Air Canada · TSX:AC
Air Canada — 8th Annual Global Transportation Conference 2015
38 slides from Air Canada's conference presentation, Sep 9, 2015
Slide 1: Achieving New Heights
ACHIEVING NEW HEIGHTS presented at 8th Annual Global Transportation Conference by Michael Rousseau Executive Vice President & Chief Financial Officer Boston September 9, 2015
Slide 2: Caution Regarding Forward-Looking Information
CAUTION REGARDING FORWARD-LOOKING INFORMATION Air Canada’s public communications may include forward-looking statements within the meaning of applicable securities laws. Such statements may be included in this presentation and may be included in other communications, including filings with regulator
Slide 3: Air Canada – Transforming into a Global Champion
AIR CANADA – TRANSFORMING INTO A GLOBAL CHAMPION 3
Slide 4: Leading Capacity Share in All Markets
LEADING CAPACITY SHARE IN ALL MARKETS Projected 2015 Percentage of ASM Growth vs 2014 passenger revenue Other 27% Air Canada 36% International SWG 43% 5% WJA 4% LH 3% TRZ 11.5% KLM 6% BA CATH 10% 4% 5% Other to DAL 6% 6% 12.5% Air System Transborder UAL 17% Canada 37% 9.0% 20% to AAL 13% 10.0% WJA 2
Slide 5: Leveraging Our Strengths
LEVERAGING OUR STRENGTHS 1 2 3 4 5 Safe & Reliable Operation Fleet & Commercial People & Brand Geography Network Strategy Experience Star Alliance Operational Toronto - a true AC hubs are 28,000+ Excellence global hub en route to dedicated A++ Joint Europe & Asia employees Venture Awar
Slide 6: Past Financial Results vs 2013 Objectives
PAST FINANCIAL RESULTS VS 2013 OBJECTIVES June 2013 Target As of June 2, 2015 CASM reduction of 15% over medium term Trending to 21% (excluding the impact of foreign exchange and fuel prices) FY 2014 Q1 2015 June 2013 Targets Achieved Actuals Actuals ROIC(1) of 11-13% by 2015 12.1% 15.2% Leverage
Slide 7: Financial Targets
FINANCIAL TARGETS Actual Q2 New Financial Targets 2015-2018 Target* 2015 EBITDAR margin 15-18% 17.3% ROIC (return on invested capital) 13-16% 16.2% Leverage ratio by 2018 2.2 2.3 *As reported on June 2, 2015 7
Slide 8: Strategic Plan
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Slide 9: Our Four Priorities
OUR FOUR PRIORITIES 1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 9
Slide 10: International Expansion
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change
Slide 11: Today Air Canada Flies Over 38 Million Passengers Annually
TODAY AIR CANADA FLIES OVER 38 MILLION PASSENGERS ANNUALLY TO OVER 190 DESTINATIONS Enhancing market presence through Star Alliance, commercial agreements and joint venture 11
Slide 12: 90% of Projected Capacity Growth Aimed at International Markets
90% OF PROJECTED CAPACITY GROWTH AIMED AT INTERNATIONAL MARKETS Historically, margin rates have been the highest on international routes Air Canada is leveraging its strengths internationally: extensive and expanding global network, geographically well-positioned hubs, competitive products and ser
Slide 13: Significant Potential for Continued Growth in U.S. 6th Freedom Market
SIGNIFICANT POTENTIAL FOR CONTINUED GROWTH IN U.S. 6TH FREEDOM MARKET Target 1.5% market share, which equates to an additional 1.68M passengers per year, or approximately $605M in incremental revenue % of U.S.-Europe/Asia market by non-U.S. carriers 5.50% 2.50% 2.40% 2.20% 1.90% 1.40% 1.20% 0.80% Br
Slide 14: Widebody Fleet Plan (Summer Peak)
WIDEBODY FLEET PLAN (SUMMER PEAK) Fleet 2012 Fleet 2015 Fleet 2016 Fleet 2017 Fleet 2018 Fleet 777 18 23 25 25 25 787 0 9 21 26 34 A330 8 8 8 8* 8* 767 30 17 15 10-12* 5-7* rouge 767 0 13 19 25 25 Total Widebody Fleet 56 70 88 94-96* 97-99* *Swing/flexible capacity 14
Slide 15: Cost Reduction and Revenue Growth
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change
Slide 16: Benefits of Air Canada 787
BENEFITS OF AIR CANADA 787 • B787 operate existing B767 routes more efficiently and enable Air Canada to enter new international markets made viable by this aircraft’s lower operating costs (31% lower fuel and maintenance unit cost vs B767), midsize capacity and longer-range • On average, Toronto-Te
Slide 17: Benefits of Air Canada LOPA Superiority
BENEFITS OF AIR CANADA LOPA SUPERIORITY The Boeing 777 high-density aircrafts operate high-volume, leisure-oriented international routes This aircraft has increased margins on international routes such as Vancouver-Hong Kong (improved contribution by over 75%) and Montreal-Paris (improved contri
Slide 18: Benefits of Air Canada Rouge
BENEFITS OF AIR CANADA ROUGE Air Canada rouge is enhancing margins in leisure markets and pursuing opportunities in international leisure markets made viable by its lower cost structure Airbus A319 and Boeing 767 CASM reduction estimated at 23% and 30% vs. mainline, respectively Air Canada rou
Slide 19: 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 20: Focus on Procurement
