Good morning, ladies and gentlemen. Welcome to the Air Canada 4th Quarter and Full Year 2020 Conference Call. I would now like to turn the meeting over to Kathleen Murphy. Please go ahead, Ms. Murphy.
Thank you, Elena, and good morning, everyone, and thank you for joining us on our Q4 and full year 2020 earnings call. With me this morning are Taylor Rubinescu, our President and Chief Executive Officer Mike Rousseau, our Deputy Chief Executive Officer and Chief Financial Officer Lucie Guillemette, our Executive Vice President and Chief Commercial Officer 2018. Craig Landry, our Executive Vice President of Operations. On today's call, KOL begins by giving overview of the impact of the COVID-nineteen pandemic and related travel restrictions on Air Canada, what we have been doing in response and how we view the future. Lucy will touch on travel demand, cargo and loyalty, and Mike will provide you with visibility on current plans regarding cash burn rate and liquidity before turning it back to Caitlin.
We'll then open it up to questions from equity analysts followed by questions from fixed income analysts. Before we get started, please note that certain statements made on this call are forward looking within the meaning of applicable securities laws. This call includes references to non GAAP measures. Please refer to our Q4 press release and MD and A, precautionary statements relating to forward looking information and the reconciliations of non managers to GAAP results. I will now turn it over to Caleb.
Thank you, Kathy. Good morning, everyone, and thank you for joining us on our Q4 and full year 2020 earnings call. In the Q4 of 2020, we recorded negative EBITDA of $728,000,000 and an operating loss of 1,000,000,000 Operating revenue declined 81% over the Q4 of 2019. For the full year, Air Canada recorded negative EBITDA slightly over $2,000,000,000 and an operating loss of nearly $3,800,000,000 Operating revenue for the year fell approximately 70 results such as these are being reported the world over in our industry due to the impact of COVID-nineteen and extremely onerous government imposed travel restrictions, quarantines and advisories. The 6 largest U.
S. Carriers recently reported cumulative net losses of $34,000,000,000 for 2020. And in Canada, we continue to contend with a patchwork of new and ever changing travel restrictions that are stifling travel demand, impacting our ability to operate or plan and even preventing us from formulating reliable financial guidance regarding the usual metrics. We're engaged directly and through our industry association in discussions with governments and other key stakeholders about a safe restart of aviation with more effective alternatives to blanket travel restrictions, especially as the pandemic begins to recede and we exit this crisis as we surely will. 2020.
In the meantime, rather than allowing ourselves to be paralyzed by COVID's calamitous effects, we have been tenacious in our focus, implementing and refining an extensive COVID mitigation and recovery plan. It entails all aspects of our business From our industry leading additional safety measures for customers and employees to diligently managing costs and seeking incremental revenue opportunities to raising significant liquidity from capital markets, to setting in place the building blocks for success in the post pandemic environment. Throughout the past year, we've been an industry leader in safety. We took immediate and decisive steps such as halting flights to China, requiring facial coverings for our customers and taking customers' temperature prior to boarding well before federal government mandates to do so. We've also been early adopters and supporters of science based measures, including various forms of COVID test.
We sponsored a study that was completed during the quarter and that tested international arrivals at Toronto Pearson Airport. Preliminary results based on 20,000 tests found 99% of participants tested negative for COVID-nineteen. Of the 1% who did test positive, 70% were detected on arrival, while the remaining 30% were detected by a test 7 days later. 2020. The federal government, which joined the study when it was already underway, 2020.
This is very important. For while vaccines hold great promise, we believe effective Another fundamental component of our COVID strategy is having the financial wherewithal to withstand a protracted downturn. We have been intensely managing expenses, significantly reducing fixed costs, rationalizing our route network and building up our liquidity position. During the Q4, we closed a share offering that raised an additional $850,000,000 and concluded a sale and leaseback of 9 Boeing 737 MAX for proceeds of $485,000,000 We ended the quarter and 2020 with unrestricted liquidity in excess of $8,000,000,000 despite the massive cash burn during the year. Our ability to raise capital is evidence investors have shared our 2020.
We continue to pursue key programs that will be foundational to our long term success. This included the completion of our new reservation system early in 2020 and 2019 and the launch in November of our transformed Aeroplan program. Each of these will be good for customers, employees and other stakeholders. The context of the advantages our main competitors from other countries enjoy in terms of government support. IATA estimates governments around the world have provided While Canada remains the lone G7 country that has thus far not provided any sector specific support to aviation, thereby threatening in the long term competitiveness of Air Canada's airline industry.
I am however 2020. Very encouraged by the constructive nature of discussions that we have had with the Government of Canada on sector specific financial support over the last several weeks. While there is no assurance at this stage that we will arrive at a definitive agreement on sector support, The Government of Canada approved our proposed acquisition of Transat, subject to a series of detailed conditions. We understand that many of you may have questions around the Government of Canada approval, our earnings release this morning, The European Commission status or next steps around our agreement with Transat. The proposed acquisition is a complex and sensitive matter, 2020.
And our ability to expand on the current level of disclosure is framed by various confidentiality, governance, contractual and other considerations. Despite a year of turmoil and uncertainty, have demonstrated their professionalism and resilience and maintained their focus on serving our customers and transporting them safely. Over the past decade, as Air Canada went from strength to strength with its successful transformation, our employees always show their unwavering commitment to our long term vision, To our customers and to our airline success. But character is only truly revealed when you encounter adversity, and out of adversity comes strength.
Thank you, Caitlin, and good morning, everyone. To start, I'd like to thank the incredible people across our airline for their resilience and commitment While we continue to navigate through the devastating impact of the pandemic. Passenger demand in the 4th quarter continued to be dramatically impacted 2020. As a result, our passenger revenues in the quarter decreased by 88%, while operating 23% of our capacity compared to the same quarter in 2019. These results 2019.
