Air Canada

Thank you, Louise, and good morning, everyone, and thank you for joining us on our second quarter call. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Mike Rousseau, our Deputy Chief Executive Officer and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President of Operations.

On today's call, Calin will begin by highlighting our financial performance for the quarter, Lucie, and Mike will then address our second quarter financial performance in more detail and turn it back to Calin before taking questions from the analyst community. Before we get started, I would like to point out that certain statements made on this call such as those relating to our forecasted costs, financial targets, 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, our President and CEO.

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

I'm extremely pleased to report an excellent second quarter with EBITDA of $916 million, well ahead of both last year's results and market expectations. We reported record revenue and record adjusted pre-tax income for the quarter and ended it with record levels of liquidity.

These impressive results were achieved despite the 737 MAX grounding, which negatively impacted EBITDA growth year-over-year as well as increased our overall costs. I'm very proud of our management team and all employees involved in working through the MAX mitigations, implementing creative solutions for our fleet, schedule, network and operations to get passengers to their destinations in the quarter.

They did an amazing job. This includes managing to the challenges of sourcing replacement capacity for the now 36 MAX aircraft that would be operating some 100 flights per day in our schedule by the end of June.

Lucie and Mike will have an update on the MAX situation for you in a few minutes. On a GAAP basis, we reported operating income of $422 million, up $114 million versus last year, or 37% better.

We generated record second quarter operating revenues of $4.76 billion, reflecting an increase of $424 million or 10% versus the same quarter last year. I'm also pleased to report that our $250 million cost transformation program target has now been fully achieved.

In fact, we surpassed it with aggregate cost savings of $262 million by the end of June. Although this program has ended successfully, continuous cost improvement is ingrained in our culture and remains a top priority at Air Canada.

At the end of June, we announced that we had concluded a definitive agreement to acquire Transat, which we believe once closed will benefit all stakeholders. This includes Transat shareholders who will receive a significant premium from where their shares were trading before April, employees of both companies who will enjoy greater job security and Montreal, which will serve as home to an even stronger global airline.

The merger’s benefits have already been recognized by key stakeholders. Among these are Uniform.

Aéroports de Montréal, Tourism Montréal, the Chamber of Commerce of Metropolitan Montreal, the Conseil du patronat du Québec and the Federation of Chambers of Commerce of Québec, and numerous leading travel agencies. 737 MAX grounding will be felt more acutely in our very busy summer period.

As a result, third quarter EBITDA is expected to increase approximately 5% versus the third quarter of 2018. Third quarter projected capacity is expected to decline approximately 2% compared to the third quarter of 2018 as opposed to an originally planned capacity increase of approximately 3%.

Before turning the call to Lucie, I'd like to thank our employees for their adaptability, resilience and agility, particularly during the enormous challenges brought about by the grounding of the MAX, which required intense effort and focus on their part. All a reflection of their dedication and taking care of our customers.

And I would also like to thank our customers for their continued loyalty, which they showed by voting Air Canada Best Airline in North America at the 2019 Skytrax World Airline Awards in Paris this past June. And with that, I'll turn over the call to Lucie.

Thank you, Calin. And good morning, everyone.

I'd also like to thank our employees for continuing to display the very best of Air Canada throughout the exceptional circumstances caused by MAX grounding, and for their unwavering focus on taking care of our customers and minimizing disruption. We're extremely proud of the teamwork on display across our airline.

Now turning to our revenue performance for the quarter. On capacity growth of 2.3%, passenger revenues were up $417 million or 10.7% on a yield improvement of 6.8% and traffic growth of 3.6%.

PRASM increased 8.1% year-over-year. The system yield improvement versus last year, reflected increases in fair and carrier surcharges, and additional yield earned on Aeroplan redemption revenue.

The additional Aeroplan yield favorably impacted each of our five geographic markets. Growth in higher yielding local traffic and improvement in the overall fare mix and a favorable currency impact of $31 million were also contributing factors to the yield growth year-over-year.

The impact of the 737 MAX grounding on our capacity for the quarter was mitigated somewhat by a well-executed contingency strategy, including the differing non-essential maintenance, extending aircraft leases, arranging for early delivery of aircraft, strategically leveraging Air Canada Rouge, making necessary scheduled adjustments and wet leasing aircraft, which enabled us to cover approximately 97% of the planned flying in the second quarter despite the grounding of the 24 aircraft in our fleet, and the 12 that we had expected to receive by the end of June. Our business class cabin performed very well in the quarter, with the passenger revenue increase of $83 million or 10.2% versus last year's second quarter on traffic and yield increases of 5% each.

This further demonstrates the strength of the Air Canada brand in the premium market and the continued return on investment in our premium products over the last few years, including the introduction of our Air Canada signature service, which provides an elevated premium experience throughout the entirety of our customers' journey. Our premium economy cabin continue to perform very well and returned positive traffic and yield growth during the quarter.

Looking at our key markets, we are pleased to report year-over-year gains in yields and revenues in each major route group ahead of capacity growth. This reflects strength of our diversified network, as well as the benefits of the Aeroplan program, with each market contributing.

On a slight increase in capacity domestic passenger revenues increased $128 million, or 10.7% from the second quarter of 2018, on yield growth of 8.6% and the traffic increase of 1.9%. The yield increase reflected the impact of fare increases, new fare categories on domestic services and growth in ancillary revenue.

The pricing environment was also more stable in 2019, as it was not impacted by potential West strike threat [ph]. Additional yield earned on Aeroplan redemption revenues and growth in higher yielding local traffic were also contributing factors to the year increase year-over-year.

Our domestic PRASM improvement of 9.9% reflected strong gains in both the business and economy cabin. In lieu of the MAX aircraft, we strategically leveraged Air Canada Rouge, as well as our wide-body aircraft on several transcontinental domestic frequencies, which enabled us to consolidate frequencies without significantly impacting capacity due to the larger gauge aircraft.

As we look forward to Q3 in the domestic market, we anticipate positive year-over-year revenue results. We expect capacity to continue to be constrained as a result of the MAX grounding with the 36th aircraft removed from our schedule during all of Q3.

We will continue to deploy our contingency strategies domestically to partially mitigate the impact to our schedule, further demonstrating our commercial team's incredible ability to quickly adapt. On U.S.

transborder market on flight capacity growth revenues were up $94 million, or 11% on yield growth of 11.1%. We achieved the year-over-year increase in PRASM of 10.7%.

Significant PRASM and yield gains were realized on all major services and reflected strong gains in both our business class and economy cabin. Yields improvements were realized from the impact of an improved traffic mix and the launch of new fare categories on U.S.

transborder services, which also translated into ancillary revenue growth opportunities. Additional yield earned on Aeroplan redemption revenues, growth in higher yielding local traffic and a favorable currency impact to $14 million were also contributing factors to the yield increase year-over-year.

The Eastern Seaboard business market, as well as our service between Eastern Canada and California delivered very strong results on all fronts. 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 the success of our international transit strategy and the investments we have made to improve the connection process in all three of our hubs.

Our U.S. leisure markets also performed well in the quarter.

