Air Canada

Thank you, Meryl. [Foreign Language] Welcome and thank you for joining us on our second quarter call.

With me this morning are Mike Rousseau, our President and Chief Executive Officer; Amos Kazzaz, our Executive Vice President and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President and Chief Operating Officer. On today's call, Mike will begin by providing an overview of the quarter and the impact of the COVID-19 pandemic on our positioning for recovery.

Lucie will touch on travel demand, our network, Aeroplan and cargo. Amos will provide additional details on our costs, liquidity and financial performance before turning it back to Mike.

We will then open the call for questions from equity analysts followed by questions from fixed income analysts. Before we get started, please note that certain statements made on this call 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 our management discussion and analysis for important assumptions and cautionary statements relating to forward-looking information and reconciliations of non-GAAP measures to GAAP results.

That said, Securities laws do not prevent us from unreservedly sharing and wishing all our athletes the best as they reach their personal goals while representing us proudly in the Olympics and Paralympics that will unfold in Tokyo starting today in the upcoming weeks. Their on journeys and resilience and preparing for these games during the pandemic are an inspiration to all Canadians.

Go Canada go. I will now turn it over to Mike.

Thank you, Valerie, and good morning, everyone. And thank you for joining us on our second quarter earnings call.

For Air Canada in the global airline industry generally, the COVID-19 pandemic continue to weigh heavily on second quarter performance. Our employees, as they always have done, focused on taking care of our customers, while carrying them safely to their destinations and then prudent and very strong management of our company.

I thank them for their dedication, their creativity and professionalism in this very challenging and complex environment. Although overall bookings remain below pre-pandemic levels, customers are returning.

In June we began to see a significant increase in bookings. The result of our announced -- of the announced eliminating the quarantine period for fully vaccinated returning Canadians and the removal other travel restrictions.

We are seeing steadily increasing bookings for the domestic, transborder and Atlantic markets and to sun destinations for the coming winter. In fact for the next winter sun travel, future bookings during some weeks in June, were ahead of the same period in 2019 that hard to remember time before COVID-19.

We are certainly pleased to see vaccination rates increasing and in more recent announcements of the soon easing of travel restrictions in Canada. We can now optimistically say that we are turning a corner and we expect to soon see correlated financial improvements.

We are excited and ready to welcome back our value customers in greater numbers, and to introduce them to the many improvements we have made to enhance the travel journey. Going back to our results, today we reported second quarter negative EBITDA CAD665 million, compared to negative CAD32 million in the same quarter of last year.

On a GAAP basis, we recorded an operating loss of CAD1.133 billion compared to an operating loss of CAD1.55 billion last year. Our net cash burn amounted to CAD745 million in the quarter were about CAD8 million per day on average, significantly lower than previously projected CAD13 million to CAD15 million.

We attribute this to increased bookings and our continuing effective cost controls. The upward trend in advanced ticket sales has continued into the current quarter.

We had nearly CAD9.8 billion in unrestricted liquidity at the quarter's end including the funds available under the credit facilities with the Government of Canada. We have said, we view the general purpose government facilities as an insurance policy and this remains the case.

Air Canada has more than adequate resources to compete effectively and manage through the end of the pandemic. We are now looking beyond COVID-19 and taking steps to ensure we are well positioned to seize the many opportunities we see before us in the emerging post pandemic landscape.

The skills of our highly talented professional and committed employees have helped us to carry us through the pandemic. Looking ahead with them, I am fully confident that Air Canada will rebuild stronger and rise higher than ever before.

Thank you. And I will turn the call over to Lucie.

Thank you, Mike, and good morning, everyone. I'd like to begin by thanking our customers for their steadfast loyalty and confidence in our Airline throughout the pandemic.

As well thank you to the people of Air Canada who worked tirelessly to ensure we are well positioned as travel returns. We achieved passenger revenues of CAD426 million in the quarter, an increase of CAD219 million or more than double compared to the second quarter of 2020, which was the first full quarter to be impacted by the pandemic.

We operated 78% more capacity in the second quarter in 2020 and 86% less when compared to the second quarter of 2019. Looking ahead to seize the momentum in bookings due to the easing of travel restrictions, we plan to operate approximately 85% more capacity in the third quarter than we operated in the same quarter of 2020.

This represents a decrease of about 65% compared to the third quarter of 2019. And we've done -- as we've done since the onset of the pandemic, we will continue to dynamically adjust capacity as the situation evolves to ensure we meet demand.

As we transition into a period of significant recovery, many of our initial assumptions on the rebuild are coming to fruition. First, our domestic recovery led the way.

In August, our domestic capacity will be roughly two thirds the way it was in 2019, as we witnessed demand growth throughout the country, especially in our transcontinental services. Furthermore, we are proud to retain our position as Canada's largest domestic airline as we resumed service to 50 Canadian cities and communities from coast to coast this summer.

Although the current demand is largely for leisure and visiting friends and relatives, based on feedback from our corporate partners, we believe that the fall period will feature the progressive return of corporate demand. We are encouraged by some of the commentary from our peers in the United States with regards to overall business travel recovery.

We have also dramatically increased our capacity to the US over the summer, which includes 55 routes and 34 destinations with up to 220 daily flights between the US and Canada. The new schedule coincide with the easing of Canadian travel restrictions between the two countries as of August 9, including removal of hotel quarantine requirements for all travelers relates testing requirements for Canadians traveling to the US for less than 72 hours and allowing fully vaccinated citizens and permanent residents of the US to enter Canada for non-essential travel among other measures.

We will continue to ramp up our operations to the United States, which have been significantly scaled back from the 67th city we served pre-pandemic. Rebuilding our US operation and restoring our position as the largest foreign carrier operating to the United States is key to our recovery.

