Air Canada

Thank you, Mon. [Foreign Language] Welcome and thank you for joining us on our fourth quarter call of 2021.

With me this morning are Michael 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 Operations Officer. On today’s call, Mike will begin with a brief overview of the quarter, Lucie will touch on our revenue, our network performance, Aeroplan and Air Canada Cargo, Amos will provide additional details on our financial performance, fleets and liquidity and then turn it back to Mike.

We will then be available until 9:00 a.m. for questions from equity analysts followed by questions from fixed income analysts.

And of course, we will remain available for additional questions after the call through our Investor Relations team. Before we get started, please note that certain statements made on this call maybe forward-looking within the meaning of applicable securities laws.

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

I will now turn it over to Mike.

Merci, Valerie. Good morning, everyone.

[Foreign Language] Thank you for joining us on our fourth quarter earnings call today. While COVID continues to impact our results, our above expectation performance in the fourth quarter shows that a recovery is strong and well underway.

Even with a dampening effect of Omicron on travel late in 2021, we produced significant year-over-year and sequential quarterly improvements during the period. In the quarter, our operating revenue of $2.731 billion exceeded our expectations.

And we reported EBITDA of $22 million which while modest is quite significant as it is the first time EBITDA has been positive in seven quarters. Our operating loss for the quarter was $503 million.

With the additional benefit of strict cost discipline, we reduced our net loss by close to 60% from the prior year. We reported a net loss of $493 million or $1.38 per share again better than our expectations for our company in the quarter.

I must give credit for these results where it’s due and that is to our team. The progress we have made rebuilding our airline is only possible through our employees’ hard work, resourcefulness and commitment.

I warmly thank them for their dedication and professionalism, which has been unwavering through 2 years of a global pandemic. And despite the latest challenges of Omicron in December and beyond, their efforts running our airline, hundreds of employees gave their time to contribute to communities in need.

They did this in many ways, including by supporting cleanup efforts after the devastating floods in BC, by donating to their local food bank or by giving holiday gifts to children who may otherwise not have received any. I am proud of the culture we have built and admire our employees for their empathy and their kindness.

There are many encouraging signs within underlying strength of the recovery during the quarter. Our advanced ticket sales increased almost $400 million in the fourth quarter and reached 65% of pre-pandemic levels in October and November prior to Omicron.

Revenue passenger miles increased 295% year-over-year as traffic returned. Our cash flow from operations remained positive and increased from the third quarter.

We ended the year with almost $10.4 billion in unrestricted liquidity, which is about 30% more than that at the start of 2021. Given the strong liquidity position, we terminated the unused credit facilities under the Government of Canada financial package.

This leaves only the special refund facility in place. Contributing to our results were strong performances from all lines of our businesses.

Air Canada Cargo reported record annual revenue of nearly $1.5 billion. Our transformed Aeroplan program generates strong billings in the quarter and launched a number of strategic partnerships with popular brands.

And Air Canada vacation saw significant return of business in the quarter, with some markets achieving bookings above pre-pandemic levels. There are other unmistakable signs of revival.

Most importantly, we have recalled and hired more people, with 3,900 full-time equivalent positions added in the quarter. We have been actively restoring our network and Lucie will speak more about this.

As we move into 2022, expectations are that COVID will recede. For this reason and with the government recently announcing the beginning of our phased easing of travel restrictions, we are confident the recovery of our business will continue throughout the balance of the year and beyond.

But before I hand it over to Lucie, I will also like to express my gratitude to our customers. This includes those who have been flying with us now and the many more who intend to fly with us soon as well as those trusting us to ship their cargo.

All of those at Air Canada value our loyalty and thank you for choosing Air Canada. Over to Lucie?

[Foreign Language] Good morning, everyone. To begin, I would also like to thank our caring employees.

I personally participated in some of the community initiatives Mike outlined. You see the true heart of Air Canada when you see so many colleagues go above and beyond to elevate others despite the professional and personal challenges brought by the pandemic.

This was especially true with Omicron, which impacted their personal lives and their much anticipated holidays. Thank you for your caring class.

All our employees make me so proud. In the quarter in line with our expectations, we more than doubled our capacity when compared to same quarter in 2020.

This represented a decrease of about 47% when compared to the same quarter in 2019. We achieved passenger revenues of just over $2 billion, an increase of about $1.6 billion or more than 4x that of the fourth quarter of 2020.

Traffic progressively returned following some easing as Canada’s travel restrictions and the reopening of the border in the third quarter of 2021. At the system level, traffic measured as revenue passenger miles increased nearly 300% versus the fourth quarter of 2020, with increases across all markets.

At the time, we reported our third quarter results we were observing meaningful momentum into Q1 2022 and beyond. Regrettably, Omicron forced us to reduce our capacity and make several scheduled adjustments for the first quarter.