From a capacity perspective, the U.S. transborder market was the market most significantly impacted by the grounding of the 737 MAX in the second quarter.

Specifically, in Hawaii, we were required to reduce our frequencies from Vancouver to Honolulu and Mali, which we previously flown by MAX and as of mid-June, these routes are operated through a wet-leased Boeing 767 aircraft. Despite the strong booking trends on Eastern Canada to California services, we had to down gauge from the efficient 737 MAX to a less efficient A320, representing a net decline of 23 seats per flight, which will impact revenues for the quarter.

However, we did retain 787 operations in support of our premium strategy. Looking ahead to the third quarter similar to the domestic market, we're expecting further impact from the grounding of the 737 on our U.S.

transborder services. We are planning for less consolidation of frequencies in order to protect our network slow traffic, which is crucial to our international network strategy.

The start dates of several seasonal routes and new services will be postponed and our Honolulu and Mali services from Vancouver will continue to be operated by the wet-leased Boeing 767. On capacity growth of 3.6% revenues on the Atlantic increased $124 million or 12% versus last year on traffic and yield growth of 5.8%.

We achieved a year-over-year increase in PRASM of 8.1%. Traffic and yield increases were recorded on all major Atlantic services.

The yield growth was largely driven by increases in fares and carrier surcharges. We also saw a significant increase in ancillary revenues, led by growth in revenues from baggage fees, paid upgrades, seat selection and preferred seats.

Our new fare categories offering our customers more flexibility and choice were also expanded in the second quarter. Our enhanced merchandising efforts through our sales channels were also important contributors to our ancillary sales performance.

We were once again particularly pleased with our performance to the UK, which saw strong gains in the business class cabin. Our results demonstrated the resilience of our fleet and diverse network despite exceptional circumstances.

Due to the grounding of the MAX aircraft we made several necessary adjustments to our schedule, including temporarily suspending service from Halifax and St. John's to the UK through October.

We released the start date of our new service from Montreal to Bordeaux to the start of the third quarter and reduced frequencies on several continental European seasonal services. In June, we began operating our Montreal to Barcelona service and one of our Montreal to Paris frequencies through a wet-lease operation, and we will continue to do so throughout the third quarter.

Additionally, due to the closure of Pakistan Aerospace, we adjusted our Toronto daily schedule, and as of mid-June we suspended the service. This provided the flexibility to reallocate the wide-body aircraft elsewhere in our network and gave certainty to our customers when booking their summer travel, while the airspace was closed.

Our transatlantic strategy built on hub-to-hub flying, with a focus on premium traffic and the optimal mix of mainline and Rouge continue to demonstrate resiliency throughout the second quarter. Looking ahead to the third quarter, the impact of the MAX grounding will continue to be felt over the Atlantic through the summer peak, as we've had to cancel profitable and productive flying between Halifax and St.

John's to London Heathrow in addition to Toronto to Shannon. We expect that we will see pressures on our Atlantic revenue relative to a very strong 2018 third quarter, due to the capacity constraints on our schedule, a stronger inbound sales mix impacted by currency and a slowdown in terms of carrier surcharges revenues, which peaked in the fourth quarter of 2018.

Our service from Toronto to Delhi will resume at the end of October, now that the Pakistani airspace is open. Although the impacts from the MAX grounding is more significant in the third quarter due to the summer peak, we anticipate our network contingency strategy to continue to somewhat mitigate these impacts.

Turning to the Pacific, on the capacity increase of 2.4% revenues increased $39 million or 6.6%, mainly on yield growth of 3.7%. We achieved a year-over-year increase in PRASM of 4%.

All major Pacific services recorded yield and PRASM increases except for the services to Australia, which continued to be impacted by increased industry capacity from North America. The yield growth reflected increases in base fares and carrier surcharges, as well as a general improvement in the overall fare mix.

The geopolitical situation between Canada and China continues to negatively impact travel demand between Canada and China and Canada and Hong Kong. And we've been proactive in our approach to reallocating capacity from these markets elsewhere throughout our networks.

We were pleased with the performance of our business class cabin in all markets over the Pacific, with the exception of China services, mainly due to this geopolitical issue. Looking forward to the third quarter, we expect to continue our strategy to redeploy capacity from the Pacific throughout our network due to the continued soften travel demand between China and Canada.

And our schedule reflects down gauges effective in September. As mentioned last quarter, in our effort to counter seasonality, we announced our non-stop seasonal services between Vancouver and Auckland, which will be launched in December of this year.

To fully optimize this service, we've signed an MOU with our Star Alliance and Co-Chair partner Air New Zealand as we pursue a joint venture relationship in order to form a deeper, more integrated partnership that will provide greater customer choice, comprehensive benefits and an expanded transpacific network. Revenues from other services increased $32 million or 13.5%, on traffic growth of 9.6% and a yield improvement of 3.6%.

We achieved a year-over-year increase in PRASM of 7%. All major services reported yield and PRASM growth.

In early April, we’ve reverted back to one stop service to Buenos Aires with a connection in Santiago. The resulting decrease in average stage length had the effect of improving the yield in the other markets by 2.3 percentage points.

The favorable currency impact also contributed positively to our yield. For the third quarter we project to see positive year-over-year revenue growth despite constrained capacity as a result of the MAX grounding.

As mentioned on previously calls, we continue to explore seasonal growth opportunities in South America and we recently announced our seasonal non-stop Air Canada Rouge service between Toronto to Quito and our seasonal non-stop Air Canada mainline service from Montreal to Sao Paulo both beginning this December. We're encouraged by preliminary booking indicators and this bodes wells for our strategy to counter seasonality.

We’ve also recently announced Air Canada Rouge seasonal non-stop service between Quebec City and Punta Cana, as well as Quebec City and Cancun both starting this December. To sum up our passenger revenues in the quarter, despite the challenges of MAX grounding, softening of demand to China and challenges with India, we delivered record passenger revenue and are pleased with our revenue performance.

Now moving on to cargo, second quarter of 2019 saw global slowdown in trade affecting all moving transportation. The North America market shown relative strength versus the rest of the globe in the first quarter, but weaken considerably in the second quarter.

For the second quarter Air Canada saw a year-over-year reduction in cargo revenues of 12%. We are anticipating a continuation of the global slowdown in trade for the remainder for the year, which will continue to have a negative impact on our cargo revenues in the third and fourth quarter.

Asia has shown the greatest weakness in both traffic and yield and represent 55% of the negative change versus 2018. The weakness in the region extends beyond China and effect more Asia locations.

Turning to other revenues, we saw an increase of $30 million or 14% in the quarter, primarily due to the net margin recorded on the redemption and delivery of non-air goods and services related to the Aeroplan program. We also experience an increase in ground package revenue at Canada Air vacation.

I will now turn the call over to Mike for a discussions on our cost performance and balance sheet metrics. Thank you.

Thank you, Lucie and good morning to everyone. I would like to add my thanks to all of our employees for an impressive second quarter and for their commitment in taking care of our customers.

