Good morning, and welcome to Air Canada's first quarter 2024 results conference call. All lines are in the listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star, followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Valerie Durand, Head of Investor Relations and Corporate Sustainability at Air Canada. Thank you. Please go ahead.
Thank you, Julianne. Hello, Bonjour, et bienvenue à notre première revue trimestrielle de 2024. Welcome, and thank you for attending our first quarter call of 2024. Joining us this morning are Michael Rousseau, our President and CEO, Mark Galardo, our Executive Vice President of Revenue and Network Planning, and John Di Bert, our Executive Vice President and CFO. Other executive team members are with us as well this morning. Mike will begin this call with a brief overview of the quarter. Mark will provide comments on our revenue, network updates, and trends, and John will speak on our financial performance before turning it back to Mike, after which we will take questions from equity analysts. I remind you that today's comments and discussion may contain forward-looking information about Air Canada's outlook, objectives, and strategies that are based on assumptions and subject to risk and uncertainties.
Our actual results could materially differ from any stated expectations. Please refer to our forward-looking statements in Air Canada's first quarter's news release, available on aircanada.com and on SEDAR+. I now would like to turn the call back over to Mike.
Great. Thank you, Valerie. Good morning. Bonjour, and thank you for joining us. Our first quarter results were solid and largely in line with our internal expectations. They show we perform well from both a financial and operational point of view in a more complex environment. This success reflects upon the quality of our management team and employees, our strategic execution, and the remarkable strength of our brand. For the quarter, we reported operating revenue of more than CAD 5.2 billion, an increase of nearly CAD 340 million from a year ago. Adjusted EBITDA was CAD 453 million, up CAD 42 million from the prior period, and our operating income shifted to a profit of CAD 11 million, up CAD 28 million from the prior year.
Our leverage ratio improved to 0.9 at March 31, compared to 1.1 at the end of 2023 and 5.1 at the end of 2022. Also important in the long term, we continue to reduce gross debt as part of our ongoing commitment to strengthen our balance sheet. Very pleased to see our efforts were recognized by the credit rating agency community and welcome S&P's recent rating upgrade to BB . At the close of the quarter, our total liquidity was CAD 10 billion. We are confident about our performance for the balance of 2024, and that we will deliver on full year guidance we provided in February. I take this opportunity to thank all our employees for their hard work this past quarter.
Winter is challenging every year, and our employees rose, as they always do, to the task of safely transporting nearly 11 million customers to their destinations with care and with class. More than this, they did so while making meaningful improvements to our operation. Notably, our system-wide on-time arrival rate in the quarter increased a full 13 percentage points from the first quarter of 2023. We achieved these and other improvements in operational metrics through careful planning, diligent execution, and without regulatory intervention. These achievements are obviously important to our customers, and they are also - they also reflect increased efficiency of our airline, which in turn benefits our shareholders. I also thank our customers for their loyalty in choosing Air Canada. We are committed to continuing to earn this loyalty by making even more improvements to better serve them in the future. Thank you.
See, over to you, Mark.
Thanks, Mike, and good morning, everyone. Bonjour. J'aimerais d'abord féliciter nos employés pour ces résultats solides. Thanks to all our employees for their commitment and passion in helping us deliver our Q1 results. I'll start with our passenger revenues, which increased 9% year- over- year to over CAD 4.44 billion. We see that, as expected, pent-up demand and revenge travel factors are slowing over time. Therefore, we witnessed a normalization of the yield environment in some markets in the first quarter of 2024 when compared to the same period in 2023. As discussed during our last earnings call, we had forecasted this normalization to occur in our 2024 outlook. I'd like to call out the performance in the domestic and Pacific markets. Domestic yields outpaced capacity growth.
As to our international network, you will recall we planned to pivot capacity to the Pacific from the Atlantic in order to capture the tremendous Asia Pacific pent-up demand. As a result, our Pacific revenues increased nearly 37% year-over-year, delivering yields that were in line with those seen in the first quarter of 2023. This is a great outcome as we saw yield strength even with the increased capacity and a longer average stage length. This speaks to the diversification of our network as we balance with other sectors of our network. Sixth Freedom traffic continued to perform extremely well, with double-digit growth in both traffic and revenues year-over-year. Our network is designed to capture this traffic, which helps us even out the traditional seasonality, peaks, and valleys.
Take, for example, the school year changes in the U.S., which now strengthen June with this traffic. We know that Sixth Freedom has some great runway and opportunities ahead, and this is supported by our joint venture with both United Airlines and Lufthansa, which enables each carrier to offer more destinations to customers. Premium products accounted for 30% of the growth in total passenger revenue. Corporate demand remains steady as we are seeing positive indicators into Q2 for North America, which is the bulk of where the traffic is for us. Air Canada Vacations delivered consistently, driving higher ground package revenues versus the same period last year. Now on to cargo. Despite higher volumes, revenues declined CAD 23 million year-over-year due to softer yields. The volumes were aligned with our expectations, and recently we have seen encouraging signs of volume pickup.
