Air Canada · TSX:AC
Air Canada — Investor Day (February 2019)
178 slides from Air Canada's investor day presentation, Feb 28, 2019
Slide 1: Air Canada Investor Day — February 28, 2019
AIR CANADA INVESTOR DAY — FEBRUARY 28, 2019 @ AIR CANADA A STAR ALLIANCE MEMBER YP
Slide 2: Caution Regarding Forward-Looking Information / Non-GAAP Measures
Caution Regarding Forward-Looking Information / Non-GAAP Measures Outlook provided in today’s presentations constitutes forward-looking information within the meaning of applicable securities laws, is based on a number of assumptions, including those discussed during today’s presentations, and is su
Slide 3: Our Transformation in Progress
Our Transformation in Progress Calin Rovinescu President and Chief Executive Officer
Slide 4: Air Canada Investor Day — February 28, 2019
AIR CANADA INVESTOR DAY — FEBRUARY 28, 2019 @ AIR CANADA A STAR ALLIANCE MEMBER YP
Slide 5: Michael Rousseau
Michael Rousseau Deputy Chief Executive Officer and Chief Financial Officer 5
Slide 6: Lucie Guillemette
Lucie Guillemette Executive Vice President and Chief Commercial Officer 6
Slide 7: Craig Landry
Craig Landry Executive Vice President, Operations 7
Slide 8: Arielle Meloul-Weschler
Arielle Meloul-Weschler Senior Vice President, People, Culture and Communications 8
Slide 9: Catherine Dyer
Catherine Dyer Senior Vice President and Chief Information Officer 9
Slide 10: Mark Galardo
Mark Galardo Vice President, Network Planning 10
Slide 11: Mark Nasr
Mark Nasr Vice President, Loyalty and eCommerce 11
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Slide 13: Celebrating our 82nd year
40) Celebrating our 82" year
Slide 14: Sustainable profitability
Sustainable profitability ✓ Record financial results ✓ Diversified network ✓ Record revenues ✓ Record liquidity levels ✓ Improved cost structure ✓ Pension plan surplus ✓ Strong balance sheet ✓ Stable long-term labour agreements ✓ Improved financial leverage ✓ Heading towards investment grade ✓ Lower
Slide 15: Revenue generation and cost control
Revenue generation and cost control • Record revenues • Continued cost discipline 15
Slide 16: Strengthened Balance Sheet and lowered Risk Profile
Strengthened Balance Sheet and lowered Risk Profile $ Billions Unrestricted Liquidity Pension Plan Surplus (Deficit) 7 6 5.73 $ Billions 2.4* 2 5 1 4.18 0 4 3.39 -1 2.97 -2 3 2.69 2.36 -3 -4 2 -5 (4.2) Jan 1, 2012 Jan 1, 2019 1 Effectively restructured pension plans, and now in a 0 significant surpl
Slide 17: Capacity growth aimed at international markets
Capacity growth aimed at international markets 5-year Total Capacity Growth +62% 82% International Capacity Growth since 2013 Share of total capacity International North America 38% North America Capacity Growth since 2013 2013 2014 2015 2016 2017 2018 17
Slide 18: Culture change
Culture change 18
Slide 19: Enhanced customer experience
Enhanced customer experience 19
Slide 20: Global champion
te) Global champion
Slide 21: Privileged geography
Privileged geography Unrivalled access to the largest air travel market in the world International traffic flows remain a cornerstone of our strategy 21
Slide 22: International transit traffic
International transit traffic 15% 142% growth in 2018 growth in 2018 over 2017 over 2013 22
Slide 23: Fleet renewal program
Fleet renewal program Fleet Boeing 787 29% CASM advantage over the Boeing 767 Boeing 737 MAX 11% CASM advantage over the Airbus A320 Airbus A220 12% CASM advantage over the Embraer E190 23
Slide 24: 30M customers
Since 2013 Carried nearly 30M customers serving 70 destinations on 5 continents 24
Slide 25: Exceptional growth
Exceptional growth ✓Domestic Canada holiday packages ✓New booking system ✓Customer-friendly ‘Hotel’ tab 25
Slide 26: Strong airline partnerships offering our customers more choice
Strong airline partnerships offering our customers more choice • Founding member of Star Alliance • Joint Ventures with United Airlines and the Lufthansa Group over the Atlantic, and Air China over the Pacific • Codeshare and interline agreements with almost 90 airlines 26
Slide 27: Record operating revenue
Record operating revenue CAGR (in millions $) +11% 18,065 +7.8% 16,252 14,667 +46% 13,868 13,272 12,382 2013 2014 2015 2016 2017 2018 Strong revenue results driven by leveraging our competitive advantages 27
Slide 28: Record 50.9M passengers
Record 50.9M passengers Up 5.8% Up 42% from 2017 from 2013 28
Slide 29: Continued profitability
Continued profitability Consistent with previously forecasted EBITDAR and EBITDAR Margin EBITDAR margin guidance EBITDAR Margin % $ Millions 20 4,000 18.3 18.9 18.0 18 15.8 3,500 16 12.6 3,000 14 12 11.6 2,500 10 2,000 8 2,768 2,928 2,851 1,500 6 2,542 1,000 4 1,671 1,433 500 2 0 0 2013 2014 2015 20
Slide 30: Cost Transformation Program
Cost Transformation Program $220M savings realized or identified in 2018 30
Slide 31: Strategy increases value
Strategy increases value Share price up over 1,300% since 2013 and over 4,000% since April 1, 2009 Over $9 billion in Historical Share Price* shareholder value Feb. 22, 2019 $ 33.14 Jan. 8, 2018 $ 23.88 (+39%) created since June 1, 2015 $ 14.19 (+134%) June 7, 2013 $ 2.27 (+1,360%) Apr. 1, 2009 Apri
Slide 32: Continued international growth
