All right. Moving right along. Mark Streeter is going to join me on stage here. Mark has actually covered Air Canada on the credit side. Longer than you. For many years more than I've covered Air Canada on the equity side. Very happy to have John Bert, CFO, and Mike Rousseau, CEO, taking our stage once again. Gentlemen, welcome. Thank you for making the trip. Thank you. I hope yesterday's meteorological mayhem did. Well, you got here. Oh, we got here. We got here. We had a great Air Canada flight down here. You don't say. Yeah, sure. Good, good. Well, listen, I know you guys didn't 8-K this morning, which is fine, but we have started most of these panels this morning with an update. You know, speaking for other airlines that have already, you know, shared the stage, at least domestically, I think everybody is very pleasantly surprised with the resilience of demand trends. At this point, admittedly not that many days in the first quarter really were exposed to elevated fuel prices, but at this point, most of the managements have expressed, you know, pretty high levels of confidence as to their first quarter outcomes relative to their guides. What can you tell us about how the quarter is developing for Air Canada? Let me start, then John can also add color. Certainly, we would echo those comments. Excellent. From the U.S. airlines. We have put price increases in, and we've seen continued strong demand. The way the math works, of course, is, you know, fuel's about 20%-25% of our overall cost structure. You know, for the back half of the year, we need 10%-15%, given where the current spot is in price increases. That has been actioned, and that's in the box at this point in time. On a shorter term basis, we do have some hedging in place for Q2. About half the booked volume is hedged. The other half is not hedged. The other half will be subject to the price increases. Q2, you know, will come out fairly well as well. Q1, on top of some hedges we had in Q1, we also have a very efficient supply chain infrastructure that gives us a couple weeks of inventory at the old price, and so, Q1's not gonna be impacted. Yeah. John, anything to add? I think you covered it well. I think that's it. We feel good about the pricing increases we've put in place. Demand continues to feel pretty resilient, and we got off to a generally good start absent the situation in the Middle East as well. Yeah. It gives us good momentum, feeling like we know we've got this in hand at this point in time. Obviously, we'll watch the next six to eight weeks. It's important as well. Go ahead. You finish. Quickly on that, on the fuel question, very robust international, you know, franchise at Air Canada. What percentage of your international flying has fuel surcharge mechanisms already in place that sort of automate the process that we're talking about fuel price recovery? Yeah. It's a bit complicated. Certainly across Europe, there are fuel surcharges in place. Right. We can adjust fuel surcharges or the base fare. Fuel surcharges have been adjusted. In Asia, certain markets in Asia, as you probably know, require government approval. Right. That's being actioned as we speak as well. Okay. Just on, I'll ask a different question than I was gonna ask because we were talking about fuel there, but, Mike and John, can you maybe just talk about how you source fuel or where you source fuel? Alaska was just talking about the difference between Hawaii and the West Coast, and actually thinking about tinkering in fuel and so forth to sort of mitigate, you know, where they're paying more on the West Coast. You have exposure to Singapore, where that market, I think, has been higher than, you know, what we're seeing in New York Harbor, for example. Maybe just sort of talk about your fuel footprint and how you're managing that. We have terminals both on the East Coast and on the West Coast, and we have developed Asian supply quite well over the years. That comes into Vancouver and Fraser River. We have a terminal. We bring it in. I mean, we have a lot of flexibility in our procurement arrangements, and just specifically to this set of circumstances, we have already started to pivot some of our purchases to U.S. Gulf Coast to be able to offset some of the potential risk of supply shortages that may or may not come from Asia. We had a couple of tankers actually just leave in the last week from Asia, still at pre-conflict pricing on their way. We're procuring something from the U.S. West Coast in Washington, the state of Washington. I think in three or four weeks we have a tanker leaving from there. There's been a lot of work that's, you know, done just to protect overall inventories. Our inventory levels, I would say by and large on the West Coast, probably all things considered I've just mentioned, through to mid-April, so protected in terms of pricing and in terms of supply, and we're well into the end of March on the East Coast. I think it's about 25% from Asia is our fuel supply, typically, normal footprint, and that has some, like I said, some flexibility. What I was gonna ask before fuel is, it's not meant to be