Transat A.T. Inc.

Thank you. Hi, everyone, and welcome to the Transat conference call for the presentation of the financial results of the second quarter ended April 30, 2021.

I’m here with Annick Guérard, President and CEO; and Denis Pétrin, CFO. Annick will provide her comments and observations on the current situation and on the operational and commercial plans for the future, before Denis reviews the financial results in more details.

We will then answer questions from financial analysts. Questions from journalists will be handled offline.

The conference call will be held in English, but questions may be asked in French or English. As usual, our investors’ presentation has been updated and is posted on our website in the Investors section.

Denis may refer to it as he presents the results. Today’s call contains forward-looking statements.

There are risks that actual results will differ materially from those contemplated by those forward-looking statements. For additional information on such risks, we invite you to consult our filings with the Canadian Securities Commission.

Forward-looking statements represent Transat’s expectation as at June 10, 2021, and accordingly, are subject to change after such date. However, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

Finally, we may refer to IFRS and non-IFRS financial measures. In addition to IFRS financial measures, we are using non-IFRS measures to assess the corporation’s operational performance.

It is likely that the non-IFRS financial measures used by the corporation will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the corporation are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.

Additional information on non-IFRS financial measures such as their definition and their reconciliation with the more comparable IFRS measures are available in our annual report. With that, let me turn the call over to Annick for our opening remarks.

Thank you, Christophe. Good morning, everyone.

It is very exciting time for me to take over the realm of Transat. We are reporting numbers today that are very similar to those of the previous quarter and again reflect the devastating effect of the pandemic on travel and aviation in general, airlines in particular.

But at the same time, we have a wonderful opportunity to use Transat’s agility to emerge on top after all this, and make it even stronger. We have a solid plan for that.

We have the team for it. And we now have the financing it takes.

Before I continue, I would like to hail the work of Jean-Marc Eustache, who has retired last month. He has built this Company from the ground up, steered it through uncountable crises over several decades and made it the jewel it is today.

He is now leaving in a time when everything is in place for reconstruction and redevelopment. We will make sure we are worthy of his legacy.

We have not flown in Q2, while we had a reduced activity in Q1 but the end result does not differ that much. Our net loss is $70 million.

And the adjusted net loss is $103 million. The difference stemming mostly from foreign exchange gains on our leases due to a stronger Canadian dollar.

No big surprise there. We have kept the screw tight on our cost and cash expenses, but there is a minimal level of fixed cost that we have to carry.

However, we are beginning to see the real light at the end of the tunnel. Vaccination is making huge progress with over 60% of the Canadian population vaccinated.

In Quebec only it’s more than 65% and people to now move their second dose forward. In Europe, percentages are generally lower but the number of people fully vaccinated is higher because of the different strategy.

So, we can expect numbers to converge over the course of the summer. The U.S.

and the UK are ahead of us, Mexico and the Caribbean are behind, but it will catch up. Infection rates are going down.

Most countries are implementing or at least putting together plans for safe restart of travel, and we urge Canada to follow suit in the near future. All studies show that people are eager to travel again.

Consumers have put money aside during the pandemic, because of all the pleasures and activities that they have had to forego during this time. Now, they want to spend it on travel, mainly for two things, visiting, of course, their loved ones abroad and vacationing.

As soon as the cover is lifted, we expect to see demand ramp up rapidly. That is why we have decided to restart our operation on July 30th.

This will still be a prudent start. In August, we are planning to operate three international routes from Montreal to Paris, Cancún and Punta Cana, plus a handful of domestic routes.

Until the end of the summer, we will progressively add some international and transborder routes from Montreal, Toronto and Quebec City. But, that will allow us to begin ramping, retain our staff, reconnect with customers, and be ready to scale up, when demand picks up.

2021 will be devoted to stabilizing ourselves, making the necessary adjustments and laying the foundation for our 2022-2026 strategic plan, which will make us a more profitable, even more nimble and flexible leisure travel company, centered around its airline activities. We will put a huge focus on our improvement as an airline.

It does not mean that we will stop selling packages. This remains a critical part of our activity, but we will not invest to build our own division -- hotel division, as was previously the plan.