Before turning to the discussion of our cost in the quarter, I want to take few minutes to discuss the MAX situation from several different perspectives. First of all, we are hopeful that this is the short to medium-term issue that will not be meaningfully impact our strategic direction, capital allocation practices or any other element of our plan.

It has been extremely frustrating to manage and has consumed a great deal of very valuable management time and we commend all of our employees for managing through this so effectively and professionally. We operated the MAX on thousands of missions until the March grounding and never encountered any of the reported issues.

Until the grounding the aircraft was meeting our expectations from a customer, operational and financial perspective. Ideally, we are still looking forward to the return to service once all appropriate safety protocols, processes and reviews are completed by the regulatory aid authorities.

We were operating 24 MAX aircraft when they were grounded in March carrying about 11,000 passengers per day. They were assigned to some of the most high-profile routes another 12 aircraft were to be delivered before July 1 for a total of 36 by the start of our summer peak.

Another 14 aircraft were planned to be delivered in the first half of 2020 for a total of 50 aircraft by the summer of 2020. Since we do not have visibility on when the MAX will be ungrounded the delivery schedule and our MAX fleet plan are in a complete state of flux.

Given all with the uncertainty around timing of the return to service we have not hired pilots and cabin crews for the 12 aircraft not delivered in Q2 2019, nor are we planning to hire for the additional 14 scheduled to be delivered in the first half of 2020 until we have clarity. As a result of this and other operational factors it will take up to a year from a time when the decision is made to reintegrate them into our fleet after the ungrounding for all 50 planes to fly.

With respect to our first 24, which we already have allocated crews for present planning purposes, we believe they can be returned gradually to service within two to three months from the ungrounding of the aircraft. For the remaining 26 still to be delivered however, it would take longer and as I said progressively up to a year.

But clearly much uncertainty remains with respect to our MAX fleet. Additionally, we have now made and announced the decision to take the planes out of our schedule until at least January 8, 2020.

This will ensure our customers can plan our holiday season travel with certainty and book with full confidence. Overall, we’re operating approximately 95% of our total plan schedule in the third quarter.

In the current quarter the replacement lift, which is primarily wet-leases is more expensive and we plan to cover less than half of the 36 MAX aircraft capacity in a much higher ASM volume quarter. In fact for the first time since I can recall the year-over-year ASM growth in Q3 will be negative down approximately 2%.

And what is historically our most profitable quarter. We’ll certainly be able to partially mitigate with yield like we did in Q2.

But this will be reduced in Q3 given the historically higher load factors, a more comparable air capitalization in Q3 versus prior years versus Q2 and other impacts. Again a main objective for MAX program for Air Canada was to replace older less efficient capacity and that is still the plan as of now.

Depending on how things unfold, however, we will see more of it than originally expected being completed in 2020 rather than in 2019. Nonetheless our fleet and capacity expectations for the end of 2020 remain the same as originally planned as of now, but this too depends on developments.

The grounding and deferral of all the MAX, reductions in ASMs and higher cost replacement lift will impact many short-term ratios you have come to focus on. I’ve been telling the market to focus on EBITDA versus a complicated math of results from this unique short-term event.

Key metrics such as adjusted CASM, yield, RASM, free cash flow and unrestricted cash will be higher than expected. And ROIC and leverage will also be impacted as we manage through this unforeseen and unprecedented event and defer deliveries and capital from 2019 to 2020.

For the sake of clarity in these unique circumstances we’re providing guidance that we expect Q3 EBITDA to increase by approximately 5% when compared to the third quarter 2018 EBITDA of $1.351 billion. On to our loyalty strategy, I'm very pleased to report a seamless and on-time integration of Aeroplan into Air Canada.

As a result of the transaction we added hundreds of talented management resources from Aeroplan particularly in the analytics, CRM, partnerships and IT spaces disciplines where the market for talent is particularly competitive. These teams are now operating as one with tremendous focus on building the new Aeroplan program, which is set to relaunch later next year.

That notwithstanding we remain focus on growing customer confidence in improving the Aeroplan performance ahead of next year’s relaunch and we’re pleased to see stronger than expected results. Over the quarter we improved the Aeroplan value proposition, our co-branded credit card acquisition performance exceeded our expectations and Aeroplan observed the first positive quarterly year-over-year gross billing performance since Q4 of 2017.

Member engagements growing, redemption behavior has stabilized and we’re seeing promising early results from our co-leveraging Air Canada’s significantly larger digital traffic base and Aeroplan’s robust data assets. We’re also seeing strong interest from broader market place to deepen existing partnerships and establish new ones.

Now let’s turn to the cost in the quarter. Adjusted CASM which excludes fuel expense, ground package costs at Air Canada vacations, and the operating expenses of Aeroplan increased 5.9% versus the same quarter in 2018.

These increases reflect in large part the impact of the MAX aircraft grounding which resulted in ASM growth of less than one-half of what we originally have planned. The relatively higher cost associated with replacement including wet-leases and the ongoing operating expenses depreciation and pilot wages being incurred in relation to the 737 aircraft despite their grounding.

As a reminder Aeroplan’s operating cost have been consolidated within Air Canada’s financial statement since January 10. Turning to wages and salary, we saw an increase of $70 million or 13% in the quarter mainly driven by growth in full-time equivalent employees of 10%.

The increase in employees was due to the capacity growth and the inclusion of Aeroplan. In the quarter wages, salaries, and benefits included cost of $14 million for the MAX pilots who are not currently flying.

Moving on to fuel, fuel expense increased $18 million or 2% in the quarter with a higher volume of liters consumed accounting for $32 million of the increase and unfavorable currency impact adding another $29 million. Lower jet fuel prices, which accounted for a decrease of $42 million was an offsetting factor.

The average price of fuel was C$0.7902 Canadian per liter in the quarter down a little over 1% versus the same quarter in 2018. Air Canada has hedged approximately 50% of its anticipated purchase of jet fuel for the third quarter 2019 and has not currently entered into any fuel hedging contracts for Q4.

Looking ahead, our assumption is that the price of jet fuel will average C$0.78 per letter lead in third quarter, and the full year 2019. And that the Canadian dollar will trade on average at C$1.31 per U.S.

dollar in the third quarter, and C$1.32 per U.S. dollar for the full year 2019.

Now turning to our balance sheet and liquidity, we ended the quarter with unrestricted liquidity of $6.9 billion another record. Free cash flow amounted to $537 million in the quarter, $413 million above last year's second quarter.

The increase in free cash flow was mainly due to lower level of capital expenditures, again, largely due to the deferral the 12 MAX aircraft delivers. As I mentioned earlier, we've assumed that the remaining MAX aircraft scheduled to be delivered in 2019 will be delivered in 2020.

Both the capital commitments table and the fleet table in the Q2 MD&A reflect that assumption. Net debt of $3.3 billion decreased $1.9 billion from December 31 2018, reflecting an increase in cash, cash equivalents and short and long-term investment balances of almost $1.5 billion and an increase in long-term debt and lease liabilities of $470 million.

