It's my pleasure to introduce Air Canada, a company probably everyone is familiar with. With us from the company is John Di Bert, CFO, and Valerie Durand, who runs the investor relations program over at the airline. We' ve a fireside chat here. I've got a bunch of questions in front of me. Obviously, if any of you have any questions, please raise your hand and I'll get to you. You had an update press release yesterday, so you made my job easy. I thought we'd just put that up on the screen and then call it a day for 30 minutes.
Done.
Maybe I'll walk through some of the stuff that was mentioned in the press release. Maybe I'll start with, you know, you reintroduced 2025 guidance. You provided some color on the impact of the strike in Q3. You also noted that you saw a little bit of a softer booking curve in August and early September. Maybe give us a sense of what the demand environment looks like. How much of that is related to the strike? How much of that is related to maybe just a softer consumer environment?
Right. Okay, perfect. Thanks for the question. Great to be here and thanks for the invitation. First and foremost, you hopefully did see the press release from yesterday. In simple terms, the total impact of the strike is estimated at about $375 million. We see most of that through the month of August, I should say. With respect to the comment on softness in parts of late August and early September, it is really fully attributable to the labor disruption and the uncertainty around that. This is really what we call book away. We saw some book away from folks that would have made alternative plans. As we were down and then restarted some of that book away as well for travel, that may have been very short- term, so l ooking through Labor Day and that kind of thing.
That's captured within the $375 million in terms of the revenue miss on all of that. When we talk about the broader context and where we sit here wrapping up the summer, maybe a couple of things I'll say is, number one, a very strong, a very solid international network performance. The international network is working on a lot of levels. One, we're seeing continued travel late summer and frankly even as we look at October for transatlantic travel, to what were summer destinations that are now falling into the later season. It's extending a very important part of the year for us to transatlantic leisure travel, and that comes with usually premium and good mix, so v ery solid there. We're seeing strength in Sixth Freedom , and that actually continues to be a pretty good catalyst for the airline.
It's part of our long-term plan, so w e do expect that we continue to add aircraft, as you know. In Q2 of 2025, we had a 17% year-over-year growth from Q2 of 2024 in Sixth Freedom traffic. That does also come often with a good mix of travelers, so affluent and good premium cabin. That Sixth Freedom traffic, we're also seeing some strength, although it's a much smaller piece of it. Most of it is the U.S. traveler going internationally. We also are seeing some travel from Europeans going south, and so our network is very, very useful to them, so f lying into the Caribbean or parts of Latin America. W e do have a great winter schedule for that. You saw us expand destinations and routes. The other part of the market that I think we're seeing some relatively good performance and strength is corporate.
The business traveler, that's helping all of the geographies, if I will, the international component. We're seeing good Canadian domestic corporate. We're seeing relatively good U.S. transborder corporate as well. In both those cases, I think that's a positive for us. If you thought a little bit about where the softer spots are, I think Canadian domestic leisure, so some traffic or some capacity, I should say, was routed away from the U.S. and that came into the Canadian leisure market. That's a little bit more pressure. Our demand is solid. It's just a little bit more capacity available. Internationally, there was capacity added from the Chinese carriers, and that did add a little bit of pressure to routes, for example, in China or Hong Kong or even some in Korea, but p laces like Japan and Australia are still performing very, very well for us.
You mentioned some of the extra capacity that was added to the domestic market, because I suspect just the boycotting of some of the transborder traffic here. Are there other markets you're seeing some of this excess capacity, whether it's the Atlantic or some destination markets? I t seems like it's being absorbed pretty nicely here.
Yeah, I'll make a couple of comments to give you some context. I mentioned some of the extra Chinese carrier capacity. I would say that's the other example. I think what we have going for us that really actually is a little bit more unique, particularly from a Canadian point of view, is one, the Sixth Freedom traffic that does absorb some of the capacity. While you may have less transborder point- to- point, you definitely are seeing some of those seats filled for onward traffic in the U.S. to international through Air Canada. That's number one. Two, that transborder traffic that was taken out, we took out about the same amount that the market came down, call it mid-teens. Most other carriers, Canadian and otherwise, have taken down more. That's because they're more sensitive to leisure destinations. They're going to Orlando or Vegas, or California.