The pandemic has hindered our capacity to do so by depleting our cash reserves, and we do not think that in the new world our priority should be there. We will continue the efforts to improve the airline that we have already started implementing for several years, efforts that have started to pay off in the beginning of 2020, when we were looking at what was probably had been our best winter season for many years, had the pandemic not struck.

Those efforts are centered around three items that have the most impact on costs, revenue and overall efficiency. They are the network, the fleet, and revenue management practices.

We will build a more robust and balanced network focused on Eastern Canada and Montreal in particular, while maintaining our international anchors. This will give us more connecting capabilities and allow us to reduce seasonal variations and increase frequencies, therefore improving the utilization of our aircraft, which is a key performance driver in the airline industry.

We will feed it with domestic connections to the West and more transborder opportunities. In due course, we will train it even further with alliances, increasing our range of destinations.

The renewing of our fleet is well-underway, and has been accelerated during the pandemic. We have let go of many aircraft, especially the Boeing 737 and the Airbus A310, but also some of our A330s.

We will, from now on, only operate A330s and A321s, two types of aircraft which have cockpit commonality, which will drastically decrease the complexity of our operation. Among the latter, the new A321neo Long Range will be the spearhead with the -- with its 199 seats capacity and long haul capabilities.

A younger fleet also means reduced unit cost. We have revamped our revenue management practices in recent years, and we will continue integrating best-in-class tools and practices to achieve continuous improvement of our unit revenue.

In line with our refocused vision, we are simplifying our structure. We continue working on our path also by renegotiating commitments such as aircraft leases and reducing our real estate footprint in light of a much more developed work policy.

Besides changes and improvements, there are traditional Transat trends that we can rely on and that we will strive -- that we will strive to improve even further. The first one, of course, is our brand and the unwavering trust of our customers.

We have been ranked as Best Leisure Airline in the World by Skytrax since 2018. And our satisfaction levels have steadily remained high in the past year, even maintaining themselves in extraordinary circumstances in which we were flying last year.

We will work on pushing that even further, increasing loyalty and doing a better job at acknowledging and rewarding our best customers. Digital will be a driving force in that effort with a focus on offering a self-serve, contactless and personalized experience to our customers throughout their journey with us.

Then comes our longstanding commitment to environment. In 2002, we were the first airline in North America to introduce a fuel management system to reduce GHGs.

Our efforts have continued since then with our ambition increasing year-over-year, while we were getting an ISO 14001 certification and becoming the first major travel company Travelife Certified for all its activities. Moving forward, we will accelerate to ensure our growth compared with 2019 is carbon neutral with a view of reaching a net zero situation by 2050 at the latest.

Last but not least, I want to speak about our teams. They’ve always been our major asset, the biggest one, the most important one.

And their dedication and enthusiasm have not faltered during this lengthy crisis. We will make sure we retain them and capitalize on that by putting an additional stress to our training and development efforts.

The loan we have received from the Canadian government will allow us to go through this still slow summer, ramp up and implement our plan. We are happy to be able to use upto $310 million of the borrowed money to reimburse our clients who want it.

Offering only project [ph] was a necessary decision, but not one that we have made with a light heart. To-date, we have received reimbursement requests for about 64% of the total amount.

We are quite satisfied as well with the speed at which we are processing reimbursement with more than 70% of their requested amount already reimbursed. The rest of the loan, $309 million added to the $120 million staying in place from our existing facilities will feed our restart until we have reached a stage when our operation starts yielding cash again.

In due course, we will also consider all options to refinance it. So, as I said, even though we are not quite out of the doldrums yet, we are now looking to the future with confidence.

The path is not going to be an effortless one. But we all have all it takes, and it all starts on July 30th.

With that, I will give the floor to Denis for more details on the quarter’s financials. Denis?

Thank you, Annick. Good morning, everyone.

Needless to say that our second quarter results were significantly impacted by the COVID-19 pandemic as one of the measures in response to the pandemic implemented during the quarter was the suspension of our airline operations this January 29th. During the quarter, we have continued to implement decisive financial measures aimed at preserving our cash.