Despite the temporary setback, we are now witnessing strong demand across all geographies, with the exception of Asia-Pacific. In fact, from a low point in early January, we are now observing a steady increase in new bookings as well as a far more stable rate of cancellations.

Therefore, we projected stronger than anticipated spring and summer and we are optimistic about demand trends going forward. We have been actively restoring our network with 118 stations served at the end of 2021 and the average number of daily flights rising to 665 in December ‘21 from 245 in January 2021.

In the fourth quarter, we announced updates to our schedule, which included increasing service to key South American destinations as Sao Paulo and Bogota as well as resuming our service to Santiago and Buenos Aires. We began a seasonal service between Toronto and Santo Domingo of Dominican Republic in December.

We also announced new seasonal routes connecting Quebec City and Vancouver in Calgary that are scheduled to begin later this spring. I am also pleased to call it the strong performance of our international network in December understanding that the recovery over the Pacific continues to lag and remains uncertain for some destinations, such as China, we turned our focus elsewhere in the Asia continent.

We expanded our services to India with increased frequency to Delhi from Toronto and a new year round non-stop route from Montreal, all of which are delivering strong outcomes, with Montreal producing exceptional results. Given its strong cultural and business ties to Canada and a large population, India is a key market for us.

This enhanced service from Eastern Canada complements our daily service from Vancouver and our strength in India supports our strategy to capture VFR market demand. This shows our ability to quickly seize opportunities where we see growth potential.

We also returned to Australia after a 20-month hiatus. This route, along with our South American routes did very well for us in the fourth quarter and reflects our determination to rebuild our international network.

On the transporter market, we are also very satisfied with our results. There is good resiliency and appetite from a Sixth Freedom travel.

We will continue to leverage our competitive strength, including Aeroplan and its relationships with Chase, American Express and Capital One to keep and grow our share of this market. Going forward, we believe there are continued opportunities for Air Canada to further expand in the U.S.

market. We are considering various new routes to cement our market position as the carrier of choice between Canada and the U.S.

in addition to further accelerating our Six Freedom travel strategy. We are witnessing stronger than expected demand for travel between the United States and Europe and we are poised to capture our fair share of this market segment in ‘22.

This of course likes to have a recovery, The domestic market was also resilient in the quarter, especially on the transparent sector. We recognized that there have been various domestic competitive announcements and anticipate the competitive landscape will be dynamic.

Yet we continue to believe that our strategy of focusing connectivity through our hubs is the key differentiator and our main competitive advantage. We are in the business of global traffic flows through our domestic markets and hubs.

And while we do not comment on competitors’ plans, this in our view was an advantage. We plan to increase our first quarter 2022 ASM capacity by 243% from the same quarter in 2021.

When compared to the same period in 2019, first quarter ASM capacity is expected to decrease by about 44%. Turning to the business travel, although the return of the corporate market has shifted to the right, industry specific and SME businesses have shown some sign of resiliency and we anticipate that to continue.

As well, we believe that we will see a rebound in business travel in 2022 when the conditions continue to improve and as corporate Canada returns to office and people look to connect in-person with stakeholders. We are consistently hearing from our corporate customers that there is an intent to travel again.

Our service offering is well-positioned for traffic volume increases from all markets. Over the course of 2021, the commercial and operations teams work diligently to safely restore our award winning products, including adapting and improving them based on feedback and learning during the pandemic.

For example, we now offer costly delivery in many lounges. And we are testing digital self entry in Toronto.

During the fourth quarter, we completed reopening the entire Maple Leaf lounge and café network globally. Turning to Aeroplan, we are pleased with the strong customer engagement levels and above target growth we are seeing from the redesign program.

Performance of our co-branded credit cards issued by TD, American Express and CIBC, have fully recovered over 2019 levels. Additionally, in 2021, we announced a partnership with Chase and launched the new Aeroplan world leading MasterCard credit card in the United States.

Even prior to the pandemic, a key element of our new loyalty strategy was to improve Aeroplan’s appeal for infrequent and leisure travelers. We are pleased to report significant progress as we rolled out new partnerships with Starbucks, Uber and LCBO last year.

And despite the difficult conditions in the first half, we acquired over 1.2 million members in 2021, significantly more than in the years prior to re-launching the transfer of the program. Aeroplan gross billings in December were also very encouraging as they surpassed those of 2019 and redemptions continue to recover at pace.

We are making progress towards the goal of earning our way into members’ everyday lives and further building Aeroplan as a key tool to support Air Canada and the leisure and VFR travel segments, just as it does with business and corporate travelers. Turning to Air Canada Cargo, our cargo revenue reached $490 million in the fourth quarter of ‘21, which represented an increase of $204 million when compared to the same quarter in 2020 or more than 160% over the same quarter in 2019.

