Air Canada

Kathleen Murphy - Director, IR and Corporate Reporting Calin Rovinescu - President and CEO Benjamin Smith - President, Airlines and COO Mike Rousseau - EVP and CFO

Konark Gupta - Macquarie Chris Murray - AltaCorp Capital Cameron Doerksen - National Bank Financial David Tyerman - Cormark Securities Fadi Chamoun - BMO Capital Markets Turan Quettawala - Scotiabank Andrew Didora - Bank of America Nishant Mani - JP Morgan Helane Becker - Cowen Walter Spracklin - RBC

Thank you, Paul, and good morning everyone, 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, Airlines and Chief Operating Officer; and Mike Rousseau, our Chief Financial Officer.

On today’s call, Calin will begin by highlighting our financial performance for the second quarter, Ben and Mike will then address the second 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 second quarter press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP results.

I'm now going to turn it over to Calin Rovinescu, Air Canada's President and CEO.

Thank you, Kathy. Good morning everyone and thank you for joining us on our call today.

I'm pleased to report a solid second quarter, a very good progress year-over-year despite a 31% rise in jet fuel prices versus last Q2. We generated EBITDAR of $646 million, reflecting a strong revenue performance and our continued focus on cost discipline, well ahead of analysts' consensus estimates of $571 million.

On a GAAP basis, we reported operating income of $226 million. In the quarter, we improved both yield and PRASM over last year.

Adjusted CASM was lower than projected. Adjusted net debt was down.

Our leverage ratio improved and we closed the quarter with record revenues, cash, and liquidity levels. We successfully increased passenger revenues by 10.4% to a record $3.9 billion in the quarter, emphasizing the continued strong demand for air travel and the strength of the Air Canada brand.

PRASM improved 2.7% year-over-year or 4.1% on a stage length adjusted basis. From a cost perspective, adjusted CASM decreased 1.0% versus last year's quarter, significantly better than our projections.

All-in-all CASM increased 5.6% year-over-year. We reached a record unrestricted liquidity level of almost $5.1 billion and our leverage ratio was 2.1 times at the end of June.

Given the rapid increase in fuel prices, we like many others in the industry, have revised our 2018 guidance for certain key financial metrics, which Mike will discuss later on the call. We believe the impact of these higher fuel prices is short-term and as such we're confident that our longer term targets will be achieved.

We estimate that we'll be able to mitigate approximately 75% of the expected 2018 annual fuel price increase -- through fare increases, other commercial initiatives, and our cost transformation programs. We continue to focus on our global network with a strategic launch of 25 new international transborder long-haul domestic and regional routes for this summer.

This spring several of us were in Beijing to sign our joint venture agreement with Air China, making us the first North American carrier to enter into a joint venture with a Chinese airline and getting us unrivaled access from North America to the fastest growing and soon to be largest aviation market in the world. Earlier this week, together with TD, CNBC, and Visa, we made a proposal to acquire Aimia's Aeroplan Business.

There's a very short fuse on that proposal and I will say a few more words on it after Mike's remarks. Last week we were once again named Best Airline in North America at the Skytrax World Airline Awards.

This is the second consecutive year and the seventh time in nine years we've won this award. It shows that our work is indeed bearing fruit.

We're successfully transforming our company and establishing ourselves as the undisputed leader in North America. Skytrax basis its results on 20 million direct customer surveys that examine 50 aspects of the entire journey; starting from the first clip on our website to the airport and onboard experience right up to baggage pick-up.

Before turning the call to Ben, I would like to thank our 30,000 employees for their part in not only achieving these strong financial results, but for their contribution in winning this highly respected Skytrax Award. Finally, I'd also like to thank our customers for their ongoing loyalty and choosing to fly with us.

Ben?

Thank you, Calin, and good morning. To echo Calin's remarks, I would like to thank all of our employees for a solid second quarter and for their part in Air Canada being named not only the best airline in North America, but also the best business class in North America at the Skytrax World Airline Awards.

I would like to thank our customers for once again voting for us and for choosing to fly with us. Lastly, I would like to send a sincere thank you to our employees in the operation who worked during the extreme heat wave we faced at our Toronto and Montreal hubs as well as throughout the Eastern Seaboard during the [Indiscernible] Day weekend and into the following week.

That time, the weather exceeded 40 degrees Celsius and many stories have been shared of our team demonstrating teamwork, leadership, and compassion for each other and for our customers even in the face of the extreme heat. Turning to our second quarter results, we reported a very strong revenue performance with passenger revenues up $371 million or 10.4% from last year on capacity growth of 7.5%.

Traffic grew 8.2% on this capacity increase, while yield improved by 2.0%, representing the fourth consecutive quarter year-over-year yield improvement before stage length adjustments. When adjusting for a 2.4% longer stage length, our yield further improved to 3.4% when compared to last year.

As Calin mentioned earlier, PRASM improved 2.7% year-over-year or 4.1% on a stage length adjusted basis. From the commercial perspective, we implemented several key strategic initiatives that enable us to compete more effectively for customers across various segments.

Our Air Canada Signature Service was introduced in April for our premium customers. The service is available for those customers flying internationally on our main line widebody aircraft and within North America on select flights operated by our Boeing 777, Boeing 787, and Airbus A330 aircraft.

Air Canada Signature Service elevates our premium customer experience with menu items from Chef David Hawksworth complemented by wines chosen by our sommelier Véronique Rivest. We also look forward to the expansion of our BMW 7-Series sedan valet service currently offered to our eligible Air Canada Signature class customers originating at Toronto Pearson or arriving at Toronto Pearson from a domestic flight and connecting onward internationally.

This is the first dedicated valet service offered by an airline within North America for customers booked in the premium cabin. We are very pleased with the customer feedback we have been receiving on our Air Canada Signature Suite in the Toronto Pearson International concourse, which we feel is a true differentiator for us with our premium customers and provides an exclusive à la carte dining experience before their flight.

In the second quarter, we completed the installation of our high speed Gogo 2Ku satellite Wi-Fi on our Boeing 777-300ER fleet and began installation of our Wi-Fi on our Boeing 777-200LR fleet. The introduction of Wi-Fi on our widebody aircraft provides a global internet coverage to our customers with the power to stream content while flying internationally.

We also expanded our suite of economy class fares with the introduction of our comfort fare within North America and our basic fare available on select routes through our Air Canada direct channels. Our customers now have more choice when they purchase a seat in our economy cabin with each of our five economy fares offering a different set of attributes.

Our comfort fare has been strong -- has seen strong conditional results and it has contributed to the yield improvement we have seen on our North America network, while our more tactical basic fare has been a useful tool to ensure we remain competitive in all the markets we serve. Now, to provide more detail on our revenue results.