Our passenger revenues for the year, which eclipsed 2017,200,000,000 in 2019 dropped by over 75% or 12,900,000,000 which is even more staggering when considering the negative impact of the pandemic and travel restrictions did not begin until March. 2020. Turning the corner into the Q1 of the New Year, where we were planning a significantly reduced operation to some destinations, Including Mexico, Costa Rica and the Caribbean, we abruptly suspended all flights to this region for travel until April 30. Together with the other Canadian airlines, we agreed to do this at the request of and to support the Government of Canada in its effort to curb the spread of COVID-nineteen 2019 and address concerns around spring break travel. Our focus quickly turned to repatriation efforts to bring Canadians home.
The suspension of our Sun network accompanied the announcement of 2 new major travel restrictions. In late January, a new Testing protocol was introduced requiring all incoming passengers to Canada to provide a negative COVID test prior to boarding. And more recently, the Canadian government announced the implementation of mandatory testing upon arrival with an up to 3 day hotel quarantine at the travelers' expense While they wait for their test results. Following both these announcements, we saw an immediate impact on rate of cancellations for bookings on hand as well as further slowdown for future bookings. In order to mitigate further cash burn and best align our capacity with new levels of anticipated demand, 2020.
We have been strong advocates of testing and will continue to seek all measures possible to ensure the safety of our employees and of our customers. While it is widely recognized that international travel is linked to less than 2% of COVID cases in Canada, it is also important to note that the new Measures are in addition to the travel restrictions that the Government of Canada has had in place since March 2020, which are some of the most stringent in the world. This is an important factor when considering the difference in market recoveries between Air Canada and the major U. S. Airlines and underscores why this is not an equitable comparison.
Our reality is that even domestic travel remains largely stifled with the Atlantic provinces and Manitoba Still requiring a 14 day quarantine for interprovincial travelers. 4 nationals have been barred from entering the country since March for non essential reasons, 2020. In addition to the multiple layers of travel restrictions in 2020. Canadians have also been warned not to travel by both the government and the media. For additional context, Many of our domestic competitors in Canada were forced to cease operations for periods of 2020.
However, as these restrictions are eased to provide Prior to the pandemic, we successfully and consistently executed on our commercial strategy. We developed competitive advantages customer demand. We understand recovery will take time, and we will proceed strategically, always realistic yet optimistic. 2019. Our modern and efficient fleet has been further simplified with fewer fleet types overall and is going to be a competitive advantage in our recovery.
2018. Our Boeing 787 aircraft remains the cornerstone of our international fleet, serving the ABTA boot and select core markets that make up our current skeleton network. Within North America, we are fully leveraging our new Airbus 220 aircraft, and we welcome back our Boeing 737 MAX into service on February 1 after it received all the necessary regulatory approvals. These aircraft represent the backbone of our fleet and will enable the gradual redevelopment of our network. Throughout the pandemic, our agility has been on full display, and our ability to accurately and effectively allocate capacity 2020.
We continue to see unique market opportunities will be pivotal as various customer segments begin to recover. 2020. In light of the more resilient visiting friends and relatives, or VFR, market segment, we entered into a new commercial agreement with Qatar Airways, facilitating our non stop service from Toronto to Doha, which commenced in mid December. In addition to Doha, 2020. In December, we offered customers our all business class Air Canada Jet experience to popular holiday destinations in the Sun and U.
S. Markets. This initiative, along with our expansion into unique markets, illustrates our agility and our ability to quickly pivot and capture opportunities that arise. With customer and employee safety at the forefront, we have demonstrated industry leadership in developing our CleanCare Plus program. We've also undertaken several medical collaborations to continue advancing biosafety across the customer journey and our business, including with the Cleveland Clinic to advise on our efforts and with Shoppers Drug Mart to provide our customers the opportunity to take a pre departure COVID test at select locations in Ontario, BC and Alberta, among several other innovative collaborations.
We are also the 1st Canadian airline to offer customers the safety and convenience of boarding using facial biometrics. 2020. The technology is now available for customers departing from San Francisco International Airport, and we plan to expand it to other U. S. Airports 2020.
To recognize our achievements in biosafety, Last month, we received the diamond certification from the Airline Passenger Experience Association, or APACS. This unrelenting focus on safety will remain a focal point to our product offering, and we will continue to strive to be leaders in deploying biosafety technology as it becomes available. In November 2020, we successfully launched our Transform Aeroplan program in a seamless cutover 2020. The state of the art technology platform, delivering what we believe to be best in class loyalty program, which will serve as another foundational element to our recovery. 2020.
The program has garnered very positive feedback in engagement since its inception. During the quarter, to support our loyalty efforts, 2020. We secured additional strategic anchor partnerships, including with JPMorgan Chase in the U. S. These new partnerships Looking to Air Plans performance in the 4th quarter, member engagement and activity continued to show resiliency.
Co brand credit card spend continues to recover with categories most impacted by the pandemic, such as travel, largely offset by other categories, 2020. Overall spend for the quarter was within 13% of last year's level, While card retention rates continue to be in line with historical norms. Looking to our cargo performance. Our cargo revenue of 2 $86,000,000 in the 4th quarter, representing an increase of $100,000,000 or 53% compared to the same quarter in 2019. With global airfreight demand remaining strong, we ended the year having operated over 4,200 all cargo international flights.
2020. In December alone, we operated over 150 all cargo flights per week using a combination of Boeing 787, Boeing 777 aircraft as well as 4 converted Boeing 777s and 3 converted Airbus A330 aircraft. 2019. This line was necessary to support our customers during the peak holiday season, demonstrating our commitment to serving our customers and fulfilling their needs At the onset of the pandemic and with close coordination and partnership with our customers, our cargo business delivered more than $920,000,000 of revenue in 2020 or 28% from 2019. As we discussed last quarter, we are very excited with our entry into e commerce sector, launching our first deliveries directly to people's homes in the 4th quarter.