Continued international growth 2018 NEW ROUTES Air Canada Vancouver to Paris Vancouver to Zurich Montreal to Dublin Montreal to Tokyo-Narita Toronto to Shannon Air Canada Rouge Montreal to Bucharest Montreal to Lisbon Toronto to Bucharest Toronto to Porto Toronto to Zagreb 32
Slide 33: Engaged workforce
Engaged workforce Sn~ ee ——™ ¢ \"@ Canada’s Top = © U (i00% 0st —y-= :mployers a ‘ 2019, ° " CANADA'S BEST EE ae DIVERSITY EMPLOYERS
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Slide 35: New reservation system
New reservation system • Improved customer service • Enhanced operational efficiency • Over $100M in annual incremental benefits 35
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Slide 37: NEW: Industry-leading loyalty program 2020
NEW: Industry-leading loyalty program 2020 • Leveraging technology and analytics for an enhanced customer experience • Immediate value to Air Canada and to our customers 37
Slide 38: Data: the new currency of business
Data: the new currency of business 38
Slide 39: Investing in our products to improve the customer experience
SIGNATURE SUITE Wi-Fi Investing in our products to improve the customer experience A220 39
Slide 40: Network optimization
Networ os Se | | optimization
Slide 41: Joint Venture agreement with Air China
@ AIR CANADA | GG nun cuina Joint Venture agreement with Air China
Slide 42: Air Canada Express
Air Canada Express Amended CPA provides significant value 42
Slide 43: Competitive Culture
Competitive Culture Arielle Meloul-Weschler Senior Vice President, People, Culture and Communications
Slide 44: We've come a long way
We’ve come a long way
Slide 45: Communication is key to success
Communication is key to success
Slide 46: Training and tools
Training and tools 46
Slide 47: Talent acquisition and attracting talent
Talent acquisition and attracting talent Great results: • Smarter hires • Less turnover • More efficient interviews 47
Slide 48: Future of work and reskilling
Future of work and reskilling 48
Slide 49: Innovative talent development
Innovative talent development Emerging leaders program – Leading the AC Way • On-line leadership training • Mentoring • Real-world project assignment 49
Slide 50: Diversity and Inclusion
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Slide 51: Helping kids reach new heights
Helping kids reach new heights FOUNDATION
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Slide 53: Summary
Summary We continue to transform and evolve, so do our people strategies. We are: ✓ Communicating transparently ✓ Staying ahead of the war for talent and continuing to nurture our ✓ Ensuring that we continue to labour stability “do good” in addition to “doing well” ✓ Investing in our people through
Slide 54: Operations
Operations Craig Landry Executive Vice President, Operations
Slide 55: 2018 operational results
2018 operational results 574,765 83.3% 217 22 50.9M FLIGHTS LOAD FACTOR NUMBER OF NEW AIRCRAFT CUSTOMERS DESTINATIONS INTEGRATED +5.8% SERVED INTO FLEET SINCE 2017 WORLDWIDE
Slide 56: Single day record customers carried
Single day record 182,552 customers carried (AUG. 20, 2018) 56
Slide 57: Operations Excellence, Cost transformation, Technology
Operations Excellence Cost transformation Technology and innovation Elevating the customer experience 57
Slide 58: Operations Excellence – Safety
Operations Excellence Safety • Engrained in our DNA • Robust Safety Management System and Standard Operating Procedures 58
Slide 59: Operations Excellence – Transforming our fleet
Operations Excellence – Transforming our fleet Integrating new aircraft Boeing 737 MAX • 18 aircraft to enter the fleet in 2019 A220 • First aircraft to enter the fleet in 2019 Aircraft reconfigurations A330 conversions • To be completed by summer 2020 Ongoing Wi-Fi installations and livery paint pr
Slide 60: Cost Transformation Program
Cost Transformation Program ✓ 150 cost savings initiatives identified in the operation ✓ $58M of cost savings realized Focus for 2019 ✓ Already identified $72M cost savings opportunities for 2019 Figures on the slide relate to initiatives in the operation only, in support of the overall target of $2
Slide 61: "Super A" Checks
“Super A” Checks Reduced Boeing 767 hangar visits by 17% (300 trips) in 2018 61
Slide 62: Technology and innovation in the operation
Technology and innovation in the operation New reservation system will ✓ Simplify ✓ Automate ✓ Improve the customer journey 62
Slide 63: Technology and innovation in the operation
Technology and innovation in the operation Mobility in the operation Introducing the potential of a truly connected operation 63
Slide 64: Technology and innovation
Technology and innovation First airline in the world to install dual-heads up display on the Boeing 737 MAX 64
Slide 65: Elevating the customer experience
Elevating the customer experience In-Flight Service: Enhanced focus on quality and consistency of service delivery 65
Slide 66: Elevating the customer experience
Elevating the customer experience Transiting customers: • Our transit process is a competitive advantage • Reduced number of steps for customers connecting at our hubs • Expedited security and customs • Most transiting customers are not required to collect their bags 66