First, we have put in place a new global financing solution that we have been working on for a long while as part of our plan B and that were therefore ready to implement swiftly when the transaction with Air Canada was abandoned. As said in our April 29th press release, we entered into an agreement with the government of Canada that allows us to borrow up to $700 million in additional liquidity through the LEEFF program.

In addition to the new funding, the amounts already drawn on the existing facilities remain in place and are extended for two years. The ratios applicable to interesting facilities are suspended for a period of 18 months.

In total, the available financing will therefore represent a maximum of $820 million, of which $220 million was drawn as at April 30th. Negotiation with our suppliers, including aircraft lessors and other cost saving measures, have also continued during the quarter.

Our Q2 results were as follows. Revenue of $8 million, down from the $571 million in 2020.

2020 second quarter was also affected by the pandemic, and adjusted net loss of $103 million, compared to $39 million last year. The adjusted net loss of the quarter was similar to Q1 and includes amortization and interest for $53 million, mainly on aircraft leases.

Salaries were $21 million versus $79 million last year. For financial statements, the net loss attributable to shareholders was $70 million and include the foreign exchange gain of $30 million, mainly related to the reevaluation of our aircraft lease obligations, as a result of stronger Canadian dollar versus the U.S.

dollar. Now for our balance sheet.

Corporation free cash totaled $346 million as at April 30th. Cash used during the six-month period represents $42 million per month and includes salary, aircraft rents reference, other fixed costs, but also includes financing costs, payment of lease termination and working capital items such as amount due to supplier and employees, but also some reimbursements to client.

When excluding special items, the cash used during the quarter was $30 million per month, and equivalent of $1 million per day. The decrease in free cash was compensated by the proceeds from borrowings of $170 million during the quarter of which $100 million is coming from the lease program and $70 million from our existing credit facilities.

For the rest of the year, we expect to invest some cash in the restart of the operation, and as a result to see a slightly higher average use of cash per month. Cash interest or otherwise reserve totaled $249 million.

The deposit for future travel stood at $560 million of which travel credit vouchers granted to customers in compensation for flights cancelled amount to $505 million. Of those, deposit for future travel, an amount of $230 million is held in trust, and obviously, not included in our free cash of $346 million as at the end of April.

The lease facility intended to reimburse customer deposits will allow us to rebalance our working cap by transforming a current liability customer deposit into a liability during seven years, using this long-term facility. Long-term debt stood at $208 million as at the end of April and includes our existing $50 million senior facility, our existing subordinated facility of $70 million.

Previous facility of 250 has been amended downward to $70 million and an amount of $100 million drawn on the $390 million LEEFF facility. Note that the accounting treatment of the drawing under this facility is not usual.

In a nutshell, in conjunction with this financing agreement, warrants were also issued. Because of their characteristic, a conclusion was reached that these warrants needed to be presented as liability and not as part of equity.

Furthermore, even though the issued warrants are not vested at this time, their total fair value determined using a Black-Scholes model had to be accounted for at the issuance date as liability related to warrants. From now on, liability related to warrants will always need to correspond to the fair value of the warrants at the closing date.

The corresponding adjustment will then be presented in the P&L, as reevaluation of liability related to warrants. The variation between April 29 and April 30 represents $800,000.

The initial fair value of these warrants will also -- was also recorded as deferred financing cost under other assets, on our balance sheet. At each drawing, the deferred financing costs will be applied against the initial carrying amount of the drawings.

And this active rate will then be calculated considering the expected cash flows to repay the corresponding drawing. Upon the first $100 million drawdown, an amount of $11 million was applied against the carrying amount of the drawing, hence total of $89 million LEEFF debt presented on our balance sheet.

Finally, $310 million lease facility intended to be used for the purpose of reimbursing customers was not drawn as of April 30. Lease liabilities stood at $800 million, which include seven A321neoLR.

Off-balance balance sheets agreements, excluding agreements with suppliers stood at $748 million, mainly related to the 10 Airbus A321 to be delivered as at the end of April. At the end of the quarter, Transat acquired the remaining 30% interest in TraficTours held by the minority shareholders.

