Good morning, everyone. Thanks for joining us today. Our next presenters is the folks from Air Canada. Happy to have Amos Kazzaz here, EVP and Chief Financial Officer of Air Canada. I didn't get to say this on the earnings call, but congratulations on your retirement. From what I hear today, this is sort of your last hurrah in front of investors. It's my farewell tour, Matt. We get to spend it with you, so I'm very happy to do that. Excellent. Well, thank you for that, and certainly wish you the best of luck in retirement. I guess just looking back at last year, the discussion then was all about the reemergence from COVID. I'd say today it's probably more about the new normal, right? You know, I think, you know, the biggest concern up until the last couple weeks, I'd say, after you updated your guidance, right? The biggest investor focus, I'd say, over the course of this year has been on the cost side, right? You know, raised costs kind of February. You did raise them again, kind of in your recent update. Just like I know there's been a lot of inflation out there. My U.S. airlines have been like there's rampant inflation. I guess, you know, from your perspective, why have costs been so difficult to forecast? Like, could you maybe bucket the areas within your P&L where you've seen the most inflation and have been most, you know, kind of, I guess, surprised by over the past year or so? Yeah. Well, good question to sort of start off with the morning here. You know, what sort of what's been difficult to forecast, and we said this a little bit in the commentary when we missed guidance, we were one point above guidance for a full year on the CASM side. You know, what it is where we've had actually difficult time forecasting is the passenger side, is the recovery, the passenger recovery, the recovery in the business. You know, we talked about at your comments at the beginning, we're a new normal. We think we're getting to a new normal, but in fourth quarter and where we missed sort of guidance and as we updated guidance this year, it's been that revenue line. When we see the strong revenue, we haven't been caught up with the forecast from perspective of cost of sales because that revenue comes in and you've got to pay credit card discount fees, and you've got commissions, and you've got GDS fees, et cetera. You know, all of that has been difficult. We haven't, you know, sometimes, talked to our network planning guys and revenue management of, you know, I don't want to say sandbagging us, but, you know, sort of. Sure. sandbagging the revenue side. As we saw, we thought the recovery was gonna take us through the end of 2024. We're not gonna be till 2025 when we got back into sort of full recovery. Now we're seeing that move in a year earlier. That's sort of one element, one of the big buckets of it's been difficult to forecast. I think now. Okay. The booking curves, and we'll get to that perhaps a little later on, have better line of sight on now how we see the demand profile coming back in stronger and gives us a better sense of forecasting those particular line items that come off of the revenue pile. When you get into the other areas, as you've heard from U.S. carriers and all, you go down the line buckets of expenses. You hit some of the big ones where we were faced with food catering costs, inflation there. We had contracts were up for renewal, and we had forecasted assumption of this level of inflation and then tying it up for a three-year contract. We said, "No, we're not going to do that for a three-year contract. We'll do it on a one-year contract because we believe food inflation will come down in terms of catering costs. Along those lines, you hit the service costs. There we have the impact of labor and tight labor markets, pushing up that labor component of costs and then bringing in the whole sort of service contract. Again, we're trying not to have signed long-term contracts in 2022 and into 2023 until we sort of see inflation coming down. What we've now been doing about it is these contracts are now coming up for renewal. We have some relief off of the inflationary pressures, which then will give us a better handle on forecasting expenses going forward. You know, that's been the efforts there. On the, you know, revenue side, distribution costs, you know, finally there's the rollout of NDC, and a sort of a bad name for it, but it's New Distribution Capability, which is letting us take a little bit more control over content and bring down some of the distribution costs or help on cost of sales. That's sort of the, you know, the buckets there. There's obviously a little bit on the technology side, on IT. Again, contract renewals, different sort of focus on that. Again, bringing that back in, adding additional scope to projects, added some costs there. But at the end of the day, those technology investments and additional costs we're seeing in IT will provide benefits down the road here. You mentioned NDC. Reading a lot of articles about that these days. I know our GDS analysts have written about it. You know, can you expand on this? Like, with this new distribution capability, what do you take more control of? How does that influence your cost structure? I think what we have been able to do, and this has sort of been a little bit of discussion back and forth with providers out there, with the big GDSs, is controlling your content. It's our content, how we display it, our ability to then bundle, create opportunities to purchase on up into the value stream of the products and services that we have. Having that control and then bringing that display into our internal