Air Canada

Thank you, Valerie, and good morning. Bonjour.

Thank you all for joining us. I'd like to first thank our employees for their commitment to excellence, passion and dedication to customer service, all of which enabled us to be named the best airline in North America, and the most awarded Canadian carrier at the 2025 Skytrax World Airline Awards in June.

I was so proud to see their professionalism recognized at the Paris Air Show. And as a founding member of Star Alliance, we are proud that Star has yet been named again World's Best Airline Alliance at the same time.

As we've discussed in the past, we are focused on improving the customer experience, leveraging technologies, process and training. We have significantly improved the customer experience over the past couple of years, resulting in high NPS scores and strong on- time performance.

And we have much more to do, all of which is expected to generate even greater loyalty, enhance revenue and cost performance. For the second quarter, our revenues were $5.6 billion.

Operating income reached $418 million and adjusted EBITDA was $909 million, with an adjusted EBITDA margin of 16.1%. We are generally pleased with our results, especially when considering 2025 has not been business as usual to date.

We have effectively navigated through challenges in various geographies and demonstrated the strength and resiliency of our business and commercial strategy. We achieved these results by exercising disciplined capacity management, taking quick action to capitalize on the strength of our diverse network and capturing the demand for premium products.

We carried on with the strategic expansion of our international network with new flights designed to provide easy connections for Canadians and international travelers, and to take advantage of cargo opportunities. Mark will speak more about this later.

Our 2Q results were supported by Air Canada Cargo, Air Canada Vacations and Aeroplan, all vital to our diversified business. Aeroplan received 3 top prestigious Freddie Awards in the airline category: Best Program of the Year, Best Elite Program and Best Promotion for Aeroplan's 40th Anniversary.

Aeroplan continues to grow, with third-party gross billings increasing 7% year-over-year. It also expanded its partnership by adding Chexy, an innovative Canadian founded fintech platform.

This will allow members to earn rewards on payments for services like rent, bills and taxes. During the quarter, we also launched fast, free Wi-Fi for all Aeroplan members in North America.

We are a leader in this increasingly competitive space for business and premium travelers with an offer that is reliable and more consistent than any other North American network carrier. Acting further, our commitment to enhancing shareholder returns, we completed our $500 million SIB in the quarter, reducing some pandemic-induced share dilution.

We remain deeply committed to executing on our long-term strategic plan. Our focus remains on creating lasting value for our shareholders while fostering an inclusive forward-thinking culture that drives our collective sustainable success.

We are confident in our business outlook and our ability to execute, and we are reaffirming our full year guidance. Before I turn it over to Mark, I'd like to thank our employees for looking after and safely transporting more than 11 million customers in the second quarter.

I'm grateful for our customers' loyalty as well, which we look to earn every day. Thank you, Merci.

Over to you, Mark.

Thanks, Mike, and good morning, everyone. [Foreign Language].

Thanks to our employees for delivering these results. Before I begin, I'd like to echo Mike's comments and congratulate our employees on the Skytrax recognitions.

[Foreign Language]. This second quarter was not business as usual.

We navigated through a period of significant economic and geopolitical uncertainty, and we contended with reduced demand for transborder travel and evolving geopolitical landscape affecting the Middle East and India, increased competition in China/Hong Kong and some currency fluctuations. Ultimately, we delivered solid results with our PRASM and yield performance leading North American network carriers.

The overall Q2 performance further validates our commercial thesis. Our network and customer diversity in tandem with our strong foundations enables Air Canada to better adapt to evolving market conditions.

The main highlights of Q2 were the strong performance in the transatlantic, the growth of our sixth freedom segment, and the continued and sustained demand for our premium products. Overall, our operating revenues increased 2% year-over-year to $5.6 billion.

TRASM declined 0.5% year-over-year with growth in cargo and other revenues offsetting some of the decline in unit passenger revenues. On the passenger side of the business, our revenues rose 1% on a 2.5% increase in capacity.

We made the right early calls to match our capacity to the evolving demand landscape and a diversified network and disciplined capacity management supported strong performance in international overall. Notably, the Atlantic and Latin American market saw revenue growth of 5% and 11%, respectively, driving a 2% unit revenue increase in these markets.

And as anticipated, demand continues to grow off-peak towards Southern Europe as our customers take advantage of milder temperatures and fewer crowds. The shift of Easter into the second quarter this year also supported the growth in these markets.

Across the Pacific, we continue to see increased competitive capacity, pressuring yields in the region, primarily from China and Hong Kong. This translated into lower unit revenues as overall industry supply and demand continue to normalize.

