Q1 2026 Air Canada Earnings Call

April 30, 2026

Speaker #1: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the AIR CANADA's first quarter earnings call.

Operator: Thank you for standing by. My name is Tina. I will be your conference operator today. At this time, I would like to welcome everyone to the Air Canada Q1 Earnings Call. 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. To ask a question, simply press star one on your telephone keypad. To withdraw your question, press star one again. It is now my pleasure to turn the call over to Amanda Murray, Head of Investor Relations. You may go ahead.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad.

Speaker #1: To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Amanda Marie, Head of Investor Relations.

Speaker #1: You may go ahead.

Speaker #2: Thank you, Tina. Hello, bonjour, et bienvenue à notre revue des résultats du premier trimestre 2026. Welcome to Air Canada's first quarter 2026 earnings call.

Amanda Murray: Thank you, Tina. Hello, bonjour, et bienvenue a notre revue des résultats du premier trimestre vingt vingt-six. Welcome to Air Canada's Q1 2026 earnings call. Thank you for joining us today. On the call with me are Michael Rousseau, our President and Chief Executive Officer, Mark Galardo, our Chief Commercial Officer and President of Cargo, and John Di Bert, our Chief Financial Officer. Other members of our executive team are also with us and available for the Q&A portion of the call. Before we begin, I remind everyone that today's discussion may contain forward-looking information regarding Air Canada's outlook, objectives, and strategy. Actual results could differ materially due to various assumptions, risks, and uncertainties. Please refer to our Q1 2026 earnings release, our 2025 full year and 2026 Q1 MD&A and filings available on aircanada.com and on SEDAR+.

Speaker #2: Thank you for joining us today. On the call with me are Michael Rousseau, our President and Chief Executive Officer, Mark Galardo, our Chief Commercial Officer, and President of CARGO, and John Bert, our Chief Financial Officer.

Speaker #2: Other members of our executive team are also with us and available for the Q&A portion of the call. Before we begin, I remind everyone that today's discussion may contain forward-looking information regarding AIR CANADA's outlook, objectives, and strategies.

Speaker #2: Actual results could differ materially due to various assumptions, risks, and uncertainties. Please refer to our Q1 2026 earnings release, our 2025 full year and 2026 first quarter MVNA, and filings available on aircanada.com and on Cedar Plus.

Speaker #2: With that, I will turn the call over to Mike.

Amanda Murray: With that, I will turn the call over to Mike.

Speaker #3: Thank you, Amanda. Bonjour, everyone. Thank you for joining us today. Before I begin, I'd like to acknowledge the recent incident at LaGuardia Airport. On behalf of everyone at AIR CANADA, I want to express my sincere condolences and sympathy to those affected.

Michael Rousseau: Thank you, Amanda. Bonjour, everyone. Thank you for joining us today. Before I begin, I'd like to acknowledge the recent incident at LaGuardia Airport. On behalf of everyone at Air Canada, I want to express my sincere condolences and sympathy to those affected. Our thoughts are with the passengers, crews, firefighters, and families impacted. Safety remains the foundation of our industry and our first priority, which is why we remain engaged with the US and Canadian authorities as they continue their investigation of this incident. I also want to thank the employees who helped in our emergency response by supporting the families of affected passengers and crew, taking care of our customers, and keeping the operations running. Turning to our results. In Q1, we delivered a year-over-year growth of 61% in adjusted EBITDA, reflecting disciplined execution in a volatile operating environment.

Speaker #3: Our thoughts are with the passengers, crews, firefighters, and families impacted. Safety remains the foundation of our industry, and our first priority is why we remain engaged with the U.S.

Speaker #3: and Canadian authorities. As they continue their investigation of this incident, I also want to thank the employees who helped in our emergency response by supporting the families of affected passengers and crew.

Speaker #3: Taking care of our customers and keeping the operations running. Turning to our results, in the first quarter, we delivered a year-over-year growth of 61% in adjusted EBITDA.

Speaker #3: Reflecting discipline execution in a volatile operating environment, I truly believe the last two consecutive quarters of record results reflect the underlying strength of our plan and business model.

Michael Rousseau: I truly believe the last two consecutive quarters of record results reflects the underlying strength of our plan and business model, and all stakeholders should be extremely excited as we move into the growth phase of our long-term strategy. We continue to make progress on our New Frontiers objectives, supported by the strength of our diversified network, premium positioning, and loyal customer base. This gives us the flexibility to align capacity with demand across the year and deploy it where returns are the most attractive, a capability that was evident in the first quarter, reflected in strong passenger revenues, solid premium and corporate performances, and healthy results at Air Canada Vacations. Since late February, the situation in the Middle East and the sharp increase in global jet fuel prices have created a significant external shock for our industry.

Speaker #3: And all stakeholders should be extremely excited as we move into the growth phase of our long-term strategy. We continue to make progress on our New Frontiers objectives, supported by the strength of our diversified network, premium positioning, and loyal customer base.

Speaker #3: This gives us the flexibility to align capacity with demand across the year, and deploy it where returns are the most attractive. The capability that was evident in the first quarter.

Speaker #3: Reflected in strong passenger revenues, solid premium and corporate performances, and healthy results at AIR CANADA vacations. Since late February, the situation in the Middle East and the sharp increase in global jet fuel prices have created a significant external shock for our industry.

Speaker #3: The pace of that increase is testing demand resilience. Across commercial aviation, and reinforcing the need for discipline. This is not unique to AIR CANADA.

Michael Rousseau: The pace of that increase is testing demand resilience across commercial aviation and reinforcing the need for discipline. This is not unique to Air Canada. It is an industry-wide challenge that affects how airlines think about capacity, pricing, and risk. In this environment, our focus is on staying flexible, making deliberate decisions, and managing the business to prioritize returns and protect cash flow and balance sheet strength. With this backdrop, we suspended our full-year guidance and provided Q2 guidance. The Q2 guidance reflects our expectation to offset about 50% to 60% of the incremental fuel expense through disciplined commercial and cost actions. Despite fuel-driven fare increases, we continue to see strong demand across the network and throughout the booking curve.

Speaker #3: It is an industry-wide challenge that affects how airlines think about capacity, pricing, and risk. In this environment, our focus is on staying flexible. Making deliberate decisions and managing the business to prioritize returns, and protect cash flow and balance sheet strength.

Speaker #3: With this backdrop, we suspended our full-year guidance and provided Q2 guidance. The Q2 guidance reflects our expectation to offset about 50 to 60% of the incremental fuel expense.

Speaker #3: Through disciplined commercial and cost actions, despite fuel-driven fare increases, we continue to see strong demand across the network and throughout the booking curve. History shows that in periods like this, airlines will scale, diversify networks, premium demand exposure, strong brand, and resilient balance sheets are better positioned to navigate turbulence and emerge stronger.

Michael Rousseau: History shows that in periods like this, airlines with scale, diversified networks, premium demand exposure, strong brand, and resilient balance sheets are better positioned to navigate turbulence and emerge stronger. Air Canada has these attributes, we are laser-focused on disciplined execution, prioritizing returns and cash generation, and continuing to strengthen the business for the long term. Importantly, strengthening our business means taking care of our people. I'm pleased to say we successfully negotiated 2 new labor contracts agreements with Unifor for our pilot and flight attendant crew scheduling teams during Q1. This reflects our continued commitment to constructive, direct union management relations and to fostering a workplace where collaboration drives long-term success. In the operations, this quarter was another reminder of how much progress the team has made.

Speaker #3: AIR CANADA has these attributes, and we are laser-focused on discipline execution, prioritizing returns, and cash generation. And continuing to strengthen the business for the long term.

Speaker #3: Importantly, strengthening our business means taking care of our people. I'm pleased to say we successfully negotiated two new labor contract agreements with UNIFOR for our pilot and flight attendant crew scheduling teams during the first quarter.

Speaker #3: This reflects our continued commitment to constructive, direct union-management relations and to fostering a workplace where collaboration drives long-term success. In operations, this quarter was another reminder of how much progress the team has made.

Speaker #3: Q1 brought several challenges, unusually cold winter, various ice storms, disruption in certain sun destinations, and as I noted, the evolving conditions in the Middle East.

Michael Rousseau: Q1 brought several challenges: an unusually cold winter, various ice storms, disruption in certain sun destinations, and as I noted, the evolving conditions in the Middle East. In each case, our operations teams responded with focus and compassion, keeping the airline moving and taking care of our customers. I want to thank our employees. Their dedication and professionalism are at the core of the Air Canada brand and important contributors to the sequential improvements in customer sentiment. That connection between our people and our customers is fundamental to who we are as an airline. It is what will continue to strengthen Air Canada. As we look ahead, we are entering an important phase of fleet and product advancement. We recently took delivery of our first Airbus A321XLR, which is scheduled to take its inaugural flight on 15 June.

