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00:00You spent nearly your entire career in the aerospace industry.
00:03You've worked at Pratt & Whitney.
00:05You were the CFO of Bombardier between 2015 and 2020.
00:09That was quite an interesting period.
00:12I would have a lot of questions about that.
00:15But we're here to talk about Air Canada, where you've been CFO since 2023.
00:19Five years after the pandemic, how would you describe the state of the airline industry today?
00:24And what are the key consumer trends you're seeing right now with the post-COVID era?
00:30Yeah, good morning. Good morning, everybody.
00:31And it's nice to be here with you today to talk about Air Canada.
00:35I think that, you know, five years later, it's starting to be far in the rear view mirror, the pandemic.
00:42And I would say that the industry has taken some time to recover.
00:46Today, you know, people love to travel.
00:50And they've traded, I'd say they traded travel up their discretionary spending.
00:55A lot more attraction to premium travel as well.
01:01So that's folks that want to go through lounges or inside the cabin upgrade as well.
01:07And the other thing that we're seeing that is kind of happening over the last couple of years,
01:11and it's a trend that's starting to be a little bit more pronounced,
01:14is particularly North American travelers extending their travel season outside of the peak summer period.
01:22So we're seeing travelers going to Europe, where they would typically go in, you know,
01:28August or July into September, October, and even early parts of November.
01:32So by and large, I would say that the industry is starting to really gain traction.
01:38There's been some challenges over the early parts of the recovery with the availability of aircraft
01:43and some cost pressures as well with the inflation that everybody has kind of experienced.
01:49But travel and people's habits with travel continue to be, I'd say, higher priority.
01:56During your investor day, I think it was last year, you showed up the layout of an aircraft.
02:00Correct.
02:01The aircraft pretty much of the future at Air Canada.
02:04So if I'm going into an airplane that's in 10 years, what's the layout look like?
02:09What differences are we seeing there?
02:12Well, I would say that, you know, cabins typically are being upgraded.
02:17They used to be every, you know, 10 to 12 years.
02:19Now we're seeing 7 to 10-year cycles, the entertainment systems, mood lighting.
02:26You know, we work on making the experience as well, air framers with cabin pressure
02:32and how the aircraft and how you feel once you leave the aircraft.
02:36With respect to premium cabin, there is going to be, you know,
02:39a trend towards more premium economy and as well as a business class seating.
02:45I think for Air Canada, we have a very balanced cabin interior.
02:48And so we actually cater to multiple types of customers in any given aircraft.
02:54I think range for Air Canada is also something to be looking for,
02:57not so much inside the cabin, but, you know,
02:59even extending our ability to point-to-point destinations.
03:02But at the end of the cabin, like, my understanding is that, like,
03:05you have less space.
03:08It's going to be more affordable for certain people in the middle.
03:11Correct.
03:11It'll be a little bit more expensive.
03:12You have more room legs.
03:13Correct.
03:14So that's going to change, right?
03:15No, I'd say that the future is going to be having a product for all customers.
03:23And obviously we'll segregate the cabin appropriately.
03:26So if you want to have, you know, the best travel experience,
03:29you'll be flying in the front of the cabin.
03:31But our premium economy seating is fantastic in flight services as well,
03:35entertainment systems.
03:37I think those will be a great experiences.
03:39And there will be also basic fares for those that need, you know,
03:43more value proposition.
03:45And I think that, you know, for Air Canada, that's our market.
03:48It's a very balanced market.
03:49Great.
03:49You've kind of touched it, but what are the most pressing challenges right now?
03:55You've had a flight attendant situation, a strike this year.
03:59Are labor costs a big issue for you right now?
04:02Well, I'd say that, you know, we were eyes wide open.
04:05We, in December of 2024, we laid out an investor day,
04:09a plan for the airline for 2030.
04:11And in doing so, we talked about the impact of lagging inflation.
04:18So the world has gone through some significant inflation in 21, 22,
04:22into the early parts of 23.
04:24We had long-term agreements, 10-year deals with a lot of our labor force.
04:28Those were 2015, expiring 24, 25, and we're working through them.
04:33So I think that, you know, we're very realistic about the cost
04:35and the inflationary pressures.
04:37We have three areas that are probably the most pronounced challenges.