a tongue-in-cheek question, but, you know, are Canadians still mad at the U.S., and I don't mean over hockey and most recently baseball, I mean over politics and trade. When you think about. You knew it was coming. No other shot already. When you think about Transborder travel and where it was a t the peak down last year and where it had recovered to at the beginning of this year, you know, is that changing at all, that recovery cadence, you know, into the conflicts of the last couple weeks and so forth? Or are they just totally separate drivers between what might be going on in the Middle East and how we think about cross-border travel? Yeah, I think they're primarily separate. You know, this time last year, traffic primarily leisure travel to the U.S. dropped. Business traffic's been strong throughout that period of time, and certainly traffic flows from the U.S. up through Canada on sixth freedom have been strong as well. We've come full circle on that leisure traffic decline, which is 10%-15%, and so not a big impact to Air Canada at the end of the day. U.S. market's roughly 22% of our overall volume, so 10% of 22%, 2%. We quickly the revenue management network team quickly redeployed those, you know, a few assets. We did not exit any market in the U.S. We took down frequency, and with the strength of our fleet, the breadth of our fleet, we were able to downsize some planes as well, going from a MAX to a 220, for example. We stabilized that market. Our competitors, for the most part more leisure than business, have exited much greater than us, and so that has provided an opportunity for us as well, basically. We see stability at this point in time. Are Canadian consumers returning to U.S. sun markets this winter? Because I remember you pivoted into, I mean, not entirely. Yeah. You shifted some capacity into non-U.S. sun markets for the winter season. Yeah. Is that pendulum swinging back, or are they kind of still? Remains. Sticking with Mexico, sticking with the Caribbean and. It remains intact. Okay. I think the good news is there's been a lot of stability that's kind of established itself over the last few quarters, and I think this year was no exception. To Mike's point, we have the benefit of corporate traffic and some international U.S. origin traffic as well. That helps 'cause we have a network. Those two pieces have kind of helped us manage it. With respect to further change, no. Not much. Okay. No return, if you will. Since you mentioned sixth freedom, and we touched on this briefly at the JPMorgan Leveraged Finance conference a few weeks ago, John, but I know it's obviously never gonna be the majority of what you do for a living, but there's growth potential. What's unclear to me is how do you harvest that demand? Is it just sort of a build it and they will come? I'm just surprised how often I price out itineraries that I expect Air Canada to show up as an option, that it doesn't. I don't know if it's a CRS display issue, if you need to work with travel agents. Like, how do you really lean into it, or do you think it just naturally grows as connectivity grows? Kind of like how Southwest, they sort of grew into having hubs just because the connectivity naturally evolved. Yeah. There's certainly a strategy behind it. Our close relationship and partnership with United Airlines. I would think. Yeah. It is a big part of that program. We continue to do good things with United to make sure that's a seamless travel experience for the customer, basically. There is a stated you know set of initiatives to enhance the experience. You know, if you can't see it on the screen, we'll come to your office and we'll show you where it is. I'm sure you will. There is natural growth as well. Yeah. As we put the A220s into more markets into the U.S. Good point. You know that and we you know our salespeople work with travel agents in the U.S. marketplace, then that growth will come as well. European airlines, and to a lesser extent LATAM Airlines, have added or are adding material capacity between South America and Europe. Is that eating into some of the flows that you had been able to capture? We're not seeing that. Okay. We've added capacity to LATAM as well. Yes. Yeah. We're seeing some flows from Europe through Canada into LATAM as well. Okay. Natural traffic, and so we're very pleased with the yearly results of that capacity growth. Okay. John, something I'd like to clear up, and I think you and I have already sorted this out. For the sake of the people, you know, in the audience and listening today, on your recent earnings call, I asked a question poorly. You had just announced an aircraft order. Yeah. I asked about sort of the internal metrics that you look at in terms of determining the appropriateness of allocating capital, but I asked it in a way that almost sort of sounded like a, like. Commercial. More of a commercial angle. Could we clear that up? Yeah, absolutely. I think first and foremost, right. We'll get into metrics in a quick second, but strategically, it has to be structural, right? What we're looking for is where is demand and where is it going