2019. This program, in cooperation with local retailers, takes advantage of our domestic passenger network, facilitating the end to end distribution of e commerce goods across Canada 2019. Last quarter, we announced our plan to convert and utilize our owned Boeing 767 aircraft to dedicated freighter. 2018. Since our announcement, we've worked with our pilot group to help facilitate a flying structure that will allow us to effectively compete in the market and reached an agreement with our pilots in the quarter in support of this initiative.
Our first two freighters are expected to be in service in time for this year's 4th quarter peak 2020. In closing, I'd like to reiterate that Air Canada's commercial foundation fully modernized narrow body fleet comprised of the versatile and fuel efficient Airbus 220 and Boeing 737 MAX. 2020. Our wide body fleet has best in class seating density with the lowest dependency on premium revenue, which allows us to excel in a recovery period 2020. Our hubs of Toronto, Vancouver and Montreal each have a large and diverse multicultural population base that enables a quicker recovery relative to competing hubs on the North America continent.
Unlike Australia and New Zealand, Canada's geography sits right in the middle of 2 of the busiest travel quarters in the world in the U. S. To Europe and U. S. To Pacific market.
Nearly all commercial flights on these segments Overfly Canadian airspace, and we will continue to push to ensure we receive our fair share of these traffic flows through our hubs. This represents not only a major element of our recovery strategy, it is also an example of how Canada as a country and best compete in the global aviation market. We also have solid global airline partnerships, namely in the form of our transatlantic A plus plus joint venture with the Lufthansa Group and United Airlines, which will ensure we access as many markets as possible on a one stop basis as we seek to rebuild our network over the coming years. 2019. Our services to the Lufthansa Group Hubs in Europe have consistently performed well for us throughout the decade, and we expect this to continue for the foreseeable future.
2019. As mentioned on previous calls, Air Canada is seeking to add additional global airline partnerships, which will further propel our recovery. Despite the temporary grounding of Air Canada Rouge, it will continue to play a major role in our network with particular focus on North America leisure market, where it helped us sustain and profitably grow our leisure flying over the decade. Lastly, as I've mentioned, our investments in cargo will allow us to further diversify and add additional strength to our revenue streams and ensure we capitalize on the booming global e commerce freight segment. 2020.
With this solid foundation, coupled with customer experience enhancements achieved through the launch of our new reservations and departure control systems, I can unequivocally say that Air Canada is ready for the recovery and well positioned to compete in the post COVID environment. We are very much looking forward to welcoming our customers back on board. With that, I will pass it off to Mike.
Thank you, Lucy, and I would like to thank everyone for joining us on the call today. I offer 2020. A heartfelt thank you to our employees for their deep commitment and hard work throughout a very challenging 2020. Your unwavering dedication to our customers and the airline has been and will continue to be a key strength 2020. In the Q1 of 2020, we initiated a company wide fixed cost reduction and capital reduction in deferral program as a result of COVID-nineteen.
Our initial goal was $500,000,000 I'm pleased to report that we completed this program having achieved 2020, Real Estate, Technology and Regional Airlines. Improving productivity and processes also contributed to lowering our fixed cost structure. 2020. Certainly, our objective as we recover to keep the majority of the fixed costs that we've eliminated from creeping back in, Such as the Aeroplan and passenger sales booking systems and further streamlining and enhancing AirPower operations Also contributed and will continue to lower our fixed operating expenses. As we adjust capacity to better aligned with the market, our team remains centered on managing fixed and variable costs efficiently and assessing any opportunity we have for diversifying Excluding depreciation, amortization and special events, 4th quarter 2020 operating expenses decreased almost $2,200,000,000 or 59% 2019.
Wage to salary and benefits were $507,000,000 or 38% below the Q4 of 2019, driven by a 46% decline in our full time and clothing employees. The major management and frontline Workforce reductions we completed in 2020 were a difficult but necessary step in reducing costs and preserving cash. 2020. In the Q4 of 2020, we concluded 2 financing transactions, the first being the sale and leaseback of 9 Boeing 737 MAX for total proceeds of $485,000,000 We've raised almost $7,000,000,000 through drawdowns of credit facilities, secured financings, equity and convertible note offerings 2017. We ended the year with $8,000,000,000 of unrestricted liquidity, providing us operational flexibility 2019.
Our unencumbered asset pool, excluding the value of Aeroplan, Air Canada Vacations and Air spare parts inventory, some aircraft, simulators and real estate. The decrease of approximately $100,000,000 in the value of this call since we last reported this November in November was primarily due to the impact of a stronger Canadian dollar versus the U. S. Dollar. We are certainly confident that we can utilize this collateral package and other Aircraft financing related to the delivery of the 5 Airbus 220 aircraft in the Q4 of 2020 was $12,000,000 per day on average.
2020. For 2021, we've updated our definition of net cash burn to include net financing proceeds received related to aircraft deliveries. 2020. Looking forward to 1st quarter, we estimate net cash burn of $15,000,000 to $17,000,000 per day on average. This net cash burn projection includes $4,000,000 per day in lease and debt service costs and $2,000,000 per day in net capital expenditures.
The increased projected net cash burn versus the 4th quarter average net cash burn of $12,000,000 per day is primarily due to lower EBITDA Just turning to pensions. At the end of 2020, Air Canada had assets of $23,900,000,000
2019. The plans continue to
see strong investment returns in 2020 with an average rate of return of 17.6%, a 1st decile performance. As As you know, several years ago, we implemented a new strategy focused on reducing the risks associated with our pension plans by matching the pension liabilities with fixed income products, reducing a significant portion of the interest rate risk associated with these plans, while better diversifying our return seeking portfolio 2020. This risk mitigation strategy has been a success. 2020. Not only does it help protect employee and retired defined benefit pensions, but it resulted in our domestic registered pension plans reporting solvency circle losses over the last 5 years, which in turn reduces our annual pension funding costs.