This will also expedite the rebuild of our international long-haul operation as we seek to achieve or exceed our fair share of the US long-haul global market. Looking further ahead, we are seeing strong demand from Canadian leisure travelers to the US, primarily to markets such as California, Florida, and New York City, Hawaii and the various United Airlines company serve with many of these markets on pace of 2019 level.

Turning to our International markets, following the government's recent announcement we look forward to welcoming customers from around the world back on board once Canadian travel restrictions on foreign nationals begin to ease as of September 7. On our transatlantic services, we are seeing demand growth in several regional markets such as France, Italy and Greece in addition to large VFR markets such as Egypt, Morocco and the Indian subcontinent served through our Toronto to Ottawa route.

Our services have provided joint venture partners contribute is exceeding our expectations. We were unable to serve India during the quarter, but look forward to returning as soon as possible.

India remains a key area of focus in our network and we continue to be bullish on the long-term growth prospects of this market. Overall recovery on the Atlantic will be quicker than other parts of our long-haul network given a combination of high-vaccination rates, strong cultural and business cards between Canada and Europe in addition to strong leisure demand interest from Canadian.

We are already observing healthy demand signals for Europe into 2022 Looking to the Pacific market, the outlook remains uncertain as significant restrictions are still in place in many of the key markets we serve. We continue to monitor the markets and adjust our strategy accordingly.

When looking to the Sun market, we are very optimistic about a recovery as we look to Q4 2021 and Q1 of 2022. We are currently observing demand growth that is above 2019 levels with the corresponding strong yield environment.

Led by the strong performance of our Air Canada Vacations Group, we anticipate operating near 2019 levels in this geography by the midpoint of winter '21-'22. Should demand trends continue, we will evaluate redeploying capacity from other parts of our network to serve this demand.

As we've previously mentioned, the recovery will initially be led by demand recovery and leisure and VFR markets. We continue to believe that Air Canada is better positioned than our peers to profitably capture these segments given our investments in fleet, Air Canada Rouge and our overall advantage in onboard sitting density versus our peers.

Touching on Aeroplan's performance in the second quarter. Gross billings from point sold are up nearly 40% year-over-year, demonstrating solid lender engagement.

This represents a decrease when compared to 2019 due primarily to a reduction in points from air and hotel partnership. However, gross billings related to our credit card and retail partnerships have held up during the pandemic and are tracking well towards the full recovery.

In fact, average spend on co-brand cards was down 7% when compared to the second quarter of 2019, despite widespread lockdowns and lower spend on travel and entertainment during the quarter. Co-brand card acquisition is gaining momentum with attractive welcome bonuses in the Canadian market offered by our banking partners.

We've already acquired more American Express Aeroplan card members so far this year versus full year 2019 or 2020. Card retention rates continue to be in line with historical norms.

Point volumes converted to Aeroplan from bank proprietary credit card programs have seen an important lift in the second quarter as members transferred their backlog points into other programs for Aeroplan to redeem for travel. We expect this growth to continue as travel rebound and we will also add a significant new partner in the third quarter when Cheese's ultimate rewards begins to offer an Aeroplan transfer option.

Solid redemption recovery is another sign of continued program health and returning member engagement. In June members redeem points for air travel at 90% at the rate they did in June 2019, despite major geographies and popular Aeroplan destination such as Asia and Pacific still being substantially closed air travel.

Interestingly members are redeeming for proportionally more premium cabin tickets than in the prior program. This customer shift towards premium cabin redemption further increases Aeroplan's competitiveness in the Canadian market.

We're uniquely positioned to offer the most competitive premium travel redemptions in Canada as our domestic competitors offer far fewer premium option. As noted in premium travel, during the quarter, Aeroplan launched a unique partnership with Rocky Mountaineer offering point earnings, redemption and benefits for our lead and co-brand members.

Importantly, the second quarter saw an increase in member enrollment, driven by both the return to travel as well as our new partnership with Starbucks, which continues to outperform targets. Building on this success, we expect to announce several Aeroplan partnerships, which will expand the programs relevant to the traveler as well as reinforce fleet in the travel space.

Turning to our current results, we achieved a record CAD358 million in cargo revenue for the second quarter, which represented an increase of CAD89 million or 33% compared to the same quarter in 2020 and CAD181 million or 102% over the same quarter in 2019. Prior to the pandemic our cargo network has been enhanced by the growth of our wide body fleet including delivery of the Boeing 777, as well as several Airbus A330s.

The pandemic has accelerated the extent of our cargo business with the movement of critical goods as well as the growth of e-commerce. This fall, we are adding an additional layer with two Boeing 767 fully dedicated freighters that will enter into service.

Given the low cost of ownership of the Boeing 767s recently retired from our passenger fleet as well as the low-cost to convert the aircraft to freighter and cargo infrastructure. We look forward to expanding this program to eight aircraft in the next couple of years.

We've recently announced the international routes the freighters will be operating linking Toronto to Miami, Quito, Lima, Mexico City and Guadalajara. Additional destinations to be served in early '22 include Halifax, St.

John's, Madrid and Frankfurt as more freighters enter service. This business represents an opportunity to continue building on the success of our cargo flight.

It is important part of our recovery, revenue diversification and long-term growth. As we have sense beyond sets of the pandemic, we continue to show industry leadership in our safety-first mindset to our CleanCare+ program across the customer journeys.

To meet growing demand at our hub airports, we have now reopened four of our Maple Leaf Lounges with our domestic lounge at Montreal reopening in June and given the positive booking in travel trends we plan on opening an additional 10 of our lounges in the third quarter. The lounge expansion in Toronto, Montreal, Vancouver and Calgary is complemented by enhanced safety measures highlighted by contactless entry and mobile ordering available to facilitate delivery of complementary food and beverages directly to our customer's table.