channel rather than. Mm-hmm. It's not we're taking all the content and will disappear off of the other channels, will still be there, but we get additional content being provided that will hopefully then bring people into our channels and then lower distribution costs. Okay. That ultimately is where the, say, the big bang is from that perspective. Right. Okay. More so basically more direct bookings. More direct bookings. Got it. Just lastly on, the kind of cost structure, what are you seeing from an MRO perspective? I know the U.S. airlines kind of timelines there are extended, so aircraft out of service longer, obviously maybe a little bit more costly than some think. Where do you stand there? Yeah, that was also one of the elements in the buckets, the earlier one of expanded MRO times. It comes back to that labor. They too were sort of struggling with getting labor and then some of the supply chain in terms of the parts and materials that went into the overhauls got more expensive, delayed coming in. Now, as our discussions with MROs and what we've contracted out for the next few years, we're in good shape with them and have negotiated good contracts. I know we're last investor day, right? You, you put forth this kind of, I guess, it was a CAD 1 billion cost restructuring program. All of that probably gets masked in all this inflation that we've just been talking about. Where does that stand? Is everything that you kind of identified in that program out there implemented? I know you're retiring in July. Your successor is here in the room, kind of thoughts on what is to come. Yeah, we'll give out a shout-out. My successor, John Di Bert, is here in the second row. John is looking forward to taking this, and I don't wanna create any new expectations for him, as he steps into. You already set a pretty good pretty high bar for him after the recent guidance increase. Yep, I did. I set it him up for that, and he's ready for it. He understands. We actually, we reached success on our billion-dollar target that we had there. You know, it went into a lot of the items that we spoke of back then and trying to bring down the fixed costs in that. There was a second element that we had brought in after as we are wrapping up the $1 billion in savings is another $400 million on the regional side. There we had consolidated carriers there. Sky Regional was brought into the, into Jazz. Now Jazz has all of the regional flying, and that $400 million of savings is over 15 years, but about $50 million of it was front-loaded each year. We're seeing those savings there. Of that billion-dollar program, you know, check that box. We did that. Going all that's good part of that or some of that not a good part, but some of that got lost in the whole inflationary what uptake of what we saw in the sort of the last year and a half. Mm-hmm. That doesn't stop us. You know, we, you know, we still are focused. Our DNA is cost control, and ensure that we continue to identify opportunities and improvements in productivity, efficiency, and the technology investments we're making to really continue to bite away at the cost structure. Okay. pilots, I know they have a reopener provision in their contract from, I think it's later this month, where negotiations can get started earlier. The U.S. labor inflation has obviously been high. How do you think about that when it comes to your, you know, the U.S. labor costs? How does that influence the way you're thinking about contract negotiations with your pilots? I'm just curious, you know, how do you, how do you factor that into your current outlook? Well, let's talk about the pilot situation. It's a topic, current topic, with certainly with what's going on at WestJet there. Yeah. From our perspective, as you mentioned on, give some specificity around it, on May 29th, in a couple of weeks from now, the pilots will be able to deem whether we have met the benchmark under the 10-year framework that we have with the pilot agreement. If they say we have not met the benchmarks, the contract is reopened in September 29th of 2023, this coming year. If that's the case, we will lay out a timeline and a schedule. Okay. to go through negotiations. You know, we sort of pride ourselves over the last 10 years having, you know, developed. What are the key benchmarks that they'll be looking towards? There's a couple of. I don't want to get into the. Okay. -tell the benchmarks, but there are specific benchmark. It's not an objective ones there. Okay. Again, they can make that decision on, you know, whether it's met or not. If they deem that the benchmark is met, then the contract continues for another year. Through 24. Twenty- End of September. September 2024. Correct. Okay. Got it. Again, coming back, we have very good labor relations and some part of, again, the culture change that we've had. We'll have dialogue, we'll have discussions with them. When we sort of think about what we see here, what's going on in North America, and how does that inform us in what we see in Canada, one of the things to keep in mind is that we do have a 10-year agreement which actually continued with salary increases. Yeah. year-over-year over year. Unlike in the US, where many of them became amendable or open in 2018, 2019 just before going then into the pandemic, and then nothing happened. There were no increases in there. When you look sometimes at the headline stories of it's a 35%, 40% increase in costs, if you sort of factor out over the number of years, it, you know, works out maybe 4%, 5%, 6% again. Right. Your pilots were getting those contractual increases throughout the pandemic. Exactly. Right. that