We are very pleased with our sixth freedom revenues, which grew 17% with strong performance in the Atlantic and Pacific market. Sixth freedom traffic growth is core to our revenue growth strategy.

In the transborder market, we continue to see less demand for trips to the U.S. Revenues declined 11% on 8% less capacity despite stronger yields year-over-year, in part due to lower industry capacity in the market.

The year-over-year decline in bookings is consistent with our previous commentary. Ending with domestic, we observed industry capacity growth amid redeployments from the transborder market.

We kept a strong and steady presence and offered more options for travelers to explore the country, increasing capacity on key leisure destinations. Passenger revenues grew 3% year-over-year with a 2% decline in unit revenues.

Shifting to cabins where demand for our premium products was quite strong. Premium cabin revenues grew 5% year-over-year, with robust performance in international markets.

Premium revenues represented close to 31% of total passenger revenues in the second quarter, which is an expansion of more than 1 percentage point year-over-year. Overall, and fundamental to our passenger revenue results was our diverse network, our agility in aligning capacity shifting demand, our leading premium and branded fare offerings and our revenue management capabilities.

We are pleased with the outcome of this quarter. Now over to cargo, where revenues increased 10% to $253 million in the quarter as shippers continue to adjust the global trade landscape.

We anticipate a more normal environment for the rest of the year. Other revenues also performed strongly in the quarter.

This was due to a solid performance at Air Canada Vacations with higher ground package revenues and increased non-air revenues related to Aeroplan. We have built a strong revenue base at ACV, which we will expand in the second half as travelers seek out new and exciting destinations.

We see strong momentum for the Sun market for the balance of the year. And the excitement was evident in the second quarter as we expanded the breadth of our network towards Naples, Porto, Prague and Manila.

Our flights between Vancouver and Manila, now link Canada and the Philippines year-round, solidifying our position in North America's airlines serving the most nonstop destinations in Southeast Asia. We also restarted flights to London Heathrow from Ottawa and Osaka from Toronto, launch flights to Edinburgh from Montreal and enhance our rail connections in Germany with a codeshare on Lufthansa Express Rail.

And as we zone in on the second half of the year, there are 3 components that support our view. First, we continue to witness strong demand for our international network through the end of the year and into early Q1 2026.

As booking trends continues to evolve, we see greater relative strength in the fall and early winter periods versus historical norms. Secondly, we've made continuous adjustments to our hub airport schedules and operations to better favor sixth freedom travel, reducing elapsed travel times and improving our overall competitiveness in the market.

Third, with A220s progressively returning to line operations, our upcoming schedules offers enhanced network coverage and schedule quality. This will unlock greater connecting opportunities to our international network.

And further, as we discussed at our last Investor Day, we continue to implement branded fare and other revenue improvement initiatives. We are in the early innings of these enhancements, and we're seeing promising initial results.

As of today and across the system, we anticipate a stable demand and yield environment for the fall. We continue to see slight pressure on the economy cabin yields, which we expect will be offset by premium cabin strength.

The fourth quarter traditionally has a shorter booking curve, so still relatively early to provide additional color, but we will continue to use our proven playbook to manage and deliver on our plans. We are closely monitoring the state of the Canada-U.S.

sector where we see a decrease in overall market capacity. We retain ample flexibility to respond to changing market conditions.

We look forward to recently announced expansion into Latin America, returning to Rio and Lima and adding Guatemala to the network. These additions, along with the routes we've already mentioned, leverage the strength of our brand and our hubs to further diversify our revenue streams and create more sixth freedom opportunities.

In terms of capacity, we expect capacity to increase between 3.25% and 3.75% in Q3. We reaffirmed our expectation for the full year capacity to grow between 1% and 3%.

Looking beyond 2025, we eagerly anticipate the arrival of our first Airbus A321XLR in 2026. We have exciting plans for this game- changing aircraft, which is poised to unlock new and profitable market opportunities.

Stay tuned as we plan to unveil our summer 2026 XLR destination in the coming weeks. We are confident in our growth opportunities fueled by Canadian demographics, sixth freedom network expansion and market-leading products and offerings.

We are executing our long-term plan rooted in Air Canada's proven commercial strategy and anchored on our diverse network, our competitive fleet and well-positioned hubs, all of which are supported by investments and propelled by a strong team that can execute. Thank you.

Merci, John, and over to you.

Thanks, Mark. Good morning, everyone.

[Foreign Language]. A shout out to our employees for their commitment to delighting our customers and executing in a challenging environment in Q2.

