Air Canada · TSX:AC
Air Canada — 11th Annual Wolfe Research Global Transportation Conference 2018
31 slides from Air Canada's conference presentation, May 22, 2018
Slide 1: 11th Annual Global Transportation Conference
at the 11th Annual Global Transportation Conference Michael Rousseau Executive Vice President & Chief Financial Officer New York May 22, 2018
Slide 2: Caution Regarding Forward-Looking Information
Caution Regarding Forward-Looking Information This presentation 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: Path to Global Champion
Path to Global Champion Financial Stability Air Canada Loyalty Fleet Rouge • Pension • Modern WB fleet • Improved solvency • Competitive customer surplus • Seat densification cost structure experience in leisure • Record financial markets Regional • Significant • Swing capacity results Feed financia
Slide 4: Materially Reduced Risk Profile
Materially Reduced Risk Profile • Network diversification • Fleet flexibility • Pool of unencumbered assets • Long-term labour contracts • Fully-funded pension plans • Fuel and foreign exchange programs • Lower leverage and cost of debt, and access to several financing sources • Significantly higher
Slide 5: Four Priorities
Four Priorities 5
Slide 6: 1 International growth
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 6
Slide 7: Growth Directed to International Markets
Growth Directed to International Markets • Over 90% of growth in last several years has been directed at U.S. and international markets • On a system basis, capacity increased 40% over last three years • Broadening footprint with commercial alliances and leveraging A++ revenue sharing joint venture
Slide 8: Air Canada Rouge has Been a Major Success
Air Canada Rouge has Been a Major Success Founded: July 2013 Lower CASM Aircraft Destinations: 75 - Seat Density Fleet: 53 Aircraft (Summer 2018) - Ownership Costs - Labour Costs Hubs: Toronto, Montreal, Vancouver Summer 2018 Winter 2018 Alternating between Atlantic (summer) and Sun (winter) is a ma
Slide 9: Growth of Traffic Transiting Canada to/from the U.S. (6th Freedom)
Growth of Traffic Transiting Canada to/from the U.S. (6th Freedom) Growing market share to 2% would represent $930M of incremental annual revenue AC 6th Freedom Passengers Carried Market Share of International to/from U.S. Traffic to/from U.S. 41.9% + 101% 11.1% 10.9% 7.3% 6.9% 5.2% 3.2% 3.0% 2.4% 2
Slide 10: Cost & revenue transformation
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 10
Slide 11: Strong Revenue Growth Continues
Strong Revenue Growth Continues CAGR • Yields expected to improve (in millions $) +7.0% o Maturity of new routes 16,252 o Stage length growth rate declines 13,868 14,677 o Passenger mix impact diminishes 13,272 12,382 o Focus on higher-yielding corporate customer o Effective yield management through
Slide 12: Improving Margins through Premium Products
Improving Margins through Premium Products • International growth strategy is fueled by premium traffic • Air Canada Signature Class • Premium products (Air Canada Signature Suite, Maple Leaf Lounges, Priority check-in areas, concierge, priority boarding, quality in-flight cuisine) enhance the exper
Slide 13: Investments in Technology Driving Future Benefits
Investments in Technology Driving Future Benefits Passenger Service System Fuel Management System Branded Fares Principal IT system supporting Petroleum administration, reservations and departure Re-introducing branded fares inventory control and control operations and fixed buy-across expenditures
Slide 14: New Boeing 737-8 MAX Aircraft to Provide 11% CASM Reduction
New Boeing 737-8 MAX Aircraft to Provide 11% CASM Reduction versus Air Canada’s A320 Aircraft -11% A320 CASM Fuel Crew Maintenance Airport User Ownership Boeing 737-8 Fees & Other CASM 14
Slide 15: New C-Series CS300 Aircraft to Provide 12% CASM Reduction
New C-Series CS300 Aircraft to Provide 12% CASM Reduction versus Air Canada’s Embraer 190 Aircraft -12% E190 CASM Fuel Crew Maintenance Airport User Ownership CS300 CASM Fees & Other 15
Slide 16: Cost Reduction Program
Cost Reduction Program Adjusted CASM declined 6.1% over the last four years • Company-wide initiatives – savings of $90 million in 2017 • Procurement initiatives – savings of $120 million over life of agreements • Jazz CPA compensation declines $55 million per year from 2021 • New Cost Transformatio