In fact, we even won Our Canadian defined pension plan was $3,000,000,000 an increase of $400,000,000 from January 1, 2020. Before turning it over to Calin, I'd like to thank employees once again for their dedication and hard work. I am confident Together, we can successfully manage through these tremendously challenging times and rebuild Air Canada into a global champion. 2020. I look forward to my new role as President and Chief Executive Officer of Air Canada.
It has truly been a privilege to work with Calend over the last several years, I'm extremely grateful for his vote of confidence and that of the Board of Directors. And with that, I'll turn it back to Calin.
Thank you, Mike. 2020. As you are all aware, this is my final analyst call before my retirement. So it seems appropriate that I conclude with a few remarks on why 2020. I'm absolutely confident about the future of our company under the extremely capable leadership of Mike and the entire senior leadership team and by the very strong financial position we've managed to achieve.
Above all, it must be remembered that the effects of COVID-nineteen are transitory, where the solid foundation built over the past 12 years are permanent. Our airline has been transformed in all its aspects. 2020. It will emerge from the pandemic, still a Canadian global champion with a powerful footprint and brand. 2020.
There's little doubt that we will rebuild our global network. Over the past decade, we had effectively doubled our airlines reach to more than 100 international destinations 2020. We have begun taking tentative steps such as our new partnership with Qatar Airways and a planned new service to Cairo. Helping in the rebuild will be our Star Alliance partners and our revenue sharing joint venture with Air China across the Pacific and A plus plus on the Atlantic. In addition, we have a wealth of codeshare and interline agreements that give us access to every corner of the earth.
2020. To best serve this network, we have rationalized our fleet. We've removed 79 older aircraft and added next generation fuel efficient aircraft. Beyond improving our operating economics, this will also help us meet our environmental and other ESG goals in the interest of all stakeholders 2019, and rightly of increasing importance to the investment community. Our wide body fleet includes the Boeing 777 aircraft with its competitive CASM and a seat configuration ideally suited to the high volume leisure and VFR markets that we expect to rebound first.
These are complemented by the Boeing 787 aircraft with its lower operating costs, midsized capacity and range flexibility. We're also renewing the narrow body fleet. We're replacing older, less efficient aircraft with modern and fuel efficient Airbus A220 and Boeing 737 MAX Aircraft Type. The A220's range capabilities and economics create greater deployment opportunities, Enabling Air Canada to serve new markets ill suited to larger narrow body aircraft. This month, we returned the Boeing 737 to service.
2019. This range gives us added network flexibility, maintenance cost advantages and greater fuel efficiency than the aging narrow body aircraft they are replacing. Further supporting our network, our Air Canada's Toronto global hub, as Lucy mentioned, and its gateway hubs of Vancouver and Montreal. And differentiating importance of customer service. We provide a customer experience enhanced by competitive products and services, including wide flat seats in the Signature Class cabin, concierge services, Maple Leaf lounges and the Air Canada Signature Suites, onboard amenities such as in flight entertainment and Wi Fi and a range of America's only 4 star network carrier by Skytrax.
Our focus on customer friendly innovation has carried on throughout COVID Further enriching the customer experience and securing loyalty will be the transformed Aeroplan program we launched in November. 2019. The program now offers a wide range of new features, such as improved value on flight rewards, Aeroplan family sharing, ability to use Aeroplan points for travel extra such as cabin upgrades and in flight Wi Fi and expanded merchandise rewards. Leverage our loyalty program and drive profitability, there are new Aeroplan co branded credit card issued by TD Bank, American Express and CIBC. In 2020.
In late 2020, JPMorgan Chase and Air Canada announced the strategic partnership that will make Chase the exclusive issuer of the airline's Aeroplan U. S. Credit card, giving us wider access to the U. S. Loyalty market.
Air Canada has many other attributes, some of which, such as our rich heritage, predate our transformation. 2020. But a final element that frankly I regard as most important of all is the entrepreneurial culture that has taken deep root at our airline. 2019 and was fully on display as we responded to the COVID crisis. So while my tenure is ending, I know that Air Canada's continued pursuit of excellence, Mike's leadership will not end.
Air Canada will continue to innovate and evolve, always focused on safety and the customer and enhancing new products and services. Thank you. Now we'd be pleased to take some questions, operator.
Thank you. The first question is from Konark Gupta with Scotiabank. Please go ahead.
Thanks and good morning everyone.
Good
My first question is on the Q1 cash burn guidance. So we obviously know the Mexico Caribbean flight suspensions announced and There is some incremental international routes. Just wondering, if this guidance reflects the new Hotel quarantine rule that has been proposed by the government. Not sure if that has been implemented yet, but just curious as to your thoughts, what's And is there any sense of where it is baked in case some of these decisions or rules do not materialize?
Good morning. It's Mike. We have estimated the impact of that and it is included in our guidance.
Okay. Thanks, Mike. And any sense on when this rule is going to be in effect, the hotel quarantine?
We would say over the next couple of weeks.
Yes. The government has indicated sort of notionally mid February, which of course is where we are now. I would say, as Mike said, over the next couple of weeks and it's possible that we could see announcements very shortly.
Okay, thanks. And a long term question perhaps on the fleet. So it looks like you have already removed about 46 aircraft out of the planned 79. 2020. And I think you're keeping some Airbus A319s for some more time.
So with the 34 aircraft coming between, call it, A220 and MAX 2020 3 and probably the 33 A319s going out over this time frame. It looks like the fleet size should be stable at current levels for Mainline and Rouge. And that could be about 20% versus the pre pandemic level. So the question is, I understand the MAX was grounded in 2019 Before the pandemic, but how much of the pre pandemic capacity can you achieve with this 20% smaller fleet in the long term?
It's Mike again. Great question and something that we've been heavily focused on because we want to balance flexibility with
With the recovery plan as well.
Just note that the Airbus 319, which we own for the most part, provide a fair amount of flexibility over The next couple of years. They're good aircraft for us and they again do provide us a fair amount of flexibility. 2020. To specifically answer your question, the current fleet plans as it sits does get us back fairly close to 2019 levels. And we're comfortable with that because we can all if the recovery happens quicker, which we hope it does, there are planes available in the marketplace that we can chase.