To adjust to market conditions, we have tempered our future freighter capacity growth and removed two planned Boeing 767 freighters from 2024 and 2025, which in aggregate, resulted in a one-time operating expense of CAD 20 million for the quarter. Our adjusted EBITDA of CAD 453 million includes this one-time charge. Remember that our incoming Boeing 787-10 will have larger cargo capacity, driving our ability to take advantage of global cargo flows through our hubs. Cargo is a good complementary business for us and an important lever to differentiate our revenue streams. As we look to spring and summer, our booking curves indicate healthy demand across the system. It is, however, important to note that 2023 was a particular demand environment in which we experienced strong yields and load factors, driven by pent-up demand and challenged capacity.
We do not expect to replicate those exact same conditions in the first quarter, nor do we expect them going forward. Demand itself is traditionally tied to GDP growth, and economic surveys point to expected real GDP growth in the Canadian economy. Moreover, the travel indicators show overall demand growth at the industry level and continue to show robust market growth for air travel to, from, and within Canada versus 2023. Given the normalization that we're seeing, we're encouraged by the overall healthy demand signals and the overall composition of our traffic sources. As we look into Q2, we see further strengthening of our domestic network versus the same period in 2023. We will continue to pivot capacity in the domestic sector. Our U.S. network is experiencing considerable capacity growth.
It is, however, important to consider that this capacity investment is longer term in nature and part of the strategy to increase our share of the Canada-U.S. transborder market. We anticipate that Q2 will show better Sixth Freedom results in 2024 than in 2023, and we continue to believe in the potential of diversifying our international network traffic feed. New routes to Charleston from Toronto and to Austin and St. Louis from Montreal are all showing early promising signs, and we expect these routes to be financially accretive to our overall network. The Sixth Freedom opportunity continues to be an important growth lever to our overall commercial strategy. Internationally, we expect strong demand and yields for the Pacific heading into summer. We've reallocated capacity from Europe to Asia, with new routes to Osaka from Toronto and to Seoul from Montreal.
We've also launched a new historic service to Singapore from Vancouver. Each of these new routes looks promising this summer and should be performing above expectations. Demand to Japan continues to stand out. With respect to the Atlantic, we continue to see strength in the Mediterranean markets, and we've increased capacity to various points in Italy, Greece, and Spain, where demand is not only strong from Canada, but also on a Sixth Freedom basis. And early signals on our new Madrid-Montreal route also look quite promising. Our summer 2024 international capacity is growing by 30% into Asia Pacific and 25% to key leisure destinations in Southern Europe compared to last summer, and that gives our customer- our customers a wide variety of exciting options across Europe and Asia for planning their summer holiday travels, along with a choice of 120 destinations in North America.
We continue to believe in the promise of international market growth. Canada is the fastest growing G7 economy among OECD countries. This, combined with our Sixth Freedom network and the natural geographic advantage of our three international hubs, gives us multiple solid growth options globally in the medium and longer-term horizons. Turning back to the GDP premise, supporting demand growth, we have some catching up to do, considering we're still behind 2019 levels of capacity. But when we look at the Sixth Freedom traffic and immigration inflows and outflows, these sources of traffic are resilient and not directly linked to GDP. The different points of sales for this, this traffic also adds to the diversification of our revenue with different currencies.
When you consider this and the fact that our customer base is diverse, meaning we do not target, target one single type of customer, we remain confident in our unique and highly attractive business model. Thank you. Merci, John Di Bert.
Merci, Mark. Good morning, everyone. I'll start by saying that I'm very pleased with the capital management actions we took in the quarter, which I'll speak to shortly, and the continued focus in managing controllable costs, illustrating our ability to convert capacity growth into unit cost efficiency, notwithstanding some natural headwinds. In both cases, our progress demonstrated the continued strengthening of Air Canada's position as it readies for the next chapter of growth as Canada's global network carrier. Let's get right into some specifics.
Q1 delivered year-over-year capacity growth of 11%, while operating expenses grew 6% to CAD 5.2 billion, including the benefits of an 18% decline in jet fuel prices. On a unit cost basis, our adjusted CASM grew 1.6% year-over-year, landing at CAD 14.76 for Q1, and reflecting improved productivity and the early benefits of scale as we restore capacity. Q1 performance was within our expectations, supports our yearly guidance, and represents a solid performance relative to our peers. To better understand the underlying evolution of our costs, let me provide some color on expenses that increased faster than our capacity growth, as well as the indicators of offsetting efficiency. Our labor expense increased to 21%, driven by accruals for profit sharing and other wage-related initiatives, and by 7% higher FTEs year-over-year.