In addition, on board, our Boeing 737 MAX aircraft, we introduced our video on demand service on select flights that allows our customers to order food and beverage items directly from their seats using the in-flight entertainment system. We look forward to expanding digital ordering in the future.

To close, we have been relentlessly preparing for the recovery all lease with our customers top in mind and we are still thrilled to welcome them back on board. Our airline has become stronger, more resilient and with the foundational elements we have in place as well as key investments made in product, fleet innovations and customer experience.

We are well positioned to retain our leadership position as the top airline within Canada and as a top airline globally. With that, I will pass it on to Amos.

Thanks, Lucie. [Foreign Language].

Good morning, everyone. I will begin by reviewing our costs.

Operating expenses were well controlled in the quarter. On a year-over-year capacity increase of 78% operating expenses decreased CAD112 million or 5% from the second quarter of 2020.

We call that in the second quarter of last year, Air Canada recorded a charge of CAD236 million under special items due to measures taken in response to the COVID-19 pandemic. Turning to major expense categories in the quarter, fuel expense increased to CAD115 million or 93% from the second quarter.

This is due to the higher volume of fuel liters consumed because of an increased volume of flying year-over-year. In addition, the impact of the 32% increase in fuel cost per liter accounted for a variance of CAD66 million when compared to the second quarter of last year.

That is a net favorable -- that is net of a favorable foreign exchange variance due to the strengthening of the Canadian dollar year-over-year. Keep in mind that the Canadian dollar usually strengthens when oil prices increase, which partially reduces our exposure to fuel prices.

Wages, salaries and benefits increased CAD33 million or 7% in the second quarter. Compared to the second quarter of 2020 wages and salaries increased CAD44 million or 14%, primarily on higher average salaries.

This is because of layoffs completed in June of 2020 led to a change in the Boeing mix and years of service. With higher levels of flying, when compared to the second quarter of last year, regional airlines expense, excluding fuels increased CAD21 million or 12%.

Depreciation and amortization expense in the second quarter was CAD404 million, a decline of CAD83 million or 17% from the same period last year. This reflects the accelerated retirement of certain older aircraft from our fleet and the decline was partially offset by the addition of five fuel-efficient Airbus A220-300s.

Our fleet reduction also played a part in the declined by CAD54 million or 30% in aircraft maintenance expense from the second quarter. Also contributing to the year-over-year decline was a reduction in maintenance provision resulting from updated end of lease cost estimates and a favorable currency impact.

We recorded special items amounting to a net operating expense of CAD73 million, driven by CAD157 million related to the early retirement incentive programs and by CAD68 million from benefit plan amendments. These pension amendments will not impact our liquidity position as the amendments are funded from the surplus of the pension plans.

The charges were partially offset by a net benefit of CAD158 million related to the Canada Emergency Wage Subsidy program, or CEWS, we plan to continue to persist to participate in this program, which has been extended to September 2021. Despite the decline in capacity compared to 2019 levels, we have managed to maintain approximately 50% of our workforce in part due to CEWS and are currently recalling employees to support our summer schedule.

Turning to liquidity. Since the onset of the pandemic, we have taken measures required to stabilize operations and to be prepared for the recovery process.

One of these critical measures has been raising liquidity to provide us with more flexibility to meet future challenges and better compete in the recovery phase and in the post-pandemic marketplace. Since March 2020, we have raised significant liquidity we enforcing even at the time one of the strongest balance sheets relative to our side in the global airline industry.

One year later, at the end of March 2021, unrestricted liquidity amounted to nearly CAD6.6 billion. In April, we substantially increased our available liquidity through a series of debt and equity financing agreement with the Government of Canada.

In addition to gross proceeds of CAD500 million from an equity investment under this financial package, we have access, if needed, to close to CAD4 billion in additional liquidity through repayable credit facilities. There is also a separate CAD1.4 billion government credit facility to support the payment of refunds to customers who did not travel due to COVID-19, and were holding non-refundable tickets.

On June 10, 2021, we extended the deadline for customers to seek a refund to July 12th of this year. As of June 30, we have refunded CAD997 million to eligible customers.

It is projected at about an additional CAD200 million of refunds will be paid during the quarter of 2020 -- in the third quarter of 2021 to finalizing the processing of the COVID-19 refund claims, all of which will be eligible for draws under the refund credit facility. At the end of the second quarter CAD858 million in proceeds have been drawn under this refund credit facility, which matures in 2028 and carries an interest rate of about 1.2%.

In addition to this over the quarter, we received proceeds of CAD180 million in aircraft financing related to delivery of five Airbus A220-300s, and on April 15, 2021, we repaid US$400 million of the 7.75% senior unsecured notes upon maturity. At the end of the quarter, unrestricted liquidity was $9,775 million.

On Monday, we launched a refinancing transaction of our term loan B, and completed the syndication of a new senior secured revolving facility. With these, we will be able to see -- we will be seeking total gross proceeds of US$5.35 billion subject to market and other conditions.

The proceeds of the term loan B are intended to; one, fund the refinancing of the $200 million principal amount of our 4.75% senior secured notes in 2023, and the $840 million principal amount of our 9% second lien notes due 2024; two, fund the refinancing of the indebtedness under the loan agreement dated October 6, 2016 comprised of a syndicated secured US dollar term loan B facility of US$578 million and a syndicated secured US dollar revolving credit facility of US$600 million and three provide working capital and other general corporate purposes for Air Canada and its subsidiaries. The refinancing transaction is a significant step in our efforts to continue to improve our liquidity and reduce our overall financial risks by upsizing and pushing out the maturity of the existing term loan B and senior secured notes to provide more runway, as we go through the recovery period.