And we will we know where those plans are and we'll certainly take full advantage of that. But we think we found the right balance between Risk management and taking full advantage of a quick recovery.
Okay. That makes sense. And the last one for me. You mentioned about the operating leverage. Given the fixed costs, you have taken out the system and intention to I have not fully creep back those fixed costs when the recovery takes place.
Can you help us understand How do you look at the long term picture with the fleet plan you said gives you full capacity? Where does profitability In that scenario, compared to 19% or so you had pre pandemic? Or is it possible because of the Aeroplan Being more incremental here, perhaps, and the MAX coming back, did you think the margin probably has more upside beyond 19% with this capacity?
Certainly, we can't provide the guidance right now, but certainly a lot of the key elements are in place. Our fixed cost structure is down. We have much more efficient planes in our fleet and we have a much stronger aeroplan program to leverage. 2020. And so certainly, our objective is to enhance margins as we recover.
And we certainly seem to have The strategic initiative to do so.
That's great. Thanks for the color.
Thank you. The next question is from Andrea Key with Wolfe Research. Please go ahead.
Hi, I think that's me actually. Good morning everybody.
This is Hunter. So 2020. If we assume business travel gradually improves over the next few years, how are your views on how the
It's Lucy. So 2020. We definitely assume that the business traffic will return. And we feel certainly for the North America markets that we are going to have 2020. The perfect product with the 220s and the 737s, I mean, basically, it's a unique product for premium.
2020. And on the international front, on the long haul markets, we are in a bit of a unique opportunity here because Our cabins, when you look at the actual LOPA that we have on our wide body airplanes, we're perfectly positioned to be able to see this demand ramp up, But also at the same time take advantage of the more VFR markets. So because our lopas in the premium long haul markets
2020. Thank you, Lucie. And then, I was wondering if you might talk briefly about the potential for government aid in the context What's on the table and we saw Sunwing obviously reached an agreement and I think they had a framework of some customer refunds embedded in there. If you could talk about that maybe as a template for how you guys are framing the conversation and fold in any conversations you may be having about potential domestic testing mandates, if that's on the table, if you've heard anything about that. Thanks so much.
Hi, Hunter. It's Caitlin. So, yes, I mean, I'll tell you what I can and obviously there are some restrictions around what I can't. So basically, the government announced in For a sector specific program that was announced on or about November 6. But I would say that this is why I referenced in the press release Today, really for the first time, we view that the discussions got to a more advanced nature over the last several weeks.
2020. So we had not previously made any statements about our expectations or perspectives or views on sector support. Today, we felt 2020. So what does that mean? That means that basically the discussions have picked up a pace that I would characterize as more of a negotiation that is more in 2020.
But of course, with the usual caveats, as I indicated both in the release and in my remarks, there's no guarantee. But I am really for the first time confident. That does include 2020. The 3 policy related considerations that government mentioned in November, which we restated in our press release of this morning, Mainly an agreement on refunds and understanding on regional routes and a return to regional And so those are forming part of the discussion. Of course, I can't elaborate on any of those 3, but our expectation is that there will be something on all of those 3 that will Our size is different, our global footprint and our regional footprint is different than Sunwing.
And so I think the kind of agreement that we're looking to Establish is different than what they would have had, I would say. And that's probably as much as I can say on the topic At this stage, Hunter. On the second point on the testing, we have as you heard in my remarks, We pride ourselves to really being at the forefront of what has gone on in Canada in the testing environment. We Did that the largest of its kind in the world test with McMaster Health Lab on arrival testing that has a tremendous Very rich data that is now being assessed. And we really believe that the silver bullet here That replaces the blanket restrictions, that replaces the quarantines.
And we've been making that case to government. We've been making it Both privately and publicly, we have tremendous amount of science behind our data. And that really The next step is to ensure that we have something that shows that the quarantine can in the first instance be reduced, consistent with 2020. The various authorities, including the WHO, the CDC and so on, these are all Centers For Disease Control. These are all indicators that the quarantine is more appropriate 5 to 7 days.
And so we will continue to make And with testing on arrival, that does provide a lot of flexibility to ensure that we quarantine the people who need to be quarantined, who have some traces of the infection And to the virus, I should say, and to let the people who are not who don't have the virus So those discussions are ongoing. Part of the discussion around 2020. And you saw that both in our remarks as well as in the Prime Minister's remarks, if you those that are interested in reading the Prime Minister's remarks around this. With the Canadian carriers, it would be seen as being a pathway to replacing at the right time The blanket travel restrictions, quarantines, other prohibitions with a testing regime And so that is directionally where this has to go. Right now, that date is April 30 is the date by which We expect that the sun destination restrictions are lifted.
And quite frankly, that's the date by which we expect that there would be an improved dynamic with respect to
2020. Thank you. The next question is from Kevin Chiang with CIBC. Please go ahead.
Thank you for taking my question and congratulations again, Calin, on your retirement here. Thank you. Maybe to Lucy, just on your Cargo comments. Obviously, that has been a silver lining for the airline in 2020. You have the 2 coming in later this year.
I believe and correct me if I'm wrong, I think you've allocated up to potentially 7767s that could be converted over time. Just wondering how you think of the time Internationally, and what are things that we should be looking for as you make that decision of expanding the fleet for more than 2?
So you're correct. In fact, the number is 7%. It is what we are looking to do. One other comment though on the cargo front, keeping in mind that as we progress through This period here, we have maintained some of our international services. And even if on some of those international flights, the passenger demand may be a little bit low.
We continue to operate those flights in many cases because we have 2020. An opportunity on the cargo front. So as we navigate our way through the arrival of the 767s, we continue to have Opportunity with selling on flights that we operate. And we look to have conversions over time for The following 5.
