency and productivity initiatives and being agile and proactive in making rapid strategic capacity adjustments as conditions evolve.
Our 2025 guidance update continues to assume a marginal Canadian GDP increase aligned with Market expectations.
As previously mentioned, we continue to expect adjusted Chasm to be between a 14 and a quarter and 14 and a half cents.
And remain focused on managing controllable factors, and mitigating industry-wide cost pressures.
This includes being disciplined and selective in discretionary spending.
Seeking and delivering on efficiency and productivity initiatives and being agile and proactive in making rapid strategic capacity adjustments as conditions evolve.
John Deibert: As indicated earlier, we are maintaining our 2025 free cash flow guide at breakeven plus or minus $200 million.
As indicated earlier, we are maintaining our 2025 free cash flow guide at break-even, plus or minus $200 million.
John Deibert: Now, perhaps a word on trade and tariffs. We are continuously assessing the evolution of these regimes. Despite some modest impacts, we expect 2025 tariff costs to remain rather contained, particularly considering our plane deliveries for the remainder of this year. We continue to work with suppliers to mitigate any potential impacts and to better understand the longer term implications and necessary actions as more permanent and sustained policies are formalized.
Now, perhaps a word on trade and tariffs, we are continuously assessing the evolution of these regimes.
Despite some modest impacts, we expect 2025 tariff costs to remain rather contained, particularly considering our plane deliveries for the remainder of this year.
We continue to work with suppliers to mitigate any potential impacts and to better understand the longer term implications and necessary actions as more permanent and sustained, policies are formalized.
John Deibert: We have made good progress towards our longer term goals thus far. We remain focused on our 2028 targets and energized about our 2030 ambitions. Our strategic long-term plan will help us maximize shareholder value and secure a successful and prosperous future for Air Canada and all its stakeholders.
We have made good progress towards our longer term goals, thus far.
We remain focused on our 2028 targets and energized about our 2030 ambitions.
Michael Rousseau: Back to you, Mike. Great. Thank you, John. Our focus, our commitment and discipline are driving our long term plan execution, managing the risk environment, and taking advantage of opportunities as they arise. We are also laser focused on on ensuring an efficient operation during the peak summer period and building on gains achieved over the last few years.
Our strategic long-term plan will help us maximize shareholder value and secure a successful and prosperous future for Canada and all its stakeholders.
Back to you, Mike.
Great. Thank you, John. Our focus, our commitment, and our discipline are driving our long-term plan execution.
Managing the risk environment and taking advantage of opportunities as they arise.
We are also laser focused on on ensuring an efficient operation during the peak summer period and building on gains achieved over the last few years.
Michael Rousseau: Perhaps a word on our negotiations with our flight attendant union, CUPE, currently seeking a strike mandate should an agreement not be reached. Such a vote is a normal step in the negotiation process and does not mean that any disruption will take place. We remain committed to the bargaining process and available to continue negotiations towards a fair and equitable collective agreement. one that recognizes the contributions of our flight attendants. and supports the competitiveness and long-term growth of the company. We remain focused on what we can control, including managing costs diligently, disciplined capacity management to match supply with demand, running our operations effectively, and delivering a positive travel experience to our customers.
Perhaps a word on our negotiations, with our flight attendant union, QP, currently seeking a strike mandate should an agreement not be reached.
Such a vote is a normal step in the negotiation process and does not mean that any disruption will take place.
We remain committed in to the bargaining process and the available to continue to go towards a fair and Echo Collective Agreement.
1 that recognizes the contributions of our flight attendants and supports the competitiveness, and long-term growth of the company.
Michael Rousseau: Our global network and efficient fleet connecting Canada to the rest of the world, along with our diversified revenue base, product offerings, strong balance sheet, liquidity management, and cost reduction program are key strengths that we will continue to develop and leverage. We have a very strong foundation which continues to improve.
We remain focused on what we can control including managing costs diligently disciplined capacity management to match Supply with demand running our operations effectively and delivering a positive travel experience to our customers.
Our global network and efficient fleet, connecting Canada to the rest of the world, along with our diversified revenue base, product offerings, strong balance sheet, liquidity management, and cost reduction program, are key strengths that we will continue to develop and leverage.
Michael Rousseau: We are executing our strategic plan to honor our long term commitments and drive sustained positive impact for all stakeholders.
We have a very strong foundation, which continues to improve.
Valérie Durand: Thank you, Marcy.
We are executing our strategic plan to honor our long-term commitments and drive sustained positive impact for all stakeholders.
Valérie Durand: Valerie? Thank you, Mike. And thank you all for joining us this morning.
Thank you. Merci Valerie.
You Mike.
Valérie Durand: Nous vous remercions de votre grand intérêt ce matin. We're now ready to take your questions.
Valérie Durand: Should you require further details following this call, our Investor Relations team is available for support.
Krista: Back to you, Christa. Thank you.
And thank you all for joining us this morning. We're now ready to take your questions. Should you require further details following this, our investor relations team is available for support. Back to you, Krista.
Krista: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star 1 again. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue.
Christopher Murray: And your first question comes from Chris Murray with ATB Capital Markets. Please go ahead. Yeah, thanks, folks. Good morning. Um, maybe just my first question, it's a little bit different. But just thinking about some of the answers we've seen about airline alliances in the last little bit. It looks like maybe, maybe American is looking to join up with Porter. We've seen certainly some some talk about about WestJet and Delta and what that could mean. So I'm just wondering, you know, the success we've had with Six Freedom and how you how you've been able to deploy into international markets.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star 1 again, we also ask that you limit yourself to 1. Question in 1, follow up for any additional questions. Please, reach you in your first question comes from Chris Murray with ATB Capital markets, please go ahead.
Mark Galardo: It seems like, you know, a lot of a lot of ways you've you've kind of done it very well. And now you're starting to get some, some imitators, if you will. How do you think those airline alliances as they enter Canada could impact how you guys are operating? Any colour on how that could come to about would be would be helpful.
Maybe just my first question, it's a little bit different. Um, but just thinking about um some of the announcements we've seen about um Airline alliances in the last little bit. Um, it looks like maybe um maybe American is looking to to join up with Porter. We've seen certainly some some talk about um, about WestJet and Delta and what that could mean. So I'm just wondering, you know, you know the success we've had with 6, freedom and, and how you how you've been able to deploy into International markets. Um, it's like, you know, a lot of a lot of ways you've you've kind of done it very well and now you're starting to get some, um, some imitators if you will. Um,
I think those, uh,
Airline alliances as they enter Canada could impact, um, how you guys are operating. Um, and if any, any color on how that could come about would be, uh, would be helpful.