Our investments in our premium products and services such as the introduction of Air Canada Signature Service continue to produce positive results as we achieved another robust quarter by business cabin with revenue growth of $98 million or 13.7% versus last year on traffic and yield growth of 10.3% and 3.1% respectively. Our record revenue results were driven by an increase in higher yielding local traffic, our continued success in our strategy to attract traffic trends in our hubs and an improvement in our overall fare-mix supported by the contributions that I mentioned earlier of our expanded suite economy fair offerings.

We were also pleased with our ancillary revenue performance in the quarter where we saw a year-over-year revenue growth of 14%, representing growth 8% on a per passenger basis. Revenue from seat selection and preferred services was up 43%, while revenue from upgrade increased 30%.

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

In the domestic market, on capacity growth of 3.2%, revenue increased $75 million or an efficient 6.6% on traffic growth of 2.6% and a yield improvement of 3.9%. The domestic yield improvement reflected growth on all major domestic services and included gains in our business cabin.

Our expanded suite of fare offering in the quarter included the introduction of our comfort fare also contributed to the yield improvement year-over-year. The potential strike at WestJet did not meaningfully impact our results and some short-term upside in booking volume during the period of uncertainty was offset by an aggressive promotional activity in the markets following the announcement of their labor settlement.

In the second quarter, we also introduced several new Air Canada Rouge routes roads within Canada, enhancing our service to British Columbia, strengthening our market position in Western Canada, with our non-stop flights to Kamloops and Nanaimo from Toronto and our non-stop service to Victoria from Montreal. The flexibility to grow routes, narrowbody fleet, have laid proportionate to the growth of our main line fleet was achieved through the ratification in 2017 of the amendment to our long-term pilots agreement.

This flexibility along with the introduction of our new basic fare provides us with tools we can deploy tactically and strategically. Looking forward to this third quarter of 2018 and the domestic market, we continue to anticipate positive year-over-year revenue and traffic growth.

We expect yield growth to be supported by our new Air Canada Signature Service on select flights from Vancouver to Toronto and Montreal as well as the continued deployment of our new comfort fare which should mitigate any deal pressure in our economy cabin due to the competitive environment. On the United States transborder market, on capacity growth 6.8%, revenue grew 8.9% on traffic and yield growth of 6.6% and 2.2% respectively.

In the second quarter, we also introduced our comfort fare to the all United States markets, which positively contributed to our transborder yield performance. Traffic growth was reflected on all major U.S.

transborder services and including gains in the business cabin. Our transborder results also reflect continued strong traffic and revenue performance related to customers transiting our hubs to and from the United States, which can be attributed to our international transit strategy and the investments we have made to improve the connection process at all three of our hubs.

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

We anticipate positive deal contributions from the deployment of our new comfort fare as well as positive traffic and revenue performance related to our customers transiting our hubs to and from the United States, which we believe will continue to be strong through the next two quarters and onward. Our performance across the Atlantic continues to be exceptionally strong.

On capacity growth of 12.1%, revenue grew $157 million, which reflected a significant increase of 17.8% in the quarter on strong traffic growth of 15.5% and a yield improvement of 1.9% or 3.2% on a stage length adjusted basis. We successfully launched several new routes in the quarter including our non-stop service from Vancouver to Paris and Zurich, our non-stop services from Toronto to Shannon, Puerto, Bucharest, and Zagreb and our non-stop service for Montreal to Dublin, Bucharest, and Lisbon, which we are pleased to see are all performing well.

In particular our Vancouver to Zurich service, our Toronto and Montreal services to Bucharest, and our Montreal to Dublin service on the Boeing 737 MAX have all exceeded our expectations. On a stage length adjusted basis, PRASM improved 6.6% when compared to last year with improvements on all major Atlantic services.

Looking to the third quarter, we anticipate another strong quarter for the revenue and traffic over the Atlantic. Revenue growth will come from the strength of our hub-to-hub markets and strategic deployment of our fleet including low-cost Boeing 787s, high capacity Boeing 777s, and new low-cost Boeing 737 MAXs and Rouge Boeing 767s, all of which have been foundation to the success we have seen over the Atlantic.

We also expect continued positive development throughout the summer from our Eastern European leisure markets as well as Athens and Rome. Turning to the Pacific, we were pleased to see a significant improvement in the quarter.

On capacity growth of 5.2%, revenue increased $52 million, or a very efficient 9.9%, driven by traffic growth of 5.7% and a yield improvement of 4%. The yield increase reflected a general improvement in fare mix as well as increases in fuel-related carrier surcharges, particularly in Japan and Korea.

In the quarter, we also successfully launched the first-ever service between Montreal and Japan, with our nonstop service to Tokyo, Narita, operated by our Boeing 787 Dreamliner. This route is designed to optimize connectivity to several Canadian and American cities.

As we look ahead to the third quarter, we anticipate continued positive year-over-year revenue and traffic performance, with good demand for the summer peak, supported by increase in fuel-related carrier surcharges. Moving on to our other market.

On capacity growth of 11.7%, passenger revenue increased $16 million, or 7.6%, driven by traffic growth of 8.6%. Our yield performance for the quarter reflect the increased competitive pressure on our Mexican market, as well as the impact of removing the short haul tag between Buenos Aires and Santiago, as we now serve both markets on a nonstop basis.

This had the effect of removing higher yielding short-haul ASMs associated with the tag operation, which increased the average stage length of our operation in the area. Although the average stage line has increased, we look forward to our revenue, traffic and return benefits that we will realize as these non-stop routes mature.

For the third quarter, we anticipate positive year-over-year revenue and traffic results. However, we also anticipate some continued downward pressure on yield due to increased competitive pressures into Mexico and the removal of a short-haul tag between Buenos Aires and Santiago.

Our cargo division turned in another very solid performance in the quarter. Cargo revenue increased $32 million, or 19.4% year-over-year, driven by traffic and yield growth of 10.6% and 8% respectively.

Consistent with our prior quarter's, the Atlantic and Pacific markets were particularly strong in the quarter with the launch of our new international routes. Looking ahead, at the third quarter, we anticipate continued strong year-over-year revenue growth in line with our expectation.

I'll now turn the call over to Mike for a discussion on the cost performance and balance sheet metrics.

Great. Thank you, Ben and good morning to everyone.

I would also like to thank all of our employees for their professionalism and dedication, taking care of our customers and for their role in achieving the solid Q2 results, and Air Canada once again, being named Best Airline in North America. Our solid EBITDAR results in the quarter also came with a strong unit cost performance.

On an adjusted basis, CASM decreased 1% from the second quarter last year. This is better than expected due to several factors, including an acceleration of lease extensions from the third quarter and the resulting decrease in maintenance provisions, savings from our cost transformation program, and a reduction in other operating expenses.

All-in CASM increased 5.6% from the prior year. As discussed in previous calls, we've undertaken a new cost transformation program aimed at securing incremental savings of $250 million by the end of 2019.

