Air Canada · TSX:AC
Air Canada — Investor Day (June 2013)
113 slides from Air Canada's investor day presentation, Jun 10, 2013
Slide 1: 2013 Investor Day
2013 INVESTOR DAY June 10, 2013 Sheraton Gateway Hotel Toronto International Airport Terminal 3
Slide 2: Caution Regarding Forward-Looking Information
CAUTION REGARDING FORWARD-LOOKING INFORMATION This press release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet de
Slide 3: Financial Information Contained in This Presentation
FINANCIAL INFORMATION CONTAINED IN THIS PRESENTATION Financial information contained in this presentation has been derived from the historical consolidated financial statements of the Corporation for the applicable periods noted. Certain of the financial measures provided are non-GAAP financial meas
Slide 4: 2013 Investor Day
2013 INVESTOR DAY June 10, 2013 Sheraton Gateway Hotel Toronto International Airport Terminal 3
Slide 5: Transforming Air Canada to Deliver Sustained Profitability and Shareholder Value
Transforming Air Canada to Deliver Sustained Profitability and Shareholder Value Calin Rovinescu President and Chief Executive Officer 2013 INVESTOR DAY 2
Slide 6: Overcame Past Challenges
Overcame Past Challenges • Weak balance sheet • Onerous pension deficit payments • Labour 2013 INVESTOR DAY 3
Slide 7: Our Future
Our Future Working to become sustainable and profitable for the long term • Excellent management team • Profit and results-driven • Performance oriented compensation structure 2013 INVESTOR DAY 4
Slide 8: Executing Our Strategy: Liquidity and Financing
EXECUTING OUR STRATEGY Liquidity and Financing • Doubled our liquidity since 2009 Cash levels over $2B • More efficient financing vehicles EETC closed with face value of $715M and blended coupon rate of 4.7% • Looking at refinancing of high yield debt to reduce interest costs 2013 INVESTOR DAY 5
Slide 9: Executing Our Strategy: Capital Commitments
EXECUTING OUR STRATEGY Capital Commitments • Boeing 777s mark first significant wide-body expansion in ten years • Overlap with delivery of 37 Boeing 787s 2013 INVESTOR DAY 6
Slide 10: Competitive Response: Domestic
EXECUTING OUR STRATEGY Competitive Response Domestic • Replace CRJ100/200 with Q400 in Western Canada • Introduction of Q400 at Toronto City Centre • Grow key transcon routes at lower unit cost 2013 INVESTOR DAY 7
Slide 11: Competitive Response: Transborder
EXECUTING OUR STRATEGY Competitive Response Transborder • Increased flexibility in new ACPA agreement for small jets at regional partners • Transition of EMB 175 to Sky Regional • Air Canada rouge on select high-volume leisure markets 2013 INVESTOR DAY 8
Slide 12: Competitive Response: International
EXECUTING OUR STRATEGY Competitive Response International • Air Canada rouge on Caribbean and some seasonal European leisure destinations • Introduction of low unit cost, high density Boeing 777s • Increase 6th freedom traffic • Further expansion of Toronto Pearson Airport as international gateway 2
Slide 13: Competitive Response: International
EXECUTING OUR STRATEGY Competitive Response International • Introduction of Premium Economy • Introduction of Boeing 787 2013 INVESTOR DAY 10
Slide 14: Service Level Expectations Within Our Markets
EXECUTING OUR STRATEGY Service Level Expectations Within Our Markets • Record load factor of 82.7% in 2012 • Best International Airline in North America for three consecutive years • Ranked favourite airline by 80% of Canadian business travellers in Ipsos Reid survey 2013 INVESTOR DAY 11
Slide 15: Service Level Expectations Within Our Markets
EXECUTING OUR STRATEGY Service Level Expectations Within Our Markets • Products and services highly valued by customers – Executive First lie-flat seats – Maple Leaf Lounges – Concierge – Mobile apps – Air Canada Altitude 2013 INVESTOR DAY 12
Slide 16: Becoming More Efficient
EXECUTING OUR STRATEGY Becoming More Efficient • ASMs increased 13% 2009-2012 • Average annual load factor up steadily increasing – 2012 record load factor 82.7% • 30% year-over-year OTP improvement • Reduction in unserviceable aircraft in April and May this year 2013 INVESTOR DAY 13