Mark Galardo: Hi, Chris, Mark here. Excellent question. So, you know, certainly we're seeing a evolving alliance landscape. As it pertains to Six Freedom, I don't see much of an impact here, because we've got a Porter American Alliance, which will largely be a Canada-U.S. sector. We have obviously, you know, WestJet and Delta that had a longstanding partnership, and you've seen WestJet put a lot of capacity into Delta Hubs. I don't see that really impacting our Six Freedom franchise. And I don't really, you know, we have got a very strong relationship with United. We have a joint venture with United on Transporter, which has been very, very successful.
Mark Galardo: So at this time, I don't really see much of a change to the way we're operating today.
Hi Chris. Mark here. Um, excellent question. So, you know, certainly we're seeing a evolving Alliance landscape um, as it pertains to 6 freedom. I I don't see much of an impact here because we've got a porter American, uh, Alliance which will largely be a Canada US, uh, sector. Uh, we have obviously, you know, West shed and Delta that had a long-standing partnership. And, and you've seen, uh, West ship put a lot of capacity into Delta hubs. Um, I don't see that really impacting our 6 Freedom. Uh, franchises, uh, and and I, and I don't really, you know, we've got a very strong relationship with United. Uh, we have a joint venture with United, on Transit border, which has been
Mark Galardo: And Chris, let me just add a point. Star Alliance is the best alliance out there. And we are doing some things to better tie together the technology and customer experiences among all the carriers. So I think, you know, we're certainly going to be raising our game as well from a Star Alliance perspective. Okay, that's helpful.
Been very, very successful. So at this time, I don't really see much of a change to the way we're operating today.
And uh, Chris let me just add a point. Um,
Star Alliance is the best Alliance out there and uh, we are doing some things to better tie together the technology and and the customer experiences among all the carriers. So I think, you know, we're certainly going to be raising our game uh, as well from a star lines perspective.
John Deibert: You know, John, maybe this one's for you a little bit more. Back at Investor Day, we talked a little bit about the bridge between EBITDA and EPS, and it seems to be a little bit noisy as we go in through the year. Can you just remind us kind of how we should be thinking about tax and tax positions as we go through the rest of the year? Anything else that might kind of be moving stuff around, anything in depreciation or interest to be aware of, just as we try to make that bridge down now that we also have kind of a revised share count number, which I would assume will be relatively stable for the rest of the year?
John Deibert: Yeah, thanks for the question, actually, and I think it's good to probably continue to exchange on this as we particularly close out the year and then set up 2026. But a couple of things maybe just to think about. One, from a tax point of view, really since the pandemic through last year, we had kind of an off-balance sheet tax asset, right? So every time you'd have tax expenses, they'd be offset by a recognition of the tax asset, usually in the same quarter. That tax asset was fully recognized back end of last year. So the one thing is that starting in 2025 here, especially on the compares to 24, you'll see the tax expense, the accounting expense every quarter.
Okay, that's awful. Um, you know, John maybe this was for you a little bit more, um, back in investor day, we talked a little bit about the bridge between Eva and EPs and it seems to be a little bit noisy as we go in through, uh, through the year. Um, can you just remind us, um, kind of how we should be thinking about tax and tax positions. As we go through the rest of the year, anything else that might kind of be moving stuff around or anything and depreciation or, or or interest to be aware of just just, as we try to make that bridge down. Now that we also have a kind of a revised Share account number, which I would assume will be relatively stable for the rest of the year. Yeah.
Yeah, thanks for the question actually. And I think it's good uh probably continue to to to exchange on this as we uh particularly close out the year and and then set up 2026. But um a couple of things maybe just to to to think about 1 from a tax point of view. Uh really since the pandemic through last year we uh we had kind of an off-balance sheet tax asset, right? So every time you'd have tax uh expenses they'd be offset by a recognition of the
John Deibert: And so that does create kind of a year over year differential in the quarter. You feel that certainly as you look at Q2 2025 versus Q2 2024. It's probably, you know, it's a significant part of the gap between one to the other. The other element that, and then on the taxes, maybe just again here, you know, things move around in terms of the rates themselves, but think effective tax or statutory tax rates somewhere around 26 and a half percent. There are some items, for example, meals and expenses that don't get full deductibility from a tax perspective in Canada.
The tax asset usually, in the same quarter that tax asset was fully recognized, the back end of last year. So the 1 thing is that starting, you know, in 2025 here especially on the compares to 24, you'll see the tax expense uh the accounting expense every quarter. And um and so that does create kind of a year-over-year, uh differential in in the quarter. You feel that uh, certainly as you look at Q2, 2025 versus Q2 2024, um, it's probably, uh, you know, it's a significant part of the, uh, the gap between 1 to the other. Um,
John Deibert: So effective tax rate is closer to 30, 31%, you know, depending on other elements. So just think about that as you tax effect earnings.
John Deibert: The other piece is depreciation. So you're gonna have a multi-year growth and depreciation and we talked a little bit about this at investor day, but that'll go year over year for the next few years. And, you know, there's no specifics here, but think about a couple of hundred million dollars a year of depreciation and expense amortization growth as we go through between here and 2030, as we work through our CapEx cycle. So that as well, non-cash, but has an EPS impact. And so those are the two major kind of differentiators from kind of, let's say, 24.
The other element that. And, and on the taxes, maybe just again here, uh, you know, things move around in terms of the rates themselves but think effective tax or statutory tax rate somewhere around. 26 and a half percent. Uh, there's some items for example, meals and expenses that don't get full deductibility from a tax perspective in Canada. So effective, tax rate is closer to 30 31%, you know, depending on other elements. So, just think about that as you, uh, as you tax affect earnings, uh, the other piece is the depreciation. So you're going to have a a multi-year, uh, growth and depreciation. That'll and we we talked a little bit about this at an investor day, but that'll go year over year for the next few years. And uh you know, there's no specifics here but think about a couple hundred million dollars a year of the depreciation and expense amortization growth uh as we go through between here and 2030 as we uh we work through our capex cycle. Um so that that is
John Deibert: And that, you know, will be now solid for taxes going forward, compares will be, I think, good, but for depreciation, you'll have some pressure year over year. Okay, that's helpful. Thanks. I'll leave it there. Thank you.