Slide 67: Systems Operations Control
Systems Operations Control 67
Slide 68: Summary
Summary ✓ Operations Excellence ✓ Cost transformation ✓ Technology and innovation ✓ Elevating the customer experience 68
Slide 69: How Air Canada Continues to Win
How Air Canada Continues to Win Lucie Guillemette Executive Vice President and Chief Commercial Officer
Slide 70: Customer Service Excellence
Customer Service Excellence
Slide 71: How we will continue to win
How we will continue to win Leveraging our competitive advantages COMPREHENSIVE NETWORK STRONG BRANDS MODERN AND EFFICIENT AND SCHEDULE FLEET STRONG POSITIONING WORLD CLASS PREMIUM FOUNDATIONAL OF PRIMARY HUBS PRODUCTS RELATIONSHIPS 71
Slide 72: Competitive landscape
Competitive landscape • Industry demand remains strong • Competition is aspiring to win over premium customers • ULCCs have entered the domestic marketplace
Slide 73: How we will continue to win
How we will continue to win Next stage in our transformation IN-HOUSE LOYALTY PROGRAM NEW RESERVATION SYSTEM BOEING 787, BOEING 737 MAX AIRBUS A220 NEXT GENERATION REVENUE OPTIMIZATION ENHANCED JOINT VENTURE AGREEMENTS 73
Slide 74: Strong, global brand
Strong, global brand @) AIR CANADA Voted Best Airline in North America FIVE STAR kk kk GLOBAL AIRLINE 2019
Slide 75: Seamless end-to-end travel experience
Seamless end-to-end travel experience
Slide 76: Airport product enhancements
Airport product enhancements 76
Slide 77: Onboard product enhancements
Onboard product enhancements 77
Slide 78: Enhancing our Economy Class product
Enhancing our Economy Class product • International economy meal refresh • Evolving buy-on- board offering • Enhanced family travel programs
Slide 79: Cabin enhancements focused on product consistency
FIRST CANADIAN CARRIER WITH ABILITY TO STREAM Cabin enhancements focused on product consistency 79
Slide 80: Passenger revenue growth and efficiency
Passenger revenue growth and efficiency Targeting profitable growth 18,000 23% 16,000 +47% Passenger Revenue ($ Million) 14,000 18% 12,000 Capacity Growth 14.66% 11.61% 11.17% 10,000 13% 8,000 7.81% 9.39% 8% 6,000 10.99% 3.00% 5.86% 7.10% 7.10% 4,000 5.22% *Air Canada adopted 3% accounting standard
Slide 81: Transforming revenue optimization
Transforming revenue optimization A key piece of our revenue growth • Origin-destination controls far exceeded expectations • Point of convergence between – Data – Pricing – Inventory – Distribution • Opportunities to dynamically price seats and ancillaries • Powered by advanced analytics
Slide 82: Enhanced economy fare offering
Enhanced economy fare offering Key driver of new revenue-generating opportunities Realized $250M in combined benefits* since implementing expanded range of economy fares *Ancillary growth from unbundled brands and upsell to higher brands
Slide 83: Ancillary revenue
Ancillary revenue +13% 2018 ancillary growth over 2017
Slide 84: Key strategic tool
Key strategic tool Enables us to • Compete effectively in leisure markets • Swing capacity from sun markets in the winter to the transatlantic in the summer • Effectively defend against ULCCs within Canada Undertaking initiatives to further enhance the Rouge customer experience
Slide 85: Digital Transformation and diversified business model
• Digital Transformation – Brand new web platform – New hotel tab • Diversified business model – Increase in European and domestic Canada destinations
Slide 86: Revenue growth since 2015
+59% Revenue growth since 2015 $803M 2018 Revenue +13% YOY compared to 2017
Slide 87: Summary
Summary Positioned well to win now and into the future ✓ Comprehensive network and ✓ World class premium products schedule ✓ Strong foundational relationships: ✓ Strong global brand Star Alliance and joint ventures ✓ Modern and efficient fleet ✓ Industry-leading in-house loyalty ✓ Revenue optimizati
Slide 88: Evolution of our Fleet and Network
Evolution of our Fleet and Network Mark Galardo Vice President, Network Planning
Slide 89: The Air Canada network
The Air Canada network Unparalleled growth since 2009 116% Seat Growth 64 New Destinations 123% Seat Growth 55 U.S. (48 International) Destinations 219 Destinations 89
Slide 90: Growing profitably – Air Canada system wide
Growing profitably – Air Canada system wide Air Canada capacity has grown 87% since 2009 120 20.0 18.0 100 PLF PLF 83.3% 16.0 82.3% RPMs & ASMs (Billions) PLF 14.0 80 82.5% PLF PLF 83.5% 12.0 83.4% Cents 60 10.0 PLF 80.7% 8.0 40 6.0 4.0 20 2.0 - - 2009 2014 2015 2016 2017 2018 PLF = Passenger Load F
Slide 91: Network diversification strategy
Network diversification strategy Enabling decrease in overall risk while profitably growing International and U.S. revenues Share of Capacity Share of Revenues* 30% 23% 22% 28% 23% 27% 28% 30% 23% 27% 20% 21% 25% 17% 21% 19% 18% 17% 22% 38% 34% 29% 30% 27% 2012 2015 2018 2012 2015 2018 Domestic U.S
Slide 92: Our hubs are now global players
Our hubs are now global players Ranking by highest seat capacity in main hubs Europe Asia South America RANK AIRLINE HUB RANK AIRLINE HUB RANK AIRLINE HUB 1 AC YYZ 1 UA SFO 1 AA MIA 2 UA EWR 2 AC YVR 2 DL ATL 3 DL JFK 3 AC YYZ 3 UA IAH 4 DL ATL 4 UA EWR 4 AA DFW 5 AA PHL 5 AA DFW 5 AC YYZ 6 AC YUL 6
Slide 93: Growth of traffic transiting Canada to/from U.S.