We fly a lot more corporate travelers and the Sixth Freedom, as I mentioned before. We can take out some of the capacity where it's least productive, but maintain a fairly robust profile of U.S. travel that feeds other markets that are less affected by some of the dynamic we talked about. By and large, I would say that premium, and so that's number one.
Two is corporate as a kind of a market or a segment that's coming back is helping. It helps us more than it does some other Canadian competitors, because we do typically have a strong market share of corporate travelers. The Sixth Freedom traffic is also helping us do that. Overall, feeling good. Feeling good about at least the near term here for the sun destinations. Strength in Mexico and Costa Rica, and Turks and Jamaica, those are all doing very well for early winter travel.
You mentioned the strength in premium, which I think has been a theme other airlines have highlighted as well. Some of the recent comments from some of your North American peers have suggested that, you know, while they're seeing strength in premium, there's maybe a little bit of weakness in the main cabin. Is that similar to what Air Canada is seeing, or does your capacity recovery put you on a different trajectory at this juncture in terms of the recovery of both cabins?
I think the general statement is fair. I would say that we do a really good job of redeploying and adjusting capacity where we need it and how we need it. I mentioned the Canadian domestic leisure. That would be a good example of where there's a little bit more pressure, for example, on the main cabin, as some of the business side absorbs the premium cabin. When it comes to things like transatlantic, performance is good across the board. That's really an extension of, like I said, the season to some degree.
We'll see how November shapes up, but c learly, October has that effect. As we get closer to the holidays, it'll be a different, you know, pivot from the transatlantic. Overall, I'd say that it's a generally, you know, accurate comment. We, I think, have done a good job of managing that. We're not as exposed, right? I mean, we do have the upside and we do take advantage of it. We also don't have the same cabin configuration as some of the big U.S. majors.
Okay.
Yeah, the one thing I'll add on premium to keep in mind is that we've been in this sphere for 20 years, right? We have a really well-established product, and we continue to build on it. Premium has trended very positively for us. If you look at our full- year results of 2024, it was 5% growth year- over- year. You look at it on Q2, again, 5% growth year- over- year and i t makes up about 30% of the revenue. It's a trend that's doing quite well for us, but t hat's been structural with our airline for some time.
Yeah, that makes a ton of sense. I know you don't guide to yield, but maybe just conceptually, how should I think about the trends over the near to medium term, whether it's some of the stuff you mentioned from a demand, supply perspective and some of the promotional programs I suspect that we're all seeing, that you're running as you kind of rebuild the booking curve and recapture some of the book aways that you mentioned earlier? Is there a way to kind of contextualize how we should think about yields over the coming quarters, even entering 2026?
Yeah. Maybe we'll give more commentary in 2026 as we kind of get closer to the end of the planning cycle. I'd say that one thing that sometimes gets a bit overlooked is that, fuel prices have been pretty stable and steady at a lower level. That does go through yields. I think by and large, we have recovered very well. We haven't really had to do any kind of discounting or unnatural sales, or sales campaigns post the work disruption.
The team did an excellent job really of bringing back the airline very quickly. I'd say that the booking patterns are back to normal levels. I think fairly stable is what I would say. I don't know Valerie, if you want to add anything to that, but I think fuel has been really the biggest. It's a bit of a head fake because it comes out of yield, but t he fact of the matter is that it obviously comes out of cost too.
Right.
For sure. I f you're looking at the disruption and the timing of the disruption, obviously that comes at a high- yielding traffic time of year, right?
[crosstalk]
Just as you think about it, there's that if you're looking at it on a full- year basis. As John said, demand has recovered very quickly. The airline itself has recovered extremely quickly. At the beginning of the disruption, we expected perhaps even into 10 days to recover the entire network. We were up and running within three days. When you think about the impact, consider that too.
That's helpful. Maybe I'll pause here to see if there's any questions. Up front.