Slide 17: Lowering Risk and Pension Funding
EXECUTING OUR STRATEGY Lowering Risk and Pension Funding • Strengthening our balance sheet • Lowering overall risk profile • Reduced net debt by almost $1.5B from 2009 • Reduced net debt in first three months of 2013 by $150M • Changes negotiated to Defined Benefit plans • Extension of pension fundi
Slide 18: Four Core Priorities
Four Core Priorities COST INTERNATIONAL CUSTOMER CULTURE REDUCTION GROWTH ENGAGEMENT CHANGE AND TRANSFORMATION 2013 INVESTOR DAY 15
Slide 19: Cost Reduction and Transformation
OUR PRIORITIES Cost Reduction and Transformation • Achieved annual cost savings in excess of $530M • CTP part of Air Canada DNA and transitions to Business Transformation • Efficiencies – Lower fuel consumption – Better turnaround times – Reduction of credit card fees – Rigorous RFP process 2013 INV
Slide 20: Cost Reduction: Flexibility
OUR PRIORITIES Cost Reduction and Transformation Flexibility • CASM reduction through important changes to Collective Agreements such as – changed work rules – ability to launch Air Canada rouge – expanded use of 75-seat aircraft at regional carriers 2013 INVESTOR DAY 17
Slide 21: Cost Reduction: New Opportunities
OUR PRIORITIES Cost Reduction and Transformation New Opportunities • Reduce costs through new MRO agreements following closure of Aveos – Expect substantial maintenance cost improvements and TATs • Arbitration on Jazz benchmarking 2013 INVESTOR DAY 18
Slide 22: Cost Reduction: Fleet Flexibility
OUR PRIORITIES Cost Reduction and Transformation Fleet Flexibility • Can adjust to market and competitive demands • High-density Boeing 777s and deployment of Boeing 787s provide significant cost advantages • Deploying Q400s at Toronto City Centre • Outsourcing flying of EMB 175s to Sky Regional 201
Slide 23: Cost Reduction: Revenue Initiatives
OUR PRIORITIES Cost Reduction and Transformation Revenue Initiatives • Growing ancillary revenues • Improving net Aeroplan revenues • Loyalty program for small businesses • Introduction of new Revenue Management System 2013 INVESTOR DAY 20
Slide 24: Cost Transformation Is Continuous
OUR PRIORITIES Cost Reduction and Transformation Cost transformation is continuous… • $50M Q2 cost reduction target good example of moving quickly 2013 INVESTOR DAY 21
Slide 25: International Growth
OUR PRIORITIES International Growth • System ASM capacity to increase 9 to 11% in 2014 • Investing in wide-body aircraft, products and services 2013 INVESTOR DAY 22
Slide 26: International Growth: Star Alliance
OUR PRIORITIES International Growth Star Alliance – Offering customers over 1,300 airports • Continued development of commercial alliances • A++ • New Code share agreements – South African Airlines, Turkish Airlines, Etihad 2013 INVESTOR DAY 23
Slide 27: International Growth: New Mainline Destinations
OUR PRIORITIES International Growth New mainline destinations • Copenhagen, Brussels, Geneva, and new Calgary-Narita route Copenhagen Brussels Geneva 2013 INVESTOR DAY 24
Slide 28: International Growth: Asia
OUR PRIORITIES International Growth • Adding 7 flights a week to Beijing • 11 daily departures to Asia, 43,000+ seats/ week crossing the Pacific • Capital investment of about $1.5B 2013 INVESTOR DAY 25
Slide 29: International Growth: 6th Freedom Traffic
OUR PRIORITIES International Growth • 21% increase in 6th Freedom Traffic at Toronto Pearson • New aircraft to introduce new routes – Toronto-Istanbul and Toronto-Seoul Seoul 2013 INVESTOR DAY 26
Slide 30: International Growth: Air Canada rouge
OUR PRIORITIES International Growth Air Canada rouge • Boeing 767s transfer to Air Canada rouge • Operate in July to Europe and Caribbean • 40 routes from four Canadian cities by end of 2014 • Expand to 50 aircraft by end of 2015 2013 INVESTOR DAY 27
Slide 31: International Growth: Air Canada rouge