I remind you that this increase includes our accrual for a future pilot agreement. This accrual was based on our best estimates, considering the Canadian market and our desire to continue to be a leading employer of choice for Canadian pilots. IT expenses increased 27% year-over-year. While most of our technology costs are highly correlated to our 11% system capacity and traffic growth, we're also steadily increasing our investments in technology as we focus on modernizing our systems, transforming the way we do business, and upgrading our cybersecurity resilience. While some of the increase is related to the higher recurring license and cloud service costs, we do experience non-recurring expenses for change management and cut-over activities. The modernization of our technology stack will translate into a better airline, more agile in planning our operations, enhanced customer experiences, capable of real-time optimization, and more secure for all stakeholders.
Of course, our investments will drive cost efficiencies as we grow. Maintenance expense increased due to a higher level of flying year-over-year and a higher volume of engine maintenance events, which is largely a function of timing, including some summer readiness work that was completed in the quarter. Maintenance costs have also been affected by a higher rate of inflation for parts, components, and consumable supplies across the sector. The quarter demonstrated productivity and efficiency gains with FTE growth of 7% on 11% capacity expansion. Our labor productivity improvements should continue as we restore system-wide capacity to pre-pandemic levels and beyond. We expect sequential adjusted CASM improvements through Q2 and Q3, and we remain confident in the annual cost guidance we have issued. Let's turn to free cash flow.
Q1 free cash flow topped just over CAD 1 billion, compared to CAD 987 million in the same quarter last year, including CapEx spend of CAD 536 million. Cash generation continues to be fueled by solid conversion of earnings to cash flow and seasonally positive working capital. Fleet additions in Q1 2024 included the delivery of one Boeing 787-9 Dreamliner and three leased A320s. One freighter entered into service, bringing the total active freighters to eight, a level that we will sustain for the foreseeable future. All said, we are well on our way to generating significant free cash flow for full year 2024. With strong Q1 free cash flow, our balance sheet continues to strengthen, and we continue to make progress on total debt reduction.
In the quarter, we significantly reduced our outstanding senior secured indebtedness by almost $1.1 billion, and increased available undrawn amounts under the revolving facility by $375 million. We have cut our net debt by nearly half since the end of the first quarter of 2022. Having achieved our prior objective of below 1.5 net leverage, we will continue to look at gross debt reduction where it is economically favorable. Total liquidity was CAD 10 billion at the end of Q1 2024. We've updated some of our full year guide, full year assumptions. We now anticipate that the Canadian dollar will trade on average at CAD 1.35 per U.S. dollar, and that the price of jet fuel will average CAD 1.03 per liter.
Note that in April, we've decided to hedge roughly 50% of our projected fuel consumption for the second quarter. We remain confident in our ability to deliver on our plans and are reiterating our full year guidance for capacity, adjusted CASM, and adjusted EBITDA. As a reminder, we are targeting capacity growth of 6%-8%, expect our adjusted CASM to increase between 2.5% and 4.5% over 2023, and our yearly adjusted EBITDA to be within CAD 3.7 billion and CAD 4.2 billion. In the coming months, we expect to welcome another 787-9 aircraft, two A330-300s, and two A220s. We remain in a tight capacity environment and are putting in place various measures to secure additional lift.
To this end, we are in the process of arranging these agreements for some additional Boeing 737 MAX 8s that would be scheduled for delivery in 2024 and enter into service in 2025 upon the completion of their reconfiguration. Our fleet commitments for the next few years are detailed in our disclosures. Looking further out into the decade, we believe that we are poised to capture structural growth in our key markets, driven by immigration trends, the continued evolution of our Sixth Freedom franchise, behavioral higher propensity to travel, and a growing Canadian population. We remain focused on having the right fleet in the right place to capitalize on our opportunities. As we add capacity to our fleet, you can expect a balance of mixed and leased, owned, leased and owned aircraft additions.
As time progresses, we will look to put in place various financing structures as appropriate. Our overarching guideposts will remain a net leverage ratio of approximately 1.5, strong liquidity, consistent free cash flow generation, and a more historically reflective leased versus owned fleet mix. We are confident that continued solid execution, capitalizing on our strengths and supporting our growth, are creating value for all stakeholders. With a full recovery of our financial foundation, further evidenced by our credit rating upgrades at S&P and Moody's, and with our capacity approaching our prior peak levels, we are now well positioned to support investments in growth and consider initiatives to directly reward shareholders. Thank you, and back to you, Mike.
Thank you, John. The strong first quarter performance we're reporting today shows Air Canada remains on track to deliver strong annual results. However, our ambitions far exceed this achievement. We intend to grow our airline profitably, improve our product offering, drive continuous operational efficiency, and create greater long-term value for our investors and all stakeholders. And to do so, we will remain disciplined with respect to risk and financial management, ensuring a responsible approach to cost control and capital allocation so that we have the means to fund our future. Our strong balance sheet will serve as a foundation on which we will continue to grow our airline through investments in our world-class global network and capital allocation strategies. And as we said in previous calls, we do not simply manage quarter to quarter. Instead, we maintain a long-term outlook when making investments and strategic decisions.