As well non-cash but has a neat gas impact. And so um, so those are the 2 major kind of differentiators from kind of let's say 24 and and that, you know, will be now solid for taxes. Going forward Compares will be uh, I think good, but for depreciation you'll have some pressure uh, year-over-year.
That's helpful, thanks. I'll leave it there.
Savanthi Prelis: Your next question comes from the line of Savvy Scythe with Raymond James. Please go ahead. Hey, good morning. I wonder if you could just add some color on just what you're seeing in kind of the various regions, but any kind of. is kind of deeper color that you can provide on just, you know, how we should think about like the yield progression here in third quarter and into the fourth quarter, just based on what you're seeing today.
Thank you.
You're next question, comes.
Life with Raymond James, please go ahead.
Hey, good morning. Um, I wonder if you could just, uh, provide some color on what you're seeing in the various regions, but any kind of, uh,
kind of deeper color that you can provide on just, you know, how we should think about like the yield progression here in third quarter. And into the fourth quarter, just based on what you're seeing today.
Mark Galardo: Good morning, Savi. So we continue to see very strong demand for our international network at large, so the Atlantic, the Pacific. And then as we look into late Q3 into Q4, we see a lot of strength, you know, in the Sun market, where we have shifted some capacity away from the transborder market into the Sun market. And all that seems to be quite strong going into late Q3 and Q4. Too early to comment on Canada and the US, so the domestic and transborder right now, because we're on a small booking base, but we expect those to be, you know, relatively stable.
Mark Galardo: On the yield side, you know, we should expect yields to be relatively flat year over year. There'll be a little bit of pressure in the Pacific as there's, you know, a lot more capacity to China and Hong Kong, which will be offset a little bit by some strength that we see in Japan and Korea and Thailand in particular. So a pretty good environment overall, and our network is well adapted to that international demand that we see, you know, in Q3 and Q4. And as we've noted in the remarks, you know, we're seeing booking curves moving more into later in the quarter.
Good morning savvy. So, we, we can continue to see very strong, uh, demand for our International Network at large. So, the Atlantic, the Pacific, uh, and then, as we look into late, Q3 into Q4, we see a lot of strength, you know, in the sun market where we we have shifted some capacity away from the transit border Market into the sun market and all, that seems to be quite strong going into, you know, Lake Q3 and Q4, uh, too early to comment on Canada. Uh, and the US. So the domestic can transport it right now because we're on a small booking base. But we expect those to be, you know, relatively stable, uh, on the yield side. You know, we should expect yields to be relatively flat year-over-year. Uh, there'll be a little bit of pressure in the Pacific. As there's, you know, a lot more capacity to China and Hong Kong, which will be offset a little bit by some strengths that we see in Japan and and Korea and Thailand in particular. So, uh, a pretty good environment overall in our Network as well adapted to that International demand that we see uh you know, Q3 and Q4 and as we've noted in, in the remarks uh
Mark Galardo: We see more relative strength in September, October and early winter than we normally do. So that bodes well for us.
Savanthi Prelis: That's very helpful. Thank you.
Um you know we're seeing booking curves moving more into later in the quarter we see more relative strength in September October uh and early winter than we normally do. Uh, so that bodes well for us.
Mark Galardo: And if I might looking at the, you know, there was some modest changes in the fleet plan as it relates to retirement. I was wondering if you could talk a little bit about kind of what drove those decisions. And if there's, if we can expect any unit cost benefits or anything as maybe your void maintenance or anything around. Yeah, I think we continually look for opportunities to optimize the fleet and transition to newer aircraft. And we have some older 319s, in particular, that as kind of maintenance costs get high, and we we get into major events, we have alternative lift as we bring on 737s, and so on.
That's very helpful. Thank you. And, and if I might looking at the, you know, there was some modest changes in the fleet plan. Um, as it relates to retirements, I was wondering if you could talk a little bit about kind of what drove those decisions. And, you know, if there's, if we should kind of expect any unit cost benefits or anything, as as maybe your voice, uh, avoid maintenance or anything around those.
Mark Galardo: And the 220s, in particular, as well, have been coming into the fleet. So it's part of the overall opportunities for us to continue to, to use the scale as in modern aircraft, as we grow to, to manage unit costs. And I think it's, it's fairly consistent reflected in what we put out there on yesterday.
John Deibert: And John, is that like the faster regional retirements is that it gives a kind of greater confidence as you get into the mainline fleet? I think it's a factor of the A220s being deployed effectively. And overall, I think just as we optimize the network and the deployment of the aircraft, we make those decisions.
Yeah, I think we continually look for opportunities to optimize the fleet and transition to newer. Aircraft and, uh, we have some older 319s in particular that, uh, has kind of Maintenance costs, get high. And we, uh, we get into major events. So we have, uh, alternative lift as we bring on 737s and so on, and the 220s in particular, as well have been coming in to the fleet. So, um, it's part of the overall, uh, uh, opportunities for us to continue to, uh, to use the scale as in modern aircraft as we grow to, uh, to manage, uh, unit costs. And I think it's, uh, it's fairly consistent reflected in what we put out there on investor day.
And John is that like the faster Regional retirements is that you guys are kind of Greater confidence as you get in the main line, please.
John Deibert: Thank you.
I think it's it's a factor of the 8220 is being deployed effectively and, uh, overall I think just as we optimize the uh, the network and the deployment of the aircraft, you know, we make those decisions.
Thank you.
Matthew Lee: Your next question comes from the line of Matthew Lee with Canegorgenuity. Please go ahead. Hi, guys. Thanks for taking my questions. Maybe one on ASM. You had a pretty good showing this quarter. It looks like it's going to be an improvement next quarter. Our math suggests that you kind of hit the middle end of your annual guidance, even if you had no capacity growth in Q4.
Your next question.
Judy, please go ahead.
Mark Galardo: Just to give you the fact that both of you sound pretty good, I guess the question I'm circling here is, is it now more likely that you'll kind of end up on the high end of that 1 to 3% range, just what you're seeing in the market? Or is it an expectation that Q4 might be flat or negative versus Q4 2021?