and what do we believe we have a competitive advantage in terms of delivering, in terms of a network. We are continuing to grow internationally. We have strong underlying structural benefits from demographics in Canada, this opportunity to continue to grow our international footprint. With that, we design out a fleet. Our fleet was, you know, long-range 787s, 321s. That helps on seasonality and continues to help us with transatlantic and other flows. Then the A220, that really is a great aircraft for all of North America. When we look at how we actually deploy the capital and you know, once we've established where we want the growth to be, from an economic point of view, I mean, these are margin-enhancing aircraft that deliver ROIs that are superior to our current ROI. You know, it's. We're talking about aircraft, especially when you look at the long-haul aircraft, that are likely gonna be you know, high teens, low 20s ROI, adds to our capital base. It's a combination of strategic fit, number one. Number two, they have to deliver benefits from margin expansion, and then it'll also culminate on ROI. For us, ultimately, what we're looking to do is drive structural cash flow. When you look at the entirety of all that, we also use a little bit of a kind of a long-term planning horizon, sub 12% revenue CapEx. Okay. Basically, our model works very well when we are higher teens EBITDA. I'll say, you know, 11%-12% max CapEx. Okay. Structurally, 5%-6% free cash flow generation, and we believe that that's something that we can do on a very consistent, sustainable level. It's a combination of those factors that give us confidence when we deploy capital that it's gonna return value to investors. Perfect, apologies again that I didn't ask. At all. It better on the call. At all. That was my bad. Can we jump in just a little bit into loyalty economics and how we should think about your run rate there for improvement? I mean, maybe even just a step back to clarify some maybe misconceptions about, you know, where, you know, interchange fees are in Canada and so forth. You know, in the U.S., there is this sort of lingering worry about legislation that could somehow neuter credit card programs and, you know, is there any sort of corollary to that in Canada that you're focused on or your lobbyists are focused on? Just maybe talk a little bit about, you know, how you view the next sort of five or 10 years, 'cause it's such a focus for American, Delta, United, that continued ramp, and trying to benchmark that to Air Canada is something we probably need to do a better job of. Yeah. Okay, let me start. Loyalty is incredibly important to us, just not from an economic perspective, but from a customer information perspective as well, and certainly from a loyalty perspective. As you probably know, Air Canada runs one of the best programs in the world, let alone the best program in Canada. We bought it back in 2019 with 4 million members, and it currently has 10 million members. We've 2.5x in six years. And we've expanded partnerships, you know, Uber, liquor stores, you know, and they all add value to the program. Certainly from an economic perspective, the EBITDA has improved dramatically over that period of time. Interchange rates, you're absolutely right. They form the basis of the economic sharing. They are higher in the U.S. than they are in Canada. Canada has discussed this issue, the government of Canada. We've made some adjustments in the last couple years. I would say we're in a relatively good place at this point in time. You know, we certainly run the program in the U.S. as well, so we're subject somewhat to, but a very small level, from a U.S. interchange rate. It is a key lever for us going forward, and will continue to be so. You know, we have dynamic pricing. We're enhancing the value of Aeroplan by making it a much bigger part of our vacations business. We run a small vacations business as well. There are many, many points of leverage that we have we will continue to explore to increase the value of Aeroplan. John? No, you know, I mean, I think Mike's covered it well. I'd say that the other part of this is that we have, you know, three great credit card partners, a little bit of diversity there as well. We also have a fourth one in the U.S. which caters to a U.S. offering and, you know, out of the 10 million or so members, about 10% or 1 million are Americans, and so that's very helpful. The overall contribution from a profitability point of view is accretive to overall margins, so typically does better than the overall airline. Of course, from a cash flow point of view, it's a powerful contributor to free cash flows, and it has some insulation to the cycle, which is helpful to us as well, right? It carries kinda through dips because we've actually enhanced it to be even more largely tied to revenue-based accrual versus mileage-based accrual. Those are things that, you know, continue to make the program more attractive to those who are really using their loyalty and working with the airline. Is there any opportunity with the three or four credit card banks where any of