04:40Number one, the step change towards labor, which we're going through.
04:44And I think we've understood well the implications of that in our cost structure.
04:48Two is, in Canada, significant, important investments need to be made in airports.
04:55And there are billions and billions of dollars,
04:57probably upward of $20 billion in the major hubs in Canada investments.
05:02That will come back to our cost structure, but it is a benefit.
05:05And we are a global carrier.
05:07We depend on our global hubs in Canada to connect passions around the world.
05:13And so those investments are well appreciated.
05:17They will have a cost implication.
05:18And then the maintenance cycle of aircraft and the pressure on that.
05:23Now, you know, I'll be brief on,
05:25we also have a very clear margin expansion plan.
05:29In that same investor that we talked about,
05:3115% margins going to about 18% from an EBITDA point of view.
05:35And in very simple terms, we are in an expansionary cycle.
05:41We're growing.
05:42We produced about 105 billion ASMs this year, roughly.
05:46We'll grow to about 130 billion ASMs in terms of overall capacity by 2020, 2030.
05:51And in doing so, an airline does absorb costs better.
05:55Two, there is significant opportunity for productivity in the overall workforce as we continue to introduce tools, technology.
06:04We have about a billion and a half of technology spend over the next three to five years.
06:08And finally, we're going to be bringing in almost 90 new aircraft, a variety of different aircraft.
06:14And those aircraft are the best in class, modern aircraft.
06:19They will bring 15% to 20% cost reduction from operations, fuel burn, as well as maintenance, and just overall operating costs.
06:26And with all of that, that does actually bring margin expansion, even in a tougher cost environment.
06:33The airline industry, it's a cyclical industry.
06:36Why are you in the cycle right now?
06:38And how do you navigate to the cycles?
06:42Yeah, that's a great question.
06:43I think that, you know, and a lot of credit goes to my predecessor and the team that was there as we entered the pandemic, right?
06:49We had a one-time leverage balance sheet.
06:53So one of the ways that you manage this business well is you keep a strong balance sheet and you allow for flexibility when recovery comes.
07:02And we have been in a, I call it a latent recovery, but we are now in the full cycle of bringing on new aircraft.
07:11We retired, I think, almost 80 aircraft during the pandemic, wide bodies and narrow bodies alike.
07:17And so we are modernizing our fleet over the next five years.
07:20We've taken, you know, the entire impact of the pandemic and come back in 2024 back to about one-time leverage.
07:29So one-time leverage, a clear structural growth plan that is really levered around Canadian travel and international, the international network that we serve.
07:43And we can talk more about that and investments in aircraft and yet keeping a balance sheet of about two turns or less of leverage.
07:50So strong balance sheet, agile, redeploy aircraft where we have moving factories in the end, right?
07:58So when it's not working in one part of the world, we can move that factory to another part of the world.
08:02And we do so, I'd say, better than most.
08:05And we've shown that even with this latest trans-border challenge that was on us in 2025, repositioning aircraft and being agile.
08:12So I think strength comes in agility and a strong balance sheet.
08:16WestJet made a firm order of 67 aircraft in the past few weeks.
08:19Does that change anything for you in terms of planning just to keep yourself competitive?
08:26Yeah.
08:26Again, we always assume and model competitive forces when we develop our long-term strategy.
08:34We have a very clear strategy to grow to about $30 billion in revenue or about $22.5 billion now.
08:40We feel confident that the strategy we picked really relies on factors that are included in a competitive landscape, such as WestJet.
08:51With respect to our own fleet plans, we are bringing value to leisure travellers.
08:57In a sense, that's where their narrow bodies probably will go.
09:00And we ourselves have a plan to have an all 737, very efficient fleet for leisure travel.
09:10So our Rouge brand is going through a transition into all a Boeing fleet from a variety of aircraft that will give us standardisation.
09:18But I think, you know, it's a competitive world and airlines have always been competitive.
09:22I think our structural growth plan does stand on its own.
09:26What are the growth opportunities or the biggest one you're seeing right now that's not already there for you?
09:32Yeah, I think that to be very clear, right?
09:36So in terms just that kind of gives you a bit of an anchor here.
09:40We were at about 113 billion ASMs available seat miles in 2019.
09:47We completed 2024 at about 104 billion ASMs.