OUR PRIORITIES International Growth Air Canada rouge • Lower cost structure – Flexible work rules – Higher-density configuration • Combined ACV with leisure group for higher profile, more heft in leisure market • Progress on aligning functions 2013 INVESTOR DAY 28
Slide 32: Engaging Our Customers
OUR PRIORITIES Engaging Our Customers • Substantial investment in product since 2006 puts us ahead of competition • Doubled movie content on free on-board entertainment system • Refurbished Maple Leaf Lounges • Revamped loyalty program as Altitude • Won numerous industry awards 2013 INVESTOR DAY 29
Slide 33: Culture Change
OUR PRIORITIES Culture Change • Re-gaining momentum with agreements in place • Cross-functional approach motivates employees • Renewed focus on constructive and transparent dialogue • Talent management and training • Employees better understand the competitive landscape • New contracts narrow cost d
Slide 34: Achieving Results
Achieving Results • First annual profit since 2007 Adjusted net income $55M vs adjusted net loss in 2011 • Improvements in metrics Profit, revenue, balance sheet and customer demand • Share price increased 76% during 2012 2013 INVESTOR DAY 31
Slide 35: Share Price
Share Price • Trading at less than 4X EBITDAR multiple • Share price continues to lag strengthening fundamentals 2013 INVESTOR DAY 32
Slide 36: Going Forward
Going Forward Focused on execution of strategic priorities • Attack costs • New revenues • Improve customer experience • Adapt to competitive environment 2013 INVESTOR DAY 33
Slide 37: Going Forward
Going Forward • Sustainable, profitable airline • Attain a return on invested capital that exceeds weighed cost of capital • Capable of rewarding shareholders 2013 INVESTOR DAY 34
Slide 38: 2013 Investor Day
2013 INVESTOR DAY June 10, 2013 Sheraton Gateway Hotel Toronto International Airport Terminal 3
Slide 39: Commercial Strategy
Commercial Strategy Benjamin Smith Chief Commercial Officer 2013 INVESTOR DAY 2
Slide 40: Our Objectives
Our Objectives • Profitable international and leisure carrier growth • Enhance and optimize revenue stream through new technology, product offering and segmentation • Leverage the brand • Improved unit cost proposition 2013 INVESTOR DAY 3
Slide 41: Where We Are
The Path Forward WHERE WE ARE 2013 INVESTOR DAY 4
Slide 42: Air Canada Leading Share in All Markets
Air Canada Leading Share in All Markets Domestic Transborder International accounts for 39% of accounts for 20% of accounts for 41% of passenger revenue passenger revenue passenger revenue LCC WJA 4% DAL Other Airlines 19% 6% WJA Other 35% 10% Airlines AMR 25% UAL Air Canada 10% 17% 37% 4% Other SWG
Slide 43: International Growth Strategy Underway
International Growth Strategy Underway Five new Boeing 777-300ERs & three new Boeing 787-8 by summer 2014 • High density configuration of 458 seats • +one in early 2014 New routes from Toronto to Istanbul & Seoul • Toronto-Seoul three weekly eff. June 2013 • Toronto-Istanbul three weekly eff. June 2
Slide 44: Air Canada Is Not Yet a Big Player in the USA International Market
Air Canada is Not Yet a Big Player in the USA International Market % of US-Europe/Asia Market by non-US Carriers • Air Canada “fair share” is approximately 1.5% • Should Air Canada meet this target – this would equate to an additional 1.1M incremental passengers per year and over $400M in revenue •
Slide 45: Air Canada Is Emulating the Successful KLM Hub Structure in Amsterdam
Air Canada is Emulating the Successful KLM Hub Structure in Amsterdam AMS • KLM services 132 destinations from its Amsterdam hub – despite a relatively small home base – Focus is on sixth freedom flow traffic – 70% of KLM’s traffic is international flow traffic – KLM has seven distinct departure “wa
Slide 46: Roadmap to Sustained Profitability
Roadmap to Sustained Profitability • Continue to build Toronto-Pearson into a global gateway • Maintain a leadership position in strategic North American markets • Drive more international traffic (sixth freedom) through Canada Network • Be a relevant player in leisure markets • Offer a best-in-clas