Current market conditions are favorable for Air Canada to launch this type of transaction. So the obvious question of whether we will now opt out of the government's financing facilities, it's a decision we will make later in this year as we gain more line of sight on the recovery.

Subject to market and other conditions, this financing will also unencumbered some assets to take to the current term loan B and increased our unencumbered asset pool by about $700 million for total of $2.2 billion to support other financing should this be required. This pool excludes the value of Aeroplan, Air Canada Vacations and Air Canada Cargo.

Moving on to cash burn. In the second quarter of 2021, our net cash burn was $745 million or about an average of $8 million per day, better than it was previously communicated.

Driving the improvement in cash burn was EBITDA, working capital and CapEx. EBITDA was better than expected mainly due to continued strong cost control and the rapid adjustment of capacity we made to adjust to market demand.

Working capital improved due to stronger advance ticket sales and forecast and ongoing management of trade receivables and other working capital items. Capital expenditures were lower than forecast in part due to the strength strengthening of the Canadian dollar.

Together EBITDA, working capital and CapEx contributed $5 million to the favorable variance. In June, we were encouraged by the strong rebound of advanced ticket sales, following earlier announcements on the easing of certain travel restrictions, our updated schedule and other services -- other recent service announcements.

Looking at the end of the third quarter -- looking ahead of the third quarter, in light of the most recent border announcements made by the Government of Canada, we estimate net cash burn to be between $280 million and $460 million at an average of $3 million to $5 million per day. For the third quarter, the net cash burn projection includes $2 million per day in CapEx, net of financing, and $4 million per day in lease and debt service costs.

It also continues to exclude the remaining amount of eligible refunds of non-refundable fares being processed pursuant to the change in refund policy announced on April 12. I must say it feels great to be delivering this guidance today.

We are encouraged and excited as we look ahead to brighter skies. As we begin to look ahead with optimism, please allow me to pause here for a moment to recognize the boundless efforts, courage and tenacity of our employees.

I admire them for their professionalism and commitment and for commendable ability repeatedly to often -- to overcome often cascading challenges. To conclude, I look forward to continuing and further developing the transparent and positive relationship we have with the financial community.

I'm eager for our future conversations as well as our next investor day expected in early 2022. We can better showcase with the actions we have already taken and the plans and targets we will be implementing to further strengthen our company.

I will now turn it back over to Mike.

Thank you, Amos. Throughout the quarter, we continued to make progress on rebuilding our business, preparing for the return of travel and pursuing new initiatives to further ensure we succeed in what will be a highly competitive environment.

Well, physically we have begun re-establishing our global network by announcing new strategic routes and restoring suspended services. As a part of the summer schedule, we recalled approximately 2,900 employees for June in July.

A key competitive attribute is customer service. Throughout the pandemic our primary focus has been on the safety of our customers and employees, and this will continue.

Many of our COVID-19 innovations will become permanent because they are also designed to enhance the travel experience include the new mobile solutions, so that customers can obtain pre-approval for health documents before arriving at the airport. We have introduced many touchless features of check-in, baggage drop in and our lounges.

And we will look to expand the use of facial recognition biometrics for boarding after a successful test in San Francisco. Lucie touched on this drop and we are developing new on-board features.

These and other planned technological innovations will make the travel experience, particularly at the airport, safer, more convenient, and quicker for all customers. Another important initiative is our transformed Aeroplan Loyalty program.

In addition to the programs compelling new attributes, we continue to enrich it through powerful partnerships to give members more ways to collect points and redeem for rewards. We've always regarded Aeroplan is a key differentiator of Air Canada, setting it apart from domestic and international competitors.

The ongoing improvements we are bringing to our industry-leading loyalty program will amplify this as well. We are also pleased by the performance and future prospects of Air Canada Cargo, which recently operated it's 10,000th all cargo flight.

Our dedicated freighters, which are converted aircraft retiring from our passenger fleet will allow Air Canada Cargo to provide consistent capacity on key air cargo routes and facilitate the movement of goods globally. Even while dealing with the pandemic, we kept our eyes on the horizon and worked on other elements crucial to the long-term success of our business.

Notably, our commitment to sustainability has been unwavering. In March, we set an ambitious goal of achieving net zero emissions by 2050.

Central achieving this as a renewal of our fleet, which we progressed significantly by accelerating the retirements of certain older aircraft from the fleet at the outset of the pandemic. This continues today with a narrow body program.

During the quarter, we took delivery of five more Airbus A220 aircraft, and we expect three more to be delivered in 2021, along with another three Boeing 737 MAX aircraft. These aircraft types are much more fuel efficient than the older aircraft they replace, and offer customers a greater level of comfort.

We continue to work on other initiatives during the quarter as well. This included entering into an agreement with Edmonton International Airport to reduce carbon emissions, shipping critical COVID-19 medical supplies to India, and celebrating the 15th anniversary of our Aeroplan member donation program.

Since its inception, over 1.3 billion points have been donated by Aeroplan members in support of more than 1,400 causes. Air Canada and its employees are proud to be part of initiatives such as these, which are also important to investors, customers and other stakeholders.

Updated information on our commitments and programs will soon be shared when we release our 2020 edition of the Citizens of the World, our annual Corporate Sustainability Report. As I said meeting in the call, indications are that the worst effects of the COVID-19 pandemic may now be behind us.

Based on what we are seeing in other markets that are further along and reopening in Canada, we anticipate travel will resume at a quickening pace. However, as we have historically done, we will continue to manage both our cost structure and our balance sheet very conservatively.

Already, we are seeing green shoes of recovery, bookings are accelerating and our own customer surveys indicate a strengthening of attempt to travel within the coming months. We expect the most recent announcements of the Government of Canada relaxing existing measures will further help strengthen the interest of our customers in flying at.