FOCUS ON PROCUREMENT Launched a procurement transformation initiative in 2010 aimed at applying best sourcing practices company-wide to leverage our global spend – In 2014, Strategic Procurement executed 105 agreements totaling $558 million in spend with savings of 11.4% – Achieved savings in exce
Slide 21: Revenue Optimization
REVENUE OPTIMIZATION • New dynamic pricing and inventory tool, RMODC, will bring Air Canada in line with industry best practices Best Practices • Drives network optimization, making better economic decisions on local vs international passengers 6th Freedom Traffic • Price & inventory determined by o
Slide 22: Other Opportunities for Revenue Growth and Cost Reduction
OTHER OPPORTUNITIES FOR REVENUE GROWTH AND COST REDUCTION Boeing 737 Max program – estimated 10% CASM reduction vs Airbus narrowbody fleet Replacing 20 EMBRAER E190s with five larger Airbus narrowbodies and five Boeing 767s – expect CASM reduction of 10% Two additional Boeing 777HD aircraft in
Slide 23: Customer Engagement
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change
Slide 24: Engaging Our Customers
ENGAGING OUR CUSTOMERS Investing in products and services, such as the Dreamliner with newly designed cabins and next generation IFE Air Canada Altitude which recognizes and rewards frequent flyers Introducing airport services aimed at higher-yielding customers – dedicated check-in areas, chau
Slide 25: Customer Engagement Awards
CUSTOMER ENGAGEMENT AWARDS Skytrax Award – Best Airline North America - 2014 fifth consecutive year Ipsos Reid Canadian Business Traveller Survey – Preferred carrier 83% (up by 14 percentage points over the last six years) Premier Traveler – Best Flight Attendants in North America 25
Slide 26: Culture Change
1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change
Slide 27: Culture Change Employee Engagement
CULTURE CHANGE EMPLOYEE ENGAGEMENT Employee surveys demonstrated significant improvements Nearly 50% year- over-year increase to profit- sharing pool 8% of total issued shares held on account of employees 27
Slide 28: Update on Labour Relations
UPDATE ON LABOUR RELATIONS ACPA – union representing 3,000 pilots – 10-year agreement in effect until September 2024 Unifor – union representing 4,000 customer service and sales agents – 5-year agreement in effect until February 2020 IBT – union representing 650 airport, cargo and call centre
Slide 29: Sustainability Performance Highlights
SUSTAINABILITY PERFORMANCE HIGHLIGHTS SAFETY Approach of “safety first and last” Safety Management System to manage risk and create a common support structure for all operational groups 2014 Gold winner - Canada’s Safest Employers Award ENVIRONMENT Adopted IATA reduction targets for GHGs I
Slide 30: Risk Management
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Slide 31: Pension Turnaround Story - Significant Reallocation of Capital
PENSION TURNAROUND STORY - SIGNIFICANT REALLOCATION OF CAPITAL TO OTHER USES $5.4 billion improvement in pension solvency position over four years – $3.5 billion of net value created on top quartile investment returns – $0.9 billion in pension contributions – $1 billion in negotiated pension benef
Slide 32: Risk Mitigation – Fuel and Currency
RISK MITIGATION – FUEL AND CURRENCY Fuel hedging strategy is designed to manage our exposure to fuel price volatility Use of call options protects us against short-term price spikes while allowing us to participate 100% in fuel price declines Target hedge ratio is approximately 40% of planned fu
Slide 33: Committed to Strengthening Our Balance Sheet
COMMITTED TO STRENGTHENING OUR BALANCE SHEET USING FREE CASH FLOW Partially fund $8.6B in capital expenditures to acquire widebody aircraft to better position Air Canada for the future Lowering adjusted net debt and leverage levels is top priority followed by shareholder distributions via share
Slide 34: Financial Results / Targets
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Slide 35: Record Results
RECORD RESULTS Full Year 2014 First Six Months 2015 EBITDAR(1) of $1.671B, an EBITDAR(1) of $1,033M, an improvement of $238M from 2013 improvement of $430M from the first six months of 2014 Adjusted net income(1) of $531M or $1.81 per diluted share, an increase Adjusted net income(1) of $372
Slide 36: Financial Targets
FINANCIAL TARGETS Actual Q2 New Financial Targets 2015-2018 Target* 2015 EBITDAR margin 15-18% 17.3% ROIC (return on invested capital) 13-16% 16.2% Leverage ratio by 2018 2.2 2.3 *As reported on June 2, 2015 36
Slide 37: Conclusion
CONCLUSION Achieved/exceeded 2013 Investor Day financial targets Reported record results, expanded margins, increased adjusted net income, improved ROIC Eliminated pension solvency deficit New Investor Day 2015 targets are aggressive but achievable Engaged employees and results-driven mana
Slide 38: Thank You
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Air Canada — 8th Annual Global Transportation Conference 2015 on 6ix