Our leverage ratio was 0.9 -- sorry, just to go back, the net debt of $3.3 billion decrease $1.9 billion from December 31, 2018, reflecting an increase in cash, cash equivalents and short and long-term investment balances of almost $1.5 billion and a decrease in long-term debt and lease liabilities of $470 million. Our leverage ratio was 0.9 at the end of the June versus the ratio 1.6 at the end of December.

At quarter end, return on invested capital is 15.5%, while our weighted average cost of capital was 7.2%. With respect to the normal course issuer bid, Air Canada repurchase for cancellation an approximately 2.8 million shares in the quarter alone at an aggregate cost of $108 million.

In the first six months of the year, we've repurchased over $4.3 million of our shares and have spent $159 million doing so. Additional information can be found in our financial statements of MD&A, which were posted on our website and filed on SEDAR this morning.

And with that, I'll turn it back to Calin.

Thank you, Mike. As with individuals so to with companies, our true measure is not how we perform in good times, but how we respond to adversity.

Despite having one of the largest Boeing 737 MAX fleet in the world and being squarely at the heaviest phase of ramp up as Mike just explained. And despite its grounding, Air Canada delivered record results in the second quarter, with record adjusted pre-tax income, record revenues and record liquidity of nearly $7 billion.

Our performance reveals the extent of our transformation. We knew agility was an essential attribute that we had to develop to reach our goal of long-term sustainable profitability.

The MAX grounding allowed us to display both agility and efficiency with everyone doing an incredible job devising and implementing creative solutions for our fleet, schedule, network and operations. We covered about 97% of the flying originally in the schedule and did so seamlessly despite missing nearly 20% of our narrow-body fleet.

Importantly, the decisions we made were and will continue to be predicated on the best interests of our customers. At all times, our focus was on getting passengers to their destinations safely and securely.

That said, we recognize the grounding has impacted our customers and affected their travel plans, and we certainly regret that inconvenience and look forward to return to normal operations once the regulators have completed their review. Understandably, there's a desire for more information about this matter.

However, for many good reasons at this time, we cannot provide more than what we have said today. This includes discussing the financial impact or the status of discussions with Boeing regarding compensation.

We have a strong relationship with Boeing over decades, having flown virtually every aircraft type they had manufactured. And based on that are anticipating they will do the right thing.

Our focus remains on mitigation to further minimize the disruption to our customers and on working with Boeing and Transport Canada to understand the next steps involved to safely unground the MAX as soon as possible. Another detrimental aspects of events such as the MAX grounding is their power to distract.

But as our quarterly results show we maintain our eye on the ball and are focused on operating our airline safely and profitably. We're doing despite adhering to the same four corporate priorities that have guided our transformation.

And by doing what we said we would on each priority. The first of these priorities is financial performance and balance sheet strength.

Apart from strong earnings and improved results in every major market segment, we completed our CTP program and exceeded our $250 million target. And this is not the end of the story, cost control is firmly ingrained in our DNA, and we will never stop seeking efficiencies.

Moreover, in Q2, we reduced our overall leverage ratio to below one time as we said we would several years ago. Our second priority is international expansion.

While the MAX situation impeded our network development during the quarter, we nonetheless remain committed to this goal. For example, we launched this month the new Montreal-Bordeaux route and also announced new routes within North America to help feed our international network and notably added regional services in Atlantic and Western Canada.

During the quarter, we had the privilege of being recognized with a number of international customer service awards. Confirming our progress with our third priority that of customer engagement.

Virtually every aspect of our service was recognized during the quarter. Best business class in North America from the influential TripAdvisor, Best in North America for food service and business class amenity kits in the Americas from packs international.

Aeroplan was named the fastest trending program at the Freddy awards for Global Loyalty Programs. We were named the best Premium Economy and Best Airline for onboard entertainment at the Global Traveler Leisure Lifestyle Awards.

Additionally won three prizes at what are viewed as our industry's benchmark awards. The Skytrax World Airline Awards.

We won Best Airline in North America for the third straight year, Best Airline Staff in North America and World's Best Business Class Lounge Dining. Such success would not be possible were it not for the fourth priority that of cultural change.

It is only through the hard work and dedication of motivated employees that we win these awards. Subsequent to the quarter, this was explicitly recognized when we were named among the 50 most engaged workplaces by the Achievers.

And won the Diversity and Leadership Award at the Airline Strategy Awards in London, England. An essential elements of engagement is sustainability.

This past quarter we issued our 2018 corporate sustainability report detailing our efforts in this area, including our determination to increase fuel efficiency, which is now up 44.5% since 1990. Today, Air Canada is among the lowest CO2 emitters per passenger mile and per revenue ton mile in terms of global carriers.

Just last year, we were recognized as the Eco Airline of the World. During the quarter, we announced the partnership with environmental organization 4ocean, a company dedicated to removing waste plastics and trash from the ocean.

We also continue to eliminate single used plastics from our aircraft. Another important aspect of sustainability is supporting local communities and promoting diversity.

We were extremely proud to mark National Indigenous Peoples Day by having one of our flagship Boeing 77 Dreamliners operating Transcontinental flight with a wholly indigenous crew. Yet beyond our established priorities, we also continue during the quarter to advance other major strategies, projects and acquisitions to further strengthen our company and accelerate its transformation.

Each of these initiatives is progressing as expected, despite the 737 MAX issue, showcasing in a sense, the bandwidth we have it or Canada and our capacity to manage complexity. In addition to the Transat acquisition, other major programs include our new passenger service system, which for an airline is a massive undertaking, akin to a heart transplant.

During the quarter, we entered a new phase of testing and training in anticipation of implementation later this year. The PSS will be transformative of our back office operations, greatly improve efficiency and provide a foundation for their customer service enhancements.

On the loyalty front Aeroplan exceeded our performance expectations in the first full quarter. And late in Q2, we announced customer friendly changes to the Aeroplan program that provide a foretaste of the many improvements that customers will see when we launch our new loyalty program in 2020.

This will be another transformative step for our airline and as the Freddy award indicates, anticipation is building for what we believe will be one of the best travel loyalty programs available anywhere. Finally, by the end of this year, we will take delivery of our first Airbus A220, former C Series.

The arrival of any new aircraft entails years of preparation and the commitment of many teams to ensure a smooth introduction. There's tremendous anticipation within our company around the A220 with people excited not only by the promise of what this state of the art aircraft will do for us operationally and financially, but also for its added appeal to customers.

In conclusion, I'd like to once again thank our more than 33,000 employees for their hard work and dedication to our customers. I am very proud of the results they have delivered.

Additionally, also thank our customers for their continued loyalty and for choosing to fly with us. And with that, we'll be pleased to take some questions.

Thanks. And good morning, everyone.

Congrats on a good quarter guys, especially considering the impact of MAX in Q2, obviously. So wanted to dig in a bit on MAX here.

You mentioned some of the mitigation plans that you have taken in the last few months due to offset the capacity impact. I'm just wondering if some of the short-term leases and the wet leases you have taken as they come due, what do you plan to do to kind of offset that capacity?