Air Canada is well prepared from a financial customer service and operational standpoint to ramp up our business, to meet the returning travel demand and welcome our customers back. In short, we are well positioned to emerge strongly into the post-pandemic world.

Thank you. And I guess we're ready now for questions.

Thanks and good morning everyone. So maybe my first question, Amos, on cash burn guidance for Q3.

So it seems like CapEx release and debt service payments, they account for $6 million per day of cash burn, and then your guidance for cash burn is $3 million to $5 million. So I'm curious what's the offset coming from?

I mean, what kind of assumptions are you making about operations and working capital? Thank you.

Good morning Konark. Good question.

It's really -- the difference is coming from positive cash from operations. And also in the debt service cost, the interest cost is also included.

So when you consider these items, these couple of factors there that bring you into the $3 million to $5 million average per day cash burn.

Okay. Thanks for that.

And then secondly, if I can ask about maybe it's more for Lucie, and I don't know Mike, if you want to take it as well, yield. So --how, like you talked about new bookings coming in these different markets talked about quite like especially some Atlantic transport or domestic, et cetera.

How does it kind of pricing or the fares trending on these new bookings as you compare them to the existing bookings that were made before COVID for future travel?

Hi. It's Lucie.

Maybe let me just give you a little bit of comparison here because there is a couple of points that are pretty important. Up until such point is the new government measures were announced, we have to keep in mind that we can only generate demand from point of sale Canada, so we have no upside potential currency from other point of sale.

And given the fact that corporate demand is also somewhat challenged at this time and didn't have the potential for high yield. So setting that as a sort of an initial comment, when we look at the pricing environment in the international markets, the environment is quite stable.

And I would say the environment is competitive, but we are well set up to deal with the VFR market. We have up-sell opportunities, for example, into our premium cabins and in generally the pricing environment is quite stable.

In the North American environment, it's a little bit different. If you look at when the most of the domestic competition starting to enter the market, it really started in June.

So when you look at the yield environment at the early start of the second quarter, the environment was a little bit more stable. But as the competition really started to ramp up, the pricing environment became a little bit more challenging in domestic Canada.

The good thing is from that perspective is we're very encouraged because we know corporate demand will come back, we know we will get some yield upside from international connections. And at the same time we do have the right levers and we do have the right tools to be able to manage our way through this.

So through branded fares, we talked about Aeroplan in our early statements, the Aeroplan program is also providing very good opportunity for us on the yield side to be able to monetize our premium cabins for example. So, the environment is very competitive, but we're confident that we're well equipped to be able to deal with it.

Thank you. And then last one for me before I turn it over.

Fuel price seems to be obviously going up here, I think it's still below 2019 levels, I guess, but it's kind of maybe it approaches there as demand for jet fuel goes up. That's the expectation by energy markets, I guess.

I think, from your perspective, I guess it's a good problem to have as fuel price goes up, which means demand is going up, but historically we have seen fuel being a challenge at time. So how do you like in this -- coming out of the COVID, how do you plan to mitigate the fuel headwind potentially here?

And I guess, it's pricing a tool? Or do you kind of reconsider hedging?

Or is there anything you can change with suppliers? Any thoughts there.

Konark, it's Amos. This point, certainly as you mentioned, it's a little bit of a good problem to have if we have increasing sort of fuel in demand and adding capacity back.

But overall, we will manage this not through hedging at this point in time, it's a little bit -- as we look at that hedging historically has been more of an insurance policy and to deal with the spikes in fuel price. I think with the industry is seeing sort of overtime as fuel prices increase, the industry has been able to push along fares to compensate for that.

So we would not expect that scenario or that outcome would not be again repeated going down the road.

Yeah. Thank you.

That's it from me. Thank you guys.

Thanks very much, operator. Hi, everybody.

And thank you very much for your time this morning. So I'm not sure who wants to answer this, but as you think about cargo going forward, I know the converted freighters are permanently in the mix now.

How should we think about cargo? Is this going to be a major revenue generator?

I mean, historically, it's not your core business, and yet you have a lot of opportunity, I would think to really participate in the dedicated cargo business. So how should we think about that going forward?

Good morning, Helane. It's Mike.

Hi, Mike.

There is no doubt. It's -- like we said, it's a big part of our future.

From a whole bunch of different perspectives, certainly diversification, strong margins and we're good at it, and we're going to get better at it frankly. So the cargo -- the dedicated cargo freighters are one aspect.

But the other aspect that equally, if not more exciting, is our entry into the e-commerce business under a brand name called Rivo, where we've partnered with last mile and first mile providers to provide the point-to-point delivery. And we're not expecting to replace major players in this area, but this market is growing and we have the skills and the technology now to take advantage of that marketplace.

So long-winded answer to tell you that it will be a more important part of our future going forward. And I think we'll save to maybe to investor day as to what our expectations are, but certainly we see the growth rate in the cargo exceeding -- well exceeding what are what our passenger rate might be.

But we're still going to be a passenger airline and opening up new markets from a cargo perspective is going to be very, very important to and an opportunity given our brand and given the strength of our management team.

Okay. That's very helpful Mike.

Thank you. And then, my other question is just related to how you're thinking about.

I know you're talking about bringing back capacity, I guess is -- as demand comes back, is that how we should think about it, so you'll see demand and then you'll add capacity or add capacity and then the price sensitive to gain the demand? Like, I'm not sure how to think about -- how to think about the fixed freedom traffic and so on that was such a big part of the business pre-pandemic?

Hi. It's Lucie, maybe I can start and if Mike wants to add.

But since the start of the pandemic, we had a very disciplined process here to try and understand the triggers that would inform us in terms of what the demand could be, so, including -- observing what occurred in other markets when some restrictions were lifted et cetera. And of course, looking at our own advanced bookings we've developed quite a few scenarios.