Air Canada Cargo operated over 10,000 cargo-only flights in 2021 compared to just over 4,000 in 2020. In 2021, as Mike mentioned, we nearly reached $1.5 billion in cargo revenues for the first time in our history.

Demonstrating our determination to further develop our cargo division, we are nearing completion of an expansion of Air Canada Cargo’s handling capabilities at Toronto Pearson for pharmaceuticals and other perishables. In December, we reached another milestone with our first Boeing 767 dedicated freighter beginning operation.

We expect to have 3 additional Boeing 767 freighters in our fleet by the end of 2022. The sustained performance of Air Canada Cargo will validate our decision to return to fully dedicated cargo aircraft to take advantage of the growing cargo market both in dedicated belly space and freighters.

Cargo business is an important part of our recovery and long-term growth, helping with seasonality and diversification. It also serves the supply chain needs with time-sensitive cargo in a world that has seen domestic and international shipping challenges throughout 2021.

With that, I will pass it on to Amos.

[Foreign language] Good morning, everyone. I will begin with a quick financial overview of the fourth quarter.

On a GAAP basis, we recorded an operating loss of $503 million, about half of the operating loss of $1 billion in the fourth quarter of 2020. EBITDA, excluding special items of $22 million improved $750 million compared to the fourth quarter of 2020.

On a year-over-year capacity increase of 134%, operating expenses of $3.234 billion increased $1.4 billion or 77% from the fourth quarter of 2020. Despite the operating challenges brought by Omicron and a significant increase in fuel price, we managed to control costs through our disciplined approach and by the efficiencies and operating leverage achieved through our recovery plan.

So for the sake of time, as we only have an hour, including for your questions, we will only cite those categories that have the most notable variance in the quarter and that of course begins with fuel. Fuel expenses of $665 million increased $478 million from the fourth quarter of 2020.

The increase was a result of a 67% increase in jet fuel prices, net of $32 million favorable variance in foreign exchange. With the higher volume of flying, we also consumed more fuel compared to the same quarter in 2020.

We remain vigilant on the price of fuel, but we have not changed our view on hedging and are not doing so at this time. Wages, salaries and benefits of $666 million increased $159 million or 31% from the fourth quarter of 2020.

The increase was driven by an increase of 41% in full-time employees related to the increased operations. We are glad to see our colleagues return to work.

In the fourth quarter of 2021, regional airlines expense, excluding fuel and aircraft ownership, of $342 million increased $97 million or 40%. The increase was primarily driven by higher expenses due to the higher volume of flying compared to the same period in 2020, but was partially offset by savings from the consolidation of regional flying.

Depreciation and amortization expense of $399 million in the quarter, $36 million or 8% lower than the fourth quarter of 2020, reflected the accelerated retirement of certain older aircraft from our fleet, partially offset by the addition of new Airbus A220-300s and Boeing 737 MAX 8s. In the fourth quarter of 2021, aircraft maintenance expense was $226 million, up 22% from the same period in 2020.

The increase is primarily due to the higher volume of flying compared to the same period in 2020 and to a lesser degree updated end-of-lease cost estimates related to an aircraft return to lessor in 2021. Turning to the full year, operating expenses of roughly $9.4 billion decreased $160 million or 2% when compared to 2020, still a direct year-over-year comparison of total operating expenses is not necessarily meaningful as we operate at a pre-pandemic schedule for most of the first 2 months of 2020.

Special items recorded in 2021 amounted to a net operating expense reduction of $31 million compared to a net operating expense reduction of $116 million recorded in 2020. As for our fleet, as we reflect on this past year’s extreme turbulence, yes, the pandemic had a devastating impact on our industry, but it also accelerated innovation, including sustainability initiatives that contributed to our climate plan ambitions.

For example, as a response to the surge in demand for air cargo space, we innovated by operating all cargo flights using passenger aircraft, as well as some Boeing 777-300 ERs and Airbus A330s, temporarily converted into all cargo configuration. We plan to have all temporarily converted 777s and A330s back in passenger configuration by the end of 2022.

We accelerated our fleet renewal by moving up the delivery of 4 MAXs from 2022 to the fourth quarter of 2021 for a total of 7 aircraft delivered last year. The remaining 9 MAX 8 aircraft are expected to be delivered by the end of the second quarter of 2022, reaching a total of 40 MAX 8s in the fleet.

We also took delivery of 3 A220s in Q4. At the end of 2021, we had 27 A220-300s.

In 2022, we expect to have 6 more enter the fleet. Additionally, we plan to add 12 more A220s to the fleet.

6 will be delivered in 2024 and 6 in 2025. These are the 12 aircraft that we have previously determined we would not be purchasing.

This will bring our A220 fleet count to 45 by the end of 2025. If you have not yet experienced traveling on this aircraft, we look forward to welcome you onboard soon, you will be impressed.

