Air Canada

Kathleen Murphy - Director, IR Calin Rovinescu - President and CEO Benjamin Smith - President, Passenger Airlines Mike Rousseau - CFO

Konark Gupta - Macquarie Walter Spracklin - RBC Doug Taylor - Canaccord Genuity Andrew Didora - Bank of America Walter Spracklin - RBC Helane Becker - Cowen Cameron Doerksen - National Bank Financial Chris Murray - AltaCorp Capital Turan Quettawala - Scotiabank Nishant Mani - JP Morgan Kevin Chiang - CIBC David Tyerman - Cormark Securities Tim James - TD Securities

Thank you, Valerie, and good morning, ladies and gentlemen, and thank you for joining us on our call today. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Benjamin Smith, President, Passenger Airlines, and Mike Rousseau, our Chief Financial Officer.

On today’s call, Calin will begin by highlighting our financial performance for the first quarter, Ben and Mike will then address our first quarter financial performance in more detail and turn it back to Calin before taking questions from the analyst community. As usual, I would like to point out that certain statements made on this call, such as those relating to our forecasted costs, financial targets, and strategic plans are forward-looking within the meaning of applicable securities laws.

This call also includes references to non-GAAP measures. Please refer to our first quarter press release and MD&A for important assumptions, and cautionary statements relating to our forward-looking information and for reconciliations of non-GAAP measures to GAAP results.

I am now going to turn it over to Calin Rovinescu.

Thank you, Kathy, and good morning, everyone, and thank you for joining us on our call today. I am delighted to report strong results for the quarter, historically the most challenging for airlines in Canada.

It demonstrates Air Canada’s consistent earnings ability and the progress that we are making toward our goal of long-term sustainable profitability. For the quarter, we earned EBITDAR of $397 million, which was considerably above consensus and $31 million above last year.

On a GAAP basis, we reported an operating loss of $14 million, an improvement over our operating loss of $30 million in the first quarter of 2017. On capacity growth of 8.6%, we successfully increased passenger revenues by 11.8% to a record $3.5 billion.

And another indicator of our efficiency, our load factor was a record for the quarter, at 82.2%, up 2.1 points from the previous year. PRASM improved 3% year-over-year or 5.2% on a stage length adjusted basis, which shows that our capacity decisions were well deployed.

From a cost perspective, adjusted CASM increased 0.4% versus last year’s quarter, significantly better than our projections made earlier in the year. All-in-all, CASM increased 2.4% year-over-year.

Mike will provide you with additional detail on our cost performance later on the call. We achieved record unrestricted liquidity of $4.9 billion, and a net-to-EBITDAR leverage ratio of 2 times.

This further reduces our risk profile. We remain on track to attain a leverage ratio of 1.2 by the end of 2020, which supports investment grade credit ratings.

In Q1, we experienced extreme winter conditions in Eastern Canada and the U.S. Northeast including at our global hub at Toronto, which was significantly disrupted.

In addition, we again witnessed volatility and increases in jet fuel prices with a 16% year-over-year increase. Despite these challenges, our first quarter performance demonstrates our ability to perform against headwinds and our progress towards consistent earnings and long-term sustained profitability.

The demand environment remains strong and our advance bookings are in line with expectations. With the launch of new products and fare offerings and the progress we continue to make on cost reductions and the other levers at our disposal, Air Canada is well-positioned to compete effectively and to adapt the changes in the environment.

Before turning the call to Ben, I’d like to thank our 30,000 employees for their parts in achieving strong financial results and for their unwavering focus in taking care of our customers, particularly during the tough winter conditions, I mentioned earlier. Finally, I’d also like to thank our customers for their continued patronage, support and loyalty of Air Canada.

Ben, over to you.

I’d like to echo Calin and thank all of our employees for a very strong first quarter. I’d also like to acknowledge our employees in the operations who continue to perform exceptionally well, while facing extremely challenging weather throughout January.

And lastly, thank you to our customers for choosing to fly with us and to our many shareholders for their continued support of our plan. Before getting started with the details of our revenue performance, I’d like to mention that with the adoption of the new revenue accounting standard, effective January 1st, certain passenger and cargo related fees were reclassified from other revenue to passenger revenue and cargo revenue.

2017 amounts have been restated to reflect this change. The reclassification has no impact on total operating revenues.

We’ve also revised the methodology used to calculate yield and PRASM. These measures are now based on total passenger revenues, again with restatement of 2017 amounts on the same basis.

As Calin mentioned earlier, we had a very strong start to the year achieving record passenger revenues of $3.5 billion in the first quarter, an 11.8% improvement or an increase of $369 million versus last year on strong traffic growth of 11.4%. We’ve also implemented several key strategic commercial initiatives to help us compete more effectively for customers across various customer segments.

We introduced our Air Canada Signature Service to elevate the experience for our premium customers flying in our Air Canada Signature Class cabin. The service is available today for those flying internationally on our mainline wide-body aircraft and will be available within North America on select flights operated by our Boeing 777, Boeing 787, Airbus A330 and Boeing 767 aircraft, starting June 1st, including daily open night flights from Los Angeles, San Francisco and Vancouver to Toronto, solidifying our strong position in those important markets.

Our Air Canada Signature Class customers will have the choice with menu items from chef David Hawksworth for the first time within North America, complemented by wines chosen by our sommelier Véronique Rivest and starting later this year our eligible international Air Canada Signature Class customers originating at Toronto Pearson or arriving at Toronto Pearson in a domestic flight and connecting onwards internationally, will be provided valet service by our dedicated fleet of BMW 7-Series sedans, making our connection experience exclusive and seamless. This is the first dedicated valet service offered by an airline within North America for customers book premium -- in a premium cabin.

Our eligible Air Canada Signature Class customers flying internationally will have access to our Air Canada Signature Suite in the Toronto Pearson international terminal, providing our customers an exceptional à la carte dining experience before their flight. We are making investments to ensure consistency throughout our customer’s journey.

Beginning in 2019, we will begin reconfiguring our Airbus A330 fleet to fully align it with the cabin standards found on-board our Boeing 777 and Boeing 787 fleets, all three wide-body fleet types will have consistent seating and all fleet cabins, best-in-class in-flight entertainment system, as well as high-speed satellite Wi-Fi. We will also be introducing four more Airbus 330 aircraft into our fleet, to replace capacity from our mainline Boeing 767 fleet which will be retiring in 2019.

We are looking forward to a consistent wide-body product that we best-in-class in North America and we’ll ensure our customers’ expectations are met and exceeded whenever they choose to fly with us. Mike will discuss these investments in a bit more detail later in the call.