Hi guys, thanks for taking my questions. Um, maybe more on ASM. You had a pretty good showing this quarter and it looks like it's going to be Improvement next quarter. Uh, our math suggests that you kind of Hit the middle end of your annual guidance, even if you had no capacity growth in Q4. Um, just to give you a fact that both things sound pretty good. I guess the question I'm circling here is is it now more likely that you'll kind of end up on the high end of that 1 to 3% range? Just what you're seeing in the market or you know, are is there an expectation that Q4 might be, uh, flat or negative versus 24/24?
Mark Galardo: Hi Matt, it's Mark. With respect to Q4, you know, we're looking at ASM growth between 2.5% and 3%. And we don't see any material changes to that right now. And I would say we're still looking at kind of the middle of the guide in terms of overall annual ASM growth.
Uh, hi, Matt. This is Mark, um, with respect to Q4, you know, we're looking at ASM growth between 2 and a half and, and 3%. Uh, and and we don't see any any material changes to that right now. Uh, and, and I, I would say, we're, we're still looking at kind of the middle of the guide in terms of, uh, overall annual ASM growth.
Mark Galardo: Okay, maybe another question be like, you know, of the geography that you serve, where do you see the kind of biggest risk factors? that exists that could potentially get you to the low end versus maybe the high end of that guidance range just given what you've given Okay, so it's not like, you know, further reductions in the US or something that that would be the bigger, the bigger factor, international. Yeah, not not at this time. But like I said, we have a lot of flexibility. So you know, we can move capacity around the services. But overall, at this time, I think we're gonna we're gonna keep the plan that we've got.
Okay, maybe another question be like you know of the geographies that you serve. Where do you see the kind of biggest risk factors of
that exist that could potentially get you to the low end versus maybe the high end of that guidance range, just given what you've given to our
Well, we've got the majority of our of our ASM growth is going to occur in international markets so that's you know, transatlantic and trans-pacific.
Mark Galardo: And the outlook certainly supports that. Okay, appreciate it.
Yet, not not at this time, but like I said, we have a lot of flexibility so, you know, we can move capacity around the services, but overall, at this time I think we're going to, we're going to keep the plan that we've got and the Outlook certainly supports that.
Okay, appreciate it. Thanks.
James McGarragle: Your next question comes from the line of James McGarragle with RBC Capital Markets. Please go ahead.
Your next question comes from the line of James. Mcgarel with RBC Capital markets, please go ahead.
Louis Vaughn: Hi, this is Louis Vaughn for James. Good morning. Morning.
Hi. This is Lewis Vaughn for James. Good morning.
John Deibert: This question is for John.
Morning morning.
John Deibert: John, just on the on the CAPEX guide, the schedule coming in a bit lower, you know, just to clarify, is that just a, is that an absolute reduction in the maintenance spending from some of these new deliveries? Or is that kind of a deferral? Will there be a deferral to later to later periods? Yeah, I'd say the bulk of the change is really FX. There's a little bit of timing there and maintenance. But if you look at the end of Q1 to the end of Q2, we use the quarter end rate to convert our US dollar commitments going forward.
Uh this question for John, John just on the on the capex guide. Uh the schedule coming in a bit lower. You know just to clarify. Is that just a is that a absolute reduction in the maintenance spending uh from some of these new deliveries? Or is that kind of a deferral? Will there be a deferral to later to later periods?
John Deibert: So you had like a 5-6% reduction from one quarter to the other. And that's the bulk of the movement down. We didn't really change any delivery expectations and maintenance does move around a little bit, but I wouldn't overplay that.
John Deibert: Okay, great.
Yeah, I'd say the bulk of the, the changes really FX is a little bit of time in there and, and maintenance. But, uh, if you look at the end of q1, to the end of Q2, we use the, uh, the quarter end rate to, um, to convert our, uh, our us, uh, dollar commitments going forward. So you had like a 56% reduction um, from 1 quarter to the other and that's the bulk of the uh the movement down. We didn't really change any uh delivery, expectations and maintenance does move around a little bit but I, you know, it's that would an overplay that
Mark Nasr: Thank you. And then just generally, guys, on the, on the OTP performance, you know, two consecutive months, you ranked number one, could you could you provide some insights into, you know, what's driving that improvement? You know, is this partly due to, you know, some capacity reallocation away from congested USA airports? And, you know, is it sustainable if we see kind of demand come back to transporter?
Okay, great. Thank you. And then, uh, just generally guys on the, uh, on the OTP performance, you know, 2 consecutive months, you you ranked number 1, could you could you provide some insights into, you know, what's driving that Improvement? You know, is, is this partly due to, you know, some capacity reallocation away from congested USA airports and you know, is it sustainable if we see kind of demand come back, uh, to transporter
Mark Nasr: Good morning, it's Mark Nasr. So obviously, some very good work from employees throughout the operations on the corridor, I'd call out three things. The first is a focus on getting aircraft, particularly at the beginning of the day out on time or departures at zero metric, driven by GO, which is our focus on closing all the doors five minutes before departure time. Number two, we've put in a lot of new technology in the operation. That is improving decision support functions. And we're still at the early innings of that, and we think that there's more we can do.
Good morning, it's Mark Nasser. Um so obviously some very good work from employees throughout the operations and the quarter, I'd call that 3 things. Uh the first is a focus on getting aircraft particularly at the beginning of the day out on time or departures at zero metric uh driven by uh go which is our focus on closing all the doors 5 minutes before departure time.
Mark Nasr: And we have plans to that end. And number three, during the quarter, we did have favorable weather at our hubs in Canada, I wouldn't call it any reallocation of flying, like for example, in the US, as you mentioned, as being a theme there. Okay, great. Thanks for taking my questions.
Uh, number 2, we've put in a lot of new technology in the operation. Uh, that is improving decision support functions and we're still at the early Innings of that. And we think that there's more we can do. And we have plans for that end. And number 3, during the quarter, we did have a favorable weather at our hubs in Canada. I wouldn't call that any reallocation of flying, like, for example, in the US as you mentioned, as being a theme there,
Sheila Kahyaoglu: Thank you. Your next question comes from the line of Sheila Kahyaoglu with Jeffreys. Please go ahead. Good morning, guys, and thank you for the time. Well, maybe first question on premium, if that's okay. Can we talk about... Premium revenues for Air Canada, I think in Q1 grew 2%, slightly less than capacity, and then in Q2 grew 5%, so U.S. carriers have seen the spread between premium and main cap and widen.