Finally, we exercised options for the purchase of 3 787-9 aircraft, scheduled to be delivered this year and in 2023. Turning to liquidity, we began the quarter with about $14.4 billion of unrestricted liquidity, which included $4 billion available under government credit facilities and $900 million in revolvers.

In November 2021, as Mike mentioned, we withdrew from the Government of Canada financial support. Remember that none of the near $4 billion available under the secured revolving and unsecured non-revolving credit facilities was ever drawn.

We elected to terminate these as we were entitled to. Now, only the special facility dedicated to support refunds of non-refundable tickets remains in place.

It has a 7-year term and carries an interest rate of about 1.2%. Total draws from this refund facility amounted to close to $1.3 billion and draws ended in November of 2021.

Last spring, we issued about 14.5 million warrants to the government exercisable for the purchase of an equal number of Air Canada shares. Half of these warrants invested upon the implementation of the Government of Canada financial package.

The other half is now canceled as it was conditional on draws we could have done under the unsecured credit facilities that we terminated. Air Canada had the right to repurchase and cancel the vested warrants, which we did in January at a fair market value price of about $82 million.

At the end of the fourth quarter, our unrestricted liquidity amounted to $10.4 billion, practically unchanged from the beginning of the quarter, excluding the now canceled government facilities. Additional information about our liquidity and financing transactions can be found in our financial statements and MD&A, which are now posted on our website and filed on SEDAR.

I know all of you are looking for more guidance, but you will need to be patient and wait a few more weeks until our Investor Day at the end of March. We also plan to showcase more about our key assets and competitive attributes.

Finally, I will close by echoing Mike and Lucie in thanking our employees. While I have discussed the financial elements of our results, the culture we have built, propelled by their empathy, dedication and desire to elevate our customers and each other is central to the intrinsic value of our company.

I will now turn the call back over to Mike.

Great and thank you, Amos. We said during our previous quarterly earnings call in early November that the recovery of our company was underway.

Today’s fourth quarter results show this recovery is robust, sustainable and continues gaining strength. Tuesday’s announcement by the federal government, notably the changes in travel advisories and the removal of quarantine for children under 12 years old is also an important step forward for travelers, our industry and for the Canadian economy, which relies on trade and tourism.

But more needs to be done. Other countries have moved to eliminate pre-departure testing requirements for fully vaccinated travelers.

And the scientific evidence suggest now is a time for Canada to do the same. As provinces across Canada are announcing comprehensive reopening plans, we are confident that border measures will continue to ease in the near future.

If borrowers and large public events can reopen at full capacity and as some provinces such as Quebec and Ontario can put an end to the vaccination passport, there is no reason to signal out travel. Canada’s economic recovery won’t happen without the full contribution of the aviation industry.

For our part, we can contribute as a Canadian global champion. It is a status we achieved prior to COVID by focusing on revenue enhancement and cost transformation, leveraging our international network, customer engagement and culture change.

Our company is fundamentally solid. Now the world is showing us that we are ready for takeoff and it is time for us to embark on our next chapter.

As we emerge from the pandemic, we will stay true to what has defined Air Canada, while at the same time, pushing ourselves to do things differently. This will include making strategic investments and being creative to seize new opportunities.

We will aim to rise higher to elevate everything about our business. I will detail this further at our upcoming Investor Day on March 30th, but for now, let me touch on some of the key assets and competitive attributes that we will leverage.

Chief among these is our power to make meaningful connections, something our country and world longs for following the isolation of the pandemic years. Our vast and growing network is unrivaled in Canada and compares favorably to any in the world for connectivity and convenience.

Combined with our networks of our JV and Star Alliance partners, we can offer customers easy access to virtually any destination on the earth. We also have the ideal fleet to operate this network.

The pandemic accelerated our fleet renewal plans, allowing us to exit certain aging and less efficient aircraft. At the same time, we sped up the delivery of new narrow-body models and built out our international fleet.

Third, we have a strong brand, product and people recognized by numerous awards in 2021. Notably, Skytrax awards for best airline staff in both Canada and North America.

Customer service, products and experience will remain a central focus. Another significant attribute is Aeroplan.

It is Canada’s leading travel loyalty program and offers powerful inducements for travelers to choose our airline. The transformed programs added emphasis on the visiting friends and relatives market is key, as this market is leading the recovery in our industry.

And finally, there’s Air Canada’s strength and commitment to sound environmental, social and governance practices. ESG is increasingly important to our investors, customers, employees and other stakeholders.

During the past year, we set an ambitious target of net-zero emissions by 2050, as well, we have committed to support the development of alternative fuels and other technologies to reduce emissions. In the quarter, we were the first Canadian carrier to join the Aviation Climate Taskforce, a new not-for-profit organization of 10 global airlines and the Boston Consulting Group.

It aims to accelerate research and innovation in decarbonization technologies. Sustainability is something I take a deep personal interest in, as I believe we all do.

