Good morning, ladies and gentlemen. Welcome to the Air Canada first quarter 2022 earnings call. I would like to turn the meeting over to Ms. Valérie Durand, Head of Investor Relations. Please go ahead, Ms. Durand.
Thank you, Donna. Hello, bonjour, et bienvenue à notre première revue trimestrielle de 2022. Welcome and thank you for joining us on our first quarter call of 2022. Joining us this morning are Michael Rousseau, our President and Chief Executive Officer, Amos Kazzaz, our Executive Vice President and Chief Financial Officer, Lucie Guillemette, our Executive Vice President and Chief Commercial Officer, and Craig Landry, our Executive Vice President and Chief Operations Officer. On today's call, Mike will begin with a brief overview of the quarter. Lucie will touch upon our revenue, our network performance, Aeroplan, and Air Canada Cargo. Amos will provide additional details on our financial performance, fleet and liquidity, and then we will return it to Mike. We will then be available until 9:00 AM for questions from equity analysts.
We will remain available for additional questions after the call through our investor relations team. Immediately following the analyst Q&A session, Mr. Kazzaz and Pierre Houle, Vice President and Treasurer, will be available to answer questions from Term Loan B lenders and holders of Air Canada bonds. Before we begin, please note that our comments and discussion on today's call may contain forward-looking information about Air Canada's outlook, objectives, and strategies, which are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. I therefore refer you to our forward-looking statement caution in Air Canada's first quarter news release, which is available on aircanada.com or on SEDAR. I will now turn it over to Mike.
Merci, Valérie. Good morning, everyone. Bonjour a tous. Thank you for joining us on our first quarter earnings call today. I'm pleased to report that we exceeded our internal expectations in key financial metrics like revenue, EBITDA, and unrestricted liquidity, despite the numerous challenges in Q1. It was an interesting quarter starting slow due to Omicron and ending on a very positive note with the elimination of several travel restrictions resulting in March bookings coming in over 90% of March 2019 levels. Obviously a very positive leading indicator to much stronger Q2 and Q3 results. Challenges around inflation, higher fuel prices, and the uncertainty arising from the conflict between Russia and Ukraine continue to impact the entire industry. However, our incredibly strong and best-in-class management team is managing the risk profile very effectively. Lucie and Amos will speak to this in greater detail.
We are very positive on the rest of the year and continued growth over the next several years. Throughout the pandemic, we focused on core strengths, pivoted to take advantage of new opportunities, continued to invest in the future, and performed at a very high level despite some of the most restrictive travel restrictions in the world. For this, I must credit our employees, and together with our entire leadership team, I thank them for their hard work over the last two years. As today's results and our improved operating performance show, our teams are now showing the same level of determination, commitment, and passion in executing on our recovery strategy. Customers continue to return b ecause of the factors I mentioned earlier, traffic was down, but only marginally from a very busy fourth quarter of last year. We anticipated renewed demand for travel and we have been restoring capacity.
We increased it by 2% from the previous quarter and almost 240% from the first quarter of 2021. This year's first quarter capacity represents about 55% of the first quarter of 2019. Return of customers is translating into increased revenue. We reported operating revenue of nearly CAD 2.6 billion in the quarter. While down from the previous quarter due to the impact of Omicron, it was up significantly from a year ago when we had revenues of only CAD 729 million. Our transformed Aeroplan program, Air Canada Cargo, and Air Canada Vacations also contributed to revenues, showing the success of our strategy to expand and diversify revenue sources. We also showed cost discipline in the quarter, including from the benefits of our renegotiated maintenance contract and other structural changes we have made.
Our adjusted cost per available seat mile, or adjusted CASM, declined 6.6% from the fourth quarter of 2021. We ended the quarter with nearly CAD 10.2 billion in liquidity, almost unchanged from December 31st, 2021. Our cash position acts in both the defensive and offensive fashion. Defensively, it helps manage the risk of unexpected events, which we saw was extremely important over the past two years. As we exit the pandemic, more importantly and certainly more exciting, it also allows us to make strategic investments, such as the recent announcement to acquire new Airbus A321XLRs and the two new additional Boeing 767 freighters, to better position ourselves for the post-pandemic marketplace while increasing fuel efficiency, and our overall cost, and margin capabilities.
We held a very successful Investor Day about a month ago where we outlined our strengths, our strategy, and financial goals. We are deeply committed to achieving our full potential. Finally, before I turn the call over to Lucie, I would like to mention that we recently hit a milestone by flying more than 100,000 customers in a single day for the first time in more than two years. I thank our customers for their continued loyalty, either when flying with us or trusting us to ship their cargo. We are grateful, a nd thank them for choosing Air Canada, and we look forward to welcoming many more of them back on board. Thank you. Lucie?
Thank you, Mike, and good morning, everyone. I'm pleased to share that this quarter, passenger revenues rose to over CAD 1.9 billion, a nearly five-fold increase compared to the first quarter of 2021. The increase in passenger revenues applies to all cabin categories, especially premium economy, which experienced over 6x the revenue in the first quarter of 2022 when compared to the same period in 2021. At the system level, capacity increased nearly 240%, while traffic increased close to 418%, which translated into 22.8 percentage point increase in passenger load factor. Passenger revenue per ASM in the first quarter of 2022 increased over 43% when compared to the first quarter of 2021. While we can see positive trends, we're not yet at 2019 levels.
