Q3 2025 Air Canada Earnings Call

Speaker #2: 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 you to the Air Canada's third quarter 2020 earnings conference call .

Speaker #2: 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 .

Speaker #2: If you would like to ask a question at that time , simply press star , followed by the number one on your telephone keypad .

Speaker #2: And if you would like to withdraw your question again , press star one . Thank you . I would now like to turn the conference over to Valerie Durand investor Relations .

Speaker #2: Valerie . Please go ahead .

Speaker #3: Thank you . Krista . Hello . Bonjour . Troisieme . Welcome . And thank you for attending our third quarter 2025 earnings call .

Speaker #3: Joining us this morning are Michael Rousseau , our president and CEO . Mark Galardo . Our executive Vice President and Chief Commercial officer .

Speaker #3: And president of cargo . And John Bert , our executive vice president and CFO . Other executive vice presidents are with us as well .

Speaker #3: In Wexler , our chief human resources officer and public affairs , Craig Landry , our chief innovation officer and president of Aeroplan Mark Galardo , our chief legal officer and corporate secretary , as well as Mark , our chief operations officer .

Speaker #3: After our prepared remarks , we will take questions from equity analysts . 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 are subject to risks and uncertainties .

Speaker #3: Our actual results could differ materially from any stated expectations . Please refer to our looking caution in Air Canada's third quarter 2025 news release , available on Air Canada and on Kdr+ .

Speaker #3: forward

Speaker #3: And now I'd like to turn the call over to Mike .

Speaker #4: Well , thank you , Valerie . Hello . Bonjour . Thank you for joining us today for our third quarter results call . We delivered a solid third quarter financial and operating performance .

Speaker #4: After adjusting for the impact of the labor disruption , which , of course , occurred at the peak of the summer season . During the bargaining period with Cupe .

Speaker #4: We developed a comprehensive plans to ensure the safe , orderly wind down and restart of the operations in the event of a labor disruption .

Speaker #4: These were acted on in the entire company , worked extremely hard to assist those who travel was disrupted and to quickly return our operations to normal .

Speaker #4: I thank all our employees for their tireless efforts and unwavering commitment to supporting our customers during this challenging time . We also voluntarily introduce our special goodwill policies .

Speaker #4: We have received more than 150,000 claims to date , which we have been addressing diligently processing these claims is complex and requires a coordinated effort .

Speaker #4: We do expect to finish in the coming weeks . We reported third quarter operating revenues of 5.8 billion , down 5% from a year ago on a 2% capacity decline .

Speaker #4: Both declines were the result of the strike . Related flight cancellations . Adjusted EBITDA of 961 million declined 562 million from the same quarter in 2024 , excluding labor disruption , the third quarter adjusted EBITDA would have aligned with our full year guidance , shared last July and come close to Pre-strike market expectations , operating operational metrics such as our on time performance and Net Promoter Score exceeded both internal targets and last year's levels for the quarter and year to date .

Speaker #4: I am very pleased with the progress we're making . Booking trends for Q4 are very strong . We expect year over year growth in adjusted EBITDA in the last quarter of the year .

Speaker #4: This morning , we updated our full year guide , which John will further detail for you . But first , let me turn it over to Mark .

Speaker #4: Thanks .

Speaker #5: Mike , and good morning , everyone . J'aimerais d'abord remercier nos employees . I thank our employees for their unwavering commitment to our customers and to operational excellence .

Speaker #5: I also extend my gratitude to our customers , the travel trade and our airline partners for their patience and support . Third quarter passenger revenues of 5.2 billion declined 6% from the same period last year .

Speaker #5: On 2% , less capacity . Starting August , our year over year third quarter unit revenues were trending in the right direction , but were impacted by the labor disruption .

Speaker #5: We estimate it was a drag of about three points to Q3 unit revenues . Absent this , Q3 would have amounted to one of the best relative present performances amongst major North American carriers .

Speaker #5: This is driven by our revenue diversity hub , geography and customer loyalty . Our global network gives us flexibility to quickly pivot to areas of strength this quarter and throughout the year , we mitigated the exposure to reduced demand between Canada and the US .

Speaker #5: In Q3 , we we quickly responded to Canadians growing interest to travel domestically . The transborder sector remains stable , albeit at lower levels , once adjusting for the strike .

Speaker #5: International markets continue to drive significant value in the spring . We added capacity across the European continent , seeing a stronger Atlantic environment .

Speaker #5: Moving to cargo . Despite a revenue decline of 6% , mostly from reduced belly capacity in August , Air Canada Cargo was adaptable and the freighter operation continued to demonstrate its value , playing a key role in capturing the opportunity from evolving global trade flows .

Speaker #5: This was evident this quarter as our flexibility and capacity from freighters allowed us to carry more of the growing and lucrative cargo demand from Asia to Latin America .

Speaker #5: Fully offsetting other declining flows . Additionally , other revenues rose 15% from the third quarter of 2024 , with higher Aeroplan Non-air revenues .

Speaker #5: Prices for ground packages at Air Canada Vacations and onboard sales next are well positioned . Hubs provided strong local demand from Canada's largest cities and facilitate six freedom connections .

Speaker #5: This year , we've doubled down on connectivity , which has been beneficial for our sixth freedom strategy . Demand has been strong despite the disruptions impact year to date .