Slide 47: The Infrastructure Is Already in Place
The Path Forward THE INFRASTRUCTURE IS ALREADY IN PLACE 2013 INVESTOR DAY 10
Slide 48: Building On a Powerful Network
Building On a Powerful Network Air Canada Spring/Summer 2013 Air Canada rouge™ as at July 2013 179 Direct Destinations: Q 59 in Canada Q 53 in the U.S. Q 67 internationally Q 15th Largest Airline in the World Q 349 aircraft Q >1,500 daily flights Q ~35M passengers carried 2013 INVESTOR DAY 11
Slide 49: Air Canada Is the Largest Foreign Carrier Operating in the USA
Air Canada is the Largest Foreign Carrier Operating in the USA 2013 INVESTOR DAY 12
Slide 50: A++ Partnership with United and Lufthansa Delivers Tangible Benefits
A++ Partnership with United and Lufthansa Delivers Tangible Benefits to Air Canada • Global market presence leveraging each carriers’ strengths in their home markets • Co-ordinated approach to pricing, inventory management and capacity in this market segment • Access to Corporate contracts in all ma
Slide 51: Enhancing Global Market Presence Through Star Alliance and Joint Venture
Enhancing Global Market Presence Through Star Alliance™ & Joint Venture Star Alliance – 6 time winner Best Airline Alliance th in the 2012 Skytrax World Airline Awards™ Q 27 Members Q 4,570 Aircraft Q 194 Countries Served Q 21,900 Daily Departures Q 1,329 Airports Q >670M Passengers/year Q >1
Slide 52: Focusing on the International Activity at Toronto Pearson Airport
Focusing on the International Activity at Toronto Pearson Airport • Canada’s largest city and financial powerhouse with a population of 5.5 million in the Greater Toronto Area • Ranked as one of the most multi-cultural city in the world by UNESCO • World Class facility to support the goal of World C
Slide 53: Industry-Leading Products & Services
Industry-Leading Products & Services • The only international carrier in N.A. to receive a four star ranking by Skytrax • Frequent flyer recognition program "Air Canada Altitude" • Star Alliance membership • Maple Leaf Lounges • Concierge program • Lie-flat beds in Executive First • Personal seat ba
Slide 54: Air Canada Continues to Receive Numerous Awards from the Industry
Air Canada Continues to Receive Numerous Awards from the Industry 2012 Skytrax World Airline Awards – Q Best International Airline in North America 3rd consecutive year Q Ranked the only international Four-Star Airline 2012 Skytrax ranking: Four-Star in North America Airline Global Traveler magazi
Slide 55: Air Canada Express – Important Part of North American Strategy
Air Canada Express – Important Part of North American Strategy Provides feeder traffic to Air Canada's scheduled routes CRJ aircraft (41) Dash 8 and Embraer (15) Beech aircraft (17) 50-75 seats Q400 aircraft (86) 73 seats 18 seats 37-74 seats Q Jazz fleet at 122 aircraft (including 21 Q-400 aircraf
Slide 56: Transforming Air Canada into a Global Champion
The Path Forward TRANSFORMING AIR CANADA INTO A GLOBAL CHAMPION 2013 INVESTOR DAY 19
Slide 57: Boeing 787 Could Allow Air Canada to Enter Many New International Markets
Boeing 787 Could Allow Air Canada to Enter Many New International Markets 2013 INVESTOR DAY 20
Slide 58: New Boeing 777-300ERs Will Substantially Reduce Unit Costs
New Boeing 777-300ERs Will Substantially Reduce Unit Costs • Five new Boeing 777s are expected to be strategically deployed on select international markets • The product, seat configuration and cabin interior of the new Boeing 777s do not reflect the new standard being developed for the Boeing 787 a
Slide 59: Improving Premium Revenues with new Premium Economy
Improving Premium Revenues with new Premium Economy • New class of service on both mainline and rouge fleets • Will provide more seating pitch and width than economy class • Segmented product aimed towards higher end customers seeking to improve comfort and travel experience • Enhanced travel experi
Slide 60: rouge Is Tool Which Will Position Air Canada Profitably in Leisure Market