Okay. Great. Thanks for taking my questions.
Thank you.
Your next question comes from the line of Sheila Kahalu with Jeffrey's. Please go ahead.
Um, good morning guys and thank you for the time. Well maybe uh, first question on premium, if that's okay. Can we talk about? Um,
Mark Galardo: Can you talk about the difference in unit revenues in Q2 and how you're thinking about premium for the remainder of the year? Morning, Sheila. So, the difference between Q1 and Q2 is the composition of our network. In Q1, we have a larger presence in sun markets, leisure markets in general. And then as we go into Q2, Q3, we really ramp up our international network, and we've seen a lot of demand strength in general for, you know, leisure destinations in Europe, etc. Some strength in premium demand for Japan, Australia. So, it's really kind of the composition of our network that leads to those changes.
Premium revenues for Air Canada and I think in q1 grew 2% uh slightly less than capacity um and then in Q2 group 5%. So US carriers have seen the spread between premium and main cap and widen.
Can you talk about the difference in unit revenues in Q2 and how you're thinking about premium for the remainder of the year?
Sheila, so uh, on the difference between q1 and Q2 is the composition of our Network.
In in q1, we have a larger presence presence in Sun markets, Leisure markets, in general.
Mark Galardo: And I think you should anticipate that that continues into Q3. Still a little bit early for Q4, but the signals that we have for Q4 is that that premium strength will continue. But as we get into Q4, as we've noted for Q1, the network starts to shift again a little bit more to the sun market. But international long haul is really contributing to those results. Got it. Thank you.
And then as we go into Q2 Q3 we really ramped up our International Network and we've seen a lot of demand strength, uh, in general, uh for you know, Leisure destinations in Europe, Etc. Um, some strengths in in premium demand for for Japan Australia. Uh so it's really kind of the composition of our Network that leads to those changes. Uh, and I think you should anticipate that that continues into Q3 still a little bit early for Q4, but the signals that we have for Q4 is that that premium strength will continue. But as we get into Q4, as as we've noted for q1, the network starts to shift again a little bit more to the sun market.
Uh, but International Long Haul is really contributing to those results.
Mark Galardo: And then maybe one on cargo, quite strong in Q2. You've moved around some freighter aircraft in the past year. Curious if you're finding greater opportunity given global trade policies? And would that support deepening your efforts in cargo? Great.
Got it. Thank you. And then maybe 1 on cargo uh quite strong.
Freighter aircraft in the past year. Uh, curious if you're fighting greater opportunity, given global trade policies,
And with that support, deepening your efforts in cargo.
Interesting question. So the, the peak that you saw on Q2, we don't anticipate that continuing at the same rate in Q3 and Q4, uh, I think you'll see a bit of normalization in Q3 and Q4. Uh, and a lot of that was driven by the strength and in particular, Asia. Some of that uncertainty that led to a lot of yield growth uh, particularly out of Asia. Uh, I don't, I don't think we'll see the same relative strength into Q3 and Q4. But overall, the cargo Revenue picture stays relatively stable.
Cameron Doerksen: Thank Your next question comes from the line of Cameron Doerksen with National Bank Financial. Please go ahead. Yeah, thanks. I wanted to ask another question on the Sixth Freedom growth you saw, which is really strong in the quarter. I'm just wondering if you can maybe talk a little bit about how that has evolved in the last several quarters. Feels to me like there's maybe more of an opportunity here for Six Freedom, connecting Latin America to Europe Pacific versus in the past, more of the growth coming from U.S. origin passengers. Maybe you can just talk a little bit about that.
Thank you.
Your next question comes from the line of Cameron dorson with National Bank Financial. Please go ahead.
Mark Galardo: Sure, sure, Cameron. So we're obviously we're very pleased with the number. What we did in Q2 is as we, you know, we had some reductions in the transport of the network. The one thing we did not do is we did not touch any of our six freedom connectivity at all. In fact, we reinforced it and there was a strong commercial execution plan to really focus on that because some of the yields that we saw coming out of the US were quite favorable. As we go into Q3 and Q4, and as I suggested in my remarks, we've made more tweaks to our what we're doing in Latin America, whether it be Guatemala, whether it be some things you see in Mexico, or even the things we're doing in South America between Lima and Santiago, we've built some very competitive elapsed times that give us very favorable shelf display.
Yeah, thanks. Uh, wanted to ask another question on, on the 6 freestyle, which is really strong in the quarter. I'm just wondering, if you can, maybe talk a little bit about how that has evolved in the last, uh, several quarters. Uh, like, it feels to me like there's maybe more of an opportunity here for 6 in the past more the growth coming from, you know, us origin passengers. So maybe you can just talk a little bit about the evolution.
Sure, sure, Cameron. So, uh, we're obviously we're very pleased with the numbers.
What we did in uh, in Q2 is, as we, you know, we had some reductions in the transport of the network. With the 1 thing. We did not do is we did not touch any of our 6, Freedom connectivity at all. Uh, in fact, we we reinforced it. Uh, and there was a strong commercial execution plan to really focus on that because some of the yields that we saw coming out of the US were quite favorable.
Mark Galardo: But in addition to that, you know, what's new year over year is we had a lot of grounded fleet last year. We had a lot of fleet shortages that really kind of prevented us from building out our six freedom network in the fall and the winter, and we're over that hump now as 220s come online.
Uh, as we go into Q3 and Q4, and as I suggested in my remarks, uh, We've made more tweaks to our Hub. Airports to favor, 6 freedoms. So obviously you saw what we're doing in Latin America, whether it be, you know, Guatemala, whether it be some things you see in Mexico or even even the things we're doing in South America between Lima and Santiago, we've built some very competitive elapsed times. That gives us very favorable shelf display. But in addition to that, you know, uh, what's new year-over-year is we had a long
A lot of grounded Fleet last year, we had a lot of Fleet shortages.