Speaker #3: In each case, our operations teams responded with focus and compassion, keeping the airline moving and taking care of our customers. I want to thank our employees.

Speaker #3: Their dedication and professionalism are at the core of the AIR CANADA brand. And important contributors to the sequential improvements in customer sentiment. That connection between our people and our customers is fundamental to who we are as an airline.

Speaker #3: It is what will continue to strengthen Air Canada. As we look ahead, we are entering an important phase of fleet and product advancement. We recently took delivery of our first Airbus 321XLR, which is scheduled to take its inaugural flight on June 15.

Speaker #3: With additional aircraft deliveries expected this year, along with two 787-10s, these aircraft will strengthen our premium offering. We have completed seven Boeing 737 MAX conversions to AIR CANADA Rouge.

Michael Rousseau: With additional aircraft deliveries expected this year, along with 2 777-10s, these aircraft will strengthen our premium offering. We have completed 7 Boeing 737 MAX conversions to Air Canada Rouge and are on track for 45 by year-end. Together, our people, investments in fleet, product, digital, and customer experience puts us in a solid position to take advantage of as opportunities arise and to execute on our New Frontiers objectives. Before I wrap up, I announced my upcoming retirement last month after close to 2 decades with Air Canada. I look forward to supporting our company through this important transition period. I firmly believe Air Canada will continue its flight path from a position of strength with a dynamic leadership team, strong balance sheet, and a clear strategy. I'm confident the company is well-positioned to continue building on the progress we've made. Thank you.

Speaker #3: And are on track for 45 by year-end. Together, our people, investments in fleet, product, digital, and customer experience puts us in a solid position to take advantage of as opportunities arise, and to execute on our new frontier objectives.

Speaker #3: Before I wrap up, I announced my upcoming retirement last month after close to two decades with Air Canada. I look forward to supporting our company through this important transition period.

Speaker #3: I firmly believe AIR CANADA will continue its flight path from a position of strength with a dynamic leadership team, strong balance sheet, and a clear strategy.

Speaker #3: I'm confident the company is well positioned to continue building on the progress we've made. Thank you over to you, Mark.

Michael Rousseau: Over to you, Mark.

Speaker #1: Thank you, Mike, and good morning, everyone. Bonjour à tous. J'aimerais d'abord remercier nos employés et nos clients. I'd like to thank our employees for their dedication and our customers for their continued support and loyalty.

Mark Galardo: Thank you, Mike, and good morning, everyone. Bonjour a tous. J'aimerais d'abord remercier nos employés et nos clients. I'd like to thank our employees for their dedication and our customers for their continued support and loyalty. Our consecutive quarterly record results are another clear validation point that Air Canada has the strongest commercial foundation in its history. These industry-leading results are the product of four key components. One, international revenue growth supported by Canada's underlying demographics. Two, structurally higher yielding and brand loyal customer segments. Three, a diversified and growing sixth freedom franchise. Lastly, disciplined capacity management that led to a leading load factor performance amongst our peers. Q1 operating revenues and passenger revenues both grew 11% year over year to CAD 5.8 billion and CAD 4.8 billion, respectively. These results were largely driven by an 8% increase in PRASM on 2% more capacity.

Speaker #1: Our consecutive quarterly record results are another clear validation point that AIR CANADA has the strongest commercial foundation in its history. These industry-leading results are the product of four key components.

Speaker #1: One, international revenue growth supported by Canada's underlying demographics. Two, structurally higher yielding and brand loyal customer segments. Three, a diversified and growing Six Freedom franchise and lastly, disciplined capacity management that led to a leading load factor performance amongst our peers.

Speaker #1: Q1 operating revenues and passenger revenues both grew 11% year over year to $5.8 and $4.8 billion respectively. These results were largely driven by an 8% increase in PRASM on 2% more capacity.

Speaker #1: Our international revenues increased 17% year over year, reflecting sustained intercontinental demand. Notably, the Atlantic continued to perform strongly with solid mid-team unit revenue growth in Q1.

Mark Galardo: Our international revenues increased 17% year over year, reflecting sustained intercontinental demand. Notably, the Atlantic continued to perform strongly with solid mid-teen unit revenue growth in Q1. We continue to grow into higher-yielding segments, with premium revenues growing 11% year over year. In fact, business class revenues outpaced the economy cabin by 2 percentage points. Corporate revenues increased 14% on strength across all geographies, which in part is supported by tailwinds from Canada's diversifying trade objective. We produced a record sixth freedom results on an increasingly varied mix of passenger flows. Our successful expansion into Latin America drove more than half of the 18% year-over-year increase in sixth freedom revenues. Lastly, our record first quarter load factor and unit revenue performance are a testament to the strength of our commercial model and disciplined capacity management.

Speaker #1: We continue to grow into higher yielding segments, with premium revenues growing 11% year over year. In fact, business class revenues outpaced the economy cabin by 2 percentage points.

Speaker #1: Corporate revenues increased 14% on strength across all geographies, which in part is supported by tailwinds from Canada's diversifying trade objectives. We produced a record Six Freedom results on an increasingly varied mix of passenger flows.

Speaker #1: Our successful expansion into Latin America drove more than half of the 18% year over year increase in Six Freedom revenues. Lastly, our record first quarter load factor and unit revenue performance are a testament to the strength of our commercial model and disciplined capacity management.

Speaker #1: With load factors roughly 5 percentage points above some of our North American peers, we continue to demonstrate our strong ability to execute against our strategic priorities.

Mark Galardo: With load factors roughly 5 percentage points above some of our North American peers, we continue to demonstrate our strong ability to execute against our strategic priorities. Building on this momentum, cargo, an important contributor to the profitability of our long-haul franchise, with revenues growing 4% year-over-year in Q1. Despite disruptions in Cuba and Mexico, increased sun capacity enabled record first quarter revenues for Air Canada Vacations and was the driving force behind a 19% increase in other revenues. Taken together, our first quarter results demonstrate significant progress in reducing Air Canada seasonality and speaks to the differentiated, diversified, and resilient commercial strategy that is driving continued top line growth. Looking ahead, we are diligently managing an evolving geopolitical and macroeconomic landscape. Air Canada was one of the first airlines to implement fare increases as the crisis unfolded.

Speaker #1: Building on this momentum, Cargo, an important contributor to the profitability of our long-haul franchise, with revenues growing 4% year over year in Q1. And despite disruptions in Cuba and Mexico, increased sun capacity enabled a record first quarter revenues for AIR CANADA vacations, and was the driving force behind a 19% increase in other revenues.

Speaker #1: Taken together, our first quarter results demonstrate significant progress in reducing Air Canada seasonality and speak to the differentiated, diversified, and resilient commercial strategy that is driving continued top-line growth.

Speaker #1: Looking ahead, we are diligently managing an evolving geopolitical and macroeconomic landscape. AIR CANADA was one of the first airlines to implement fare increases as the crisis unfolded.

Speaker #1: Since then, we have implemented multiple rounds of passenger fare and ancillary increases, and we are ticketing forward yields at mid-teens above last year. Cargo has also taken action, including increasing spot rates and introducing a carrier surcharge to the market.

Mark Galardo: Since then, we have implemented multiple rounds of passenger fare and ancillary increases, and we are ticketing forward yields at mid-teens above last year. Cargo has also taken action, including increasing spot rates and introducing a carrier surcharge to the market. We are seeing resilient demand across most geographies and customer types. Our commercial model allows us to be competitive and attract different customer types, enabling a unique ability to tap into more resilient and loyal customer segments. We're also proactively reducing lower margin and hub bypass routes and consolidating frequencies where optimal. As of right now, our capacity outlook for Q2 calls for a year-over-year ASM growth of between 0.5% to 1%, and we remain agile and disciplined in capacity management in the latter half of the year.

Speaker #1: We are seeing resilient demand across most geographies and customer types. Our commercial model allows us to be competitive and attract different customer types enabling a unique ability to tap into more resilient and loyal customer segments.

Speaker #1: We're also proactively reducing lower margin and hub overflight routes and consolidating frequencies where optimal. As of right now, our capacity outlook for the second quarter calls for a year over year ASM growth of between 0.5 to 1%, and we remain agile and disciplined in capacity management in the latter half of the year.

Speaker #1: In total, we believe that our commercial and cargo actions will contribute to a recovery of the incremental fuel expense of approximately $50 to $60% in the second quarter.

Mark Galardo: In total, we believe that our commercial and cargo actions will contribute to a recovery of the incremental fuel expense of approximately 50% to 60% in the Q2. We continue to see strong demand across the network and throughout the booking curve into the H2. Importantly, we recognize that the situation continues to evolve, and we're ready to implement a variety of adjustments as required. Shifting to other topics, Air Canada's network remains one of the most far-reaching in North America, and the majority of our new routes for 2026 are booking in line or above their comparable set. We will be introducing our first A321XLR to customers in a few weeks time, marking an important milestone in Air Canada's next chapter.

