Air Canada · TSX:AC
Air Canada — 5th Annual Institutional Investor Conference (AltaCorp Capital) 2017
30 slides from Air Canada's conference presentation, Jan 12, 2017
Slide 1: 5th Annual Institutional Investor Conference
at the 5th Annual Institutional Investor Conference Michael Rousseau Executive Vice President and Chief Financial Officer Kathleen Murphy Director, Investor Relations and Corporate Reporting Toronto January 12, 2017
Slide 2: Caution Regarding Forward-Looking Information
CAUTION REGARDING FORWARD-LOOKING INFORMATION Air Canada’s public communications may include written or oral forward-looking statements within the meaning of applicable securities laws. Such statements are included in this presentation and may be included in other communications, including filings w
Slide 3: Air Canada – Transforming into a Global Champion
AIR CANADA – TRANSFORMING INTO A GLOBAL CHAMPION 3
Slide 4: Business Plan on Target
BUSINESS PLAN ON TARGET Record EBITDAR(1) of $1,248M and record operating income of $896M in Q3 2016, and on a 12-month trailing basis to September 30, 2016, EBITDAR(1) margin was 19.0% and ROIC(1) was 15.5% Fleet initiatives and capital programs on target – 21 B787s in operating fleet – B787s m
Slide 5: Global Champion Strategy
GLOBAL CHAMPION STRATEGY Safe & Reliable Operation Fleet & Commercial People & Network Brand Strategy Geography Experience Star Alliance Operational Toronto - a true AC hubs are 30,000+ dedicated Excellence global hub en route to employees A++ Joint Europe & Asia Venture Award winning
Slide 6: Our Four Priorities
OUR FOUR PRIORITIES 1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 6
Slide 7: 1 International expansion
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 7
Slide 8: Transformation Plan
TRANSFORMATION PLAN Accelerated, balanced transformation of Air Canada towards sustained profitability Network Optimization Strategic international Aircraft Growth and Reconfiguration growth Flexibility to Adjust to Delivery of B787s Increase Shifting Market Conditions diversification of Den
Slide 9: 90% of Projected Capacity Growth Aimed at International Markets
90% OF PROJECTED CAPACITY GROWTH AIMED AT INTERNATIONAL MARKETS Focused on selective expansion of network and developing synergies offered by alliances with other carriers Historically, margins have been the highest on international routes Leveraging strengths internationally: – extensive and
Slide 10: Fleet
FLEET Actual Planned 2015 2016 2017 WIDEBODY Boeing 787-8 8 8 8 Boeing 787-9 4 13 22 Boeing 777-300ER 12 12 12 Boeing 777-300ER (higher-density) 5 7 7 Boeing 777-200LR 6 6 6 Boeing 767-300ER 17 15 10 Airbus A330-300 8 8 8 NARROWBODY Boeing 737 MAX-8 - - 2 Airbus A319, A320, A321 74 75 75 Embraer 190
Slide 11: Fleet Flexibility
FLEET FLEXIBILITY Air Canada has positioned itself to adjust to any economic environment with fully unencumbered, older aircraft (both widebody and narrowbody), and with a sizeable amount of staggered leased aircraft expiries Staggered Airbus narrowbody lease expiries give Air Canada the opportu
Slide 12: Leveraging Our Geography to Maximize 6th Freedom Traffic Potential
LEVERAGING OUR GEOGRAPHY TO MAXIMIZE 6TH FREEDOM TRAFFIC POTENTIAL Best-in-class connections process at Toronto Pearson International-to-U.S. & international-to-international connections process is simple and allows for seamless connections – Competitive elapsed time – No need to pick up and/or
Slide 13: 2 Cost reduction and revenue growth
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 13
Slide 14: Benefits of Air Canada Rouge
BENEFITS OF AIR CANADA ROUGE Air Canada Rouge is enhancing margins in existing leisure markets and pursuing new opportunities in international leisure markets made viable by its competitive cost structure Air Canada Rouge fleet (comprised of Airbus A319s, A321s and B767s) is estimated to generat
Slide 15: Improving Competitiveness in Regional Markets