sort of, as you will, has helped, you know... Yeah. will help sort of temper, the view. you know, we have in front of us in the WestJet. They started canceling flights this morning, I saw. Yeah, they're bringing the fleet back because they have put in a lockout notice, and the union has provided a strike notice. Fundamentally, when that agreement is done, at some point they will reach an agreement, may hopefully before, but at some point, there will be an agreement, that will help sort of again establish a bit of a benchmark... Yeah. Where our ALPA pilots would be looking to match whatever the case may be. I should probably know this, but what's the pay differential today? It's hard because it's sort of driven, you know, looking at our wide bodies, narrow bodies... Right. Work, you know, compensation pieces, duty rigs, and so forth. It's hard to have a dollar and dollar scale comparison. Suffice it to say that we are higher than WestJet as currently stands. We'll see after this next round, which I'm sure you know their perspective going in is they certainly want to be at Air Canada rates. Yep. From there, what do they take? Yep. I'm sure you won't comment on this, but I'm sure your network planning department is very busy looking at where WestJet is canceling flights today. Well, they certainly the network guys are always looking at everything. Unfortunately, fortunately, and unfortunately, there isn't really any much we can do from perspective of this is a long weekend in Canada, three-day weekend. Okay. It's Victoria Day weekend, and so flights are already full. Got it. As we've sort of spoken about in terms of our demand, May is quite full, so not a lot of space to say, you know, let's add another extra section here. Right. some lines there. Fair enough. Fair enough. Lastly, on the pilot topic, if the reopener happens, they could reopen at the end of September this year. Fair to say you're probably not getting a contract done October 1st. There's probably not much in terms of labor in your 2023 costs assumptions? Yeah. Right now, I would tell you the way that we've guided on costs is we've made assumptions that incorporate as all of the line items that we have and what we sort of for now. We'll leave it at that. Got it. Okay. On the pilots, but not pay or contractual, are you having any, just any problems hiring? Any, you know, any of the problems that we've seen in the United States creeping into Canada at all, whether it's pilot hiring, your pilot training or anything like that, where do you, where do you stand? At the top of it, we are not having the same, not experiencing the same issues that have here in the United States, that we see on the pilot side at Air Canada. I think it's made up of two pieces. One is fleet and the other is flow. From a fleet perspective is, you know, our competitors are, for most part, narrow body operators, and they look at in Air Canada and gee, I've got a bunch of wide bodies, seven eighty-sevens, triple sevens, and I can progress all the way up there and retire, you know, top of scale flying, you know, big airplanes. Air Canada is an attractive place to be as a pilot because you can work your way on. That's the fleet side of what makes a difference, and the other element is flow. The flow comes from Jazz. We have a pilot flow list, where pilots from Jazz flow on up into the mainline. There you can start out, if you will, flying Q400s or E175s, and then find yourself getting on into the mainline operation into Air Canada and work your way on up. That's provided a source of pilots. Of course, the attraction of Air Canada in of itself. We have not had that issue that's been experienced here. Always have to ask the question. Maybe changing gears here, turning towards demand and revenue. You know, Canada has always been trailing the U.S. recovery a bit. It's caught up a lot or, you know, to date. You know, at least in our U.S. data, we're beginning to see maybe the customer pushback on some of the rate gains that we've seen over the past year. I mean by the panel before this, we're just talking about, I mean, probably the only time I've seen covering this sector where we've got a full year of kind of no consumer pushback. I think in the U.S. maybe we're beginning to see that a little bit. Where, you know, what's your kind of demand looking like in Canada? Obviously, with the guidance increase that you put out a couple weeks ago, yields seem to be incredibly healthy. Just kind of update us on where you're, you know, where you stand from a pricing standpoint. That been, well, I guess there's no would here. Knock on wood, you know, essentially it's been a very good, strong story for us. Demand continues to be strong. We've got bookings, you know, ahead of 2019 levels going into Q3, Q2, balance of Q2 here and into Q3, and begin to see now into Q4, a little bit of perspective there. Pricing is has held up through all of that. You know, pricing, we're seeing, you know, above 2019 levels and in some markets, you know, above 2022 levels, last year levels. Demand environment is robust, which has allowed sort of the pricing to remain at it as it is. Effectively, I can't say we've seen any pushback. As a pushback you would see from the demand curve, bookings falling off, and weakness in some markets. We really aren't seeing any of that right now. It's been strong really across, you know, all of the geographies from the demand profile. Again, you would expect a pushback if you would see it. You would see bookings falling off or markets, particular markets weakening, but that's not what we're seeing. Did you see more extended booking curves for international leisure this summer, or were they normal? They're now, I think, returning back to normal on the booking curves. You know, we're past this point of where we were in the pandemic was, you know, one day, 30 days out, it was about the best you could get. Now we're seeing more of that historical view booking curve building. That's been all year, right? That's been all year. Okay. That's been a change all year. That's, you know, when we talked at the end of the first quarter, our advance ticket liability was CAD 5.3 billion. Yeah. it's way above 2019 levels by a large margin. Well, is that 40? 