Now, let’s discuss our revenue results. The revenue growth of 11.8% was extremely efficient on system capacity growth of 8.6%, yield improved by 0.4%, representing the third consecutive quarter of year-over-year yield improvement, before stage-length adjustments.

When adjusting for the longer stage length, which was up 3.9% for the quarter, our yield improved by 2.6% when compared to the prior year. PRASM improved 3% year-over-year or 5.2% on a stage length adjusted basis, on a passenger load factor improvement of 2.1 percentage points.

Investments in our premium customer experience greatly contributed to our first quarter yield and resulted in another very strong quarter for our business cabin, with revenue growth of 13.8% or an increase of $88 million versus last year on traffic and yield growth at our cabin of 9.8% and 4.3%, respectively. With the introduction of our Air Canada Signature Service in the second quarter, we anticipate continued strong growth in our premium cabins.

Our record revenue results were driven by our success in attracting larger volumes at higher yielding local traffic, continued success in our strategy to attract international transit traffic, and an improvement in our overall fare mix. We also updated our suite of fare offerings, which improved yield on domestic services and will allow us to further segment our customers while providing them a more customized experience on Air Canada.

We are very pleased with our ancillary revenue performance where we saw growth of 17% compared to last year. These results were mainly driven by a revenue from seat selection and preferred seats which increased by 56% year-over-year, as well as our revenue from upgrades which increased by 37%.

Looking at our forward bookings, we are pleased with what we see for the second quarter of 2018, with a advance bookings in line with expectations across all markets. With that, let’s turn to our key markets.

In the domestic market, on capacity growth of 3.4%, revenues grew $58 million or 5.9% on traffic growth of 3% and a yield improvement of 2.8%. Yield increase reflected growth on all major domestic services and included gains in our business cabin.

As mentioned earlier, we also introduced an expanded suite of fare offerings in the quarter which contributed to our yield improvement. Looking forward to the second quarter of 2018 in the domestic market, we continue to anticipate positive year-over-year revenue and traffic growth.

We are also encouraged by the early performance of our new comfort fare which we introduced in April and which we believe will drive higher yields as well as provide an enhanced customer experience in our economy cabin. To address new ultra-low costs carrier entrants in the domestic market, we are starting the expansion of Air Canada Rouge’s narrow-body Airbus fleet in the second quarter and deploying Rouge domestically from Montreal to Victoria as well as Toronto to Nanaimo and Kamloops, which will strengthen our market position in Western Canada and enhance our service to British Columbia.

The flexibility to grow our Rouge narrow-body fleet at a rate proportionate to the growth of our mainline fleet was achieved through the ratification of the amendment to our long-term pilot agreement. Additionally, our new basic fare provides customers a no frills product at a lower price point than our other economy fare classes and provides us another tool that we can deploy on select routes to maintain and grow our market position, if needed.

On the United States transborder market, revenues were up $54 million or 6.9% on capacity growth of 5.5%. Traffic grew 6.7%.

We have increases reflected on all our major services and included gains in our business cabin a yield growth of 0.1%. These results were partially driven by strong traffic and revenue performance related to customers, transiting our hubs to and from United States, which is a result of the continued success of our international transit strategy and the investments we have made to improve our connection process in all three of our major hubs.

Looking to the second quarter, we are anticipating continued positive traffic and revenue growth in the U.S. transborder market.

We are pleased with the outlook for the traffic and revenue performance related to our customers transiting our hubs, to and from the United States, which we anticipate will be strong for the next two quarters and onward. Our performance across the Atlantic was very strong with revenue growth of $132 million or 23.9% versus the same quarter in 2017.

On capacity growth of 9.6%, traffic increased 17.5%. Reflecting a strong demand environment, PRASM was significantly higher than last year’s first quarter, up 13% on a 5.4 percentage-point load factor improvement and a 5.4% yield improvement.

Our yield increased reflected improvements in all major Atlantic services and included gains in all cabins. Looking to the second quarter, we anticipate another strong quarter over the Atlantic from both a traffic and revenue perspective.

We expect the strength and profitability of our hub-to-hub markets to be the bedrock of our Atlantic network going forward; and by leveraging this foundation as well as the strategic deployment of our lower CASM 787s, our high-density 777s, our new lower cost 737 MAXs and our unique configured Rouge 757s, we will be able to grow our formidable position across the Atlantic. Our outlook shows favorable development in Eastern Europe leisure markets as well as Italy and Greece.

We are seeing great potential in our new routes over the Atlantic that we will be launching in the second quarter, including our non-stop service to Shannon, Zagreb, Porto and Bucharest from Toronto; our non-stop service to Zurich and Paris from Vancouver; and our non-stop service to Dublin and Lisbon from Montreal. And we are confident that they will perform in line with our expectations.

There was a shift of bookings over the Atlantic in the first quarter related to Easter Sunday, which took place on April 1st this year as opposed to later in April, which shifted some demand from April into March on a year-over-year basis. The outlook for May and June over the Atlantic remains strong.

Turning to the Pacific. On capacity growth of 12%, revenues increased $64 million or 4.2%, driven by traffic growth of 15.9%.

Our yield decreased 1.5% year-over-year for Pacific with the Hong Kong and China markets continuing to face low-cost competitive pressures. However, Japan, Korea and the South Pacific services experienced yield growth versus last year’s first quarter.

As we look ahead to the second quarter, we expect low-cost competition coming out of China and Hong Kong to continue to impose a downward pressure on yields in those markets. We do however anticipate continued positive year-over-year revenue and traffic performance, partially driven by the significant improvements we are seeing in Japan.

And we believe that China will perform in line with our expectations in the second quarter and onward. In June, we will begin our first non-stop service to Japan from Montreal with our flight to Tokyo Narita.

When we look to our other services, our capacity growth of 15%, passenger revenues increased $61 million or 17.7%, driven by a traffic increase of 15.6% and yield improvement of 1.9%. These results were partially driven from the significant turnaround in the Brazilian market that also contributed to by our enhanced service from Peru and Colombia with our non-stop service from Montreal to Lima, as well as our non-stop service into Cartagena from Toronto.

We also recognized and realized continued strong revenue traffic and yield performance to our traditional sun destination. Looking ahead to the second quarter, traffic and revenue for South America is trending in line with our expectation and we continue to see strength in our traditional sun markets.

Now, turning to our cargo performance which continues to produce strong results for us. Cargo revenues increased $20 million or 14% year-over-year, driven by traffic and yield growth of 6.6% and 6.4%, respectively.

Looking to the second quarter, we anticipate continued strong year-over-year revenue growth, in line with our expectations. I’ll now turn the call over to Mike for a discussion on our cost performance and balance sheet metrics.