Our strong and proven focus on effective financial management gives us much needed flexibility to plan and ensure we have the resources to deliver on those long-term plans. A good example is fleet planning. As John alluded to, given today's extended aircraft development, ordering, and manufacturing cycles, we must look years ahead when making these decisions. This also requires anticipating changes to technology, market demand, and even customer preferences so that we remain ahead of our competitors. From there, it is a short step to our next priority of expanding our network. We make no secret of our determination to reach new frontiers, such as the launch last month of our new Vancouver, Singapore route. This event was followed shortly by our ambitious summer schedule release, which features other new services already mentioned by Mark, and we see many opportunities ahead.
There is also sustained demand for leisure travel from retiring baby boomers, established Gen Xers and the Millennials and Gen Z cohorts eager to explore, all of which are growth age segments within Aeroplan as well. We plan to reach these markets and those fueled by immigration, and we will do so through our own growing network and the networks of our Star Alliance and our other partners, such as Emirates, which reach deeply into regions we presently do not serve. Another important way we're capturing demand is through our Air Canada Vacations. We intend to continue enhancing these products to provide even more compelling leisure travel options. Meeting the needs of all customers brings us to our next priority of elevating the customer experience.
We are in the midst of a multi-year program to simplify, enhance, and add value to each customer's journey. This includes our ever-improving onboard entertainment system and high-speed in-flight connectivity. Our IFE system has won rave reviews from customers and industry awards, including the 2024 APEX Best in Entertainment award in North America this past quarter. In March, we further elevated the customer experience with a comprehensive upgrade of our award-winning menus, with more than 100 new rotating seasonal recipes, snacks, and new beverages. Another major driver of customer choice and loyalty is Aeroplan. Our active member base has more than doubled since we relaunched the program in 2020. Revenues from air travel redemptions grew 6% from the first quarter of 2023. Gross billings were up 10%, and its growth outpaced the competition with expanded credit card market share.
Much of this success is due to the strong partnerships with marquee everyday brands. In January, we celebrated our 10th anniversary with one of our anchor partners, Toronto-Dominion Bank , and this longevity speaks to the loyalty of the program, to our customers, and to our partners. We continue to gain market share with the program and see exciting, exciting opportunities ahead. Another important group of customers that we are innovating to serve better is the freight forwarding community that uses Air Canada Cargo. Like ACV and Aeroplan, Air Canada Cargo is an important element of Air Canada's revenue diversification strategy. In January, Air Canada Cargo was named the 2024 Cargo Operator of the Year in the 50th annual ATW Airline Industry Achievement Awards. We are the first Canadian operator to win the award.
In doing so, ATW cited Air Canada Cargo's digital transformation, that it's created a customer-centric digital environment. Our final priority relates to our people, and because our people enact all other priorities, we know we must lift each other up. Our people are highly motivated, and we work hard to support them in their jobs and to ensure we continually attract the best talent. For this reason, we're proud to be among the winners of the 2024 Montreal's Top Employer Awards in February. This is the 11th consecutive year we have won this award. Efforts from around the company accumulate to drive our brand to new heights. Air Canada had the strongest performance improvement on Ipsos's Most Influential Brands in Canada rankings released during the quarter, moving from 78th place to 38th place in just one year.
As citizens of the world, our work regarding ESG initiatives continues, with strong environmental and social programs, supported by sustained community investments. We remain committed to making strategic decisions and investments that will yield benefits for everyone far into the future. We have the people, the plan, and the resources to realize our ambitions, and we fully intend to consistently perform that and meet or exceed the goals we have set for ourselves. With that, we'd now be pleased to take questions. Over to you, Valerie.
Thank you, Mike, and thank you all for joining us this morning. 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, Julianne.
Thank you, Valerie. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourselves to one question and one follow-up question. Thank you. Our first question will come from Savi Syth from Raymond James. Please go ahead. Your line is open.
Hey, good morning, everyone. Just I wonder if you could talk a little bit more about the transborder. I, I know you mentioned making investments there and, and growing, and it, it seems like you're, you're seeing a lot of competitive capacity in those markets as well. So I, I wonder if you could provide just a little bit more color on what you're seeing in those markets and kind of, and, and how maybe the competitive capacity is playing out there.