rouge is Tool Which Will Position Air Canada Profitably in the Leisure Market • Air Canada rouge offers significantly lower seat cost than mainline • Air Canada rouge will pursue opportunities in markets made viable by its lower operating cost structure, and subject to market conditions, will expand
Slide 61: Leveraging Opportunities for Revenue Growth
Leveraging Opportunities for Revenue Growth • Growing ancillary revenues through various passenger-related fees and opportunity to further optimize • Improved net Aeroplan revenue – Reduced Aeroplan frequent flyer accumulation fees to 50% on Tango service for international routes • Launch of loyalty
Slide 62: Enhancement of Revenue Management System
Enhancement of Revenue Management System • Implementation of a new origin-destination based revenue management system O&DIII – Benefits will come from better optimization of passenger flows across the network – Expected incremental revenue in excess of $100M in 2015 Note: Cutover planned for Q4/2014
Slide 63: Ongoing Focus on Revenue Optimization
Ongoing Focus on Revenue Optimization • Implementation of customer centricity system Customer Database: CRM platform: Advanced Analytics: 360°Integrated View Targeted Campaign Segmentation, ROI, Of the Customer Management Customer Insights Strategic Benefits Tactical Benefits • Ability to fully unde
Slide 64: Ongoing Focus on Revenue Optimization
Ongoing Focus on Revenue Optimization • Air Canada launched Altitude on March 1, 2013, a new brand for the program which recognizes & rewards our most frequent flyers • Two new status levels were introduced, for a total of five: – Altitude Prestige 25K Altitude membership cards – Altitude Elite 35K
Slide 65: 2014 and Beyond
The Path Forward 2014 AND BEYOND 28 2013 INVESTOR DAY
Slide 66: System Capacity Growth Directed at Higher Margin International Flying
System Capacity Growth Directed at Higher Margin International Flying ASMs (billions) 80 +9.0% to 11.0% +1.5% to 70 2.5% +1.2% +4.7% 60 50 2010 2011 2012 2013E 2014E 2013 INVESTOR DAY 29
Slide 67: The Air Canada Widebody Fleet Plan Calls for Growth
The Air Canada INC. Widebody Fleet Plan Calls for Growth Planned Fleet Dec 2012 Dec 2013 Dec 2014 Dec 2015 Mainline Boeing 787 - - 7 12 Boeing 777-300 12 16 17 17 Boeing 777-200 6 6 6 6 Boeing 767-300 30 27 21 17 Airbus A330-300 8 8 8 8 Airbus A321 10 10 10 10 Airbus A320 41 41 41 41 Airbus A319 38
Slide 68: Larger Size of the Aircraft Reduces Unit Cost
Larger Size of the Aircraft Reduces Unit Cost CRJ to Q400 and 75 seat jets One family of new technology / low unit cost Cost per Seat narrowbody equipment New generation aircraft offer seat cost improvement at similar trip cost 763/333 to 777/787 Cost per Trip 2013 INVESTOR DAY 31
Slide 69: Building a Resilient Network & Fleet for the Future
Building a Resilient Network & Fleet for the Future Grow Revenues • Expand the profitable international network • Become a serious player in the USA sixth freedom market • Position Toronto Pearson (YYZ) as a global hub • Leverage Air Canada rouge in leisure markets • Enhance premium revenues through
Slide 70: 2013 Investor Day
2013 INVESTOR DAY June 10, 2013 Sheraton Gateway Hotel Toronto International Airport Terminal 3
Slide 71: Focused on Improving On-Time Performance, Reliability, Customer Service and Profitability
Focused on Improving On-Time Performance, Reliability, Customer Service and Sustainable Profitability Klaus Goersch Executive Vice President & Chief Operating Officer 2013 INVESTOR DAY 2
Slide 72: Our Objectives
Our Objectives • Safety is foundational in everything we do • Improve operational statistics to be in the top quartile of North American Major Carriers • Reduce operating expense • Redesign the organizational structure to reduce layers • Renegotiate contracts with major maintenance vendors and OEMs
Slide 73: Safety
SAFETY 2013 INVESTOR DAY 4
Slide 74: Safety