Speaker #1: We continue to see strong demand across the network and throughout the booking curve into the latter half of the year. Importantly, we recognize that the situation continues to evolve and we're ready to implement a variety of adjustments as required.

Speaker #1: Shifting to other topics, AIR CANADA's network remains one of the most far-reaching in North America. And the majority of our new routes for 2026 are booking inline or above their comparable set.

Speaker #1: We will be introducing our first A321 XLR to customers in a few weeks' time, marking an important milestone in AIR CANADA's next chapter. As the only Canadian airline to offer lifelast seats on a narrowbody, this aircraft will be deployed shortly on transatlantic and key North American markets from Toronto and Montreal.

Mark Galardo: As the only Canadian airline to offer lie-flat seats on a narrow body, this aircraft will be deployed shortly on transatlantic and key North American markets from Toronto and Montreal. To close, Air Canada is using its strong commercial foundation and differentiated position to drive these results. We have proven that our commercial performance is resilient in volatile conditions and that our teams are executing on our long-term strategy. Over to you, John.

Speaker #1: To close, AIR CANADA is using its strong commercial foundation and differentiated position to drive these results. We have proven that our commercial performance is resilient in volatile conditions and that our teams are executing on our long-term strategy.

Speaker #1: Over to you, John.

Speaker #2: Thank you, Mark. Bon après-midi tout le monde. Je tiens à souligner le travail soutenu de l'excellente exécution de nos équipes alors que nous avons commencé 2026.

John Di Bert: Thank you, Mark. Bon après-midi tout le monde. Je tiens à souligner le travail soutenu, l'excellente exécution de nos équipes alors que nous avons commencé 2026. I thank our employees who kept operations running smoothly and continued supporting our customers with caring class. The Q1 was a continuation of the strong execution we delivered in the Q4 of 2025, underscoring the effectiveness of our plan and the progress we're making across the business. Adjusted EBITDA increased 61% year-over-year to CAD 623 million, a Q1 record representing a margin of 10.8%. We reported adjusted loss per share of CAD 0.05 in the quarter, compared to a loss of CAD 0.45 in the Q1 of last year. These results exceeded market expectations and demonstrated strong commercial execution, network optimization, operational resiliency, and continued progress on cost management initiatives.

Speaker #2: I thank our employees who kept operations running smoothly and continued supporting our customers with caring class. The first quarter was a continuation of the strong execution we delivered in the fourth quarter of 2025.

Speaker #2: Underscoring the effectiveness of our plan and the progress we're making across the business. Adjusted EBITDA increased 61% year over year to $623 million, a first quarter record representing a margin of 10.8%.

Speaker #2: We reported adjusted loss per share of 5 cents in the quarter compared to a loss of 45 cents in the first quarter of last year.

Speaker #2: These results exceeded market expectations and demonstrated strong commercial execution. Network optimization, operational resiliency, and continued progress on cost management initiatives. As anticipated, adjusted CASM increased 5.5% year over year.

John Di Bert: As anticipated, adjusted CASM increased 5.5% year-over-year. This increase was primarily driven by the expected impact of higher labor costs related to previously negotiated agreements. It was further strained by operational inefficiencies related to capacity constraints during the quarter, including cancellations to the Middle East, weather disruptions in the Northeast, and localized challenges in certain sun markets. Importantly, however, total non-fuel costs in the quarter were broadly in line with our internal expectations. Turning to fuel. Volatility increased meaningfully as the quarter progressed. Prices rose sharply in March and more than offset the benefits we saw earlier in the period. As a result, fuel expense was broadly flat year-over-year in Q1. Lower-priced inventory and our fuel hedging gains helped moderate the impact in Q1. We do expect elevated fuel prices to be more impactful in our results beginning in Q2.

Speaker #2: This increase was primarily driven by the expected impact of higher labor costs related to previously negotiated agreements. It was further strained by operational inefficiencies related to capacity constraints during the quarter, including cancellations to the Middle East, weather disruptions in the Northeast, and localized challenges in certain sun markets.

Speaker #2: Importantly, however, total non-fuel costs in the quarter were broadly in line with our internal expectations. Turning to fuel, volatility increased meaningfully as the quarter progressed.

Speaker #2: Prices rose sharply in March and more than offset the benefits we saw earlier in the period. As a result, fuel expense was broadly flat year over year in the first quarter.

Speaker #2: Lower-priced inventory and our fuel hedging gains helped moderate the impact in Q1. We do expect elevated fuel prices to be more impactful in our results beginning in the second quarter.

Speaker #2: Cash flow performance was strong. We generated a record $1.8 billion of cash from operations in the quarter, collecting a solid operating performance and the momentum of seasonal working capital built ahead of the peak travel season.

John Di Bert: Cash flow performance was strong. We generated a record CAD 1.8 billion of cash from operations in the quarter, reflecting a solid operating performance and the momentum of seasonal working capital built ahead of the peak travel season. We note that this was supported by strong advanced ticket sales and the effect of higher fares. Free cash flow delivered a record CAD 1.6 billion. It included CAD 283 million in proceeds from the first in a series of sale and leaseback transactions that will restore our level of fleet ownership to our historical levels of 65% to 70% over the next 2 years.

Speaker #2: We note that this was supported by strong advanced ticket sales and the effect of higher fares. Free cash flow delivered a record $1.6 billion, and it included $283 million in proceeds from the first in a series of sale and leaseback transactions.

Speaker #2: That will restore our level of fleet ownership to a historical level of 65 to 70 percent over the next two years. Our operating cash flow strain, combined with the planned benefits of our sale leaseback strategy and a sustained level of solid unhand liquidity, allow us to repurchase close to $8 million shares deploying $142 million under our active NCIB authorization.

John Di Bert: Our operating cash flow strength, combined with the planned benefits of our sale leaseback strategy and a sustained level of solid on-hand liquidity, allow us to repurchase close to 8 million shares, deploying CAD 142 million under our active NCIB authorization. This brings our total cumulative investment in the share repurchases to CAD 1.5 billion since the inception of our CAD 2 billion target buyback program we announced at December 2024 Investor Day. We ended Q1 with approximately 287 million shares issued and outstanding, representing a 20% reduction of our share count as at 30 September 2024. We continue to protect the strength of our balance sheet and maintain our focus on financial resilience. We ended the quarter with a net leverage ratio of 1.4x EBITDA.

Speaker #2: This brings our total cumulative investment in the share repurchases to $1.5 billion since the inception of our $2 billion target buyback program. We announced at December 2024 Investor Day.

Speaker #2: We ended Q1 with approximately $287 million shares issued and outstanding. Representing a 20% reduction of our share count as at September 30th, 2024. We continue to protect the strength of our balance sheet and maintain our focus on financial resilience.

Speaker #2: We ended the quarter with a net leverage ratio of 1.4 times EBITDA. We will now use our financial strength to improve our gross leverage ratio and will be repaying our upcoming August debt maturity using on-balance sheet liquidity.

John Di Bert: We will now use our financial strength to improve our gross leverage ratio and will be repaying our upcoming August debt maturity using on-balance sheet liquidity while staying comfortably above our stated liquidity target of 15% of revenues. As we complete the debt paydown, we will pause the share repurchases in the near term. We will revisit this decision in the H2 of the year. We are executing our financial strategy with discipline as we optimize capital allocation in line with our priorities. Prioritize the balance sheet strength and preserve flexibility, make ROIC accretive investments in the airline, and return cash to investors. We are very well positioned to play both offense and defense as we navigate the current environment. Let's now turn to our outlook.

Speaker #2: While staying comfortably above our stated liquidity target of 15% of revenues. As we complete the debt paydown, we will pause the share repurchases in the near terms, but we will revisit this decision in the second half of the year.

Speaker #2: We are executing our financial strategy with discipline as we optimize capital allocation in line with our priorities. Prioritize the balance sheet strength and preserve flexibility.

Speaker #2: Make ROIC-accretive investments in the airline and return cash to investors. We are very well positioned to play both offense and defense as we navigate the current environment.

Speaker #2: Let's now turn to our due to continued uncertainty and variability of outcomes for future jet fuel prices, we are suspending our full year 2026 guidance.

John Di Bert: Due to continued uncertainty and variability of outcomes for future jet fuel prices, we are suspending our full year 2026 guidance. However, we are introducing Q2 guidance to share what we are expecting in the current quarter. We anticipate Q2 adjusted EBITDA in the range of CAD 575 million to 725 million, and we expect to grow capacity by 0.5% to 1% year-over-year in the quarter. We reflect the forward fuel curve as of 28 April in our Q2 assumptions of $4.15 US dollars per gallon. Including transportation, taxes, and hedging gains, our planning rate is CAD 1.28 per liter. We are ticketing forward yields at mid-teens above last year, reflecting around $4 US per gallon in equivalents.