Thank you, Ben, and good morning to everyone. I’d also like to thank our employees for taking care of our customers and delivering our solid first quarter.

Our cost performance in the quarter was better than we expected. On an adjusted basis, CASM increased 0.4% from the first quarter of 2017.

This was mainly the result of lease extensions being negotiated earlier than anticipated, which resulted in a decrease to the maintenance provisions in the first quarter of 2018; timing of certain maintenance events previously scheduled for the first quarter of 2018; and lastly initial savings achieved through our cost transformation program. Overall, CASM increased 2.4% from last year.

We also recorded a largely one-time uniform expense of $26 million in the first quarter, on the rollout of the new uniforms, and our customer service expense increased $9 million over last year, given the weather conditions. As discussed in our fourth quarter earnings call, we have undertaken a new cost transformation program aimed at securing incremental savings of $250 million by the end of 2019.

Our objective was to ensure that continuous cost improvement remains top of mind within our organization. We have teams looking at all aspects of our business.

And although we are still in the early stages of this program, we are pleased with the progress accomplished so far. At this point in time, approximately 50% of the total goal has been either realized or identified, and we are confident in our ability to successfully reach our $250 million goal.

Starting today, our $250 million cost transformation program is incorporated in our adjusted CASM guidance. Moving on to fuel.

Our average price of fuel for the quarter was C$0.733 Canadian cents per liter, up 16% versus the same quarter in 2017. Fuel expense increased a $185 million or 25% in the quarter, with higher jet fuel prices increasing fuel expense by $171 million and a higher volume of liters consumed adding another $55 million.

A favorable currency impact of $37 million was a partly offsetting factor. As always, we monitor the price of fuel on a continuous basis and adjust pricing where possible in order to maintain appropriate margins.

We currently have no hedges in place. Looking forward, our assumptions of the price of jet fuel will C$0.77 per liter in the second quarter of 2018 C$0.75 per liter for the full year 2018.

Now to provide some additional guidance on costs. For the full year 2018, we project adjusted CASM to range between a decrease of 0.5% and an increase of 1% when compared to 2017.

This is an improvement from our full-year guidance we provided at year-end due to success of our cost transformation program so far. Turning to the second quarter, we expect adjusted CASM to increased 0.5% to 1.5% when compared to the second quarter of 2017.

Our projections are based on the assumption that Canadian dollar will play on average at C$1.27 per U.S. dollar in the second quarter and C$1.26 per U.S.

dollar for the full year 2018. With respect to loyalty program, we continue to design the details of our new program and the process remains on schedule and on-budget.

With respect to the RFP for our co-branded credit card partner, we are in detailed discussions with a number of financial institutions and continue to expect to have a decision by year-end. Turning to our balance sheet and liquidity.

At quarter-end, adjusted net debt of $6.63 billion decrease $53 million from December 31, 2017, as an increase in cash balances of $692 million more than offset an increase in long-term debt and finance lease balances of $618 million. At March 31, 2018, our leverage ratio stood at 2.

We ended the quarter with a record unrestricted liquidity of $4.9 billion and we reported net cash flows from operating activities of $1.1 billion in the quarter, another record. Free cash flow was $193 million, supported by strong advance ticket sales.

We continue to project free cash flow of $250 million to $500 million in 2018 and do not contemplate any aircraft sale leaseback transactions during this period. Given our high levels of cash, the methodology used to calculate ROIC has been revised to reduce the book value of shareholders; equity by excess cash, or in other words the cash not required to run our core business operations.

Advance ticket sales is used as a proxy for minimum cash required for ongoing operations. This change should result in invested capital more closely reflecting operating capital.

The impact of this change when looking at our number at March 31, 2018 was an increase to ROIC of 130 basis points. At March 31st, our return on invested capital was 15%, 730 basis points above our weighted average cost of capital at 7.7%.

And our weighted average cost of debt stood at 4.4%. Turning to our fleet.

We’ve taken delivery of 12 Boeing 737 Max aircraft to-date; 6 737 Max aircraft are scheduled for delivery in the second quarter of 2018 with the remaining 43 of the 61 737 Max aircraft scheduled for delivery between 2019 and 2024. We concluded an amendment to our Boeing 737 purchase agreement this month whereby certain aircraft delivery positions are accelerated and others are deferred, to give us better deployment from a timing perspective.

The amendment accelerates delivery of 5 737 Max aircraft by one year to 2020, and defers delivery of 11 737 Max aircraft by up to 36 months. An updated capital commitments table is included in our first quarter MD&A.

We expect to take delivery of 6 737s and 2 787s in the second quarter. The two 787s and three of the six 737s have been financed under private offerings of the enhanced equipment trust certificates.

And given our high level of cash on our books, we plan to purchase the other three remaining 737s with cash in the second quarter and may purchase additional aircraft with cash in 2019. This will further increase the number of owned and unencumbered aircraft in our fleet.

At the end of 2017, this number stood at 56, and we expect that number to reach 89 by the end of this year; this includes 25 Embraer190 aircraft, which we plan to -- on monetizing. From a capital investment perspective, following a thorough fleet analysis, we have decided to invest $275 million in our Airbus 330 fleet, eight of which are owned and fully unencumbered and four of which are under lease arrangements with delivery scheduled in 2019.

These final four are slated to replace the capacity of our older Boeing 767s but on a much more cost effective basis. The Airbus 330s are relatively young and deliver an excellent cost performance on routes they serve.

We explore different approaches to achieve our financial and business objectives including exercising options on Boeing 787s. However, our decision to invest in our Airbus 330 fleet provides a highest return.

This investment will also serve to provide customers with a system produce across our wide-body fleet. The reconfiguration is expected to begin in late 2019, for a completion in the first half of 2020.

Additional detail on our results for the first quarter can be found in our financial statements and MD&A which are posted on our website and filed on CDAR this morning. And with that I’ll turn it back to Calin.

Great. Thank you, Mike.

So, we are quite pleased with our performance and the results for the first quarter of 2018. Despite some adverse headwinds in a competitive landscape, we generated record quarterly passenger revenue; we exceeded consensus EBITDAR expectations; and we ended the quarter with record unrestricted liquidity of $4.9 billion.

We achieved these results with the determined ground game. This included a sharp focus on costs with adjusted CASM contain to a 0.4% increase, well below the 2% to 3% increase we expected.

We also successfully managed our capacity additions, growing nearly 9% while achieving a record first quarter passenger load factor more than 82% and increasing both traffic and yield. Along with demonstrating our ability to deliver consisting earnings, our first quarter results also speak to the continued success of our transformation strategy.