So basically, now that we know that the restrictions have been lifted, we had already planned for that. So we had a scenario where the capacity that we loaded was based on the existing booking velocity, but we were also prepared for the opening in the market.

So for example, we could see, it was evident that the sun markets for example, in the fourth quarter of the year will be very, very strong. So, we hedged our best and we plan for that.

We put the capacity in. So we are very disciplined, obviously, because it's important for us to be.

But with the indicators we had, we didn't only focus on one option. We had several capacity plans and as soon as indicators give us confidence that these markets would rebound we added.

Secondly, we talked about strong VFR markets. So if you look at the makeup of our rooms, we took some risk, which paid off, we introduced need to do still we introduce [indiscernible].

These are highly VFR markets and we made sure that we have the right capacity into our partners hubs in order for us to be able to do, as you say, extract the most potential we could from Sixth Freedom market. So as we move forward now that the restrictions are open, we have another view of capacity if things materialize the way we think they may, we will be ready to have capacity in the market, and this is for every service.

It's pretty clear that there are some areas that are clearly showing some strength and we've been able to jump on that pretty quickly. And we will continue to do that, but at the same time, of course, we're very mindful of ensuring that we have a ramp up that coordinated with my colleague Craig here in the operation to make sure that we can deliver on that and at the same time that we're mindful of costs.

But as you know, we do look like to be a sense on the table. So as soon as we see opportunity, we are ready to go.

Thank you. That's very helpful.

Thank you, Lucie. Thank you, Mike.

Thank you, Helane.

Thanks. Good morning.

I guess just a couple of kind of outlook questions from me. One is just on the booking trends and specifically the domestic markets.

Some of these sounds like August and peak summer is looking pretty positive for you. I'm just wondering if you can comment on what you're seeing in September, October kind of past the summer peak.

I mean, do you see enough demand there in the booking trends that will support kind of level of capacity you brought back domestically in August?

We're actually very confident with the schedule that we have planned for the fall, for September and beyond. Now, we're very excited because obviously this week, I mean, it's the first week, where we can actually observe new velocity based on the opening of the restrictions.

Early July, the hotel quarantine was removed, which meant that it gave us a little bit of opportunity for returning Canadians that were coming back from abroad. So we saw an upside there, a bit of an uptick there.

But as we know the provinces also had pretty tight restrictions for travel within Canada. When that was lifted, we saw a surge in the domestic environment.

So I understand we're confident with what we have loaded. And as I said earlier, if things didn't materialize exactly how we plan, we would have opportunity to redeploy or to right size.

And we also do have a little bit of ability or Flex to be able to add. But I tell you this is probably the best regard certainly at in the last year.

The early indications with the easing of travel restrictions is very, very encouraging.

Okay. That's great to hear.

Just second question, I guess, is somewhat related is just with regards to business travel. I suspect we'll see more companies start to back the business travel in the fall.

I'm just wondering if you have had any survey data or discussions with your corporate clients that you can maybe discuss that sort of give you some confidence in how business travels going to start to recover come September.

Yeah. So we did see -- just even for the month of June, we did see a little bit of improvement versus what we've seen in April and May, particularly in the domestic market, slight but some improvement.

We always assumed two things that perhaps in Canada, the recovery would be a little bit later than what we were observing in the United States. So we only assumed that post Labor Day, we would see some returning of business travel.

We are encouraged because, in fact, yes, in discussions with several of our agency partners or corporate accounts, there is a sentiment where corporations are now starting to talk about return to travel for business in the fall. And also, when we look at what's occurred in the United States, if we overlay the ramp-up of data on the business markets once restrictions started to ease and we overlay that to our markets, we're thinking that by September, October, we will start to see some positive signs.

We were also very encouraged with some of the restrictions that were put in that allow actually passengers who are really traveling on very short-haul destinations for very short periods of time. They can use the same test pre-departure for their return or re-entry into Canada.

And that's going to be meaningful also for those who are contemplating business travel to United States, New York, Boston, Washington and that kind of thing. So that's another positive indicator.

We really look forward to seeing the booking curve post-holiday and start to see how things shape up for September. But definitely the domestic market will be number one followed by transborder.

The international routes, I suspect, is probably will be similar to what we've heard from our peers will take a little bit longer to recover for long-haul international.

Okay. That's great detail.

Thanks very much.

Good morning everybody. Thanks for taking my question.

Maybe I just ask a question on rouge. You've moved all the wide bodies during the early parts of the pandemic.

And it sounds like the VFR markets improving, I suspect, you'll see some improving trends on the international market as well. But I also suspect, it will take years before some of these border restrictions are fully removed.

And I think I -- and you can correct me if I'm wrong. I think the thought process was -- you could flow some traffic little hubs versus using point to point as you might have done with all 767s.

Are you seeing apprehension from customers and hobbling in another country when choosing an international vacation spot? And does that change how you think about reintroducing wide bodies back into Rouge, to reintroduce those point-to-point options for customers?

Good morning, Kevin. It's Mike.

No, I think we made the conscious decision to exit the wide bodies from Rouge, and to your point flow the traffic through our partners -- partner hubs. We see no reason at this point in time to change that strategy or change that direction, full stop.

Obviously we're focused on the narrow body part of Rouge now. We'll be launching that in September with a very strong ramp up to take advantage of all the sun traffic that Lucie spoke about earlier.

And so we think that is the, a key differentiator for Air Canada and an important part of our future growth. Again, I think on balance, we will flow traffic internationally through the partners hub -- through the hubs [ph].

And we think we can capture the majority of the traffic that we otherwise had flown directly.

Okay, that's helpful. And maybe just a second question here.