Speaker #2: However, we are introducing Q2 guidance to share what we are expecting in the current quarter. We anticipate Q2 adjusted EBITDA in the range of $575 to $725 million, and we expect to grow capacity by half to 1% year over year in the quarter.

Speaker #2: We reflect the forward fuel curve as of April 28th in our Q2 assumptions of $4.15 U.S. dollars per gallon. Including transportation, taxes, and hedging gains, our planning rate is $1.28 Canadian per litre.

Speaker #2: We are ticketing forward yields at mid-teens above last year, reflecting around $4 US per gallon in equivalence. We expect to offset about 50 to 60 percent of the incremental fuel expense through disciplined commercial and cost actions including the benefits of fuel hedging.

John Di Bert: We expect to offset about 50% to 60% of the incremental fuel expense through disciplined commercial and cost actions, including the benefits of fuel hedging. The actions to mitigate the impact of higher fuel prices will have some adverse effects on unit costs. We have made some adjustments to Q2 and the H2 capacity, and we will continue to monitor the need for further reductions. Additionally, we will see some impact from increased absolute sales and distribution costs given higher fares. We remain focused on containing costs and have initiated actions across the organization to generate variable cost savings through improved planning, optimization, and operational discipline. We remain focused on execution and agility, and we will continue monitoring conditions closely and be prepared to act, taking deliberate actions to protect our results and preserve financial strength.

Speaker #2: The actions to mitigate the impact of higher fuel prices will have some adverse effects on unit costs. We have made some adjustments to Q2 and the second half capacity and will continue to monitor the need for further reductions.

Speaker #2: Additionally, we will see some impact from increased absolute sales and distribution costs given higher fares. We remain focused on containing costs and have initiated actions across the organization to generate variable cost savings through improved planning, optimization, and operational discipline.

Speaker #2: We remain focused on execution and agility. And we will continue monitoring conditions closely and be prepared to act, taking deliberate actions to protect our results and preserve financial strength.

Speaker #2: So to close, in the face of heightened volatility our priorities are clear. One, stay laser-focused on managing the controllables, including commercial actions, capacity management, and cost containment.

John Di Bert: To close, in the face of heightened volatility, our priorities are clear. One, stay laser-focused on managing the controllables, including commercial actions, capacity management, and cost containment. Two, protect cash generation and balance sheet strength. Third, preserve and advance our long-term value creation strategies. Despite the short-term challenges, we are very well positioned. We remain poised to play both offense and defense as the current environment evolves and ultimately find stability and resolution. With that, back to you, Amanda, for questions.

Speaker #2: Two, protect cash generation and balance sheet strength. And third, preserve and advance our long-term value creation strategies. Despite the short-term challenges, we are very well positioned.

Speaker #2: We remain poised to play both offense and defense as the current environment evolves and ultimately find stability and resolution. With that, back to you, Amanda, for questions.

Speaker #1: Thank you, John. Tina, please open the line for questions from our analysts.

Amanda Murray: Thank you, John. Tina, please open the line for questions from our analysts.

Operator: As a reminder, to ask a question, press star one on your telephone keypad. Our first question comes from the line of Tom Fitzgerald from TD Cowen. Please go ahead.

Speaker #3: As a reminder to ask a question, press star one on your telephone keypad. And our first question comes from the line of Tom Fitzgerald from TD Cohen.

Speaker #3: Please go ahead.

Tom Fitzgerald: Hi. Thanks so much for the time. I'm just wondering if you could maybe unpack a little bit of your, what you're seeing in terms of revenue across the geographies and by customer segment in Q2.

Speaker #4: Hi. Thanks so much for the time. I was just wondering if you could maybe unpack a little bit of your what you're seeing in terms of revenue across the geographies and by customer segment in the second quarter.

Mark Galardo: Sure. Tom, when you look at it, you know, North America obviously is much more resilient. Going into Q2, we had fewer RPMs booked relative to our Atlantic and Pacific, where going into the quarter we already had the majority of our base load basically booked. If you look at a Q2, you'll see much higher yields in North America. You'll see higher yields in the Trans-Atlantic. The Pacific is a bit more challenging in that some of the carrier surcharges are regulated by governments in Asia, particularly Korea, Japan, and China, et cetera. If you look at it by cabin, again, you know, there's a clear trend where premium yields and demand continues to be really strong.

Speaker #5: Sure. So Tom, when you look at it, North America obviously is much more resilient. Going into Q2, we had fewer RPMs booked relative to our Atlantic and Pacific where going into the quarter, we already had the majority of our base load basically booked.

Speaker #5: So if you look at Q2, you'll see a much higher yields in North America. You'll see higher yields in the transatlantic. The Pacific is a bit more challenging in that some of the carrier surcharges are regulated by governments in Asia, particularly Korea, Japan, China, etc.

Speaker #5: And if you look at it by cabin, again, there's a clear trend where premium yields and demand continues to be really, really strong. And I think you'll see that carrying all the way through Q3 in the early part of Q4.

Mark Galardo: I think you'll see that, you know, carrying all the way through Q3 and the early part of Q4.

Speaker #4: Okay. Okay. Great. Thanks. That's really helpful. And then just as a follow-up, just kind of as it sits right now, just how are you thinking about maybe thresholds for cutting capacity in the second half of the year?

Tom Fitzgerald: Okay, great. Thanks. That's really helpful. Just as a, as a follow-up, just kind of like as it sits right now, just how you're thinking about maybe like thresholds for cutting capacity in the H2 of the year. I don't know if we should expect maybe H2 of August or post, you know, September and beyond. That maybe is the focus, just given the, how strong 3Q usually is. Just any framework there, and then just in tandem with that, just how you think about managing, just CASM ex fuel. Thanks again for the time.

Speaker #4: I don't know if we should expect maybe the second half of August or post-September and beyond, that maybe is the focus just given how strong 3Q usually is.

Speaker #4: But just any framework there. And then just in tandem with that, just how you think about managing just CASMX close in. Thanks again for the time.

Mark Galardo: On the capacity side, we're really going 2, 3 months at a time here. We've now brought July, August, and the early part of September in our window. It's a little bit early to tell for Q4 because the demand signals that we're seeing for Labor Day and beyond suggest that, you know, we're really looking at a strong period of demand. That's consistent with the last 2 Q4s, which were record Q4s for us. Definitely for July and August, we're going to be reducing capacity trimming, you know, lower profitability flights, hub bypasses, kind of marginal frequencies on routes where we have a substantial amount of frequencies. For Q4, it's still a little bit early to make a definitive statement on how much we're going to cut or keep in place.

Speaker #5: On the capacity, have we really gone two, three months at a time here? So we've now brought July, August, and the early part of September into our window.

Speaker #5: It's a little bit early to tell for Q4 because of the demand signals that we're seeing for Labor Day and beyond suggest that we're really looking at a strong period of demand and that's consistent with the last two Q4s, which were record Q4s for us.

Speaker #5: But definitely for July and August, we're going to be reducing capacity, trimming lower profitability flights, hub bypasses, kind of marginal frequencies on routes where we have a substantial amount of frequencies.

Speaker #5: But for Q4, it's still a little bit early to make a definitive statement on how much we're going to cut or keep in place.

Speaker #3: Your next question comes from the line of Buddy Chaomao with BMO.

Operator: Your next question comes from the line of Fadi Kamal with BMO.

Speaker #4: Thank you. Mark, I just wanted to get your thought. What are you seeing in terms of bookings going into this third quarter? How are they holding up?

Fadi Kamal: Thank you. Mark, I just wanted to get your thought like What are you seeing in terms of bookings going into this Q3? How are they holding up? Maybe if you can give us a sense of how much kind of demand degradation if you're seeing, if any, given the higher prices that you have kind of put in place.

Fadi Chamoun: Thank you. Mark, I just wanted to get your thought like What are you seeing in terms of bookings going into this Q3? How are they holding up? Maybe if you can give us a sense of how much kind of demand degradation if you're seeing, if any, given the higher prices that you have kind of put in place.

Speaker #4: And maybe if you can give us a sense of how much kind of demand degradation, if you're seeing, if any, given the higher prices that you have kind of put in place.

Speaker #5: So Connor, the answer for Q3 is we are not seeing any demand degradation right now. All of our services are still above last year in terms of current bookings on hand, but also new bookings to come.

Mark Galardo: Fadi Kamal, the answer for Q3 is we are not seeing any demand degradation right now. All of our services are still above last year in terms of current bookings on hand, but also new bookings to come. We've been in the green for, you know, the better part of the last 2 months. Despite multiple increases in fares, we have not seen demand degradation right now. Going into Q3, our load factor, our book load factor is about 2 points ahead of where it was last year at this time.

Speaker #5: We've been in the green for the better part of the last two months. So, despite multiple increases in fares, we have not seen demand degradation right now.