So far, we've achieved, or have identified about 55% of the $250 million target. We continue to closely monitor and challenge all our operating expenses and have deployed additional resources to uncover efficiencies in operations, and challenge non-essential spending, while keeping our focus on innovation and technology, and raising the bar as a customer service leader.

We've identified several larger projects which we are currently sizing and which we expect to add to the cost transformation program by the end of next quarter. With regard to fuel cost and hedging, fuel expense increased $302 million or 38% in the quarter, on higher-based fuel prices, which accounted for an increase of $272 million, increased line at another $43 million, and probably, offsetting these increases what impact of stronger Canadian dollar which reduced our costs by $11 million in the quarter.

Our average price of fuel was C$0.82 per liter, up 31% versus the same quarter last year. Turning to fuel hedging.

At June 30, we had a hedge of approximately 50% of our anticipated fuel consumption for the third quarter, at an average WTI equivalent cap price of $78 per barrel. We currently have no hedges in place for the fourth quarter.

As always, we monitor the price of fuel on a continuous basis and adjust pricing, where possible, to maintain appropriate margins. Looking ahead, our assumption is that the price of jet fuels will average C$0.80 per liter, in the third quarter of 2018 and C$0.78 per liter for the full year 2018.

Given these higher fuel price assumptions, we've derived our short-term guidance. We now expect our annual EBITDAR margin of approximately 16% and a return on invested capital of approximately 12% for 2018.

We're confident that will achieve our 2017 Investor Day targets of an annual EBITDAR margin of 17% to 20%, and an annual ROIC of 13% to 16% in 2019 and 2020. Now to provide some guidance on costs.

For the third quarter, we expect adjusted CASM to increase 2% to 3% compared to the third quarter last year. Despite the better than expected adjusted CASM performance in the second quarter, we have not changed our full year guidance given our assumption of a weaker projected Canadian dollar and the shift of maintenance benefits from the third quarter to the second quarter.

For the full year 2018, we continue to project our adjusted CASM will range between a decrease of 25%, and an increase of 1% when compared to 2017. Our projections are based on the assumption the Canadian dollar will trade an average at C$1.32 per U.S.

dollar in the third quarter and C$1.30 per U.S. dollar for the full year 2018.

Earlier this month, we entered into final negotiations with sale leaseback of 25 Embraer 190 aircraft. In conjunction with the sale, we record a loss and disposal of $186 million in non-operating expense in the second quarter.

Net proceeds of $296 million are expected in the third quarter 2018. We will continue to operate the aircraft until they gradually exit the fleet between late 2018 and mid-2020, in line with our current fleet plans.

Looking ahead, we are now projecting free cash flow $350 million to $500 million, as opposed to the range of $250 million to $500 million we projected at the end of last quarter. This change takes into account higher fuel price assumption for 2018 and now includes expected net proceeds from the sale of the Embraer 190s.

Turning to our balance sheet liquidity, we ended the quarter with unrestricted liquidity of almost $5.1 billion and we recorded net cash flows from operating activities of $853 million. Negative free cash flow of $13 million represents a decrease of $318 million from last year's second quarter and this was entirely do the Air Canada, having recorded proceeds of $371 million from the sale leaseback of 277s in the second quarter of 2017, while of course, none were completed in the quarter.

On the net debt front, at the end of June, net debt, including capitalized operating leases, amounted to $6.1 billion, a decrease of $5 million from December 31st, 2017. On June 30th, our leverage ratio was 2.1, and we remain on track to achieve a ratio of not exceeding 1.2, by the end of 2020, which we believe supports and investment-grade credit rating.

At June 30th, our return on invested capital was 13.7%, 620 basis points above of our weighted average cost of 7.5%. We continue to reduce our weighted average cost of debt, which at the end of June, stood out 4.3%.

Additional information to be found in our financial statements and MD&A, which were posted on the website and filed on SEDAR this morning. And with that, I'll turn it back to Calin.

Thanks Mike. As most of you will have seen, on Wednesday, we, together with TD Bank, CIBC and Visa Canada, made an offer to Aimia to acquire Air Plan Loyalty business.

This proposal is accepted by Aimia will ensure value and continuity for members who are our respective customers. The proposal will be for acceptance at August 2, 2018, and has a series of conditions of closing.

We collectively believe this proposal is in the best interest of Aimia's common and preferred shareholders, debt holders, and aero plan members. And certainly, the market reaction following the press release would appear to confirm that.

That said, we've also been working diligently on the credit card several other banks and financial institutions and at the expiry date last without the deal we have every intention of resuming our discussions to conclude a new long-term credit card arrangements in Q4 of this year, well in advance of the June 2020 launch date. Now, there have been numerous analysts and media reports following our joint press release with TD, CIBC, and Visa.

And I want to amplify and underscore what we said in the release. First off, the consortium's proposal is not a hostile bid, as characterized by some.

It is a proposal to Aimia's special committee and board, which they're entirely free to accept or reject based on their own risk and value investments. We chose to make our proposal public, so as to ensure transparency for all stakeholders given the numerous interests at play.

Two, the proposal is for the Aeroplan's Loyalty business. It is not a bid for all of Aimia.

The publicly-traded company that has other assets beside Aeroplan, has erroneously mischaracterized by one Vancouver-based analyst and some media. Three, we are one of our partners to make this proposal.

Interests has vested interests, and each of whom has already paid for the Aeroplan Miles that we are about to effectively pay for the second time, for the benefit of our respective customers by assuming the redemption liability. Four, we have not abandoned our plan to launch our own loyalty plan in 2020 and if there Aeroplan require, Aeroplan Miles would simply be converted to our new program.

The activation allows for a smooth transition for Aeroplan members. Five, in addition to the value we see with a smooth transition, the main benefit for the proposed acquisition for us, resides in the continuation with the two incumbent credit card providers, TD and CIBC, as well as Visa.

Six, the consortium proposal is not any "steep discounts" and some have risks. It is, in fact, at a substantial premium, and extremely generous given the $2 billion unfunded redemption liability of Aeroplan, that the consortium would be accepting.

We believe there is no other party out there prepared to accept the $2 billion liability, nor any other buyers for the company. Seven, the choice, the Aimia being the board has in exercising its fiduciary duty is the following; reject bid proposal and adopt a go-it-alone strategy for Aeroplan maintaining the $2 billion unfunded liability without Air Canada as a redemption partner, or accept our consortium's proportional, which looks after all of their stakeholders.

Eight, our proposal expires on August 2. Why?

Because if Aimia chooses not to accept it, we need to complete our process to conclude the agreement with our new credit card partner by the end of Q4. We have an active and value-enhancing process for both Air Canada and our banking partners already underway.

Regardless of the we will continue to respect our contract and work with Aeroplan through the transition period and remain focused on building our own world-class program by June 2020. Now turning back, more generally to Q2.