The governance of our company starting with our deeply committed Board of Directors is aligned to ensure ESG continues to be integral to Air Canada’s decision-making in the future. In all these and other ways, our company is very well prepared to thrive in the post-pandemic world.

The strategies and competitive attributes we have put in place puts us at the forefront of the recovery of our industry, which I believe will result in the strong recovery of our equity value. Thank you and now we have time for questions.

Thank you, Mike and thank you for joining us today. In closing, we are glad to confirm once again our Investor Day is planned to be held in person on March 30th in Toronto.

[Foreign language] We’re now ready for questions. Once again, in the interest of time and in order to be fair to all, we kindly ask that you each limit yourself to two questions or one question and one follow-up.

Should you have any additional questions, we invite you to contact our Investor Relations team. Over to you, Mo.

Yes, good morning, everybody. So, we’ve spoken in the past about capacity rationalization in some of the longer-haul, international markets and the possibility that it could lead to higher international margins down the road than what you enjoyed pre-COVID.

As you monitor capacity being added back into some of these longer haul market, how do they compare to what you were originally thinking about this topic earlier in the pandemic? I mean is it ahead or behind what your expectations were in line, just overall commentary?

Hi, it’s Lucie. First, on the international front, as you know, over the course of the last 2 years, we had a significant reduction in our Asia network and we focused on the Transatlantic, but we also focused on markets where we knew during this environment where there’s significant demand in Canada, particularly in some of these VFR market where we knew we would be able to be successful.

So over the course of the last 2 years, we focused on some of those markets, I think some of the markets in the Middle East, we talked about India. And truthfully, those markets exceeded our expectations and it leaves us very confident for the future as it pertains to those routes.

Now as you look into 2022 and we’re actually now starting our revamp of our international network, keeping in mind that when we started to reintroduce some of the transatlantic flying, it was based on the fact that we ensured that we had connectivity into our Star Alliance and to our joint venture partner hubs, so we leveraged that. And now we are adding markets where we can clearly see that, a from a point-of-sale Canada demand, it’s solid and where we also have opportunity for inbound.

So we’ve done this progressively, but I can tell you that based on advanced bookings, what we’re seeing on our international network, we have every reason to believe that it’s going to be – it’s going to be very successful for us in the summer. So advanced bookings are boding well, the advanced yields in terms of selling price on those markets as well is very, very encouraging, but we were very prudent, but again we were able to add-on progressively.

And I think by the time we reach this summer, we have a very, very solid international network. Now on the Asia front, as we know, we expect – we’ve said that we expect that this will take longer.

But nevertheless, we found other opportunities during that time.

Perfect. Thank you for that.

And a quick follow-up, at least here in the States, what we’re seeing is that corporate travelers tend to be booking further in advance, whereas leisure – the leisure booking curve is sort of uncharacteristically steep at the moment. I’m just wondering, how do you think this actually plays out with yields.

I mean, it seems like there’s yield upside as more corporate travelers begin booking closer in, but possibly leisure downside as consumers increasingly have the confidence to book further out. I mean first is that what you’re also seeing and then any thoughts on this dynamic?

It seems like the two booking curves have sort of swapped places with how you’d expect them to be shaped pre-COVID. Thanks.

There is no that [indiscernible] there is no doubt that in 2021 and even now, when we look at the booking curve, there is no doubt that even for leisure traffic, the demand is much, much closer, comes in much, much closer than what we would have observed in 2019. But having said that now that we’re heading into the second quarter, we are now starting to see and I think a lot of it has to do, of course, with lifting of the restrictions, customers now have confidence that they can book their summer and that their travel plans are not going to be impacted.

So we’re starting to see a little bit of a shift. Now the basic principle for us is always we manage the highest yielding segment first.

So as we look for business to return, we’ve been monitoring these trends for quite some time and we, in fact, monitor them daily. As soon as we start to see that, in fact, the business demand is looking to return, we will be in a position to make sure that we can manage both of those segments.

But the last week or so, it’s really been the first indication where we’re actually starting to see confidence in terms of booking a little bit further out for leisure.

Interesting. Okay.

Thanks for all the color and see in a few weeks.

Hi, good morning and thank you very much for taking my questions. Just a quick one or two for me.

When I think about sort of your post-pandemic recovery, I was intrigued, you mentioned your Star Alliance partners and JVs. And given this might be a question for Lucie.

Given what you guys are seeing in terms of maybe a slower recovery and managed business travel, I mean not just you, everybody, do you think that some of that medium to longer term growth could come more from the JVs than from the Star Alliance?

Well, there’s no doubt that from a JV perspective, if you consider A++, so the partnership that we have with the Lufthansa family and with United, we’ve been working alongside these two carriers for several, several years. And of course, through the pandemic, we’ve been able to better align.