Just on the topic of work stoppages, which are so unique to this industry. T hey really are a regular or a semi-regular disaster in some ways. I mean, what's the outlook for the next 18 months, 24 months in terms of other labor contracts that are coming up? Have you got clear sailing for a bit? Is there a [crosstalk] ?
Yeah, you want to go ahead, Valerie?
Yeah, for visibility on our contracts, you can consult our annual information form. They're all disclosed, so you have the timing of all the agreements there. The next one is the mechanics.
Yeah, that's next year. By and large, and I'll keep my comments limited here, but I think we've been successful in coming to agreements. Obviously, l ast year with the pilots, b y and large, we'll have a good agreement for everybody, with the flight attendants coming out of the process here. We go into these eyes wide open, and I think we go into them trying to balance all of the stakeholder interests and ultimately come out with the right deal for our employees. We'll manage these as we have in the past. Obviously, this year is a little bit more charged, but we'll get through that one as well.
Any other questions in the audience? Up front.
You mentioned about all these different routes, you know, for the winter going down the Caribbeans. With what you're seeing right now, which part of the world is the biggest potential with profitability [in terms of the fuel]?
Listen, I mean, we have I think multiple opportunities, to be honest with you. The plan that we built kind of lays out where the potential is for us. In simple terms, transatlantic continues to be very strong. When you look at some of the things we're doing, I think for next summer, we announced Mallorca in Spain, so again a very attractive market. You go direct in Catania in Sicily, which is right next to Taormina which is another destination.
The Amalfi Coast through Naples, we did this year. These are all very attractive routes and really help us bring passengers not only from Canada, but internationally. U.S., for example, the Sixth Freedom traffic there. We opened up more Latin American destinations as well. In the winter, we'll fly Rio, destinations in Colombia. I think we're back to Lima in Peru. It's the power of our network and the fleet that we're bringing on. Valerie, I'll let you add.
[crosstalk].
I'll let you take that call. The thing to keep in mind is that our growth plan is really anchored on structural opportunities that are unique to us, right? The other one I would add to that is Canadian demographics. If you look at the evolution of Canadian demographics over the last 10 years, the makeup of our country has changed quite a bit. If you look at the census data from 2016-2021, and you see where those growth markets are, you see where we're deploying our network, i t aligns with that. You look at India, you look at the Philippines. There is an opportunity to connect Canada to the world through those structural opportunities, whether it be Sixth Freedom traffic, whether it be Canadian demographics or whether it be just general market demand.
Maybe turning to costs, I think on the Q2 call, you had highlighted $150 million of cost savings that you thought you'd achieve this year. Is that still something that you can achieve just with the flight attendant strike, or does the realization of that get pushed out into 2026?
I would say that that's something that organizationally we're committed to, and we have multiple projects or pillars of how we deliver that. We're trying to be disciplined as well and prioritize, and keep the energy of the airline focused on the things that we have to accomplish. I think that obviously the strike had an impact. We kind of sized that impact from a cost reduction, and overall just remaining focused on productivity and efficiency. We'll continue that, and we'll continue that through 2026 as well.
Right.
What's important to keep in mind is that we are disciplined and we are executing on our plan. We will control the things that we control, and we will continue to address those in a proactive manner as we've done this year when 2025 didn't turn out to be exactly what we thought it would be mid 2024.
Yeah, as a matter of math, just keeping it simple, you guys can relate to something. We had a CASM guide of $0.1425, $0.1450. We had indicated to be probably on the higher end of that, all things considered. We obviously took out some ASMs, so some capacity, so y our denominator has come off. The new guide is $0.1406- $0.1407 really reflects, just to make the point, it reflects the removal of those ASMs and more or less the same overall cost structure because you don't get to take out anything really material over the strike. It's really just the fuel that you save, and maybe some airport fees and catering.