IMPROVING COMPETITIVENESS IN REGIONAL MARKETS Diversification strategy being implemented – Sky Regional & Air Georgian have very competitive cost structures – Air Canada will continue to add scale to Sky Regional and Air Georgian Significant enhancements to Jazz CPA driven by fleet changes and p
Slide 16: Other Opportunities for Margin Expansion
OTHER OPPORTUNITIES FOR MARGIN EXPANSION B737 MAX program – estimated 10% CASM reduction vs Airbus narrowbody fleet Concluded agreement with Bombardier for acquisition of 45 firm Bombardier CS300 aircraft starting in late 2019 – 25 Bombardier CS300s to replace Embraer 190 aircraft – estimated CA
Slide 17: 3 Customer engagement
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 17
Slide 18: Engaging Our Customers
The only Four-Star ENGAGING OUR CUSTOMERS international network carrier in North America Products and services, such as the Dreamliner with newly designed cabins and next generation IFE Air Canada Altitude™ which recognizes and rewards frequent flyers, and Altitude Skyriders our newly launched o
Slide 19: Customer Engagement Awards
CUSTOMER ENGAGEMENT The only Four-Star international network AWARDS carrier in North America 2015 Skytrax Awards – Four-Star ranking 2016 Business Traveler Magazine Awards named Air Canada – Best North American Airline for International Travel 2016 Global Traveler Magazine Awards named Air Can
Slide 20: 4 Culture change
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 20
Slide 21: Culture Change: Employee Engagement
CULTURE CHANGE EMPLOYEE ENGAGEMENT Employees understand vision and strategy 9% of total issued shares held on employees’ accounts Employee surveys and multiple awards demonstrate significant improvements in employee culture and engagement − 2016 - Canada’s 3rd Most Attractive Employer − 2016 -
Slide 22: 10-Year Labour Agreements With Most Major Unions
10-YEAR LABOUR AGREEMENTS WITH MOST MAJOR UNIONS ACPA – union representing 3,000 pilots – collective agreement terms for 10 years in effect until September 2024* Unifor – union representing 4,000 customer service and sales agents – collective agreement terms for five years in effect until Februa
Slide 23: Financial Risk Management
FINANCIAL RISK MANAGEMENT 23
Slide 24: Pension Deficit Eliminated – Significant Reallocation of Capital
PENSION DEFICIT ELIMINATED – SIGNIFICANT REALLOCATION OF CAPITAL TO OTHER USES As at January 1, 2016, aggregate solvency surplus in domestic registered pension plans is $1.3B – Plans are in a solvency surplus position therefore no past service cost payments made in 2016 – Plans funded at 105% or m
Slide 25: Risk Mitigation – Fuel and Currency
RISK MITIGATION – FUEL AND CURRENCY Fuel hedging strategy designed to lock in booking curve profitability – Use of call options protects against short-term price spikes while allowing to participate 100% in fuel price declines Foreign exchange risk strategy is to cover 70% of net U.S. exposure o
Slide 26: Committed to Strengthening Balance Sheet Using Free Cash Flow
COMMITTED TO STRENGTHENING BALANCE SHEET USING FREE CASH FLOW $8B in capital expenditures to acquire more efficient aircraft and improve the competitiveness of existing aircraft to better position Air Canada for the future – Access to EETC market at investment grade rates Cash inflow of $690M in
Slide 27: Financial Targets / Results
FINANCIAL TARGETS / RESULTS 27
Slide 28: Financial Targets
FINANCIAL TARGETS Financial Targets 2016-2018* Target FY 2015 Q3 2016 EBITDAR margin 15-18% 18.3% 19.0% (on a 12-month trailing basis) ROIC (return on invested capital) 13-16% 18.3% 15.5% (on a 12-month trailing basis) Leverage ratio by end of 2018 2.2 2.5 2.5 Air Canada remains on track to reducing
Slide 29: Conclusion
CONCLUSION Achieved/exceeded 2013 Investor Day financial targets On track to meet or exceed 2016-2018 targets for EBITDAR margin, ROIC and leverage* Eliminated pension solvency deficit Engaged employees and an experienced and results-driven management team Focused on value creation − Expan
Slide 30: Thank You
_- La. Lae. EL THANK YOU
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