There’s no doubt that as we recover some of these markets, there is an opportunity for us to capture some interline traffic that comes from other Star partners or even other interline partners. So anytime our network planning team exits any international route, we always look at the makeup and where we can actually draw that traffic.

But there’s no doubt that as we move forward, we’re very much aligned with our JV partners. And it also provides us the ability to really understand what’s happening in other jurisdictions.

We were talking about corporate a little bit earlier. We can actually see what’s happening in the U.S.

as far as business traffic recovery. We can see what’s happening in Europe in terms of demand levels for travel into North America.

So it’s very helpful for us to forecast what we see in the future. But there’s no doubt that we work very, very closely with our Star partners and of course with our JV partners.

Super. Appreciate that, Lucie.

And just my one very quick second question. Some of your U.S.

peers have been kind of from a configuration perspective shifting some capacity from economy to kind of premium economy. If you could refresh my memory to what degree Air Canada is also deploying that kind of strategy?

Thank you.

Well, we have so far in terms of product offering, we, of course, have premium and we also have a PY product across our network. And I would just say one other thing here for us and even before the pandemic, we spent a fair amount of time looking at multitude of opportunities for us to capture different premium segments, particularly in mid-leisure and the VFR markets.

So as we headed into the pandemic, we were able to actually offset some of the yield pressure that we felt because there was no corporate travel with PY ancillary sales for seat purchases, leisure upsell to J-Class, for example. So this is not something that is just came out of the pandemic, this is something that we’ve been working on for some time.

And of course, all our aircrafts are equipped as well with PY products.

Andrew?

What the…

Hi, good morning, everyone. Can you hear me?

Yes.

Okay. First question for Amos, can you remind us of the permanent cost savings that you’ve taken out of the business since 2019?

And with your new fleet profile, do you think those cost saves provide the efficiency to get your CASM ex back towards pre-pandemic levels here?

Good morning, Andrew, you are trying to get ahead of the story for the end of March. Nice try.

We will have more to say about that at the end of the March here at Investor Day. The savings that we had driven out of the – driven out of the company during the course of the pandemic and the recovery were – was about $800 million, the split up was about $800 million in terms of the operating expenses that came on down.

And then later on, as we layered on top of that, we also had the savings from – as we moved into consolidating the regional carrier with Sky Regional and Jazz and consolidate flying and that generated another $400 million over a period of 15 years, but it was front weighted about $50 million for the first four years, five years and then $15 million thereafter. Those are sort of the large headline stories from back in the early recovery days, but that doesn’t mean that we have stopped on any cost reductions.

We continued to look for opportunities and continue to sort of to leverage up what we have progressed through the time.

And just to add, good morning, Andrew, it’s Mike. Just to add to that, I mean we went into the pandemic with a couple of key objectives and we have always done a great job on cost management, as you know.

And frankly, our CASM-ex going into the pandemic was very comparable to U.S. airline CASM-ex on a currency-neutral basis despite the fact that we were much smaller or roughly half the size.

But we went in with an objective to try and lower our fixed cost structure of the company and lowered the breakeven point from whatever perspective we want. And we have accomplished that and we will provide more information about that at Investor Day.

Yes. And just one more piece on that, just as you look at the – all the fleet changes, which really sort of went through changing also some of the cost structure is you now look at – we have accelerated the fleet deployment of the A220s and MAXs, which on average were 12% to 15% lower unit cost than the aircraft they replace.

So again, all going towards generating and driving down lower breakeven point.

That’s great. I will stay tuned for more detail for the end of March.

Just one – my second question for Lucie. Look, there has been – international has been a topic of conversation so far.

I was interested to hear that your Sixth Freedom traffic that you started commenting about your Sixth Freedom traffic, certainly it seems like it’s returning sooner than I would have thought. In terms of your share here into the peak summer, are you seeing similar share to where you were pre-pandemic already?

I think your goal is pre-pandemic were 3%, 3.5% of the total traffic. Just curious what you are seeing there in terms of Sixth Freedom traffic?

Thanks.

Maybe I will – as opposed to looking at it from a share perspective, keeping in mind that our international network is a different makeup than what we had in 2019. But if we look at pure volume for the summer and how our advanced bookings are building on the Sixth Freedom side of the business, I would tell you then in many markets, we are actually ahead of where we were.

And needless to say, we have been very, very focused on our trans-border network as well to make sure that we have very good connectivity that we have a really good product for Sixth Freedom markets for connections to and from the United States. And based on what we are seeing, we are quite optimistic that it’s going to perform quite well for us in the summer.

And in fact, we have given ourselves some internal stretch goals here because there is no doubt that with the products we have and the schedule that we have, how we designed the schedule for the summer, there is an opportunity for us here. So, we are very, very much focused on this.

Thank you, everyone.

If at all, I will just keep it to one. I was just trying to get a sense of how you think about using some of your excess unrestricted liquidity now that it feels like the more comfortable with the recovery in front of you.