Okay. Okay. And Kevin,
it's Mike. Just to A little more color on the conversions. I mean, we'd love to have all 7 up and operating by the end of next year. These are typically a little bit of a And slots are not readily available, but we are certainly working on having all 7 up and running by Q4 of next year.
That's perfect. That's very helpful. Maybe just last one for me I just wonder if there's anything I can infer in terms of how you think about 6 Freedom traffic coming out of this pandemic and maybe specifically how you think about your transborder network in a recovery? Is that an area Maybe greater strength, is that what I should be reading into as I think about this push by Aeroplan into the U. S?
2020. Yes, Kevin, let me I'll start and I'll turn it over to Lucie. Yes, exactly. Look, I think that for us, we know that the fixed freedom traffic has been a big part of our 2020. That was a big very, very specific strategic driver that we identified and went after.
And as we built our International network, the 6th region market in the U. S. Was a very big component of that and it served us extremely well. You can often see on flights to many of our European destination a lot of U. S.
Traffic on board. For sure, we would love to return to those days. But obviously, with the border As the border restrictions are lifted, we certainly expect Aeroplan and the Chase partnership to be a key tool to Giving some rebirth to that 6 Freedom traffic, but certainly our expectation is that it's not an overnight kind of a thing, certainly while the travel restrictions are in place. Lucy, I don't know
if you want to add anything to that. Yes.
The one thing I'd add as well is keeping in mind that the recovery will be not just In Canada, obviously, the recovery will be around the world. So for us, when you compare what we can offer on a one stop basis connecting Basically, it becomes a product that's very similar to what many of the U. S. Carriers are going to be operating As they also recover, so there's less nonstop flying, which also means that for us the opportunity is even bigger. And as we start to rebuild our transborder network, we're going to do that with obviously an eye on the 6 feet of market as well.
So we'll be sure that As we reintroduce our transborder flying, it connects well into our international product. 2020. But there is absolutely no doubt that as we move forward, this will be a bigger opportunity even than it was in the past for us.
Thank you for the insight. Thank
you. Thanks, guys.
Thank you. The next question is from Walter Spracklin with RBC Capital Markets. Please go ahead.
Yes, thanks very much. And yes, best of luck there, Caitlin, on your retirement. 2020. Yes. So let's ignore Transat altogether and just ask the question.
If the government were to institute a price monitoring mechanism, how would it do that?
2020. So first of all, we would view any restriction on pricing as Obviously, being some form of deregulation of pricing, which would not be a good dynamic all around. But if one was to institute Monitoring system means sort of a reporting as to how markets have evolved over some period of time, snapshot And I think that that is all that references.
Okay.
Just a sort of retrospective analysis of pricing trend.
Yes. Okay. That makes sense. Caitlin, when you look at or Michael, either When you look at the different government support packages or frameworks that have been provided around the world in different jurisdictions. What ones would you say would fit very well For Air Canada, in a Canadian context, in other words, what seems to, in your mind, Be a reasonable, achievable and very effective government support program that you've seen some in another jurisdiction.
I think, Walter, the one that's closest to our hearts is some modification of the U. S. CARES Act. Program over a 5 year period. And so we compete with the U.
S. Airlines, so we think That a similar program, maybe with some Canadian modifications would best suit the airline industry up here in Canada.
The thing that I would add, Walter, to that is that you also have to bear in mind timing, right? We have the time, place and circumstance. So like now, we're talking about this a year later Almost a year later than the U. S. Talked about and received the CARES program, which means that you end up doing things 2020.
In the consequence of that decision. And so the things that we had to do last year, including burning the amount of liquidity, taking our aircraft as we have, allowing other 2020. And you've heard ourselves and other Canadian carriers make the statement that several international and U. S. Competitors managed to continue growing and improving relatively speaking in a shrunken market.
2020. That has to be taken into account as well. The fact is that we're talking about this 1 year later than most of the other Large carriers of the world received support from their government. And so that has to be looked at through that lens because what might have otherwise been acceptable a year ago
Looked at your 767s primarily as dedicated toward your international cargo opportunity. You're talking now about an e That sounds like a domestic, but that seems to be belly capacity aimed toward In other words, if it's different than the belly capacity that you provided before, whatever makes that Different. Is that going to negative at all negatively impact your passenger airline capabilities?
Walter, it's Mike. No, you're right in your assumptions, But we do not believe we have any impact on our passenger because we do have excess space available in our bellies going across the country. And so we're looking at utilizing that asset much more efficiently as we go forward.
Yes. Lucy, I would just add as well. If you look at Some of the core markets within domestic Canada, TransCon, for example, we already have wide body aircraft that operate on some of those routes to accommodate some of that cargo demand and we still have plenty of room to be able to accommodate it. So it would not have an impact on our North America network at all.
2020. Thank you very much. And just a housekeeping, you included cash financing in your cash burn. Can you indicate how much cash or financing Is included in your new guidance for Q1?
I think it's $2,000,000 a day.
$2,000,000 a day. Okay. That's all my questions. Thanks very much everyone.
Thanks, Walter. And for the rest of the community here, we have a heart stop around 5 to 10 because of Our Board meeting, so just to be mindful of the thanks for the questions. Thanks.
Thank you. The next question is from Savi Syth with Raymond James. Please go ahead.
Hey, good morning, everybody. Just a follow-up on the answer to Hunter's question on testing replacing quarantines on April 30. So wondering if you could Can you share what's magical about that? Is that when you think there's sufficient supply and infrastructure in place? Is it improvements on from the vaccine front or just exiting winter season.
Just wondering why April 30?
Right. So that's a great question, Savi. So first of all, the April 30th starts with the fact that that was the date that was requested by government in connection with our the Canadian industry suspending to the Sun destinations of the Caribbean and Mexico. We also have looked at that date as being the reasonable date and that is sort of from Our perspective as a reasonable proxy for a date by which we get out of the colder winter season and get into a summer dynamic and also allowing for enough time to establish more comprehensive Testing capabilities, because this does take some time. It cannot be done overnight.