When compared to the first quarter of 2019, first quarter 2022 passenger revenues, operating capacity, and traffic have experienced a decline of roughly 50%, 45%, and 55% respectively. We are, however, anticipating a turnaround as passenger ticket sales in March 2022 were close to March 2019 levels. In fact, advanced ticket sales as of March 21, 2022 of CAD 3.5 billion exceeded by almost CAD 200 million the March 2019 levels. This is notable as it continues to show strong customer demand for Air Canada and a very encouraging sign that the recovery continues to gain momentum. Our operating capacity over the quarter more than tripled from the first quarter of 2021 when significant travel restrictions were in place. This reinstatement of capacity and traffic growth drove a turnaround in passenger revenues.
All markets are up for the first quarter of 2021, most notably the U.S., trans-border, Atlantic and Pacific, primarily due to the easing of restrictions when compared to the operating conditions of the first quarter of 2021. To provide a little more detail, U.S. trans-border passenger revenues of CAD 425 million increased CAD 396 million from the first quarter of 2021. Atlantic passenger revenues is CAD 464 million increased CAD 377 million from the first quarter of 2021. We saw passenger revenues on the Pacific of CAD 98 million increase CAD 82 million compared to the same quarter in 2021. Keep in mind, however, that deployed capacity to the Pacific market remains significantly lower than that of other markets we serve, and this is mainly due to significant travel restrictions in key Asian destinations such as China.
We are optimistic that by 2023- 2024, the Asia Pacific market will rebound as countries progressively open their borders to foreign travel. The increase was also felt at Air Canada Vacations where we saw a higher volume in ground package sales, which supported the CAD 205 million increase in other revenues from Q1 2021. With the headwinds of the pandemic behind us, I'd like to spend more time on the forward view as we see a favorable and exciting developing trend in our network rebuild and overall booking posture. Our continued turnaround will be bolstered by the expansion of our network this coming summer as we are relaunching a new service on four trans-border, and five domestic routes, and restoring 41 North American routes.
We plan to operate to 51 Canadian and 46 U.S. airports this summer offering customers the largest network and the most travel options of any Canadian carrier. With this, we expect to return to 90% of our pre-pandemic North American capacity this summer. As mentioned at Investor Day, we are in the business of global connectivity. We will feature over 1,000 connecting city pairs from the United States to our international network this summer. This will only grow as we rebuild Asia and launch additional new routes from each of our hubs. Our expanded network also includes 34 international routes relaunching across the Pacific and Atlantic, with the latter expected to reach over 90% of 2019 ASM levels in the second half of this year. We are pleased with the recovery on the Atlantic this summer, an important market for Air Canada.
As we look ahead to our second quarter capacity, we plan to accelerate our recovery and fly roughly 73% of second quarter 2019 ASM capacity. This summer, we will be at nearly 80% of 2019 and we're targeting to be close to full recovery during 2024. Our strategy of focusing on our hubs and growing their respective global connectivity, focusing on Sixth Freedom transit traffic to and from the United States, and focusing on leisure VFR travelers will pay dividends. Our advanced bookings are accelerating and continue to meet our expectations. While the recovery in business market continues to lag the leisure markets, we are seeing signs of an accelerating recovery with steady signs of improvement week-over-week. We're also very encouraged by indicators of recovery for small and medium businesses and anticipate further rebound post Labor Day and into 2023.
Until then, we will continue to focus on creating new products and seizing opportunities to mitigate the associated yield impact. In short, our exposure is manageable given the size of our premium cabins and the real opportunities we have to tap into other points of sales while corporate Canada returns. While we await the return of corporate traffic, we are seeing more demand for our premium products from leisure customers. In fact, our premium cabin revenue recovery outpaced the economy cabin in the first quarter. We will continue to innovate with our service offering. Our recent agreement with Porsche is a good example. Porsche Cars Canada will be the exclusive vehicle supplier of luxury hybrid and all-electric vehicles to the Air Canada chauffeur service in Toronto, offered to select Signature Class customers connecting to Asia, Europe, and South America. We're also expanding the service for the first time to Vancouver.
As well, our Signature Suite Dining Lounge in Toronto reopened during the quarter, while Vancouver will soon follow. To support demand generation, we're investing more in retail advertising, led by our Ready to Europe campaign in the first quarter. Also, our holiday ad won a bronze at the 2022 Clio Awards, the world's most recognizable international advertising awards, according to Time magazine. We are actively ramping up operations and are confident we have the necessary resources to operate our commercial schedule. In addition to this, we are actively working with our partners, the various agencies, and airport authorities to make the necessary preparations. We have waited over two years for this, and so have our customers, and we are prepared to welcome them back. Now turning to two important strategic levers for our future, Aeroplan and Cargo.
We're thrilled with Aeroplan's performance over the first quarter of 2022 and saw several KPIs performing at all-time highs. Our transfer program's digital enhancements and everyday partners are proving attractive. In fact, we saw our highest ever new member acquisitions in the first quarter. Air redemption bookings were also at an all-time high, up 19% over the same quarter in 2019. Program generated gross billing from points sold to third-party partners exceeding Q1 2019 levels by 21%. It is also the first time since the onset of the pandemic that card acquisition volumes exceed pre-pandemic levels for all three of our Canadian card issuers. We hit another record this quarter with the most points transferred into Aeroplan from other credit card programs, showcasing the increasing strength of Aeroplan's U.S. and international business.