The quarter shows that our strength is not only financial and that we continue to raise the bar for customer experience. In addition to the Skytrax Award for Best Airline in North America, we also are recognized by Skytrax, for Best Business Class in North America.

We introduced Air Canada's Signature Service, our new end-to-end premium travel experience for our premium customers, internationally, as well as North American routes, from Toronto to Vancouver, San Francisco and Los Angeles, from Montréal to Vancouver, and from New York, Newark to Vancouver. This completed installation of satellite Wi-Fi connectivity across our Boeing 777 300ER fleet for international flight is being progressively installed across the rest of the Air Canada mainline and Rouge widebody fleets.

This is in addition to the ground-based Wi-Fi connectivity already available at our North American narrow-body, Airbus, Embraer and Bombardier CRJ 900 feet. We've expanded our suite of economy class production fares to the introduction of comfort fares in North America, as Ben mentioned; new family services for customers, with young children was introduced in the quarter, and featured dedicated check-in counters at major hubs, complementing seat selection for proximity seating, and the range of other services designed to meet the needs of traveling families.

Our teams are working diligently on the implementation of our new PSS, our Passenger Service System, and a launch of our new loyalty program in 2020, and we're pleased with the progress of both, so far. Finally, our joint venture with our Star Alliance partner, Air China, offers customers even more convenient connecting flight opportunity.

We continue to support the development of biofuel, to become it commercially viable. Operating the biofuel flights from Edmonton to San Francisco, in May, our ninth biofuel flight to-date.

And we're also a lead partner in looking at the feasibility of biofuel use and share fueling systems at Canadian airports. This is one of the reasons, earlier this year that we were recognized as the world's Eco-Airline of the World of the Year, by Air Transport World.

We're in the midst of our busiest time of the year, and expect a strong summer season. We continue to strategically expand our network with 25 new routes for the summer, as Ben mentioned.

New transborder routes as well in support of premium strategy and the deployment of Rouge on new long-haul domestic summer routes to popular summer vacation destinations, in DC from our Toronto and Montreal, plus new regional routes, to compete effectively with the new domestic entrants. On July 3rd, Air Canada routes celebrated its fifth birthday.

Our Visa carrier now grown from 50 aircrafts, from four, span to over 100 routes from five continents from an initial 14 routes, and flown more than 25 million customers. The traffic growth is a testament to its unique culture and its success in contribution to our overall strategy.

In the quarter, the level of engagement of our workplace was again recognized when were named One of the Top 5 Most Attractive Employer Brands in Canada, by Randstad. We continue changing our culture as fully on display, yielding us financial benefits when contrasted with the ongoing labor challenges at our major domestic competitor.

In conclusion, we achieved another solid quarter, showing that our business plan is delivering as planned. Demand remains strong in all our markets.

We continue to manage our costs, and by 2019, we fully expect to offset the higher fuel prices and deliver on the Investor Day targets. And with that, I'll turn it over to you for questions.

Let's go to next question.

Hello.

Hello.

Sorry, can you hear me now?

Yes.

Congrats on the quarter. Good morning.

Thank you very much Konark.

Just first question, on revenue, Ben. Can you help us understand the revenue environment here in the second half, because the RASM and yield metrics seem to have accelerated from Q1 and the FX is tracking to be a revenue tailwind, in the second, because the Canadian dollar is weaker, right?

But then you mentioned about--

Konark, you're going in and out, unfortunately. Konark, if you can hear us, we'll follow-up with you on that question.

And we'll just go the next question, I think to move this along and we'll come back if you can connect, Konark. Operator, can we go onto the next question?

Apologies from Air Canada. We'll try to get this fixed.

This technical issue fixed and respond to the questions.

Thanks guys. Can you hear me okay?

Yes, yes, we can.

All right. Thank you.

Good morning. I guess maybe, just turning back to the question around the whole decision to proceed with the acquisition of the Aeroplan program from Aimia.

When we talked a couple of quarters ago, your comments, basically, were that you felt comfortable in your strategy of moving forward. I'm trying to understand, I guess, a couple pieces of this.

One, what changed in your estimation to have you proceed to perhaps, make the acquisition? And then the second piece of this, is that when we go back to Investor Day, some of the discussion around opportunity of Visa, building your own loyalty program that gave you some additional flexibility around costs and also revenue?

And I think, Mike had made the comment, there was a key differentiator between your EBITDAR margin and those some of your international peers, was related to the loyalty program. So, how should we think about how your thought process has changed around this?

And should you be actually be successful in acquiring that business? How should we think about how this impacts your earnings profile and the program through 2019 and 2020?

Okay. So I'll start and Mike wanted to add some comments, Chris.

So, essentially, our philosophy has not changed. One with respect to launching our own loyalty program.

That was one of the items that I highlighted in my amplification comments before. So, we are proceeding with our own loyalty program, but would happen if we are able to apply Aeroplan program, we will have the program transition into new program that we will be launching.

So, Air Canada will have its own in-house loyalty program, one way or another. The only question that we do is whether or not we complete this acquisition, whether we accelerate that through this acquisition or not.

If the acquisition is successful, we'll be accelerated, and obviously, that depends on the closing -- would occur we haven't yet announced with our expectations are on the closing date, because, of course, that's dependent on having a favorable response. But if the acquisition is successful, we will accelerate that.

But there is not one change at all to our strategy of receiving with our own in-house loyalty program by no later than the original 2020 date, number one. Number two, the value that we've seen in this transaction is both for our customers, for the Aeroplan members, if we are successful.

And the cost of it collectively with our consortium partner makes sense, then it is a facilitation exercise, that to be no loss of the Aeroplan's members, one, to continue to be able to redeem on Air Canada -- that is where they see the greatest value. Even though they may not have accumulator on Air Canada, most of them feel that the greatest values in redeeming on Air Canada, so we want to continue, if possible, and if the price tag makes sense to be able to do that.

And of course, we see value in the continuing with our two incumbent credit card partners that are in that program, TD and CIBC, if that's feasible. But as I said earlier, that if it's not, then it will have to be with other bank partners and go back to the original structure.

So, we see this as enhancing our original strategy. We don't see it as modifying it, in any way, shape or form.

And Chris, it's Mike. Good morning.

On the economics, as you can appreciate, it's too early to provide any type of view on the economics. That will come in time, assuming we could complete the successful arrangement.

Okay. And then Mike, if maybe you can answer this one just in terms of the actual the cash component and as well be the assumption of the liability.

Is there -- is the idea that this will be correlated as a separate joint venture, and then you'll just proportionately reflect the -- whatever the contribution is?

Chris, we have not provided any details on the structure of the company. And again, I don't think that's relative to the time.

Our focus is to try and get a deal done, if we can, if Aimia wants to engage. And those details will come later.