Growth of traffic transiting Canada to/from U.S. Growing market share to 2% would represent approximately $675M of annual incremental revenue AC Transit Passengers Carried to/from U.S. Market Share of International* Traffic to/from U.S. +132% 44.6% 12.0% 10.4% 7.2% 6.2% 5.3% 3.1% 3.0% 3.0% 2.2% 1.3%
Slide 94: Fleet - focusing on narrow-body replacement
Fleet - focusing on narrow-body replacement 2021 – Narrow-body count increases by 13 aircraft vs. 2018 / Wide-body count at 100 aircraft Type 2009 2014 2018 2019 2021 On Option Boeing 777 18 23 25 25 25 - Boeing 787 - 6 35 37 37 13 Airbus A330 8 8 8 12 13 - Boeing 767 30 21 6 - - - Boeing 767 - 8 25
Slide 95: Sustainable growth
Sustainable growth Build our 3 Main Hubs YYZ, YUL & YVR The path to further success International Growth with focus on counter A320 FAMILY seasonality Vancouver A220 Montréal Toronto Air Canada Rouge as a growing tool for regional BOEING 737 MAX Leverage Boeing 737 MAX and A220 in North America 95
Slide 96: Future opportunities for growth
Future opportunities for growth Toronto YYZ Strategically leveraging our three main hubs Further build our global power-house Serve Africa from our main hub Montréal YUL Amplify our lead across the Atlantic Leverage a unique francophone market Vancouver YVR Diversify a strong gateway to Asia Extend
Slide 97: Leveraging our successful A++ Joint Venture
Leveraging our successful A++ Joint Venture Opportunity to further increase highly profitable “Hub-to-Hub” flying ✓ Hub-to-Hub routes are consistently profitable • Network strength at both ends • Capacity & schedule coordination Brussels • Cross-carrier selling ability Vancouver Frankfurt Munich Vie
Slide 98: Boeing 737 MAX
Boeing 737 MAX Offering superior range & economics over the A320 family Keflavik Edmonton Calgary Winnipeg Shannon Vancouver London Frankfurt Ottawa Montréal St. John’s Nantes Halifax Bordeaux Toronto New York (LGA) San Francisco Los Angeles Palm Springs Orlando West Palm Beach Lihue San Jose del Ca
Slide 99: A220-300
A220-300 Unparalleled operating economics open the door to new possibilities First of 45 aircraft to enter service in January 2020 CASM New Routes Under -12% Analysis Vancouver – Washington DC Montréal - Seattle Toronto - San Jose, CA Vancouver - Halifax Potential* new routes Existing routes E190 A2
Slide 100: A220-300 cont'd
A220-300 cont’d The CASM & capacity sweet spot ✓ A220-300 E190 A319 Competitive Advantages A320 • Operate long and thinner routes • Offer more frequencies than our competitors CASM A220 A321 • Great CASM and lower trip cost than its predecessors Boeing 737 MAX • Better low season capacity management
Slide 101: Counter-seasonal opportunities
Counter-seasonal opportunities Reducing network seasonality 2018 ASM Variance +33% +30% Vancouver Montréal Toronto Honolulu Q1 Q2 Q3 Q4 Quito ✓ Actions to counter seasonality • Launch winter seasonal routes • Extend seasonal routes to year-round São Paulo • Better shoulder capacity management Auckla
Slide 102: Strategic efficiency of Rouge
Strategic efficiency of Rouge Upgauging from A319 to A320/A321 creates CASM reduction opportunity for Rouge narrow-bodies Rouge narrow-body CASM 2018 2021 Narrow-Bodies Fleet Fleet -16% A319 22 22 -8% A320 - 7 A321 6 10 Total Rouge narrow-bodies 28 39 Rouge narrow-body routes running at passenger lo
Slide 103: Rouge narrow-bodies
Rouge narrow-bodies Upgauging from A319 to A320/A321 creates CASM reduction opportunity for Rouge Narrow-bodies A321 | 200 seats Boeing 737-800 | 189 seats Boeing 737-800 | 189 seats ✓ Upgauging narrow-body capacity • Superior CASM A320 | 168 seats • Economies of scale • Ability to compete from our
Slide 104: Enhancing our regional network
Enhancing our regional network New Jazz deal will enable Air Canada to further adapt to ever-changing environment Regional 2018 2019 2020 2026 Aircraft CRJ900 21 26 35 TBD CRJ100/200 24 22 15 0 Bombardier 44 44 36 TBD Q400 Dash 8-300 25 23 19 TBD Dash 8-100 15 0 0 0 Total 129 115 105 TBD Rouge A321
Slide 105: Summary
Summary ✓ Focus on profitable growth ✓ Further leverage our A++ JV ✓ Diversified network ✓ Explore counter seasonal ✓ Boeing 737, Airbus A220 highlight opportunities narrow-body replacement program ✓ Fleet flexibility with enhanced CPA ✓ Strong position at our global hubs ✓ Optimize network 105
Slide 106: A Technological Transformation
A Technological Transformation Catherine Dyer Senior Vice President and Chief Information Officer
Slide 107: Consistently at the forefront of innovation
Consistently at the forefront of innovation Reservation Electronic 2D Barcode Mobile Flight Automation Ticket Technology Notification 1965 1999 2007 1963 1995 2006 2009 Black Express Electronic Box Check-in Barcode Pass 107