The minority shareholders have the option to require Transat purchase its minority interest since 2019 at a price based on a predetermined formula agreed upon back in 2007. Following a mutual agreement between the two parties, the actual purchase price was set at $24.5 million, which is lower than the amount of $34.9 million recorded in the financial statement at the end of April.

$15 million was paid on May 31st, the balance of $9.5 million is payable in October 2022. The manager of TraficTours and its subsidiaries remains in place to ensure the successful rollout of its operations.

Finally, as you can read in our press release this morning, we will not for now provide any outlook for the remainder of 2021. We’ll now proceed with your questions.

Yes. Good morning, and thank you very much for taking my question.

Denis, just coming back on your comment about the cash burn, I think you mentioned that it would increase over the coming quarters. So, just I was wondering if it’s possible to give some details.

Are we going back to, let’s say, Q4 of 2020 or Q1 of 2021? Any indication on that front will be very helpful.

Thanks.

What we said is it we will increase slightly. Then, we should not expect the amount to grow a lot.

But it will increase slightly and will depend on the restart of the operation. But I will stick with slightly.

Okay, perfect. And looking to future, I’d say in terms of revenue, how much revenue do you need in the business, now that you have a let’s say, a leaner cost structure to return to profitability from an EBITDA standpoint and also from a free cash flow generation, when does it turn positive in the future?

Obviously, with the fixed asset that we are having and the fleet, we surely need to -- our volume coming to 70% and up to -- to be able to deliver result, it would be breakeven. At the same time, it will depend on price, load factor and everything that our business are generating margins -- were in the past, let’s say, quite low.

Then depending on the demand, we could be surprised or fast we could reach breakeven in the future.

If we look at -- if I can add, the projections that we have made so far are based on demand projections that we’ve received in the market from different institutions. And based on that, the overall demand for travel would not go back to 2019 level before 2024 and 2025.

However, what we are hearing right now in the market that it’s these -- these forecasts could be reviewed to be potentially more optimistic on looking at the -- the overall vaccination that we see around the world, so we could be surprised. That being said, based on the former forecast demand that we have, when we look at our numbers, we know that 2022 is going to be another difficult year for us, because we are going to be still in the process of ramping up our operation, and we want to be very careful in what we’re going to be doing.

But, we anticipate that after that, after 2022, we will be able to come back with something that is more balanced and potentially look for profitability then. We’re remaining careful in our projections, because there’s still uncertainty, not only in demand but as well in the measures that will be decided by the federal government in terms of lifting or not the restrictions at the border.

So, it doesn’t depend only on us.

Yes, for sure. That’s great color.

Thank you very much. And maybe last one for me on the land in Mexico that you purchased before for the hotel strategy?

I’m just wondering if there -- or maybe I missed it, but is there a strategy or initiative in place to divest this land to increase the -- solidify the balance sheet?

Balance sheet. So, we are announcing today that we no longer plan to own our hotel.

The pandemic has had a significant impact on our cash flow and has made this sector not the best path to rebuild the business right now, so. And we are refocusing our business as outlined in our new strategic plan, how -- and when we’re looking at the land that we have in Puerto Morelos, we will look at making a transition and see how we can evaluate these lands in the markets and see what we’re going to do with that.

Thank you. Good morning.

Just wondering if we can take a step back and sort of look really long-term here, you’ve got a good slide outlining strategy in the presentation. I’m wondering, when or if you might put some financial metrics around that, whether it be EBITDA margin targets, returns on capital, any other measure, if at some point you will come forward with that type of target or goals for the Company?

Obviously, we will. But it’s a little premature this morning, since the operation -- that we will restart by the end of July.

But it’s something that we’ll be able to share in -- I would say in the near future.

Okay. And then, maybe just if you could kind of summarize for us at this point, and you’ve talked about it on occasions, of course, in the past.

But compared to historical levels of EBITDA margin percentage, I’m thinking of in particular, I assume in the future, the potential there will be higher, presumably much higher. What will be the key drivers of that?