Michael Rousseau: So, overall, I think you'll continue to see very favorable progression of six freedom revenues into late Q3 and surprising numbers in Q4 at this point. Okay, no, that's that's very helpful. And just maybe secondly, for me, you know, I know you don't want to talk about, I guess, the flight attendant. Talks and negotiations, but just wondering if at this point you've seen any indication of any book away from, you know, maybe consumers who might be worried about a potential strike. Is there any evidence? Good morning, Cameron. Yeah, I think your first comment's the right one, and we really don't want to talk.
That really kind of prevented us from building out our 6, Freedom Network in the fall and the winter and we're over that hump now is 220 has come online. Uh, so overall I think you'll continue to see very favorable progression, uh, of 6, Freedom revenues into late Q3 and um, you know, surprising numbers in Q4 at this, at this point.
Okay. No, that's that, that's very helpful. And, and just maybe, secondly, for me, I, you know, I know you don't want to talk about, I guess the, the flight attendant to, uh, you know, talks, uh, and, uh, negotiations. But just wondering if at this point, you've seen any indication of any book away from, you know, maybe, uh, consumers, who might be worried about a potential strike, just if there's any evidence of that so far,
Michael Rousseau: much about this given where we are in our negotiations. I made my comments in my closing closing remarks. And I think we've given the confidentiality of discussions that I think that's, you know, that's the appropriate place we're going to end up on the topic. Okay, fair enough. I'll pass the line. Thanks very much.
Uh, good morning, uh Cameron. Um yeah yeah. I think your first comment is the right 1 and we really don't want to talk
Much about this give given where we are in our negotiations. Uh, yeah. I made my comments in my closing closing remarks. And I think we we, you know, given the confidentiality of discussions, and I think that's the, that's the appropriate place. We we're going to end off on on the topic.
Okay, fair enough. I'll I'll pass the line. Thanks very much.
Konark Gupta: Your next question comes from the line of Konark Gupta with Scotiabank. Please go ahead. Thanks, and good morning, everyone.
Your next question comes from the line of conar Gupta with Scotia Bank. Please go ahead.
John Deibert: Me, to begin with the question on free cash for John, I mean, you have first half, you produced a billion dollar OnlineTrendingTips.com the lack of confidence, I guess, in pumping up the free cash. Well, I think, you know, I mean, first of all, I think we, you know, we've managed the year well, we've made some decisions to manage capital, CapEx as kind of the year progressed. We adjusted our fuel number, we wanted to make sure we had all that in there. I think by and large, we're targeting the upper end of that range. And so we'd like to post a positive cash on the full year.
Thanks and good morning everyone. Um me to begin with the question on free cash uh for for John. Um I mean you have first have you produced a billion dollar?
But fully, you're saying break even plus or minus. I mean, if I go back in the history, I've never seen you guys burn a billion dollars of free cash in the second half, except for, obviously, 2020 COVID. What gives you sort of the lack of confidence, I guess, in bumping up the free cash guidance?
John Deibert: We'll watch the second half of the year as it evolves here and then, you know, make a call probably in Q3 to tighten up ranges across the board. But, you know, we are we are focused on generating positive cash and that starts in 2025.
Well, I think, you know, I mean, first of all, I think we, you know, we've managed the year. Well, we've made some decisions to to manage Capital. Uh, capex is kind of the year progressed. Um, we uh, we adjusted our fuel number. We wanted to make sure we had, uh, we had all that in there, I think by and large, we're targeting the upper end of that range. And so uh, we'd like to, uh, post a positive cash on the full year. Uh, we'll watch the second half of the year as it evolves here and then, you know, make a call probably in Q3 to tighten up ranges across the board. But, um, you know, we are, we are focused on generating positive cash and that starts in 25.
John Deibert: Makes sense. Thanks. Thanks for that, John.
Mark Galardo: And then, from Mark, you know, transborder capacity, I guess, took out quite a lot in the summer, right? You were talking about the low-teen sort of demand declines and whatnot. When you bring back capacity to transborder, do you anticipate like bringing back all at once or it's going to be more gradual? Because, you know, I think the units are holding up pretty well in transborder, right, given the initial capacity. But do you expect new pressures as capacity comes back over the next 12 months or 20? So, Konark, where we've really removed capacity on the U.S.
Makes sense. Thanks, thanks for that. John and then, uh, me for from work, um, you know, trans border capacity. I guess it took out quite a lot, uh, in the summer, right? Um, you were talking about the low teens, sort of demand the clients and whatnot. Um, when you bring back capacity to transfer, do you anticipate like bringing back all at once? So it's going to be more gradual because, you know, I think the the yields are holding up pretty well in transport, right? Given the industry capacity. But do you expect yield pressures as capacity comes back over the next 12 months or 24 months?
Mark Galardo: is into traditional U.S. leisure markets. So, think of markets like Florida, Vegas, Arizona, markets where there's a very heavy point-of-sale or point-of-commencement Canada. We think we're going to restore some of that capacity gradually, but right now, we continue to plan an environment where things stay the same. There's no real improvement in the overall demand posture, but like I said, we have a lot of flexibility to move capacity around, but at this time, we continue to think that the situation that we're in will continue all the way through the end of the year. But like I said, again, if things did improve, we can be very agile and move capacity gradually or rapidly, depending on how market conditions evolve.
The, the where we've really removed capacity on the US is into, you know, traditional us, Leisure markets. So think of
Um, you know, we think we're going to restore some of that capacity, gradually gradually. But right now, um, we continue to plan environment where things stay the same. Kind of, uh, there's no real Improvement in the overall demand posture. But like I said, we have a lot of flexibility move capacity around, but at this time, uh, we continue to to think that the situation that we're in, will continue all the way through the end of the year. But like I said again, if if things did improve, uh, we we can be very agile and move capacity uh gradually or or rapidly depending on how market conditions evolve.
Daryl Young: Thanks for that. I appreciate the time.
Yeah, thanks for that. I appreciate your time.
Mark Galardo: Your next question comes from the line of Daryl Young with Stiefel. Please go ahead. Hey, good morning, everyone. Just wanted to dig in a little bit on the greater demand in the fall and winter season. And I'm just curious if there's any demographics impacting that. And specifically, is it the baby boom generation with more travel flexibility into the fall? Do you see that being something that's a little more structural in the next couple of years?
Your next question comes from the line of Daryl. Young with stifel, please. Go ahead.
Hey, good morning everyone. Uh, just wanted to to dig in a little bit on the greater demand in the fall and winter season, and I'm just curious if there's any demographics, uh, impacting that and and specifically, uh, is it the baby boom generation with with more travel flexibility into the fall? And do you see that being something that's a little more structural in the next couple of years?