The redesigned Aeroplan program continues to enjoy positive reviews from customers, industry experts, and the m edia. Last week, Aeroplan won two Freddie Awards, including being recognized for offering the best points redemption ability in the Americas. Our revenue management and loyalty teams have optimized the program to deliver better value to members while also driving a 30% increase in yield on redemption tickets when compared to 2019. As for cargo, a high demand for cargo, especially in the Pacific market, combined with our new freighter flying, has led to a strong performance in this area. In the first quarter of 2022, cargo revenues of CAD 398 million increased CAD 117 million or about 42% from the first quarter of 2021. Looking ahead, we expect this to soften as we reconvert aircraft back to passenger configurations and receive our new freighter aircraft.
The cargo team is working diligently to prepare for the future freighter deliveries scheduled over the remainder of the year. Amos will speak to you about the changes in this fleet, but just before I turn it over to him, I will quickly go over a few other updates. Air Canada Cargo has expanded its freighter network to Europe and Atlantic Canada beginning with the start of service to Halifax this month. Service to Frankfurt, Cologne, Istanbul, and Madrid is expected to begin in May, thanks to addition of a second Boeing 767-300ER freighter. To build our presence in additional space for cargo bookings, especially from freight forwarders, Air Canada's cargo capacity is now available on several platforms that allow real-time pricing and e-booking for customers such as WebCargo, CargoAi, and an expanded presence on cargo.one.
This is part of a continued adaptation, digitization, and investment by Air Canada Cargo in its commercial strategies during the COVID-19 pandemic. I also take this opportunity to thank our employees across our company who are giving our recovery efforts their all as we welcome our customer back and aim to Rise Higher together. With that, I will pass it on to Amos.
Thank you, Lucie. Bonjour à tous. Good morning, everyone. First, let's take a quick look at the financial overview of the quarter. On a GAAP basis, we recorded operating revenues of CAD 2.573 billion compared to the first quarter operating revenues of CAD 729 million in 2021, an increase of CAD 1.844 billion or about 3.5x . Compared to the first quarter of 2019, operating revenues decreased CAD 1.861 billion or 42% due to the impact of the COVID-19 pandemic. EBITDA, excluding special items, of -CAD 143 million improved CAD 620 million from the first quarter of 2021. For 2022, we continue to expect an annual EBITDA margin of about 8% to 11%.
Operating expenses for the first quarter were CAD 3.123 billion. The CAD 1.345 billion increase from the first quarter of 2021 can largely be attributed to year-over-year growth in operating capacity as well as to the impact of the increase in jet fuel prices. For 2022, we continue to expect our adjusted CASM to remain about 13% to 15%, above 2019 levels. I will now touch on the more notable year-over-year variances in operating expenses in the first quarter of 2022 compared to the first quarter of 2021. Beginning with fuel, in the first quarter of 2022, fuel expense of CAD 750 million increased by CAD 550 million from the first quarter of 2021.
This is following a 57% increase in jet fuel prices as well as more jet fuel liters used because of the higher volume of flying compared to the first quarter of 2021. Since the beginning of April, we have seen a rapid increase in the price of jet fuel with record crack spreads as market forces have driven jet fuel, in particular, to record highs. We expect this to continue through another month or so and then become more normalized, albeit still high. We believe that much of this increase can be recovered through fares, other revenue optimization tools, as well as through our continuing focus on cost reduction initiatives. We now expect the price of jet fuel will average CAD 1.24 per liter for the full- year of 2022.
As our recovery continues, restrictions ease, and customers fly again, we have been able to call back employees and welcome new colleagues. To illustrate, on a full-time equivalent basis, Air Canada and its subsidiaries had over 27,000 active employees in the first quarter of 2022 versus just a little over 16,000 employees in the first quarter of 2021. This is the primary reason for the rise of CAD 179 million or 34% from the first quarter of 2021 for wages, salaries, and benefits. Over the quarter, regional airlines expense, excluding fuel and ownership costs, also increased CAD 121 million or 62% from the first quarter of 2021.
Again, the increase is primarily driven by higher expenses due to higher volume of flying compared to the first quarter of 2021 and continues to be partially offset by savings from the consolidation of regional flying. Aircraft maintenance expense of CAD 26 million decreased by CAD 124 million or 83% from the first quarter of 2021, in part thanks to an amended agreement between Air Canada and a third party maintenance provider. As a result, a favorable adjustment of CAD 159 million was recorded in aircraft maintenance expense from the adjustment to maintenance accruals and the recognition of future credits that will be available under the amended agreement. This agreement not only provides a significant current period cost savings, it right sizes future costs and gives us more flexibility on future maintenance events and fleet decisions.
Turning to our fleet, early in the pandemic as a response to the surge in demand for air cargo space, we innovated by operating all cargo flights using passenger aircraft temporarily converted into an all cargo configuration. Six of those Boeing 777-300ERs and 3 Airbus A330s were returned to passenger service over the quarter, with one more of each aircraft type to be converted back to passenger service by year-end. On the other hand, we have acquired two new Boeing 767-300ER freighters that will be added to the fleet this year. These additional freighters are expected to enter service in 2023. We took delivery of three 737 MAX 8s over the quarter and now have 34 in the fleet. We purchased these three aircraft with cash. We also took delivery of one A220, bringing the total to 28 in the fleet.