Safety • Safety is foundational – Strong reporting culture and with tools and processes to validate data – Renewal of IOSA registration, “no findings; no observations” for 5th consecutive time • Safe operations through strong SOPs – Reduction in employee injuries and ground damage to aircraft and ot
Slide 75: Improving Operating Performance
IMPROVING OPERATING PERFORMANCE 2013 INVESTOR DAY 6
Slide 76: Circle of Life for a Flight
Circle of Life for a Flight Improved start up Improved aircraft Improved departures readiness Improved Efficiency Reliable MTC Improved activity arrivals Fewer Improved cancelled baggage flights delivery 2013 INVESTOR DAY 7
Slide 77: On Time Performance Initiatives
On Time Performance Initiatives • Boarding pass checks • Detailed roadmaps for each branch • Renewed focus on start up • Realigned Station resources • “Work Together” program • Updated block time calculation methodology • Reduced minimum turnaround time • Making more aircraft available to fly the sc
Slide 78: Improving Operational Statistics: On-time Performance in Past 13 Months
Improving Operational Statistics On-time Performance in Past 13 Months 2013 INVESTOR DAY 9
Slide 79: Other Performance Measures Improving
Other Performance Measures Improving 2013 INVESTOR DAY 10
Slide 80: Moving Forward We are on Track
Moving Forward We are on Track Arrival targets for the remainder of the year continue to be aggressive aiming for the 1st quartile 2013 INVESTOR DAY 11
Slide 81: Strong Performance Against Industry
Strong Performance Against Industry Apr 19 - Apr 25 Apr 26 - May 02 May 03 - May 09 May 10 - May 16 May 17 - May 23 May 24 - May 30 Arrivals Arrivals Arrivals Arrivals Arrivals Arrivals @14 @14 @14 @14 @14 @14 LEGEND ACM 87.0% 9E 89.4% ACM 93.2% DL 91.5% OO 84.8% DL 89.2% 9E - Pinnacle Airlines WS 8
Slide 82: Reducing Operating Expense and Improving Customer Experience
REDUCING OPERATING EXPENSE AND IMPROVING CUSTOMER EXPERIENCE 2013 INVESTOR DAY 13
Slide 83: Reduce Operating Expenses and Improve Productivity
Reduce Operating Expenses and Improve Productivity • Improve crew and aircraft scheduling parameters to enhance crew productivity • Several maintenance initiatives underway to improve aircraft reliability and to reduce out-of- service costs and customer interrupted trip cost • Applied to Transport C
Slide 84: Reduce Operating Expenses and Improve Productivity
Reduce Operating Expenses and Improve Productivity • New fuel initiatives to reduce consumption – In collaboration with IBM, Watson and Simon, new route optimization that is estimated to reduce 6M kilos of fuel annually, or about $7M – Increased engine compressor washes estimated to save 4.6M kilos
Slide 85: Reduce Operating Expenses and Improve Productivity
Reduce Operating Expenses and Improve Productivity • We have negotiated new, more cost effective maintenance component contracts for our entire fleet • Currently in negotiation with providers to further reduce our engine maintenance cost and enter into a long term power by the hour program for the m
Slide 86: Reduce Operating Expenses and Improve Productivity
Reduce Operating Expenses and Improve Productivity • Flattened the organization by eliminating a senior vice president in operations • Streamlined reporting lines • Consolidated crew scheduling into one department • Continuing to review the organization to further eliminate duplication and gain furt
Slide 87: Improving the Customer Experience
Improving the Customer Experience • Improvements in on-time performance and reliability • Streamlining the boarding process • Improved international connections through our major hubs by not having to re-claim luggage • Improving our on-board offerings and consistency of service especially on our lo
Slide 88: Our Path Forward
Our Path Forward • Operational excellence • Engaged employees • Deliver the best product and drive lower cost 2013 INVESTOR DAY 19
Slide 89: 2013 Investor Day
2013 INVESTOR DAY June 10, 2013 Sheraton Gateway Hotel Toronto International Airport Terminal 3
Slide 90: Focused on Improving ROIC and Sustainable Profitability