those contracts are sort of tied to the 4 million members, not the 10 million members? Or, you know, legacy contracts that are open for renewal soon, or where you're expecting a material step up in economics? Well, the contracts come due in about five years from now. Okay. Again, we're okay with the existing contract, and then we'll start negotiations in the next couple years and we'll see where that goes. I don't wanna forecast what may happen. Okay. At that point in time. Mark, we've talked about this for years. I mean, airlines are frustrated that the valuation of these incredible programs are not, for the most part, reflected in the airline valuations. Different airlines have tried different things to extract that valuation. However, there's been no success. Yeah. To date. Well, that was gonna be my follow-up question. Yeah, I understand. Given your experience in this regard, should that serve as a cautionary tale for U.S. airlines that occasionally, more than occasionally, are probably being pitched by investment bankers to spin off their programs or look to monetize it or something like that? Well. I always point north on that topic. Yeah, we did that. We did that. Yeah. We did that and certainly that created a ton of value. Sure. At that point in time. That was born more of necessity at the time than. Yeah. Financial engineering. Possibly. Both, right? Okay. Both. The issue is, you know, you're trying to establish a commercial contract that can think about everything over 20 years. That's virtually impossible. Yeah. And. It's like buying airplanes. Yeah. The market was different when we sold it than how it evolved, basically. Yeah. that's why we made the right decision to buy it back. Once it's embedded within the airline, it certainly drives a lot of value. Yeah. That the market may not see, or the analyst community may not see, but it does drive value, aside from just the economic returns. Well, one last loyalty question from me, unless Mark has another one. You know, probably one of my earliest lessons when I started on sell-side research working for the airline analyst at Kidder, Peabody & Co., was that the industry suffered from a, you know, a paucity of barriers to entry, but a lot of barriers to exit, chiefly Chapter 11. As preventing, you know, it's keeping failing carriers alive. I don't have to explain that process. Does loyalty really represent notwithstanding the inability to procure aircraft at the moment, is loyalty the best barrier to entry that the industry has ever seen? Or is network scale and the heft of, you know, franchises enough to keep startup capital out of the industry? I don't see it as a barrier to entry. Okay. I do see it as an ability to maintain loyalty of certain of the customer base. Yep. If that translates into a barrier to entry, but it's not the intent of the program. The program's intention is to drive loyalty. Got it. Okay. Fair enough. Any update on corporate demand? Southwest had kind of a cool soundbite this morning. They said if they didn't sell a single corporate ticket for the rest of the month of March, they would still set corporate records for this month. How's it looking for Air Canada, and what are the principal businesses that constitute your corporate demand? Maybe I'll take a shot at this. I think number one is we had a strong Q4, good momentum. I think it was up 10% year-over-year. We're still, you know, nowhere near the levels we were pre-COVID, so. Yeah. Still a lot of opportunity to continue to build through there. I think, you know, we're seeing a lot of diversification with Canadian trade, and that's playing a big role. Transatlantic, so Europe, for example, corporate is up, like, 30%, so significant step changes. Yeah. That's kind of obviously, you know, in the context of geopolitical, you know, evolution of Canadian trade. From our point of view, there was, you know, for maybe a couple of years, a little bit of a slow build, and now it's really kind of taken off since the second half of last year. The good news that is transborder corporate is still solid, very good, growing, but internationally, very strong as well. Okay. I think that helps. It helps. We can see it in load factors, we can see it in yield, so it's positive. John, one thing we talked about in Miami, and maybe we can explore it here a little bit more, we talked about your percentage of revenue, total revenue, that comes from premium products. Yeah. Sort of just on the corporate demand, maybe start there. I mean, right now, when you look at corporate versus premium leisure, what is more important to Air Canada right now? What is generating a better margin, if you will? Do you look at it that way? I think corporate is strong and is the real, you know, I mean, it has an important contribution to overall margin. We talked a little bit about overall revenues, right? You know, I checked a couple of numbers after the fact, and we're kind of already in the high 20s. We talked about 25. We're probably around 28, 29% now. You know, with this kind of strength around corporate travel, we expect that number to continue to grow. We also are