Sure. Hi, Savi. When we look at the transborder market, there's a couple of, you know, submarkets in there. You've got, you know, the traditional, business markets, you know, to major, you know, metro areas in the U.S., and then you've got also very strong leisure, sun-focused, you know, elements as well, when we look at that market. So on the Canada-U.S. sector, in terms of transborder, you know, we're definitely growing our capacity, you know, increasing the amount of frequency and new routes that we're offering. And like we said, this is more long-term in nature, you know, especially as we build up our international network and Sixth Freedom ambitions. And, you know, we like what we see, in terms of, you know, our ability to execute, but also drive, you know, Sixth Freedom revenue.
On the leisure side or the sun market, you know, it has been more competitive this winter. You know, we have seen Canadian carriers move capacity, you know, into traditional markets like, you know, Florida, Arizona, California, et cetera. And, you know, we're - that market's a little bit, you know, sort of difficult this winter compared to last year, but still demand remains strong, and, you know, we're happy with our performance there.
That's helpful. And Mark, maybe I can also ask just what you're seeing on the kind of the business recovery side. You know, some of the U.S. airlines talked about seeing a step up in large corporate demand, and curious what you're seeing in it and how it compares either year-over-year or relative to 2019.
Yeah, good question. So in Q1, it was relatively stable. We didn't see a big growth as some of our American, you know, peers did. But as we look late into the quarter and into Q2, we're starting to see some very encouraging signals on corporate demand, you know, to the tune of, you know, almost 10%-20% greater on a year-over-year basis. And, you know, it's a little bit early to spike the ball on that, but we're seeing some very, very strong signals. But it's also the composition of who's traveling, and in the Q1 and early into Q2, we're starting to see the emergence of the tech sector traveling again, you know, transportation sector, you know, which is a very, very good sign for, you know, a rebuild on the, on the corporate demand side.
Very helpful. Thank you.
Our next question comes from Chris Murray from ATB Capital Markets. Please go ahead. Your line is open.
Thanks, folks. Good morning. If I can go back maybe a little bit to the comment about, you know, maybe putting together capacity constraints and some of the comments around, you know, alliances and, and Star, or, or maybe A++. I'm sure you've been looking at this, but is there anything on the regulatory front that you could think of, or, or any other opportunities you could see that would maybe create some more capacity for you, either transborder or internationally with some of your partners? Because I think everybody's facing some of the other challenges that you guys are seeing with, with being able to find lift at this particular point.
Yeah, timely question, Chris, 'cause we're, we've got a very robust and strong relationship with United. And in fact, you know, United Airlines this summer is going to do a lot of, a lot of flying, a lot of additional service between Canada and the U.S., you know, whether it be to our hub cities or even to secondary cities in Canada, like a, like a Winnipeg or an Ottawa, for example. So you know, we've definitely had our JV, you know, peers step up and, you know, certainly help us on the capacity front. In fact, just last week, United, you know, announced a new Montreal, San Francisco flight that complements our existing service. So we're definitely in coordination with our JVs to make sure that, you know, from a JV perspective, you know, we've got the capacity that we need.
And is there anything there, like I think we've talked about a Pacific JV or something like that? Anything like that on the horizon that you would—you think would help?
We're always looking at, you know, what the options are, but, for now, we've got a very strong partnership with, ANA, with our partner, Cathay. We have a joint venture with Air China. Obviously, we know that the Canada-China demand is a little bit, you know, subdued at the moment, but we're always assessing what new partnerships might look like in that part of the world.
All right. That's helpful. My other question, and I'm not sure who wants to take this. I mean, certainly we've seen the commentary around the accruals you've made for employee costs. I guess we're getting closer and closer to the drop dead date in discussions with the pilots. Can you just provide us some color and some update on how the process is going and what we should be looking for as next steps?
Hey, good morning, Chris. Mike. So I don't think there's any drop dead date. First of all, we're in discussions with our pilots with the help of a mediator at this point in time, and that process continues. And we're going through many elements and making progress. But again, that process will continue for at least next little while. And then we'll determine, then we'll hopefully we'll come to an agreement, you know, as that process winds up.
Okay. I'll leave it there. Thank you, folks.
Our next question comes from Andrew Didora from Bank of America. Please go ahead. Your line is open.
Hi, good morning, everyone. Just wanted to touch on the other revenue line item, kind of decelerated more sharply than you kind of saw throughout last year, barely showing any growth year-over-year, in 1Q. Is this credit card? You know, are you seeing any change in terms of consumer behavior in that product, or is there something else going on in that line item?
Sure. Hey, it's Mark Nasr. Good morning. No issues of credit cards. In fact, we've seen the growth on our portfolio outpace market in Canada, and for the first time in several years, an increase in our overall share of credit card spend in Canada. So, no issues there.
I guess, what was the driver of kind of basically no growth in, in 1Q after, you know, several quarters of a double-digit growth there? It just seemed like an outlier versus our estimates.
Yeah, we'll have to get back to you on that one. I think it's, you know, we haven't picked up anything that's, that's non-performing, so.