An additional six 737 MAX 8s will be introduced as well as five A220s, bringing those totals to 40 and 33 respectively by the end of this year. We announced we will be introducing 30 Airbus A321XLRs, and we have selected IAE to supply Pratt & Whitney PW1100G-JM engines, spares, and related maintenance services. Ten will be purchased and the other 20 will be leased with deliveries expected to begin in the first half of 2024 and concluding in 2027. There are now four aircraft added since our 26 Airbus A321XLR order that was announced last month. We also have purchase rights to acquire an additional 15 of these A321XLRs between 2027 and 2030.
Turning to liquidity, w e began the quarter with about CAD 10.4 billion of unrestricted liquidity, which included CAD 950 million in undrawn revolvers. During the quarter, we generated CAD 59 million in free cash flow, an improvement of CAD 1.221 billion when compared to the same period last year reflecting higher net cash flows from operations and strong advanced ticket sales. We ended the quarter with nearly CAD 10.2 billion in unrestricted liquidity close to 2021 year-end levels. This is comprised of cash and cash equivalents, short and long-term investments of CAD 9.212 billion and CAD 950 million available under undrawn credit facilities. Going forward, we estimate that we require a minimum unrestricted liquidity balance of CAD 5 billion to support ongoing business operations.
This also includes a larger buffer to manage cost risk and unplanned disruptions. Minimum unrestricted liquidity includes funds available under credit facilities. I will close by thanking our employees for their efforts and dedication. I will now turn the call back over to Mike.
Great, and thank you, Amos. Traffic's returning, revenues are growing, our network's being restored, and our finances, including our liquidity position are very strong. Furthermore, we are continuing to invest to build on our highly competitive position we already enjoy in the emerging post-pandemic marketplace. To maintain and accelerate our momentum, we have begun a new strategic focus to drive continuous improvement called Rise Higher. It is guiding our actions and is part of our strategic decision-making as we move through the recovery and beyond. Rise Higher builds on our corporate priorities, aiming to increase revenue while controlling costs, expanding internationally, engaging employees, and delivering superior customer service. Our announcement of the acquisition of 30 Airbus A321XLRs is a good example of Rise Higher in action with all four pillars working in a coordinated fashion. F uel efficiency of these aircraft will reduce operating costs.
As Lucie said, its long range opens new market opportunities internationally. N ew aircraft have been welcomed by employees as they signal optimism about our future while providing many additional benefits. We know customers will love the new aircraft with the state-of-the-art amenities as we have leveraged and conducted several focus groups. This is important because we are putting particular emphasis on the third pillar of Rise Higher, elevating the customer experience. The customer journey is where all priorities converge. This is especially relevant in the ever more competitive world in which we operate where customer service will be a key distinguishing selling point for airlines. We plan to remain a recognized market leader in this respect and elevate our game. The A321XLR order will also enable us to reduce our carbon footprint.
Customers, along with investors, employees, and other stakeholders, are holding brands and corporations to greater account on sustainability issues. Air Canada has been a leader in this critically important area and will continue to set the standard because it is our responsibility to do so, and we want to set an example for other airlines to follow, and join a collective effort. Air Canada is deeply committed to meeting its ESG goals. For example, despite the pandemic, we carried on with environmental programs and even strengthened them by adopting last year our goal of net zero emissions by 2050. Through our Leave Less travel program, we are sourcing sustainable aviation fuel, allowing us to reduce greenhouse gas emissions at the source.
L ast week to mark Earth Day, we dedicated sustainable aviation fuel to four commercial flights departing from San Francisco to our major hubs in Toronto, Vancouver, Calgary, and Montreal. As part of this, we are also enhancing our disclosure. In addition to our annual Citizens of the World CSR report, in 2022, we will be releasing our first TCFD report to increase reporting of climate-related financial information. ESG is about more than just the environment. It also includes other contributions that corporations can and must make to the communities they serve. For this reason, we were very proud last week to announce we will be donating 100 million Aeroplan points to help Ukrainians come to Canada. Y esterday, we also carried a second cargo shipment of humanitarian supplies for Ukraine with over 100 employee volunteers helping assemble the relief packages.
In closing, it is difficult to describe fully the excitement and optimism we're all feeling as we look to our path forward. We continue our recovery with arguably the most solid foundation in Air Canada's existence, made concrete by extraordinary efforts and talents of our employees who I deeply thank for their loyal, dedication, and trust. Through our cost discipline ingrained in our DNA, investments in our fleet, our hubs, global network and loyalty partnerships, our revenue management and other technologies, as well as our product, and especially our WIN as ONE culture, we are poised to not only exceed, but enhance our leadership position on all the key building blocks we have spoken about today. With that, I'll turn it back now to Valerie.
Thank you, Mike, and thank you all for joining us today. We are now ready for questions. In the interest of time, and in order to be fair to all, we kindly ask that you each limit yourself to two questions or one question and one follow-up. Should you have additional questions, we invite you to contact us at Investor Relations. Over to you, Donna.
Thank you. We will now take questions from the telephone lines. The first question is from Kevin Chiang from CIBC. Please go ahead.
Hey, good morning, everybody. Thanks for taking my question here. Maybe this is for Amos. Y ou talked about the increasing of fuel price assumption and some of the levers you're pulling on and pricing is first and foremost. I was just wondering how you're thinking about fuel hedging, especially as you look out into the summer and expectations of a continued recovery in demand. Secondly, just maybe flexibility around your purchasing strategy. We saw jet fuel prices reach record levels earlier this month in New York Harbor. Were you able to adjust your purchasing strategy to help maybe average down your exposure to that market?