Okay. Fair enough.

This is -- maybe another, maybe a theoretical question. But some of your competitors in the U.S.

have certainly talked about starting to bring down a bit of capacity may be driving load factor a little bit as a way to offset some of the fuel numbers. I know -- it's not a real easy or straightforward way to look at it, but I guess, what I'm looking at is when I think about your load factor, historically, you're still kind of kind of standing in that kind of low-80s number.

And with some of the efficiency changes and the fleet changes as well as a number of unencumbered aircraft you've got available to you, does it make sense to start bringing down capacity a little bit to offset some of the fuel numbers, maybe bringing load factor up just a couple of points, just sort of protect the earnings profile of the company?

Hi, Chris, it's Ben. Yes, we are studying quite extensively, our capacity plan for Q4, and the last part of Q3, Q4, with the view on trimming, where it makes sense.

We also have some flexibility around the installation of Wi-Fi at our pay program that is taking place throughout the next 18 months, if it makes sense to move some of that around, to help with the capacity trend. So, that's what we're looking at.

Okay. But no determination at this particular point?

Not yet.

Okay So, I think, the last quarter, we talked about kind of a 7%, roughly, growth number for the year. We should kind of thing keep thinking maybe that's the way you're still thinking?

At the current moment, as I said, we're extensively studying what makes sense, now that we have a better understanding of the bookings we're seeing for the remainder of Q3, and what type of advance yield is coming in. And of course, when I just explained with you, we're also checking with the various suppliers been supporting our pay and Wi-Fi program, what kind of flexibility we have around that, in adding airplanes in that program in Q4, which would offer an additional mitigation and the trimming options during that time.

Okay. Any thoughts around parking additional aircraft that are encumbered?

Not really comfortable going to that kind of detail today.

Okay. Thank you very much.

Yes, thanks. Good morning.

Maybe I'll just try another question just on the loyalty program. Would it be fair to say that your NPV of $2.0 billion to $2.5 billion, on the loyalty program -- would be at least as good under the proposal to buy Aeroplan as doing it on your own?

Cameron, it's Mike. We cannot provide any type of details, either appreciate -- we're potentially in the middle of a discussion.

And we're just not -- I know the need for the market for that information, I respect that, but we are at a sensitive point, so we're not just going to provide details, as to the economics of this arrangement.

Okay. That's fair enough.

So, I'd ask another question on, I guess, yields and particularly, the understanding the basic economy rollout. I'm just wondering what your strategy is there.

It looks to me like, you're sort of deploying it out on routes where you're starting to see some ULCC competition. I'm just wondering what impact could that have on overall yields for Air Canada, especially as the likes of Swoop and Flair continue to grow their route networks?

It's Ben. Thanks for your question, Cameron.

The introduction of our basic fare, would predominantly, put in place, for us to have a tool to tactically compete in those markets where we see that type of pricing activity you just described. And so it's tactical, it's not something we are deploying across the Board.

We are seeing, in a few markets, yield pressure, but with the introduction of our comfort fare, the plan is -- and the objective is to balance out any effects that we may have from some of the more aggressive pricing. So, we're really working on the -- on bringing out fare as to increase attribute that we've introduced.

And so far, the have been quite good.

Okay, great. Maybe, just one last one, quickly.

Just I guess, on the liquidity position, you've got over $5 billion, here, you're still forecasting positive free cash flow. I'm just wondering if you can talk about your NCIB program, when you get more active here, because it seems as you're carrying probably more cash than you need to on your balance sheet?

Cameron, it's Mike. We are carrying more cash in our balance sheet.

It's certainly, a nice problem to have. Our view right now is we'll be deploying some of that cash to primarily, flip paper planes coming in next year with cash, rather than incurring debt, and that's all part of our deleveraging strategy.

And so I think that's the primary purpose of that excess cash at this point in time.

Okay. Very good.

Thanks very much.

Thanks Cameron.

David, we can't hear you?

Loyalty program -- can you hear me?

No. Your closer to the phone.

If you're in a speakerphone, pick it up.

All right. That better?

Hello.

No, can't hear you.

Hello.

Yes, we can hear you now a little bit.

Little better.

Okay. My question is on the loyalty program, not on the bid.

But just, generally, on how to surface value from this thing. So, I'm just wondering, if you can give some thoughts on that.

It seems to me that if simply you get EBITDA embedded in your regular airline results, and we can't actually see it. It's going to be difficult to get that $2 billion to $2.5 billion, or whatever the number is.

So, I'm wondering if you can give some insights into how you think you can surface this value so that we can see it in prime value with ourselves.

David, this is Mike. A fair question, and we've been asked many times, to provide more details on the economics and accounting aspects of what may happen, and we're just not going to speculate or provide that detail at this point in time.

It's too early in the process. But what we had said, the idea that -- obviously, everyone's interested, including, to be able to spotlight -- when the structure is finalized, whether the acquisition occurs, or not -- once the structure is finalized, we certainly will have every objective to try to explain the marketplace, how much EBITDA comes out of that business and how that contributes to our overall bottom-line.

And therefore, our full expectation is not only having a good solid contribution, but potentially, a multiple bomb.

All right. So, would the idea be -- do somehow split this out, so that we can bracket and get value?

Not necessary, but we have made those decisions, David. And again, we're not -- this is an evolving process.

We're going to focus right now on the -- on trying to get the deal done with Aimia. And then we'll deal, step-by-step, as to disclosing additional information as we see fit.

Okay, very good. I'll stay tuned for it.

Thank you.

Thanks David.

Good morning. Good job mitigating the fuel costs and the targets for this year, my understanding is 75% -- this year, you're going to be able to mitigate, is that right?

That's our estimate, yes.

Okay. So, my question is, when you look at your capacity plans today, are they different from they were, three months ago or two months ago?

Hi, Fadi. They're, right now, when we're selling, inventory that we're selling, quite similar to what we will be selling for the beginning of the year.

But as I said earlier, we are studying, quite closely, what makes sense for us for the end of Q3, Q4.

Okay. And can you still make meaningful changes to those capacity plans, at this point, for the next six months?

Or any change you make, I would guess, is more don't -- to target 2019 plans?

No, we have quite a bit of flexibility, internally, the way we operate. Our crew roster did not get log until about six weeks, before beginning of each month, so we can trim capacity right into that point without incurring the variable costs surrounding [Indiscernible].

Okay. And one quick follow-up.

Just looking at your fleet plans, it looks like there's three additional 320, Airbus 320 in rouge for 2020 timeframe. I'm not sure if you discussed this, but where do you see opportunity for these aircraft?

There's quite a few choices for those airplane and where to deploy them. So, we're currently studying three options.

One is, additional capacity that makes sense with that model, domestically. Number two, additional capacity, where we believe there's a good margins in the southern markets, so Caribbean, Florida and Mexico.