Okay. Then lastly, just for me, John, I think you mentioned in your remarks that CASM ex would improve sequentially. Was that a comment on absolute CASM sense figure or a CASM growth figure year- over- year? Thanks.
Yeah, so it's a sequential quarter, so we'll see good, we'll see good continued improvement in CASM as obviously, we continue to grow capacity through the year and, and we get, good efficiencies. Year-over-year, you'll see some pressure. Last year, Q2, Q3, we had, like, double-digit sequential quarters there. I think we grew Q1 to Q2, and 2023 was 11%, if I'm not mistaken, and Q2 to Q3 was almost 15%, quarter-over-quarter growth. So the, the improvements last year, we probably won't match this year, but we still feel pretty good about how we're, we're making progress. And I think, we're starting to see the, the benefits just of, you know, that early scale up in, in 2022, 2023, and now we're starting to give back a little bit of productivity.
We did see some here in the first quarter, and we still feel pretty good about the full year guide at 2.5-4.5.
Okay, thank you.
Our next question comes from Matthew Lee, from Canaccord Genuity. Please go ahead. Your line is open.
Hey, good morning. Thanks for taking my question. I wanted to maybe start with headcount. It looks like you added another 500 employees to the staff this quarter. Can you maybe talk about where those people are being deployed and whether we should expect to see further FTE growth as we go deeper into the year?
No, so we, I mean, we typically do add some staffing at the beginning of the year, and then, you know, we continue to have another year that's gonna be some pretty decent growth, as you know, 6%-8%. So staffing has been basically operational focused and, I would say, you know, probably a little bit of IT folks as well in there as we are stacking up some of the technology improvements. Overall, I would say that, we're seeing a good gap between the capacity growth and our FTEs in the quarter. I think, 11% of capacity on 7% staffing, and I think that continues to get better through the year and probably into next year as well.
I think that there's probably, you know, a couple of years here where we're going to start to get better efficiencies. The airline works better at a certain scale, and we're coming back to 2019 levels, and then from there, we should continue to see good benefits.
Okay, great. Then maybe, you know, you mentioned a 30% increase in Pacific travel for the summer, 25% increase in certain European locations. Just given that overall capacity is kind of scheduled to be high single digits for the year, can you help us understand which areas you're taking capacity from? And maybe whether those routes were underperforming or, you know, if they'll be back once deliveries come in.
I'll give you some quick color, and then Mark can add here. But well, late last year, we made the decision to reposition some of our transatlantic fleet to the Transpacific. And so that's really what's driving and fueling that growth, Transpacific. I mean, it was an opportunity for us to tap into a market that was underserved, and it's also produces very good yields. So, it's a very planned growth in the Pacific and was not a reaction. It was actually a strategy for 2024.
Okay, great. I'll pass the line.
Our next question comes from Helane Becker, from TD Cowen. Please go ahead. Your line is open.
Thanks very much, operator. Hi, team. Thanks for the time. Two questions. One on liquidity. You mentioned it was CAD 10 billion at the end of the quarter. What is it actually now? Can you say?
I mean, not materially changed. I mean, we, you know, as you know, in Q1, we, we took down some debt, so we, we did use some there. We added some capacity to our revolver, so that would have added some some liquidity, about $375. We continue to have a very strong liquidity position, so nothing really to comment very different than what the Q, Q1 end of the period was.
Okay, that's very helpful. And then the other thing in the MD&A, you talked about, and you just mentioned it as well, lower yields in long-haul transatlantic routes, and we're kind of curious about that statement. I know you and just wondering about declining yields. I sort of didn't get that from your prepared remarks.
Yeah, Helane, no, very good, very good point. On, on the transatlantic, it's important to note, it's, it's about the compares, and last year, you know, on the transatlantic, we had a very, very robust environment. And it was normal to expect that we'd have some kind of decline on the transatlantic, given the normalization that we're seeing. But from a profitability perspective, we're, we're very pleased with what we see on the transatlantic, and as you know, this, this is one of the sectors that really drives our airline forward. So although we're seeing some yield declines, it's expected, and, you know, the transatlantic market, in general, is, is quite resilient, and we're seeing year over year that demand continues to trend favorably. So, no, no major issues there.
Okay. That's very helpful. Thanks, team.
Thank you.
Our next question comes from Jamie Baker from JP Morgan. Please go ahead. Your line is open.
Oh, hey, good morning, everybody. I'm following up on Savi's corporate question. So, are you seeing any differences, you know, relative to pre-COVID in terms of corporate booking patterns? You know, for example, trip duration, how far in advance, you know, bookings are taking place, that sort of thing. And also, if it is too early to spike the ball, your term, do you think that corporate ends up being the variable that, you know, in the event you exceed your revenue ambitions for the year, do you, do you think that's gonna be the, the category, the upside, you know, to the model?