If I think back at the last couple of years, I think the messaging from yourselves and maybe the airline industry overall was, you know, 2024 was a bit of a transition period on costs and 2025 would also see some of that. 2026 might be the start of the kind of a cost absorption, better efficiencies, you know, margin expansion. You kind of laid that out at your Investor Day last year. Is that kind of the cadence we should continue to expect here, you know, with these new labor agreements coming through, with some of the shifting ASM patterns that you've been seeing?
Yeah, so we're in a planning cycle right now for 2026, but just to keep it simple, y ou recall perhaps even at the Investor Day , we kind of had a little bit of inflection in the back end of 2026. What's important for us, a catalyst to some of that cost efficiency is the fleet and the additions to the fleet. 2026 sees mostly narrow- body capacity come on. You have I think eighteen 220s and we have eleven 321 XLRs and a couple of Dash 10s. The XLRs and the Dash 10s are a little bit more back end. I think the correlation to productivity, modern fleet gains, scale, which are drivers of that cost and margin on a unit basis, they'll profile the fleet as it evolves.
2026, 2025 obviously, then you'll have the impacts of a full year- over- year of the current labor agreement on 2026. Wages are retroactive, but other components of the agreement are really going- forward benefits. We have another 10-year deal that comes due in 2026. We'll deal with that and we'll plan for that properly. As you go through 2026, I think that's when you start to get towards a cost structure that starts to absorb more cost. I'd say back in 2026, as you get into 2027, you start seeing some momentum.
Okay. Maybe just turning to liquidity, maybe we'll start with your capital budgeting. You've got $10 billion worth of CapEx out to 2027. Maybe just thoughts on flexibility around it, use of sale-leasebacks. Like, how do you think about your commitment to spend this amount and to grow the fleet over the next two, three years here?
What I will say is, you know, the plan that we have and what we believe the value creation proposition that we put out for 2028-2030 remains fully intact. There's things moving all the time, but when we look at the underlying fundamentals of what we're trying to accomplish, really four pillars of growth, whether it's eating up some of the deficit from 2019, the Sixth Freedom traffic franchise that we're building, the demographic advantage or population growth and what comes from it that is structural and generational, and normal GDP growth. Those four pieces, we continue to believe are structural and available to us particularly to benefit from. When you look at what it takes to deliver that, we have a fleet plan and that fleet plan is largely within all of our CapEx planning for the next four or five years, you guys see it.
We will always look for optimization. That's not going to be core changes. It's going to be adjustments as we see fit, so that we grow properly and we grow where we need to. We also keep pace with OEM deliveries and make decisions around that. I would say that the belief in the free cash flow generation, the margin expansion continues to be the guiding light for how we're driving value creation. When it comes to the sale-leasebacks, I think we're going to go through a peak. We've built a strong balance sheet, so that it can be used when appropriately. We've set about a 2x leverage target. We also have indicated that we would do up to $3 billion of sale-leasebacks.
The intersection of those is that it absorbs the peak in 2026, 2027, maybe parts of 2028 of CapEx so that we can bring ourselves, even if it's through the sale-leaseback, back to the levels that we think are structurally sustainable around 12%. Getting through the bubble, showing that we can do that with sale-leasebacks, probably net net CapEx in the neighborhood of around 12%, we'll start to demonstrate that as margin grows, cash flow generates.
Maybe if we were to extend this liquidity question, you've obviously been very active on your share re-purchase program. You've taken advantage of, you know, softness in the share price. How does a buyback play a role here moving forward as you think about some of the spending requirements, and other liquidity needs for the organization?
Right. As I said, we started with a strong balance sheet and solid liquidity. We knew we were going into a CapEx cycle. We did earmark $2 billion for share buybacks when we built this plan. We remain committed to the overall plan commitments and objectives. We've spent $1.3 billion of the $2 billion to date, including the cash payout of the convertible bond. We've taken back 80 million shares or a little bit more in the last 12 months or so. We had a share count of 376 million shares, fully diluted. We're probably just around 305 million right now altogether. That leaves us with about $700 million out of that plan to deploy. We'll do it responsibly.