Speaker #5: At the end of Q3 2025 , six freedom revenues grew a solid 9% . Our strong brand ecosystem built customer loyalty and is a unique strategic attribute for Canada .

Speaker #5: Booking patterns rebounded soon after the disruption ended , underscoring brand strength and consistency in customer behavior . Let's focus on premium front cabin revenues outperformed the economy cabin by six percentage points .

Speaker #5: Corporate improved further with roughly 11% year over year revenue growth from our corporate customers in September . What are Q3 results demonstrated ? Is that looking beyond August events , Air Canada's commercial foundations are solid , adaptable and core enablers of strong results .

Speaker #5: Now , let's focus on what's ahead with our proven commercial playbook . We're uniquely positioned to seize favorable industry trends and are highly encouraged by what we're seeing this fall .

Speaker #5: Fundamentally , our solid booking outlook reflects step change , progress against a theme we've long discussed addressing Air Canada's traditional seasonality and improving revenue diversification .

Speaker #5: This enables more balanced capacity deployment , revenue generation and profitability throughout the year . And the results are tangible . Currently , our relative capacity in the fourth quarter exceeds pre-pandemic levels , and as of today , we're on track for a record fourth quarter load factor and total revenue performance .

Speaker #5: We are leveraging the strength of our global network and the scale of our hubs to increase our reach and access to new traffic flows.

Speaker #5: We refined our schedule , improving the connecting ways at our hubs to increase our competitiveness for connecting flows . And finally , we've deliberately built a stronger base of bookings going into the winter , filling seats that historically would have been empty .

Speaker #5: We expect our significant progress on seasonality to drive revenues and support diversification while improving our ability to take advantage of promising industry trends .

Speaker #5: Now , let's dive into network , and within that international with one of North America's leading global networks at hand , we see promising signs across the next six months .

Speaker #5: We see demand strength carrying all the way through us . Thanksgiving , particularly across the Atlantic . Beyond that , sun and Latin American markets remain solidly ahead of last year for winter , with a robust , advanced booking position from Air Canada Vacations and uplift from our expansion into Latin America , which also taps into rising Canadian travel demand and boost six freedom revenues on our transatlantic flights .

Speaker #5: Our presence in international markets remains a clear advantage . Next , we see a continued shift in consumer preference towards premium products . Once thought of as mainly a corporate segment .

Speaker #5: We've see an opportunity for leisure travelers seeking our signature front cabin experience , our booking posture and premium cabins is strong . Going to Q4 and Q1 as Canada's premium are uniquely positioned to attract , capture and retain this growing segment of high value customers .

We are leveraging our Revenue diversity our well positioned hubs and customer loyalty to cement Air Canada as 1 of North America's leading carriers and deliver solve results.

Thank you merci, John and Oreo.

Thanks Mark. Good morning, everyone.

First allow me to take a moment to recognize the resilience of our incredible employees.

We know that managing the airlines that are shut down and restart was very challenging.

Yeah, our callings Rose to the occasion and maintained their commitment of care and class to our customers.

In the third quarter, we reported operating income of 284 million and adjusted ibida of 961 million.

With an E with an adjusted Eva margin of 16.6%, including the 375 million impact from the Labour disruption, the impact consists of the following.

A 430 million dollar impact to revenues including some book away for travel in August and early September.

145 million in avoided costs due to reduced flying partially offset by 90 million dollars of cost reimbursements.

To customers 4 out of pocket, expenses and labor related. Operating costs driven by the shutdown and restart activities.

This is consistent with the estimates. We announced in late September.

operating expenses increased 8% year-over-year mostly due to a 173 million 1-time charge

Of this 149 million was a non-cash 1 time tension past service cost.

from plan, amendments, that related to the agreement reached with QP

the remaining is due to costs associated with streamlining, our management structure.

Fuel expense is 12%. Lower year-over-year for Q3?

Jet fuel prices fell by 10% compared to last year. Which included a 29 million hedging game for the quarter.

Totaling 48 million in the first 9 months of the year.

Additionally, few consumers, 3% lower than in Q3 2024 due to the flight cancellations.

Third quarter adjusted Chasm was 13.99 cents up 15% from last year.

About a third of the increase was due to cost escalation mainly in labor, maintenance and depreciation.

Roughly another third was the effect of certain favorable contract related adjustments. We recorded in the third quarter of 2024,

which made for a less meaningful year-over-year comparable in Q3 25.

Including the impact from the disruption non-fuel. Unit costs were aligned with our full year, Chasm expectation. At our Q2, call in all, we have to estimate A disruption at a drag on adjusted. Chasm of about 6, percentage points reflecting incremental costs and lower capacity.

Turn to cash flow.

In the quarter, we generated 813 million in cash from operations and free cash flow of 211 million.

We have a crude for strike-related customer compensation to be processed and paid in Q4.

Additionally, in the third quarter of 2025, we implemented a new Enterprise Resource Planning system and experienced a delay in the timing of payables processing in September.

To 15 days of payables.

The cumulative free cash flow of 1.2 billion, dollars year to date reflects approximately 600 million dollars of favorability, due to the timing of certain payments. And

Q3.

Onto our balance sheet.