Speaker #5: Going into Q3, our load factor, our book load factor is about two points ahead of where it was last year at this time.

Speaker #4: Okay. Just a follow-up then. So in the second quarter, you're saying the hedging and higher fares offset 50 and 60 percent of the higher fuel cost.

Fadi Kamal: Okay. Just to follow up then. In the second quarter, you're saying the hedging and higher fares offset 50% and 60% of the higher fuel cost?

Fadi Chamoun: Okay. Just to follow up then. In the second quarter, you're saying the hedging and higher fares offset 50% and 60% of the higher fuel cost?

Speaker #4: I'm guessing the higher fares lag a little bit in the recovery because of the timing. How do you think about that coverage going into the third quarter, assuming fuel is at the forward curve, basically, that we're at now?

Mark Galardo: Yeah.

Fadi Kamal: I'm guessing the higher fares lag a little bit in the recovery because of the timing. Like, how would you think about that coverage going into Q3, assuming fuel is

Mark Galardo: Yeah.

Fadi Chamoun: I'm guessing the higher fares lag a little bit in the recovery because of the timing. Like, how would you think about that coverage going into Q3, assuming fuel is

Daryl Young: At the forward curve basically that we're at now.

Fadi Chamoun: At the forward curve basically that we're at now.

Speaker #6: Yeah. And that changes all the time, right? So if you would have asked me that question a week ago, we actually had a curve on April 22nd.

John Di Bert: Yeah. That changes all the time, right? If you would've asked me that question a week ago, we actually had a curve on April 22. We've updated that to the 28. You know, we would've been well into the 70s. Probably, you know, now maybe somewhere in the low 70s still attainable. We'll watch this thing as it moves around, right? I mean, the last couple of days have been very volatile. Hard to tell. We're having pretty good recapture. I would say that Q4, obviously, very good.

Speaker #6: We've updated that to the 28th. We would have been well into the 70s—probably now maybe somewhere in the low 70s, still attainable—and we'll watch this thing as it moves around, right?

Speaker #6: I mean, the last couple of days have been very volatile, so hard to tell. But we're having pretty good recapture. And I would say that Q4, obviously, very good.

Speaker #4: Okay. And you have no hedging, I'm guessing, for Q3 or after?

Fadi Kamal: Okay. You have no hedging, I'm guessing, for like Q3 or after?

Fadi Chamoun: Okay. You have no hedging, I'm guessing, for like Q3 or after?

Speaker #6: Correct. Correct. That's a straight go through on fuel. Yeah. In the second half.

John Di Bert: Correct. That's a straight, that's a straight, go-through on fuel, yeah, in H2.

Speaker #4: Okay. Thank you. Appreciate it.

Fadi Kamal: Okay. Thank you. Appreciate it.

Fadi Chamoun: Okay. Thank you. Appreciate it.

Speaker #3: Your next question comes from the line of Kanark Gupta with Scotiabank. Please go ahead.

Operator: Your next question comes from the line of Konark Gupta with Scotiabank. Please go ahead.

Speaker #5: Thanks. I just want to follow up on the fuel side. John, if you can remind us, what would have been the net impact of fuel pricing in March or Q1?

Konark Gupta: Thanks. I do wanna follow up on the fuel side. John, if you can, you know, remind us what would have been the net impact of fuel price in March or Q1?

John Di Bert: I did. I missed that question. Can you repeat it to me, please?

Speaker #6: I missed that question. Can you repeat it to me, please?

Speaker #5: Yes. So in Q1, I know you guys were hedged. To a degree. And you had some lower priced fuel inventory as well, right? I'm just trying to get the sense of how much fuel price would have impacted the EBITDA in Q1.

Konark Gupta: Yes. In Q1, I know you guys were hedged to a degree.

John Di Bert: Okay.

Konark Gupta: You had some lower priced fuel inventory as well, right?

John Di Bert: Yes

Konark Gupta: get a sense of how much fuel price would've impacted the EBITDA in Q1.

John Di Bert: Yes

Konark Gupta: get a sense of how much fuel price would've impacted the EBITDA in Q1.

John Di Bert: We had about a CAD 90 million headwind on fuel at a gross level, and about half of that was absorbed by the hedging. We still were left with probably about CAD 55 million of net headwind.

Speaker #6: Okay. Good. Sure. So we had about a $90 million headwind on fuel at a gross level. And about half of that was absorbed by the hedging.

Speaker #6: So we still were left with probably about 55 million dollars of net-net headwind.

Speaker #4: Okay. Thanks. And in terms of demand environment, Mark, it seems like the booking curve is pretty strong. Even in Q1 or Q2, Q3 now, where do you see in your network, on a relative basis, there's more demand elasticity?

Konark Gupta: Okay, thanks. In terms of demand environment, Mark, you know, it seems like the booking curve is pretty strong, you know, even in Q1 or Q2, Q3 now. You know, like where do you see in your network, you know, on a relative basis, there is more demand elasticity. I mean, is it by cabin maybe or by region? Where do you see the elasticity starting to show up now?

Speaker #4: I mean, is it by cabin maybe or by region? But where do you see the elasticity starting to show up now?

Mark Galardo: It's a bit early to comment on elasticity because, again, when we look at it by geography or by point of origin, there's nothing that suggests that things are slowing down. Of course, you know, there is a little bit more pressure in the lower segments of the market. Those might be a bit more price sensitive. On the premium side, you know, we see good elasticity and good willingness to pay. Obviously we're more exposed to those segments than others might be.

Speaker #5: It's a bit early to comment on elasticity because, again, when we look at it by geography or by point of origin, there's nothing that suggests that things are slowing down.

Speaker #5: And of course, there is a little bit more pressure in the lower segments of the market. Those might be a bit more price-sensitive. But on the premium side, we see good elasticity.

Speaker #5: And good willingness to pay. And obviously, we're more exposed to those segments than others might be.

Konark Gupta: Yeah. Thanks.

Speaker #4: Okay. Thanks.

Speaker #3: Your next question comes from the line of SavvySide with Raymond James. Please go ahead.

Operator: Our next question comes from the line of Savanthi Syth with Raymond James. Please go ahead.

Speaker #7: Hey, good afternoon. I was just wondering if you could talk a little bit more about the Sixth Freedom. I know you mentioned seeing a lot of benefit from kind of LATAM as you've seen kind of much of the last year, I think.

Savanthi Syth: Hey. Good afternoon. I was just wondering if you could talk a little bit more about the sixth freedom. I know you mentioned, you know, seeing a lot of benefit from kind of LatAm as you've seen kind of much of the last year, I think. I was curious if you're seeing any benefit from perhaps the Middle East hub closures or, you know, just the fare increases from US Airlines. If any of that, if you're seeing kind of an acceleration on that side of the business as a result of some of those events.

Speaker #7: I was curious if you're seeing any benefit from perhaps the Middle East hub closures or just the fare increases from US airlines. If any of that, if you're seeing kind of an acceleration on that side of the business as a result of some of those events?

Speaker #5: Yeah, so Savvy, a couple of ways to answer this question. So firstly, in terms of Middle East exposure, that doesn't really do much for us on the passenger side because we just have a single flight to India.

Mark Galardo: Yeah. Savi, a couple of ways to answer this question. Firstly, in terms of Middle East exposure, you know, that doesn't really do much for us on the passenger side because we just have a 1 flight to India, and that's performing very well obviously with the situation in the Middle East. The benefit is more on the cargo side, where spot rates have gone up and the dislocation is quite significant. On the sixth freedom side, you know, when it comes to US to Europe and inbound Europe to US, we're looking at low 1-digit growth in terms of revenue. Really where we've seen the growth is, you know, LatAm to Europe, LatAm to Asia, where we had, you know, almost half of our 18% growth in revenue in Q1 was on that sector.

Speaker #5: And that's performing very well, obviously, with the situation in the Middle East. The benefit is more on the cargo side. We're spot rates have gone up.

Speaker #5: And the dislocation is quite significant. On the Sixth Freedom side, when it comes to US to Europe, and inbound Europe to US, we're looking at low single-digit growth in terms of revenue.

Speaker #5: Really, where we've seen the growth is LATAM to Europe, LATAM to Asia, where we had almost half of our 18% growth in revenue in Q1 was on that sector.

Speaker #5: We think for us, that's just the beginning. We have a geographic advantage that we need to exploit. So more to come towards the later half of this year on that.

Mark Galardo: We think for us that's just the beginning. We have a geographic advantage that we need to exploit. More to come towards the latter half of this year on that.

Savanthi Syth: That's helpful. If I might just follow up on kind of the Tal's first question there. Just I was curious how much of maybe each quarter was sold prior to the fare increases and just trying to understand, you know, that mid-teen yield, when we'll start to kind of really see that come through in the quarters.

Speaker #7: That's helpful. And if I might just follow up on kind of those top first question there, just I was curious how much of maybe each quarter was sold prior to the fare increases and just trying to understand that mid-teen yield when we'll start to kind of really see that come through in the quarters.