Slide 108: Digital technologies are redefining everything – including travel
Digital technologies are redefining everything – including travel ARTIFICIAL APIS / MOBILE INTELLIGENCE MICROSERVICES INTERNET CLOUD BLOCKCHAIN OF THINGS 108
Slide 109: We are investing in technology to become a global champion
We are investing in technology to become a global champion Focus on Safe, Transform Transform our Secure and Reliable our technology IT organization operations to mitigate to enable improved to encourage business risks customer and innovation and support employee experience the required growth 109
Slide 110: Safety first, always, in a cyber world
Safety first, always, in a cyber world Safe, Secure and Reliable Operations Identify Protect Detect Respond Recover Ability Ability Ability Ability Ability to identify to protect the to detect to respond to rapidly weaknesses company’s and potential in a timely recover and potential its stakeholders
Slide 111: Preparing for the future by transforming our technology
Preparing for the future by transforming our technology Transform our Technology ENABLING MISSION CRITICAL EMERGING TECHNOLOGY SYSTEMS TECHNOLOGIES ▪ EIP ▪ PSS ▪ Data ▪ Cloud ▪ Loyalty ▪ Digital ▪ Network ▪ AI 111
Slide 112: Our technology improvements will be catalyst for improved operations
Our technology improvements will be catalyst for improved airline operations and customer experience INVENTORY RESERVATIONS DEPARTURE CONTROL MERCHANDISING MANAGEMENT CUSTOMER EXPERIENCE PASSENGER RECOVERY/ GROUP MANAGEMENT LOYALTY MANAGEMENT DISRUPTION MANAGEMENT 112
Slide 113: Transforming our reservation system
Transforming our reservation system Transform our supports our business objectives Technology $100M + in annual 1 Generate incremental benefits 2 Improve operational efficiency Improve customer experience 3 and enabling loyalty 113
Slide 114: Continuing to modernize technologies
Continuing to modernize technologies to support transforming our business OPERATIONAL PEOPLE PROCUREMENT SUITE PLATFORM SYSTEM 114
Slide 115: Investing to innovate and lead in the industry
Investing to innovate and lead Transform our in the industry Technology Data, Digital, & Artificial Intelligence 115
Slide 116: Future opportunities for continued growth and optimization
Future opportunities for continued growth and optimization is substantial E-Commerce, CRM, Cargo Customer Analytics Value to Air Canada SOC & Ops Excellence Revenue Planning & Optimization Crew Planning Airports Maintenance & NA Scheduling Network Global People & Customer Planning Sales & Culture Ca
Slide 117: Summary
Summary ✓ Taking back our spot as a ✓ Positioned to differentiate technology innovator – ourselves within the industry smart investment / through technology – digital focused execution first approach ✓ Setting the foundation for the next generation of the airline 117
Slide 118: Customer Digital and Loyalty
Customer Digital and Loyalty Mark Nasr Vice President, Loyalty and eCommerce
Slide 119: Our Flight Path
OUR FLIGHT PATH Ambition Guiding Principle Behaviour GLOWING-HEARTED HOSPITALITY Behaviour SAFETY FIRST, ALWAYS. Behaviour Behaviour WIN AS ONE AIR CANADA FLY THE FLAG @) AIR CANADA 119
Slide 120: 36,252 customers consulted
36,252 customers 9 out of 10 38 competitive Global perspective consulted Approximate proportion of members who knew their Aeroplan programs The consumers we consulted travelled in Canada and all over the That would fill over 90% of all the number off by heart We looked at travel, retail and world in
Slide 121: The appeal is centred on the aspiration and relevance of travel
The appeal is centred on the aspiration and relevance of travel Consumers who Infrequent Road don’t travel travellers warriors 42% 54% 4% 121
Slide 122: Our program design delivers on what consumers want
Our program design delivers on what consumers want Personalization Enable the Balance practical drives family dynamic with fanciful satisfaction Recognize customer Consider individuals in the Give customers the versatility preferences drive satisfaction context of their family-group to use their mil
Slide 123: The opportunity
The opportunity Annual Repeat Customers Increase credit 38% 28% 16% card penetration of elite members ~50% Market Share in Home Country 50% 47% 40% Increase loyalty 35% 30% 22% penetration of 21% 20% 16% airline flyers ~52% 10% 5% Represents leading U.S. carrier performance based on internal 0% benc
Slide 124: Our goal is to win the hearts and minds of travellers
Our goal is to win the hearts and minds of travellers – frequent and infrequent “Earn our way into consumers’ lives everyday” Build Trust and Make Rewards Recognize and Confidence Rewarding Differentiate Intuitive ecosystem Best in market Active engagement, rooted in fairness and rewards, network at