In July, we fully redeemed our convertible bonds for a total amount of $382 million, reducing the number of potentially issuable shares by 18 million. In September, we drew $231 million from our EDC loan commitment for 58 to 20s that had been previously delivered.

We ended the quarter at 8.3 billion in total, liquidity, including 1.4 billion in the undrawn revolver.

Leverage ratio end of the quarter. At 1.6 turns reflecting lower Eva due to the impact of the disruption.

We expect this ratio to increase slightly in Q4 as we process the outstanding payables. Frontier 3.

When thinking about leverage and long-term decision-making, we will look through the 1-time impact on ibida when assessing our leverage objectives of 2x or less.

Moving along.

We updated our full year guide this morning.

We now expect capacity to increase around 0.75%.

Versus 2024.

2025 adjusted chasm. In the 1, 4. 6 4.

We reached an agreement with QP except for wage terms. That will be finalized through binding arbitration.

Our guidance reflects the agreement and our best assumptions on the outcome of arbitration.

In 2026, we will see the full effects of the new agreement flow through our labor costs, including the enhancements to ground, pay and benefits.

For justice. We now expect 2.95 to 3.05 billion in 2025 and a strong fourth quarter, which should outperform Q4 2024

To close on guidance, we anticipate 3 cash flow between break even and hundred million dollars for the full year.

We expect the free cash flow use in the in the fourth quarter as the late payments are brought current including customer reimbursement amounts to crude for but not yet paid.

Q4 capex is anticipated to be approximately 900 million just under 3 billion dollars for full year 2025.

With the recent volatility in the jet fuel prices, we continue to monitor Glo Global trends.

Relying on visibility, we have into Q4. We have hedged 34% of the expected fuel purchases for November and December, and an average price of 52 cents us per liter approximately 73 cents Canadian per liter before taxes fees and shipping costs,

finally we continue to progress on our 150 million cost Reduction Program announced earlier this year which includes the pre-planned management headcount reductions

We are on target for here today, savings and expect to deliver the full 150 million in 2025.

Key components include operational efficiencies.

And operational efficiency initiatives streamlining our management structure.

Process improvements and third-party spend management.

We expect the cost reductions to be reoccurring in 2026.

In 2026, we anticipate a step change in unionized labor costs, due to recent labor agreements. And as we continue to work through our 10 year agreements to Shorter term, Collective agreements,

We also see some cost pressures from airport infrastructure and user fees as airports undergo Capital Investments to better survey our lines and passengers.

Over time, we will aim to partially offset these headwinds with ongoing productivity, gains constant cost discipline and driving cost reduction initiatives across our business

Now, let's turn to the fleet.

We expect to add 3 additional 8 to 20s, and 1 737 Max, by the end of 2025.

Further. We expect to be again, retiring old Airbus A320 family, aircraft, including 8319.

2, 3/20.

In 2026, we expect to receive 188220 1183 211, xlrs.

4737 Max aircraft and 2787 d10s.

While we are particularly excited about receiving, our first 8321 xlrs and 787-10 the delivery is scheduled for. 2026 is considerably delayed compared to our original expectations as outlined that our last investor day.

On average, we will have approximately 6 fewer 8 to 2737 and 6 fewer. 8321 XLR 7 or 787 d10s.

On any given month of 2026,

Which will impact our ASM production for next year.

In addition to welcoming the new aircraft to our Fleet, as Mark noted, we are moving ahead with plans to transfer all 737 Max aircraft to Rouge next year.

We're working toward an all 737 Max Rouge Fleet by the end of 2026.

Some 8320 family, aircraft are expected to move to Mainline and the rest will be retired.

more details, we provided when we give 2026 Scotts,

looking Beyond 2026, our 787-10 order for 18 firm. Aircraft has been modified to 14 for aircraft for the first 10, scheduled for delivery by 2028 and the remaining 4 by 2030.

While this moderates, the growth Pace in the near term, we remain firmly, confident in the mid and long-term opportunities ahead.

Financial Planning and preserve flexibility to scale capacity in line with demand.

These modifications are reflected in our Capital commitments table included in our Q3 mdna.

Our fleet strategy remains focused on profitable growth in our right-to-win markets.

We will continue evolving the fleet for greater efficiency and flexibility to meet customer demand.

Our Fleet Investments support, long-term sustainable value to shareholders and customers alike.

Reflecting our commitment to returning value to shareholders. Today, we announced our renewed and CIB

since the Inception of our November 2024 ncib, we were purchased about 62 million shares for cancellation.

Further, we retired 18 million potentially issuable shares in aggregate. We have deployed close to $1.7 billion to anti-dilutive actions.

In summary.

We remain confident in our trajectory toward 2028 and our ability to manage through growth and margin expansion cycle.

The Strategic Network expansion, premium product investment and discipline cost management. Our core priorities.

And our executive lead roadmaps Drive execution across our portfolio.

Despite a challenging Q3 environment, we delivered solid Financial results, demonstrated the underlying strength of our franchise, and continue to hit important, milestones for our New Frontiers plan.

We'll provide a wholesome update on progress, towards our long-term goals at our next investor day, which will be planned for some time in 2026.

Thank you, and I look forward to your questions. Mike back to you.

Great, thanks.

You John?

Have a very strong business model that can recover quickly from an unexpected. Setback.

And certainly, take advantage of opportunities and execute extremely well.