And is there any way you can kind of give us a bit of a sense for how significant an improvement you can make in EBITDA margins?

When we look at the plan and we look at easterly versus what we have in the plan right now, we have major structural changes that are happening. The first one will be the transformation of the gate where we are moving from four different types of aircraft to two, which is reducing complexity drastically within the operation and therefore, reducing our unit costs.

And in addition to that, we are moving to a mix flying concept, which will allow us to -- for our pilots, for instance, to move from one type to the other, the A330 to the A321 without having to go through intensive training again. So, this is significantly a big change for us.

On top of that, of course, regarding the fleet, we are beginning a younger fleet. So, we used to have older aircraft.

So, in terms of maintenance cost, efficiency, that will drive the efficiency up. The other thing that we are moving away from is the seasonal fleet, where in winter time we used to import multiple aircraft of different lessors or different carriers.

And so, now, everything will be done by our own network and our own aircraft, plus of course, the alliances that we are working on where we could develop a commercial agreement. So that’s one thing.

The other thing is looking at our network. So, when we’re saying that we are moving away from a leisure company with a vertical integration model to a simpler organization centered around its airline operation, it touches a lot around the network.

And we’ve realized how much there are some markets where we have been underdeveloped in the past. And I’m talking or referring among other things to the transborder market.

So, we need to increase our presence there. We need to increase connectivity.

All the plans have been developed and assessed. And we want to be able to do that of course with the fleet that we have.

And it will allow us to use -- to increase the use of our aircraft, which has been a big burden in the past. When we used to compare our overall average use of aircraft compared to the WestJet and Air Canada and other carriers of these world, we were always below.

We had too much seasonality. We were not using our aircraft enough during the weekdays.

And we were even not using our aircraft enough during a day. So, we rebuilt, we have time over the last year to rebuild the whole strategy around a network that is much more robust and that allows us to increase utilization, decrease our unit cost significantly.

And on top of that, we continue to increase our revenue in developing and increasing and improving our revenue management practices. So, all of that brings us to a much different organization, much more simple where everybody’s going to be focused around the same goal.

And I can tell you that everybody is hiding what you read around the table to be able to achieve those goals. So, it’s difficult for us when we look at historic performance to say for sure.

One thing is for sure, we are highly confident that we will surpass the results that we had in the past. In a nutshell, we are bringing Transat to its full potential, which has, I would say, never been obtained in the past 10 years.

Okay. That’s great color.

Just one quick one finally, in terms of the balance sheet, and again, I’m thinking out longer term. Is there any sort of metrics that you can provide or ways that we can think about, at what point or what your end goal would be, or even just a range for where financial leverage will be when you get back to kind of a comfortable level?

I would say that the priority through the plan will be to reimburse all the financing put in place. I’m not too worried about everything related to aircraft leases, because those assets, anyway we need them for the long run beginning of the year, we are looking at it.

We could have leases that end in 12 years or in 5 years, and they will bring a huge variation on the amount presented on the balance sheet. For the rest of them, the facility from the government and even facility with our bankers, our priority will be to reimburse them.

During the plan, getting rid of them and bring back the balance sheet to where it was before, we have those. For the one intended to reimburse customer as we said on April 29th, it’s a facility that is due in 7 years, and at a rate of 1.2%, then will surely not be a priority for us to reimburse this one.

During the -- preparing some form of normal operation, we should see also deposit from customer limited to -- or pay to our airline growing. And that will also feed our cash position.

We don’t necessarily expect that to kick in strongly in the next few months. But, as soon as confidence from the customer returns, we should see them back on our balance sheet, and improving significantly our cash position.

We expect also to see accounts payable due to supplier growing, like it was pre-pandemic, and as you know for airlines, deposit from clients in accounts payable are still same and are important source of financing. And to conclude, I will say getting rid of the debt, bringing back -- right back to the balance sheet to where it was pre-pandemic is what we are planning to do over the term of the strat plan of the next five years.

Okay, great. Thank you very much.

Good morning and thanks for taking my question, and congrats Annick on the new role, as well to Jean-Marc on retirement. So, maybe the first one for you, Annick, you mentioned about domestic and transporter expansion and your multiyear planning.