Speaker #5: Yeah. So Savvy, going into Q2, we had about 50-odd percent of our bookings already in prior to the obviously, the prices. And then going into Q3, it's about a quarter.

Mark Galardo: Savi, going into Q2, we had about 50% of our bookings already in prior to the obviously the crisis. Then going into Q3, it's about a quarter.

Speaker #7: Perfect. Thank you.

Savanthi Syth: Perfect. Thank you.

Speaker #3: Your next question comes from the line of Darryl Young with Stifel. Please go ahead.

Operator: Our next question comes from the line of Daryl Young with Stifel. Please go ahead.

Speaker #4: Hey, good evening, everyone. I just wanted to ask you a question around the seasonality comment that you made regarding Q1 and whether you're able to sort of ring-fence how much of that strength was maybe pulled forward from what you would have traditionally expected in the Q2, Q3 timeframe, or any sort of metrics you can put there on how much of a shift in seasonality has happened.

Daryl Young: Hey, good evening, everyone. I just wanted to ask a question around the seasonality comment that you made regarding Q1 and whether you're able to sort of ring-fence how much of that strength was maybe pulled forward or what you would've traditionally expected in Q2, Q3 timeframe or any sort of metrics you can put there on how much of a shift in seasonality has happened.

Speaker #5: Yeah. That shift in seasonality is kind of an intended consequence of what we're trying to do here. Yes, Easter has shifted from April, late April, into the early part of April.

Mark Galardo: That, that shift in seasonality is kind of an intended consequence of what we're trying to do here. You know, yes, Easter has shifted from April, late April into the early part of April. It did give some benefit to March. Actually, you know, we had substantial PRASM gains in January and February, led by strength on the transatlantic and strength that we're seeing on our LatAm sun business. Those are obviously two intentional strategies to reduce our seasonality load.

Speaker #5: It did give some benefit to March. But actually, we had substantial PRASM gains in January, in February, led by strength on the transatlantic. And strength that we're seeing on our LATAM Sun business.

Speaker #5: And those are obviously two intentional strategies to reduce our seasonality overall.

Speaker #4: Okay. And then, just in terms of fuel management and availability heading into the peak summer season, can you maybe just give us a bit of color around how you're feeling about the security of fuel in Europe?

Daryl Young: Okay. Just in terms of fuel management and availability heading into the peak summer season, can you maybe just give us a bit of color around how you're feeling about the security of fuel in Europe?

Speaker #6: Yeah. Thanks. I'll start by saying that we were we feel very good about our Canadian hubs. And we have significant infrastructure and inventory. And we also have pretty good supply fluidity here.

John Di Bert: Yeah. Thanks. I'll start by saying that we feel very good about our Canadian hubs, and we have significant infrastructure and inventory, and we also have, you know, pretty good supply fluidity here. To your point about Europe, we talk to suppliers every day, and I would say, you know, over the next 8 weeks, looks like that remains solid, and they've done a lot of work on their end in terms of validating their supply chains and capacity to support. Of course, we'll continue to watch this like everybody else as we get deeper into some of the uncertainty here.

Speaker #6: So to your point about Europe, we talked to suppliers every day. And I would say over the next eight weeks, it looks like that remains solid.

Speaker #6: And they've done a lot of work on their end in terms of validating their supply chains and capacity to support. Of course, we'll continue to watch this like everybody else as we get deeper into some of the uncertainty here.

John Di Bert: We're also making some adjustments and able to adjust gauge and do other things to support. If there were some form of rationing, we could probably also manage some of the fleets to be able to accommodate that with more fuel-efficient jets into some of the destinations that will be affected.

Speaker #6: We're also making some adjustments and able to adjust gauge and do other things to support. If there were some form of rationing, we could probably also manage some of the fleet to be able to accommodate that, with more fuel-efficient jets into some of the destinations that will be affected.

Speaker #4: Great. That's it for me. Thank you.

Daryl Young: Great. That's it for me. Thank you.

Speaker #6: Thank you.

John Di Bert: Thank you.

Speaker #3: Your next question comes from the line of Cameron Dorcen with National Bank. Please go ahead.

Operator: Your next question comes from the line of Cameron Doerksen with National Bank. Please go ahead.

Speaker #4: Yeah, thanks. Good afternoon. I guess I wanted to ask a bit about what you're seeing from a competitive point of view. I mean, obviously you've raised your fares quite a bit here to offset fuel.

Cameron Doerksen: Yeah. Thanks. Good afternoon. I guess I wanted to ask a bit about what you're seeing from a competitive point of view. I mean, obviously you've raised your fares quite a bit here to offset fuel. Are you seeing some of the competition, I'm thinking, you know, particularly in the domestic market, doing the same thing? Have you seen, I guess, the proper capacity adjustments from some of your competitors, as well as you look ahead to the summer?

Speaker #4: Are you seeing some of the competition? I'm thinking particularly in domestic market doing the same thing? And have you seen I guess the proper capacity adjustments from some of your competitors as well as you look ahead to the summer?

Speaker #5: Yeah. So again, the market is very dynamic. So obviously, what we see today might differ in a couple of weeks' time. But generally speaking, fare increases have been adopted by the market and our competitors almost unanimously across America.

Mark Galardo: The market is very dynamic, so obviously what we see today might differ in a couple weeks' time. Generally speaking, fare increases have been adopted by the market and our competitors almost unanimously across America. In terms of, you know, capacity reductions, I think we all have more or less the same philosophy. We're trying to go at this 2 months at a time, you know, because obviously this could change on a whim. What we're seeing is competitors have taken capacity out in May and June and left their summer schedules relatively intact.

Speaker #5: And in terms of capacity reductions, I think we all have more or less the same philosophy. We're trying to go at this two months at a time.

Speaker #5: Because obviously, this could change on a whim. What we're seeing is competitors have taken capacity out in May and June. And left their summer schedules relatively intact.

Speaker #4: Okay. And just I guess maybe philosophically, I mean, if it's you've obviously increased fares as the industry and we haven't seen a significant degradation in demand, I mean, is this a lesson learned, I guess, for in the future when fuel prices go down?

Cameron Doerksen: Okay. You know, just I guess maybe philosophically, I mean, if it's, you know, you've obviously increased fares as has the industry, and we haven't seen a significant degradation in demand. I mean, is this a lesson learned, I guess, for in the future when fuel prices go down, you know, that you can probably maintain, I guess, some of these fare increases?

Speaker #4: That you can probably maintain, I guess, some of these fare increases?

Mark Galardo: This can play out multiple ways, Cameron. Time will tell.

Speaker #5: This can play out multiple ways, Cameron. Time will tell.

Mark Galardo: This can play out multiple ways, Cameron. Time will tell.

Speaker #4: Okay. Fair enough. Thanks very much.

Cameron Doerksen: Okay. Fair enough. Thanks very much.

Speaker #3: Your next question comes from the line of James McGargle with RBC Capital. Please go ahead.

Operator: Your next question comes from the line of James McGarragle with RBC Capital. Please go ahead.

Speaker #4: Hey. Thanks for having me on. Just wanted to ask on the capacity that that's being trimmed versus your original plan. So how should investors think about the adjusted CASM in Q2 and then during the rest of the year?

James McGarragle: Hey. Thanks for having me on. Just wanted to ask on the capacity that that's being trimmed versus your original plan. You know, how should investors think about the adjusted CASM, you know, in Q2 and then, you know, during the rest of the year? Is that, you know, prior cost reduction program sufficient to kind of hold unit costs in line with the prior framework given the lower than planned capacity?

Speaker #4: And is that prior cost reduction program sufficient to kind of hold unit costs in line with the prior framework given the lower-than-plan capacity?

Speaker #6: Yeah. Thanks for the question, James. I’d say that—and I mentioned this in the last call—but I think that the profile on the front end of the year, the first half, is higher.

John Di Bert: Thanks for the question, James. I'd say that, you know, I mentioned this on the last call, I think that the profile on the front end of the year, the H1 is higher, quite a bit higher than the H2. H2 of the year, you know, probably feels more like an inflation type of a year over year growth. H1 of the year is higher. There'll be a little bit of pressure here, it was planned pressure, there's also some aggravation in Q2. You have things like a higher fare will attract a higher sale commission. While, you know, that's a revenue driver in the sense that it's driving the higher fare, it sits in the in the CASM unit cost calculation.

Speaker #6: Quite a bit higher than the second half. Second half of the year. Probably feels more like an inflation type of year-over-year growth. First half of the year is higher.

Speaker #6: There'll be a little bit of pressure here. And it was planned pressure. But there's also some aggravation in Q2. You have things like a higher fare will attract a higher sales commission.

Speaker #6: And while that's a revenue driver in the sense that it's driving the higher fare, it sits in the CASM unit cost calculation. So we'll have a little bit of a float there.