Mark Galardo: Yeah, that's a that's an excellent question, because we're, we're actually asking that question ourselves internally. We definitely agree that there's a shift in in the booking curve, and that is supported by some demographic changes. But as well, you know, it's a lot more pleasant to go to Europe, or travel internationally in the fall than it is in peak summer. And I think that's being reflected in some of the advanced booking numbers that we see. And again, we see well, greater relative strength in September, October, even early November than we usually do.
Yeah, that's a, that's an excellent question because we're, we're actually asking that question ourselves internally. Uh, we definitely agree that there's a shift in the in the booking curve and that is supported by some demographic changes.
But as well, um, you know, it's a lot more pleasant to go to Europe, uh, or travel internationally in the fall than it is in Peak summer. And I think that's being reflected in some of the advanced booking numbers that we see. Uh, and again, we see Arielle greater relative strength in September October even early November than we usually do.
Daryl Young: Okay, that's great. That's all for me. Thanks.
Okay. That's great. That's all for me. Thanks.
Thomas Fitzgerald: Your next question comes from the line of Thomas Fitzgerald with TD Cowan. Please go ahead. Hi, thank you so much for the time.
Your next question comes from the line of Thomas Fitzgerald with TD Cowen. Please go ahead.
Mark Galardo: I was wondering if you could update us on what you're hearing from your corporate clients and what your expectations are for corporate travel, kind of as we move into the fall after the summer. So on corporate, we had a pretty stable Q2. In fact, we were surprised by how strong we saw corporate performance overall in May and June. April was a little bit soft, but obviously we had Easter there. But going into September and October, we have no reason to believe that that will slow down. We continue to expect it to be more or less the same rate that we saw on Q2.
Hi, thank you so much for the time. I was wondering if you could update us on what you heard from your corporate clients and what your expectations are for corporate travel, um kind of as we move into the fall after the summer
Thanks Tom. So so on corporate we we we had a pretty stable Q2. Um uh in fact we were surprised about how strong we saw corporate uh performance overall in May and June April was a little bit soft but we had Easter their butt and going into September and October. Um, we have no reason to believe that that will slow down. Uh, we continue to expect it to be more or less the same rate that we saw on Q2.
Mark Galardo: Okay, great. That's really helpful.
Mark Galardo: And then just as for my follow up, I just want to make sure did you say, did I hear this right? You said yields flat year over year in the third quarter, and then just throw on the same page. How are you how are you guys thinking about TRASM in 3Q? Thanks again for the time. Okay, so we are looking at an overall flat yield environment for Q3, and I think you should expect the same for Prasim or Trasim, maybe slightly down your rear.
Okay, great, that's really helpful. And then just as uh for my follow-up. I just want to make sure. Did you say um did I hear this right? That you said yields flat year-over-year in the third quarter and then just so we're on the same page. How are you? How are you guys thinking about prism? Um, in 3Q. Thanks again for the time.
Okay. So we are looking at an overall flat yield environment uh for for Q3 and and I think you should expect the same for prize and or or TM
maybe slightly down year over year.
Andrew Didoria: Your next question comes from the line of Andrew Didoria with Bank of America. Please go ahead. Hi, good morning, everyone.
Your next question comes from the line of Andrew Dedora with Bank of America. Please go ahead.
John Deibert: John just wanted to kind of focus in on the cost side a little bit. Just first in 2Q, can you quantify what the stock base comp impact was? And I would think that's more one time related to 2Q unless the shares move meaningfully higher here throughout the course of 3Q. Yeah, thanks for the question. So, you know, it is one time in nature relative to the the movement of the stock price itself, right? So stock moves, I think about 45% or so. End of Q1 to end of Q2. And with that is about $30 million or so of, of expense, I think was 31 the actual number.
Hi, good morning everyone. Uh, John, I just wanted to kind of focus in on the cost side a little bit. Just first in Q2, can you quantify what the stock-based compensation impact was and is?
And I would think that's more 1 time related to to, to Q unless the shares move meaningfully higher here in throughout the course of 3 Q.
Yeah, thanks for the question. So, uh, you know, it is one time in nature relative to the, uh, the movement of the stock price itself, right? So stock moves, I think about 45% or so, um, and the Q1 to end of Q2, and with that, just about $30 million or so of, uh, of expense. So I think it was $31 million, the actual number.
John Deibert: Got it.
John Deibert: Thank you. And then, just based on your comments on 3Q, is it fair to say that when we think about 3Q chasm growth year over year, that it's higher than 2Q and then you see a much more meaningful deceleration in 4Q to kind of triangulate towards the higher end of the chasm guide? Exactly. That's exactly what the comments were intended to highlight. It'll gap out in Q3. So last year, we did have some favorable adjustments to the one-time basis that they're going to exaggerate the year-over-year compare on CASM Q3. And to your point, mathematically, then coming back to probably a little bit towards the higher end of that 14 quarter, 14 and a half range for a full year.
Thank you, and then it.
Just based on your comments on on 3Q. Is it fair to say that when we think about 3Q, Chasm growth year-over-year that it's higher than 2q and then you see a much more meaningful? Um, deceleration in 4q to kind of, you know, trying triangulate towards the the higher end of the chasm guide.
Exactly. That's that's exactly what the comments were intended to highlight. Uh, the the, um, it'll Gap out in Q3. So last year we did have some favorable, uh, adjustments on uh, to the 1 basis that uh, are going to even, you know, they're going to, they're going to exaggerate the uh, the year-over-year compared on casm Q3 and to your point mathematically. Then coming back to probably a little bit. You know, towards the higher end of that 14 quarter, 14 and a half range for a full year.
John Deibert: Got it. Thanks so much.
John Deibert: Thank you.
Got it. Thanks so much.
Kevin Chiang: Your next question comes from the line of Kevin Chiang with CIBC. Please go ahead. Thanks for taking my question. Maybe I could just follow on on Konark's free cash flow question. I mean, you give us a lot of disclosure, you know, you have your EBITDA guidance for the years, we have your estimate for the back half, you convert about 100% of that to operating cash flow before working cap, we have your CapEx. And if I look back the last couple of years, your working cap drag in H2 has been about $850 million. Like if I just sum it all up, plus the free cash flow you generated year to date, it feels like you could even exceed the upper end of your free cash flow guide.