Hi, Jamie, it's Mark. So we're not assuming that just yet. We want to see a few more months of that trend, you know, being positive. But again, you know, in Q1, you know, we saw corporate demand to and from the U.S., you know, rise year-over-year to the tune of almost, you know, 10%. Demand within Canada was relatively flat.
Mm-hmm.
You know, again, we're very bullish and favorable on the U.S. prospects. So if we see a few more months of this, that might change our view of the year, but for now, you know, we're not materially changing our assumptions.
Got it. And then second, probably for Mike, you know, a theme that's been coming up with at least two of the U.S. airlines relates to competitive moats that they believe exist around their business. So what do you think are Air Canada's most important moats? I certainly have my opinions. I just want to hear if mine align with yours, which is why I'm asking the question. Thanks in advance.
Well, we could spend the rest of the time on what we think our competitive strengths are, but certainly our diversification, our international franchise, our partnerships that we have in place. You know, the strength of our three key hubs, and the ability that we sit on top of the largest travel market and are able to attract traffic. Plus, the efficiency of our fleet. I know we have different types of planes in our fleet, Airbus and Boeing, but we believe we have a very, very efficient fleet, and with our fleet plans going forward, it's going to become even more efficient.
Okay. That, that's a differentiated aspect. I appreciate that.
Yep, absolutely. And there are other aspects as well. You know, our onboard product, our LOPA, you know, we run a very efficient airline that can meet the needs of many, many different customers.
Got it. Thank you very much.
Our next question comes from Steven Trent, from Citi. Please go ahead. Your line is open.
Good morning, everyone, and thanks for taking my question. The first question pertains to regulation. You know, what we've seen here in the U.S. is the DOT looking like it wants to impose strictures for flights that are delayed, lost bags, canceled flights, and what have you. Could you refresh my memory as to any potential adjustments you might be seeing on the Canadian side? Thank you.
Good morning. It's Mike. So Canada has already a lot of those rules in place, and we've been living and working within that regulatory environment. The only one that obviously is in front of us is some enhancements to the APPR rules that our CTA, our regulatory body, is currently considering. We, you know... Those are not publicly available yet. They should be later this year, and we do believe that they will, to some degree, increase the costs of compensation for customers for delays.
And again, we'll be smarter and when we see the visibility. You know, have visibility. Now, you know, obviously, we're part of many different stakeholders that are speaking to the CTA and others about these rules. But again, that regime already exists within the Canadian regulatory environment.
I appreciate that, Mike. Just one quick follow-up here. You know, some of your U.S. competitors have been mentioning overcapacity going into Mexico's beach destinations, for instance. I know it's not a big piece of the pie for you guys, but I do believe you might be launching service to the new Tulum Airport. I was wondering, you know, what you guys are seeing in terms of metal going into that market? Thank you.
Hi, Steven. So, you know, I think when we look at the Canadian context, when we look at our Canadian peers, I think they're coming to the realization we came a long time ago that, you know, seasonality is a big factor, and where to put aircraft in the winter in Canada has always been a challenging feat. So, you know, there's no doubt that they're putting, you know, material capacity into sun markets, including Mexico. But, you know, we like where we stand, and in particular, this winter, we actually did quite well in Mexico. So I'm not, you know, overly concerned, but going forward, you know, we do expect the sun market to be, you know, competitive, 'cause that's, you know, one of the few areas that you can offset your traditional summer seasonality with.
Appreciate that. Thank you for the time.
Our next question comes from Konark Gupta from Scotiabank. Please go ahead, your line is open.
Thanks, operator. Good morning. Just wanted to kind of follow up on margin, John, again. So it seems like the adjusted CASM inflation is likely to ramp up in Q2 and Q3, as you kind of reach your full-year outlook on that. Yields are normalizing right now, clearly, but you have hedged Q2 fuel about half of that at a very attractive price. Any comment on margin performance year-over-year as you get into sort of Q2 and Q3? I mean, you have some tough comps probably there.
Yeah, I mean, I think the story is more in the comp than it is in the Q2, Q3 at 2024 numbers. But last year, we, you know, we had some very strong margin production, particularly if you, if you look at Q3. I think on a full year basis, and you know, you can do the math, but we have some compression, right? And I think that we, we highlighted where that compression was coming from when we gave our guide, and there's, you know, there's some, there's some structural cost that, that we're, we're gonna be absorbing this year.
I think that, you know, over a longer period of time, the real end game is gonna be taking advantage of the growth that the airline has, the efficiency of the new aircraft, the technology that we're deploying, and just bringing the system back up to its most efficient, productive state. So I'm actually positive on margin expansion over the next couple of years. But yes, I mean, 2024 is gonna be a kind of a, call it a base year on which to rebuild.