We are succeeding in making our airline a company that can be sustainably profitable over the long-term. One of my favorite metrics that illustrates the progress of our transformation very clearly is our leverage ratio, which was 2 times, as Mike mentioned, at the end of the quarter.

When our transformation began in 2009, it was at 8.3 times. To our ongoing efforts to reduce costs, increase efficiency and improve our product, we are driving towards a 1.2-time ratio.

We are determined to achieve by the end of 2020, which should also support in investment grade credit rating. And the strength of our Company is not only financial.

During the quarter, we continued to receive awards and recognitions including being named the number one Eco-Airline of the world globally by Air Transport World and chosen as one of Canada’s Best Diversity employers for the third year running. And we have no intention of standing still.

Our network continues to expand with 10 new international routes starting in June and we are investing in products and services that will appeal to our customers such as our rebranded Air Canada Signature Service Ben spoke off, which sets new levels of service for long-haul North American international premium customers. Yet amid this success, we are also mindful that the first quarter is simply that one quarter.

So, while these results make for a good start for 2018, we know we must continue to execute our strategy and persist with the priorities that have successfully transformed our Company. As you heard from Mike, we’ve already realized our identified half of the $250 million in savings from our CTP, we announced in our last quarterly call.

We’ll continue to manage costs and capacity appropriately. At the same time, we’re investing in fuel efficient aircraft, new products and services, IT and technologies to better engage our customers.

And we are equipping ourselves with additional tools such as our new suite of economy fares and increased excess to Rouge, to face our competitors head on and to compete more effectively including the new low cost entrants. With these and other initiatives, I expect that we will build on the strengths of our first quarter results.

Finally, once more, I thank our 30,000 employees for their incredible work, especially in the difficult first quarter, and everyday dedication to carrying for our customers while transporting them safely to their destinations. And with that I’ll turn over for some questions, recognizing that we have our AGM right after this call.

Good morning and thanks for taking my questions. And congrats for a great quarter.

So, first question on the margin. Mike, do you see the 17% to 20% target?

Is there any risk on that from incremental fuel headwind we saw this year and we are seeing right now? And if any, how do you plan to mitigate?

I mean, is that you’re looking at fuel hedges eventually or is revenue management enough for now to mitigate those risks? And are you accelerating any CTP initiative to offset that?

So, it’s all the above. Certainly, fuel prices have gone up a little bit as we’ve all seen.

We are dealing with that by raising prices where we can, by accelerating cost reductions where we can. And we continue to look at hedging and we will enter -- we will enter hedging contracts when it makes economic sense for us.

So, as you saw from our press release, we maintained the guidance of 17% and 20%, and we are working in all of those levers to ensure that we stay within those -- within that guidance.

And just another one for me before I get back in queue. Free cash, so, I think you guys maintained the guidance for full year.

Can you remind us if that includes or reflects the Embraer E-190s that you’re selling and when are you expecting those to be dispose off?

We are still working on the sale of the 25 Embraer 190s. But to give you clarity of the free cash flow guidance, which we have not changed of $250 million to $500 this year, does not include any proceeds from the Embraer 190 disposition.

Okay. Perfect.

Thanks. Any sense of timing.

We’d like to get something done before year-end.

So, I’d like to focus a bit on the yield. They came down a little bit on the stage-length adjusted basis from the 4% in the fourth quarter to 2.6%, you noted as well that there was some fuel surcharge or price increases to offset fuels.

I am just curious as to why we saw a slower pace in that yield improvement. And related to that, your business -- or sorry, your business class yields looked very strong.

So, I am just curious as to whether you are seeing some negative fare pressure on the economy side and getting better in the business side.

Yes. Hi, Walter, it’s Ben.

On the trans-Pacific markets, as you are probably aware, we experienced big, big yield pressure, especially on Vancouver to Hong Kong. We have the new entrant there and the increase in capacity by Cathay Pacific.

So, that was a big drawdown on the trans-Pacific yields. And in the U.S.

Northeast, there was a lot of activity, especially in the economy class cabin with a lot of different fare initiatives by some of our competitors. That seems to have leveled out.

So, we don’t see that trend going forward in the U.S. Northeast.

And then, of course with the new entrant on the -- across Canada, longer haul and mid flights that with see Flair that has also introduced some interesting pricing but now we’ve come up with a more clear strategy, again, trends are looking more positive for us.

And Walter, Calin here. I’d say, overall, when you look at the first quarter and where we were last year and a year before, seeing positive yield in the first quarter of 2.6% is actually from our perspective pretty good news, considering the amount of incremental system capacity that we’ve put into...

And Walter, it’s Michael, I’ll add one more point. Foreign currency did hurt yield in the quarter, it hurts by 70 basis points year-over-year.

And so, you need to factor that into your analysis as well.

And then, on the WestJet potential strike -- do you see -- have you seen any fare or any bookings that seem to be driven by that at all?

It’s still early innings. As you know, they just announced last week that they were not able to come to a deal with their pilots and that there is a strike vote underway right now.

And so, obviously, we are positioning ourselves to make additional capacity available as needed to offer their travelers capacity to fly on us when needed. We’ll have some offers out there and we are looking at capacity additions in the event that there is a WestJet strike.

How would you flex up, like what mechanisms you have at your disposal…

Because of the diversity of our fleet, we have a lot of capabilities to deploy different sized aircraft on different markets. This is one of the great advantages we’ve often spoken about, Walter, which is that not a lot of airlines have got the fleet diversity.

The fleet diversity comes with a cost, as we know. But, in circumstances like this, you can deploy different size aircraft in different markets to deal with it.

And so, we actually -- our focus are studying that actively now, and will be making further capacity adjustments as needed over the coming days.

So, excluding that potential impact, you kind of have guided us towards 7% capacity for the full year on the last call, is that still unchanged?

Yes, Walter, it is.

Okay. And then, last question here is on pilots, seems to be more talk of a pilot shortage and then fatigue rules that might come in thatwould aggravate that.

Any comments as to what could happen to your pilot costs as a result of any fatigue rules or increasing pilot shortage?

First of all, we’ve put in a joint submission with our pilot group on fatigue generally. And so, we’re basically on the same page as they are on a lot of these issues.

I think that we generally have been able to recruit the number of pilots that we need. The way the environment works, Walter, as you’re probably aware, is that the larger full service carriers like ourselves do have access to more of a pool of pilots.

And some of the regional carriers in the past, especially in United States are the ones who felt the pilot shortage. We have not at this stage assumed what the dynamic will look like, if some new rules come into place.

But, we don’t expect to have a pilot shortage and our sense is that it will be within the level that is well managed.