Thank you.
Your next question comes from the line of Kevin gang with CIBC please. Go ahead.
Free cash flow question. Um, I mean you give us a lot of disclosure you know you have your back. You have your ebit dog guidance for the years, we have your estimate for the back half. Um, you know, you convert about 100% of that to to operating cash flow before working cap. Uh, we have your capex. And if I look back back the last couple of years, you're working cap drag
John Deibert: So I'm just wondering, is there something on working cap we should be thinking about? Is it just broad conservatism because you still have six months to play out here? Just maybe framing, you know, the numbers we're seeing versus the free cash flow guide you have out there.
In H2 has been about 850 million. Like if I just sum it all up, plus the free cash flow. You generated year to date. It it feels like you could you could even exceed the upper end of your your free cash flow guide. So I'm just wondering, is there something on working cap? We should be thinking about is it is this broad conservatism because you still have 6 months to play out here? Um, just maybe framing, you know, the, the numbers we're seeing versus the free cash flow guide. You have out there
John Deibert: I think we are focused on delivering to the higher end of that range. So I'm into the positive. We've got just a little bit more than half of the capex to go in the second half of the year. There's still a little bit of volatility out there. We do still have the negotiation year to complete as well. So we're just making sure that we leave ourselves some room to actually navigate this well and land where we should be for the end of the year.
Mark Galardo: Yep, that makes sense. I noticed on the Pacific yield front, I know that I guess about the past few quarters, you've talked about a little bit of pressure there on the yield, but the year-over-year degradation has improved over the past three quarters from a year-over-year degradation perspective. I'm just wondering, are you starting to see signs of stabilization and should we expect that continued trend in the back half of the year? It seemed like you were seeing pockets of certain sub-markets within the Pacific improving here, so just wondering if you could clarify that.
I, I think it's um, we um we are focused on on uh, on delivering to the higher end of that range. So on the into the positive, um, we've got just a little bit more than half for the uh, the capex to go in the second half of the year. Uh, there's still a little bit of volatility out there. We do. Uh, still have uh, the negotiation here to complete as well. So we're just making sure that, uh, we leave ourselves some room to, to actually navigate this well, and land where we should be for the end of the year.
Yep. That that, that makes sense. And, and just I, I noticed, um, on the Pacific
Mark Galardo: Yeah, hi, Kevin. So it's a question of compare. So last year, obviously, as we went through Q1, and then Q2, things started to normalize a little bit on the Pacific as capacity came back online. So as we look into late Q3 and Q4, we start rolling that over, and we should start to see less degradation or overall RASM on the Pacific.
Yield front, um I I know that I guess the past few quarters, you've talked about a little bit of pressure there on the yield on on the yields. Um, but the year-over-year degradation has improved over the past 3 quarters uh, from from a year-over-year degradation perspective, just just wondering, if are you starting to see signs of stabilization and should we expect that? That continued Trend in the back, half of the year? It it seemed like you're you're seeing pockets of of of of certain submarkets when the within the Pacific improving here. So just wondering wonder if you could clarify that
Yeah. Hi Kevin. So it it's a question of Compares. So last year obviously as we we went through q1 and then Q2 things started to normalize a little bit on the Pacific as capacity came back online. So as we look into League Q3 and Q4 we start rolling that over and we should start to see less degradation in our overall rasim on the Pacific.
Mark Galardo: Perfect.
Mark Galardo: That's it for me. Thank you very much.
Perfect. That's it for me. Thank you very much.
Jamie Baker: Your next question comes from the line of Jamie Baker with J.P. Morgan. Please go ahead.
Jamie Baker: Oh, good morning, everybody. Yeah, most of my issues have been addressed, but just a quick one. So, you know, a theme that has emerged here in the States this earning season relates to fourth quarter capacity. Most of the airlines here are modeling for O-A capacity cuts. which as of now are not reflected in filed schedules. When you think about OA capacity in the domestic market, do you view fourth quarter schedules as, you know, pretty reliable, fully baked at this point, or are you assuming some incremental level of OA capacity change as part of your full year guide?
Your next question comes from the line of Jamie Baker with JP Morgan. Please go ahead. Oh, good morning, everybody. Most of my issues have been addressed, but, um, just a quick one. So, you know, a theme that has emerged here in the States this earnings season relates to fourth quarter capacity. Most of the airlines here are modeling for '08 capacity cuts.
Mark Galardo: Thanks in advance. Hi, Jamie, I think what you see loaded for Q4 from some of the OAs that operate in the domestic market is pretty stable and reliable. Okay. We've seen numerous Canadian, you know, competitors move capacity away from the US into domestic market or into the Sun market. And I think what we see for Q4, we should we should assume that's what's going to fly. Okay.
Which as of now are not reflected in filed schedules, when you think about a capacity in the domestic Market, do you view fourth quarter schedules, as you know, pretty reliable fully baked at this point or are you assuming some incremental level of OA capacity change as part of your full year guide. Thanks in advance.
Mark Galardo: That's perfect color.
Hi Jamie. I think, what you see loaded for Q4 from some of the OAS that operate in the domestic Market is is pretty stable and reliable. Okay, uh, we've seen uh, numerous Canadian, you know, competitors move capacity away from the US into the domestic Market or into the sun market. Yep. And I think what we see for Q4 we should, we should assume. That's what's going to fly.
Valérie Durand: That does it for me. Thank you.
Overall. Okay.
That's the perfect color. That does it for me. Thank you.
Valérie Durand: And that concludes our question and answer session and I will now turn the call back over to Valerie Durand for closing remarks. Thank you Krista, thank you once again for joining us on our second quarter earnings call this morning. Once more, should you have any further questions, please don't hesitate to contact us at Investor Relations. Merci beaucoup de votre attention ce matin, n'hésitez pas à nous contacter vos relations investissantes pour plus d'autres questions. Merci, bonne journée.
And that concludes our question and answer session and I will now turn the call back over to Valerie Duran for closing remarks.
Krista: Thank you Krista.
Krista: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Thank you Krista. Thank you, once again for joining us on the second quarter, earnings call this morning. Once more, should you have any further questions? Please don't hesitate to contact us at investor relations. Next, thank you Krista.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Thank you for watching.