adding a lot of capacity, and with that capacity does come, just by the mix of it, right, even if the LOPAs, kind of our standard LOPAs, the mix of the aircraft coming in will drive a lot more premium seating. You know, that number will continue to grow year-over-year and over the next five years, hopefully well into the 30s, and that's what we would expect. All parts of the cabin and the passenger kind of segmentation are important, so we wanna see that corporate traveler, and we have room to grow there. Small-sized business as well is an area of focus for us, so we're putting a lot of technology to be able to bring small business into the corporate stable as well. From a leisure traveler, I mean, that's where things like the loyalty program really work well, but also paid premium travel continues to grow from the leisure side. As a follow-up to that, you know, Delta's already at about 49%. Yeah. O f revenue from premium channels and of course, there's some overlap with corporate there, so you have to define it properly. In fairness, they started before Air Canada. Is there anything structural about the Canadian market that would prevent you know, again, you said it's gonna grow over time, but is there any reason that Air Canada shouldn't be able to get to 49%? I'd say. Never say never. Like the whole consumer demographics. Never say never. Yeah, other than the depth of the market. Right. Right. There's no reason. Okay. You know, we offer an incredible product, loyalty program, technology to help corporates and we're redoing many of our lounges to expand them, given the growth of the premium traffic. We're hitting all the right buttons. I wouldn't wanna put a cap on. Yeah. On any percent. Okay. Yep. There's no obvious structural difference between your market and. Other than the depth of the market. Yeah. Yeah. Okay. That makes sense. How would you describe your labor force at the moment? Is it in order? Obviously, the last couple of years have been tumultuous and have probably taken up a lot of your time. Yeah. How do we think about labor as it relates to the Air Canada narrative between, let's call it now and the end of the decade? Yeah. I mean, we're coming off 10-year agreements. Yeah. We've got two behind us, so pilots and flight attendants. You know, pilots was difficult negotiations, but we got through it. Obviously, flight attendants, we took a three-day strike for the right reasons. We have three negotiations going on right now, mechanics and ramps, and then also call centers and airport workers, and then some crew schedulers, which is a small union. Those discussions are going on well, and they're. Okay. We're working to a solution that makes sense, frankly. Now that we have two deals behind us, that kinda sets somewhat of a precedent as we go forward. John, can maybe we just talk about the balance sheet for a minute here? You have $1.2 billion of very low coupon, 3 7/8 bonds coming due in August. You've waited to refinance those. Maybe just sort of talk about that decision and sort of what your game plan is this year. Are you looking to refinance that dollar for dollar, pay it down, same collateral, do something different? Yeah. Thanks. As you said, $1.2 billion U.S. We did a repricing of a Term Loan B just recently, and we raised an additional $200 million U.S., so call that a first kind of little, you know, tranche of it. That leaves about $1 billion. That money is gonna be deployed against paying it down. There's $1 billion left. We did a few things in the last six months and, you know, we continue to kinda calibrate that. 2025 strong free cash flow generation, $750 million last year. That was kind of a, you know, even better than we thought we would do, kind of earlier in the year. Number two, we just did a sale-leaseback series of deals, letter of intent for about CAD 2 billion, so CAD 1.026 billion, CAD 1.027 billion. Those will help with the additions to the fleet that are coming. That in combination with, you know, still what we feel is a solid 2026 setup gives us confidence that we hold about 33%-34% liquidity right now. If you recall our Investor Day, we had a stated objective of closer to 20%. We probably will take, just to answer your question, some cash and deploy it against some paydown. Whether we do all of that bond, a part of it, that's still something that we'll determine over the next couple of months. We'll see how we navigate here through the first half. Our view right now is that we can deploy some of the liquidity, take down some gross debt, manage some of the interest cost. We've set ourselves up so we have the flexibility to be able to do that. Then we'll see if we do some kind of a smaller bond later or if we just leave it at that. You know, Mike and I were talking as we walked on stage that we probably did our first deal together maybe 20 years ago, something like that. Yeah. when he was in the CFO seat. You know, I can't remember outside of a crisis where Air Canada hadn't set a balance sheet target and exceeded it in advance of whatever timeline. You've done a very good job of living up to those balance sheet goals