09:51We had a old fleet.
09:53We retired older aircraft in our fleet.
09:55That was part of the reduction of capacity.
09:57We're going to go from that 104 to about 130 billion.
10:00That's about 4 to 5% capacity passenger traffic growth over the next five years.
10:07And the way we're going to do it is really structural.
10:10Number one, GDP has grown and will continue to grow, even if it's modest, you know, 1.5%, 2% a year.
10:17So we're not expecting or we're not planning on excessive GDP growth.
10:20Two, the Canadian demographic has changed dramatically in the last 15 years.
10:25And Canada is now over 40 million people.
10:28A lot of immigration coming from Southeast Asia, from India, from North Africa, the Middle East, perfectly suited to our international network.
10:36So we're growing into those markets.
10:38Those markets are growing 8%, 10%, 12% per year, year over year within our franchise.
10:42So they grow at two to three times GDP alone.
10:46And then the third important element is that we have a gift in Canada.
10:49We have a geographic gift.
10:51We are the shortest route from Vancouver, Trans-Pacific.
10:56We're also the shortest route, Trans-Atlantic, from Montreal.
10:59And we have a global hub in Toronto.
11:01That connecting capability allows us to bring what we call 6th Freedom Traffic.
11:07So either American travelers going through one of our hubs into Europe with the fastest connections in many cases,
11:14Europeans going into the Caribbean, for example, flowing the other way.
11:18So that growth itself also offers Air Canada an expansion of its international capabilities.
11:25And we're building the fleet to do those things.
11:27You talked about the GDP, about the economy.
11:31What are the direct or indirect impacts stemming from the U.S. tariffs on Air Canada?
11:37Well, I think like everybody else, you know, we're working through it in live time.
11:41So that's when you look at a direct impact in the spring of this year,
11:46there has been a reduction of trans-border travel specifically point to point,
11:51probably in the low to mid-teens.
11:53That's been fairly stable.
11:55I think we're past the variability of that now.
11:58The leisure travel mainly, right?
11:59Yes, the leisure travel.
12:00What we're seeing, to be honest, right now is increases in corporate travel, including U.S. trans-border.
12:07And I think that Canada itself should and can leverage Air Canada and its ability to connect it globally.
12:15We fly to over 200 destinations around the world.
12:18We have an incredible global network.
12:21And I think, you know, we can be and will be a catalyst in helping the Canadian economy expand and diversify,
12:28but also to keep that connection to the U.S.
12:33and continue to be the largest trans-border airline in the world anywhere, obviously U.S., Canada.
12:40So I think we play a role.
12:42We're going to invest probably $20 billion between 2024 and 2028 in the airline.
12:48And some of that is in, obviously, half of that is in aircraft.
12:51I think we can be a catalyst for the Canadian economy and for Canadian trade.
12:55Great.
12:56I just want to quickly touch on the flight attendant situation.
12:59So it's in arbitration right now.
13:02Correct.
13:03Your latest offer was a 40% increase in overall compensation.
13:07Yes.
13:08There was a $375 million loss there because of the strike.
13:13So what's the impact on your financials down the line because of this situation?
13:18Yeah, great question.
13:19So, one, we issued a press release, must be now a week or two ago,
13:23really just clarifying the entire impact of the work stoppage.
13:29That was roughly four, you know, close to five days of operations that were shut down.
13:35$375 million, that's the implication of it for 2025.
13:40As you said, most of the agreement is now confirmed and locked.
13:45There is an arbitration process for wages.
13:47We expect that to, you know, go through the proper process over the next couple of months.
13:51As we look longer term, I think we've been realistic about our assumptions for these cost adjustments.
13:59And so whether it be pilots last year, you know, we renegotiated successfully a 10-year deal expiry.
14:06We will get through this with the flight attendants.
14:08We have mechanics coming next year.
14:10Across the board, I think we have been realistic about the expectations of adjusting costs for wages.
14:17And we are focused on productivity, improving the airline overall, and offsetting some of that cost pressure.
14:24And then when you have a modern fleet, larger aircraft, larger airline,
14:30there is a scale and productivity benefit that will help us absorb all of that.
14:33And technology will bring productivity as well.
14:36All right.
14:36John Debert, thank you so much.
14:38Merci, Mathieu.
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