Can you elaborate on that? And is there an existing airline model that you like to adopt as you transition over the next five years?

The model that we are adopting, while we’re staying focused on the leisure travel, this is really important for us. And we want to be able to capture all the leisure derivatives that there is, especially between Canada, the U.S., the Southern Caribbean eventually, potentially as well South America, getting stronger as well on Europe.

We are very well positioned. But we need to develop and become even stronger.

And the way for us to become even stronger, as I was explaining, is to, well, not necessarily do a many routes, but do them in an efficient way. So, increasing frequencies, reducing our costs, so that’s going to remain our goal for the upcoming years.

And that’s going to be the same on the domestic. Most of the domestic market is used for connecting opportunities, so bringing customers from Western Canada, connecting on Eastern Canada to go to Europe.

We are planning to see the same as well out of the U.S. So, that’s -- for us, that’s very important.

Great color. Thank you.

And then with respect to -- I understand you are not providing any guidance at this point. But with respect to your expectations for the travel restrictions, you mentioned that the demand will come back pretty quickly.

What are you seeing at this point as majority of population is getting vaccinated, at least a single dose. What kind of forward bookings are you looking for the upcoming winter season?

If you can give any context as percentage or perhaps what you typically saw pre pandemic?

Well, we definitely see the enthusiasm around population as the vaccination process is getting higher. I can tell you that over the last five to seven days, we have seen levels of booking for next winter that are around the same level the -- of what we had pre-pandemic.

So, we’re looking at numbers that are similar to 2018 and 2019. So, we are pretty excited around that.

Again, we want to be careful because we want to make sure -- well, there was some good news that was announced yesterday by the federal government where people -- Canadians that will be -- who’ll have dose -- their two dose of vaccination will be exempt from quarantine at the hotel but as well at home if they have a negative PCR test. So, that’s one step.

However, we need to know about the following steps. So, we need to know about the overall plan so that we are able to plan in an efficient way.

So, we are happy about the news that was announced yesterday. The borders however remain closed.

Canadian borders remain closed for non-residents. We hope that that’s going to be -- that’s going evolve as people get vaccinated and that the proper measures are put in place to ensure safe travel.

But, we remain confident. One thing is for sure, we see people have been, I don’t want to say, sitting on their money, but have not had that many expenses over the last year.

We see that they are willing to travel, they are excited to travel. Then when it’s time and when it’s possible to do it safely, they will be there, and we have our plan to be able to capture those.

But, we definitely need a clear plan from the federal government to know what’s going to be the next step, so that we can plan reopening of our operation accordingly in efficient way.

That makes sense. Thank you.

And you touched on the bookings obviously, but the other side of the equation is pricing and fuel as well. Can you comment on what kind of pricing environment are you seeing at this point?

And how concerned are you with respect to the fuel price going back to the pre-pandemic levels, are you actively hedging or do you plan to hedge?

Well, in terms of pricing, what we see right now is really similar to what we had pre-pandemic. We don’t anticipate that at this point -- and it’s early to say that there’s going to be a big decrease or increase of pricing.

So, we’re around the level that we had pre-pandemic. I’m talking very generally.

There are some exceptions, of course. But overall, we remain confident that it’s going to see quite stable.

And regarding fuel, are you actively hedging, or do you plan to have hedge given the fuel price continues to run?

No, not hedging at all at this point. We’re waiting the operation to restart before.

Price of fuel is going up, obviously But we -- let’s keep in mind that the Canadian dollar is a lot stronger than it was versus the U.S. dollar.

And for somebody like us, a very significant portion of our costs are in U.S. dollar.

And on one hand, obviously, fuel is going up, but on the other one, all our expense is in U.S. dollar cost us less, because the revenue from our customers at this point are mainly in Canadian dollars.

Then, it compensates the impact of the increase in the price of the fuel.

Okay. That’s great, Denis.

Last one for me, just kind of a housekeeping one, for the hotel discontinuation you announced today. Can you remind us, what is the book value of the properties you have related to the discontinued operations that could potentially be divested?