Maybe to Lucie just a follow on Cam's question there on corporate travel. I guess I'm trying to figure out when you're looking at the trends over the next few months and quarters and you're talking about being a bit delayed with the US because we reopened a little bit later than the US here in Canada is a feeling the ramp will be the same though when things start moving or is the feeling that the ramp might be a little bit slower?

It just feels like Corporate Canada has been a little bit more cautious and bringing people back to work. So I'm just thinking through does that mean a little bit more cautious in putting their employees back in the year as well as we start to reopen the economy further?

Kevin, let me take that. It's a very interesting point.

One, we don't think the ramp-up is going to be any different. And I think Corporate Canada has to realize that they do have to get out to visit customers and clients because the US is doing that right now.

And I think a lot of corner offices in Canada to Lucie's earlier point are saying, what are we missing here now that we're almost fully vaccinated or getting some of us are vaccinated because they do it to build business. And there's a lot of surveys and talk about how corporate travel will change over time.

We certainly believe that traveling to see clients and customers will continue to be very strong and there might be some pent-up demand to do that once the market opens up and once companies get back somewhat into their offices. Obviously internal meetings might have a bigger impact from the virtual world that we've all been unfortunately been forced to utilize over the last little while, but we do believe based on our conversations with many, many corporate leaders that kind of customer traffic will come back fairly strong.

That's great color. Thank you very much everybody.

Have a great weekend.

Hey, good morning, everyone. Lucie, I wonder if you could share how you're thinking about the kind of a potential path and timing to capacity restoration and kind of the individual entities.

I realize things are highly uncertain and you have several different plans. But just as you know it today, like how do you envision that recovery in these individual entities?

From a capacity perspective, I'm sorry, I didn't…

Capacity perspective, exactly.

Okay. So when we commented in our introduction, we said in the third quarter we were expecting capacity to be approximately 65%, and in Q3 and -- you're highlighting a very good point because, in fact, we have to keep in mind that there are many of the long-haul markets that we do not plan to operate in the third quarter.

So for example, if you think of Australia, we had a significant franchise on China. And as we know those markets for the time being, we have limited capacity.

So there are several markets like that, ultra long-haul that we don't have in the plan for the third quarter, which means that overall at 65%, there is a very large difference when you look at it from a North America perspective. If you look at domestic, for example, that would probably be closer to a minus 40 range.

And if you look at the acceleration between June, July, August, September, if you look at the ramp-up, for example, on domestic or the Sun, is a pretty large acceleration. So there is no doubt that the two or let's say the three largest sectors where the ramp-up is fastest or largest with either domestic, US and Sun networks.

So US leisure and then looking at Q4, the sound roots and then probably followed by the Transatlantic and regrettably the Pacific and Australia is somewhat delayed.

And one of those lines, Lucie, when do you think domestic can get back to you like pre-COVID levels and some of these other ones that are stronger today, like how long do you think that those can take to get back to pre-COVID levels?

Good morning, Savi. It's Mike.

Hey, Mike.

To Lucie's point, we're seeing strong market -- strong return into those markets. The Pacific and to some degree South America are the ones that are lagging.

We kind of see that probably in the back half of next year. And that would be kind of where we -- when those two lapse components come back into play, we would -- our expectations we come close if, to where we would otherwise be in pre-COVID levels.

Got it. And just one last question.

I'm curious with the transborder still, I don't think the US has opened the border yet. I'm kind of curious what you're point of sale mixes in the transborder, and what component is still missing, I guess?

Right. So just to clarify the land border is not open.

The air border has always been open. And now it's easier to travel.

So there is no restrictions on air, but there is still, at least to August '21, restrictions on land for Americans. So we're not seeing any constraints in our ability.

And you saw that very quickly when we announced the expansion of our capacity in the US on the Monday -- this past Monday, and we will be entering that market with some aggressive marketing programs as well to drive traffic.

Thanks, Mike. Thank you.

Thanks very much. Good morning, everyone.

So you indicated that domestic is obviously coming back quicker, but -- and there has been some interesting moves by your two primary domestic competitors. I'm just curious as to what your thoughts are on how that might play out?

Let's start with Porter. Porter having announced what can all be -- it's very significant for them investment in Embraer Aircraft, on the regional side, clearly, making a push into the domestic market outside of their core Toronto Island airports, so into some of the more traditional airports.

Just -- what's your thoughts on the competitive landscape, particularly with regards to portal. I'll get back to WestJet in a moment, but with regards to porter and that effort on their part to significantly expand their domestic leap?

Good morning, Walter. It's Mike.

Nice to hear from you. Yeah, it's a really fair question.

And certainly it has not gone unnoticed but Porter has -- is looking to expand. Now again, they're not going to start expand till the second half of next year.

As you can appreciate, we can't speculate on their plans and we certainly welcome healthy competition. But despite to say we are ready to deal with that situation as they start ramping up in the second half of next year.

We have a lot of things to work with starting with our Aeroplan program. And we are confident that one, the competition will make us better; and two, that we will be able to deal with it effectively as they ramp up their expansion.

And in the same aspect with Flair, as they expand different set of some degree challenges, but we internally and I also can't comment on detailed plans, but we are all working on ensuring that we get better and retain our market share at a profitable margin over that period of time.

Makes sense. And now with WestJet, I was interesting that they declined government support, now there could be one of two buckets of reasons or a private company, they didn't want to have any kind of limitations from a disclosure or any other related factors or operationally they saw the restrictions that the government may have been requesting as too onerous.

Do you see if it's that second bucket, is there any risk here that WestJet will be have some more flexibility that you perhaps do not have given your decision to go with government support versus there is not too? Or do you see it more as a first bucket type of decision?

Yeah. Another fair question, but one, which I really can't speculate on.