I mean, is there any more aircraft that you want to kind of extend for short-term leases or you can plan -- you can buy those aircraft from somewhere else from other airlines or something to mitigate that? And is there a contingency plan in case MAX grounding extends further beyond January?

Good morning, Konark, its Mike. On the first part of the question, on the 320s and 190s and the wet-leases that we've extended or put in place.

We have a fair amount of flexibility to extend them on a short-term basis, certainly well beyond January of 2020. And so we're comfortable with that situation.

As you know, we also took in a number of while 321s earlier this year, and some of those who have already come online, some of them will come online fairly shortly. So we're comfortable that we can continue with that part of the mitigation plan for the foreseeable future.

The second part of the question is a little more difficult, as whether this extends beyond 2020 or January 2020. And again, I think we've shown tremendous creativity and ethic were kind of effect to develop mitigation plans in the short term, and we’ll continue to develop those mitigation plans as we go forward.

Certainly, mitigation plans are a little more -- a little easier to develop in Q1 and Q2 and to some degree Q4, Q3 is more the challenge, as you've seen today, as we called out today. And -- but certainly we believe that the planes will be back flying well before Q3 of next year.

Okay, no I think yes, and hopefully Transat deal go through and it closes by that time. So, -- sorry, I've more questions.

Can I go ahead, sorry?

Yes, yes, go ahead.

Thank you, for getting. So on free cash flow, obviously, CapEx got pushed out here, which is obvious, because of the MAX delays in deliveries and all that.

So, free cash flow is obviously looking pretty good here. How do you plan to use the incremental free cash here like, is there something you would like to keep in reserve just for contingency on MAX?

Or you have some excess cash, you think that could be deployed toward buybacks or maybe redeeming some of the high yield that you have?

Well, we certainly have excess cash, we’ve called that out as well. But your point is well taken, the money -- the capital has been deferred from 2019 to 2020, we have to keep that in place.

Because we expect the planes to come back and we expect to pay for the planes, when they do come back -- are going to delivered to Air Canada. So there are future of cash plans also to be considered as maintain that level of cash to pay for the planes, when they are delivered as soon as possible.

But again, beyond that, we do have excess cash and we have been more aggressive in buying back our shares in Q2 and in Q1. And we see no reason at this point in time not to continue to do that.

Okay, that's it for me. Thank you, guys.

Thanks, Konark.

Thanks very much. Good morning, everyone.

Good morning, Walter.

So starting off on the -- you gave us color into the third quarter in terms of capacity, lot of interest now as to what cost impact that has, if you were to strip out the 737 what is the run rate kind of estimate of costs in that third quarter associated with the grounding of the MAX, if you have that on hand?

Well, Walter, what we're trying to do is not get into sort of signaling indirectly what we expect our compensation strategy to be, with respect to the Boeing dynamic. And so the amount of incremental costs that results from the MAX grounding is, it's something that we’ll hold back on until we have settled our Boeing discussion.

We really don't want to negotiate with Boeing in public.

Okay. Understood.

And Walter, on adjust CASM for Q3, we're not going to provide guidance, we've already provided guidance on EBITDA and that's what our focus is and that we're trying to have a market focus on. But there's no daily adjusted CASM year-over-year will be most likely higher than Q2, because our capacities dropped more in Q3 versus Q2.

Okay. And turning over to the revenue side, then clearly you're getting some great yield some good PRASM here.

It's tighter capacity as a result of the MAX grounding. That's working its way probably from that respect.

Is this something that we should consider when we look at our PRASM forecast for next year assuming that the aircraft comes back in January? Will you see some pressure -- downward pressure on PRASM and yield as that capacity comes back online?

Now a lot of it has to do, of course, with the overall level of competitive capacity that's in the marketplace. And I think that this is one of those that, we're very, very well aware of all the arguments that have been made for a lot of time, especially coming out of the U.S.

and some of the analysts as well here in Canada as to what is the perfect amount of capacity that should be put into the Canadian marketplace or in the transborder U.S. And so our view is -- we’ll put the amount of capacity in that is consistent with our growth trajectory.

And as we've been saying, Walter, for the last several years, once we finish that large scale double-digit capacity growth we would -- did not anticipate that it would continue to be at that level. So we expect to continue growing.

So therefore, the third quarter now, which as Mike says, you'll see a reduction in capacity as an anomaly. Our expectations are to continue growing, to continue putting in competitive capacity levels.

And we would, obviously, expect to continue seeing good yield and RASM performance, our expectations are for continued improvement in RASM performance overtime going forward over the next number of years. But that, of course, will always depend on how much competitive capacity is put in by our competitors.

And over that we have no control.

Okay. Follow-up on the buyback.

Mike, clearly, you talked about a strong cash position, but wanting to kind of not do much until we get clarity on the 737. Is that therefore a fair assumption that once you get clarity on the 737 coming back into your fleet that a decision will be made at that point as to how much you're going to accelerate your buyback?

I think that's a fair statement, Walter. We are in the market almost on daily basis right now.

And obviously the MAX situation as we spoke about is uncertain. That becomes more clear and hopefully sooner than later we'll reevaluate the inside, how aggressive we are in the NCIV [ph].

Okay. Last question there, I guess, when you look at your market can you talk a bit about your pricing environment on where competition and capacity.

And therefore your pricing environment is strongest and where its weakest, if you were to put each your major geographies, on a relative basis? What's doing very well and what's doing relatively poor?

Hi, it's Lucie. So on the North America network.

So keeping in mind that last year, there was a very special event, when we had risk of West jet strike action. So when we compare year-over-year, the environment certainly in the North America market is much more stable.

And of course, as a result of the MAX, we're seeing some traffic reflow, which means that, we are obviously doing all possible to be able to protect our highest dealing traffic. So those are the kinds of things that we're seeing on the North America front, that are helping to push up the yield.

On the international market, the picture is a little bit different. The environment is a little bit different, because as the carrier surcharges on the international markets are pretty significant.

And, obviously, they follow the cost of fuel. So, the surcharges really peaked in the third and fourth quarter of 2018.

And somewhat normal as we progress in the second and third quarter of this year, and even into the fourth quarter, we don't expect to see the same type of upside in terms of carrier surcharges. But I would say overall, the environment is more stable.

There are some markets that are quite competitive, for example, Australia, there's a fair amount of North American growth in competitive flying, which, of course, apply some pressure on the yield. And there's also some growth in U.S., U.S.

carrier flying to international stations, which impact somewhat our [indiscernible]. But overall in the North America market it’s quite stable.

Got it. Okay, that's all my questions.

Congrats on a great quarter.

Thanks, Walter.

Hi, good morning, everyone. Thank you for taking my questions.

My first question I think, probably for Lucie, how should we think about the yield dynamic? Or I guess more importantly, the booking curve from the 3Q summer peak to the 4Q holiday peak?

How far should customers typically book out both for summer and holiday? And if taking the MAX out now through the end of the year, does this give you enough time to price peak holiday more efficiently than you are able to price peak summer?

Hi. So that’s the very reason why we made the decision to pull them out earlier; A, to make sure that customers could book with confidence.