US$38 million.

Thanks very much. Good morning.

I just wanted to come back to the, I guess, the network strategy question that you’ve spoken about a little bit so far. But I just want to make sure I understand it correctly.

I mean, it sounds to me, like the plan here is to kind of refocus operations around a hub, for lack of a better word, in Montreal and feed domestic traffic through there. But I’m wondering, is your intention to sort of cease operating direct point to point flight to sun destinations from Western Canada or from Atlantic provinces?

I mean, is that how we should look at this that this will really be a very Montreal focused operation now?

Yes. Well, our intention is to see the international flights out of Western Canada.

We would remain on the domestic market out of Western Canada and focus on Ontario for international flights, Quebec and the Maritimes.

Okay. Now, that clarifies it a little bit.

And just really second question from me for Denis. I know you’ve been deferring some aircraft lease payments.

When do you have to start repaying those? I mean, I think if I looked through here, it was 50 something million dollars that you had deferred.

But, when does that start to be repaid?

We’re in discussion with all our suppliers including our aircraft lessor, and it’s dynamic. And we have no terms set yet on when those amounts have to be repaid to those lessors.

And we’re in discussion. We’re in negotiation with all of them at this point.

Okay. And then, maybe final just housekeeping item from me is really about the, I guess, the refunds that you’re paying out.

If I read correctly, you sort of expect to fully refund that I guess the entire $310 million that’s covering that. Is that the case that almost all customers you’re expecting to refund?

It seems to me that other airlines are suggesting that maybe the refund activity is not as much as they would have expected?

Well, our intention is not to refund everybody, is to refund those who will want it to be refunded. So, we are accepting, of course, -- so we’re going based on the request.

And that’s -- this is how the program is developed as well with the federal government. We need to wait for the customer’s request to be able to process the refund.

So, we’ve reached towards our customers to make them known that they have up to August 26 to be able to come back to us and ask for their refund. And of course, we’re very happy to be able to do so.

But so, we are -- we do not automatically refund people.

Right. But I guess, maybe the question from me was that, it sounds to me like maybe the percentage of customers who are looking to refund as opposed to keep their vouchers is maybe higher than what other airlines have suggested is the case?

Yes. We see it as being higher and we look at that and understand that we have more of a leisure customer and which -- who have put discretionary money.

It’s not like when you have business travel where the companies will not necessarily want to be reimbursed or it’s not the same. It’s more based on an individual need.

And this is more like our target clientele. So, we are not very surprised by numbers and we are very happy to be able to reimburse.

Our clients have been very patient over the last year. So, that’s it.

Thanks for taking my question here. Maybe if I could just ask -- or follow-up on Tim’s question there on your more airline centric strategy moving forward.

When I think back to your Investor Day, you had a few years ago, you spent a lot of time on the importance of this more vertically integrated strategy to have these hotels and what that meant for future profitability. And it would have seemed at that point in time you could have also pursued a more airline centric strategy, and you decided not to.

Just wondering why, going back to that is now better for the airline. I appreciate you don’t have the same amount of cash available.

But just wondering why in 2022 onwards, or whenever the recovery is, why more airline centric strategy drives margin improvement that might not have been as evident two years ago prior to the pandemic. It’s not clear to me what necessarily changed.

The last plan that we had was divided into two I would say goals. One of them was to increase efficiency among our airline model, and the second one was to develop our hotel division, firstly to improve and bring new revenue streams during the winter season.

But, one of the goals, as I mentioned earlier, the previous one, the first one was to increase our efficiency. So, it has been part of our strategy for many years.

However, back then, we didn’t have necessarily the right tools and the right even people and expertise to be able to do so. And this is what we started working on, which brings me to, when we’re talking about transformation of the fleet, this is something we started about three, four years ago.

When I’m talking about improving revenue management practices, this is something we definitely started intensively three years ago. When looking at aircraft utilization, seasonality, getting rid of the seasonal aircraft as well, these are all elements that we started attacking back then in our last strat plan.