But let me give you the bottom line from our perspective is that we believe there is -- we have the full ability to compete effectively with the existing agreement in place. There is nothing from our perspective that restricts our ability to compete very well with WestJet or any other domestic competitor or any other international competitor, frankly, that exists in our current agreement with the Government Canada.

Perfect. I appreciate the answers as always Mike.

Good to hear from you.

Good morning, folks. Just thinking about as we're starting to get restarted with bookings.

Just a question about channels and the evolution. We've seen and kind of got lost in the pandemic, but certainly a lot of new programs.

I was just wondering if you could maybe give us some idea of how you're seeing passengers engage with you in terms of booking new travel and certainly how you think that the travel agent channel may have evolved over the loss in a while.

That's a very good question. And certainly, during this time, we've spent a lot of time and energy, ensuring that our channels are the absolute best where you can find Air Canada content.

And same with -- for travel agencies to be able to come to our direct channels as well. So many initiatives were put in place during the pandemic to continue to improve our websites for both general consumers B2B and also B2C.

Now as we start to expand and introduce new international markets, it's a given that for some of these markets, we have to be where the demand is. So we still have access obviously to all other channels, but, of course, we -- our preference is for customers to be able to come directly to Air Canada or have agencies come directly to Air Canada where they can actually see the full suite of products that we have to offer the ability for customers to choose is best on aircanada.com.

We are also having a upside potential with ancillary et cetera in those direct channels. So we will continue to do that, but at the same time being very, very conscious that it's some markets -- channel Captains are in other areas that we are -- that were there as well to make sure that [indiscernible].

Okay. Have you really seen any shift so in channel usage?

And I guess what I'm kind of interested in is, has there been any significant damage to the agent channel such that you're going to end up with more traffic directly into your direct channels?

Well, the decision that we made there is, we have a very good relationship with the travel agency community. And in fact in -- so refund file occurred.

It was very important for us to make sure that the travel agency community was also considered in our decisions. When we talk about direct channel, it doesn't only limit general consumers coming directly to aircanada.com, we also have a portal for our travel agents and we do encourage them to come through those channels if they can.

So from a travel agency perspective. We continue to work very, very closely with them.

They've supported us through the pandemic. We're thankful for that.

And at the same timing as we return to business, we are in contact with them, of course, to make sure that we capture our fair share of that demand.

Okay. Fair enough.

And then just turning maybe to thinking about how you see the cargo business evolving did notice that on the fleet plan, you've got the two 767s coming in in the second half, but then you also show that you've got the two 330 freighters coming out. So should we be thinking about you bringing those converted passenger aircraft back into passenger service kind of on a one-to-one basis as the dedicated freighters come in?

Or is there some other way to think about this on a go-forward basis?

Good morning, Chris. It's Mike.

No, that's not really the alignment. We're looking at the growth of the eight freighters of independent of bringing back the converted freighters.

Converted freighters are being bring -- brought back because we've got demand in from the passenger side and we want to fill, and we want to convert them back to full passenger. And so that's really the plan of attack.

Okay.

And as reintroduced these international markets, then we are now opening up those fleets for our cargo customers. So some of it, the freighters that are operating today are operating because there was real passenger demand.

When the passenger aircraft come back, we open up the daily space for cargo.

Okay, that sounds fair. All right.

Thanks folks.

Hi, good morning everybody. Hey Mike, how many planes have you retired early and how many can you unretire if demand snaps back and the competitive environment ramps?

And then, in the same vein of the 50% of employees that you had to let go, how many are still available to come back? Is there anything to bring those people back?

Thanks.

Good morning, Hunter. Great question.

So we retired 79 planes. The 25 or so wide bodies for Rouge and then some 119 that we're going to retire frankly due course as 220s came in, and some Airbus narrow body product as well.

Again, as MAX were coming in as well. So with our current fleet configuration and what's in front of us from a delivery perspective -- committed delivery perspective, we can get back pretty close to where the pre-COVID capacity wise.

And so, we're comfortable with our positioning from a fleet perspective. Now if capacity does go up faster than we anticipate, we'll go hunt planes and we'll find, but again we don't see a reason to do that at this point in time, but that would be a good problem to have from our perspective.

On the labor side, we've been calling back people already. I mentioned that we are calling back 2,900 for June, July.

We'll call back more for the fall season. We're finding everyone's coming back.

We are not getting -- we're getting virtually no one saying, listen, I found something else, I don't want to come back. Our pilots as you -- I think, as we talked about the past, we're never furloughed.

We furloughed some small percentage, but that all -- everyone else, vast majority of them were kept current. And so there is no issue from a pilot perspective here at Air Canada.

And as we bring back flight attendants and ramp workers and call center people and airport people, we're getting everyone to come back.

Okay. That's great.

And then as we contemplate the Transat deal that fell apart, what's the upside of that deal not happening? Is there a lot of integration expense and pain that you were potentially preparing for then that you can kind of reallocate those resources elsewhere can you get simpler?

But what good can come of that?

I think you've hit the major benefit in the fact that we are spending 100% of our time focused on Air Canada and all the opportunities we have in front of us versus having a very complicated potential merger and integration added onto our list of things. It's not like -- I think we're glutton for how much work we want to get done and -- but certainly today, as we sit here today, this restart is complex.

And I'm happy that this management team, this entire company is focused entirely on making this a complete success for our customers. And having Transat -- although might have a good long-term benefits to overall for Canada -- for Air Canada, I think it would have been very, very difficult thing to integrate at this point in time.

Thank you, Mike.

Good. Thanks, Hunter.

Thank you, everyone, for joining us on our second quarter call. Should you have any further questions, you may contact Investor Relations.

Have a great day. [Foreign Language].