But secondly, so we can optimize the capacity. And we did the same thing in the second quarter, we were one of the first to make a decision to change our schedule, as a result of the grounding and it was it was very, very helpful.

So -- which is why we proceeded the same way in the third quarter for the peak, and also for the Christmas holiday. So that way, we will have the ability to best optimize, because on the international market, the booking window is generally somewhere between six months to 90 days with the peak of the demand comes in.

And is that similar across peak summer and the peak holiday or is the booking curve a little bit shorter heading into the end of the year?

No, it's very, very similar. But during the Christmas Peak, obviously, there's more pressure on the Caribbean markets on the sun destination.

But the booking window is very similar.

Got it, that's helpful. And then my last question for Mike, why such a long potential tell on getting the 26 or so new MAX deliveries up in the air, it's certainly a much longer timeline than I think most of the U.S.

airlines are talking about. Is this your desire to control capacity a little bit more?

Is it any limitations that you foresee on Boeing side? Or is it just limitations on your ops team to take such a large amount of aircraft that quickly?

Andrew, its Calin, I will take that question. So let me just explain a bit of the dynamic because our reality is a little bit different than what you may have seen with some of the other U.S.

carriers. So first of all, we do not operate the NG, the 737 NG, unlike all of the other North American carriers who have the MAX.

And so what that -- it’s a good news, bad news, because good news is that as a result of that we're the only ones in North America who have the MAX simulator that has given us greater visibility from a -- both from a training and a safety perspective, we think we're quite far ahead of the others when it comes to that. But secondly, that means that that our pool of pilots have not been flying the 737 NG and therefore any pilots that we are hiring are hired just for the MAX.

So in other words, right now as a result, we have some 400 plus pilots that we're carrying, who are waiting for the MAX to come back effectively. Obviously, not exactly most efficient use of their talent and their skill because they're not flying.

And as Mike says that added somewhat to our costs in the second quarter and will continue until the MAX is back flying. But that means that as we go from 24, to 36 to 50 you have been growing from 400 pilots to 800 plus pilots, that once you get to the full 50.

And hiring up that number of pilots we want to have much, much better visibility as to when the aircraft will come in and how quickly will come in. So once we reestablish the flying, the first 24 no problem because the pilots are there and that'll be the same reentry as you're saying with some of the other carriers in the U.S., ASAP two to three months.

Once you get beyond those first 24 then it is a progressive state of hiring the crews for that and then of course, removing the aircraft from service that are otherwise covering that flying. So this is based on operational efficiencies nothing to do with capacity constraint.

That’s very helpful Calin. Thank you so much for the questions.

Okay.

Good morning. Mike, a question for you on the CASM side, can you talk about 2Q trends and how you did once you take out all the noise around MAX it seems like you’re trending well, especially given the comments of hitting your targets overall?

That’s absolutely a true statement if you take all the noise incremental cost the replace lift for the capacity we did backfill and the lower AFMs, the resulting adjusted CASM was as good or better than we expected that we had originally planned. And that reflects additional cost reductions that we’ve implemented to partially mitigate the challenge we have.

It would be helpful if you could quantify it possibly. And then as a follow up there was some comment in the release about changing your liquidity approach and how you’re thinking about excess cash, et cetera can you clarify that and provide some color as to what that means relative to some of the comments you made at the Investor Day, excess cash and so on?

Yes, this qualification or change was really just in relationship to how we calculate return on invested capital. We’ve obviously clearly admitted to the marketplace that we got extra cash in the balance sheet, which is a nice problem to have.

And so now we’ve determined that excess cash is defined is anything over 20% of trailing 12 month revenues. So that gives about $2.5 billion as of June 30th and so we deduct $2.5 billion from equity on the ROIC calculation because we’re going to deploy that cash over the next several years buying aircraft, buying -- paying down debt, or also buying back shares.

So it’s really just to get a better comparison to others on ROIC that will reduce that excess cash from the ROIC calculations.

Okay. And so that means going forward you still have that $2 billion plus at least $2.5 billion is what you said as far excess cash that will eventually get back to your shareholders?

Yes, either by way paying down debt or NCIB, absolutely. So right now we believe adequate level of cash is roughly 20% of our trailing 12 month revenues, which is roughly $3.5 billion, $3.6 billion anything above that is excess and as of June 30th that number was $2.5 billion.

I’ll leave it there. Thank you.

Good morning. Thank you.

Quick question for Lucie just on the Atlantic, I think you gave us a few reasons why revenue pressured year-on-year, but can you talk a little bit about how you’re seeing the capital intensity in this market given the growth that your competitor has in that market? And it just sounds from how you ran through all the kind of regional market Atlantic seems to be the one that have the least kind of capacity or the least amount of ability to offset the MAX issues is that a good interpretation of what you said?

Well, there’s a couple things. So if you look at the Atlantic overall just if you compare what we experienced in Q2 and what we’re seeing with Q3, which is one of the comments that we made a little bit earlier the big difference is on the Transatlantic the makeup of those route is very different from one quarter to the next.

So, for example, when we go into the third quarter we have significant amount of incremental inbound sales from Europe into North America. And so that’s one big impact or a big change in the terms of the makeup of those routes.

If you look at the currency factor on the Transatlantic their further depreciation of the international currencies, which by default has the impact of impacting our yield as well on the Transatlantic market. So when you look at the MAX, for sure, we’ve taken down some Transatlantic flying that would have been operated by MAX and always by the way, were solid yield and also very profitable market.

So, the combined effect of all of that, and the pressure also of ensuring that we have enough fee for the international route that's where the challenge lies. The other note that I wanted to mention is the carrier surcharges.

On the Transatlantic it is the service where it is the largest proportion of our revenues comes from actual fuel surcharges. So when you look at that, over time, it's completely natural that we have to anticipate that those fuel surcharges are not going to climb over time.

So for sure, the Transatlantic is a little bit different than other markets. But those are the big driving factors to justify the change.

Okay, great. The other quick question, Mike, kind of you outlined that would take up to a year, potentially to bring the full fleet of MAX back.

I mean, that’s starting to get almost close to impacting your peak of next year 2020. If you don't have visibility into this, say, before, kind of late this year, what kind of mitigating factors can you think about in terms of trying to save the peak of 2020 at this point?

I don't think we're prepared to talk about, plan B, or plan C, at this point in time. We are working on alternative scenarios, obviously, from the information we have, we believe that it will be ungrounded, certainly before year end and we'll have some clarity at that point in time.

So, I don’t want to sit here and speculate as to what may happen under different scenarios. As that -- if and when that scenario should ever appear, we will certainly provide some guidance at that point in time as how we're going to handle it.

Okay, great. Thanks.

Thank you. Good morning.

Obviously, a 5% capacity impact is challenging given large fixed cost infrastructure that you have. With that said, it doesn't appear obvious to me that margins are going to be lower than your original guidance for the year.

Can you help us think about that further, given the puts and takes, do you think the MAX has had a negative impact on your overall margin profile? And put another way, would EBITDA potentially be more than 5% higher in Q3 if the fleet had been as you originally intended it?