Focused on Improving ROIC and Sustainable Profitability Michael Rousseau Executive Vice President & Chief Financial Officer 2013 INVESTOR DAY 2
Slide 91: Our Objectives
Our Objectives • EBITDAR, adjusted net income and ROIC improvement – Execute strategic initiatives – Lower cost structure – Targeted deployment of growth capital • Stronger balance sheet – Lower risk profile – New financing arrangements • Create shareholder value – Increase earnings and ROIC leading
Slide 92: Lower Cost Structure: Air Canada rouge
LOWER COST STRUCTURE Air Canada rouge Lower CASM expected due to increased number of seats, lower flight and cabin crew wages, competitive work rules and lower overhead costs A319 CASM reduction* Boeing 767 CASM reduction* -21% -29% Mainline Air Canada Mainline Air Canada rouge rouge 2013 INVESTOR D
Slide 93: Lower Cost Structure: Boeing 787s and 777s
LOWER COST STRUCTURE Boeing 787s and 777s • Boeing 787 CASM reduction expected due to improved fuel efficiency, lower maintenance costs and increased number of seats • Boeing 777 CASM reduction expected due to increased number of seats Fuel and Maintenance CASM New Boeing 777s CASM reduction* reduct
Slide 94: Transfer of Embraer Aircraft to Lower Cost Regional Provider
LOWER COST STRUCTURE Transfer of Embraer 175 Aircraft to Lower Cost Regional Provider Embraer 175 CASM reduction* Embraer 175 CASM reduction expected due to lower wages and -11% benefits and lower net overhead Mainline Sky Regional 2013 INVESTOR DAY * Estimates 6
Slide 95: Realizing Significant Cost Savings Through New Maintenance Agreements
LOWER COST STRUCTURE Realizing Significant Cost Savings Through New Maintenance Agreements C$ (millions) -7% • Annual benefits of $143M 143 represent the value of pre- 681 and post-Aveos rates 94 632 • Expected revenue benefits of increased aircraft availability from improved turnaround times is est
Slide 96: 1:50 Flight Attendant Rule
LOWER COST STRUCTURE 1:50 Flight Attendant Rule • Proposed change to go to 1:50 seats rather than Expected Savings 1:40 passengers $19M • Expected savings of $19M at mainline narrowbody – Full impact at mainline in 2014 $10M • Expected savings of $10M at Air Canada rouge – Impact at Air Canada rouge
Slide 97: Other Strategic Initiatives
LOWER COST STRUCTURE Other Strategic Initiatives • Air Canada is aggressively pursuing its claim for a meaningful reduction in the mark-up rate under the Jazz CPA – Arbitrator’s decision is expected by the end of 2013 • Procurement initiatives – Since mid-2010, achieved annual savings of 12%, repres
Slide 98: Other Strategic Initiatives cont'd
LOWER COST STRUCTURE Other Strategic Initiatives cont’d • Business transformation initiatives - Expected run-rate benefits of $55M to $75M annually Initiatives include: – Improving productivity in Call Centres – Enhancing supply chain & maintenance planning processes – Maximizing check-in automation
Slide 99: Lower Cost Structure
Lower Cost Structure • If implemented today, cost reduction initiatives would be expected to decrease CASM by an estimated 15% Cents CDN -15% 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 1.5 1.0 0.5 0.0 2012 AC CASM High-density Boeing 787’s Air Canada rouge Other Expected Boeing 777 AC CASM* 2013 I
Slide 100: Tactical Approach to Cost Reduction
Tactical Approach to Cost Reduction • Implemented a $50M cost reduction program to support earnings growth in short term – Company-wide hiring freeze – Manpower cost reductions • promoting undertime • providing leave of absences • maintaining strict control on overtime – Termination of consultant ar
Slide 101: Targeting Return on Invested Capital to Exceed Cost of Capital
Targeting Return on Invested Capital to Exceed Cost of Capital Roadmap • Increase return on 10-13% invested capital through strategic investments in 7.7% aircraft and technology, lower CASM and debt reduction • Reduce weighted average cost of capital – 9.6% (pre-tax) – 7.6% (after tax) 2012 actual 2
Slide 102: Stronger Balance Sheet