Okay. Good morning, Kevin. Thanks for those questions. Certainly, fuel has been something we've continued to watch very, very closely. W ith respect to hedging, we aren't hedged, and one of the problems in terms of hedging right now is the fuel price escalation is really driven a lot by the crack spreads. The crack spreads are just at, you know, levels we haven't seen, you know, historically, and I don't even know how far back you can look to see if actually you've ever seen those sorts of crack spreads. You can't hedge crack spreads. In effect, there really isn't much we can do in terms of hedging the crack spread and then the underlying fuel price, whether WTI or Brent hedging, a t this point, with the volatility in the marketplace, it doesn't make sense.
It's not really attractive for us to hedge. That said, you know, our major competitors aren't hedging either. In an environment where, for the most part, our competitors aren't hedged, the ability to pass on increases in fares and manage through optimization and cost discipline is really sort of what's key how we're trying to manage through this dislocation in the market pricing. You brought up your other part of the question on New York Harbor exposure. That is something, again, we tried to take a couple of actions to mitigate that. First, we tried to move some additional fuel into Ontario from the prairies so we were successful in doing some of that.
We also then tankered as much as we could, so we were carrying additional fuel into various East Coast stations and into the Caribbean, again, to help hedge and deal with the dislocation in New York Harbor pricing. We tried to be, you know, agile and address the issues as much as we could. W Ith that, we're continuing to keep a close eye on it. New York Harbor's pricing has come down. It's got a little bit of ways to go but we feel in fairly good position right now.
That's great color and m aybe just a follow-up here. I noticed you're backing out freighter costs in your adjusted CASM. How should I think about that CAD 11 million you're pulling out in Q1? Is that essentially the incremental cost you're carrying to run a dedicated cargo business versus maybe the cargo business you had prior to the pandemic, which utilized just the belly capacity? T he cost seemed a lot lower than I would've imagined with you starting up a dedicated freighter operation.
Yeah, it is right now, i t is specifically sort of as we're looking at the dedicated freighter, so it's a small amount right now. A s additional freighters come on, then, you know, we'll see that. You'll see that number grow a bit.
Okay. That's helpful. Thank you very much.
Thank you. The next question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Thanks very much. Good morning. A question on rising interest rates. I know, I guess there's a couple of different potential impacts for Air Canada, so maybe a question for Amos. What is an acceleration of interest rate hikes here mean for your cash pension payment expectations and also for your interest expense? I mean, I think for the most part, your debt is mostly fixed, but I think you do have some variable rate exposure there. So maybe you can just talk about the impact of rising interest rates.
Yeah. Good morning, Cameron. On interest rates, sort of the effect, if you take a look at pensions, you know, right now we have a surplus, I think, as reported, about CAD 4.7 billion pension surplus. Interest rates in that environment, you know, in certain extent certainly help that surplus, if you will. No real impact that we see on pensions. If we look then at the rest of our debt profile, right now our fixed to floating is about 73% fixed and 27% floating. In a rising rate interest rate environment, we are really fairly well protected. That's the color I can offer on that.
Do you have any interest rate swaps on the variable portion, or is that basically kind of unhedged?
Unhedged. If you want to look sort of at a sensitivity on if it was another 1% increase in interest rates on the floating portion of our debt, that's equivalent to about CAD 45 million per year, annually.
Okay, p erfect, and j ust a quick question, just operationally. I mean, I see that Pearson Airport is undergoing a runway rehabilitation, I think on one of the busier runways there. Any concerns, I guess, around the impact on your operations from that, this summer?
It's Amos again, Cameron. No impact on the operations. We've been working very closely with GTAA or Pearson folks and NAV CANADA with respect to still being able to maintain operational capability on that runway and capacity. I do not see an impact at all.
Okay. Very good. Thanks very much.
Thank you. The next question is from Walter Spracklin from RBC Capital Markets. Please go ahead.
Yeah, thanks very much, operator. Good morning, everyone. M y first question is on business travel trends. I know in your Investor Day, you had indicated and I know Lucie mentioned 75% to 80% of 2019 levels by 2023, and then kind of back to normal by 2024. F ollowing up on that, you know, that's a key area of focus. You mentioned that it's recovering, but is there any way for us to track that? W here are you right now as a percentage of 2019 so that we can see how far you are from that and track the ramp up as we go through the years out to 2023 and 2024?
In other words, what percentage of total business travel or total travel would you say of business travel are we at versus 2019 today?
Hi, it's Lucie. First, I would say, right now we sit at approximately -50% of where we would have been at in 2019. F or us, domestic and transborder are the two largest services where we have corporate business. The reason why, in my comments earlier, I did, you know, show some large signs of optimism here is twofold. If I look at May and June, if I project a little bit further, we're already seeing ourselves passing the threshold of the, you know, -40% or so. Secondly, when we look at indicators of small and medium business travel, you know, basically customers who would be flying short durations when there's, you know, one single passenger on a PNR, for example.
Even if we don't have contractual agreements with some of these SMEs, we are seeing that traffic is coming back. I think for North America, we're going to see steady progress. I think by the time we reach September and October, you know, we could be in the -30% to -20% range within North America. International might take a little bit longer. The good thing for us is from an international point of view, because we've also, you know, solidified our U.S. schedule, our trans-border schedule. It also gives us the opportunity to go and capture some of this corporate demand in the United States, which of course has recovered, you know, faster than the demand in Canada.
I would say of all segments where, you know, we're very excited to see the return, it would be in this area, because we're definitely seeing signs of recovery.