Operationally, we shut down and restart the airline and record time.

And we are encouraged by the speed at which booking patterns recovered and the strength that has followed

negotiation supporting our staff at the airports contact centers and maintenance facilities will begin soon.

Over decades, we have consistently reached agreements that value our employees and support the airlines future.

And we look forward to productive discussions with our unions.

Our commitment to our plan includes making very tough decisions.

In July, we announced to our management colleagues that we would be streamlining. Our organization.

After our comprehensive evaluation, we made a difficult decision to reduce certain management positions representing approximately 1% of our total headcounts.

Next year, we expect to take delivery of 35 new aircraft, the most we have ever received in the single year, supporting our Global growth initiatives.

We will receive the first game-changing Airbus 321 XLR, which will not only enable us to launch new routes but it will help us offer some Services year round and even out our Network seasonality

As Mark noted, the travel Market remains robust and demand is strong.

In particular, business travel continues to recover.

Our recent announcement to add rules from Toronto Island. Next spring, underscores our commitment to offer more options to our loyal Travelers, including our aerial plan members.

We are pleased that we have more than doubled our Aeroplan membership since the programs relaunched. Now proud proudly counting more than 10 million members.

Our focus on customer service, resonates throughout the network. I was pleased that our net promoter score Rose by 10 points in the quarter.

And that Air Canada once again, won a 5-star rating from Apex.

This excellence in customer experience recognized.

and finally, today,

We announced a renewal of our normal course are short bit.

Our Capital allocation priorities remain unchanged investing growth, protect our strong balance sheet and deploy excess liquidity to strategically.

As our track record shows, including including this quarter. We are executing our plan seizing the right opportunities.

Strong, operational growth and discipline. Execution are driving effective cost management.

And reinforcing our diversified commercial foundation.

Which are the key components of our right to win.

With prudent steps to smooth out our capital expansion profile and a renewed NCIB in place, we've established a clear framework to return value to shareholders.

As you heard today, we will also continue to improve our cost structure through productivity gains, operational efficiencies and constant cost discipline to mitigate near-term pressures.

We continue to focus, our free cash flow generation in order to return value to shareholders. The hard work ahead in 2026 will position us very well for the second half of our strategic plan.

The solid foundation. An excellent balance sheet and a very talented and dedicated team focused on execution in our customers, we are confident in our ability to deliver a significant long-term value, all of our stakeholders.

Make you Mercy Valerie.

Thank you, Mike, and thank you all for joining us this morning. We are now ready for your questions and ask that you limit

Over to you Krista.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw that question, again, press star 1. Your first question comes from the line of Conar Gupta with Scotia Bank. Please go ahead.

Thanks operator, good morning. Um, maybe this is for Mark. Um, I I think you mentioned that uh, rasim uh, Trends are are expected to be slightly down in Q4. Um I'm just kind of wondering, you know what um are you seeing in in different markets here? I think, you know, corporate obviously you're saying it's it's it's growing nicely.

And I think Atlantic demand continues well into October and some parts of November. Much of this resin weakness is still coming from the Pacific normalization and maybe transport.

Hi Connor. So uh, on on this particular item, uh, when we look at Q4, you know, we are expecting somewhere between flat rasim to maybe slightly down rasim. But overall, the way you should look at this is the transatlantic is looking at over performance. We're looking at a very strong transatlantic, uh, Network all the way through Q4. Uh, we see a lot of resilience in the sun market, as well, as we've seen a little bit of shift away from transit border into the sun, uh, you know, we're having a very strong November December into the sun.

Uh, and then you've got those other, uh, supporting pillars like premium demand strength and corporate demand strength that are kind of sustaining, you know, some fairly decent yields that we're going to have on the transborder despite the demand drop. So, that's kind of the color in terms of what we can expect for Q4.

Okay, thanks for that. Um and then on the chasm side John um I think the implied guidance for Q4 suggests a flattish Chasm from last year. Um you know I mean given the inflationary environment you guys are in and obviously you'll be able to contracts and all that uh you know what is contributing to the flattish chasm here. I mean what are the offsets? I mean some of the cost savings, I'm sure.

like are coming through but is there anything else like in sort of 1 timing, 1 time or in nature and Q4

No, I would say it's uh it's it's largely and and you know, you've seen we've been active including um, uh, keeping headcount uh, uh, in check. And so, I, I would say it's generally speaking, it's cost, uh, cost Focus. Um, we get some ASM growth so that helps as well. Uh, fourth quarter actually carries the entire ASM growth for the full year and, uh, so that's always helpful. Um, nothing, uh, nothing really to highlight in terms of, uh, kind of big positives in the fourth quarter,

Right. And I think that the maintenance contract adjustments, uh, you already left those in Q3, right? I mean, there's nothing in terms of noise or not and Q4. Okay? Alright. Alright, alright, Q3 was annoyed and I covered that in the commentary, but, um, I think she reports should be a little bit more of a reasonable comparison.

Okay. Thanks. I appreciate the time.

Your next question comes from the line of Savvy. Sight. With Raymond James, please go ahead.