[Foreign Language] In the second quarter, we reported an operating income of $418 million and adjusted EBITDA of $909 million, with an adjusted EBITDA margin of 16.1%. Operating expenses grew 3%, supporting capacity and traffic growth, absorbing the impact of a weaker Canadian dollar while benefiting from the lower jet fuel prices, which declined 16% year-over-year in Q2.

This includes a hedging gain of $19 million realized in the quarter. With fuel prices trending up in the last month, it's worth noting that we have a hedging position for approximately 17% of the anticipated purchases of jet fuel for the third quarter at levels below current spot prices.

Q2 adjusted CASM of $0.144 increased 6.4% year-over-year, primarily due to higher unit labor costs and to a lesser extent, higher depreciation, airport and navigation fees and catering. This was partially offset by a 2.5% year-over-year growth in capacity and labor-related and infrastructure productivity gains.

Diving into cost elements a little further. Note that labor expenses increased 16% year-over-year on less than 1% headcount growth.

While largely in line with our expectations and planning, year-over-year compares in overall labor costs will be challenging in Q2 and Q3. The main reasons for this include, first, the realized and estimated impacts of achieved and anticipated new collective agreements with our pilots ratified in Q4 2024 and our flight attendants currently being negotiated.

Second, the noncash impact of the recent share price appreciation in Q2 on stock-based compensation accounting expense. And finally, we saw some year-over-year volatility in other payroll and wage accruals.

As we have said in prior calls, we expect some unit cost pressures to continue as cost escalation makes its way through the system on items such as labor, airport and navigation fees, depreciation and maintenance. And when focusing on year-over-year comparisons for adjusted CASM in Q3 specifically, keep in mind the favorable cost adjustments recorded in Q3 2024.

We are proactively driving management's actions to limit these increases. We are making strong progress on our $150 million cost reduction program and expect to deliver most of the targeted savings in full year 2025.

We're also focused on developing and implementing sustainable unit cost improvement strategies as we outlined in our December 2024 Investor Day. For full year 2025, while we do see some pressure to the upper end of the range, we maintain our full year adjusted CASM guide of $0.1425 to $0.145.

Turning to free cash flow generation, balance sheet management and capital allocation. Cash from operations reached $895 million, showing strong conversion of EBITDA to cash from operations over the past 12 months, aligning well to our long-term targets.

In Q2, we generated free cash flow of $183 million, $268 million lower year-over-year, largely due to higher planned CapEx. Year-to-date, free cash flow was $1 billion at the end of the first half of 2025, giving us confidence in our free cash flow target for full year 2025.

Moving on to our balance sheet. Total liquidity was $8.4 billion, down about $1 billion from the first quarter.

This was largely due to cash used for financing activities, reflecting the reduction of debt and lease liabilities and funds used to purchase shares for cancellation. Leverage ratio remained stable at 1.4% as at June 30, 2025, emphasizing the strength of our balance sheet and that it is well within our 2x or less leverage target, highlighted at our last Investor Day.

In Q2, we made another very important step in our shareholder return program by launching and completing a $500 million substantial issuer bid, repurchasing 26.6 million shares at $18.80. As you may recall, we have earmarked up to $2 billion for share buyback initiatives from 2024 through 2028.

In aggregate, the Q3 2024 NCIB and the Q2 SIB have returned $1.3 billion to shareholders. And we have purchased more than 62 million shares for cancellation.

At June 30, the total issued and outstanding shares were approximately $296 million. And after the quarter ended, we repaid in full the balance of the convertible notes for a total amount of approximately $382 million, including accrued interest.

The notes were canceled and their associated potentially issuable shares will not be a consideration in computing the diluted earnings per share for future quarters, except for the year-to-date calculation for the period to July 1, 2025. With the progress made to date and the antidilutive capital deployment actions completed, we are confident in achieving our objective to have our fully diluted share count below $300 million by 2028.

With our balance sheet in order, our shareholder return program progressing, let's turn to capital allocation towards investment in our fleet, enabling profitable growth. In the quarter, we added three A220s and two 737 MAX aircraft.

We expect to receive another five A220s and one 737 MAX by December, with CapEx to be about $3 billion for full year 2025. We have spent approximately $1.4 billion year-to-date.

Deliveries of the A321XLR will begin in 2026, totaling 11 aircraft by the end of the year. We also expect to receive our first two 787-10 aircraft and another 4 737 MAXs.