Slide 125: "Capital L" Loyalty strategy
“Capital L” Loyalty strategy 125
Slide 126: The kind of Loyalty that sticks around
The kind of Loyalty that sticks around, through thick and thin 126
Slide 127: Our plan
Our plan “Capital L” LOYALTY Aeroplan Acquisition & Digital Channel New Program Design Investments Build the foundation for One-stop shop for loyalty success all things travel Evolve Testing & Continuous Improvement Capabilities Embed a test-and-learn culture in everything we do 127
Slide 128: Together, we are stronger than ever and bring unique capabilities
Together, we are stronger than ever and bring unique capabilities to market 50.9M passengers/year Preferred airline of ~5M members worldwide 92% of travellers for business travel within Canada 1 of 4 Canadians travel with Air Canada 650K 12 month new members at least once per year ~10% 12M 2M Associ
Slide 129: Our digital investments are paying off in incremental revenue
Our digital investments are paying off in incremental revenue and uptake 30% of customers ~16% YoY increase in 53% upsell in branded >$1B in ancillary opted into paid seat digital channel revenue generated fares beyond Basic selection via AC direct revenue via digital Double the upsell rate Double o
Slide 130: Transforming the way we work – test and learn approach
Transforming the way we work – test and learn approach Web release every Mobile release every 3 weeks DTL tests completed/ 3 weeks in-market 100+ test in-take 130
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Slide 132: We continue to prototype, test and iterate with customers
We continue to prototype, test and iterate with customers to understand what matters most, and why 132
Slide 133: "Capital L" results
“Capital L” results ✓ De-risks loyalty launch, supporting smooth customer transition ✓ Generates significant incremental value 7M members for Air Canada – Financial contributions starting 18 months early Targeting 40% growth over – Eliminates 3-4 year ramp period 3 years of launch – Incremental reve
Slide 134: Financial Targets and Risk Management – the Next Level
Financial Targets and Risk Management – the Next Level Michael Rousseau Deputy Chief Executive Officer and Chief Financial Officer
Slide 135: Significant progress, Opportunities ahead
Significant progress Opportunities ahead ✓ Sustainably profitable over New long term reservation system ✓ Delivered on commitments ✓ Much lower risk profile ✓ ROIC well in excess of WACC Loyalty A220 135
Slide 136: Improved key financial targets
Improved key financial targets 1. Targets factor in the expected impact of the new accounting standard change IFRS 16 2. Based on the consolidated results of Air Canada, including the Aeroplan loyalty business starting from the acquisition date of January 10, 2019. 136
Slide 137: Improved key financial targets
Improved key financial targets Over the period 2019-2021 ✓ Annual EBITDA margin 19% – 22% ✓ Annual return on invested capital 16% – 20% ✓ Cumulative free cash flow $4.0B – $4.5B ✓ Leverage ratio No more than 1.2 by end of 2019 Based on assumptions outlined in Air Canada’s February 28, 2019 news rele
Slide 138: Project strong EBITDA margins
Project strong EBITDA margins Unique competitive advantages 138
Slide 139: Project strong EBITDA margins cont'd
Project strong EBITDA margins cont’d ✓ Investments in technology – new reservation system – Annual incremental benefits of $100M ✓ Cost Transformation Program – Savings of $250M by end of 2019 ✓ Replacement of less-efficient narrow-body aircraft ✓ Incremental benefits from extended capacity purchase
Slide 140: Cost reduction remains a priority
Cost reduction remains a priority Air Canada Rouge • Adjusted CASM is 29% lower than mainline Fleet • Boeing 777 and 787 cost-efficient fleet • Complete restructuring of regional fleet Cost Transformation Program • Renegotiation of agreements 140
Slide 141: Building on cost productivity focus
Building on cost productivity focus On a cumulative six-year basis, Air Canada’s CASM performance was materially better than both WestJet’s and the U.S. Network Carriers 2018 Adjusted CASM (in cents) Adjusted CASM % Change (in local currency) 2012-2018 10.16 10.63 10.69 16.9% 8.9% -9.8% -14.0% WestJ
Slide 142: Increased competitiveness in regional sector
Increased competitiveness in regional sector Jazz CPA extended by 10 years (Jan. 1, 2026 to Dec. 31, 2035) • Provides significant network benefits • Bolsters strength of Air Canada Express brand • Improves coast-to-coast regional network • Air Canada Rouge backfilling certain routes 142
Slide 143: Amended CPA with Jazz – Estimated NPV of $275M
Amended CPA with Jazz – Estimated NPV of $275M (2019-2025 period) $50M $50M $53M Competitive rates 2019 2020 2021-2025 2026-2035 $97M equity investment — excellent value for shareholders 143