Okay, thank you. Good morning. Um, I was just wondering, um, the commentary about the fleet, uh, kind of delays into my 26 versus kind of expectations last year. Um, I think there's visibility here. So I, I was kind of curious, you know, how you're thinking about 2026 capacity. And, and if you're kind of hiring correctly to that versus kind of in the past where

Maybe some of the sweet delays were were somewhat surprising. And, and therefore, kind of hard to manage on the call side.

Continues to grow. So I think, you know, in and of itself we're going to continue to, to work that way, um, with respect to the, um, the, uh, the capacity growth for sure. I mean, uh, we try to be as proactive as we can with respect to, to balancing, you know, everything we need to to bring on those aircraft properly and, um, I think we have a pretty good read of what 2026 looks like. Um, and um, and, you know, we're, we're going to obviously operate in accordance but um, yeah, for us, um, you know, we're well into the the planning cycle and have a pretty good read on what we expect for capacity growth next year.

That's too early to share.

Um,

Yeah, in Precision. Yes, but, uh, I think we're, we're adding, uh, 35 aircraft in total. We're going to be retiring, you know, uh, a significant amount of aircraft as well. So we'll have a net balance of somewhere in the mid teens. I think, uh, or maybe just less than that, probably in the low double digits. Um, we'll, we'll hold that for, uh, for the guy.

I appreciate it and then just to follow up.

With the drivers where it was just just that related to the fleet order changes or or anything different going on with the capex view.

No, it's totally correlated to the uh, to The Adjustment and uh the -10 order.

Thank you.

With stifel, please. Go ahead.

Hey, good morning, everyone. Uh, just wanted to get a sense of how you're thinking about the, the peak Q3 in 20126 and and, uh, any thoughts on just smoothing of seasonality. And and I guess some of the strengths you're seeing to start this year is that, is that sort of a pull forward of of Q3 or how should we think about that?

Thanks. It's a, it's an excellent question and something that we're actually debating here internally, uh, obviously what you can see in 2025 is that there is more relative, strength in Spring, and fall than there actually is in the summer Peak. I think that's a trend that we see consistently across, um, the North American landscape. So, we're working with our operations colleagues to see how we can better allocate aircraft and maintenance activities. So, maybe take a little bit of the pressure off to 3 and load up a little bit more in Q2 Q4. But what he in, as it relates to 2026, specifically just the timing of aircraft delivery is such that there's going to be, you know, some decent ASM growth in in the in Q3 relative to Q2 in 2026.

Got it. And then, uh, follow up just around the ncib and, uh, your, your free cash flow. Now that the capex has been deferred is, is that something that, um, we should think you're going to be active on starting in in, uh, in November here.

I I won't give any Precision to timing but, you know, we, we've, uh, we've put it in place and we do intend to use it. And, um, I'll just give some color around our buyback program. We did announce, you know, an aggregate about 2 billion, um, over the next couple of years as we, uh, as we set that up in December of 24 and we said that was going to be part of the mid midterm plan 3 or 5 years. So uh right now we stand at about 1.3 billion of um Sheriff's bought back. We also did the uh the convertible uh debt uh extinguishment which uh which was also sent to dilutive. So there's still room uh for us to continue to go. Our plan is continuing to execute as we expected. Uh, I think that 2025 positive cash is is a good, uh, checkpoint here. And, uh, obviously a little bit of an improved profile on capex helps as well. We'll pick the right spots, but, uh, we do intend to be active on this ncib. And we'll do that, you know, as appropriate.

Got it. It's great caller. Thank you.

Your next question comes from the line of Tom Fitzgerald with TD Cowen.

Please go ahead.

Hi everyone. Thanks so much for the time. Um, I'm just curious like, how you're thinking about, um, you know, kind of managing the transition of Canada point of sale and transporter in the March quarter. And whether you think, um, just how Latin markets are shaping up so far and everything, I'm managing that risk.

And so just just to be present in your question. You're you're you're speaking about the upcoming spring break in March.

Yeah, yeah, yeah. This is the broader. I know the the sun markets are are big demander driver in the marsh, just on the in the trend of Border. Um, that's a heavy portion of it. So just kind of curious how that's, um, I know you kind of have you got a lot of growth on the Latin markets coming up um, kind of curious how that shaping up and what what um what we should be watching for

Is obviously our our Transporters spring break capacity and because we we're noticing a, a better kind of equilibrium between supply and demand. I mean, obviously you've seen a lot of competitors withdraw capacity into US Leisure markets. It's, it's actually a much more favorable Revenue environment going into q1 and into March break. And if there are further opportunities for us to move capacity around, we'll, we'll make those calls later on, but, um, you know, we are seeing, um, you know, we're definitely, uh, I I would say, we call the bottom a little bit on the trans border, Leisure kind of demand erosion.

okay, that that's that's really helpful and then just as a follow up

Um, I was wondering if you have any more color on 6, Freedom, uh, between the specific and Atlantic, um, and just some of the deceleration on that growth. I don't know if it's just noise from the um, industrial action or any. Um, anything of note that we should be, um, we should be thinking about. Thanks again for the time.

Yeah, thanks. So, so the, the demand growth so far for 63 and revenue growth is mostly been on the transatlantic.

Uh, there's been a little bit of Pacific growth but it's been relatively muted this year. Uh, and as we think about Q4, it's mostly the transatlantic, that's driving it, a portion of it being us to obviously the transatlantic, but a big growth on Latin America to Europe via Canada, which is going to sustain our sixth Freedom performance, throughout the year.