There are no significant changes to our CapEx expectations for 2026 and the changes in our disclosures are mostly linked to the timing of maintenance events and favorable foreign exchange variance since Q1 2025. Our fleet strategy is financially accretive as it is closely linked to our growth strategy, benefits our customers and drives superior aircraft economics, scale, efficiency and network optimization benefits.

These new aircraft allow us to initiate new destinations and enhance our existing service and onboard products. As Mark noted, we will be sharing exciting XLR destinations for the 2026 schedule in the coming weeks.

Our entire team is enthusiastically ready to welcome this aircraft type to the fleet. As we look to the remainder of 2025 and beyond, our confidence in our business outlook remains solid.

Today, we reaffirmed our guidance for the full year 2025. We continue to expect 2025 adjusted EBITDA to be between $3.2 billion and $3.6 billion.

We assumed jet fuel averaging at $0.92 per liter for 2025 which is expected to represent an impact of about $200 million on the full year from our prior expectation of $0.88 per liter. We now anticipate the Canadian dollar will trade at an average of $1.39 per U.S.

dollar for the year. This is lower than the levels seen in the first 5 months of 2025 and should produce a small EBITDA tailwind to our prior expectations of $1.40 per U.S.

dollar. Our 2025 guidance update continues to assume a marginal Canadian GDP increase aligned with market expectations.

As previously mentioned, we continue to expect adjusted CASM to be between $0.1425 and $0.145 and remain focused on managing controllable factors and mitigating industry-wide cost pressures. This includes being disciplined and selective in discretionary spending, seeking and delivering on efficiency and productivity initiatives and being agile and proactive in making rapid strategic capacity adjustments as conditions evolve.

As indicated earlier, we are maintaining our 2025 free cash flow guide at breakeven plus or minus $200 million. Now perhaps a word on trade and tariffs.

We are continuously assessing the evolution of these regimes. Despite some modest impacts, we expect 2025 tariff costs to remain rather contained, particularly considering our plane deliveries for the remainder of this year.

We continue to work with suppliers to mitigate any potential impacts and to better understand the longer-term implications and necessary actions as more permanent and sustained policies are formalized. We have made good progress towards our longer-term goals thus far.

We remain focused on our 2028 targets and energized about our 2030 ambitions. Our strategic long-term plan will help us maximize shareholder value and secure a successful and prosperous future for Air Canada and all its stakeholders.

Back to you, Mike.

Great. Thank you, John.

Our focus, our commitment and discipline are driving our long-term plan execution, managing the risk environment and taking advantage of opportunities as they arise. We are also laser-focused on ensuring an efficient operation during the peak summer period and building on gains achieved over the last few years.

Perhaps a word on our negotiations with our flight attendant union, CUPE, currently seeking a strike mandate should an agreement not be reached. Such a vote is a normal step in the negotiation process and does not mean that any disruption will take place.

We remain committed into the marketing process and available to continue negotiations towards a fair and equable collective agreement, one that recognizes the contributions of our flight attendants and supports the competitiveness and long-term growth of the company. We remain focused on what we can control, including managing costs diligently, disciplined capacity management to match supply with demand, running our operations effectively and delivering a positive travel experience to our customers.

Our global network and efficient fleet connecting Canada to the rest of the world, along with our diversified revenue base, product offerings, strong balance sheet, liquidity management and cost reduction program are key strengths that we will continue to develop and leverage. We have a very strong foundation, which continues to improve.

We are executing our strategic plan to honor our long- term commitments and drive sustained positive impact for all stakeholders. Thank you.

Merci. Valerie?

Valerie Durand Head of Investor Relations & Corporate Sustainability Thank you, Mike. And thank you all for joining us this morning.

[Foreign Language]. We're now ready to take your questions.

Should you require further details following this call, our Investor Relations team is available for support. Back to you, Krista.

Maybe just my first question, it's a little bit different. But just thinking about some of the announcements we've seen about airline alliances in the last little bit.

It looks like maybe American is looking to join up with Porter. We've seen certainly some talk about WestJet and Delta and what that could mean.

So I'm just wondering the success you've had with sixth freedom and how you've been able to deploy into international markets, it seems like a lot of ways you've kind of done it very well and now you're starting to get some imitators, if you will. How do you think those airline alliances as they enter Canada could impact how you guys are operating?

Any color on how that could come about would be helpful.

Chris, Mark here. Excellent question.

So certainly, we're seeing an evolving alliance landscape. As it pertains to sixth freedom, I don't see much of an impact here because we've got a Porter American alliance, which will largely be a Canada-U.S.

sector. We have obviously WestJet and Delta that had a long-standing partnership and you've seen WestJet put a lot of capacity into Delta hubs.