Slide 144: Loyalty
Loyalty • Aeroplan loyalty business • Launch of new loyalty program in summer 2020 144
Slide 145: Loyalty cont'd
Loyalty cont’d Incremental benefits incorporated into three-year targets • NPV in excess of $2.5B • Materially contributes to free cash flow • Improves seasonality • Reduces risk profile from introduction of new program 145
Slide 146: Declining level of capital expenditures
Declining level of capital expenditures Narrow-body fleet replacement program – Average mainline fleet age 8.5 years at end of 2021 $600M - $800M annually in non-aircraft expenditures focused on investments in technology Level of projected capital expenditures to decline by $1.4B by end of 2021, whe
Slide 147: Capital allocation strategy
Capital allocation strategy CUMULATIVE FREE CASH FLOW* OF $4.0B TO $4.5B OVER NEXT THREE YEARS • Continue to aggressively manage debt levels • Purchasing majority of 2019 aircraft deliveries with excess cash • Share buyback program * Excludes the net proceeds on the closing of the Aeroplan transacti
Slide 148: Leverage ratio of no more than 1.2 supports Investment Grade credit rating
Leverage ratio of no more than 1.2 supports Investment Grade credit rating SINCE 2012, AIR CANADA’S CREDIT RATING IMPROVED S&P 4 notch improvement to BB with positive outlook Moody’s 5 notch improvement to Ba2 Stable 148
Slide 149: More aggressive buyback program an opportunity
More aggressive buyback program an opportunity PURCHASED, FOR CANCELLATION, 23.4M SHARES OR 8% OF OUTSTANDING SHARES (SINCE MAY 2015) • Will continue to utilize Normal Course Issuer Bid • Expect to be more aggressive when opportunities present themselves 149
Slide 150: Much stronger balance sheet
Much stronger balance sheet ✓ Lowered leverage ratio to 2.1 from 3.1 since end of 2012 ✓ Reduced average cost of debt to 4.4% ✓ Average cost of capital of 7.2%, 540 basis points lower than ROIC of 12.6% ✓ Freed up collateral by purchasing new aircraft ✓ US$2.6B unencumbered assets – will increase in
Slide 151: Financial risks are very well managed
Financial risks are very well managed PENSION FUEL FOREIGN EXCHANGE RISK MANAGEMENT RISK MANAGEMENT • $2.4B* solvency surplus • Flexible program • U.S cash reserves • 81% of liabilities matched • Currently unhedged • Derivative contracts with fixed income products • Derivative contracts • 75% covera
Slide 152: Much more resilient to economic downturns
Much more resilient to economic downturns ✓ Higher margins ✓ Flexible and more efficient ✓ Lower cost structure fleet ✓ Record liquidity levels ✓ Ability to defer new aircraft ✓ Lower leverage ratio future deliveries ✓ Lease mix allows Air Canada ✓ Unencumbered asset pool to permanently reduce ✓ Div
Slide 153: Much more resilient to economic downturns cont'd
Much more resilient to economic downturns cont’d By end Unencumbered aircraft Currently of 2021 • Air Canada and Air Canada Rouge 55 100 (23%) (40%) Currently 55% of combined Mainline and Rouge is leased – Ratio will decrease as Air Canada purchases more aircraft with cash 153
Slide 154: Much more resilient to economic downturns cont'd
Much more resilient to economic downturns cont’d Cost-efficient fleet High-density aircraft Boeing 787 Boeing 767 Boeing 737 MAX Airbus A321 Airbus A220 Airbus A319/A320 154
Slide 155: Much more resilient to economic downturns cont'd
Much more resilient to economic downturns cont’d Long-term labour agreements
Slide 156: Summary
Summary ✓ Record results ✓ Adjusted CASM performance in line ✓ Improved key financial targets with U.S. network carriers ✓ New Jazz agreement – net present ✓ Lower leverage ratio supports value of $275M Investment Grade credit rating ✓ Loyalty program – net present ✓ A more aggressive share buyback
Slide 157: Closing Remarks
Closing Remarks Calin Rovinescu President and Chief Executive Officer February 28, 2019
Slide 158: Report card
Report card Operating Revenue $18.1B EBITDAR Over $2.8B Pension Solvency Position $2.4B* surplus Leverage Ratio 2.1x Liquidity $5.7B 8.4% reduction Adjusted CASM since 2013 *Based on preliminary estimates as of January 1, 2019
Slide 159: Report card cont'd
Report card cont’d Yield Up 2.5% vs. 2017 PRASM Up 3.8% vs. 2017 Transit Traffic Up 142% vs. 2013 Air Canada Rouge Nearly 30M customers Employees and unions Long term stability Skytrax – Best Airline Customer engagement North America Sustainability efforts Eco-Airline of the World
Slide 160: Acceleration for 2019
Acceleration for 2019 Continue to leverage and mature new markets Invest in new programs and efficient aircraft Industry-leading in-house loyalty program Cost reduction programs including improved CPA New reservation system Investment grade and share buybacks
Slide 161: Questions?