Your next question comes from the line of Chris Murray with ATB Capital. Please go ahead.

Yeah, thanks folks. Good morning, um, just very quickly thinking about the fleet changes next year. Um, you know, as you said, there's a lot going on but I guess I want to focus a little bit on Rouge, so can we just think, um, maybe go through what the process is going to look like moving all of the 737s into Rouge. Um, and you know, I'm assuming you'll end up remaining those those aircrafts. But if you can give us some more color on that, that would be great. And how we should think about the transition. Over the year would be helpful. Thank you.

For sure uh hi. Good morning, it's Mark Nasser. Um so we're going to begin with our first 737 Max. That's currently operating at Mainline that's going to go in for reconfiguration uh in about 6 weeks here. Um, the reconfiguration of those aircraft is a very efficient program that will take about a week to do each 1. And we'll move through the entire fleet, um, of the 40 aircraft that we currently have and the standard Mainline configuration over the course of the year as well as the 5 additional new deliveries that we're going to take.

Um, and so we expect, uh, as we get towards the end of next year, the very beginning of the first quarter, uh, that transition to be complete. Of course, we're going to be bringing over several of the Rouge aircraft into Mainline. Um, that's a little bit more of an involved process, uh, with regards to reconfiguring those aircraft to match our Mainline standard, um, and uh, that should be completed in the early part of next year. And the 2 activities are going to happen to be able to balance capacity uh between the 2. Um, operating certificates, of course, we'll also be bringing Rouge to the West Coast uh by basing several aircraft out in Vancouver.

Um, with regards to the configuration. Uh, we haven't announced the details yet we'll do so in the coming weeks, um, but we will be densifying, uh, from the current, uh, Lopez that we have at Mainline. So the 737 Max and will be, uh, removing some of the JC cabin and adding more into the economy cabin, those details will be announced shortly, but it will be. It will ensure that we have the cost of the unit cost performance at Rouge that we need to be successful in the Leisure Market.

Okay, that's helpful. Thank you. Um, my last question is maybe for John on the ncib uh you know 1 of the questions I've been getting from a lot of folks is just uh, when you did the lawsuit and see if I guess you went out pretty fast and and burned through the allocation, um, which left you kind of without a the tool to use as a stock came off. You know, is there a is there a bit more thought to be in maybe more formula?

Acre balanced across the whole time period, or is it still going to be kind of an opportunistic thing? I know you put in a um a purchase uh, a purchase plan for it but just just thoughts on on, you know, kind of the the bigger picture strategy uh around how to use, it would be helpful.

We hear of when and how I think, we'll, we'll, you know, we'll, uh, we'll use it appropriately. We have.

Plenty of capacity at 10% to the total float. So um, we're running the business, you know, and it's not just 1 dimensionally we're bringing up the fleet we're um we're obviously focused on on cost uh containment and cost management. Uh we're geared towards uh free cash flow generation as we kind of build out the airline on the structural basis. And so we're going to keep a strong balance sheet at the same time, uh, complete via the program that we had started. Um, uh, when we announced the 2 billion dollars over the next couple of years. So, um, no Precision on the on the exact use, but, you know, we'll do it, uh, we'll do it right, uh, through the, the time of the, uh, ncib.

All right. Thank you very much.

You are next question. Comes from the line of James megargee with RBC Capital markets. Please go ahead.

hey uh, thanks for

Your lower capex. So you know can you just kind of talk about the capacity Trends do the remainder of 2025 and into 26 and uh any notable yield Trends um that are kind of emerging as a result of some of these capacity trips.

Hi James. So on, on the capacity side we we continue to see that the domestic Market is obviously very competitive.

Uh generally speaking I think the demand sorry supplies up about 4 or 5% going into Q4 just on the domestic alone. There's a better balance of supply and demand on the transporter which we think will help sustain yield and revenue recovery on the transporter sector.

Uh, the transatlantic is, is fairly stable with with low single digit, uh, capacity growth, which is going to obviously, provide some stability on the yield and load Factor side on the Atlantic. Of course, as you know, and we discussed on the Pacific. There's been a sizable growth in demand from China, sorry, in Supply from China, Hong Kong Korea. There is yield pressure on Asia and especially, as we've added more capacity to China and we've absorbed that capacity. We should anticipate that the yield and raasm will continue to be negative all the way to probably q1 or Q2 next year and then the sun market, you know, the, the, the capacity growth is up double digits. But our Revenue load factor and yield performance are all, um, all in the green. So, uh, overall a pretty, uh, pretty balanced market. And we've got, you know, of course, the ability to move capacity around as market conditions involved

Hey, thanks for calling, just for for my follow-up, on, on the lower capex. So, how should we be thinking about the trade-off of your longer term? Obviously, you know, positive for free cash flow. But, you know, does this kind of pose any risk, um, you know, to your longer term plans that you highlighted at the the the investor day and kind of, how should we be thinking this in the context of costs and margins? As the newer fleet was expected to be a driver of increased efficiency, and I'll turn the line over after that. Thank you.