Okay. That's very encouraging. Thank you, Lucie. My follow-up question here is on fuel and, you know, rising fuel prices, but maintaining your EBITDA guidance, suggestive that you're able to pass that on through higher and higher ticket or fare prices. Do you think there's a limit to that? And do you have any indication or any sense of what the, b ecause on one hand, you've got some pent-up demand that's making the traveler almost price agnostic. The concern is how long does that last, you know, when the pent-up demand is satisfied, if fuel prices remain high, do you think travelers are going to be willing to pay higher ticket prices after the pent-up demand is satisfied?
A couple of comments on that, t here's no doubt that as we, you know, work to mitigate the incremental cost of fuel here, fares is one thing. Obviously, we continue to, you know, do all possible to recover either through base fare or fuel surcharges or even, you know, revisiting some of our ancillary revenues. Where the opportunity lies as well for us is to really do our very best to manage the yield here. There's no doubt that maybe for some segments of the market, you know, the demand may be more challenged with fares, but there's still opportunities for us to be able to, you know, bring in more money here using other levers than just, you know, the basic fare increase.
There's no doubt that for the very price sensitive markets, you know, and also given the competitive environment in Canada, we need to manage that wisely here. We do have means to be able to, you know, better mix, et cetera, to bring incremental revenue in the door to compensate for the escalating cost of fuel.
Yeah. That's very helpful. Thank you very much, Lucie.
Thank you. The next question is from Konark Gupta from Scotiabank. Please go ahead.
Thanks, operator, and good morning, everyone. M y first question is on advanced ticket sale liability. I think you guys pointed out it's above March 2019 levels. It looks like it's 5% above. I'm just wondering if your booking curve suggests that passenger revenue could exceed pre-pandemic levels this summer or are you seeing bookings more so driven by 2023 demand?
I would like to think that it could exceed 2019 levels but we're planning to have capacity in the range of -20% approximately for the summer. To reach 2019 levels this summer would not be achievable as a result of that. P erhaps by the time we look at early Q1, maybe Q1 or early Q2 of next year, we could reach that. We wouldn't reach 2019 levels this summer.
Okay. Thanks and a q uick follow-up on Walter's question for demand elasticity. Just wanted to understand, you know, historically speaking, obviously we are in very, very different and unprecedented times here, but historically speaking, at what point have you seen the demand elastici c ome into play where, you know, you have seen fuel pricing or fuel prices go up steadily, or not coming down quite materially, and that has impacted demand. I'm just trying to, you know, put some context behind where we can see the elasticity come in this time.
Good morning. It's Mike. Let me try and take that one because it's a very difficult question, and because typically fuel prices are very volatile in periods of instability. We, you know, obviously, as you know, have had relatively stable fuel prices up until the Ukraine crisis. The last time it was volatile was during the financial crisis of 2008, 2009. That whole debate about demand elasticity is very difficult to provide color on because we've had a fairly stable environment between those in the last 10 years. Lucie's group is excellent at putting in place all the levers that she spoke about in the last question and ensuring that we meet our demand objectives.
That's a constant retooling and revamping of our practices. Konark, I'm not trying to avoid the question. It's just that it's very difficult to answer a question where really fuel prices have only been volatile in a very unstable environment, which impacts demand in so many other ways, frankly. I would say to the point that was made earlier, we are in a period of pent-up demand right now, and we are very cognizant of that. That's why we're being very prudent on capacity management, as we grow back into 2019 levels.
That makes sense, Mike. Thanks, and h opefully the fuel comes down in the next month or so, and you can avoid this question then.
Thank you. The next question is from Justin Church from BMO. Please go ahead.
Hi, Mr. Rousseau and Air Canada as a whole, very impressive quarter. As Air Canada may be aware, there is still a barrier with certain individuals that are unable to board on a Air Canada flight and fly domestic or international flights as per vaccination status. As COVID restrictions ease even more, was Air Canada expect even higher ticket sales to positively trend higher? As there are currently approximately 6 million Canadians or thereabouts unable to board an Air Canada flight as per vaccination policy. Does Air Canada expect the Canadian government to drop these mandates? Can you provide any insights, o r if when, how will that impact ticket sales going forward? Thank you, Mr. Rousseau, and appreciate your time.
Okay. Well, thank you for the question. One, we don't think those two events are connected, regarding, you know, higher ticket prices and potentially unvaccinated passengers flying. As to your question, second part of the question as to the Government of Canada is considering this right now, and they're reviewing the situation like most countries are around the world, as to mask mandate and vaccine passport requirements. Again, the government will review that in due course and make a decision. If, you know, we'll be asked our opinion at some point in time, and we'll provide that. Again, this is what many countries around the world are doing right now.
Thank you for that and j ust a quick follow-up question as well. At what point in time, in terms of pricing power, will you flip the switch in terms of increasing ticket prices? Obviously, Air Canada revenues have tripled, and I'm just curious as to, you know, when you will potentially do that.
Well, as we spoke about before in some of the earlier questions, pricing is a dynamic situation based on competitive pressures. Pricing does change all the time, you know, somewhat due to cost inputs, as we spoke about, regarding oil prices. Really, it's a function of the competitive environment that we're in. The rise in revenue is primarily the result of increased traffic.
Thank you.
Yeah, thank you so much.
Thank you. The next question is from Savi Syth from Raymond James. Please go ahead.