WestJet flagged some pretty material impacts from whether in the quarter, not just the cost, and you’ve mentioned what you -- the $9 million in customer service costs as well, but also on their unit revenue. Can you help us quantify what or even if you saw a RASM or PRASM impact in the domestic market in the quarter?

Obviously, results are pretty strong. I’m just wondering, if they actually could have been a bit stronger in that region?

Hi, it’s Ben. No, the hit was definitely on re-accommodation costs and covering for crew that went beyond their duty days, but from a PRASM perspective, nothing material.

As you’ve begun rolling out the Boeing 737 Max aircraft more in earnest here in last couple of months, typically, there are some teething pains with new aircraft additions to the fleet. Can you talk about your experience there so far relative to your expectations and also, whether the relative success as you thinking about the timing of the exit or transition of the fleet that they’re replacing?

I’ll start and then, I’ll ask Ben to comment as well. No.

737 so far has gone well. We had a lot of experience, of course integrating the 787.

So, we saw some of the growing pains that were experienced with that. There is of course involved a large training component to that.

And this has gone reasonably well. On the maintenance side, we made some adjustments early on.

Our folks are in discussions with other carriers that have introduced the aircraft. So, we’re in reasonably good shape.

There have been some delays around engines, which always complicate matters whenever you bring in a new fleet, of course, you have to make sure that you have all of the spares, et cetera that are necessary. So that slowed us down a little bit.

But generally, I’d say, it’s a pretty clean bill of health. Ben?

Yes. I would echo what Calin just said, a few other minor issues.

You may have heard that the GE engines are taking longer than other types to start up. That’s not unique to Air Canada.

CASM is definitely in line or better to what we are expecting. And the interiors are being well-received by our customer base, especially in the business CASM.

And then, perhaps related question around the Rouge ramp and the transition of some of the older aircraft into Rouge. Can you just help me maybe shortcut to where you are with respect to the maximum allowable number of aircraft with Rouge over the next couple of years?

Are you maxing that out or there still some slack in the capacity that you’re allowed to allocate to new narrow-body aircraft there?

So, prior to our reopener which is ratified a few months ago, we were capped at 50 airplanes at Rouge, so 25 wide-bodies, 25 narrow-bodies with a reopener being renegotiated two new provisions. The first one with a formulae agreed to with our pilots, we could add upto no cap number of new incremental airplanes at Rouge and only on the narrow-body side.

And that -- with where we stand right now, we have the ability to actually significantly grow the narrow-bodies without adding any wide-body because we do have headroom with a baseline we agreed to. We also have the ability now to replace regional flying with Rouge, and there is no formula to that.

We can start adding Rouge airplanes on the regional network immediately. So, we will be doing that this summer.

We have three more Rouge aircraft coming in. Two will be deployed on existing Rouge type routes and the third one will go on at route that was previously operated by one of our regional operators.

So it will be -- so, Doug, it will be 53 this summer.

Okay. But still plenty of headroom, if you want to expand that further?

Yes.

Hi. Good morning, everyone.

I guess, my first question is for Ben. Obviously, coming off of a pretty big capacity growth period here, any big picture color you can provide on what you’ve kind of seen -- are you seeing the growth trajectory on international routes, such as how long to maturity, how much do yields accelerate throughout the growth period et cetera?

And then, do you have -- can you give us a sense of what percentage of your international routes are still in these early ramping stages?

Yes. So, definitely, the majority of our routes now are going into -- new routes are going into year two and year three, and very pleased the bulk of them ahead of our expectations from our load factor and yield perspective.

What we are focusing on now is some of the seasonal routes who are growing out the season, so some of the summer routes we are starting now in April and May, as opposed to previously late June and then their ending later on in the year. So, those obviously are similar startup periods.

So, we’ll manage actually through that. But of course, the cost, which has already sunk [ph] in terms of the aircraft ownership, makes the bar much lower.

But, our summer new routes that we have started, we’re very well aware of them. There are no new markets that are outside of the experience that we’ve had.

Some of the routes, like Melbourne, or Mumbai, because of their distance, which is new to us, we’re getting more used to that, making sure we have the right yields and the right booking curve. And I would say, 3% or 4%, not even 2% or 3% of our routes are -- this is a little bit more of a learning curve, but nothing too serious.

Got it. And do you have a sense of what percentage of your international routes are still ramping, is this still the vast majority?

No, definitely not. I’d say very small percentage.

Okay. And then, Mike, can you maybe outline for us a little bit more what your hedging strategy is?

I do feel like this is maybe that one area where you maybe lack a little bit, consistency of message here. And you said earlier that you continue to kind of reconsider fuel hedging.

What fuel price would make you want to go back to a hedge policy? Thanks.

Well, again, Andrew, we’ve -- historically, we have hedged using call options close in to the booking curve to protect roughly 40% of the booking curve. We stopped doing that in Q4 of last year.

And we didn’t put any hedges on in Q1 and there are no hedges for Q2. We will look at Q3, given the seasonality of that quarter for us.

And we continue to monitor the market. Certainly, some of the guidelines we use, our budget numbers for fuel or current outlook for fuel is to protect the margins that we otherwise have guided to.

I don’t know if this is for Ben or Calin. As you look ahead to the cost reduction program and the other changes you’re making on the revenue line and so on, is it possible to get to a point where you actually can break even or just slightly better in the first quarter or will it always be on -- I mean, I know, it will always be seasonally the weakest.

But, is it possible to get into profitable territory or will it always be that money losing quarter?

Well, Helane, I mean, I think that’s the objective. When we talk about sustainable profitability and having less variances, seasonality, that is one of the long-term objectives that we’re building here is to try to have a more even level of earnings throughout the whole year, and ideally be able to deploy our aircraft most efficiently.

Now, the Canadian reality, when -- we’ll continue to largely have a Canadian base, even though, more and more of our traffic is international, you need have a Canadian base. The Canadian reality is that the third quarter will always be obviously be, our far and away, our strongest quarter and the first quarter will likely be our weakest quarter.

But having said that, as we look at the aircraft coming in which are significantly more fuel efficient, as we look at these type of CTP programs, as we look at the deployment of Rouge, operating different routes in the winter than it does in the summer, those are all drivers but that will hopefully continue to drive improved results. You’ve seen fairly dramatic improved results this year in relation to last year.

And we expect that trend to continue.

Okay, yes. That’s what I was thinking.

And then, just on the CapEx budget for the next few years. So, I’m just looking at in ‘09.

And I feel 2018 is going to be kind of your peak year and then it drops down pretty dramatically in ‘21 and ‘22 and beyond. Is there -- does that imply at some point there will be another aircraft to order for ‘23 and later or is what you have on -- in the books now sufficient?

Well, 2023 is a long way away, first of all. But we actually look out that far.