Thank you. Thanks for the question. I think all of those things stay in touch. And I mean, the, uh, when you look at, um, at the overall, um,

Edition of aircraft to talk about 9 aircraft or so over the period of, you know, whatever it is 3 4 years. Um, we we, you know, this adjustment, uh, affects for, um, for sure. I mean, if you look at 2025 in terms of ASM growth, it was a bit of a stall. So I think just, you know, we we paced accordingly here, um, the 787's, you know, did have, uh, uh, quite a bit of delays from the original purchase dates versus coming in 2026. I think this is just, uh, managing that delay, uh, scenario. So, um, yeah, 2028, you know, you'll have 4 Less aircraft in there. We'll work through that. See what what it means. But ultimately, you know, we, uh, we're, we're bringing in 14, 787 and 3321 and there'll be plenty of good, aircraft and plenty of good capacity. And we think that uh, we're in good shape to to deliver on uh our longer term objectives.

Your next question comes from the line of Alexander aimie with CIBC please. Go ahead.

Hey good morning. Thanks for taking my question. Uh so yeah, just looking into your strong results within premium and in corporate. Um I was just wondering if you can provide any additional color on this as we look forward into the end of the year in 2026. Thanks.

Thanks. Good morning. Little little bit early to talk about 2026 because such a low basic bookings.

With both positive, load factor and yields. And as we all know, there's a little bit of pressure in the economy cabin in terms of yield

Your next question comes from the line of Sheila. Kahelu with Jeffrey's please go ahead.

Hi, thanks for the time. This is Kyle, and Chloe icon for Sheila.

I was hoping, I know it's earlier, but if we could talk a little bit about the puts and takes in terms of the profitability walk for 2026.

You have this 17 plus percent margins out in 2028, but it's sounds like a lot of the fleet benefit is now kind of moving.

Right again.

And, you know, you mentioned a bit about, you know, the labor contracts and the work rules kind of run rating next year. So can you kind of help us frame what 2026 profitability is and and whether sort of the moving pieces to to keep in mind?

I I think um I think you've covered some of it, right? So um in terms of uh absolutely you know ASM production, um I think we'll still have, you know, solid year-over-year growth from 25 to 26. But 25 isn't where 25 is originally intended to be so an absolute, you get a little bit of a of pressure there. Um, again, we also had, uh, I mentioned in my comments, what amounts to, you know, call it 6, long range, aircraft and 6. Uh, kind of Continental range or shorter range, aircraft uh, less than we

It's better when you have the, the original. Um,

Long-term plan uh in an investor in 24. So that's a pressure point. Um,

I think, you know, when it's all said and done, we'll still seem very nice growth, but we will not see. All of the, the benefits of the modern aircraft and and some of that long range flying that we would like to see in 26. That doesn't go away. It just gets pushed out a little bit. So think 27 and certainly in 28, we'll have a lot of that, uh, athlete in place and a lot of the margin benefits that we're expecting with respect to uh, puts and takes. I think we've been very focused on cost reduction and, and driving productivity and I think those will continue to deliver value. We do have uh, step change in labor. We've started that cycle in 24 with the pilot agreement, 25 with uh, uh, flight attendants. And we do expect a couple of other labor agreements in 2026 to to be completed mentioned in the comments as well. You'd have some pressure from um those step changes, we're planning for them but they will come through and and kind of be most acute as we go through 2026. So um, I think, you know, for all intents and purposes looking out probably passed 26/27.

28, we talked about a 17% plus, uh, March. And I think that still, uh, well in play, uh, we'll continue to work through and, and, um, and see where we end up as we complete our planning cycle. Both the, uh, the 26th, and the longer term, but we're still very focused on those it margins. And, um, just navigating through some movements overall.

From a from an airline and business model, point of view is still feel very good about generating, positive cash, structurally and um and finding a creative growth.

Sound. If if I could just follow up quickly on the on the 787 10s, I, I know you mentioned. It's just related to delays and and maybe it's just kind of normal normal case negotiations. But is that, is that a signal of what you think the network is going to shape up to be in a few years time? Because those are, you know, your long haul, most premium type aircraft and, um, I I assume there's a bit more under underpinning. Why you guys made that decision? Thanks.

Yeah, I mean, it it's not. So uh, frankly, those were, you know, 18 aircraft sources that come in in 2026 and a couple in 27. So that order would have been filled, um, you know, fairly fairly rapidly. Uh, there's been delays. We've just, you know, managed, uh, with Boeing, um, to adjust because of the, uh, of the impact of those delays. And, you know how we take those aircraft to longer term, no changes in our expectations. And, uh, when you look at it, right, I mean, all in through the math, on an envelope but you're talking about maybe 2% of total capacity, by the time, you get to 2028, so just uh, it's Mike Russo just to pile on that. Um,

You know, we think our timing is is, is very, very positive. As you know, Canada is diversifying trade, uh, around the world and we think we can play a big part in that diversification. So strategically, bringing in, uh, wide bodies will

Will allow us to work with Canada, on on diversifying trade.

Your next question comes from the line of Andrew dedora with Bank of America. Please go ahead.

Hi, good morning everyone. Um,

You know with the strike and the way it kind of has influenced, you know, near-term ibida and cash flow. Net Leverage is probably a little bit different than you were initially planning for 2025 but I guess when you think about executing on,

In the ncib, you know? I guess how do you think about executing on the ncib in the construct of kind of where your Leverage is gone? And you know, how how

About that.