Questions? aircanada.com 161
Slide 162: Thank you
Thank you aircanada.com 162
Slide 163: Appendix
Appendix 163
Slide 164: Annual Assumptions 2019 - 2021
Annual Assumptions 2019 - 2021 2019 2020 2021 GDP Canada Relatively Modest Growth Canadian dollar per U.S. dollar 1.32 1.29 1.28 Jet fuel price – CAD cents per litre 82 84 85 164
Slide 165: Financial Information
Financial Information • Air Canada’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada (“GAAP”), as set out in the CPA Canada Handbook – Accounting (“CPA Handbook”), which incorporates International Financial Reporting Standards (“IF
Slide 166: Non-GAAP Financial Measures
Non-GAAP Financial Measures Air Canada uses certain non-GAAP financial measures that are derived from its consolidated financial statements, but that are not recognized financial measures for financial statement presentation under GAAP. Reconciliations of those measures to comparable GAAP measures f
Slide 167: Non-GAAP Financial Measures
Non-GAAP Financial Measures Adjusted Net Income (Loss) • Air Canada uses adjusted net income (loss) to assess the performance of its business without the after-tax effects of foreign exchange, net financing income (expense) relating to employee benefits, gains or losses on financial instruments reco
Slide 168: Non-GAAP Financial Measures
Non-GAAP Financial Measures Adjusted CASM (Adjusted Cost per Available Seat Mile) • Adjusted CASM is used by Air Canada as a means to assess the operating and cost performance of its ongoing airline business without the effects of fuel expense, the cost of ground packages at Air Canada Vacations ®,
Slide 169: Non-GAAP Financial Measures
Non-GAAP Financial Measures ROIC (Adjusted Pre-tax Income Before Interest Divided by Invested Capital) • Air Canada uses return on invested capital (“ROIC”) as a means to assess the efficiency with which it allocates its capital to generate returns. • ROIC is based on adjusted pre-tax income (loss),
Slide 170: Non-GAAP Financial Measures
Non-GAAP Financial Measures Leverage Ratio (Net Debt to Trailing 12-month EBITDA) • Leverage ratio is commonly used in the airline industry and is used by Air Canada as a means to measure financial leverage. Leverage ratio is calculated by dividing net debt by trailing 12-month EBITDA (excluding spe
Slide 171: Estimated Expected Adjustments to the Statement of Financial Position under IFRS 16
Estimated Expected Adjustments to the Statement of Financial Position as at January 1, 2018 under IFRS 16 December 31, 2017 Expected as previously Regional January 1, 2018 (Canadian dollars in millions) reported Air Canada aircraft aircraft Property leases as restated Accounts receivable $ 814 $ (3)
Slide 172: Estimated Expected Adjustments to the 2018 Statement of Operations under IFRS 16
Estimated Expected Adjustments to the 2018 Consolidated Statement of Operations under IFRS 16 December 31, Expected 2018 as previously Regional December 31, 2018 (Canadian dollars in millions) reported Air Canada aircraft aircraft Property leases as restated Total revenues $ 18,065 $ - $ - $ - $ 18,
Slide 173: Key Financial and Non-GAAP Measures under IFRS 16
Key Financial and Non-GAAP Measures under IFRS 16 2018 restated 2018 as under (Canadian dollars in millions, except where indicated) under IFRS 16 previous IFRS Change Revenue $ 18,065 $ 18,065 $ - Operating expense, before depreciation and aircraft rent 14,843 15,214 (371) Depreciation and aircraft
Slide 174: Contractual Obligations for IFRS 16 Lease Obligations
Contractual Obligations as at December 31, 2018 for IFRS 16 Lease Obligations (Canadian dollars in millions) 2019 2020 2021 2022 2023 Thereafter Total Additional Principal Air Canada aircraft $ 403 $ 310 $ 230 $ 162 $ 162 $ 583 1,850 Regional CPA aircraft 180 183 172 167 169 312 1,183 Property lease
Slide 175: Non-GAAP Measures under IFRS 16 - EBITDA
Non-GAAP Measures under IFRS 16 - EBITDA 2018 restated 2018 as under (Canadian dollars in millions) under IFRS 16 previous IFRS $ Change GAAP operating income $ 1,499 $ 1,174 $ 325 Add back (as reflected on the consolidated statement of operations): Depreciation, amortization and impairment 1,717 1,
Slide 176: Non-GAAP Measures under IFRS 16 - ROIC
Non-GAAP Measures under IFRS 16 - ROIC 2018 restated 2018 under (Canadian dollars in millions, except where indicated) under IFRS 16 previous IFRS $ Change Income before income taxes $ 231 $ 405 $ (174) Remove: Foreign exchange loss 261 578 317 Net financing expense relating to employee benefits 50
Slide 177: Non-GAAP Measures under IFRS 16 – Leverage Ratio
Non-GAAP Measures under IFRS 16 – Leverage Ratio December 31, 2018 December 31, 2018 (Canadian dollars in millions, except where indicated) under IFRS 16 under previous IFRS $ Change Total long-term debt and leases $ 8,873 $ 6,197 $ 2,676 Current portion of long-term debt and leases 1,048 455 593 To
Slide 178: Non-GAAP Measures under IFRS 16 – Free Cash Flow
Non-GAAP Measures under IFRS 16 – Free Cash Flow 2018 restated 2018 as under (Canadian dollars in millions) under IFRS 16 previous IFRS $ Change Net cash flows from operating activities $ 3,465 $ 2,695 $ 770 Additions to property, equipment and intangible assets, net of proceeds (2,143) (1,904) (239