John Di Bert: We'll have a little bit of bloat there. The other thing is we are seeing pretty high load factors as we look at the second quarter. Those load factors, when they are high, they tend to have an impact on unit cost. You know, a little bit of capacity, sales and commission and high load factors. The mix of all that in the end does help the revenue side, the CASM number will be a little higher, but overall, we think we'll manage it. The cost reduction and initiatives are really to just continue to keep some flexibility here as we look at back end of the year, do we wanna, you know, adjust capacity further and take off some of the sting of that.

Speaker #6: The other thing is, we are seeing pretty high load factors as we look at the second quarter. And those load factors, when they are high, they tend to have an impact on unit cost.

Speaker #6: So a little bit of capacity sales and commission and high load factors the mix of all that in the end does help the revenue side.

Speaker #6: And so the CASM number will be a little higher. But overall, we think we'll manage it. And the cost reduction initiatives are really to just continue to keep some flexibility here as we look at back-end of the year.

Speaker #6: Do we want to adjust capacity further and take off some of the sting of that?

Speaker #4: Yeah. I appreciate that. And then just on the transborder, as you kind of put through some of these capacity cuts, are you seeing load factors and yields beginning to stabilize?

James McGarragle: No, I appreciate that. Then just on the transborder, I mean, as you kind of put through some of these capacity cuts, are you seeing load factors and yields beginning to stabilize? You know, would you say that right now you have enough visibility, you know, to call a trough in that area? Or does the outlook kind of remain a little bit too fluid right now to kind of commit to a recovery timeline there? I'll turn it over after that. Thank you.

Speaker #4: And would you say that right now you have enough visibility to call a trough in that entity? Or does the outlook kind of remain a little bit too fluid right now to kind of commit to a recovery timeline there?

Speaker #4: And I'll turn it over after that. Thank you.

Mark Galardo: James, we had a really solid Q1, and we're gonna have a really solid Q2 on transborder. We're seeing yield, load factor, and significant PRASM gains. Part of this obviously is because the demand supply balance is a little bit more in our favor, but certainly there's also been a bit of a soft rebound in the market. Generally speaking, our performance on the US is quite strong.

Speaker #5: James, we had a really solid Q1. And we're going to have a really solid Q2 on transborder where we're seeing yield, load factor, and significant PRASM gains.

Speaker #5: And part of this, obviously, is because the demand-supply balance is a little bit more in our favor. But certainly, there's also been a bit of a soft rebound in the market.

Speaker #5: But generally speaking, our performance on the US is quite strong.

Speaker #4: I appreciate it. Thanks.

James McGarragle: I appreciate it. Thanks.

Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker #3: Your next question comes from the line of Sheila Cagle with Jefferies. Please go ahead.

Sheila Kahyaoglu: Thank you. Good afternoon, guys. Maybe if I could just start off with, how do you think about your fleet from here, if fuel stays at these levels or higher? How are you thinking about how that'll impact fleet planning and potential retirements?

Speaker #7: Thank you. Good afternoon, guys. Maybe if I could just start off with how do you think about your fleet from here if fuel stays at these levels or higher?

Speaker #7: How are you thinking about how that'll impact fleet planning and potential retirements?

Speaker #4: I would say that for the time being, we're focused on navigating this. We're coming with a really strong balance sheet. As we kind of work through 2026, we'll have a better view of what the longer-term impacts are.

John Di Bert: I would say that for the time being, we're focused on navigating this. We come in with a really strong balance sheet. As, you know, as we kind of work through 2026, we'll have a better view of what, you know, the longer term impacts are. Right now we're seeing demand being very resilient. Of course, fuel is peaking now, but would expect that at some point it would normalize whatever the normalized levels will be. What's important to understand about our growth plan is that it's about structural demand. We've talked about this before, but it really has a lot to do with, you know, restoring some wide body capacity where we are underserving and continuing to drive sixth freedom.

Speaker #4: Right now, we're seeing demand being very resilient. And of course, fuel is peaking now. But I would expect that at some point, it would normalize whatever the normalized levels will be.

Speaker #4: What's important to understand about our growth plan is that it's about structural demand. And we've talked about this before. But it really has a lot to do with restoring some wide-body capacity where we are underserving.

Speaker #4: And continuing to drive sixth freedom. So the plan for us to continue to build out that fleet will modify in the medium-term, short-term as necessary.

John Di Bert: The plan for us to continue to build out that fleet will modify in the medium term, short term as necessary, but the longer term is to continue to grow. On the retirement side, we do have A319s and some older aircraft, and we've been pretty active even in the current year. I think it's somewhere like 14 or 15 aircraft will be retired. That'll continue as planned. You know that we're also gonna standardize our Rouge fleet, and that'll bring one of the most fuel efficient and purpose-built fleets for leisure travel. We think that, you know, our whole fleet plan still works together.

Speaker #4: But the longer-term is to continue to grow. On the retirement side, we do have 319s and some older aircraft. And we've been pretty active even in the current year.

Speaker #4: I think it's somewhere like 14 or 15 aircraft will be retired. That'll continue as planned. And you know that we're also going to standardize our Rouge fleet.

Speaker #4: And that'll bring one of the most fuel-efficient and purpose-built fleets for leisure travel. So we think that our whole fleet plan still works together.

Speaker #4: And in the short term, if we need to make some tweaks, we'll do that just to navigate this.

John Di Bert: In the short term, if we need to make some tweaks, we'll do that just to navigate this.

Speaker #7: Got it. And then maybe I guess somewhat related to the retirement question, but more market share focused. How do you think about this environment?

Sheila Kahyaoglu: Got it. Maybe I guess about related to the retirement question, but more market share focused. You know, how do you think about this environment and where you could be potentially more aggressive for market share and where you cut back if you don't see the profit levels?

Speaker #7: And where you could be potentially more aggressive for market share? And where you cut back if you don't see the profit levels?

Speaker #5: Yeah, we're not playing the market share game right now. What we're doing is, we're in risk containment mode, especially as we think through summer.

Mark Galardo: Yeah, we're not, we're not playing the market share game right now. What we're doing is we're in risk containment mode, especially as we think through summer. You know, obviously in this situation, you're always gonna have a tranche of flying that once, you know, call it, you know, single digit margins now becomes unprofitable despite the fare increases. We're optimizing as required, our network. We don't see this as an opportunity to subsidize any flying for market share gains.

Speaker #5: Obviously, in this situation, you're always going to have a tranche of flying that once call it single-digit margins now becomes unprofitable despite the fare increases.

Speaker #5: So we're optimizing as required—our network. But we don't see this as an opportunity to subsidize any flying for market share gains.

Speaker #7: Got it. Thank you so much.

Sheila Kahyaoglu: Got it. Thank you so much.

Speaker #3: Your next question comes from the line of Chris Murray with ATB Capital Markets. Please go ahead.

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

Speaker #4: Yeah, thanks, folks. Good morning—or good afternoon, I guess. So, turning back to the guidance for Q2, I mean, it's a pretty wide range.

Chris Murray: Yeah, thanks, folks. Good morning or good afternoon, I guess. Turning back to the guidance for Q2, I mean, it's a pretty wide range to start with. Sounds like you've got a lot of the fares already in the bucket or booked. I'm just wondering, what are the kind of puts and takes, kind of the take your bottom end of the range, top end of the range? Is it just fuel or what materializes in fuel? Are there some other inputs that we can maybe keep an eye on to give us an idea how to gauge this as we go through the quarter?

Speaker #4: To start with, it sounds like you've got a lot of the fares already in the bucket or booked. But I'm just wondering, what are the kind of puts and takes that take you to the bottom end of the range, or the top end of the range?

Speaker #4: Is it just fuel? Or what materializes in fuel? Or are there some other inputs that we can maybe keep an eye on to give us an idea of how to gauge this as we go through the quarter?

Speaker #8: Yeah. First thing is I'd look at the middle of the range and start to build out of that. And that's where we put it.

John Di Bert: Yeah. First thing is I'd look at the middle of the range and start to build out of that. And that's, you know, that's where we put it. I think that, you know, the biggest variable is fuel. We do see a lot of volatility. That can actually turn to the better, or it can get a little bit more difficult. I think right now we feel pretty good about how the quarter developed. A lot of the inputs, as you said, are in and fuel volatility kind of is the biggest one.

Speaker #8: But I think that the biggest variable is fuel. And we do see a lot of volatility. So that can actually turn to the better.

Speaker #8: Or it can get a little bit more difficult. I think right now, we feel pretty good about how the quarter has developed. A lot of the inputs, as you said, are in.

Speaker #8: And fuel volatility kind of is the biggest one.

Speaker #4: Okay, great. One other question. The federal government put out a couple of items that I think would impact you guys in their spring economic update.