Yes, so hey Doug, it’s Calin here. Yes, I mean, the signal that we wanted to make sure the market understood is that our expectations for Q3 because of the grounding and because of the impact will be more severely felt in Q3 than it was in Q2.

While we certainly expect Q3 to be good, it would -- it's not as good is it otherwise would have been. And I think that sort of is the very direct message we're giving the market here.

In Q3, as we say, the puts and the takes of it all is such that we do -- we have more limited capability to bring in replacement aircraft, we're operating at full capacity normally. There are no aircraft in maintenance, typically in Q3, because we've scheduled it in such a way to make our fleet the most efficient.

And so, things that we were able to do in Q2, where you are able to kind of delay Wi-Fi and delay paint in some cases and bring in the wild airplanes on the more accelerated basis, those sorts of alternatives aren't open to you in Q3. So, as we look at Q3, we -- already we’re operating at using our fleet as efficiently as possible with the maximum number of hours per day.

And therefore the incremental things we can do, which we can we still will have wet-leases in Q3, we still extended some of the Airbus and the Embraer aircraft for Q3, as Mike mentioned earlier. We've used all the mitigation steps that we used in Q2, but because of the amount of capacity we are otherwise flying in Q3, it'll be more challenging.

So all that to say that we're not for the grounding of the MAX, our expectation for Q3 would have been deep and better than what we've just outlined in the release.

Okay. The Aeroplan program you hasn’t gotten a lot of attention given the 737 MAX issues, but you did say that acquisition has performed stronger than expected or the loyalty program is performing stronger than expected.

Can you confirm whether that program and its impact on the financials is now stabilized as you expected it would be in Q2? Or are there incremental profitability improvements still to come as you ramp up the new program, or perhaps remove duplicate spending on running two programs or starting another program at the same time?

Doug, good morning, it’s Mike. So I can confirm like I did my notes that the program stabilized.

Even better than that is starting to grow. We had a very successful credit card acquisition program or TD ran a very successful credit card acquisition program, where we exceeded our expectations for new signups, which is a positive sign for us for -- obviously for future profitability and future cash flow.

Again, the teams have been integrated, they're working well together, they're looking for new opportunities, they're speaking to many different parties out there about partnerships. And so we believe, not only has it stabilized, but we do have a path to grow probably faster than we thought.

Even before the relaunch in basically this time next year.

I appreciate the added color. Thank you.

Thanks, Dough.

Thanks folks. Just turning back to fleet planning, I guess, a couple quick questions on this.

There's a lot of aircraft, I think we've talked about coming in next year. And so I guess the question I've got is two parts, one, do you know how many of your aircraft right now are can I call it a semi finished state with Boeing?

And, I guess, two parts, again, what's your confidence is actually being able to take deliveries of those aircraft? And then the other piece is, I know you've talked about extending a lot of the leases for the 320s, anything like that.

Is there anything that we should be thinking of in terms of life, or maintenance events for those aircraft or your ability to continue to operate those over the next call it a year?

Good morning, Chris. So on the fleet plan, so we've got 24 part on our properties, right now.

Boeing has 12 parts, basically, on their property. And so we take delivery of those wins on grounded.

And obviously we'll take delivery, when with its best fits us, frankly. The 14 which are to be delivered next year, I don't think are even on the production line.

We don't know the current status, but most of those would not be on the production line at this point in time. And -- but as you know, Boeing is still producing the plane, although at a lower rate.

And, our latest view is if they were underground quickly, some of those 14 could be available, obviously, in the first half of next year. And then on the mitigation.

Again, there's no doubt as we push the 320s and 190s, the maintenance costs will probably go up. But they do have life left in them to some degree, not obviously indefinite, but they do have life left in them.

But certainly the maintenance costs would tend to escalate over the next little while.

Okay. Fair enough.

And is it fair to think that that'll be part of your discussion with Boeing in terms of competition?

Absolutely.

Okay. And then just turning back to -- you did mentioned that UPS has coming in, and the opportunities it gives you.

Just, I guess, a couple things, because we're always sort of worry about these things. So first of all, just any more color you can provide us on how the testing has been going?

Any issues maybe you finding? And I think at the Investor Day you talked about kind of a late November, kind of kick, cut over.

Any updates that you can give us on how we should be thinking about that? And any impact you might have you think on your financials as you go into 2020 will be appreciated?

Well, it's Calin here, Chris. So we're still on target.

Our teams have been working very, very hard to stay on target for that enormous amount of testing with frontline employees teams have been built of trainers and different functionality capability, depending on the frontline employee involved, because obviously, it effects everything from airports to call centers, et cetera, the entire booking process. So all of that very extensive training is underway, we literally are talking about many, many thousands of employees that need to be trained.

Now this is as I said in my remarks a big deal. But right now it's on target.

We're slowing down, non-essential technology, changes to our systems to avoid having unnecessary complexity as we get into the final stages here. We certainly are not expecting any form of disruption or financial impact on us.

And, obviously, working with a lot of partners who have had a lot of experience with other PSS systems for other leading airlines in the world. So we hope to learn from some of their mistakes.

We know that these things don't always go seamlessly we get that we understand that and our people are doing tremendous amount of contingency planning to try to ready for November.

Okay, great. And any thoughts around any financial benefits you might see as it gets launched in 2020?

We’ve told the market that once fully mature we think will deliver an additional $100 million combination of additional revenue and costs. That's good, it's going to take some time post implementation, because the implementation will take several months, because it's a two stage of implementation.

Okay. Sounds good.

Thanks folks.

Thanks.

Hey, everyone. It's actually [indiscernible] in for Helene.

As you guys have provided a lot of detail on the MAX, I'm probably stay away from that. But just on Air Transat.

So I believe the expectation is to keep the brand. Just curious on what you think about how the value is of having two separate brands.

And also maybe you can comment at a high level, how you might view capital allocation between the Rouge or Air Transat is the thought that Air Transat needs more investment to drive profitability going forward? Thank you.

Right, Conor, yes. Okay, good question.

So it's Calin here. So, we have made the decision to keep the Transat brand and the head office of Transat.

Transat has built a very, very good brand in the leisure market. Recently recognized as the leading leisure airline in the world at Skytrax.

And so we respect their brand, we respect what they've done in the in the leisure segment. And we think that that is value accretive for overall Air Canada.

As we look at the Rouge dynamic, Rouge, of course, is also the leisure business and Rouge has built its own brand and its own operation and it sort of helped us segment the market between the main line product and Rouge. And so as we go forward, we'll continue to look at separate opportunities for each of them, at least in the early stages.

And then take it from there as we further evolve our thinking of the overall brand value of the two. As far as capital allocation, we -- at this stage, we're -- it's too early to say we are very familiar with the Transat fleet to due diligence, and we will look for opportunities to optimize the fleet taking account of the overall Air Canada picture.

So like the overall thought is that Rouge and Air Transat will kind of complement one another, depending on what the market kind of dictates?

Correct.

Okay. Okay.

Perfect. Thank you.

Hey. Thanks for taking my question.