At the end of the day, we're not going to just stick to a plan to stick to a plan, but the fact of the matter is we're committed to a strong balance sheet, that 2x leverage. For what it's worth, we will have a Q3 here that's going to have the impact of the strike, and that's going to be in the denominator for a while. Not impossible, w e look through that, right? That'll normalize itself. T hat'll kind of come out. I t'll negatively impact the leverage ratio for a temporary amount of time. Overall, I think we still see opportunities to use buybacks to create value. We're, I'd say a little bit ahead of schedule, but fundamentally driving the plan the way we wanted to drive it.
Right, t hat makes sense. About five minutes here, i f there's any questions in the audience.
You bought how much [crosstalk]? I'm just thinking of the share purchases you've made. I'm just wondering, would a dividend have been more helpful?
It's a fair question. I know that that's very interesting, and you've mentioned it before. I think to be honest with you, we actually don't disagree that at some point in time, capital allocation should consider returns through dividends. I think if you ask me right now, the path is to develop structural cash flow generation so that it's reliable year in, year out. To do that, we need to get through this CapEx and we need to restore some margin.
As we have a structural cash flow that can be actually executed regularly, and whether that's 4% or 5% or 6% any given year, it produces a reliable cash flow. I would expect that the stock price would react to that as well, which would then probably make more sense to allocate cash back to shareholders through other means, including distribution versus a buyback program at different levels. I think that those are conversations that are very possible as we get closer to the back end of this plan.
[crosstalk] .
I won't forget because you remind me of it.
With the last few minutes here, you did update the Aeroplan program, which kicks in in 2026. Early feedback that you're getting from clients, how does this impact Aeroplan economics as it flows through your P&L to the extent you can share that? Maybe the benefits of the program to the airline itself.
Yeah, so the feedback, I mean, it's early. The feedback has been good. The key elements of this program are to simplify it for our members, and simplify it with what is in the industry as well. As our clients are global, making the program more global and more aligned with what you see elsewhere was key. That in itself simplifies engagement and participation from members. So far, so good. It's the shift of how we calculate qualifying miles. Generally, for the members that are in the program right now, things should remain relatively stable. Feedback's been good. Aeroplan is, as you know, a very good tool for us, a really good revenue enabler. Even if I go back to your earlier question on premium, you know, Aeroplan is a good tool for that. Y ou just bought a ticket in economy.
Did you know that if you spend X amount of points, you could go into premium? We continue to build on Aeroplan. The goal is to make it part of the everyday life of the customer. That's why we have those great partnerships with Uber, Starbucks, LCBO. I always say that there's nothing more than everyday life to that, w hen you go to dinner at a friend's house, buy a bottle of wine on the way, take an Uber home, and grab your Starbucks in the morning, and then book your flight to your next destination with the friend you saw last night. That just in the small anecdote is how we utilize the program, and how it's part of the everyday life of the customer. That allows us to continuously engage.
It feels like, and I know it's early days, but a sense of maybe the size of the pie in terms of potential Aeroplan members, how big the membership can grow, given the shift in the program, that might be a little bit more usable for kind of day-to-day stuff. You've changed the program a little bit, that people can spend these dollars on other things besides flights. Is there a sense of how big this TAM might be?
I'd say it's early innings. Don't forget that membership is not the only metric we look at, right? We look at other metrics, gross billings, and so on. You know, since its relaunch, I would say since its evolution launch in November 2020, the membership has doubled. It's done very, very well, and the engagement continues.
Maybe just last one on Aeroplan. You've obviously extended this into the U.S. with your partnership with Chase, I believe. Just how's the pickup amongst U.S. consumers, I guess, for the Aeroplan program?
A good pickup. If you think in the grand scheme of things, our structural opportunities tie into our Sixth Freedom opportunities, right? You're a U.S. resident, you are booking international travel, you're an Aeroplan member. These are all things that feed into that strategy to drive more Sixth Freedom traffic.
Excellent. We've run out of time here, Valerie, John. I look forward to earning more Aeroplan points myself. Thank you, everybody, for joining us. Great conversation, everybody.
For all Aeroplan members, thank you for your loyalty.
Thank you.