STRONGER BALANCE SHEET Stronger Balance Sheet Our Objectives • Maintain at least $1.7B in unrestricted cash • Reduce net debt • Eliminate defined benefit pension plan deficit 2013 INVESTOR DAY 14
Slide 103: Maintaining Strong Liquidity Position
STRONGER BALANCE SHEET Maintaining Strong Liquidity Position • Liquidity position well above target minimum level of $1.7B C$ (billions) % of trailing 2007 2008 2009 2010 2011 2012 12-month 12% 9% 14% 20% 18% 17% operating revenues 2013 INVESTOR DAY 15
Slide 104: Solid Progress on Net Debt Reduction
STRONGER BALANCE SHEET Solid Progress on Net Debt Reduction • Reduction accomplished through free cash flow C$ (millions) Adjusted net debt down almost $1.5B from 2009 Dec 31 Dec 31 Dec 31 Dec 31 Mar 31 2009 2010 2011 2012 2013 2013 INVESTOR DAY • Operating leases have been capitalized using 7x airc
Slide 105: Managing Financial Leverage
STRONGER BALANCE SHEET Managing Financial Leverage Net debt to EBITDAR ratio* (Number of times) 8.0 6.8 4.1 3.5 3.7 3.1 Target ceiling 3.5 times 2007 1 2008 2 2009 3 2010 4 2011 5 2012 6 *Reflects adjusted net debt to trailing 12-month normalized EBITDAR ratio 2013 INVESTOR DAY 17
Slide 106: Schedule of Principal Repayment on Debt Is Manageable
STRONGER BALANCE SHEET Schedule of Principal Repayment on Debt is Manageable C$ (millions) 485 412 361 ROY 2013 1 2014 2 2015 3 • Assumes potential refinancing • Includes principal repayments from EETC financing • U.S. dollar amounts are converted using the March 31, 2013 closing rate of CDN $1.016
Slide 107: Concrete Actions Taken to Reduce Pension Deficit
STRONGER BALANCE SHEET Concrete Actions Taken to Reduce Pension Deficit and Manage Future Risk Profile • Elimination of 90% of company sponsored defined benefit pension plan accruals for new hires • Benefit changes to all defined benefit pension plans resulting in approximately $1.1B reduction in so
Slide 108: Concrete Actions Taken to Reduce Pension Deficit
STRONGER BALANCE SHEET Concrete Actions Taken to Reduce Pension Deficit and Manage Future Risk Profile Interest Rate Sensitivity • Discount rate of 3.0% at January 1, 2013, compared to 4.5% at five years previous and 6.2% at ten years previous • Increase of 1% in discount rate causes a decrease of $
Slide 109: Plausible Conditions Could Have Solvency Deficit Eliminated No Later Than 2020
STRONGER BALANCE SHEET Assuming Funding Relief Adopted, Plausible Conditions (discount rate, return on assets) Could Have Solvency Deficit Eliminated No Later Than 2020 - Reflects funding relief to end of 2020 - Assumed return on asset of 6.7% per year $4.0 - Assumed discount rate of 3.0% on January
Slide 110: Pension – Solvency Position Update
STRONGER BALANCE SHEET Pension – Solvency Position Update Solvency C$ (millions) Deficit Estimated solvency deficit at January 1, 2013 $3,660 Interest on deficit + solvency incremental cost 110 Past service contributions — YTD May 31, 2013 (90) Estimated impact of economic factors to May 31, 2013 21
Slide 111: New Financing Arrangements
STRONGER BALANCE SHEET New Financing Arrangements • Implementation of Cape Town Convention (CTC) in Canada provides: – New and attractive source of aircraft financing in the U.S. markets – Level playing field with U.S. airlines • Successfully concluded a private offering of enhanced trust certificat
Slide 112: New Financing Arrangements cont'd
STRONGER BALANCE SHEET New Financing Arrangements cont’d • Offering comprised of three tranches of certificates (with the A tranche rated investment grade) with a combined face value of US$715M and blended coupon rate for all tranches of 4.7% for a maximum term of 12 years • Positive development for
Slide 113: Roadmap to Sustained Profitability and Investor Value Proposition
Roadmap to Sustained Profitability and Investor Value Proposition • Execute strategic and tactical initiatives to reduce CASM • Strengthen balance sheet and reduce overall risk profile by aggressively managing leverage • Increase return on invested capital through significant investment in new aircr