Just two quick ones for me. Maybe just following up on the Transat conversation, just wondering how you think this impacts your seasonality?

Do you think this improves the seasonal profile through the year? Or do you think it exacerbates it given what we've seen out of their results over the past decade or so.

Just wondering what your thoughts are there from a seasonality perspective?

Yes, Kevin, our view is -- it’s an excellent question. Our view is that the seasonality will improve fairly dramatically here.

One of the reasons that -- one of the advantages of our competition with Transat is that we are able to provide connecting lift on the Transat product that they cannot provide themselves because they do not operate in domestic or a transborder network. And so by our operating the best to go transborder network that effectively will -- we expect that will significantly improve the results of that Transat operation.

Plus, in some cases as a result of the combination of the two it will enable us to extend some services to year round where it's only a seasonal operation. And we're already thinking about some of those roots.

And so this is one of those interesting opportunities where it can truly be win-win both, dealing with a seasonality challenge, as well as extending some seasonal routes to the full year round operation. And really benefiting from the strength of the Air Canada network to improve that operation.

That's super helpful. And this just one on your fleet, not on the MAX specifically, but when I look back over the past five years or so you've kind of shifted from maybe a more Airbus biased fleet to one when we look out to 2020 more Boeing biased.

Like when you looked at what's happened recently with the MAX and I know you don’t only have reflecting requirements in the near-term, but maybe when you look over the next five-ten years does that change or your recent experience change how you think about that split between the two OEMs or maybe not?

No, look at this stage we said many, many times, Kevin, we have a very, very strong relationship and have had a strong relationship with all four major aircraft manufacturers over the last 25 years and when I say four I include not only Airbus and Boeing but Bombardier and Embraer. And that means that we’ve sound opportunities to different points in time optimize the use of different aircraft manufacturers.

Certainly as we looked at the 737 that became a very compelling aircraft for us since phenomenally well. When we looked at the competitor dynamics at the time when we were looking at the MAX compared to the alternatives, we like the MAX economics and the scale of what it can bring us.

But we certainly have got a great relationship with Airbus we continue to have a lot of Airbus product in our Rouge fleet. And we really like the 330s, we brought in some more 330s, Airbus 330s.

So we operate the -- still operating with 330, the 320, the 321 and even 319 still. So we still have a fairly substantial commitment to Airbus and then the 220 of course is our next exciting chapter.

So I think it’s a fairly good split we’ll continue to support both the manufacturers.

Thank you for that and congrats on a good quarter.

Thanks very much.

Thank you. Good morning.

Just one question probably for Mike here, you mentioned you covered 97% of the plan flying in Q2 related to the MAX issues and there was an indication about I think it was about 500 basis points impact on growth in the third quarter related to the MAX issues. Is it possible and forgive me if you’ve already indicated this, but that 97% figure for Q2 do you have a comparable number for Q3 of how much of the flying is being replaced?

95%.

95% in the third quarter?

Yes, yes.

So even though you’re replacing 95% of the planned flying the capacity growth is still going to be 500 basis points lower than original planned?

Right, right. It was supposed to be up plus 3% and Q2 is got growth -- Q2 is going to grow at plus 5%, it grew at plus 2%.

So we lost 300 basis points. Q3 we had originally planned to grow plus or minus plus 3% and now it’s going to be minus 2%.

So we’re down 500 basis points.

Okay, thank you. And then just thinking forward to 2020 and the impact of the MAX and under the assumption that January 8th proves to be the right date and they start going back into service and you take deliveries.

Am I correct in assuming that there will still be somewhat material kind of non-recurring cost that occur in 2020 than that will not be repeating themselves in 2020 whether it’s related to training or I guess some ongoing cost before the aircraft are actually in service like there should be a bit of a headwind to your expenses again in 2020, is that correct?

It really depends on how long we keep replacement aircraft, but that’s the largest incremental expense that we’re incurring. The wet-leases and the extensions of 320s over 190s.

So, again, as I said earlier we have fairly good flexibility that we can extend those on a short-term basis. So there -- I don’t think there’ll be material headwinds on cost going in post ungrounding.

But also, Tim another to think of it is that once we establish what the final incremental cost that is allocated to this problem, the problem of the grounding we will let the market know with that cost -- incremental cost was. Because obviously it should be characterized as somewhat of a one-time.

And that obviously we would not be extending these leases or not for the grounding we would not be incurring additional maintenance where it’s not for the grounding, we’ll not incurring the additional cost on the pilots of our non-productive -- doing productive flying right now, were not for the grounding. So as I say today we’re not getting into all of that until we complete our discussions with Boeing, but as for the fact certainly we give you visibility on what impact that had to 2019 and 2020 accounting.

Okay, that’s helpful. That’s great, thank you.

And then just one very quick question the Q3 guidance that you provided for EBITDA the 5% year-over-year growth, should we think about that as kind of a one-time guidance that you’re putting out there because of where consensus expectations were? Or is it possible you may do the same thing when we get to the fourth quarter?

Yes, we talked about that internally, considered as a gift from the management team here at Air Canada. We'll consider Q4 as very closer to Q4.

Because we are in unique times Tim. So we took the extra step to provide some more clarity to the marketplace.

And we'll go through that same decision process leading up to Q4.

Okay, that's fair. That's great.

Thank you very much.

Thanks, Tim.

Thank you. And just a real quick follow-up.

So on Aeroplan, you pointed out that it had a positive impact on all the segments. So when you look at sequentially, I mean, your RASM numbers accelerated from Q1 to Q2.

Is there any sense you can provide us, if the magnitude was pretty significant between Q1 and Q2? And do we -- should we expect the Aeroplan contribution in Q3 to be somewhat similar to what we see in Q2?

Konark, it's Mike. So on the second part of the question.

For the most part, we've got in Q2 a full quarter of redemptions. And so that means unless redemptions increase, we will have a similar run rate in Q3.

There was some improvement, obviously from Q2 from Q1, because we didn't get a full quarter redemptions in Q1. But I wouldn't say that was material to us, basically.

But there was a small improvement in the overall impact to yield.

And…

Going forward, I think, like I said we're stabilized right now. So I think Q3 going forward, we're going to have -- we're not going to sequentially large increases.

Is that the same thing for cost as well from Aeroplan…

Yes.

Like the margin tailwind was higher than -- yes. Okay.

And then, secondly, on Boeing's compensation that was disclosed by Boeing. If that comes and when that comes did you expect that to be -- like how would you treat it?

Would that be a cost offset to your numbers? Or would that be a one-time revenue…

We haven't even begun to have those discussions with Boeing yet. And so they will take some time.

And once it's all finalized, we'll make decision as to how to disclose that information.

Okay, thank you so much.

So we can't speculate today as to how that may come, what form that may come in.

Perfect. Appreciate it, thank you.

Thanks.

Thanks, Lucie. Before ending the call, we'd like wish Turan Quettawala who is retiring from Scotia Bank all the best in future endeavors.

Turan it was a pleasure working with you over the past several years. With that, I'd like to thank everyone for joining us on our call today.