40 or 50% above 2019? Yeah. Okay. Yeah. That, you know, continues to reinforce the whole view that the demand profile is robust. Yeah. Yeah. When I think about your demand mix between corporate and leisure, what was it pre-pandemic and where is it right now? That's, it's always been a tough question for us to answer- Yeah. because again, it comes back to the question of whether you're self-declaring, we survey you on planes. I mean, you can perhaps either look at it from a number of J class or premium seats that you have in the aircraft, but that again is not even a- Yeah. Good proxy. You know, hard to give you that straight answer. I know that some of the other airlines in the U.S. particularly have better metrics on that, and we don't have as good of that insight on. I guess in terms of your, I'll call it, I don't know, your managed corporate business. Mm-hmm. You know, what% of your business was that previously? I'm sure that's what's still trailing a lot. Managed corporate business is the one that is fairly well, say, not peaked, but it's stabilized and it's nowhere near where it was pre-pandemic. It's been interesting to see that sort of managed corporate piece because some of it has, again, back to do, we think with back to work, you know, back to the office. Sure. Sure. You know, we see articles continually about that has slowed and is sort of there, that sort of has stopped. You see sort of the retail establishment in the downtown cores, you know, sort of suffering through all of that. So that managed corporate bookings are off. On the other hand, the element that we sort of see there is this, I'll let the leisure travel is as people are working remotely, they are actually vacationing, traveling for leisure, but then also they're working remotely for a couple of days. Mm-hmm. That week extending that. That behavioral change is where that I think is what we're beginning to see, and I think that's also contributing to the strong demand forecast there. That behavior change on how that managed corporate, where I can work remotely still is being taken advantage of. The other elements we get into the other parts of business travel, there we have some other indicators that we see in particular sectors and routes where we see the sale of flight passes. You know, you can book, buy flight passes, books of flight passes for particular markets, and we see those sales up. We see in our small or SME portals, we see actually additional activity in the SME side. We see that portion of business travel, you know, in some areas, there'll be some strength of it, in other areas, somewhat stabilized. What continues sort of building on top of all of that is the leisure travel, and leisure continues to grow. Combination of what we see here of this business leisure, the leisure travel. Structurally, do you think that managed corporate business or corporate overall is going to be a smaller part of the pie going forward? Does it eventually get back to where it was? I know, I know both leisure and corporate will grow as the market grows, but does corporate get back to the same mix? I think that's the question that we've all sort of been asking ourselves, and we just really don't see that. We'd expected it by now, where we sort of in the recovery, is that that would have come back and there would have been people back in the office, whatever. You see some various experiments and, you know, everybody will be in the office and you get that pushback and still. I don't know. Yeah. It doesn't. It's amazing. Personally it doesn't feel, you know. I don't know your perspective. I think it's structurally different. I don't think corporate will be traveling the same way they were pre-pandemic. I think it's changed, but it's actually pretty dramatic that the re-revenue recovery has been what it has been without corporate really being, right? Yeah. I think that's the part of the leisure traveler that is buying up into those cabins. Yeah. That's what the activity that we see and the mix there of the, of travel that's sort of coming into that is really, I don't call replacing it, but certainly. Yeah. -how that's doing that. Right. Yeah, it'll be interesting to see how that premium traveler, if that, if that softens at all, you know, particularly given maybe some of the macro concerns out there. That could be kind of one of the indicators to watch. Yeah, definitely so. Competitive position within Canada. Obviously, current WestJet issues aside, you know, we've been tracking obviously the ULCC community has been popping up a little bit more. I know pre-pandemic, everyone was trying to get funding and grow and come into the market. Porter is getting some new aircraft. How much do these smaller airlines kind of worry you and, you know, and infringe on maybe some of your, you know, higher margin routes? A good question is, again, the competition landscape, certainly Canada. It's been fascinating to watch, actually. Yeah. Never have I seen in a period of year where you have now Canada, 4 new