So, it’s not a different strategy. However, when we look at the past two years, we see that we need to focus all our energy on that pillar, and we don’t have -- not only a question of money or capital and the treasury to be able to develop the hotel division is that in the context, if we want to be resilient and if we want to be strong in the market, we need to focus on our core business.

And this is what has changed over the last year, when we know that we cannot grow in diverse direction. We need to bring our resources all on the core business and focus on the airline business.

That’s helpful. And if I can ask, when you look out, over the next few years, as you’ve rolled -- as you continue to roll this strategy out, are you making an assumption in terms of the underlying competitive environment that you expect to see from, let’s say, the likes of WestJet and Air Canada that have obviously also seen significant network changes because of the pandemic.

Are there any assumptions you’re making there that might’ve been different than two, three years ago, prior to the pandemic?

Of course. This is something when we are evaluating our plans, when we are designing our networks and when we see -- where we see that we’re going to have competitive advantage, we always take into consideration what we foresee in terms of development from our main competitors, whether it’d be WestJet, Air Canada, Air France, British Airways.

We know about their fleet plan. We know about their intention in terms of development, new routes, and we have to foresee how we’re going to position ourselves in that environment and how we’re going to create value.

So, this is something that we do on an ongoing basis. We know where their strengths and weaknesses are.

We know where the opportunities are for us as well. So, it’s a very thorough exercise that we’ve done in terms of developing our new 2022-2026 plan.

It’s based on multiple analyses with tools that we use in terms of offering demand on different fruits and future positioning of each of the different competitors. And it’s based on that.

And this is how we position ourselves and see what’s going to make a sense for us. And this is where we are able to see that we are not to our full potential today.

We’re not to our full potential as an airline, because, we have been focusing on being a tour operator. We have been focusing on being a travel agency.

We have been focusing on developing the division. Right now, we need to refocus and we need to put all energy in becoming much better as an airline company.

And we know how to do so. We will do it.

That’s helpful. Maybe just two clarification questions from me on previous comments.

Either Denis or Annick you had made. Just on the booking curve comment, it sounds like things are similar to 2019 or even 2018 as you mentioned.

Just from a clarification perspective, when you talk about being similar, is that the same amount of seats that you’ve sold at this juncture relative to what that looked like pre-pandemic, or is the capacity that you’ve put out into the winter market different as just a percentage of -- the percentage of that -- that has been sold is similar to 2018 or 2019?

No, no, no. It’s the number of seats that are being sold.

I’m talking about booking levels. And I want to be careful, this -- the trend that we’ve seen over the last 6, 7, 8 days, so we anticipate that -- of course, we would be happy for that trend to continue, to remain, but in terms of capacity, we -- at this point we have not deployed as many seats for next winter as we had in the 2019.

Because we want to be prudent and we want to -- we don’t want to forecast, we don’t want to plan for an operation that is too high because we never know what’s going to happen, we don’t want to go through what happened last year where everybody was thinking that the borders would be lifted. We never know what’s going to happen.

So, we are being prudent in going day by day progressively. But, we remain pretty confident about next winter.

No. That was obviously a positive data point.

And just lastly, Denis, just a going concern language. You’ve got the financing in place from the government, obviously optimism around the booking curve and what the government’s going to do.

Just wondering what you are the -- I guess, the auditors need to see before you remove that language. Is it just the restart of the operations is kind of the next milestone, or are there specific financial metrics you need to deliver on before, before that growing concern language gets removed?

Just given the fact that you have secured quite amount -- quite a significant amount of financing since late April.

Yes. As you read when you look at this note in our MD&A, it completely eliminates the reference to the fact that the Company was needing cash to -- and it’s essential to secure that in the coming months, and it’s not there anymore.

What’s remained -- including to the restart of the operation, not adding operation, we thought it was prudent to keep that. It’s not year-end.

It’s just a quarter, but we thought that. I just think the language and restarting the operation was the…

Prudent.

Was prudent to do in the circumstances.

No. That makes sense.

That’s it from me. Thank you very much.

So, thank you, everyone. Let me just remind you that our third quarter results will be released on September, 9, 2021.

Thank you very much. And have a nice day.