and leverage targets and so forth. It's sort of I continuously sort of scratch my head with the rating agencies. I feel like they haven't given you the respect that I think you deserve because of the way you've treated the balance sheet. You know, where are you right now in those discussions? You know, do you want to be investment grade? Is that a goal? Yeah, that's a great question. I would say this. I'd say that, we certainly want some momentum on the rating. To just be explicit about your ask on investment grade, I think the plan that we're driving for structural free cash flow, 5%-6% as percentage of revenues for margins in the high teens will provide the baseline for the right conversation on investment grade, probably as we get into, I'd say 2028, right? We're about 18-24 months out from maybe having the right set of conditions. In the meantime, we do know there's a bit of sensitivity to gross debt, so part of the, you know, conversation will be around some of this improvement that we feel we can make. We use some liquidity that we have on the balance sheet. From there, you know, I mean, we'll look into maybe 2027 or something like that, look at some unsecured if the markets and conditions are right. All that to say that I think that there's a series of steps that will continue to give us momentum on the rating. We have a double B rating now. Love to see a positive outlook at some point. Perhaps from there, continue to move to A +. I think that within the next two years, we'll be in a position to have a conversation around investment grade, so we're doing the right things now to get there. Do you wanna shift more funding to unsecured, kinda like United's doing following that path? I think that the biggest value perhaps that we perceive for that would be to do it. As we get closer to a real conversation around investment grade. That would probably be a catalyst to help move that along. In the meantime, we still can, you know, favor cost efficiency. Now with that being said, we do get, you know, relatively, you know, compressed comparable cost. You know, at this point in time, we don't have to make that move. We'll make that move probably a little bit later. Okay. Mike, do you think there's gonna be further Canadian consolidation? Does it come in the form of deal-making or just unproductive capacity, you know, exiting the system over time? I don't see consolidation in a traditional M&A. Okay. Type situation. Market's well-served by the carriers that currently exist. Yep. You know, I think, honestly, I think the Government of Canada also wants a competitive environment, and we have a very competitive environment in Canada. You know, three of the companies are private. We're the only public domestic company, so it's hard to say how the others are doing at this point in time. They run good operations, and they run a competitive business. Yeah. Okay. Last question from me, it's come up in other panels this morning. What do you think are the most interesting idiosyncratic moats around your franchise relative to your competitors? Well. I'll start. What I like is our diversification. Okay. Yeah. Yeah. The fact that Europe's 30%, domestic's 27%, U.S. is 22%, the rest of the world's the other 20%. I think Good point. I think that plus the fact that we have very, very efficient fleet types allows us a lot of flexibility to move things around. You know, whether the world continues to be uncertain as we go forward, let's assume it is. Having that flexibility and having that diversification, I think is a real strength of Air Canada. Yeah. I think, you know, our three hubs, West Coast, East Coast, shortest routes, transatlantic, transpacific, a real global mega hub in Toronto, I think is another. Yeah. Real big advantage. We talked Aeroplan for a while, so I won't say much more, but I mean, I think that, you know, back to Mike's point about loyalty and making sure that, you know, we create, you know, value propositions for all of our customers. I actually think that, you know, the airline's never been better set up than it is now. Aircraft on the come finally after a long wait, strong balance sheet, and, you know, the underlying demand and demographics fully in place and actually demonstrating all of the leading indicators that we were expecting as we built out this plan are continue through all of the noise that may or may not have occurred in the last 24 months, continues to go through. I think gives us a lot of confidence that, you know, we're just gonna continue to focus on execution. Yeah. Last but not least, Jamie and Mark, you'll hear this from most airlines, but we think we have an incredible leadership team and 40,000 employees. We will get better. We're putting better technology into their hands. We're empowering them to a much greater extent to make decisions real time. We're going through a bit of a cultural change, and I think that was always a strength of Air Canada. It will be even a stronger characteristic as we go forward. All right. Excellent. Thank you very much. Thank you. Really appreciate it, gentlemen. Air Canada. Thank you very much. Thank you.