You are sitting at something like $7 billion of excess unrestricted liquidity. Is there like a gross debt payback you are looking for the near-term, or is there a trigger that you are looking at in terms of the recovery before you start de-levering more aggressively here?

Hey, good morning, Kevin, it’s Amos. So, you are right, we are sitting on, obviously, some solid liquidity here, which we feel is important to have as we go through the recovery period.

What we are doing right now in terms of beginning stages of putting the liquidity use, cash to use and de-levering is purchasing aircraft with cash. So, the MAXs that I have spoken about are all being paid for with cash.

So, that’s sort of our first use of money and I guess you can almost say then a second part of that, a small part was the repurchasing of the warrants that were outstanding. So, beside that we have continued to look at opportunities, there is nothing really close in that would say as a standout opportunity.

But we will continue to evaluate as time goes by and see how the recovery progresses and our views on cash going forward.

Yes, I mean, Kevin, it’s Mike. I think we got tremendous flexibility.

As you know, we have always been conservative. So, we typically like to hold probably a little more than average cash in the balance sheet.

But if you look at our debt schedule and what Amos and his team has done pushing out the debt schedule with all-in interest rate that’s sub-4%, we are very, very comfortable to take our time to find the best possible opportunities to deploy our cash.

I will leave it there. Thank you very much.

Have a great weekend, everybody.

Thanks very much, operator. Hi, everybody and thank you for the time.

On the 787s, are you confident that you are going to get those aircraft this year? And once Boeing is able to deliver, does Transport Canada have to do anything to certify the aircraft in Canada?

Hey, good morning, Helane. It’s Amos.

Hi, Amos.

We are fairly confident in the Boeing schedule. They have – they haven’t started delivery again yet and I think you saw the news recently that the FAA needs to sign-off on deliveries, just as they have they are doing now with the MAXs.

But we are fairly confident that we will get our one, we have one scheduled for delivery this year and then two in 2023. There is a lot of parked aircraft there.

So, it’s not a question of going down the production line, it’s more of just getting approvals and to start deliveries. So, we feel fairly confident about that.

And then on TC, there isn’t any additional TC report that I am aware that they have now said they want to take a second look at this. So, right now nothing to my knowledge that TC will have another review of the 787.

Okay. That’s helpful.

Thank you. And then for my follow-up question is just a point of clarification on testing to go into Canada.

For your Sixth Freedom flying, do people have to test to make those connecting flights and rate, I mean, do you have to like test like a lot to enter Canada and then to leave Canada? I mean I am asking because it might impact the number of people who would want to travel through one of your cities on one of your Sixth Freedom flying?

Hi, Helane, it’s Craig Landry here. The testing requirement, there is no additional testing requirement for connections through Canada.

It would be determined by their country of origin and country of destination.

Okay. That’s very helpful.

Thanks everybody.

Hey, good morning, everyone. Lucie, just if I might ask a follow-up on the strong spring-summer commentary.

I was kind of curious how you are thinking about capacity restoration kind of by geographic entity as you head into the summer, kind of what level versus 2019 we can see?

I don’t think I will provide specific numbers, but what I can say and I will start with the Pacific for the simple reason that, as I mentioned a little bit earlier, this is the one area which is we view will take the longest to restore. So, you can assume that the capacity levels on the Asia Pacific markets will not show a meaningful recovery.

But within the North American network, though for domestic and trans-border, we will be slightly behind 2019, so that we will progressively ramp up. And on the Transatlantic network, just a bit of caution here, given the fact that we are also operating incremental India or much longer haul flying, we should – we will probably be in the minus-30 or so range.

But definitely, our ramp-up commences obviously in April. And by the time we hit May and June is when you are going to see most of our international flights, particularly on the Transatlantic network start service and we will have our full ramp up for summer peak.

That’s very helpful. Thank you.

And Amos, might ask you, just what’s the diluted share count following the warrant buybacks?

I think, hang on – well, let me get back to you with that, I don’t have that off the top of my head here.

Alright. Thanks, everyone.

Thanks very much, operator, and good morning, everyone. I guess when we were chatting with your partners at Chorus Aviation about the cadence of Omicron and how we had signs of very positive signs as we ended the year or sorry, as we started the quarter, fourth quarter, Omicron having come in at the end of the quarter and then guiding down for the first.

Our question on the call was what indication even though we have that is that Omicron is temporary and that we are going to actually see a very significant resurgence, and their answer was very interesting and that they said kind of you were looking for 87% block hours that were 87% of the second quarter in 2019 for the second quarter of 2022. Understanding regional is a different piece than your overall network, but 87% seems like a pretty interesting number.

Is there anything that you – are you seeing that, obviously, you are seeing that in the regional, how would that 87% in regional compared to the rest of your network, perhaps international cross-border?