That's option two. And option three, is with the new flexibility we have with our pilots.

There could be an opportunity to deploy some of that capacity on existing regional markets.

Okay. And last question, looking at the business travel yield, I think, was up 3%.

I would have thought kind of the ability to increase price in that segment is probably better than the overall. So any thoughts there, are you seeing kind of more competitive market in the premium side of things?

Or--

No, we're quite pleased with our performance in the premium cabin. Obviously, the -- yes, we do have more competitive pressure on some but with the change of introductions from our new products, we believe we'll be in quite a good position, to compete effectively with the business already have to attract new customers to our products.

Thank you.

Yes, good morning and thank you for taking my question. I guess, I'll try one more, on the Aeroplan program.

Mike, is it fair to assume that you would, at least, want to consolidate it into your financials?

Again, Turan, unfortunately, you'd probably get about the same answer. You have to respect our view that we're not going to provide those type of details at this point in time.

Okay, fair enough. I guess, maybe I'll move on to the sale leaseback, on e-Jets.

I guess, presumably, that's part of your $2 billion to $3 billion, kind of overall free cash flow guidance. Just wondering, are there more opportunities like that in the future?

And also, considering the changes in accounting regulation that's coming in next year, do these kind of transactions make sense, going forward?

Your first question, are there other opportunities of the scale of the E190s, I don't think so. I mean, we're putting in place a very, very strong fleet plan.

The E190, first, we want the fuels a little bit earlier. They're going to be replaced somewhat by the C series.

But in the interim, we're putting in some caveats at the lower costs, as well to us. So, it makes -- there's a good business case for that transaction.

The second part of your question, sorry -- remind me again.

I'm sorry. I think a we have some of the -- a couple of other companies, and maybe, with the changes in accounting regulations that are coming in?

Sorry -- IFRS 16?

Yes.

So, we're studying that right now. We have a sense of what that might look like.

And our plan, Turan, is to take all the analyst community and other stakeholders through how it's going to impact us next year. It is complex, it's very interesting.

But we need more time, and we will give you -- what we commit is we'll give you what impact it will have on EBITDAR, on balance sheet, on a number of different cost buckets. And then we'll also prepare comparable information for you so you can look year-over-year as well.

Perfect, that's helpful. Thanks Mike.

But I was wondering, like, do you think the sales -- because I think one of the companies that recover, were suggesting that sale leaseback, maybe not as suitable any more than the new regulation?

This is not a classic sale leaseback -- this is really the short-term leases between two in 24 months. Typically, as you know, we currently capitalize our operating leases at seven times.

And so certainly, if you have a short-term lease, the debt equivalent on the balance sheet will be much less than seven times and so there it's the -- there's no relation from our perspective.

It doesn't affect the line economics. And Turan, it's Calin.

I just kind of want to make sure that we're talking on the same place. We're exiting those airplanes.

So, we're this is -- we're exiting those airplanes -- those airplanes are completely leading the fleet. So, this is just a method to keep the airplanes until we no longer need them, and have a timing cushion.

But those airplanes are exiting. So, this is not competitive embracing the sale leaseback financing function.

We can, obviously, based on our credit rating, our capability to either borrow, or do whatever we want to do with respect to any new aircraft coming in is stronger than just to be in the past, and we don't have to rely on sale leaseback transactions as a financing mechanism.

And keep point, I've talked about this market before. sale leaseback, going forward, especially as we become taxable, are not as effective as potentially, purchasing the planes themselves.

Yes. And so I think, in fact, I think when we say in-transit, we're going to say leaseback here, because it was actually convenient, as part of our exit strategy.

But the sale leaseback is not a major cornerstone of our aircraft financing strategies.

That's helpful. Thank you very much.

And I guess, just one more, maybe, taking on the same topic. I know capital is already coming down here over the next few years, but just wondering if there's any more room to defer that a little bit, just based on how the cash flows are going?

I guess most of the capital coming forward is aircraft or major programs to operate the aircraft. Our view, those are fairly fixed, based on our economic outlook.

There are certainly opportunities to defer airplanes if something should happen. But at this point in time, there's certainly no plans to do that.

Okay, that's helpful. And actually, sorry, just one more, In terms of the fuel assumptions, Mike, is it possible to share with us, what you're thinking about fuel for 2019?

Probably too early again. I mean we would typically use the forward curve as a proxy.

That's helpful. Thank you very much.

Hi, good morning everyone. First question, Calin, maybe -- or Ben.

Can you talk more specifically about what you've seen, from a competitive perspective, in 2Q, but also and maybe the last month or so, with some new ULCC products coming to the Canadian market?

Sure. A general comment, and I'll turn it to Ben.

We have been preparing, obviously, for this entry of new competition, these ULCCs coming to the market, sort of, et cetera. So, our perspective is largely around ensuring that we have products within our suite to compete.

And that doesn't mean, we exit the -- we're not going to exit the market when a competitor comes in. And a competitor comes in, when a competitor comes in, we're going to compete.

And I think that what you've seen is a combination of ensuring that we can do well at the top end, and decide to pick our spot on the lower end. So, it's coming.

We know those markets well, we followed it carefully, and I think you're seeing some of the response. But, Ben, this may be including the introduction the comfort fare and how that has played out so far.

Okay. Yes.

Thanks, Calin. Andrew, so we have a new competition, both domestically and in the Transatlantic marketplace.

With Transatlantic, we're very pleased with the ability of our Rouge model, as well as our high-density Boeing 777s, to compete effectively. And you're seeing the results the strategic deployment we've got, made with those airplanes.

So, we're very happy there, and we're very happy with the -- how Q3 is looking, in terms of advance bookings and yield. In the domestic market, as Calin just mentioned, we have been preparing to ensure that we have all necessary to offset and ensure that we are not negatively impacted.

We have not deployed one of our options, which is Rouge on any of the major markets, we can do that. We can also modify the Rouge model, right now, the hybrid model, have set up for the leisure market.

We can densify the Rouge aircraft, to bring down the CASM, a lot of flexibility. we're still happy we have not yet used in how we can ensure that we can mitigate any pressure from the Canadian carriers, so we're quite pleased with the additional.

Great. Thank you for the that color.

And maybe, Mike, on costs, great execution in the quarter. Can you give us a sense of how much of the seatings, versus your guide, was timing and how much was permanent?

I guess, specifically, you talked about some maintenance costs moving around between 2Q and 3Q. And I know you did reiterate your full year range, but just would like to get a sense of where you see -- could you be tracking towards the better end of that range, given kind of where you've come in, so far, in the first half?

Thanks.

Good morning, Andrew. It's Mike.

About half the benefit in costs came from the timing situation. I mean, the two point is -- from the midpoint of our guidance to what we achieved, again, about one point of that two-point benefit is moving from Q3 to Q2 and making provisions.