In your in your range. Uh going forward with this plan in place.

Yeah, I mentioned it in the, in the commentary, right? That we would look through that 1 time. Hit in Q3, uh, when we thought about long-term decision making in capital deployment, um, so we, um, you know, I mean, that's a, a non-recurring 1 time. Um, it won't affect how we view the the strength of our balance sheet or the capital deployment, uh, decisions and strategies. We have to make. I think it'll fall off the uh, the the uh, the calculation in 3 quarters and or 4 quarters. So,

You know, and you still feel very good about our balance sheets, feel good about how we're allocating Capital. Um, no changes.

Okay, fair enough. Um, and I kind of more of a um,

um, kind of, uh,

Focused uh question here, just in terms of free cash flow, right. I think year to date a little bit over a billion. You're getting to Flat to up a little bit for the year. I know 4 q is typically I see a seasonally weaker. Just just curious what brings that? It seems like 4 q will be much worse than normal. Seasonally from a free cash flow perspective. Is that because of the

Strike the cash payouts from from the strike. Anything, anything unique there. Thanks.

Yeah, thanks for asking the question. So, um, we highlighted in in the commentary that we have about $600 million including some of the, uh, the uh, the comp that is a crude and will be paid. But um, mostly from a delay in uh, vendor payments in the third quarter, we went to an sap implementation, uh, we had planning for transition. Uh, in there, you have about 15 days worth of uh, payables that would have otherwise been paid in, uh, in Q3 that will be paid in Q4. So, when you take that, 600 million dollars out and you adjust for what I mentioned was roughly 900 million dollars of of capex. You get a you get a pretty

Normal. Uh,

Free cash flows, uh, when you consolidate Q3 and Q4 together. So really, at the end of the day, it's working capital restoration uh of the uh, of the payables that were uh not out the door in Q3 that will catch up in Q4 no, 600 million.

Oh, that's helpful. Thank you.

Yeah.

Your next question comes from the line of Saudi xiaoman with BMO Capital markets. Please go ahead.

Yeah, good morning. Um,

The question, maybe for John, I, I want to dig into the cadmium.

Picture a little bit. Uh, so you know you've kind of averaged about 4% adjusted CASM inflation in the last three years, including 2025.

um, going into 26, you've got a bunch of narrow body which is uh,

you know, potentially pressure on kasm, I mean, you've got some inflationary pressure in labor

Uh, but you also have growth in productivity and I'm just trying to think. Do we start to go?

Kind of sub-4 as we go to 26. Um, any kind of framework how to think about the adjusted chasm as we go into next year.

um, you know, fatty fairly, I think, you know, we'll, we'll we'll address that a little bit more when we get to, uh, to our guide and um,

In February, we're working through that now. I think that 26 will have a bit of pressure, right? That I mentioned it before. You're not you're getting the asms, you're not getting the asms that, um, you know, come from a longer range flying in in quite the, uh, the mix that we would have liked. So, um, that you know, that typically is a little bit helpful, the the uh, the impact of modern Fleet as well. That we had kind of a reasonability for 26 going to be a little bit stalled. So I not concerned about, uh, our ability to generate those, um, uh, those, those cost savings and cost reductions. They will just come a little bit later than we had planned for. So, I think in 2026, probably not the year, where you have the, um, the kind of flattening out of uh, of cost on a unit basis but still, very confident that will come uh, probably near the end of the year and into 27/28.

Okay. And just to follow up on the capex and the plan for 2026 any uh,

split this for,

say a lease back, maybe versus

Um, straight forward financing.

Yeah so um we mentioned right in our uh in our long-term planning uh in our investor day kind of 3 and 5 year look that we would be active with cl lease backs we had earmarked roughly 3 billion dollars and called it. I don't know maybe whatever it is 8 billion of aircraft Acquisitions over the same period. Um and we talked about bringing our own uh to least ratio down from 80% on 20% leased to something like 60 65% owned and uh call it 35% least. Uh, we will continue to do that. We want to do that in the Years where we're uh, peaking in terms of uh, of capex because kind of this Log Jam of delays. And we haven't had a lot in the last couple of years and now finally coming into the into the peak of our growth cycle. So we will be uh deploying sell lease backs in 2627 and uh, we'll work through all of that and probably give you a little bit more color as we set those things up for 2020.

26, when we guide.

But yes, there will be components of service back there for sure.

Okay, thank you. And if you had just actually for 26, or it's just before that, your head is for

Ya. No none for 26. Um, you know, that's something to to consider. We typically look at the booking curve and, uh, What, uh, what shares we've already sold, and then, you know, I mean, it's been notwithstanding, you know. There there's been some volatility, it's been a really relatively, you know, range bound, uh, fuel price specifically. I would say, after the spring of 25 through the rest of the year and, um, we've participated, you know, through the year on a couple of occasions, you know, probably around 20% total year, uh, fuel hedged when you aggregate all of it and, um, and we did. So mostly within the 90 day booking curve, once we had shares sold and we saw some, uh, some breakdown in in pricing.

Okay, thank you.

Thank you.

And that concludes our question and answer session. I will now turn the call back over to Valerie Durant for closing comments.

Once again, thank you very much for joining us on our call this morning. Should you have any additional questions? Don't hesitate to contact us at investigation, have a good day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.