Air Canada · TSX:AC
Air Canada — Industrials, Telecom & Consumer Conference 2017
30 slides from Air Canada's conference presentation, Mar 27, 2017
Slide 1: Industrials, Telecom & Consumer Conference
presents at the Industrials, Telecom & Consumer Conference Michael Rousseau Executive Vice President & Chief Financial Officer Kathleen Murphy Director, Investor Relations and Corporate Reporting Montreal March 27, 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 Progress
BUSINESS PLAN PROGRESS Record EBITDAR(1) of $2,768M and EBITDAR(1) margin of 18.9% in 2016 Operating income of $1,345M in 2016 ROIC(1) of 14.7% at December 31, 2016 Fleet initiatives and capital programs on target – 25 B787s in operating fleet – B787s meeting financial and operational expect
Slide 5: Global Champion Strategy
GLOBAL CHAMPION STRATEGY Safe & Reliable Operation Fleet & Commercial People & Network Brand Strategy Geography Experience Star Alliance New Livery Toronto - a true AC hubs are 30,000+ dedicated global hub en route to employees A++ Joint Iconic Canadian Europe & Asia Venture brand 6t
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: 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 Increase Delivery of B787s Shifting Market Conditions diversification of route
Slide 9: More Than 90% of Projected Capacity Growth Is Aimed at International Markets
MORE THAN 90% OF PROJECTED CAPACITY GROWTH IS 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, inc
Slide 10: Capacity Growth Is Largely Through Seat Density & Larger Gauge Aircraft
CAPACITY GROWTH IS LARGELY THROUGH SEAT DENSITY & LARGER GAUGE AIRCRAFT 2016 2017 Mainline – new international destinations 24% 21% Mainline – higher seat density & larger gauge 33% 39% Air Canada Rouge – new international leisure markets 9% 6% Air Canada Rouge – transborder & sun leisure destinatio
Slide 11: Fleet
FLEET Actual Planned 2016 2017 2018 WIDEBODY Boeing 787-8 8 8 8 Boeing 787-9 13 22 27 Boeing 777-300ER 12 12 12 Boeing 777-300ER (higher-density) 7 7 7 Boeing 777-200LR 6 6 6 Boeing 767-300ER 14 8 5 Airbus A330-300 8 8 8 NARROWBODY Boeing 737 MAX-8 - 2 18 Airbus A319, A320, A321 75 75 67 Embraer 190
Slide 12: Fleet Flexibility
FLEET FLEXIBILITY Air Canada is positioned to adjust to changes in the economic environment with fully unencumbered, older aircraft (both widebody and narrowbody), and with a sizeable amount of staggered aircraft lease expiries Staggered Airbus narrowbody aircraft lease expiries give Air Canada
Slide 13: Leveraging Geography to Maximize 6th Freedom Traffic Potential
LEVERAGING 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 re-c
Slide 14: Cost reduction and revenue growth
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 14
Slide 15: Air Canada Rouge – Profitable Growth in Leisure Markets
AIR CANADA ROUGE – PROVIDES OPPORTUNITIES FOR PROFITABLE GROWTH IN LEISURE MARKETS Air Canada Rouge is improving profitability and competitiveness in existing leisure markets and pursuing new opportunities in international leisure markets made viable by its competitive cost structure Air Canada
Slide 16: Improving Competitiveness in Regional Markets
IMPROVING COMPETITIVENESS IN REGIONAL MARKETS Diversification strategy – 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 pilot mobility agre
Slide 17: Other Opportunities for Margin Expansion
OTHER OPPORTUNITIES FOR MARGIN EXPANSION B737 MAX program – estimated 10% CASM reduction vs Airbus narrowbody fleet Agreement with Bombardier for acquisition of 45 firm Bombardier C-Series CS300 aircraft starting in late 2019 – 25 of these will replace Embraer 190 aircraft – estimated CASM reduc
Slide 18: Customer engagement
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 18
Slide 19: Engaging Our Customers
The only Four-Star ENGAGING OUR CUSTOMERS international network carrier in North America Newly designed website – improves customer experience across all platforms Products and services, such as the Dreamliner with newly designed cabins and next generation in-flight entertainment Wi-Fi connect
Slide 20: Customer Engagement Awards
The only Four-Star CUSTOMER ENGAGEMENT AWARDS international network carrier in North America 2015 Skytrax Awards – Four-Star ranking 2016 Business Traveler Magazine Awards named Air Canada – Best Airline in North America for International Travel 2016 Global Traveler Magazine Awards named Air C
Slide 21: Culture change
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 21
Slide 22: Culture Change – Employee Engagement
CULTURE CHANGE EMPLOYEE ENGAGEMENT Marked improvement in 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 - Ca
Slide 23: 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 24: Financial Risk Management
FINANCIAL RISK MANAGEMENT 24
Slide 25: Pension Deficit Eliminated – Significant Reallocation of Capital
PENSION DEFICIT ELIMINATED – SIGNIFICANT REALLOCATION OF CAPITAL TO OTHER USES As at January 1, 2017, aggregate solvency surplus in domestic registered pension plans is $1.9B* – Plans are in a solvency surplus position, therefore no past service cost payments expected in 2017 – Plans funded at 105
Slide 26: 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 27: 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 Lowering net debt and l
Slide 28: 2017 Guidance
2017 GUIDANCE Annual EBITDAR margin 15% - 18% Annual ROIC (return on invested capital) 9% - 12% Positive free cash flow $200M - $500M Air Canada remains on track to reduce CASM by 21 per cent (excluding the impact of foreign exchange and fuel prices) by the end of 2018 when compared to 2012, and to
Slide 29: Conclusion
CONCLUSION Met key financial targets in 2016 – EBITDAR margin and ROIC Record EBITDAR results for fourth consecutive year Expect positive free cash flow in 2017 Pension solvency surplus Engaged employees, as well as an experienced and results-driven management team Focused on value creat
Slide 30: Thank You
_- La. Lae. EL THANK YOU
Air Canada — Industrials, Telecom & Consumer Conference 2017 on 6ix