The rest of it is CTP savings and some other ordinance, but that should continue.

Great. And I've, maybe one, lastly -- if I can speak one more.

Ben, on Transatlantic, in your premium growth to your U.S. peers, kind of disappeared a bit into 2Q.

I know there was some calendar shifts there, but any other reason for the deceleration from 1Q to 2Q, in the face of what seems to be a pretty strong summer demand?

Yes, good question. In Q2, part of the increase -- or larger portion of the increase was on our Rouge platforms -- did not have our Signature class, where we see to be a premium economy and economy.

So the -- with that, to get the year-over-year premium increase -- although that as a base, obviously not part of the new deal.

Understood. So, I would think, given 3Q is largely leisure, you don't have a similar dynamic?

No, in Q3, we have not only Rouge -- Rouge was across the Atlantic. We also have quite a bit of mainline there capacity going to the market as well.

Perfect. Thank you.

Hey, good morning. I was hoping you could help me frame some broad expectations to how we should think about 2019, ex-fuel CASM.

I realize you're not prepared to give formal guidance, but the kind of credibility of getting back to that 17% and 20% EBITDAR range, to some extent, is underpinned by now what we can see on cost. And the expectation, I think, right now is to see kind of sequential declines in passenger growth 2018 to 2019, which does serve as somewhat of a headwind for CASM.

So, if you just help me kind of think about broad order of magnitude, what are the puts and takes, and what a 2019 cost forecast could look like, that would be really helpful.

Nish, it's Mike. Good morning.

Obviously, we're not prepared to provide guidance on 2019. We're still building our 2019 business plans.

But there are a lot of productive programs coming in place for 2019. We're going to have the bulk of our 737s in, which we provide the market, gives us a 12%, 13% CASM improvement over what they're replacing.

And so some of these newer programs will have a bigger impact than they've had this year. Also, the whole CTP program, we are accelerating.

We're starting to find some interesting opportunities, which I think we can talk more about in Q3. That will have a bigger impact in -- next year, 2019, than what they would with this year.

So, I think the combination of the benefits from our 737 fleet program and our CTP program will allow us to have something reasonable coming out of the CASM-X for next year.

Okay. That's helpful.

Thank you. And circling back, I think it was Andrew, who asked about the competitive capacity environment in the back half of this year going into 2019.

If you could help me understand how you square that with potentially, trimming capacity, in light of higher fuel, and how kind of the domestic environment, increasing competitiveness affects where you might be thinking about nominal capacity trends in light of higher fuel?

It's Ben. Excellent question, and that definitely is going into the mix, as we try to collaborate the best course of action for us in Q4, so still studying how it actually works to balance all those things out.

So, there's not much else I can tell you at this point.

Okay. All right.

Well, it sounds like we'll stay tuned and hear from you guys in due course. Thank you so much for the time.

I really appreciate it.

Thanks Nish.

Hi and thanks operator for getting me back in. So, hopefully, you can hear me now?

Welcome back.

Thank you, Mike. So, on the loyalty program, Calin.

I understand you're not providing any details on the economics, but what I'm trying to understand is, do you see an opportunity, be it your own loyalty program or Aeroplan transitioning into your loyalty program? Do you see an opportunity to improve the overall economics, and have a larger membership base than the 5 million members that Aeroplan has had over the last decade without any change, despite strong traffic growth and population growth in Canada?

Because when we look at Qantas and Australia, right, like they have a similar population base there, but they have 12 million members, so that's more than twice.

Right. No.

Konark, that's obviously an excellent question, and that is precisely what our objective is. And that's why we decided to take the program back.

We think that we have the best opportunity to build a world-leading program. We're very, very familiar with what Qantas has.

We've -- our loyalty team has not only studied Qantas' model, but many others. When the original program was spun out, Air Canada was in a different financial position than it is today.

And so our expectation is, with or without this Aeroplan program acquisition, we certainly expect this program to be a world leader, and expect it to be -- have substantial growth opportunities going forward. So, this is a -- we're very, very excited about it.

And as I say, this strategy of the acquisition is an incremental step to what our vision is. But our vision is to build one of the leading loyalty programs and we have an amazing team in place that's going to do that.

That's good explanation, Calin. Just wanted to understand also, you said the deal -- the deal might expedite your loyalty program rollout.

I mean, I guess, you get this deal done, hopefully, by end of 2018 or early 2019. Do we see some benefit in 2019, you think?

Again, I don't want to speculate, given where we are in the process. And a lot will depend on many different factors yet to be determined.

And the first one is, can we get a deal done that makes sense? So, again, like I said earlier, we're going to take this step-by-step.

Okay, that's great. And on the cost, Mike, just wondering, do you see any opportunity?

You talked about the cost transformation plan, the $250 million that you have. Do you see on the opportunity or any pockets within that, where you can accelerate savings maybe, or like, maybe get more savings, or accelerate that program this year so that you can mitigate those few headwinds?

And then also, do you see any lease extensions in the second half that might push out, or help you on the maintenance provision side?

On the second question, lease extensions -- any lease extensions we've got planned are already built into our adjusted CASM guidance. I don't think there's a lot built in there, or not a lot that we're expecting.

On the first question, certainly, I mean, if we have the opportunity to accelerate, we'll accelerate. There's a strong team working on this and we'll look for every opportunity to accelerate or expand the number of programs that we have to fill that bucket.

No. And I'll take a couple of good examples, Mike.

In our fleet, Konark, is that the decision to accelerate the Embraer 190 exit is exactly that, so we're accelerating a higher fuel airplane for a lower fuel airplane than what we originally had planned. And that -- and obviously, with the passenger time off, it depends how quickly we get those airplanes out.

That will certainly help. We've, in some cases, early extended leases, and gotten the benefit of a savings earlier on as well.

And so you do see some of the CASM advantages that you can get from the fleet side and from the fuel side. I think this is a -- when we look at many different CTP initiatives, some are around maintenance, some are around just the overall number of seats that we put on the airplanes.

But some are just basically around acceleration of programs that we otherwise have in the plan for later in the decade.

That's great. Thank you, Calin and Mike for that.

And fuel hedging, Mike, this is probably one of the topics that you may be hearing a lot these days. I'm just trying to understand the philosophy a little better here.

I know a lot of your competitors have stopped either hedging or they have kind of they are playing it by ear. So, what keeps you from entering into hedges on a consistent basis like on every quarterly basis?

And in the hindsight, do you think you should have hedged fuel for the full year this year?

We're not looking hindsight as what to do, what not to do. You're right.

All our competitors, certainly, North America do not hedge. That's a key component in our decision process as we go forward.

We did hedge Q3, because it's such an important quarter for us and there was some volatility early in the quarter. That volatility has calmed down more recently, which we're encouraged by.