We haven’t put in capital commitments, because we have made any commitments that far out at this point in time. What you see reflects the commitments we’ve made to-date.

What we’re excited about is come 2020, 2021, once a C-Series in, we will have one of the youngest fleets in North America, and one of the most efficient fleets in North America as well. Then, what we’re going to have to probably do and we’re starting to look at this right now is for the Rouge model, some of those planes will be reaching their end of life middle of next decade.

And so, we will need to make a decision how to replace those planes, either with new planes or with used planes, midlife planes. But we have not made the final decisions about that at this point in time.

And Helane, and Mike referenced in his remarks earlier, just to give you an example of the kind of -- when we look at fleet decisions, we assess should we exercise 787 options versus spending some money to refurbish the 330 fleet and much better business case, refurbish the 330 fleet. So, that’s the kind of fleet decision that we made.

But, just to say, we are not always going to lean towards spending the capital on brand new airplanes, we’ll have a business analysis to sort of say what is the best approach to it. And probably, as Mike said, the next date fleet decision for us will be around a Rouge refleeting, but that’s not until the middle of the next decade.

Okay, perfect.

Helane, I’ll just add a couple points to your first question around balancing out Q1 with the rest of the year. With our new services to India and including services to South America, that is helping reduce the seasonality.

And then, with the 737 Max we’re putting on Hawaii that will enable us to have a stronger position there. And then of course, Caribbean and Florida and the Mexico markets, we’re stronger and stronger in those markets with Rouge.

So, we expect to flatten out our capacity throughout the year as we move forward.

Ben, did you say what percent of your traffic now is sixth freedom?

No, we haven’t broken that out.

I think, it was like 1.1% at the end of the year?

Market share.

Market. So that’s the difference.

That’s market share of the relative U.S. to international market, and that’s the opportunity, that’s a big opportunity growth for us.

That’s the one we always target to increase our relative what we call a fair share of the U.S. to international.

What we are focusing on there is not so much volume; it’s more on quality of traffic. So, we are nearly focused on attracting the premium in our Signature Class product.

That’s the target market for us. So, volume wise, it’s not a question of we’re going to go up to 1.5, 2 percentage more on percentage of revenue.

Thanks. Good morning.

Maybe just first question for Mike. Just a clarification on the cost transformation program; you mentioned that is now in your CASM guidance for 2018.

Is that -- I guess your expectation is for I guess the full CTP or is it just that 50% that you have identified that’s in the guidance?

It’s only the part of the 50% that would affect 2018. Some of that 50% will affect 2019.

Okay. And I think, it’s a -- do you think you can get that full 250 run rate in 2019?

That’s the objective, by the end of 2019.

Okay. And maybe just a second question on I guess on the investment grade kind of target.

I mean, I know it doesn’t necessarily affect your interest expense that much, we get to investment grade, but certainly it’s new from a investor sentiment point of view, I think it’s a key milestone. In your discussions with the credit rating agencies, I mean, what have they told you that you need to get to as a leverage ratio?

Is it that 1.2 times or is it something that’s -- that you can get to sooner than that?

I don’t know if we had specific guidance from the credit agencies; I don’t know if they want to provide that at this point in time. But certainly, we look at other airlines who are investment grade and they are a proxy -- their leverage ratio is in that 1 to 1.5 range, and that’s why we chose 1.2.

And certainly, we’d love to get to it earlier. There might be a bit of a lag from the credit agency’s perspective in providing us that investment grade status.

But we saw recently S&P upgraded us and Fitch as well, and we’re currently speaking to Moody’s and hopefully they’ll upgrade us as well.

Just, Mike, maybe for you. Just a change in the ROIC calculation with the excess cash.

I guess, a couple of pieces of this. One, in a lot of ways, I guess it just reflects maybe the use of cash or the available cash.

I know, you’ve been using the buyback; you talked about wanting to buy aircraft. And again in context of thinking about trading multiples and valuation, any additional thoughts around the dividend?

I know it’s starting to become more of a question from investors.

It’s a great question, Chris, and good morning. Frankly, we don’t hear a lot about dividend from our shareholders.

We hear a lot more about debt reduction and getting to investment grade status as a key priority, and secondarily about taking advantage of the stock price and buying back some stock. And we think those are two strong ways to return value to shareholders and reduce, certainly from the first perspective, reducing debt to reduce the overall risk portfolio of the company.

And what we said publicly is as we get close to investment grade, we will look more closely at dividend program. And again, we’ll look at as to whether the market would reward a dividend program.

And there is evidence even today that the airline market doesn’t really reward a dividend program. And so, we could see how the market evolves over the next little while.

And as we evolve in our credit rating, I think, we’ll be in a much better position in a year or two to make a more viable decision around whether we want institute a dividend or not.

And then, just one additional question around this. Is it fair to think that the excess cash, you talked about 130 basis points?

But that excess cash will move more to a normalized basis, as you acquire aircraft and just use some of that -- those funds?

Absolutely. I think, that’s the working model.

At this point in time, we have a lot of aircraft coming in the first half of 2019. There is no need for us to have that much cash on the balance sheet.

And so, instead of incurring debt, we would certainly look at the possibility of using cash to pay for those aircraft in early ‘19 versus incurring debt.

So, best way to think about is you sort of prefunded the CapEx?

Yes.

And then, the other question, I’m not sure who wants to take this one. But, it’s more of a, kind of a conceptual question.

And when we look at some of the impact or with your largest competitor, the idea of succession sort of comes to mind. And when we think about -- it’s probably a lot more fun to be managing Air Canada today than it was 10 years ago.

But just thinking about where you go over the next few years, I think most of you folks have had tenures of some time now. How should we thinking about -- how do you protect things like culture as you should have some sort of succession plan in place and how do you and the board think about it?

So, first of all, when it comes to longevity of what it is we’ve been doing. This has been one of the key drivers of our transformation.

Our objective was not to have a one hit wonder, one quarter wonder, and you’ve heard me say that many times in the past. But, this is a marathon, not a sprint.

And we certainly had no intention of doing anything there was going to be short-term driven. And that’s why whether it was a fleet decision, a product decision, a labor relations decision, everything that we’ve been doing has been to build a great business long-term.

And we’ve been engraining that culture in the leadership team that is here. We have been engraining that culture at the middle management level and we have been engraining that culture at the unionized workforce level as well.

So, our thesis here is that the culture change that has occurred and it has broadest to the level that we’re at, which is obviously the -- we have been the best performing from a share price perspective, the best performing stock in North America, we have won all kinds of employer awards, the contribution on the eco-environment, outperforming our domestic competitor significantly over the last number of years. This has been something that we’ve built a culture of wining.