So given the government's request on April 30 being the Sun destination, the government statements around the summer being a period of time where we will open up to Domestic Canada, because remember we still have restrictions in many of the provinces of Canada, so we need to open up domestic Canada for And as well, having enough time to establish testing capabilities because of course, if we started it today on February 12, By April 30, with good hard work, we should have it certainly at the key airports in Canada. That doesn't I mean that it will be completely likely will not be completely eliminated, but we do see the potential for it to go to a 5 to 7 day quarantine, which So it's a transitional phase. So it's a little bit of all of the above of what you said. It's a combination of from winter to summer, combination of giving enough time to establish testing capabilities, consistent with the date that the government established on the Suspension of sun destinations and really a good segue into having sort of a not losing a second summer
That makes sense. And so as things open up, I was just kind of curious 2020. As capacity starts coming back, what should we expect in terms of cost? I'm sure there's crew training to get current again and the fleets that are how should we think about kind of the cost ramp heading into the summer?
Well, I'll turn it over to Mike. But I think that what we've done especially with our pilots and especially because of the fact that we're also training for the 737 MAX. And if you look at the total number of employees that Air Canada has kept on the payroll, remember, we've kept About 50% of our employees on the payroll, even though we're operating at less than 20%. In fact, right now, at 10% of our 2019 levels, we 50 percent of our employees, yes. So we are mindful to ensure that we are training to that ability to ramp back up as things turn and that obviously while keeping our costs relatively under control with the benefit of the CUES program, we're able to keep And at the same time, keep more of our crews, our pilots and site attendants current.
Yes. Just to add a little more detail, I mean, there'll be some small incremental costs, immaterial costs on maintenance to bring the planes out of storage. 2020. But for the most part, as Caitlin said, we kept our pilots current and so there should not be a significant ramp up in cost as we go back into the market.
That's helpful.
All right. Thanks and best wishes for the next chapter, Kelly.
Thank you so much, Debbie.
Thank you. The next question is from Tim James with TD Securities. Please go ahead.
Thanks. Good morning, everyone. I guess, I just my first question looking at the MAX, which started service very Recently and you've obviously been offering bookings on it. Are you seeing any customer hesitation, I. E.
Booking away from the MAX 2019. Or is it too difficult to gauge at this point given the low overall traffic levels?
No, for sure the traffic levels are lower, but we have seen no negative customer reaction. 2018. We ended up taking our time before reintroducing it. So thus far, we've seen nothing in terms of customer reaction.
And Kim, if I could just add, in anticipation of the return, we also had very transparent communication with our customers. And we had policies ready if customers did feel a little bit uneasy that we were prepared to be able to offer changes on-site. But since the start, since the return to service, we have had virtually no request to do that.
Okay, great. That's good. My next question, I'm just wondering maybe a question for Mike to start with, I suppose. Could you reflect Back on 2020 overall and talk about how the airline was able to flex down costs, Were you sort of were there more changes that you were able to make or was it more challenging? And maybe we should let's exclude labor from the conversation here And maybe just focus on other notable parts of the cost structure.
You're right, Tim. The original target of 500 in hindsight was certainly Not as aggressive as we otherwise could have put in place. But I think a couple of things. 1, our teams have done a great job with our partners And so both of those initiatives have reduced our overall fixed cost structure. And obviously, it is an eye opening experience for any airline.
And certainly, our objective is to make more of the cost structure variable, given the amount of flying we're doing. And so I think that second bucket of making fixed costs more variable was the one that we probably over exceeded our Expectations on and what's a large part of the difference. And again, the $1,700,000,000 was also capital discussions with Boeing and with Airbus on removing some of the fleets and or pushing them to the right. 2020. And so I think it's hard to estimate those type of benefits going into that, but certainly I think from a capital perspective 2020.
And from this moving fixed into variable perspective, we exceeded our expectations.
The other thing to attempt to bear in mind is 2020. We, of course, didn't know the depth and the length of this. And of course, as the year wore on, we ended up obviously having to cut deeper and deeper. And again, I'm not talking about labor, We're talking about, as Mike said, all the various contractual relationships, moving things to variable. And of course, some of that $1,700,000 is capital deferral as well, right?
And then we ended up doing the same thing for 2021 and 2022 already with respect to our aircraft Boeing and Airbus capital
removals. And so
we ended up going on a very we ended up coming to the conclusion this was going to be remember, we said early on it was going to be 3 years. People were surprised we came out that early with that prediction, but we said it was going to be at least 3 years. And so we ended up progressively taking steps throughout the year to ensure that we would have The financial bedrock, not only in 2020, but also 2021 2022.
Okay. Thank you. And just Just one more quick question, if I may. I just want to return. You've talked a little bit about the kind of business travel, corporate travel.
I'm just are you hearing any indications from corporate In terms of future intentions, and then do you have any thoughts you might have on what business travel will look like in 2 years relative
2019. At this point in time and we're in contact obviously with Our corporate customers on a regular basis. As it stands, we know that many have got policies in place To limit travel, business travel, but at this point, we're not hearing any Feedback that things will be extended further. I mean, we do know that business travel will take longer to return. But when it does, the ramp up should be relatively good.
But at this point in time, I mean, obviously, the corporate demand is Still at same levels as it was during 2020. There's very, very little.
Okay, great. Thank you, Lucy.
2020. Thank you. Thank you. The next question is from Chris Murray with ATB Capital Markets. Please go ahead.
Thanks folks. Good morning. I'm Caitlin. Congratulations on your retirement. First question maybe for Mike.
So Mike, you've got about $1,200,000,000 of debt that's current right now, which is a bit of a higher number than previous years. So So I guess a couple of thoughts on this as we move through the year. How are you thinking about kind of a strategy around debt management? You have And how would you think you would manage some of that debt repayment If, for instance, the government program doesn't come to fruition.
Yes. So it's A little bit higher this year because of a $400,000,000 unsecured coming due in April. And that's normally We'll have $800,000,000 a year roughly coming due from various amortizations or maturities. You're absolutely right, Chris. Our focus right now is the government support package.