On a go-forward basis, we're going to manage this very, very closely and decide what to do. The challenge is, Konark, and I don't want to get into a debate here about fuel hedging because everyone has got a different opinion.

It's -- our program, when we bought insurance, basically, is a very expensive form of insurance. And so when you look at it, it's not an effective way to deploy money and it's not -- are you getting some level of benefit from that.

And those are the discussions we look at, internally, here all the time, and have up here all the time, to decide what's best for the company. There's so many factors involved with hedging; the strength of the company, the competitive environment, geopolitical issues.

And so we take that all in consideration when we make decisions around hedging.

Okay, that's great, Mike. Thank you.

And last one I promise then on the competition side. In the Transatlantic market, obviously, this is your brightest spot for some time.

We are hearing that some of your new competition there, in the Transatlantic market, are facing challenges, maybe because of their lower fares and higher fuel costs right now. I mean, how do you see the transatlantic market competitive environment right now, like, does it get better for you from here?

Yes. As I mentioned earlier, the transatlantic market is -- has performed extremely well.

It is performing extremely well than our expectation, and it will continue to perform well. We have a very strong joint venture with Lufthansa and United, and we all face the same lower cost of fares across the Atlantic.

And we have some very robust joint plans to ensure that those -- the new competition does not negatively affect us.

Okay, that's all from me. Thank you guys.

Yes, thank you.

Thanks operator. Hey team, thanks for squeezing me here at the end.

Quick question. Do you know what percent, or how many passengers that you carry on your transborder flight to London -- when you go from wherever in the U.S.

to Toronto or Montreal to Heathrow, go beyond Heathrow?

Hi, Helane. It's Ben.

We don't break out that number. But it does -- obviously, changes month-to-month.

And we don't have Star Alliance, or a good Star Alliance partner at Heathrow, but we do have an extensive list of interline partners that we deal with. But our preference, of course, is to work with our Star partners in Europe, so the Lufthansa Group.

So, that's over Frankfurt, over Munich, over Zurich, over Brussels.

Right. So, if there are issues after March of next year, would you just move further traffic that you think goes beyond Heathrow to just move that to Lufthansa or Swiss, or one of your other partners?

I don't -- like, at this point, we don't see that being an issue. I mean, we've had an extensive operation at Heathrow for several decades, 40 years, so well before we had any type of joint venture on the Atlantic.

We've always had extensive interline agreements with dozens of carriers in Heathrow. And we were one of the only four North American carriers that had access to Heathrow beyond the agreement.

Okay. All right.

That's really helpful. Thanks very much.

Thank you.

Thanks Helane.

Yes, thanks very much for sneaking me in here. On the guidance, you brought it down to 16% given the fuel price move, but you kept your long-term.

And I guess, you're either assuming fuel's going to come back down, or you expect the price seeing that you've done to hold, or you've got costs that you didn't anticipate to come in that are going to come in after 2018 that aren't in 20 -- that aren't there now. If you were to bucket those three reasons as to why you'd keep your long-term guidance intact, but take your near-term guidance down, how would you compartmentalize those into orders of magnitude?

Walter, I'll start -- I'll try and answer that question. I mean, to the earlier question as to fuel assumptions, again, we'd use the curve as a proxy going out next year.

And so I don't think there's -- the curve does come down a bit, so there is some benefit from that assumption. I think the majority, the rest, will come from commercial activities.

Some will come from cost-reduction initiatives, but I think the majority will come from commercial activities.

So on that commercial activity, I mean, where is the sense that -- price elasticity, do you think? I mean, is there a point where fare price changes are going to disincent travel?

And could you comment on that, as well as how have your competitors been reacting to your fare increase? Are you seeing other competitors move theirs up, lockstep, and are those holding?

And are they not having the impact, the risk impact on travel?

Yes, Walter, it's Calin. I'm going to try to take this up a couple of notches from a macro perspective.

So, kind of just, what have we seen in Q2, right? So, Q2, we have -- compared to last Q2, 10.8% increase in revenue, off of a very, very large base, to start with.

So, what does that suggest to me? That suggests to me that despite all of the fears about the economy, despite all of the price pressures, and everything else, people are traveling.

Economy continues to be relatively strong. The future looks relatively rosy.

For sure, there are new competitors coming into the marketplace, but the reality is that this is a -- we had a massive Q2 year-over-year increase in revenue. Now some of that, we've had to juggle a lot of balls, we had to create a lot of new product, we had to be creative, we had to be innovative, we had to do something better on the top end of our product, we had something on the bottom end of the product.

But a 10.8% increase, revenues for Q2, in our case, of $4.333 billion, is a pretty big number, from the way I look at things. And so our sense is that the -- we talk about price elasticity and kind of our projections, as to how sensitive the consumer or the corporate customer is going to be in relation to what others are doing in the marketplace.

Obviously, that's the art of what it is that we have to do in terms of our yield management and our revenue management practices. But from a macro perspective, notwithstanding the troubles in and around NAFTA, notwithstanding the various geopolitical dynamics that exists in other parts of the geography, it's pretty good.

And the expectation for the rest of the year is pretty good.

I guess that's where I'm going is that -- if you can increase fares and not disincent travel, if fuel goes back down, could you keep fares high? I mean, would it make sense?

Well, I think if we could prepare the current marketplace and have everybody understand that, then that would be great. But, of course, that's the -- that's why we have such highly-paid folks at our revenue management and yield management team.

Okay. On the capacity question, I think if we just look at the average utilization of your aircraft and the fleet plan that you have in place for next year, it does step down to, by my numbers, around the 3% growth rate, from the 7% that you had been guiding and understanding there's some wiggle room then with that.

But should I go back and revisit utilization rates or something to that effect? Or is that as good a number to plug in?

All the analysts have to plug in some number, even absent guidance, but just based on current utilization and the fleet plan growth that you have, to kind of sort of centers in around there. Is there any reason why we have to go back and revisit that?

As I said earlier, we are studying Q4 capacity and then based on that, some of that may roll into Q1, so we're not providing any further guidance [Indiscernible]. You know our fleet, and I think basically you've been following us for a while.

You've seen what we can and can't do. And with the 737 MAX coming in and the Embraers going out, we do have quite a bit of flexibility on the number of aircraft fleet.

And we've spoken about before, and we told the market, there will be a step-down capacity growth next year. We just haven't finalized that yet and there's a lot of moving parts.

On that, I guess, Mike, do you plan on maybe giving a better -- coming back and giving some more indication on capacity, like you used to given you're starting to normalize now? Is that in the books at all?

Not really. Not really.

We made that decision to -- a couple of years ago, and took some pain along the way. But I think we provided the market some sense this year of plus or minus 7% and I think we'll just continue to play it that way.

Got it. Okay.

Thank you very much.

Thanks Walter.

Thank you very much, everyone, for joining us on our call today.