I think what we feel good about is that we've come through a lot here over the last four years, and we've brought the airline, you know, still here, you know, with solid margins for 2024, even as we kind of fully absorb the impacts of the inflation environment that we've gone through. And and so I generally feel pretty good about it. But yes, there's a little bit of work to do from here.
That's, that's great, John. Appreciate it. And then if you can follow up on, on the shareholder returns. You mentioned in the update that, you know, with the capacity kind of restoring back to the pre-pandemic levels almost now, you guys are looking into, some form of shareholder return. So, like twofold, and maybe there, what, what kind of shareholder return would you be leaning toward, and what, what can we expect from, from timing there?
Yeah. So I won't be specific today, but I can tell you this, that traditionally, you've seen that, you know, we have been able to return cash to shareholders and, you know, buybacks have always been a tool that has helped reward those that are supporting the stock and the company. I think that we're, you know, consistently looking at what the airline needs to look like as we get to the end of the decade. We have a long cycle of planning, and so we're gonna balance those investments, that growth. Mark talked about a lot of strong drivers about why we believe the airline can continue to grow, whether immigration, Sixth Freedom, just generally speaking, economic growth.
At the same time, we believe that we can generate cash. As we do both, then, there'll be an opportunity to share that with investors. You know, as far as timing, nothing here to announce today, but, let's just say that, you know, liquidity and balance sheet is in the right place for us to be able to think about these things.
Okay. Thanks. That's it for me.
If you have any additional questions, please press star followed by the number one on your telephone keypad. Our next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Your line is open.
Yeah, thanks. Good morning. Just wanted to ask about the fleet. I mean, you, you've mentioned here that you're sourcing some additional 737s on lease. I just wondering, I guess, the rationale for the decision here to add more narrow body capacity. Is that a reflection of what you see as, you know, growing demand or new route opportunities? Or is there, I guess, some concern over, you know, availability of maintenance slots or engine problems that some other aircraft operators are experiencing? Just wondering what the rationale was here for looking ahead and sourcing those aircraft now.
Hi, Cameron, it's Mike. I'll take the question, and maybe Mark or John will add, 'cause it's really important. So we do see opportunity to add more capacity at profitable margins, first of all. So there is a strong business case to take these planes into our fleet, and do some reconfiguration and then run them in 25. But also, to your question, the comments, it's also defensive to some degree, 'cause we do have some challenges with the Airbus A220 engines, where some of those planes are sitting on the ground without engines right now. That's going to take some time to come back.
We're working closely with Pratt on that, and there are solutions, but it will take time. So, you know, it's also from a defensive perspective as well. So it's a good and correct business decision from our part. The opportunity came up, and we stepped into it fairly quickly. We're still negotiating certain things around that, but we should be able to hopefully announce a final deal in the next short time as to how many planes and some more details behind it.
Cameron, this is Mark Galardo here. Just, not only is there a short-term impact of, you know, the ability to kind of mitigate those issues and also increase capacity, but medium- to long-term, we have an aging fleet of, you know, Airbus A320, A319, A321ceo. And, you know, taking these planes also allows us the opportunity maybe to age down the fleet a little bit. So, you know, kind of a win on all dimensions.
Okay, it makes sense. On the A220, I guess, engine issue, you've mentioned some, you know, aircraft on the ground. Is the cost, I guess, reflected, you know, in the numbers now? Is it significant, and is there any opportunity for compensation? You know, I know some other airlines are seeing that.
Yes, and so we're no different than other airlines. We've got, you know, at this point in time, probably six or seven planes sitting on the ground. Seven planes sitting on the ground. That may change over time. However, we will, you know, be discussing compensation with Pratt, and we are in, you know, those discussions. But certainly, to your point, we are incurring the costs right now, and those costs are in our numbers at this point in time. And hopefully we can get some recovery of that in the not so distant future.
Yeah. And Cameron, you know, I mean, we're also making some choices in terms of, you know, running a little bit more regional aircraft and things like this. So it shows up in kind of direct cost, you know, and also the aircraft not available. But it also in how we deploy some smaller, less cost-efficient aircraft on routes that otherwise an A220, which was very efficient, was running. So all those things kind of are in there. And, you know, we meet with Pratt regularly, and we're confident that they're gonna, you know, work through all of this. But at the same time, we don't think this is gonna solve itself in the next quarter or two.
So, you know, there's a little bit of time ahead and, you know, Mike just spoke about the MAX decision that plays into all of this. And so I think, you know, we're always trying to balance the risk reward here, and I think, you know, these are the right decisions and a little bit of pain here in the short term. But longer term, we're still very happy with the A220 fleet.
Okay. No, that, that's very helpful. Thanks very much.
We have no further questions. I would like to turn the call back over to Valerie Durand for closing remarks.
Thank you, Julianne. Thank you once again for joining us this morning. Once more, if you have any follow-up questions, feel free to contact us at Investor Relations.