I don't see that really impacting our sixth freedom franchise. And I don't really -- we have got a very strong relationship with United.

We have a joint venture with United on transporter which has been very, very successful. So at this time, I don't really see much of a change to the way we're operating today.

And Chris, let me just add a point. Star Alliance is the best alliance out there.

And we are doing some things to better tie together the technology and customer experiences among all of the carriers. So I think we're certainly going to be raising our game as well from a Star Alliance's perspective.

Okay. That's helpful.

John, maybe this one's for you a little bit more. Back at Investor Day, we talked a little bit about the bridge between EBITDA and EPS, and it seems to be a little bit noisy as we go in through the year.

Can you just remind us kind of how we should be thinking about tax and tax positions as we go through the rest of the year? Anything else that might kind of be moving stuff around, anything in depreciation or interest to be aware of, just as we try to make that bridge down now that we also have kind of a revised share count number, which I would assume will be relatively stable for the rest of the year?

Yes. Thanks for the question, actually.

And I think it's good to probably continue to exchange on this as we particularly close out the year and then set up 2026. But a couple of things maybe just to think about.

One, from a tax point of view really since the pandemic through last year, we had kind of an off-balance sheet tax asset, right? So every time you have tax expenses, they would be offset by a recognition of the tax asset usually in the same quarter.

That tax asset was fully recognized at the back end of last year. So the one thing is that starting in 2025 here, especially on the compares to '24, you'll see the tax expense -- the accounting expense every quarter.

And so that does create kind of a year-over-year differential in the quarter. You feel that certainly, as you look 2025 versus Q2 2024.

It's probably -- it's a significant part of the gap between one to the other. The other element that -- and then on the taxes, maybe just, again, here, things move around in terms of the rates themselves, but think effective tax or statutory tax rate somewhere around 26.5%.

There are some items, for example, meals and expenses that don't get full deductibility from a tax perspective in Canada. So effective tax rate is closer to 30%, 31%, depending on other elements.

So just think about that as you tax affect earnings. The other piece is depreciation.

So you're going to have a multiyear growth and depreciation that will -- and we talked a little bit about this at Investor Day, but that will go year-over-year for the next few years. And there's no specifics here, but think about a couple of hundred million dollars a year of depreciation and expense amortization growth as we go through between year and 2030 as we work through our CapEx cycle.

So that as well noncash, but has an EPS impact. And so those are the 2 major kind of differentiators from kind of, let's say '24, and that will be now solid for taxes going forward, compares will be, I think, good.

But for depreciation, you'll have some pressure year-over-year.

I wonder if you could just give us some color on just what you're seeing in kind of the various regions. But any kind of deeper color that you can provide on just how we should think about like the yield progression here in third quarter and into the fourth quarter just based on what you're seeing today?

Savi, so we continue to see very strong demand for our international network at large. So the Atlantic, the Pacific.

And then as we look into late Q3 into Q4, we see a lot of strength in the Sun market where we have shifted some capacity away from the transborder market into the Sun market and all of that seems to be quite strong going into late Q3 and Q4. Too early to comment on Canada and the U.S., so the domestic and transborder right now because we're on a small booking base, but we expect those to be relatively stable.

On the yield side, we should expect yields to be relatively flat year-over-year. There'll be a little bit of pressure in the Pacific as there's a lot more capacity to China and Hong Kong, which will be offset a little bit by some strength that we see in Japan and Korea and Thailand, in particular.

So a pretty good environment overall, and our network is well adapted to that international demand that we see in Q3 and Q4. And as we've noted in the remarks, we're seeing booking curves moving more into later in the quarter.

We see more relative strength in September, October and early winter than we normally do. So that bodes well for us.

That's very helpful. And if I might, looking at the -- there were some modest changes in the fleet plan as it relates to retirement.

I was wondering if you could talk a little bit about what drove those positions? And if there's -- if we should kind of expect any unit cost benefit to anything as maybe your avoid maintenance or anything around those?

Yes. I think we continually look for opportunities to optimize the fleet and transition to newer aircraft, and we have some older 319s in particular that as kind of maintenance costs get high and we get into major events.

We have alternative lift as we bring on 737s and so on, and the 220s in particular as well have been coming into the fleet. So it's part of the overall opportunities for us to continue to use scale and modern aircraft as we grow to manage unit cost.

And I think it's fairly consistent, reflected in what we put out there on Investor Day.