And a culture of wining is also dependent on having a capability of rewarding for performance. And we reward from our unionized employees.

We’ve had a something like a quarter of a billion dollars in profit share payouts over the last four years. We have created about 5,000 jobs.

And so, this is a comprehensive dynamic that is not based on any one individual or any one leadership team. And that’s sort of is I think what we’ve tried to do over the last number of years.

And I think that from our perspective, we are very, very proud of this culture. And we think that as far as we are concerned, we’ve protected folks’ jobs.

We’ve improved their carriers. We’ve created --protected their pensions as far as the concern that they had a few years ago.

We had a $4 billion pension deficit. So, as far as we are concerned, this is something that lasts for a long time.

And obviously, we’ll be very judicious in terms of the kind of people we’ve put into leadership positions. But, you are absolutely right.

It is an extremely important question to ask, Chris.

Yes. Good morning and thank you for taking my question.

I guess, I wanted to ask one on the load factor, maybe for Ben. It’s been -- you’ve obviously the changed the business quite a bit here.

There’s a lot more long haul flying here. I am just wondering, on a full year basis, I think, and the last time you kind of had maybe 83%, 83.5% load factor.

Is that still sort of the max, Ben, or do you think there is more upside to that now considering you have so much more long haul flying?

It’s in the range that we’re comfortable with, 82% to 84%. Longer haul, obviously, we’re not as concerned with spill in the majority of our routes.

What we are focused on is the premium cabin, both the signature class and our premium economy cabins. And we’re making sure that we are optimizing those the most.

And in the economy class, we’re pretty much running them the same way we have for the last few years. But those premium cabins is where we’re looking for the right balance between yield and load factor.

Great, that’s helpful, thank you very much. And if I may just ask one more, in terms of -- I think you mentioned the regional fleet and maybe a bit more Rouge flying on the regional side.

Is that an up-gauge then on the aircraft?

Yes, it would be a Rouge aircraft replacing a regional aircraft. So, anything upto 76 seats will be replaced by a Rouge airplane.

So, if we put a Rouge flight on existing regional route, we may or may not remove all of the regional flights, but it will replace some of them. So, the capacity should change the same.

And we may just reduce the number of frequencies.

Maybe just give an example.

Yes. The just to say for example, we looked at Halifax to St.

John’s Newfoundland where we operate upto five or six regional flights depending on the time of the year. That would reduce by let’s say, one or two, depending on the season?

So, Turan, in other words, it’s a cost driver. I mean, it should not be seen as a capacity addition.

It’s a cost driver for the same number of seats, just reducing frequency and having a capability to put a larger aircraft on the route.

I got that. Thank you so much.

And I guess, maybe, Ben, I don’t know if you can provide the clarity here. But, I thought that you couldn’t do -- like, if there was a particular route that was a Rouge route, you wouldn’t have another, like you couldn’t have a mainline.

I guess, you could do that with the regional and Rouge, and that you can fly them together on the same route?

The first part of your question, if it is a Rouge route, we do have flexibility to operate whatever we want, mainline, Rouge or regional. But on a regional route, we could put Rouge on today, but we -- but that’s under the current formula where it would cost us one of the 50 airplanes.

With the new agreement with our pilots, we can now do that with no limit of the number of Rouge aircraft. So, it’s slightly different.

So, there are two abilities as I mentioned earlier to add Rouge airplanes. One, with a formula to add mainline airplanes, and that’s on non-regional routes; and then on regional routes, we can immediately do that with incremental airplanes at Rouge.

You’ve mentioned the importance of revenue management and taking fares higher, where appropriate to offset increased price of fuel. I’m wondering, if you can help me understand the relative kind of benefit or the relative ease of taking prices higher in international markets relative to domestic markets.

Because, on the one hand international markets, you guys have grown a lot more in recently, and so there are less mature routes there. On the other hand, there is a bigger kind of ULCC threat domestically.

So, if you could help me understand where fare could potentially go higher that would be helpful.

I mean, all of our competitors are experiencing the effects of higher fuel. So, we are seeing increased our prices to offset that across all markets, some are higher than others.

But, there are no markets where we’re not seeing that trend. So, some of the markets that we operate in, you may be aware, there needs to be government legislation to be able to do this.

So, those may take a little longer. But, in the bulk of our markets, it’s -- we’re seeing the reaction by your competitors happen as quickly as we can.

We’re both -- we’re doing on two fronts. Where appropriate we’re putting out the fare as quickly as we can.

And in some markets where we are not the dominant player, we’re not the -- we don’t have a big share of the market for the fares to pretty much stick, we have to ensure the market moves that way, so that we can maintain a competitive position with the pricing.

Maybe just a follow-up on I think Helane’s question your ability to generate positive profits in Q1. When I look back and a lot of initiatives you’ve done have seen a pretty significant increase in aircraft utilization from Q2 onwards, when I look back, let’s say the past five years.

Whereas, I think the first quarter, utilization is more static where it’s been five years ago. And I’m just wondering how important is to get that utilization up higher, maybe more in line with what you’re seeing to the balance of the year, to get to a positive profit number in the first quarter.

And if that’s even possible, based on your maintenance schedules and weather and things like that?

Yes. It’s Ben again.

Couple of things drive that. First off, we’ve performed a lot more maintenance in Q1, lot more heavy maintenance.

So, that drives down utilization. And of course we have the same fixed costs throughout the year.

But, with our competitive position being much stronger now with Rouge, we expect Q1 to get better and better. In previous years, we didn’t have a cost structure to compete on many of the markets that had weighed down utilization, and also we had skewed our vacation openings for our staff to Q1 so that also affected our ability to bring in revenue.

So, that it being more evenly spread throughout the year. So, as we move forward, that’s another item that will help bring Q1 closer in line to the rest of the year.

That’s helpful. And then, just more of a clarification question on the comments you had around Rouge and flying on regional routes.

If I think of it from your partnerships with your regional carriers, should I assume that over time that with the ability to fly Rouge on regional routes that that will decrease the number of potential regional partners you have or what’s the percentage of block hours you put out for your regional carriers to fly? Any implications in terms of how that pie gets split between new and those partners, or is this relatively immaterial amount of flying overall?

So, first of all, it is, relatively speaking, an immaterial amount of flying when you look at the overall network. So, I’d start off with that dynamic.

That said, when we are in a cost reduction mode, we’re going to look at all opportunities. So, therefore, while it is an immaterial in the overall scheme of the network, having two or three routes like we have this year, where we can start introducing a Rouge aircraft in some cases to supplement or to complement the existing regional flying on it and perhaps, yes, you might reduce several of their regional frequencies, it will help us on the costs side.