Hey, good morning. Lucie, if I might just follow up on the color you provided on business recovery. Is that volumes or revenue? I was just kind of curious what you're seeing on the yield front because in the U.S. at least, you know, we're finally seeing kind of business yields up year-over-year, up versus 2019.
The numbers that I provided earlier, that was traffic. On the yield side, in Canada as well, we are seeing positive yields versus 2019 for returning corporate travel. Maybe not to the same extent as, obviously because the, you know, the demand levels are much higher in the U.S. Definitely, our corporate travel is also a positive yield, year-over-year versus 2019.
Yeah. That's helpful. Then, Amos, can I just follow up on the maintenance, y ou know, the new agreement and the savings there, just the CAD 159 just seems like an adjustment? How should we think about kind of the benefit going forward from that? Is that different than what you had kind of anticipated as you thought about 2022 CASM ex and beyond?
Good morning, Savi. Thanks for the question. It's really, for the most part, it helps. It is, you know, clearly sort of driven in terms of it took us longer to reach the agreement with the third party provider. We had been accruing maintenance expenses going forward based on previous contract rates. Then through the negotiations, we essentially were able to recognize the benefits of the new agreements, which then will, you know, benefit us obviously in this quarter and then going forward in ongoing maintenance events. Relative to maintenance CapEx, no real change in that. What we had assumed before, I don't remember quite off the top of my head what we had provided, t here's really no material change in that.
On the unit costs, as you walked us through, you know, y our expectations for unit costs in 2022 and beyond, is that still pretty consistent then even with this savings?
Yes, that is pretty consistent. We had an idea that was happening but so it is consistent with what we had seen or what we had expected.
Okay. Perfect. Thank you.
Thank you. The next question is from Stephen Trent from Citi. Please go ahead.
Good morning, everybody, and thanks for taking my question. I was intrigued by your ESG comments and plans for increased disclosure. When I think about your hiring, you know, pilots, mechanics, flight attendants, you know, and even managerial positions, are there any kind of long-term guideposts we should think about with respect to the carrier's efforts to onboard women and minorities?
Go ahead. We're going to pass this question, g reat question, and t hank you for the question. We're going to pass this question to Arielle, who's our Exec VP of HR, who's leading the charge on the issue that you spoke about.
Hello, good morning. It's, you know, a really good question because it's something that we keep an eye on all the time. The fact that, you know, the world is changing a little bit and hiring may be a little bit more difficult doesn't mean that we're going to put this in any way on the back burner. We will always continue to have an eye on diversity as we hire and that's frankly at every level of the company. We are, you know, very proudly diverse already. We're very proudly bilingual, which is part of our our diversity efforts and that will continue. We don't see any of the challenges or the fact that it may be a little bit harder to attract talent as a reason to take a back seat.
Okay, that's super helpful. I really appreciate the color and I'll let someone else ask a question. Thank you.
Thank you. The next question is from Andrew Didora from Bank of America. Please go ahead.
Hi, good morning, everyone. Mike, clearly here in the U.S., the airlines are having some operational problems due to kind of labor and pilot availability, b eginning to see, you know, a few issues over in Europe as well. Can you maybe speak to, you know, what you're seeing within Canada on the labor front? Are there really any limitations that you see to your ability to keep restoring your network at your planned pace because of, you know, because of any kind of labor disruptions? That would be helpful. Thanks.
Great question, Andrew, and good morning. Good to hear from you. Short answer is we're not seeing any barriers for us to be able to get back to where we were in 2019 from a capacity perspective. Pilots are not an issue for Air Canada given our number of wide-bodies that we have in the fleet and a very attractive employer to come to. As you probably remember, we kept all our pilots on payroll through the pandemic and kept them trained and so that allowed us to recover quicker as the business has come back.
There's no doubt, there are some areas, C anadian labor market is tight, and so there are some positions under the wing, potentially, that are a little bit more difficult to recruit for right now. Again, our operations team, led by Craig Landry, is spending a lot of time staffing up for the summertime, and we're not seeing any issues in attracting and retaining and training the staff that we need to run the summer.
Got it. That's helpful. Then, last one from me. So you were able to eke out a little bit of free cash flow in 1 Q in a still really tough environment. Now outside of maybe some lumpiness in CapEx going forward, is there any reason to think you cannot generate more consistent positive free cash flow on a quarterly basis from here given what you see in the recovery? Thanks.
Hi, Andrew. Good morning. It's Amos. As we look at free cash flow, you know, we had our in Investor Day, we gave you sort of our view in terms of our long-term cash flow generation here on a looking more specifically guidance in the quarters, we aren't really prepared to do that at this point in time, given a little bit of volatility, and, o f course, you know, we have a lot of CapEx investments. One of the things, as you know, that we're doing to begin our deleveraging efforts is basically not take on additional debt. As we spoke about, the MAXs, we're paying cash for them. We're looking at really spending our cash on investments in aircraft rather than financing them.
I don't want to try to get ahead here and give you sort of a quarterly perspective as we really look at as we c onsider it really over the long term, right now. As soon as we have any more guidance to give on a quarterly basis, we'll introduce that, but for now, not ready to.
Great. Thanks, everyone.
Thank you. The next question is from Chris Murray from ATB Capital Markets. Please go ahead.