And John, is that like the faster regional retirements, is that kind of greater confidence as you get into the mainline fleet?

I think it's a factor of A220s is being deployed effectively. And overall, I think just as we optimize the network and the deployment of the aircraft, we make those decisions.

Maybe one on ASM. You had a pretty good showing this quarter, it looks like it's going to be improvement next quarter.

Our math suggests that you kind of hit the middle end of your annual guidance even if you had no capacity growth in Q4. Just given the fact that bookings sound pretty good, I guess the question I'm circling here is, is it now more likely that you'll kind of end up on the high end of that 1% to 3% range just what you're seeing in the market?

Or is it there an expectation that Q4 might be flat or negative versus Q4 '24?

Matt, this is Mark. With respect to Q4, we're looking at ASM growth between 2.5% and 3%.

And we don't see any material changes to that right now. And I would say we're still looking at kind of the middle of the guide in terms of our overall annual ASM growth.

Okay. Maybe another question would be like, of the geographies that you serve, where do you see the kind of biggest risk factors that exist that could potentially get you to the low end versus maybe the high end of that guidance range, just given what you've given so far?

Well, we've got -- the majority of our ASM growth is going to occur in international markets. So that's transatlantic and transpacific.

We've reduced U.S. to an appropriate amount.

The risk would be that there's a bit of a reduction on our international route network. But at this time, given the booking posture that we see and the momentum that we have, we don't see any material change to that ASM profile, especially going into Q4.

Okay. So it's not like further reductions in the U.S.

or something that would be the biggest factor international opportunities?

Yes. Not at this time.

But like I said, we have a lot of flexibility. So we can move capacity around the services.

But overall, at this time, I think we're going to keep the plan that we've got and the outlook certainly supports side.

This is Louis on for James. This question is for John.

John, just on the CapEx guide, the schedule coming in a bit lower. Just to clarify, is that just -- is that an absolute reduction in the maintenance spending from some of these new deliveries?

Or is that kind of a deferral? Will there be a deferral to later periods?

Yes, I'd say the bulk of the change is really FX. There's a little bit of timing there in maintenance.

But if you look at the end of Q1 to the end of Q2, we used the quarter end rate to convert our U.S. dollar commitments going forward.

So you had like a 5%, 6% reduction from one quarter to the other, and that's the bulk of the movement down. We didn't really change any delivery expectations and maintenance does move around a little bit, but that wouldn't overplay that.

Okay. Great.

And then just generally, guys, on the OTP performance, 2 consecutive months you ranked #1. Could you provide some insights into what's driving that improvement?

Is this partly due to some capacity reallocation away from congested U.S. airports and is it sustainable if we see kind of demand come back to transborder?

It's Mark Nasr. So obviously, some very good work from employees throughout the operations in the quarter.

I'd call out 3 things. The first is a focus on getting aircraft, particularly at the beginning of the day out on time or departures at 0 metric, driven by GO, which is our focus on closing all the doors 5 minutes before the part time.

Number two, we've put in a lot of new technology in the operation that is improving decision support functions, and we're still at the early innings of that, and we think that there's more we can do and we have plans to that end. And number three, during the quarter, we did have a favorable weather at our hubs in Canada.

I wouldn't call out any reallocation of flying like for example, in the U.S., as you mentioned, as being a theme there.

Maybe first question on premium, if that's okay. Can we talk about premium revenues for Air Canada?

I think in Q1 grew 2%, slightly less than capacity. And then in Q2 grew 5%.

So U.S. carriers have seen the spread between premium and main cabin widen.

Can you talk about the difference in unit revenues in Q2 and how you're thinking about premium for the remainder of the year?

So the difference between Q1 and Q2 is the composition of our network. In Q1, we have a larger presence in Sun markets, leisure markets in general.

And then as we go into Q2, Q3, we really ramp up our international network, and we've seen a lot of demand strength in general for leisure destinations in Europe, et cetera, some strength in premium demand for Japan and Australia. So it's really kind of the composition of our network that leads to the changes.

And I think you should anticipate that, that continues into Q3. Still a little bit early for Q4, but the signals that we have for Q4 is that, that premium strength will continue.

But as we get into Q4, as we've noted for Q1, the network starts to shift again a little bit more to the Sun market, but international long haul is really contributing to those results.

Got it. And then maybe one on cargo, quite strongly in Q2.

You've moved around some freighter aircraft in the past year. Curious if you're fighting greater opportunity given global trade policies?

And would that support deepening your efforts in cargo?

Interesting question. So the peak that you saw in Q2, we don't anticipate that continuing at the same rate in Q3 and Q4.