We certainly have no intention to, at this stage, reduce our number of regional partners. We’re extremely satisfied with our relationship with the regional partners.

But certainly, we intend to continue putting pressure on them as we have in the past to encourage them to reduce their costs and create in many of respects, the competitive dynamic for what is the best vehicle to operate on a given regional route. In some cases, there is an advantage to having a regional aircraft just based on the number of frequencies that we can operate relative to what we could cost effectively with Rouge.

So, this just gives us an additional tool. So, we see this as -- if you wanted to think about in a broader sense, think of it as additional tool in our CTP arsenal that we can deploy Rouge aircraft on regional routes.

But certainly we’re not intending to muscle out or push out our regional partners.

Is this a certain amount of time of advance warning you have to give them or can it be pretty instantaneous, you can switch as quickly as you can switch the schedule, you can give that level of notice?

That’s correct. Obviously it goes to having access to the aircraft, having the aircraft in the right configuration and then giving -- being able to integrate into the schedule.

That’s perfect. That’s all for me.

Thank you very much.

Thanks very much. Thank you for your questions too.

And Kevin, maybe I’d just add one other thing. As Calin mentioned, with the added flexibility, that’s very big for us.

But it’s a unique way in North America to raise our scope line with the support of our mainline pilots. So, this is something that we’ve been able to do and nobody else in North America has got that.

So, to be able to fly a regional aircraft or replace the regional aircraft with a Rouge narrow-body aircraft with the support of our pilots is something that we’re looking forward to do. And that’s a unique flexibility that no one has got, like you see airline perspective.

My first question is just on yield trends. So, we’re thinking about yield or RASM for Q2, there is a lot of different factors here, fuel and Easter and route maturity and stage length and so on.

Can you give us some sense of what we should be thinking about in Q2 as to how all those things play? Do we see RASM accelerate on fuel or do some of these other factors have an effect that keeps that growth down?

David, it’s Ben. If the trends continue in terms of fare increases, sticking in the marketplace has been definitely that will have a positive impact on RASM.

And that’s something obviously we definitely support. So, there’ll always be a few markets where we will not see that but the bulk of them that should take place.

And would that be in Q2 or is it going to take longer than that because it seems in the U.S. that they’re running into some challenges?

We’re already seeing the benefits of that already in late Q1, we saw that. So, some markets will take longer because of government legislation or the competitive environment.

But especially, on the longer haul international routes, we’re already seeing that.

And then, the other question I had was just on the changing around of the delivery schedule on the 737s. So, just wondering, if you guys to give a bit more of sense of what’s going on there?

Go ahead, Calin.

So, David, it’s Calin here. So, when we make these large aircraft orders, as you know, 61 aircraft, many years before taking delivery, we have a vision as to how -- we intend to integrate the aircraft into our fleet and many other moving parts as to the other aircraft that are there.

So, as we looked at this, and as we sort of saw opportunities to accelerate some aircraft, we didn’t know when we took the -- when we made the 737 order, we didn’t know exactly what we’d be doing the timing of exiting the 190s. We didn’t have at that stage of the C-Series order.

So, you have clear four moving parts. And so what these changes are to give us maximum flexibility to bring the 737 MAXs in at a time we can use them most effectively, and that’s -- we can drive the best business case.

And we don’t want to be inundated with aircraft at times where we can’t used them and we don’t be short of aircraft at times. So, this is really this all, at this stage in an around timing.

And we’ll also wait to see how the C-Series performs. And obviously, as you know, we have in addition the 61 firm, 737s, we have options under that order; we have options under the C-Series orders.

So, we’ve got a lot of optionality on the narrow-body fleet as it evolves over the coming years.

Just two questions here. First of all, and perhaps there’s some competitive sensitivities around answering this.

So, to the extent you’re comfortable, could you talk about any of the specific considerations behind the decision to refurbish and add A330s as opposed to using 787 options at this point? Whether it’d be sort of the mission characteristics these aircrafts are going to be used on or the customer profile or any other factors?

Yes. Hi, Tim.

It’s Ben. I think, what you just said there is exactly correct.

The mission I think what we’re looking for replacement or incremental capacity, the A-330 does provide the highest return. And then, to ensure that we have a standardized interior and a standardized onboard product, that’s why you’re seeing the investments.

So, in particular, all these airplanes will be based in Montreal where we have a shorter sector length across the Atlantic and a performance and the cost profile fit those perfectly. So, that’s why those aircraft are being kept longer and why we’re bringing in couple more in.

Tim, Calin here. As you know from an overall capital perspective, it’s just not comparable.

On the assumption you could get what you need from a route perspective, taking an older aircraft and refurbishing it relative to -- we love the 787 but it was not a mission that you needed that extra range and capability, we get much better returns by doing what we are doing.

Okay, that’s helpful, thank you. And then just to confirm, the decisions around using Rouge on regional routes.

Am I correct in assuming that that also requires consideration for how any displaced regional aircraft will be redeployed on other routes, since at least in the case of Jazz I believe you’re paying for those aircraft regardless? Am I correct in that that you have to bring into consideration the redeployment of those aircraft in that decision?

That is correct. And so we have -- that’s exactly correct.

So, we have a covered fleet obligation with Jazz and we obviously are respecting our obligations fully. And that dynamic, as I mentioned in the earlier question, will create a competitive perspective as the covered fleet obligations diminish.

And so -- any time we look at putting a Rouge aircraft on a regional route, we are looking at what are we doing with the regional aircraft that’s otherwise already on that route and how is that being redeployed and are their better markets for it to be deployed on?

Thanks. Just to follow up here quickly.

On the booking curve, Ben, any recent changes you have noticed in the booking pattern due to the recent delays by a new domestic entrant and or region as well as the labor issues at your domestic competitor?

Konark, nothing material yet. Obviously we are watching very closely because o potential vitality in the domestic market, but nothing yet.

Great, thanks. And on the new fares, what was the main purpose of expanding the fare structure to improve basic?

And can you remind us like what portion of the seats are on basic fare right now?

So, main purpose of expanding the branded fares was to put out a more simple marketing and branded offering to our customers, who actually better understood, easier understood and come straight to aircanada.com. So that is one of the main purposes of doing this.

So, very easy to understand what value each price point is offering. And the basic fare was put in to have something ready from -- everything filled in from a backend perspective, all of the things that were never necessary from setting up the price and managing our revenue management system.

It’s all there ready in case we need to use that fare, specifically or surgically in certain domestic markets. So, definitely not putting that fare into the market across the board, we’ll use it when and where necessary and a percentage of seats what will be determined by what we need competitively.

Thank you, Valerie, and thank you, everyone, for joining us on our call today.