Yeah. Thanks, folks. Good morning and j ust thinking about Air Canada Vacations and passenger revenues, y ou know, certainly a good step up in Q1, maybe not all the way back. T hinking about how ACB is going to evolve maybe into Q2, Q3, t wo pieces of this. One, as we're probably rotating more to leisure traffic, are we going to see additional package traffic? I'm just trying to understand maybe the advanced ticket bookings. Is it fair to think that there's more packages in that advanced ticket number than there would be normally in most years?
Hi, it's Lucie. Maybe I'll answer that one. There's no doubt that even when we look at Air Canada Vacations, advanced bookings for packages, you know, end of Q3, Q4, well ahead of 2019. On the ACB, you know, front, we have two opportunities. One is obviously with the higher margin with respect to the sale of land packages, which of course we do extremely well on the sun, all the sun destinations. For the summer, where we have an opportunity for, and I say summer, you know, all the way through to end of October, we have an opportunity for Air Canada Vacations as well, you know, to sell onto the Air Canada transatlantic network as well.
Air Canada Vacations is ready to be able to grow their performance on, you know, some of these transatlantic routes. There's no doubt when you look at the sun, no concerns there at all. Volumes are solid, margins are solid, t hings are quite good there.
Okay, that's helpful, and j ust maybe turning to cargo for a second, just looking at that 30% year-over-year number on yield, as you and a number of airlines start bringing back belly capacity, how should we think about that trending, at least what you're seeing kind of near- to medium-term in terms of into the rest of the year and into next year?
Chris, it's Mike. Another good question. It's hard to see where that's going to go, but you would think as belly capacity comes back in, those yields will go back to 2019 levels over some period of time. That might be a year, two years. It really depends on how quickly the belly capacity comes back into the marketplace. Our expectation, our kind of our long range plan is for yields to come back into 2019 levels. The wild card to some degree is Asia, and how fast that comes back, and what kind of disruptions they have. As you know, Asia is a fairly strong cargo market, and we've taken full advantage of that.
With obviously total shutdowns of Shanghai and potentially Beijing, it's going to affect some short-term performance on cargo.
Okay. That's helpful. Thanks, folks.
Thank you. The next question is from Tim James from TD Securities. Please go ahead.
Thank you very much. Good morning, everyone. I just want to get in one question if I could here. The Aeroplan, the redemptions and the billings in the quarter was quite intriguing to me. I mean, quite an impressive result. You called out the strength relative to 2019. I'm just wondering if you could characterize a little bit how much of that you think or maybe you've got data on this was related to, you know, changes or the relatively new program, how much of it was related to levers that you can pull, and how much of it was just overall sort of behavior related to the recovery?
Hi. It's Lucie and m aybe I'll try and answer that one for you. It's a little bit of each factor that you mentioned. First of all, from a program point of view, the fact that we now have a much better means for customers to access redemption. When we say, you know, customers can access all seats on all aircraft gives us flexibility in terms of how we build, you know, the back end to determine how many miles the customers will actually pay. That, of course, is, you know, it's almost as if we brought RM into the Aeroplan redemption discipline. That's one thing that's working very well for us.
Number two, we're also seeing a mix in terms of the traffic that we're carrying. I would say too, from a redemption point of view, in the past, premium redemptions internationally might have been a little bit stifled. It was a fixed rate, fixed grid, and you know, because we have limited premium J class capacity, we were not able to satisfy customer demand simply because the economics were not there. With this new model, it allows us to be able to, you know, produce more volumes in the premium cabin, which we are seeing, and that's also been very, very positive. Of course, from a behavioral point of view, you know, we're very proud of the fact that the program is being recognized by our customers, because they appreciate the changes we've brought to the program.
From a behavioral point of view, there's no doubt that we've made redemptions more accessible, you know. Certainly coming out of the pandemic, that that's also been helpful. When you say are these levers that we can control, absolutely they are, and I'll say to you, I think we've only begun to scratch the surface here. There's a lot of opportunity for us with redemption, w ithout a doubt.
Great. That's very helpful, Lucie. Thank you.
Thanks, Tim.
Thank you. Thank you. We do have the final question from Jamie Baker from JPMorgan. Please go ahead.
Hey, good morning, everybody. I'll keep it quick. On this question of demand elasticity that, you know, came up a few times during Q&A, could you just comment on the longer-term relationship between Air Canada revenue, or if you prefer, Canadian industry revenue to Canadian GDP? I T's a popular reconciliation everyone uses here in the States, and, you know, it does speak to that elasticity question.
Hi, Jamie. It's Mike. Yeah, there have been in the past relationships of GDP to industry revenue. I'm trying to remember what they were, like 1.2 to 1?
1.2, yeah.
1.2?
1.2, Mike.
1.2 to 1, basically. I think it's. I forget what the U.S. is, but I thought it was fairly comparable to the U.S. environment as well.
Where do you estimate it to be right now? Which really is my point because, you know, here in the U.S., we're so far below what the economy can bear that I think a lot of questions on elasticity are highly misplaced. I'm just kind of wondering your perspective on that.
We haven't looked at it as to where we are now. As I said earlier, Jamie, we know we're in a pent-up demand environment, and we're very, t hat's why we're managing the capacity the way we are. We'll take obviously full advantage of the opportunity in front of us as we always have. We're also very cognizant that we'll have to be very agile, if things change over the next little while.
Perfect. We're not particularly worried in that regard. Thank you, everybody. Take care.
Yes.
There are no further questions. I'll turn the call back over to Ms. Durand.
Thank you, Donna. Thank you again for joining us on our Q1 2022 call today. If you have further questions, please do not hesitate to contact us at the investor relations email address.