Slide 17: 3 Customer engagement
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 17
Slide 18: Strengthening Customer Loyalty through Digital Experience
Strengthening Customer Loyalty through Digital Experience Enhanced Customer Redesign & optimize Personalize customer Relationship Management digital channels content, offers & services system Redesign & Create a single view optimize our of all customers Monetize customer data digital channels (curre
Slide 19: Launch of Own Loyalty Program
Launch of Own Loyalty Program Expect to unlock significant value through the launch of loyalty program – Net present value of $2.0 billion to $2.5 billion* (on a pre-tax basis) over a 15-year period – RFP for credit card partner underway – RFP for technology platform partner underway – Program desig
Slide 20: Delivering Best Airline in North America
Delivering Best Airline in North America Numerous industry awards: – Best Airline in North America (Skytrax) – Four-Star ranking (Skytrax) – Best Long-Haul Airline in the Americas (AirlineRatings.com) 20
Slide 21: 4 Culture change
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 21
Slide 22: Long-Term Collective Agreements with Unions
Long-Term Collective Agreements with Unions Long-term collective bargaining agreements provide: 1. Cost certainty 2. Significantly enhanced efficiency 3. Team engagement 4. Additional flexibility to respond to competitive threats and internal business challenges 5. Solid platform from which to inves
Slide 23: Fostering Positive Culture Change with Engaged Workforce
Fostering Positive Culture Change with Engaged Workforce Employee surveys and multiple awards demonstrate marked improvements in employee culture and engagement as Air Canada is voted one of: – Canada’s 15 Top Employers for Canadians Over 40 – 50 Most Engaged Workplaces in North America – Canada’s T
Slide 24: Financial Targets
Financial Targets 24
Slide 25: More Ambitious Targets for the Next Level of Performance Improvement
More Ambitious Targets for the Next Level of Performance Improvement 2018-2020 Targets (1) Annual EBITDAR Margin 17% - 20% Annual ROIC 13% - 16% Free Cash Flow (Cumulative over the period) $2.0-$3.0 billion Leverage Ratio (2) 1.2 by end of 2020 (1) As reaffirmed on April 30, 2018 (2) Air Canada cont
Slide 26: Expect Continued Strong EBITDAR Margins
Expect Continued Strong EBITDAR Margins • Expect revenue growth to continue Continue to expect – Leveraging unique competitive advantages and fleet investments annual EBITDAR margin – Air Canada Rouge of 17% to 20% over – Revenue enhancement initiatives 2018 to 2020 period (1) – Revenue diversificat
Slide 27: Expect Improvement in ROIC and Growth in Free Cash Flow
Expect Improvement in ROIC and Growth in Free Cash Flow Free Cash − Plan on using excess cash to purchase new aircraft to Flow effectively reduce gross debt − Will continue to leverage Normal Course Issuer Bid (NCIB) opportunities − Will consider other uses of cash as plan matures − Continue to expe
Slide 28: Projected Expenditures
Projected Expenditures(1) Remainder of $ millions 2019 2020 2021 2022 2018 Projected committed $969 $1,491 $1,346 $670 $666 expenditures Projected planned but 175 395 294 347 302 uncommitted expenditures Projected planned but uncommitted capitalized 108 173 175 56 95 maintenance(2) Total projected $
Slide 29: Lower Leverage Supports Investment Grade Credit Ratings
Lower Leverage Supports Investment Grade Credit Ratings Continue to expect projected • Creating shareholder value by lowering gross debt and decline in leverage ratio to leverage remains top priority followed by shareholder 1.2 by the end of 2020 (1) to distributions via share buybacks support drive
Slide 30: Air Canada – A Global Champion
Air Canada – A Global Champion • Proven strategy • Sustainable business model • Improved financial targets • De-risked the airline • Many opportunities ahead, including: – New more efficient narrow-body aircraft – Launch of loyalty program – RFP for new credit card partner – New Passenger Service Sy
Slide 31: Thank you
Thank you aircanada.com
Air Canada — 11th Annual Wolfe Research Global Transportation Conference 2018 on 6ix