Chris Murray: Okay, great. One other question. The federal government put out a couple of items that I think would impact you guys in their spring economic update. One was about the airport ownership rules and how that could evolve, but there was also some interesting commentary about, you know, maybe a different way to deal with passenger issues. Something I think you guys have talked about maybe replicating a European model. Any comments or thoughts around either of those items and would you guys be interested in looking at infrastructure down the road? How do you think the that mediation process may work in terms of just managing your costs?

Speaker #4: One was about the airport ownership rules and how that could evolve. But there was also some interesting commentary about maybe a different way to deal with passenger issues.

Speaker #4: And something I think you guys have talked about maybe replicating a European model. Any comments or thoughts around either of those items? And would you guys be interested in looking at infrastructure down the road?

Speaker #4: And how do you think the mediation process may work in terms of just managing your costs?

Michael Rousseau: Let me, let me start, and Arielle, who heads up HR will fill in some of the blanks. The two issues that came up, which are not new, are the potential airport privatization. That model exists around the world. We're very aware of it. You know, at this point in time, our focus is on lowering the cost for consumers. If there is a new model out there, whatever that might look like, if that lowers the cost for consumers, then we'll be supportive. On the APPR, we're actually running a test. We brought the idea to the government to use a European-based ADR type process to speed up the whole process of getting an answer to the customer.

Speaker #8: Let me start. An aerial who heads up GR will fill in some of the blanks. So the two issues that came up, which are not new, are the potential airport privatization.

Speaker #8: That model exists around the world. We're very aware of it. And at this point in time, our focus is on lowering the cost for consumers.

Speaker #8: So if there is a new model out there, whatever that might look like, if that lowers the cost for consumers, then we'll be supportive.

Speaker #8: On the ATB PR, we're actually running a test with we brought the idea to the government to use European-based ADR-type process to speed up the whole process of getting an answer to the customer.

Speaker #8: And we think that's good from a customer-centric point of view. And so Air Canada is running that test right now. We're in the middle of that test right now with a select number of customers.

Michael Rousseau: We think that's good from a customer-centric point of view. So, you know, Air Canada is running that test right now. We're in the middle of that test right now with a select number of customers. We're gonna see what the results of that test look like, then we'll, you know, we'll obviously have discussions with the government of Canada about that as well. Arielle, you wanna add anything?

Speaker #8: We're going to see what that test looks like, what the results of that test look like. And then we'll obviously have discussions with the government of Canada about that as well.

Speaker #8: Ariel, you want to add anything?

Speaker #7: I think that was complete. Thanks, Mike.

Arielle Meloul-Wechsler: I think that was complete. Thanks, Mike.

Speaker #4: Okay. Thanks, folks.

Chris Murray: Okay. Thanks, folks.

Speaker #3: Your next question comes from the line of Krista France. With CIBC, please go ahead.

Operator: Your next question comes from the line of Krista Friesen with CIBC. Please go ahead.

Speaker #9: Yeah. Thanks for taking my question. Maybe just on the fuel loss that I realize you spoke to, expecting to be able to offset about 50 to 60 percent of the expense in Q2.

Krista Friesen: Hi. Thanks for taking my question. Maybe just on the fuel offset. I realize you spoke to expecting to be able to offset about 50% to 60% of the expense in Q2. If we're in an environment where fuel stays higher for longer, how should we think about what you're targeting for the remainder of the year, say into Q3 or Q4? Thank you.

Speaker #9: But if we're in an environment where fuel stays higher for longer, how should we think about what you're targeting for the remainder of the year, say into Q3 or Q4?

Speaker #9: Thank you.

Speaker #8: Yeah. I guess we did suspend guidance because that's got a lot of variability. If you would have asked me that question, we had an April 22nd curve out there.

John Di Bert: Yeah. I guess we did suspend guidance because that's got a lot of variability. If you would've asked me that question, we had an April 22nd curve out there, and if you would've asked me that question on that April 22nd curve, I would've said somewhere in the mid to upper 70s for the full year on recovery across the full year. We'll see how it evolves from here. Right now, I think we're, we have pretty good line of sight to Q2. Maybe a few puts and takes there, but altogether, I think we have pretty good line of sight. The H2 of the year, just, you know, a couple of things to keep in mind. We're pricing at around CAD 4 a gallon equivalent in the fare.

Speaker #8: And if you would have asked me that question on that April 22nd curve, I would have said somewhere in the mid to upper 70s for the full year.

Speaker #8: On recovery across the full year, so we'll see how it evolves from here. Right now, I think we have pretty good line of sight to Q2.

Speaker #8: Maybe a few puts and takes there. But altogether, I think we have pretty good line of sight. The second half of the year, just a couple of things to keep in mind.

Speaker #8: We're pricing at around $4 a gallon equivalent in the fare. And to the extent that fuel does come below $4 a gallon, we'll start to see some recovery as well.

John Di Bert: To the extent that, you know, fuel does come below $4 a gallon, we'll start to see some recovery as well. Q4 should be obviously a high recovery quarter.

Speaker #8: So fourth quarter should be obviously a high recovery quarter.

Speaker #9: Thank you. I appreciate the color. I'll jump back in the queue.

Krista Friesen: Thank you. I appreciate the color. I'll jump back in the queue.

Speaker #8: Thank you.

John Di Bert: Thank you.

Speaker #3: The final question comes from the line of Andrew Dedora with Bank of America. Please go ahead.

Operator: Final question comes from the line of Andrew Didora with Bank of America. Please go ahead.

Speaker #10: Hi. Good afternoon, everyone. John, maybe a little bit of a random question here. But I did see in the disclosure in your release as you talk about your Canadian hubs contracting fuel one to two months ahead of time.

Andrew Didora: Hi. Good afternoon, everyone. John, maybe a little bit of a random question here. I did see in the disclosure in your release, you know, you talk about your Canadian hubs contracting fuel 1 to 2 months ahead of time. This is a little bit different than kinda the way I've thought about it in the past. You know, does this mean you have, you know, decent line of sight into Q2 fuel costs right now? Or maybe to ask it another way, like how much of your Q2 capacity does not have contracted fuel right now? Thanks.

Speaker #10: This is a little bit different than kind of the way I've thought about it in the past. So does this mean you have decent line of sight into Q2 fuel costs right now?

Speaker #10: Or maybe to ask it another way, how much of your Q2 capacity does not have contracted fuel right now? Thanks.

Speaker #8: Sure. Yeah. So as I said, the inventory plus the procurement terms that we have for our Canadian hubs in particular, which is not all of our fuel, right?

John Di Bert: Sure. Yeah. As I said, you know, the inventory plus the procurement terms that we have for our Canadian hubs in particular, which is not all of our fuel, right? You have to keep in mind that there's a lot of fuel purchased outside of Canada as well, outside of our hubs. That does have, you know, pricing benefits us because it came in some cases Before the Middle East crisis, for Q1 and parts of Q2 are protected as well.

Speaker #8: So you have to keep in mind that there's a lot of fuel purchased outside of Canada as well, outside of our hubs. That does have pricing benefits us because it came in some cases before the pandemic for the first sorry.

Speaker #8: Excuse me. Before the Middle East crisis. Before the first quarter. And parts of the second quarter are protected as well. As we look into Q2, I'd say that maybe a third about roughly kind of think about that.

John Di Bert: As we look into Q2, I'd say that, you know, maybe a third about roughly, kind of, think about that, a third of our fuel, maybe just a little bit more than that is still not priced.

Speaker #8: A third of our fuel, maybe just a little bit more than that, is still not priced. So we basically burn - I don't know - a billion five billion four to a billion five liters in Q2.

Andrew Didora: Got it.

John Di Bert: We basically burn, I don't know, 1.5 billion, 1.4 billion to 1.5 billion liters in Q2, and maybe say 400 million of that still out to price.

Speaker #8: And maybe say $400 million of that will still have to price.

Speaker #10: Okay. Thank you. That's all I had.

Andrew Didora: Okay. Thank you. That's all I had.

Speaker #8: Yeah. Thank you.

John Di Bert: Yeah. Thank you. Cheers.

Speaker #10: Cheers.

Speaker #3: And with no further questions, thank you. I will now hand the call back over to Amanda Marie for closing remarks.

Operator: With no further questions in queue, I will now hand the call back over to Amanda David for closing remarks.

Speaker #11: Thank you very much for joining us this afternoon. Should you have any questions, feel free to contact myself, Amanda Marie, or Ivan Zerate at Investor Relations.

Amanda David: Thank you very much for joining us this afternoon. Should you have any questions, feel free to contact myself, Amanda David, or Ivan Zarate at Investor Relations. Thank you, and have a nice day.

Amanda Murray: Thank you very much for joining us this afternoon. Should you have any questions, feel free to contact myself, Amanda David, or Ivan Zarate at Investor Relations. Thank you, and have a nice day.

Speaker #11: Thank you and have a nice day.

John Di Bert: Thank you.

Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

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