2018. And again, it's Kale and we've said, we're optimistic that we'll reach a reasonable deal Failing that, we'll look at different alternatives as to whether we want to replace the $400,000,000 or And obviously the debt markets are still open. They're still attractive to Air Canada and we will certainly
Okay. I mean, I guess the other thing I'm trying to think about is we move kind of into more normal operations maybe into 2020 How should we be thinking about your plan on bringing debt back down to kind of Payback, if you will, some of the funds you've had to draw to deal with COVID.
Well, that will a lot of course,
that will depend on the recovery. As you've seen, we've cut back our capital plan over the next couple of years. And so I think that's a good first step in taking the cash flow that we otherwise We'll spend in CapEx and we will focus on debt. I mean, Chris, for years, our focus was balance sheet management and it We'll continue to be balance sheet management. We will always balance the strategic and competitive importance of this company, 2020.
But the balance sheet also plays an incredible part and so we do not see taking a different approach going forward than what we've had in the past.
Okay. That's fair. And then my other question, maybe Lucy, I don't know if you want to take this one, but just trying to understand in the new Aeroplan program, Given that maybe some of your air travel is still going to be restricted until maybe the second half of the year. Can you Maybe walk us through about how some of the non aero plan benefits work through the system for you guys?
You mean in terms of performance or the types of
Yes. In terms of performance really is what I'm Understand is if there was any changes in the program that either gives you guys some additional revenue opportunities or anything like that?
Yes, for sure. And as I mentioned a little bit earlier in my comments, one opportunity for us is When you look at the spend on the credit card, that has shown a lot of resilience. So from that perspective, 2020. It is a good revenue stream for us and we have further opportunities to be able to announce in the relatively So from that perspective, even if obviously travel is the sector that's most impacted, we still have great opportunities
2020. Okay. That's helpful. Thank you very much.
Thank you, Chris.
Thank you. The next question is from Cameron Doerksen with National Bank Financial. Please go ahead.
Thanks, Regan. Thanks very much. Good morning. I'll just maybe just ask one question and it's, I guess, And I guess the question is, if VFR traffic is sort of the first to come back or leisure traffic first to come back on some of these international routes when travel restrictions ease, Does it make any sense to sort of reconfigure the seating in the wide body aircraft? I mean, I'm thinking sort of premium economy would be profitable product for them.
So I'm just maybe talk about the ability to reconfigure seats within the aircraft.
I think, Nonye, that's a great question. But in fact, the seating that we currently have on our wide body airplanes It's actually perfect for what we're facing. So we do have a good in terms of local, we have a good And because our premium cabins are not as large as many other competitors, we're actually right sized for the demand that we have. 2020. In past years, we had a pretty significant yield upside compared to many others 2019 as a result of that low pass.
So as we go into the future, it's actually a good opportunity for us to not have to even consider Reconfiguring wide body airplanes to better fit the demand. What we have is actually going to be perfect for us.
Okay. That's great. I'll leave it at one question. Thanks very much.
Thanks, Kevin.
Thank you. The next question is from Jamie Baker with JPMorgan. Please go ahead.
2020. Hey, good morning everybody. Most of my questions have been answered. I know we're short on time, so let me jump right in. Once you're back to 2019 capacity levels, how much improved do Do you expect your ex fuel cost structure to be?
I'm curious if this analysis takes into account the freighter conversion in the Transat integration. Yes, Jim, we have certainly some internal objectives. We're not ready to share those to the market right now, like some of the U. S. Airlines have done.
And it does depend on your assumptions around the freighter, how big the freighter business is, escalation of costs over that period of time. 2020. But certainly, our like most airlines, our objective is to become more efficient. Could you at least get some goal posts? Does your analysis The start in a single digit percentage category and end in double digit category?
Is it all single digit, something like that? We're just not ready at this time. Okay. And second question, and I apologize for missing the earlier clarification. The aircraft financing
2020. Thank you. The next question is from Stephen Trent with Citigroup. Please go ahead.
Good morning, everybody, and thanks for taking my question. Most of my questions have been answered as well, but just one quick 1 for you in the interest of time. When we think about ESG goals, your Star Alliance partner south of your border, For example, highlighted some collaboration with an electric plane developer. How are you guys thinking about Aside from the re fleeting carbon capture programs or kind of your longer term view, some color on that would be helpful.
Yes. Stephen, it's Mike. Great question and something we're very, very focused on. We haven't announced 2018. We've been actually a leader in this area and we are exploring all the different areas including alternative fuels.
We are working with United on some things as well and sharing some information. We will over the next And so stay tuned on us providing that information to the marketplace.
And I'll ask Stephen to that as well. It's Calin here. We as Mike said, we've been a leader In this area, but of course in 2020, we were quite quiet in this area. And that one of course was as a result of the extreme distress that the But in addition to alternative fuels, we are actively looking at a carbon capture solution. We're also as Mike mentioned, this is something that is at the level not only of Air Canada's Executive Committee, but right up to the level of the I think this is one of those that I'd say watch this space.
I know Mike will do some great things with our environmental ESG team. 2020. Very, very specific things and I suspect that it will be unveiled over the coming months for sure We have some very specific targets of the industry, as you know, through CourSia, which is one level. We also have Some requirements inside Canada, and we have some requirements potentially in other jurisdictions like Europe as well. But leaving all of that aside, there are some very specific targets that Air Canada itself has, which have been worked on well before the 20 20 year in which we're put on pause during 2020.
I appreciate that. Thank you very much, Mike, and congrats on your retirement, Killian. I appreciate the time.
Thank you
very much.
Thanks so much, Steve.
Thank you. This will conclude the question and answer session. I would now like to turn the meeting back over to Ms. Murphy.
Thank you, Elena, and thank
you everyone for joining us
on our call today. Thank you very much.
Thank you. The conference has now ended.