I think you'll see a bit of normalization in Q3 and Q4. And a lot of that was driven by the strength in particular, Asia, some of that uncertainty that led to a lot of yield growth, particularly out of Asia.

I don't think we'll see the same relative strength into Q3 and Q4, but overall, the cargo revenue picture stays relatively stable.

I wanted to ask another other question on the sixth freedom growth that you saw, which was really strong in the quarter. I'm just wondering if you can maybe talk a little bit about how that has evolved in the last several quarters?

Like it feels to me like there's maybe more of an opportunity here for sixth freedom connecting Latin America to Europe Pacific versus in the past, more of the growth coming from U.S. origin passengers.

So maybe you can just talk a little bit about the evolution?

Sure. Sure, Cameron.

So obviously, we're very pleased with the numbers. What we did in Q2 is as we -- we had some reductions in the transborder of the network.

The one thing we did not do is we did not touch any of our sixth freedom connectivity at all. In fact, we reinforced it.

And there was a strong commercial execution plan to really focus on that because some of the yields that we saw coming out of the U.S. were quite favorable.

As we go into Q3 and Q4, and as I suggested in my remarks, we've made more tweaks to our hub airports to favor sixth freedom. So obviously, you saw what we're doing in Latin America, whether it be Guatemala, whether it be some things you've seen in Mexico or even the things we're doing in South America between Lima and Santiago, we've built some very competitive elapsed times that give us very favorable shelf display.

But in addition to that, what's new year-over-year is we had a lot of grounded fleet last year. We had a lot of fleet shortages that really kind of vented us from building out our sixth freedom network in the fall and the winter, and we're over that hump now as 220s come online.

So overall, I think you'll continue to see very favorable progression of sixth freedom revenues into late Q3 and surprising numbers in Q4 at this point.

Okay. No, that's very helpful.

And just maybe secondly from me, I know you don't want to talk about, I guess, the flight attendant talks and negotiations. But just wondering if at this point, you've seen any indication of any book away from maybe consumers who might be worried about a potential strike, just if there's any evidence of that so far?

Yes, I think your first comments is the right one, and we really don't want to talk much about those given where we are in our negotiations. I made my comments in my closing remarks.

And I think we -- given the confidentiality of discussions, I think that's the appropriate place we're going to end up on the topic.

To begin with the question on free cash for John. I mean, you have -- first half, you produced $1 billion.

For the full year, you're saying breakeven plus/minus. I mean, if I go back in the history, I've never seen you guys burn $1 billion of free cash in the second half, except for obviously 2020 COVID.

What gives you sort of the lack of confidence, I guess, in bumping up the free cash guidance?

Well, I think -- I mean, first of all, I think we've managed the year well. We've made some decisions to manage CapEx as kind of the year progressed.

We adjusted our fuel number. We wanted to make sure we had all of that in there.

I think by and large, we're targeting the upper end of that range and so we'd like to post a positive cash on the full year. We'll watch the second half of the year as it evolves here and then we'll make a call probably in Q3 to tighten up ranges across the board.

But we are focused on generating positive cash and that starts in '25.

Makes sense. And then maybe for Mark, transborder capacity, I guess, you took out quite a lot in the summer, right?

You were talking about the low teens sort of demand declines and whatnot. When you bring back capacity to transborder, do you anticipate like bringing back all at once or it's going to be more gradual?

Because I think the yields are holding up pretty well in transborder, right, given the industry capacity. But do you expect yield pressures as capacity comes back over the next 12 months or 24 months?

So Konark, the -- where we've really removed capacity on the U.S. is into traditional U.S.

leisure markets. So think of markets like Florida, Vegas, Arizona, markets where there's a very heavy point-of-sale or product commencement in Canada.

We think we're going to restore some of that capacity gradually. But right now, we continue to plan an environment where things stay the same kind of there's no real improvement in the overall demand posture.

But like I said, we have a lot of flexibility to move capacity around. But at this time, we continue to think that the situation that we're in will continue all the way through the end of the year.

But like I said, again, if things did improve, we can be very agile and move capacity gradually or rapidly depending on how market conditions evolve.

Just wanted to dig in a little bit on the greater in the fall and winter season. And just curious if there's any demographics impacting that?

And specifically, is the baby boom generation with more trouble flexibility into the fall? Do you see that being something that's a little more structural in the next couple of years?

Yes. That's an excellent question because we're actually asking that question ourselves internally.