carriers, all ULCCs, LCC type, in a geography where fundamentally Canada is huge geographically, right? Yeah. population-wise, 35 million. CAD 35 million. Very, you know, is small population and don't have the density other than maybe three or four, maybe five cities there. You know, we do watch what the competition is doing. I'd say that space is crowded if you sort of believe all of the ambitions that they have out there from their fleet, announcements and where they see. That's an awful lot of capacity. Yeah. the Canadian marketplace to absorb. you know, from our perspective, we still keep an eye on it. It really hasn't. Given the products and services that we have, we're able to compete with that, we don't see that impact if it will- Have they compete on price, though? So far, given the pricing environment and given where fuel price has been. Mm-hmm. They fairly much have come along on various price increases as well. Okay. They have labor, they have input costs. Yeah, sure. just as the rest of us and Yep. you know, they have others to answer to as well. We, we haven't seen them bring down the fare structure within, the domestic marketplace per se. you know, even if they have, then we can, you know, manage through our branded fare types, and we have very sophisticated yield management systems to again, be able to compete there. fundamentally, when you look at it, you know, what's their network offering and what's Air Canada's network offering? Mm-hmm. Dynamically, considerably, you know, miles different. Where do you wanna get to, and how do you get there? Yeah. When you sort of throw in the last key piece is a loyalty program, which is, you know, some of the attractiveness and stickiness that you get to that, then, you know, we look at our tools. Yeah. certainly is a big one, certainly helps mitigate any sort of impact that you would have from a ULCC, LCC. Got it. Got about five minutes left. Just wanna give the audience a chance if anybody had a question. We have one question up here. Just wanted to ask you about general strategy within Canada. What's going on with that? Are you cutting back servicing smaller cities, increasing it? I guess there's less competition from WestJet. You see these ULCCs, I mean, what you're thinking is on that? Regional markets, that's been a little bit tougher area for us. We've had to, you know, pull back from some of that regional flying as we've had capacity demands and movement of making sure that all our markets were covered. We've had to pull back in some regional markets through some of our Jazz flying, if you will. You know, it is a difficult market to serve, financially, economically, and so it's a challenge from that perspective. When we look at returns and capability to sort of serve it financially, make it viable, they're less viable, in today's sort of cost environment and probably in the future cost environment. We've had to reallocate regional flying, and as such, as a service, no longer perhaps is three or four or five times a day. It may be 1 trip a day and so forth. We're still trying to keep regional service where we can. This will be lastly for me. You know, balance sheet, I asked the question on the call. Based on my numbers, I'm getting 20, by 2024 target, you know, leverage getting back towards your target, which, you know, could potentially lead to capital returns. I know you'll be retired in 2024, I'm not gonna ask you know, kind of capital return potential here. Just theoretically speaking about the balance sheet, 'cause I'm sure this is more of a firm, you know, kind of company mandate as opposed to an Amos mandate. When I think about, you know, as you're with your order book and bringing on new assets and the ability to finance them or pay cash, when I think about, you know, your asset structure, what percentage is kind of the right amount to encumber, and how much do you wanna leave as sort of dry powder for potential future liquidity events? That's a good question, and something that we run a very conservative balance sheet. Yeah. As you know. For us, liquidity and having unencumbered assets is very important. We've built up our unencumbered assets now as during the course here, of taking deliveries of the MAXes and the 787s and the 767 freighters, we've purchased them with cash. Yeah. Again, building up that book of unencumbered assets there, I think it's about CAD 4 and a half, 4.7 billion roughly. That excludes before you look at Aeroplan as another... Yeah, that's just planes, right? That's just planes and engines, you know. Yeah. some real estate that's in there, parts. you know, going forward right now our plans are continue to pay cash for the next 787s. Yeah. A couple of seven eighty-seven deliveries that we have. Right now, you know, it's too far ahead to start thinking about the XLRs down the road here. Ideally we wanna always maintain strong liquidity, strong unencumbered asset pools. I don't know if I have really a percentage there other than making sure that we have enough. It served us obviously very well going into the pandemic, you know, where we were in terms of probably one of the best balance sheets in the industry, strong liquidity. That got us through the pandemic 'cause we didn't get much help from government, and so wanna be able to in another catastrophic event. Sure. Be able to get through that. I'm sure John will be giving some thought to that, and I did leave him a cheat sheet on my desk before he was leaving of his targets to meet. Great. Well, Amos, thank you very much, and, congratulations once again on retirement. Thank you very much, Andrew. Thank you all for attending.