Good morning, Walter, it’s Mike. Certainly, it’s some indication, but it’s not the strongest proxy for our capacity growth from Q1 to Q2.

There is no doubt as Lucie was saying in the prepared remarks, we were seeing strong growth before Omicron hit, then it was almost a very quiet period for better part of a month, 1.5 months with a lot of cancellations. But over the last month or so, we have started seeing strong growth, strong momentum in bookings absent obviously Asia.

And certainly we have been speaking to Chorus and Jazz about their support. But again I would not take their comments as a clear proxy to our Q2 capacity guidance.

Okay. When you look at your workforce and I know you are looking at reductions compared to 2019, but when you look at your headcount for example, what should we model when we get back to, let’s say, the same capacities you had in 2019?

Would we model roughly the same employee or headcount or is there some savings that you have and synergies that you were able to achieve that we won’t have the same headcount in that recovery year, full recovery year as we had in 2019?

Hey, Walter, it’s Mike again, another good question around capacity. So, we have looked at efficiencies and so we are staffing up right now, as we spoke about for a strong – stronger summer.

When we get back to 2019 levels, we are hoping our objective is to be slightly under from a headcount perspective, showing some of the efficiencies we have gained over the last little while. So, I don’t think we will – on ASM-to-ASM, I don’t think we will be at the same headcount number, we will be slightly lower.

But certainly, we look to continue to grow and beyond 2019 levels and that we will continue to add staff at that level.

That makes sense. Appreciate the time.

Thank you very much.

Yes. Thanks.

Good morning. Just kind of a question on corporate travel I guess.

I wonder if you can maybe comment on how much of that had recovered for you prior to the onset of Omicron something kind of in October, November timeframe. And I guess associated with that, what are you seeing I guess in recent weeks?

I mean we have obviously got some more announcements around provinces, allowing return to work. So, I am just wondering if you have seen any meaningful pickup in the corporate travel market or corporate travel bookings just in the recent weeks?

Hi. It’s Lucie.

Well, listen, you are absolutely correct. When we were starting to see a little bit of improvement in the corporate sector, particularly for travel within North America and of course, when Omicron hit and travel restrictions became somewhat tighter here, that pretty much stalled.

But couple of things I want to comment on. There are some sectors in Canada that have shown resiliency throughout the entire pandemic, if you think construction, engineering, there are some sectors of our corporate traffic that has continued to travel, of course, in a fraction of what we would have experienced in ‘19.

But I have to say, over the course of the last two weeks or so maybe three weeks, we do see very slow, but we do see progress week-over-week. So, there is no doubt as travel restrictions ease, some of the testing requirements become easier.

Mike spoke about that, that obviously, this was the first step. There is more that needs to be done there.

But as we also see corporations going back into the office, we are still in some provinces under mandatory work-from-home as soon as people go back into the office, we can see that the sentiment is there. Of course, we have been in touch throughout the pandemic with our corporate accounts and with agencies that specialize in the corporate business.

So, we hear the feedback. We are just also, of course, very anxious to start to see the trend take a bit of a sharper turn here.

But there is no doubt that we are seeing some changes, particularly in North America. It’s just – it’s much, much slower than what we are observing in other sectors.

Okay. And if I could just squeeze in a quick clarification for Amos.

I don’t know – I apologize if you mentioned this, but what was the cash that you spent on retiring those warrants in January?

About $82 million, Cameron.

Okay, perfect. Thanks very much.

Thanks, good morning, everyone. I just want to turn to an earlier question, Mike, about sort of the cash, your very strong cash position.

And forgive me if you mentioned this, but I am just wondering if you can provide some thoughts on what is the ideal longer term cash balance for the business now, if it has changed relative to pre-pandemic for any particular reason, whether it’s in an absolute dollar value or whether it’s relative to revenue, which is a metric, I know that you used to reflect on. Just any thoughts you have on kind of when we get back to normalized conditions, how to think about the ideal cash balance for the company?

Tim, it’s Mike. Amos made some comments as well because this is a discussion we are having internally.

And I think every airline is having internally given the lessons learned through the pandemic. And certainly, the fact that we were conservative going into the pandemic served as well to power through the pandemic.

So, I wish I have better answer for you, Tim. We are still kind of discussing that internally as to – I don’t think it’s going to be a percentage of revenue.

I think it might look more at cost structure, at potential losses because we have experienced something that was unheard of over last 2 years. And so we have learned a lot more about what type of insurance we need to maintain on our balance sheet, either through operating lines or hard cash.

But certainly, what we have today is much too high from our perspective. And – but we will have – we can do some further analysis and see where other airlines are going to some degree as well, but I think still more to come on that very, very important question.

Okay. That’s the only question I have.

Thank you very much.

Thank you.

I believe that’s all the time we have for the call today. For those of you who may have not had the opportunity to ask your question, we invite you to contact us at Investor Relations and we will be happy to take your questions there.

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