We definitely agree that there's a shift in the booking curve, and that is supported by some demographic changes. But as well, it's a lot more pleasant to go to Europe or travel internationally in the fall than it is in peak summer.

And I think that's being reflected in some of the advanced booking numbers that we see. And again, we see greater relative strength in September, October, or even early November than we usually do.

I was wondering if you could update us on what you're hearing from your corporate clients and what your expectations are for corporate travel kind of as we move into the fall after the summer?

So on corporate, we had a pretty stable Q2. In fact, we were surprised by how strong we saw corporate performance overall in May and June.

April was a little bit soft, but obviously, we had Easter there. And going into September and October, we have no reason to believe that, that will slow down.

We continue to expect it to be more or less the same rate that we saw in Q2.

Okay. Great.

That's really helpful. And then just for my follow-up, I just want to make sure, did you say -- did I hear this right, you said yields flat year-over-year in the third quarter and then just we are all on the same page, how are you guys thinking about PRASM in 3Q?

Okay. So we are looking at an overall flat yield environment for Q3, and I think you should expect the same for PRASM or TRASM, maybe slightly down year-over-year.

John, just wanted to kind of focus in on the cost side a little bit. Just first, in 2Q, can you quantify what the stock-based comp impact was?

And I would think that's more onetime related to 2Q unless the shares move meaningfully higher here throughout the course of 3Q?

Yes, thanks for the question. So it is onetime in nature relative to the movement of the stock price itself, right?

So stock moves, I think, about 45% or so, end of Q1 to end of Q2. And with that, it's about $30 million or so of expense.

I think it was $31 million, the actual number.

Got it. And then just based on your comments on 3Q, it fair to say that when we think about 3Q CASM growth year-over-year, that it's higher than 2Q and then you see a much more meaningful deceleration in 4Q to kind of triangulate towards the higher end of the CASM guide?

Exactly. That's exactly what the comments were intended to highlight.

It will gap out in Q3. So last year, we did have some favorable adjustments on -- to the onetime basis that are going to even -- they're going to exaggerate the year-over-year compare on CASM Q3.

And to your point, mathematically then coming back to probably a little bit towards the higher end of that $0.1425 to $0.145 range for a full year.

Maybe I could just follow on Konark's free cash flow question. I mean, you gave us a lot of disclosure.

You have your back -- you have your EBITDA guidance for the year, we have your estimate for the back half. You convert about 100% of that to operating cash flow before working cap.

We have your CapEx. And if I look back the last couple of years, your working cap drag in H2 has been about $850 million.

Like if I just sum it all up, plus the free cash flow you generated year-to-date, it feels like you could even exceed the upper end of your free cash flow guide. So I'm just wondering, is there something on working cap we should be thinking about?

It's just broad conservatism because you still have 6 months to play out here. Just maybe framing the numbers we're seeing versus the free cash flow guide you have out there?

I think it's -- we are focused on delivering to the higher end of that range, so into the positive. We've got just a little bit more than half of the CapEx to go in the second half of the year.

There's still a little bit of volatility out there. We do still have the negotiation here to complete as well.

So we're just making sure that we leave ourselves some room to actually navigate this well and land where we should be for the end of the year.

Yes. That makes sense.

And just -- I noticed on the Pacific yield front, I know that I guess the past few quarters, you've talked about a little bit of pressure on the yields. But the year-over-year degradation has improved over the past 3 quarters from a year-over-year degradation perspective.

Just wondering, are you starting to see signs of stabilization? And should we expect that continued trend in the back half of the year?

It seems like you're seeing pockets of certain submarkets within the Pacific improving here. So just wonder if you could clarify that?

Kevin, so it's a question of compares. So last year, obviously, as we went through Q1 and then Q2, things started to normalize a little bit in the Pacific as capacity came back online.

So as we look into late Q3 and Q4, we start rolling that over, and we should start to see less degradation in our overall RASM on the Pacific.

Most of my issues have been addressed. But just a quick one.

So a theme that has emerged here in the States this earnings season relates to fourth quarter capacity. Most of the airlines here are modeling for OA capacity cuts which as of now are not reflected in filed schedules.

When you think about OA capacity in the domestic market, do you view fourth quarter schedules as pretty reliable, fully baked at this point? Or are you assuming some incremental level of OA capacity change as part of your full year guide?

Jamie, I think what you see loaded for Q4 from some of the OAs that operate in the domestic market is pretty stable and reliable. We've seen numerous Canadian competitors move capacity away from the U.S.

into domestic market or into the Sun market. And I think what we see for Q4, we should assume that's what's going to fly overall.